Keppel DC REIT - CGS-CIMB Research 2019-10-15: Back To Business As Usual


Keppel DC REIT - Back To Business As Usual

  • Keppel DC REIT 3Q/9M19 DPU of 1.93/5.78 Scts (+4.3%/5.7% y-o-y) was in line at 25%/74% of our and consensus FY19 forecasts.
  • Occupancy inched up to 93.6% as fit-out works at Dublin 2 were completed and new tenants were secured for SGP 1 and Dublin 1.
  • Maintain HOLD with a higher Target Price of S$1.88.

3Q19 in line at 25% of FY19 forecasts

  • KEPPEL DC REIT (SGX:AJBU)'s 3Q/9M19 DPU of 1.93/5.78 Scts (+4.3%/5.7% y-o-y) was in line at 25%/74% of our and consensus FY19 forecasts. See Keppel DC REIT's dividend history.
  • 3Q19 gross revenue/NPI was 2.5%/1.8% lower y-o-y, mainly due to weakness of A$, € and £ against the S$. The FX weakness was partially offset by a significantly higher net realised gain on derivatives of S$1.6m in 3Q19 (+ >100% y-o-y).

S$478m equity fund raising draws strong interest

  • The equity fund raising exercise to raise S$478.2m drew strong interest and allowed Keppel DC REIT to raise funds at the top end of the range at a discount of 2.5-4.4% of VWAP. The preferential offering to raise c.S$242.8m at S$1.71 per new unit was 175.4% subscribed. The private placement for c.S$235.4m was c.9.3x covered at S$1.744 per new unit.
  • As of 15 Oct 2019, all new shares have been issued and listed.
  • See Keppel DC REIT's share price history.

Occupancy inched up to 93.6%

  • Portfolio occupancy was higher at 93.6% due to the completion of fit-out works at Dublin 2 in Jul 19, which raised its occupancy rate to 100%. This increase in occupancy was also reflected in SGP 1 and Dublin 1 which saw improvements of 0.3% and 3.9% pts, respectively, as new tenants were secured.
  • Keppel DC REIT’s WALE registered a slight decline to 7.7 years from 7.8 years previously due to time decay and was slightly offset by minor renewals. Upcoming expiries in FY19/FY20 continue to be low at 1.3%/5.3%.

Refinanced S$ loans reflecting strong capital management

  • Keppel DC REIT’s gearing was reduced to 28.9% from 31.9% in 2Q19 due to the private placement; post-completion of the latest set of acquisitions, Keppel DC REIT expects gearing to be 30.3% on a pro-forma basis. Its S$-denominated loans due end-2019 were also refinanced for 6 years to 2025.
  • Overall, average cost of debt remained at 1.7% while debt tenor was increased to 3.8 years from 3.3 years last quarter. 80% of loans are hedged to manage interest rate exposure.

Maintain HOLD with a higher Target Price of S$1.88

  • We maintain our DPU forecasts but roll forward our valuations and lower our risk-free rate assumption for Australia, leading to a higher DDM-based Target Price of S$1.88.
  • While we are positive on the data centre industry due to its future-ready characteristics, we think that this has been priced in as major catalysts have come to fruition. Further positive catalysts include additional accretive acquisitions and tax transparency for SGP 4 and 1-Net North DC.
  • Weaker foreign currencies and potential income shortfall should SGP 4 not stabilise after the 24-month rental support period are downside risks.

LOCK Mun Yee CGS-CIMB Research | Ervin SEOW CGS-CIMB Research | https://www.cgs-cimb.com 2019-10-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.88 UP 1.820