SINGAPORE (Apr 3): CIMB is upgrading Keppel DC REIT (KDCREIT) to “add” from “hold” with a higher target price of $1.52.
This came on the back of the REIT announcing on Monday it had completed its acquisition of 100% stake of maincubes Data Centre in Germany, one of Europe’s key data centre hubs.
The newly-completed four-storey freehold facility has 126,800 sq ft of lettable area and with energy-efficient features such as free cooling, has been certified by TÜV as a Level 3 Highly Available data centre.
The REIT signed the forward purchase agreement for the facility earlier in Oct 2015 and an EUR 8.4 million ($13.5 million) deposit was paid for the facility’s agreed value of EUR 84.0 million.
The remainder has been paid upon completion of the acquisition on Mar 30. On the same date, the 15-year triple-net master lease agreement with maincubes One GmbH1 started.
In a Monday report, analyst Yeo Zhi Bin says, “We had expected the acquisition to be completed in end-Jun; we now input an additional three months of contribution from this asset.”
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The analyst has lifted the FY18-20 DPU assumptions by 3.5-5.9%, as it was previously assumed that the acquisition would be funded by equity, instead of debt.
Since then, 10% of the total consideration has already been paid, with the remaining 90% to be funded by a newly issued EUR 50 million five-year medium-term note (MTN).
“We estimate prevailing total cost of debt at 80bp; we estimate initial NPI yield of maincubes at 7.15%,” says Yeo.
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In addition, the analyst expects gearing to increase to 37.3% from 32.1% in end FY17. And assuming a 40% cap on gearing, it is estimated that the REIT has about $80 million debt headroom.
“Given that KDCREIT is striving to increase AUM to $2 billion by 2018, we believe that future acquisitions could be accompanied by equity fund raising, and that these acquisitions would be mildly accretive only,” adds Yeo.
As at 11.30am, units in KDCREIT are trading 1 cent higher at $1.44 or 1.49 times FY18 book value.
