Keppel DC REIT - OCBC Investment 2016-04-14: Hiccup at Citadel 100, But Results Met Expectations

KEPPEL DC REIT AJBU.SI

Keppel DC REIT - HICCUP AT CITADEL 100, BUT RESULTS MET EXPECTATIONS

Keppel DC REIT (KDCREIT) reported its 1Q16 results which met our expectations.
Gross revenue declined 4.5% YoY to S$24.8m, underpinned by the absence of the initial recognition gain recorded in 1Q15 for the straight-lining of rental income for Citadel 100 Data Centre and a client downsizing its take-up at the same asset, coupled with the depreciation of the AUD and MYR against the SGD.
1Q16 revenue formed 23.5% of our FY16 forecast. However, DPU grew 3.7% YoY to 1.67 S cents, and this was driven by a higher NPI margin, net realised gains on derivatives and lower tax expenses. This constituted 24.1% of our full-year projection.

As highlighted earlier, KDCREIT was affected by a client downsizing its requirements at Citadel 100, which resulted in the asset’s occupancy slipping from 77.4% (as at 31 Dec 2015) to 52.8%.
Consequently, overall portfolio occupancy declined from 94.8% to 92.0%. However, this issue had already been flagged out by management during the last quarter.
KDCREIT is currently working on a few prospective tenants, which are expected to take up a substantial portion of the vacated space if negotiations prove to be successful.
Besides Citadel 100, KDCREIT is also actively working on securing renewals for major leases which are expiring for the remainder of this year and 2017.
It is close to finalising a five-year renewal for a lease expiring in 2H16 at one of its Singapore properties, while documentation has started for another Singapore lease expiring next year.

Looking ahead, management highlighted that it was cognisant that the higher upcoming supply in Singapore would likely cause rental reversions to moderate, but demand remained strong, especially within the internet enterprise and IT services trade sectors.
Given this in-line set of results, we opt to keep our forecasts intact.
Reiterate BUY and S$1.24 fair value on KDCREIT. The stock is trading with a 6.5% FY16F distribution yield.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-04-14

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.24 Same 1.24