Keppel DC REIT (KDCREIT) reported its 3Q17 results which met our expectations. Gross revenue and NPI jumped 56.6% and 42.1% YoY to S$35.5m and S$32.3m, respectively.
This was largely driven by the acquisitions of the 90% interest of KDC SGP 3, Milan DC, Cardiff DC and to a smaller extent B10 DC in Dublin (half a month of contribution), coupled with higher variable income from KDC SGP 1 due to an increase in recurring revenue.
DPU grew 16.8% YoY to 1.74 S cents. If we make adjustments to account for the impact of the preferential offering exercise and a one-off net property tax refund in 3Q16, KDCREIT’s adjusted DPU would have increased 4.2% YoY.
For 9M17, KDCREIT’s gross revenue spiked up 41.4% to S$102.2m and formed 76.8% of our FY17 forecast. DPU rose 11.2% to 5.37 S cents (adjusted DPU +4.2% to 5.22 S cents) and constituted 74.0% of our full-year projection.
Operationally, KDCREIT’s portfolio occupancy creeped up 0.3 ppt QoQ to 93.4% as there was slight improvement recorded at KDC SGP 1 and Keppel DC Dublin 1.
Pertaining to Singapore’s data centre industry, management highlighted that while there are still some vacancies in the market, it remains upbeat that this space will eventually be absorbed in the foreseeable future given limited upcoming supply and robust demand, especially from the cloud service providers.
Maintain BUY and S$1.39 fair value estimate on KDCREIT.