Keppel DC REIT - DBS Research 2016-07-19: Awaiting the T27 catalyst

KEPPEL DC REIT AJBU.SI

Keppel DC REIT - Awaiting the T27 catalyst

2Q16 results in line; DPU of 1.67 Scts ahead of IPO forecasts.
Operational outlook stable; rental reversionary trends in Singapore to moderate on the back of increased competition.
Maintain BUY, revised TP to S$1.22.

Keppel DC REIT's share price has remained on a firm uptrend on the back of
1. demand for liquidity in the S-REIT sector, and
2. potential execution of acquisitions which is expected to boost distributions and NAV.
Maintain BUY with a revised TP of S$1.22 after rolling forward valuations.

With foreign-sourced distributions fully hedged until 2H17, and 87% of borrowings hedged into fixed rate debt, Keppel DC REIT stands out for its stable and highly visible earnings profile.
Earnings catalyst will come from the acquisition of T27, which we believe will occur in 3Q16 and be well anticipated by investors. We have assumed S$200m of acquisitions in our forecasts, to be completed in 3Q16.
Given revised forecasts, our estimates are cut by 8-19%. We have also assumed a S$110m equity fund-raising exercise to fund this deal.

DPU of 1.67 Scts is 0.9% above IPO forecasts, driven mainly from acquisitions.
The REIT is expected to pay a one-off tax rebate to the tune of S$2m to investors in 3Q16 after a favourable tax ruling.
Underlying operational performance remained stable.

We currently have a BUY recommendation, with a DCF-backed TP of S$1.22.
The stock offers attractive FY16F-FY17F yields of c.6.3% for FY17F-18F and upside will hinge on better-than-expected returns from acquisitions, or higher occupancies at co-location properties.

Earlier-than-expected acquisition. An earlier-than-anticipated completion of the acquisition from sponsor will mean upside to our estimates.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-19

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.22 Up 1.14