Keppel DC REIT upgraded to Buy by DBS on China acquisition

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DBS upgraded Keppel DC REIT to Buy from Hold, citing “surprise acquisitions” after the REIT announced it would buy Guangdong Data Centre and that it had the right-of-first-refusal for five other data centers in the same campus.

DBS set its target price for Keppel DC REIT at S$3.00, up from S$2.80.

“At the current share price and its relatively low WACC [weighted average cost of capital], acquisitions should be highly accretive,” DBS said in a note Tuesday.

On Monday, Keppel DC REIT said entered a deal to acquire Guangdong Data Centre for 635.9 million yuan, or around S$132 million, from Guangdong Bluesea Data Development (Bluesea) and its parent company, Guangdong Bluesea Mobile Development.

DBS said it expected the REIT’s distribution per unit (DPU) to grow by a compound annual growth rate of around 8 percent through fiscal 2023, driven by recent acquisitions, organic growth from asset enhancement initiatives (AEIs) and developments, and potential further acquisitions by the end of fiscal 2022. The bank said it has assumed the REIT would make S$300 million in acquisitions in the second half of fiscal 2022, in addition to its M1 network assets investment.

The market dynamics for data centers will support continued growth, DBS said.

“The continued demand for data center capacity amid the prolonged Covid-19 outbreak and the rise of the digital economy would support higher occupancies and revenues across its portfolio in the foreseeable future,” DBS said.

But the bank noted the REIT may face stiffer competition from international operators and funds also seeking assets and tenants.

The REIT’s unit was trading at S$2.59 at 10:50 a.m. SGT, up 1.17 percent.