Keppel DC REIT - OCBC Investment 2020-01-24: Vibrant Growth To Come In FY20


Keppel DC REIT - Vibrant Growth To Come In FY20

  • Keppel DC REIT's 4Q19 DPU -1.1% y-o-y; adjusted DPU +4.3%.
  • Occupancy rose 1.3 ppt q-o-q to 94.9%.
  • Forecasted DPU growth of 16.7% in FY20.

4Q19 results fell short of our expectations

  • Keppel DC REIT (SGX:AJBU)’s (KDCREIT) 4Q19 results fell short of our expectations. Gross revenue and NPI jumped 10.3% and 14.3% y-o-y to S$53.0m and S$48.5m, respectively. This was driven largely by the acquisitions of KDC SGP 4 and DC1. See Keppel DC REIT Announcements.
  • DPU declined marginally by 1.1% y-o-y to 1.83 S cents due to the impact of the pro-rata preferential offering in Oct 2019. If we exclude this, adjusted DPU would have increased 4.3% y-o-y to 1.93 S cents. See Keppel DC REIT Dividend History.
  • For FY19, Keppel DC REIT’s NPI jumped 12.4% to S$177.3m, while DPU of 7.61 S cents represented a growth 4.0% and formed 97.2% of our forecast (adjusted DPU was 7.71 S cents and translates to a growth of 5.3%).

Improvement in occupancy; cap rates compressed

  • Operationally, Keppel DC REIT reported an uptick in its portfolio occupancy by 1.3 ppt q-o-q to 94.9%, while overall WALE remains healthy at 8.6 years.
  • In terms of valuation, there was a compression in its property cap rates from 5.75-10.75% in FY18 to 5.5- 10.75% in FY19. However, there was a fair value loss on investment properties of S$15.9m recorded in FY19. We understand that this was largely driven by unfavourable movements in FX.

Raising our fair value to S$2.26

  • Besides incorporating Keppel DC REIT’s full year results in our model, we also make the following updates:
    1. factor in the proposed acquisition of the Kelsterbach Data Centre in Germany (assuming six months contribution in FY20,
    2. take into account the additional fitting out of shell and core space at DC1 (estimate boost in NPI yield from 9% to 9.5% upon completion;
    3. lower our near-term AUD and EUR assumption.
  • Consequently, we raise our FY20 and FY21 DPU forecasts by 0.4% and 4.9%, respectively.
  • Although 4Q19 results were a miss, we are expecting strong DPU growth of 16.7% in FY20. After rolling forward our valuations, we derive a fair value of S$2.26 (previously S$2.08). See Keppel DC REIT Share Price; Keppel DC REIT Target Price. HOLD.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-01-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.26 UP 2.080