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

KEPPEL DC REIT AJBU.SI

Keppel DC REIT (KDCREIT SP) - Acquisition driven growth

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.

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.

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.

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 | http://www.dbsvickers.com/ 2017-04-18

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.300 Same 1.300