Keppel DC REIT - Phillip Securities 2019-10-16: Delivering, As Expected

KEPPEL DC REIT (SGX:AJBU) | SGinvestors.io KEPPEL DC REIT (SGX:AJBU)

Keppel DC REIT - Delivering, As Expected

  • KEPPEL DC REIT (SGX:AJBU)'s 3Q19 NPI and DPU were in line with our estimates. 9M DPU formed 74.2% of our FY19 estimates.
  • Portfolio metrics healthy; occupancy crept up 0.7% ppts and while post-acquisition gearing will settle at 30.3% (historical average 30.7%).
  • Maintain ACCUMULATE with a higher target price of $2.06 (previously $2.00). We raise our estimates by 2% to reflect the tightening DC market which will help provide support for rents.



The Positves


Ramp-up in operations was more than able to make up for the income support falling off.

  • The rental support for KDC SG 5, KDC Dub 2 and Milian DC were fully utilised as at 2Q19. Management commented that the ramp-up stabilisation of these assets surpasses the rental support previosuy drawn.

Portfolio occupancy improved 0.3ppts q-o-q from 93.2% to 93.6%.

  • This was due to new leases signed at KDC SG 1 (+0.7ppts) and KDC Dub 1 (+3.9ppts). Post-retrofitting, KDC Dub 2’s occupancy increased 9.3ppts to 100%.

Refinanced all loans maturing in 2019 with a 6 year term loans.

  • All-in cost of borrowing expected to be unchanged at c.1.7%.


The Negatives


No improvement in stubborn vacancy rate at Basis Bay DC (Malaysia)

  • Occupancy has remained at 63.1% for the last 10 consecutive quarters.


Outlook

  • Vacant, non-DC NLA poses potential for conversion to data centre (DCs), making Keppel DC REIT a beneficiary of tapering DC supply in Singapore. Currently, 22,178 sqft of NLA - 6.4% and 15.8% from KDC SG 1 and KDC SG 5 - are non DC space. Keppel DC REIT is in the midst of getting government approval to bring more IT power onsite to convert the space at KDC SG 5 to DC space.


Maintain ACCUMULATE with a higher target price of $2.06 (previously $2.00)

  • We raise our estimates by 2% to reflect the strong demand for DCs admist the tightening DC supply.
  • Our Target Price of $2.06 implies a 3.8%/4.46% FY19e/FY20e DPU yield.





Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-10-16
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 2.06 UP 2.000



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