The Positives
The Negatives
Outlook
The outlook is stable. The long WALE of 9.6 years provides income visibility, and renewal risk is manageable with only 1.8% and 1.9% of leased area for renewal in 2018 and 2019 respectively. The recent acquisition of maincubes Data Centre in Germany will contribute positively from April 1 onwards. The current AUM stands at S$1.66bn and the Manager reiterated the target of growing it to S$2bn this year. The strategy of a long-term target gearing of 30% remains unchanged.
Maintain Neutral; unchanged target price of $1.47
We like the growth story for the stock, but opine that valuation appears to be rich at an implied 1.44 times FY18e P/NAV multiple.
Completed acquisition of maincubes Data Centre on March 30, 2018
The property was acquired for €84.0mn (approximately S$130mn). A 10% deposit was paid in 2015 with the balance 90% to be paid on completion of the acquisition.
We had previously assumed the acquisition to be completed in the late part of 2Q 2018. Instead, the acquisition was completed at the end of 1Q 2018 and will have a full quarter contribution from 2Q 2018. We have adjusted our revenue assumption accordingly.
The balance 90% of the property was acquired with debt, making the acquisition yield-accretive. We had previously assumed an equity fund raising (EFR) in conjunction with the balance payment. We had assumed a 30-70 debt-equity capital structure for the acquisition. 30% is the long-term target gearing that the Manager has repeatedly articulated.
The current gearing stands at 37.4% and an EFR is inevitable with the strategy to grow the AUM to S$2bn by the end of 2018. We have factored an EFR of S$91mn (70% of S$130m acquisition price) at the end of the year, to move towards the long-term target of 30% gearing.
Figure 1: Completion of maincubes Data Centre acquisition
Source: Company 1Q FY18 Financial Results presentation, 16 April 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. KDCREIT is also trading at a tighter yield.
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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.
