Keppel DC REIT (KDCREIT SP) - DBS Research 2017-04-18: Acquisition Driven Growth

Keppel DC REIT (KDCREIT SP) - DBS Vickers 2017-04-18: Acquisition driven growth KEPPEL DC REIT AJBU.SI

Keppel DC REIT (KDCREIT SP) - Acquisition driven growth

  • Top line up 30.1%, boosted by acquisitions.
  • Adjusted DPU up 4.2%, in line.
  • More acquisitions on the horizon.
  • Maintain BUY.

What’s New 

Top line boosted by acquisitions. 

  • Gross Revenue increased by 30.1% or S$7.4m y-o-y to S$32.2m in 1Q17, mainly contributed by the acquisitions of KDC SGP 3 (January 2017), Milan DC (October 2016) and Cardiff DC (October 2016). Excluding these, we estimate 1Q17 revenue to be flat, up approximately 0.6% y-o-y to c.S$25m. 
  • DPU increased to 1.89 Scts from 1.67 Scts y-o-y, mainly due to an one-off item arising from the capital expenditure set aside in capex reserves as a result of the delayed completion of KDC SGP3 on 19 January 2017 when the vendor had agreed to pass all obligations to the REIT as if completion had occurred on 1 December 2016. 
  • This capital distribution of S$1.7m for December 2016 was equivalent to 0.15 Scts per unit – stripping out which, 1Q17 DPU would have been 1.74 Scts, up 4.2% y-o-y, and representing 24.5% of our FY17 fullyear DPU forecast, in line.

Occupancy remains high. 

  • The REIT maintains a healthy portfolio occupancy 95.1% and a long WALE 9.2 years.
  • With the exception of Keppel DC SGP 1 and Keppel DC Dublin 1 that are 87.3% and 55.9% occupied respectively, all other properties are at full occupancy. 
  • One major tenancy expiring in a co-location data centre in Singapore in 2017 was renewed over the quarter for five years, leaving only 10.9% of the portfolio NLA due in 2017.

Debt headroom to fund future acquisitions. 

  • Aggregate leverage remained low at 27.9%, leaving debt headroom for future growth. Cost of debt is low at 2.2% p.a. and average debt tenure is 2.9 years. 
  • No debt is due in 2017.

Our View 

  • We believe more acquisitions are on the horizon, which should offset the otherwise weak rental growth in its Singapore portfolio. 
  • The stock offers a forward yield of 5.8% and a price upside potential of 5.7%. Maintain BUY. (TP: S$1.30)

Singapore Research DBS Vickers | Derek TAN DBS Vickers | 2017-04-18
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.300 Same 1.300