Keppel DC REIT - A sweet first deal in Germany

• Target acquisition is in a key data centre hub with high barriers of entry near Frankfurt

• Accretive deal with many positives

BUY maintained, TP S$1.14

A sweet first deal in Germany
Keppel DC REIT announced the signing of a forward sale and purchase agreement with mainCubes One Immobilien GmbH & Co. KG (vendor) to acquire a data centre (maincubes DC) that will be fitted out to Tier III specifications, which is expected to complete in 2018. The purchase consideration is EUR84m (S$130m), 2.5% discount to valuation. The REIT will pay an initial deposit of 10% of the price upon contract signing, with the remainder upon completion. Post completion, mainCubes DC will be leased back on a 15-year triple-net lease with annual rental escalations, offering strong income visibility to the REIT.

Key data centre market with high barriers of entry
Maincubes DC will be located within the Offenbach am Main data centre hub, which is about 10km away from Frankfurt, Germany. This deal will represent Keppel DC REIT’s first foray into Frankfurt’s data centre market, which we understand should see healthy utilisation rates of c.80% on the back of accelerating demand for co-location space by end users, supported by excellent infrastructure already in place.

Accretive acquisition with minimal downside risks 
We see many positives in this acquisition with

(i) an attractive initial yield of 7.15% which will be immediately accretive to distributions,

(ii) substantially derisking any development risk to the vendor during construction period of which Keppel DC REIT will receive 7.15% coupon in return during the period,

(iii) an increase in portfolio WALE from 8.9 to 10.0 years, offering increased income visibility. Gearing is estimated to increase to c.31% after payment of the 10% deposit.

Technical Analysis
Daily Chart
BUY, S$1.14 TP maintained
DPU is estimate to rise 2.7% on a proforma basis. Keppel DC REIT continues to utilise its under-geared balance sheet and deliver on the acquisition front and we see more earnings upside in the medium term upon the expected acquisition of its data centre in SG from its sponsor. Maintain BUY. (Read Report)

Read Related Report
1) Keppel DC REIT - Accretive acquisition in Germany by Credit Suisse Asia Pacific Equity Research, published on 29 October 2015

Source : DBS Group Research

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