Keppel DC REIT - CIMB Research 2018-04-16: 1Q18 Occupancy Improves; Maincubes To Contribute From 2Q18F

Keppel DC REIT - CIMB Research 2018-04-16: 1Q18: Occupancy Improves; Maincubes To Contribute From 2Q18F KEPPEL DC REIT AJBU.SI

Keppel DC REIT - 1Q18: Occupancy Improves; Maincubes To Contribute From 2Q18F

  • Keppel DC REIT's 1Q18 DPU of 1.80 Scts (-4.8% y-o-y) was broadly in line with our and Bloomberg consensus expectations, at 22% of our full-year forecast. Excluding the one-off capital distribution of 0.15Scts/unit in 1Q17 (in relation to SGP 3), 1Q18 DPU would have registered 3.4% y-o-y improvement.
  • Due mainly to the addition of maincubes DC (100% occupancy) on 30 Mar, portfolio occupancy improved 1.1% pt q-o-q to 93.7%.
  • Gearing as at end-1Q18 stood at 37.4%. Given the limited debt headroom and that the REIT's aim to grow AUM to S$2bn, we think equity fund raising in 2018F is likely.
  • We keep our ADD rating, with a lower DDM-based Target Price.



1Q18 results summary 

  • Keppel DC REIT's 1Q18 DPU of 1.80 Scts (-4.8% y-o-y) was broadly in line with our and Bloomberg consensus expectations, at 22% of our full-year forecast. Excluding the one-off capital distribution of 0.15Scts/unit (in relation to SGP 3), 1Q18 DPU would have registered 3.4% y-o-y improvement. 
  • The y-o-y improvement was led by inorganic contribution from Dublin 2 (DUB 2) partially offset by lower rental from Basis Bay and Gore Hill Data Centres (DC).


Portfolio occupancy improves 1.1% pt q-o-q to 93.7% 

  • Due mainly to the addition of maincubes DC (100% occupancy) on 30 Mar, portfolio occupancy as at end-1Q18 was 93.7%, up 1.1% pt q-o-q. Nonetheless, we note occupancy improvements also in DUB 1 (+0.6% pts q-o-q to 57.2%) and DUB 2 (+3.4% pts qoq to 90.7%). In addition, DUB 2 has secured commitments for its remaining vacant space. 
  • There has also been revision to the asset enhancement initiative (AEI) plans for DUB 1; the AEI will now take 18 months and cost c.S$20m (previously S$15m).


Acquires remainder of 999-year leasehold land interest in DUB 1 

  • KDCREIT has also entered into a contract to acquire the remainder of the 999-year leasehold land interest in DUB 1 for €30m; it expects legal completion in 1H20. 
  • With the increased in land interest, the REIT will save on annual land rent (€2.5m p.a.), provide clients with longer term certainty, and be more agile in its investment strategy.


Gearing at 37.4%; likelihood of equity fund raising in 2018F 

  • With the addition of maincubes, gearing as at end-1Q18 increased to 37.4% (end-4Q17: 32.1%). Assuming 40% cap on gearing, we estimate that the REIT has c.S$80m debt headroom. 
  • Given that KDCREIT is striving to its increase asset under management (AUM) to S$2bn by 2018 (AUM now stands at S$1.65bn), we believe its acquisitions could be accompanied by equity fund raising.


ADD maintained 

  • We cut our FY18F-20F DPU by 3.2-4.7% to reflect adjustments in the distribution line and higher minority interests. 
  • We keep our ADD rating as we continue to like the REIT for its exposure to the positive fundamentals of data centres as well as acquisitive growth. Our DDM-based Target Price dips (to S$1.47) on lower DPU estimates. 
  • Potential re-rating catalysts are accretive acquisitions. 
  • 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/ 2018-04-16
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.47 Down 1.520



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