• Pure-play exposure to data centres
• Ramping up its inorganic growth
• FY16F distribution yield of 7.0%

Pure-play exposure to fast growing industry

We expect Keppel DC REIT (KDCREIT) to be a key beneficiary of the proliferation of ‘big data’ and cloud computing trends. Being the first data centre REIT to be listed in Asia, KDCREIT offers investors a unique pure-play exposure to this fast growing industry, in our view.

Embarking on inorganic growth opportunities

Although KDCREIT only had its IPO on SGX-ST in Dec last year, management has been proactively sourcing for accretive acquisition opportunities to fuel its growth. On 10 Aug this year, KDCREIT completed the acquisition of a data centre, Intellicentre 2, in Australia for a purchase consideration of A$43.3m, which translates into an estimated NPI yield of 7.2%. Thereafter, KDCREIT proposed to acquire its first data centre in Germany for EUR84m.

Looking ahead, management has guided that it will continue to look for acquisition opportunities from both its right-of-first-refusal (ROFR) assets pipeline, as well as through third-party acquisitions. This would be supported by Keppel DC REIT’s healthy gearing ratio of 30.1%, as at 30 Sep 2015.

BUY with S$1.24 fair value

We like KDCREIT for its strong positioning within the data centre industry, as well as its long WALE (8.9 years as at 30 Sep 2015) and prudent capital management. It has hedged 90% of its total borrowings and hedged 100% of its forecasted foreign-sourced distribution up till 1H17. Valuations are also attractive, with the stock trading at FY16F distribution yield of 7.0%. Maintain BUY and S$1.24 fair value estimate on KDCREIT.

Source: OCBC Research - 11 Dec 2015