Keppel DC REIT - OCBC Investment 2017-04-18: Inorganic Growth Sets In

Keppel DC REIT - OCBC Investment 2017-04-18: Inorganic growth sets in KEPPEL DC REIT AJBU.SI

Keppel DC REIT - Inorganic growth sets in

  • 1Q17 DPU up 13.2% YoY; one-off boost.
  • Occupancy improved QoQ to 95.1%.
  • Retain forecasts, BUY rating and FV.

1Q17 results in-line with expectations 

  • Keppel DC REIT (KDCREIT) reported its 1Q17 results which met our expectations. Gross revenue and NPI jumped 30.1% and 36.1% YoY to S$32.2m and S$28.8m, respectively, with the latter forming 25.1% of our FY17 forecast. This robust growth was underpinned largely by inorganic growth arising from the acquisitions of the 90% interest of KDC SGP 3 in Jan this year, Milan DC and Cardiff DC in Oct last year, but partially offset by lower rental income at KDC DUB 1 and a decline in variable income at its other two Singapore assets. 
  • DPU grew 13.2% YoY to 1.89 S cents and accounted for 25.8% of our full-year forecast despite an enlarged unit base as a result of its preferential offering exercise last year. This was partly boosted by a one-off capital distribution of approximately S$1.7m (~0.15 S cents per unit) for the month of Dec 2016 as the vendor of KDC SGP 3 had agreed that all the rights and obligations shall pass to KDCREIT as if completion had occurred on 1 Dec 2016. Actual completion of the acquisition only took place on 20 Jan 2017.
  • Excluding this one-off item, adjusted 1Q17 DPU would have grown 4.2% YoY to 1.74 S cents and constituted 23.8% of our FY17 projection.

Leasing progress remains on track 

  • During the analyst conference call, management provided an update on its four major leases which are due to expire in FY17. It has successfully renewed a key tenant at one of its Singapore co-location assets for five years, with the renewal rate marginally higher than the preceding rate. 
  • Agreement in principle has been secured for two of the major overseas leases, while negotiations are still ongoing for the last major tenant, which we believe is at KDCREIT’s Basis Bay Data Centre in Malaysia. 
  • Overall portfolio occupancy stood at 95.1% as at end- 1Q17, an improvement of 0.7 ppt QoQ.

Maintain BUY 

  • KDCREIT’s financial position remains healthy, with an aggregate leverage of 27.9%, as at 31 Mar 2017, slightly lower than the 28.3% figure as at end-FY16. 83% of its debt has been hedged, while interest coverage ratio is high at 11.6x. 
  • We retain our forecasts, BUY rating and S$1.39 fair value estimate on KDCREIT, supported by FY17F distribution yield of 6.0%.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-04-18
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.390 Same 1.390