Keppel DC REIT - OCBC Investment 2015-12-11: Proxy to data centre growth prospects

Keppel DC REIT - OCBC Investment 2015-12-11: Proxy to data centre growth prospects KEPPEL DC REIT AJBU.SI 

Keppel DC REIT: Proxy to data centre growth prospects 

 Pure-play exposure to data centres 
 Ramping up its inorganic growth 
 FY16F distribution yield of 7.0% 

Pure-play exposure to fast growing industry 

  • We expect Keppel DC REIT (KDCREIT) to be a key beneficiary of the proliferation of ‘big data’ and cloud computing trends. 
  • Being the first data centre REIT to be listed in Asia, KDCREIT offers investors a unique pure-play exposure to this fast growing industry, in our view. 

Embarking on inorganic growth opportunities 

  • Although KDCREIT only had its IPO on SGX-ST in Dec last year, management has been proactively sourcing for accretive acquisition opportunities to fuel its growth. 
  • On 10 Aug this year, KDCREIT completed the acquisition of a data centre, Intellicentre 2, in Australia for a purchase consideration of A$43.3m, which translates into an estimated NPI yield of 7.2%. Thereafter, KDCREIT proposed to acquire its first data centre in Germany for EUR84m. 
  • Looking ahead, management has guided that it will continue to look for acquisition opportunities from both its right-of-first-refusal (ROFR) assets pipeline, as well as through third-party acquisitions. This would be supported by Keppel DC REIT’s healthy gearing ratio of 30.1%, as at 30 Sep 2015. 

BUY with S$1.24 fair value 

  • We like KDCREIT for its strong positioning within the data centre industry, as well as its long WALE (8.9 years as at 30 Sep 2015) and prudent capital management. 
  • It has hedged 90% of its total borrowings and hedged 100% of its forecasted foreign-sourced distribution up till 1H17. 
  • Valuations are also attractive, with the stock trading at FY16F distribution yield of 7.0%. 
  • Maintain BUY and S$1.24 fair value estimate on KDCREIT.

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2015-12-11
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.24 Same 1.24