In this episode, Phillip Securities Research's analyst, Natalie Ong, reports on Keppel DC REIT - Earnings cushioned by recent investments.
1. 1Q22 DPU of 2.466 Scts (+0.2% YoY) was in line, forming 24.9% of our FY22e forecast.
2. Contributions from investments in Eindhoven DC, Guangdong DC, London DC and NetCo bonds totalling c.S$386mn, and completion of AEI at DC1 and Intellicentre3 development were wiped out by higher electricity costs, provision for litigation and absence of rental support for KDC4.
3. Portfolio occupancy up 0.4ppts YoY, from 98.3% to 98.7%. This was due to higher occupancy at DUB1, which improved from 82.3% to 95.9%.
4. KDC initiated litigation against tenant DXC over revenue for provision of colocation services totaling S$14.8m for the 4-year period between 1 April 2021 and 31 March 2025. The affected occupancy is c.0.4% of KDC’s NLA as at 31 December 2021, and the impact arising from the disputed sum per annum is approximately 2.0% of FY21’s distributable income.
Maintain BUY on earnings stability and attractive entry price for future-ready DC assets. FY22-26e DPUs lowered by 3.7-6.1% due to provision for litigation and higher electricity costs, resulting in 8.2% reduction in our DDM-TP (COE 5.88%) from S$2.81 to S$2.58.
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