20180718-辉立证券-Strengthened_balance_sheet_to_fuel_inorganic_growth_8页_554kb

Keppel DC REIT 2Q18 Summary

Core Content

Keppel DC REIT, a Singapore-based Real Estate Investment Trust (REIT), reported its second-quarter 2018 results, highlighting both positive and negative aspects of its performance. The report also includes financial forecasts, valuation metrics, and market analysis.

Key Financial Highlights

• Distributable Unit Price (DPU): 3.62 cents for 1H18, comprising 2.77 cents from the advance distribution (1 Jan to 15 May) and 0.85 cents from the post private placement (16 May to 30 June).
• Revenue and DPU Performance: 1H18 revenue and DPU met 50% and 47% of consensus FY18 expectations respectively.
• Target Price: Maintained "Accumulate" rating with a new target price of SGD 1.45 (previously SGD 1.51).
• Gross Revenue: Increased to SGD 41.9 million in 2Q18, up 21.5% YoY.
• Net Property Income (NPI): Rose to SGD 38.1 million, up 21.4% YoY.
• Distributable Income: Increased to SGD 23.1 million, up 14.6% YoY.
• Portfolio Occupancy: Declined to 92.0% in 2Q18, down from 93.7% in the previous quarter, primarily due to the acquisition of KDC SGP 5.
• Leverage: Reduced to 31.7% from 37.4% after the private placement, with SGD 290 million of debt headroom (40% target gearing).
• Private Placement Impact: New units issued on May 16 increased the total number of units by 20%.
• Acquisitions: Recent acquisitions of KDC DUB 2, maincubes DC, and KDC SGP 5 contributed positively to revenue and DPU.
• KDC DUB 1 AEI: The asset enhancement initiative for KDC DUB 1 is ongoing, with the expected timeline now "take anything from 18 to 24 months."

Main Points

Positives

• Revenue and DPU Growth: The company achieved YoY DPU growth despite the dilution from the private placement.
• Debt Reduction and Headroom: The leverage ratio has improved, and the debt headroom is now about SGD 290 million, which can support portfolio growth.
• Interest Rate Hedging: The percentage of debt hedged on fixed rates increased to 86% from 80% in the previous quarter.
• Income Visibility: The long weighted average lease expiry (WALE) of 8.8 years provides stable income, with minimal renewal risk in the next two years.
• Future Growth: The recent acquisitions are expected to continue driving YoY distributable income growth for the next four quarters.

Negatives

• Occupancy Decline: The acquisition of KDC SGP 5 (73.9% occupied) reduced portfolio occupancy to 92.0% from 93.7%.
• WALE Reduction: The addition of KDC SGP 5 (3.3 years WALE) shortened the overall portfolio WALE to 8.8 years.
• Office Space Challenges: None of the office space in the property has been leased, and there are potential hurdles in securing tenants due to its location within a data centre.

Outlook and Valuation

• Outlook: The outlook is stable, with continued focus on inorganic growth through acquisitions.
• AUM: Current AUM stands at SGD 1.94 billion, and the Manager is still looking to grow the portfolio.
• Valuation:
  • P/NAV: Trailing P/NAV is 1.34, which is higher than its ASX-listed peer, Asia Pacific Data Centre, with a trailing P/NAV of 1.14.
  • Yield: KDCREIT has a trailing distribution yield of 5.3%, which is higher than its peer's 5.1%.
  • Target Price: Based on DDM (Cost of Equity: 7.0%; Terminal g: 15%), the new target price is SGD 1.45.
  • Downside Risk: The REIT is currently trading at a 1.36 times FY18e P/NAV multiple, which is considered rich.

Financial Projections

Key Ratios and Performance

• Growth:
  • Revenue: 22.5% growth in 2Q18.
  • NPI: 22.8% growth in 2Q18.
  • Distributable Income: 10.8% growth in 2Q18.
  • DPU: 0.0% growth in 2Q18.
• Margins:
  • NPI margin remained stable at 90.3% in 2Q18.

Company Data

Major Shareholders

Price Performance

Recommendations

• Rating: "Accumulate" (Maintained)
• Target Price: SGD 1.45
• Total Return: 12.7%

Disclaimer

This report is for general information only and does not constitute investment advice. It is not intended to provide tailored investment advice and does not take into account the individual financial situation of any specific person. Investors should seek financial advice regarding the appropriateness of any investments or securities discussed or recommended in this report. The report may not be redistributed, retransmitted or disclosed without the express written consent of Phillip Securities (Hong Kong) Limited.