Despite no deal flows in the past 6 months due to lack of supply of assets, the management has a healthy pipeline of off-market deals in discussion. Management is conducting a feasibility study on converting some of their office space at Keppel DC SG 5 (84.2% occupied) into data centres. Doing so will require bringing more power and equipment onsite.
Local demand for DCs still strong, driven by hyperscale cloud players (colocation tenants) are looking for bigger spaces and sites to lease out. Demand for DCs under pinned by increasing cloud adoption (e-commerce, social media, online gaming and advertising) and rapid digital transformation (VR, AR and mobile data traffic).
Maintain ACCUMULATE; new target price of $1.59 (previously $1.52)
We maintain our accumulate call and raise our TP to $1.59 due to revenue additive AEIs secured by pre-committed leases and lower cost of debt. Our TP implies a 13.3% yield and 1.37 times FY19e P/NAV multiple.
KDCREIT trades at a higher P/NAV multiple compared to other listed S-REITs. We believe this is a reflection of the burgeoning demand for the unique asset class of data centres.