KEPPEL DC REIT (SGX:AJBU)
Keppel DC REIT - Boosted By New Acquisitions
- Keppel DC REIT's 4Q/FY18 DPU of 1.85/7.32 Scts was within expectations at 24%/93% of our FY18 forecast.
- Stable portfolio occupancy in 4Q18, robust balance sheet with strong capacity for acquisitions.
- Maintain ADD with an unchanged Target Price of S$1.51.
4Q18 results highlights
- KEPPEL DC REIT (SGX:AJBU) reported 4Q18 DPU of 1.85 Scts, +5.7% y-o-y, thanks to contributions from new acquisitions such as SGP5 and maincubes and higher rental top-up and ad hoc service revenue, though this was partly offset by lower rental income from SGP1 and weaker £, € and A$ against the S$.
- Keppel DC REIT's FY18 DPU of 7.32 Scts, +2.8% y-o-y, made up 93% of our FY18 forecast.
- Keppel DC REIT also recognised a revaluation surplus of S$32.6m, although the portfolio cap rate remained largely unchanged which boosted BV/unit to S$1.07.
Stable portfolio occupancy
- Portfolio occupancy of 93.1% was unchanged q-o-q with no lease renewals during the quarter. There are minimal lease expiries of 2.4%/4.7% for FY19/FY20 and with foreign sourced distributions hedged until 1H20, Keppel DC REIT offers good medium-term income visibility.
Tax transparency treatment for SGP5 could lift earnings
- Looking ahead, Keppel DC REIT has entered into an agreement with Macquarie Telecom (MT) to construct Intellicentre 3 East DC (IC3) on the vacant land within the IC2 site in Sydney. Completion is scheduled for 2019-20 and a new 20-year triple net master lease with MT for both IC2 and IC3 should commence post completion.
- In addition, Keppel DC REIT's earnings should also be lifted slightly with SGP5 obtaining tax transparency treatment in Jan 2019.
Strong balance sheet
- Keppel DC REIT's gearing stands at 30.8% as at end-FY18. This provides the trust with significant debt headroom to pursue acquisition opportunities. Assuming a target gearing of 40%, Keppel DC REIT would have debt capacity of S$335m.
- With transaction cap rates in the Asia Pacific region continuing to compress, the trust could also consider co-location assets, which tends to be a less competitive segment, as well as its sponsor’s pipeline. About 86% of Keppel DC REIT's borrowings are on fixed rates and average debt cost stands at 1.9% as at end-4Q18.
Maintain ADD
- We leave our FY19-21 DPU estimates largely unchanged post results. Accordingly, our DDM-based Target Price remains unchanged at S$1.51.
- We continue to like Keppel DC REIT for its exposure to the positive fundamentals of data centres.
- Re-rating catalysts include accretive acquisitions while slower demand growth is a downside risk.
LOCK Mun Yee
CGS-CIMB Research
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Ervin SEOW
CGS-CIMB Research
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https://research.itradecimb.com/
2019-01-22
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