Keppel DC REIT - CIMB Research 2018-04-02: Completes Acquisition Of Maincubes; We Change Funding Assumptions

Keppel DC REIT - CIMB Research 2018-04-02: Completes Acquisition Of Maincubes; We Change Funding Assumptions KEPPEL DC REIT AJBU.SI

Keppel DC REIT - Completes Acquisition Of Maincubes; We Change Funding Assumptions

  • Keppel DC REIT (KDCREIT) has completed the acquisition of maincubes data centre (DC) in Offenbach am Main, 10km away from Frankfurt.
  • We lift our FY18F-20F DPU by 3.5-5.9% mainly because we had previously assumed that maincubes would be funded by equity, instead of debt.
  • With an initial NPI yield of 7.15%, we estimate that the acquisition offers an attractive yield spread of c.665bp against 10-year euro government bonds.
  • We estimate gearing to increase from 32.1% (as at end-FY17) to 37.3%. It implies that future acquisitions would be equity funded, and would be mildly accretive only.
  • Upgrade KDCREIT to ADD as we now project total returns in excess of 11%.



Completes acquisition of maincubes 

  • Keppel DC REIT (KDCREIT) has completed the acquisition of maincubes DC in Offenbach am Main, 10km away from Frankfurt. We had expected the acquisition to be completed in end-Jun; we now input an additional three months of contribution from this asset. 
  • Recall that maincubes represented KDCREIT’s second acquisition and was a forward purchase. The facility is backed by a 15-year triple-net lease with annual step-ups and three renewal options of five years each.


We change our funding assumptions 

  • We lift our FY18F-20F DPU by 3.5-5.9%, mainly because we had previously assumed that maincubes would be funded by equity, instead of debt. 
  • 10% of the facility’s price tag of €84m has already been paid. The remaining 90% would now be funded by a newly issued €50m 5-year medium-term note (MTN) which would bear interest at the prevailing 3-month EURIBOR plus 0.7% spread and a 5-year €-floating term loan. 
  • We estimate prevailing total cost of debt at 80bp; we estimate initial NPI yield of maincubes at 7.15%.


Gearing to increase to 37.3%; equity fund raising in 2018? 

  • We estimate gearing to increase from 32.1% (as at end-FY17) to 37.3%. Assuming 40% cap on gearing, we estimate that the REIT has c.S$80m debt headroom. 
  • Given that KDCREIT is striving to increase AUM to S$2bn (AUM now stands at S$1.65bn) by 2018, we believe that future acquisitions could be accompanied by equity fund raising, and that these acquisitions would be mildly accretive only.


Upgrade from Hold to ADD with higher DDM-TP

  • Reflecting its sticky following, KDCREIT has been a relative outperformer during the rate-hike cycle, gaining 0.7%. With the lift in DPU estimates, our DDM-based Target Price rises accordingly to S$1.52. 
  • We now project total returns of 11.4% (5.7% upside + 5.7% FY18F yield), and upgrade the stock from Hold to ADD. 
  • We like KDCREIT for its exposure to positive fundamentals of data centres as well as acquisitive growth. Downside risk could come from higher-than-expected rate hikes. 
  • There are minimal lease expiries in FY18F-19F.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-02
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 1.52 Up 1.440



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