Keppel DC REIT:1Q16 DPU rose 3.7% y/y to 1.67¢, in line with estimates, while distributable income rose 3.8% to $14.7m.
However, gross revenue of $24.8m (-4.5%) and NPI of $21.2m (-2.5%) missed IPO forecasts, as a client downsized its requirements at Citadel 100, while contributions from properties in Australia, Europe and Malaysia were eroded when translated into a stronger SGD.
Consequently, portfolio occupancy slipped to 92% (-2.8ppt q/q), with weighted average lease to expiry of 8.7 years.
Aggregate leverage stood at 29.6% (+0.4ppt q/q) with cost of debt of 2.4%.
Going forward, injection of the fully let T27 appears imminent, possibly in 2Q or 3Q16. While the REIT has a debt headroom of $200m before hitting 40% leverage, it expects the acquisition to come with some equity fund raising.
In Singapore, leases expiring in 2016-17 may face rental pressure amid increased supply. Apart from the vacated space at Citadel 100, 8% of its NLA are up for renewal in 2016 and another 24% in 2017, and management has reached verbal agreements with a few prospective clients.
Management remains optimistic towards the structural demand for data centers, underpinned by the growth in big data and cloud computing. Notably, the REIT's sponsor is developing the T20 asset, which the REIT has a right-of-first-refusal.
Keppel DC REIT is currently trading at 6.2% annualized 1Q16 yield, and 1.2x P/B.
Latest broker ratings:
OCBC maintains Buy with TP of $1.24
CIMB maintains Add with TP of $1.18
Deutsche Bank maintains Buy with TP of $1.15
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