October 16, 2019

3Q19 gross revenue/NPI was 2.5%/1.8% lower yoy, mainly due to weakness of A$, € and £ against the S$. The FX weakness was partially offset by a significantly higher net realised gain on derivatives of S$1.6m in 3Q19.

The equity fund raising exercise to raise S$478.2m drew strong interest and allowed KDCREIT to raise funds at the top end of the range at a discount of 2.5-4.4% of VWAP. The preferential offering to raise c.S$242.8m at S$1.71 per new unit was 175.4% subscribed. The private placement for c.S$235.4m was c.9.3x covered at S$1.744 per new unit. As of 15 Oct 2019, all new shares have been issued and listed.

Portfolio occupancy was higher at 93.6% due to the completion of fit-out works at Dublin 2 in Jul 19, which raised its occupancy rate to 100%. This increase in occupancy was also reflected in SGP 1 and Dublin 1 which saw improvements of 0.3% and 3.9% pts, respectively, as new tenants were secured. KDCREIT’s WALE registered a slight decline to 7.7 years previously due to time decay and was slightly offset by minor renewals. Upcoming expiries in FY19/FY20 continue to be low at 1.3%/5.3%.

KDCREIT’s gearing was reduced to 28.9% in 2Q19 due to the private placement; post-completion of the latest set of acquisitions, KDCREIT expects gearing to be 30.3% on a pro-forma basis. Its S$-denominated loans due end-2019 were also refinanced for 6 years to 2025. Overall, average cost of debt remained at 1.7% while debt tenor was increased to 3.8 years. 80% of loans are hedged to manage interest rate exposure.

We maintain our DPU forecasts but roll forward our valuations and lower our risk-free rate assumption for Australia, leading to a higher DDM-based TP of S$1.88. Maintain Hold with a higher Target Price of S$1.88. – CGS CIMB

Closing Price: S$2.00