Keppel DC REIT - OCBC Investment 2019-10-16: Had A Good Run


Keppel DC REIT - Had A Good Run

  • Keppel DC REIT's 3Q19 DPU +4.3% y-o-y.
  • Improvement in operating metrics.
  • Seeking more inorganic growth opportunities.

Keppel DC REIT 3Q19 results in-line with expectations

  • KEPPEL DC REIT (SGX:AJBU) reported its 3Q19 results which met our expectations. Gross revenue fell 2.5% y-o-y to S$46.4m, as the increase in gross rental income (+3.7%) was offset by a dip in other income due to the absence of rental top up income. See Keppel DC REIT's announcements.
  • Correspondingly, NPI slipped 1.8% y-o-y to S$42.3m. However, 3Q19 DPU grew 4.3% y-o-y to 1.93 S cents. For 9M19, Keppel DC REIT’s gross revenue and NPI increased by 11.3% and 11.8% to S$141.8m and S$128.8m, respectively.
  • Keppel DC REIT's DPU saw an improvement of 5.7% to 5.78 S cents and this constituted 73.8% of our FY19 projection. See Keppel DC REIT's dividend history.

Portfolio metrics remain robust

  • Operationally, management carried out some forward renewal of leases which were due to expire in 2021. Rental reversions have generally been positive YTD, although the leases renewed are small and thus unlikely to have a material impact on Keppel DC REIT’s portfolio performance.
  • Portfolio occupancy improved slightly by 0.4 ppt q-o-q to 93.6%, with increases seen at KDC SGP 1 (+0.3 ppt), Keppel DC Dublin 1 (+3.9 ppt) and Keppel DC Dublin 2 (+9.3 ppt after completion of fit-out works).
  • Portfolio WALE remains long at 7.7 years, with minimal lease expiries in the near-term (1.3% in 4Q19 and 5.3% in 2020).

Still on the hunt for acquisitions

  • Looking ahead, Keppel DC REIT remains on the lookout for inorganic growth opportunities, as ample debt headroom remains even after its proposed acquisitions of KDC SGP 4 (99% interest) and 1-Net North Data Centre. Its aggregate leverage stood at 28.9%, as at 30 Sep 2019, and is expected to increase to ~30.3% (pro forma) following the completion of the two acquisitions. Key target regions for future acquisitions include APAC and Europe, with US a less likely option given higher tax leakage.
  • Besides the two aforementioned proposed acquisitions, new deals are likely to come from third party assets in the near-term.
  • Given this in-line set of results, we maintain our forecasts and S$2.08 fair value estimate. See Keppel DC REIT's share price.

OCBC Research Team OCBC Investment Research | 2019-10-16
SGX Stock Analyst Report BUY MAINTAIN BUY 2.080 SAME 2.080