Keppel DC REIT - Phillip Securities 2016-01-08: Exposure to growth in data requirements

Keppel DC REIT - Phillip Securities 2016-01-08: Exposure to growth in data requirements KEPPEL DC REIT AJBU.SI 

Keppel DC REIT - Exposure to growth in data requirements 

  • Keppel DC REIT (KDCREIT) was listed on the Mainboard of the Singapore Exchange on 12 December 2014, with an offering price of S$0.93 per unit. 
  • Investment strategy of investing in a portfolio of income-producing real estate for data centre use, with an initial focus on Asia-Pacific and Europe. 
  • Sponsor backing from Keppel Telecommunications & Transportation Limited (Keppel T&T) with Rights of First Refusal (ROFR) from both Keppel T&T and iseek Communications. 
  • Managed by Keppel DC REIT Management Pte Ltd, a wholly-owned subsidiary of Keppel T&T and Trustee is The Trust Company (Asia) Limited. The Manager collects a Base Fee pegged to the Deposited Property and a Performance Fee pegged to net property income. 
  • Started with eight properties at listing, subsequently acquired one in Australia. Currently nine properties in the portfolio. The data centre properties are located in Singapore (2), Malaysia (1), Australia (3), United Kingdom (1), Ireland (1) and Netherlands (1). 
  • Entered into a forward sale and purchase agreement to acquire a data centre in Germany, expected to be completed in 2018. 
  • Portfolio has a lettable area of 597,909 sq ft and value of S$1.02bn as at 30 September 2015. 
  • Distributions are made on a half-yearly basis. 100% payout until December 2016, thereafter at least 90%. 

Investment Thesis – Explosive growth in data requirements 

1. Growth in data creation and data storage needs. 

  • Total global data created is estimated to grow at a CAGR of 47.7% from 2013 to 2018F; Global internet protocol (IP) traffic is estimated to grow at a CAGR of 21.0%. 

2. Growth in cloud computing, e-commerce and online shopping. 

  • The rise in number of internet users will underpin the growth in cloud computing, e-commerce and online shopping. 

3. Increasing compliance and regulatory requirements on data security. 

  • Data storage has conflicting requirements of being secure, but accessible and retrievable at the same time. 
  • Regulators are also imposing additional requirements on data storage such as range and duration of storage. 
  • These factors set up the demand for professionally managed data centres. 

4. Continued trend of outsourcing of data centres. 

  • The proportion of outsourced data centre space in Asia-Pacific is projected to increase from 12.1% in 2013 to 38.5% in 2018. 
  • In Western Europe, this figure is projected to increase from 21.2% in 2013 to 42.2% in 2018. 

Investment Actions 

  • KDCREIT has a unique exposure to data centre properties, riding on the trend of growth in data centre requirements. 
  • We initiate coverage on KDCREIT with "Accumulate" rating and DDM valuation of S$1.13.

Richard Leow Phillip Securities | http://www.poems.com.sg/ 2016-01-08
Phillip Securities SGX Stock Analyst Report BUY Initiate BUY 1.13 Same 1.13