
Keppel DC REIT - Proposed acquisition and preferential offering exercise
- One-off boost to DPU.
- Acquisition spree.
- Healthier balance sheet.
3Q16 results in-line with expectations
- Keppel DC REIT (KDCREIT) reported its 3Q16 results which met our expectations.
- Although gross revenue fell 12.0% YoY to S$22.7m, NPI grew 6.2% to S$22.7m. This was largely driven by a one-off refund of property tax for its Singapore properties, which also helped to boost its DPU by an additional 0.23 S cents/unit. Hence, 3Q16 DPU jumped 15.9% YoY to 1.90 S cents. If we exclude this one-off distributable income, KDCREIT’s adjusted DPU would have grown 1.8% YoY to 1.67 S cents.
- For 9M16, KDCREIT’s NPI rose 1.5% to S$66.0m and formed 75.3% of our full-year forecast, while DPU of 5.24 S cents represented an increase of 7.6% and accounted for 76.2% of our FY16 projection.
Continuing its inorganic growth strategy
- Following KDCREIT’s proposed acquisition of a data centre each in Milan and Cardiff in Aug and Oct this year, respectively, management has further continued its inorganic growth strategy by proposing to purchase a 90% interest in Keppel DC Singapore 3 (KDC SGP 3) from a JV between its sponsor Keppel T&T and Keppel Land Limited. This asset is built to high specifications and comes with an attractive initial NPI yield of 10.5%.
- The agreed purchase value is S$202.5m (total acquisition cost estimated to be S$210.6m), and would be funded wholly by a fully underwritten, pro-rata and non- renounceable preferential offering exercise. 242m new units would be offered to existing unitholders at an issue price of S$1.155, implying gross proceeds of S$279.5m.
- The balance of the net proceeds would be used to pare down its debt and/or fund future acquisitions and capex. This would strengthen KDCREIT’s balance sheet as we estimate its gearing ratio would be lowered to 27.8%.
Maintain BUY
- Taking these developments into account, we lower our FY16 DPU forecast by 8.3%, as the unit base will be enlarged before contribution from the KDC SGP 3 kicks in.
- Our FY17 DPU forecast is unchanged.
- Given the series of robust acquisitions which would enhance KDCREIT’s portfolio defensiveness (WALE increased) and its healthier balance sheet, we lower our cost of equity assumption from 8.3% to 8.0%. Correspondingly, our fair value estimate is raised to S$1.35 (previously S$1.30).
- Maintain BUY on KDCREIT.
Wong Teck Ching Andy CFA
OCBC Investment
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http://www.ocbcresearch.com/
2016-10-18
OCBC Investment
SGX Stock
Analyst Report
1.35
Up
1.300