KEPPEL DC REIT
AJBU.SI
Keppel DC REIT - Reaffirming Our Positive View
- APAC data centre revenues to double
- Room for more acquisitions
- Raise FV and reiterate BUY
Robust demand drivers
- Looking ahead to 2018, we believe outlook for the data centre industry remains largely sanguine, especially for the APAC region. Keppel DC REIT (KDCREIT) is poised to be a beneficiary of this trend, in our view, given its significant exposure to the region.
- According to Frost & Sullivan, revenue for the APAC data centre market is projected to double from US$16b this year to US$32b by 2022. Singapore is a key data centre hub in the region. Encouragingly, supply pressures are easing.
- Based on a CBRE report, the new supply entering the Singapore market over the next 24 months is expected to be more moderate as compared to the past two years.
- We expect demand to remain robust, underpinned by secular growth trends such as cloud computing, e-commerce and big data requirements, and supported by Singapore’s infrastructure and Smart Nation initiatives.
On track to meet AUM target of S$2b by 2018
- KDCREIT’s most recent acquisition was the B10 Data Centre in Dublin, Ireland, for an agreed value of EUR66.0m (including a 999-year leasehold interest). Including this acquisition and its maincubes data centre in Germany which is currently under construction, we estimate that KDCREIT’s AUM is now ~S$1.7b, which is on track to meet management’s S$2b AUM target by 2018.
- Our back-of-the-envelope calculation suggests that should KDCREIT finance S$300m worth of acquisitions in FY18 using a debt-to-equity mix of 25%/75%, our annualised DPU accretion works out to be 2.9%. This is based on the following assumptions:
- NPI yield of 7.5%;
- cost of debt of 2.5%;
- effective tax rate of 15%;
- new unit issuance price of S$1.33;
- acquisition fees payable in units.
- Gearing ratio would be 35.8%.
Maintain BUY
- Factoring in the Dublin acquisition and adjusting our cost of equity assumption downwards from 8.1% to 7.8%, we raise our FY18F DPU forecast by 2.6% and bump up our fair value estimate from S$1.39 to S$1.50.
- Although FY18F P/B ratio of 1.47x may appear steep, this still compares favourably to other global listed data centre REITs (~2.4x – 5.7x forward P/B), and comes in at only a slight premium to Mapletree Industrial Trust (1.41x FY18F P/B), which owns more traditional industrial assets.
- Maintain BUY.
Wong Teck Ching Andy CFA
OCBC Investment
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http://www.ocbcresearch.com/
2017-11-20
OCBC Investment
SGX Stock
Analyst Report
1.50
Up
1.390
