Keppel DC REIT

Keppel DC REIT: ($1.01) 4Q15 results underlie demand for data centres in new tech age
The data centre REIT reported 4Q15 distributable income and DPU of $14.5m and 1.64¢, which beat IPO forecasts but came in a whisker below street expectations.

Gross revenue missed forecasts by 2.1% at $24.8m amidst lower variable income from its Singapore properties and unfavourable FX movements which lowered contributions from its overseas assets. This was partially mitigated by rental contributions from Intellicentre 2.

Net property income of $21.8m (+1.9%) was slightly higher than IPO forecast mainly on lower repairs and maintenance (-60.7%) as well as other property related costs (-66.3%), which pushed property expenses down to $2.9m (-24.2%) .

Bottomline was however weighed by a jump in other trust expenses to $1.7m (+106.6%), which primarily included FX losses on the revaluation of external borrowings, partially mitigated by an 8.6% drop in finance costs to $3.2m.

Portfolio occupancy edged lower to 94.8% (-0.3ppt q/q) as occupancy at Citadel 100 fell to 77.4% (-2.9ppt). WALE stood at 8.7 years (-2.2%) with 70,553sf of lettable area up for renewal in 2016.

The REIT’s balance sheet appears fairly robust with aggregate leverage declining slightly to 29.2% (-0.9ppt) with debt tenor of 3.3 years and an average cost of debt of 2.5%. This implies some debt headroom for potential acquisitions.

Looking forward, the infrastructure REIT is looking to expand further as the industry’s growth story remains intact, anchored by global trends such as the proliferation of smart devices as well as increased compliance and regulatory requirements. Coupled with the shift towards cloud computing and e-commerce, it sees demand for data centres to continue to be robust.

Keppel DC REIT currently trades at an annualised 4QFY15 yield of 6.5%, and 1.1x P/B. The street is relatively bullish on the counter with 6 Buy and 1 Hold rating and a consensus TP of $1.14.

Unitholders will receive a 2H15 distribution of 3.28¢/unit.

Latest broker ratings:
OCBC maintains Buy with TP of $1.24
Deutsche maintains Buy with TP of $1.15