CGS-CIMB upgraded Keppel DC REIT to Add from Hold after the trust completed the purchase of a data center in Germany without issuing new equity.
The brokerage said it had previously assumed that the purchase of maincubes DC, around 10 kilometres from Frankfurt, for 84 million euros would be funded by equity, but instead, the REIT used a newly issued 50 million euro five-year medium-term note and a five-year euro-floating term loan.
It estimated the total cost of debt at 80 basis points, while maincubes’ initial net property income (NPI) yield was estimated at 7.15 percent. That’s an estimated around 665 basis point yield spread against 10-year euro government bonds, CGS-CIMB said, adding that it was “attractive.”
It also said that it hadn’t expected the deal to be completed until the end of June and was now calculating in an additional three months’ worth of contributions from the data center.
The brokerage raised its fiscal 2018-20 dividend per unit (DPU) estimates by 3.5-5.9 percent and said it projected a total return of 11.4 percent on the unit, comprising 5.7 percent upside and 5.7 percent 2018 yield.
It raised its target price to S$1.52 from S$1.44.
“We like KDCREIT for its exposure to positive fundamentals of data centres as well as acquisitive growth,” it said.
The unit was flat at S$1.43 on Tuesday at 3:34 P.M. SGT.