20180123-辉立证券-Keppel_DC_REIT_9页_624kb

Keppel DC REIT (KDCREIT) FY17 Results Summary

Core Content

Keppel DC REIT (KDCREIT) reported its FY17 results, showing strong revenue growth driven by acquisitions. The report highlights the REIT's financial performance, portfolio characteristics, and market valuation. Analysts from Phillip Securities Group have maintained a Neutral rating with a higher target price of SGD 1.47, up from SGD 1.36 previously.

Key Financial Highlights

• Gross Revenue: Increased by 40.3% YoY to SGD 139 million, attributed to acquisitions of KDC DUB 2, Milan DC, Cardiff DC, and a 90% interest in KDC SGP 3.
• Net Property Income (NPI): Rose by 37.6% YoY to SGD 125 million, though property expenses increased by 69.8%.
• Distributable Income (Dist. Inc.): Grew by 34.8% YoY to SGD 82.3 million, including a one-off capital distribution of S$1.7 million in 1Q17.
• Distributable Profit per Unit (DPU): Declared at 7.12 cents for 2H17, up from 6.14 cents in 2H16.
• Adjusted DPU: 6.97 cents, adjusted for the one-off distribution and the Preferential Offering impact.
• Valuation: The REIT's P/NAV multiple for FY18e is 1.46x, which the analyst views as relatively rich compared to peers.

Portfolio Overview

• Portfolio Weighted Average Lease Expiry (WALE): Remains 9.1 years, with a slight decline from 9.2 years QoQ.
• Leverage: Maintains 32.1% aggregate leverage, with debt headroom of ~SGD 210 million based on a 40% gearing cap.
• Debt Maturity: Extended to 3.8 years in 3Q17, with no debt maturing in 2018.
• Major Properties:
  • Keppel DC Singapore 1: 100% interest, 109,721 sq ft, 17 clients, 84.6% occupancy, 286.0 SGD valuation.
  • Keppel DC Singapore 2: 100% interest, 37,098 sq ft, 4 clients, 100.0% occupancy, 166.0 SGD valuation.
  • Keppel DC Singapore 3: 90% interest, 49,433 sq ft, 2 clients, 100.0% occupancy, 223.5 SGD valuation.
  • Basis Bay Data Centre: 99% interest, 48,193 sq ft, 1 client, 63.1% occupancy, 31.0 SGD valuation.
  • Gore Hill Data Centre: 100% interest, 90,955 sq ft, 3 clients, 100.0% occupancy, 204.0 SGD valuation.
  • Cardiff Data Centre: 100% interest, 79,439 sq ft, 1 client, 100.0% occupancy, 61.9 SGD valuation.
  • Keppel DC Dublin 1: 100% interest, 68,118 sq ft, 15 clients, 56.6% occupancy, 77.2 SGD valuation.
  • Keppel DC Dublin 2: 100% interest, 25,200 sq ft, 4 clients, 87.3% occupancy, 108.9 SGD valuation.
  • Milan Data Centre: 100% interest, 165,389 sq ft, 1 client, 100.0% occupancy, 58.5 SGD valuation.
  • maincubes Data Centre: Expected legal completion in 2Q 2018, with a 15-year triple-net lease, contributing to future income visibility and extending WALE.

Key Positives

• Portfolio WALE remains long at 9.1 years, despite a marginal QoQ decline.
• Low gearing and available debt headroom are favorable for organic and inorganic growth.
• The REIT is working towards a $2 billion AUM target by 2018.
• Income visibility is expected to improve with the full-year contribution from KDC DUB 2 and partial contribution from maincubes Data Centre starting in 2Q18.

Key Negatives

• Portfolio occupancy declined QoQ from 93.4% to 92.6%, mainly due to lower occupancy at KDC SGP 1 and KDC DUB 1.
• A key tenant in Gore Hill renewed at a -4.5% reversion, with a bulk discount and no annual step-up embedded in the lease.
• Revaluation loss of SGD 8.52 million mainly from four properties, due to lower incomes and depreciated AUD.

Outlook

• The outlook is stable to positive, with negligible renewal risk for 2018 and 2019 (only 2.2% and 2.3% of leased area for renewal).
• The next debt maturity is in 2019, thus avoiding 2018 interest rate hikes.
• The REIT is expected to maintain its growth trajectory, with revenue and DPU growth in FY18e.

Valuation Analysis

• Trailing P/NAV multiple for FY18e is 1.46x, which is relatively rich compared to its ASX-listed peer, Asia Pacific Data Centre, which has a 1.25x P/NAV multiple.
• The implied P/NAV multiple of 1.45x for FY18e is viewed as overvalued by analysts.

Company Data

• Last Close Price: SGD 1.470
• Forecast Dividend: SGD 0.071
• Market Cap (USD/SGD): 1,256 / 1,657 million
• 52-Week High/Low (SGD): 148 / 115
• 3M Average Daily Turnover (mn): 185
• Major Shareholders:
  • Keppler Corp Ltd: 35.3%
  • Sumitomo Mitsui Asset Mgmt Co: 5.0%
  • Cohen & Steers Inc: 2.5%

Price Performance

• 1MTH: +4.2%
• 3MTH: +10.4%
• 1YR: +27.6%
• STI Return: +4.3% (3MTH), +6.8% (3MTH), +219% (1YR)

Valuation Ratios

• P/E (x): Increased from 18.2x (FY16) to 18.8x (FY18e).
• P/NAV (x): Increased from 1.05x (FY16) to 1.46x (FY18e).
• P/DPU (x): Increased from 14.3x (FY16) to 19.1x (FY18e).
• Distribution Yield (%): Declined from 7.01% (FY16) to 5.22% (FY18e).
• NPI Yield (%): Increased from 8.95% (FY17) to 8.31% (FY18e).

Growth & Margins

• Revenue Growth:
  • FY16: +40.3%
  • FY18e: +8.7%
  • FY19e: +6.9%
• Net Property Income (NPI) Growth:
  • FY16: +37.6%
  • FY18e: +8.6%
  • FY19e: +6.8%
• Distributable Income Growth:
  • FY17: +34.8%
  • FY18e: +9.1%
  • FY19e: +7.0%
• DPU Growth:
  • FY17: +16.0%
  • FY18e: +8.6%
  • FY19e: +3.9%
• NPI Margin: Maintained at ~90% across FY15 to FY19e.

Net Debt & Gearing

• Net Debt/Net Cash:
  • FY15: 334.8 million SGD
  • FY16: 172.7 million SGD
  • FY17: 461.1 million SGD
  • FY18e: 482.2 million SGD
  • FY19e: 484.7 million SGD
• Gearing (%):
  • FY15: 30.7%
  • FY16: 29.7%
  • FY17: 32.9%
  • FY18e: 32.1%
  • FY19e: 32.0%

Analyst Notes

• Valuation Concerns: The analyst notes that the current valuation appears rich, with an implied 1.45x P/NAV multiple.
• Recommendation: Neutral rating, with a target price of SGD 1.470, reflecting the growth story but valuation concerns.

Disclaimer

• This report is not intended to provide tailored investment advice.
• Investment involves risks, and investors should seek financial advice before making any investment decisions.
• The report may not be redistributed, retransmitted, or disclosed without express written consent from Phillip Securities (Hong Kong) Limited.