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Monday, January 31, 2022

Keppel DC REIT Review @ 31 January 2022

Basic Profile & Key Statistics

Keppel DC REIT (KDC) is a data centre REIT that owns 21 properties across 9 countries.

Performance Highlight

Despite a drop in gross revenue and NPI, the distributable income and DPU improved YoY. The financial statement explained that the decrease in gross revenue and NPI are due to lower rental non-cash income adjustment on a straight-lining basis, cessation of excess rent paid to the vendor at Kelsterbach DC, absence of one-off revenue and expenses reduction from the Singapore colocation assets and the divestment of iseek DC. However, no detailed explanation on how higher distributable income is achieved especially in the "other net adjustments" section where the amount is S$ 7 mil lower YoY. 

Acquisition
In December 2021 KDC completed the acquisition of Guangdong Data Centre and Investment in the NetCo Bonds and Preference Shares. In January 2022, KDC also completed the acquisition of the London Data Centre. 

Related Parties Shareholding

  • REIT sponsor's shareholding is low at 20.001%
  • REIT manager's shareholding is low at 0.407%
  • Directors of REIT manager's shareholding is low at 0.039%

Lease Profile

  • Occupancy is high at 98.3%
  • WALE is long at 4.9 years
  • Highest lease expiry within 5 years is low at 24% which falls in 2024
  • Weighted average land lease expiry is slightly short at 56.96 years

Debt Profile

  • Gearing ratio is slightly low at 34.6%
  • Cost of debt is low at 1.6%
  • Fixed rate debt % is moderate at 74%
  • All debts are unsecured debt
  • WADM is long at 3.9 years
  • Highest debt maturity within 5 years is low at 22.1% which falls in 2026
  • Interest coverage ratio is high at 10.8 times

Diversification Profile

  • Top geographical contribution is high at 60.9% 
  • Top property contribution is low at 12.6% 
  • Top 5 properties contribution is low at 49.7% 
  • Top tenant contribution is high at 38% 
  • Top 10 tenants contribution is high at 78.7%
  • Top 3 countries contribution is from Singapore, Australia and Ireland which contribute more than 70% of valuation

Key Financial Metrics

  • Property yield is high at 7.9%
  • Management fees over distribution is moderate at 13.9% in which unitholders receive S$ 7.19 for every dollar paid 
  • Distribution on capital is high at 5.2%
  • Distribution margin is high at 62.3%

Trends

  • Uptrend - DPU, NAV per Unit, Interest Coverage Ratio, Distribution Margin
  • Flat - Property Yield, Distribution on Capital

Relative Valuation

  • P/NAV - Below -1SD for 1y; Below average for 3y; Average for 5y
  • Dividend Yield - Above +2SD for 1y; Above +1SD for 3y; Average for 5y

Author's Opinion

 Favorable Less Favorable
High OccupancyLow REIT Sponsor's Shareholding
Long WALELow REIT Manager's Shareholding
Well Spread Lease ExpiryLow Directors of REIT Manager's Shareholding
Low Cost of DebtHigh Top Geographical Contribution
100% Unsecured DebtHigh Top Tenant & Top 10 Tenants Contributions
Long WADM 
Well Spread Debt Maturity 
High Interest Coverage Ratio 
Low Top Property & Top 5 Properties Contributions 
High Property Yield 
High Distribution on Capital 
High Distribution Margin 
DPU Uptrend 
NAV per Unit Uptrend 
Interest Coverage Ratio Uptrend 
Distribution Margin Uptrend

Despite some slight drop of performance in 2H as compared to the previous year, KDC fundamental remains resilient. For upcoming quarters, it is expected that KDC performance would be improved because of the recently acquired data centres and investment in NetCo. The current share price is at the 52 weeks low range. The P/NAV is lower than its historical average P/NAV and dividend yield is higher than historical average dividend yield.


You could also refer below for more information:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and Detail of Singapore REIT

REIT Analysis - List of previous REIT analysis posts


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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