Keppel DC REIT downgraded by CGS-CIMB on high valuations

Singapore one dollar bill

CGS-CIMB downgraded Keppel DC REIT to Hold from Add, saying the positive industry fundamentals and potential catalysts are fully priced in.

“While we are still positive on the data centre industry due to its future-ready characteristics, we think investors could look for a lower entry point,” the brokerage said in a note Tuesday.

It pointed to high valuations for the unit, at 1.6 times price-to-book value and a 4.7 percent yield, compared with its historical average of 1.3 times and 5.8 percent, respectively.

On Tuesday, Keppel DC REIT reported second quarter net property income rose 13.6 percent on-year to S$43.26 million, getting a boost from the acquisitions of maincubes Data Centre in Offenbach am Main, Germany, and Keppel DC Singapore 5 in 2018.

CGS-CIMB said the second-quarter distribution per unit (DPU) of 1.93 Singapore cents and first-half DPU of 3.85 Singapore cents were in line with its forecasts, forming 24 percent and 48 percent of full-year forecasts respectively.

It noted portfolio occupancy remained at 93.2 percent in the second quarter, with the major vacancies at the SGP5, Basis Bay and the Dublin 1 and 2 data center properties. But it added, management indicated Dublin 2 occupancy is expected to increase to 100 percent once it completes its power upgrade and fit-out works in the second half of this year.

CGS-CIMB kept its target price unchanged at S$1.67.

The unit price was down 0.58 percent at S$1.70 at 2:37 P.M. SGT.

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