The Positives
The Negatives
Outlook
The outlook is stable to positive. Income visibility due to negligible renewal risk with only 2.2% and 2.3% of leased area for renewal in 2018 and 2019. The next debt maturity is in 2019, thus avoiding impact from any interest rate hikes in 2018. The low gearing and available debt headroom are favourable for growing the portfolio inorganically. The investment properties are currently valued at $1.54bn, and the manager is working towards achieving the $2bn AUM target in 2018.
Maintain Neutral, higher target price of $1.47 (previously $1.36)
We expect higher revenue and DPU in FY18e on the back of full year contribution from KDC DUB 2 (acquired in September 2017) and partial contribution from maincubes Data Centre (expected from 2Q18 onwards). We have factored in issuance of new units to partially fund the acquisition of maincubes Data Centre. We like the growth story for the stock, but opine that valuation appears to be rich at an implied 1.45 times FY18e P/NAV multiple.
Figure 1: Update on maincubes Data Centre
Source: Company FY17 Financial Results presentation, 22 January 2018
Figure 2: Portfolio update
Source: Company FY17 Financial Results presentation, 22 January 2018
Relative valuation
KDCREIT is relatively over-valued in terms of trailing P/NAV, in comparison to its Australia Stock Exchange (ASX)-listed peer, Asia Pacific Data Centre.
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.