Idea of the Day: Lim & Tan Securities We are recommending a “Subscribe” for Keppel DC REIT initial public offering (53,763,000 public shares via the ATM tranche) which closes today at 12pm for the following reasons: · the company is expected to benefit from the rising trend of outsourcing data centre needs as evident from independent market research consultant Broad Group’s forecast for the number of global internet users and internet enabled devices to grow at a CAGR of between 17-27% from this year till 2018; · Broad Group also expects the volume of data, which directly drives the need for more data centres, to surge by close to 50% from now till 2018; · The fi rst of its kind to be listed in Asia ex-Japan, Keppel DC REIT expects the hefty upfront set-up costs and substantial technical knowledge coupled with its established track record with its customers to help them remain ahead of competitors; · The company has a solid customer base with its top 10 customers being 3 Fortune Global 500 and S&P 100 companies listed on Nasdaq or NYSE, 3 companies listed on other regional stock exchanges, 1 S&P 500 company listed on NYSE and 1 government related entity, reducing risks of bad debts; · The company’s total appraised asset value of $1bln is geographically diversifi ed in Singapore 42%, Australia 24%, The Netherlands 13%, Ireland 10%, UK 8% and Malaysia 4%, helping investors diversify geographical risks; · On the back of a right of fi rst refusal granted by its sponsor Keppel T&T on 3 properties in Singapore, Australia and The Netherlands, Keppel DC REIT could potentially see its projected yield of 6.8% in 2015 and 7.1% in 2016 be even higher; · Keppel DC REIT’s 28% gearing which is comfortably below the regulatory limit of 40-60% as well as Singapore REIT sector average of 35-40% would provide them with suffi cient debt headroom for acquisitions; · The weighted average lease expiry is more than 7.8 years which ensures stability in distributions while customer retention rate is a solid 98% which demonstrates reliability; · There is a built in rental revision clause in contracts ranging between 2-4% on average helping to factor in infl ation and possibly a rising interest rate environment; · Comparables with data centre exposure such as Cityspring Infrastructure Trust and AREIT are trading at 6.2-6.3% dividend yields, which makes Keppel DC REIT’s 6.8-7.1% attractive.
Posted on: Wed, 10 Dec 2014 01:29:07 +0000
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