Keppel DC REIT target boosted by Daiwa on London Data Centre acquisition

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Daiwa boosted its earnings forecasts and target price for Keppel DC REIT on its planned acquisition of the London Data Centre, but noted the deal is marginally accretive to distribution per unit (DPU), citing the debt financing and triple-net lease.

Keppel DC REIT entered a deal to acquire a data center located in the Greater London area in the U.K. for 57 million British pounds or around S$105.5 million, from a Fiera Real Estate/SEDCO Capital joint venture, the Singapore-listed REIT said in a filing to SGX in late December.

The asset, located in Bracknell, is on a 4.7 acre land plot and has three interlinked two-storey buildings with data center space and ancillary office space, the REIT said. The property will be named London Data Centre, the filing said.

London Data Centre is fully leased on an existing triple-net lease to a leading telecommunications company until 2039, Keppel DC REIT said. Under a triple-net lease, the tenant pays property expenses including real estate taxes, insurance, maintenance and utilities.

Daiwa said the London Data Centre will be a stable income-producing asset, with minimal downside risks due to a strong anchor tenancy and a long lease of 17 years as well as potential value-added opportunities for the ancillary office space.

The investment bank increased its 2022-23 gross revenue forecasts by 1.1 percent to 1.3 percent, and its DPU forecasts by 0.5 percent to 0.9 percent, according to a note published on 29 December.

The target price was boosted to S$2.93 from S$2.80.

“We reaffirm our Buy (1) rating, as we believe the pipeline under Keppel Group (eg, Keppel DC Sydney 1) and accretive third-party acquisitions will be positive share-price catalysts, with a possible annual deal size of S$150 million-S$300 million,” Daiwa said.

Keppel DC REIT is the top Singapore REIT (S-REIT) sector pick on its right of first refusal (ROFR) on Guangdong datacenter and the rising demand for data centers in Asia, Daiwa said.

Units of Keppel DC REIT ended Tuesday down 0.81 percent at S$2.45.