Keppel DC REIT - OCBC Investment 2018-07-18: Prepare For Further Inorganic Growth

Keppel DC REIT - OCBC Investment Research 2018-07-18: Prepare For Further Inorganic Growth KEPPEL DC REIT SGX:AJBU

Keppel DC REIT - Prepare For Further Inorganic Growth

  • 2Q18 DPU +4.6% y-o-y. 
  • Expect stronger 2H18.
  • Healthy balance sheet.

2Q18 results in-line with expectations

  • Keppel DC REIT (KDCREIT) reported its 2Q18 results which met our expectations.
  • Gross revenue jumped 21.5% y-o-y to S$41.9m, while NPI rose 21.4% to S$38.1m. This increase was driven largely by the acquisitions of maincubes Data Centre and Keppel DC Dublin 2, coupled with higher variable income from Singapore and appreciation of EUR, MYR and GBP against SGD. See SGD FX Rate. DPU grew 4.6% y-o-y to 1.82 S cents.
  • For 1H18, KDCREIT’s gross revenue grew 4.0% to 3.62 S cents. This formed 45.7% of our FY18 forecast, but we expect a stronger 2H18 as KDCREIT had only completed the accretive acquisition of a 99% interest in Keppel DC Singapore 5 (KDC SGP5) on 12 Jun this year.
  • Nevertheless, we trim our FY18F DPU by 2.2% due to a timing issue from KDCREIT’s recent equity fundraising exercise, whereby its private placement of 224m new units was issued on 16 May versus our previous assumption of 30 Jun 2018.
  • Our FY19 forecasts and fair value estimate of S$1.54 remain intact.

Room for more acquisitions

  • Operationally, KDCREIT’s portfolio occupancy declined slightly from 93.7% (as at end-1Q18) to 92.0% due to the addition of KDC SGP 5, which is 73.9% occupied. As highlighted in our previous report dated 7 May 2018 (see Keppel DC REIT - King Of The Land), KDC SGP 5 had an occupancy rate of ~7.8%.
  • Looking ahead, management remains active in sourcing for further inorganic growth opportunities, and is open to both new and existing markets.
  • Given its healthy aggregate leverage ratio of 31.7% (as at 30 Jun 2018), we believe KDCREIT has ample debt headroom to make more DPU accretive acquisitions in the near future. This would also be supported by the still favourable borrowing environment in markets such as Europe and Australia.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-07-18
SGX Stock Analyst Report BUY Maintain BUY 1.540 Same 1.540