Keppel DC REIT Review @ 25 July 2023

Basic Profile & Key Statistics

• Main Sector(s): Industrial
• Country(s) with Assets: Singapore, Australia, Ireland, Germany, Netherlands, China, England, Italy & Malaysia
• No. of Properties (exclude development/associate/fund): 23

Key Indicators

Performance Highlight

Gross revenue and NPI improved YoY mainly due to the acquisitions of Guangdong DC 2 and the building shell of Guangdong DC 3, as well as income escalations and contract renewals. Finance income has also improved YoY mainly due to coupon income from Guangdong Data Centre 3. However, distributable income and DPU are similar due to higher finance costs (more than 70% increase). Tax savings of approximately $1 million arising from approvals obtained for the NetCo

Bonds to be qualified as Qualifying Project Debt Securities have been included in 1H 2023 distribution. Without this, the distributable income and DPU declined slightly.

Acquisition

The acquisition of the building shell of Guangdong Data Centre 3 was completed in Aug 2022. It is expected to be fully fitted by 3Q 2023.

Related Parties Shareholding

• REIT Sponsor's Shareholding: Below median by 20% or more
• REIT Manager's Shareholding: Below median by 20% or more
• Directors of REIT Manager's Shareholding: Below median by 20% or more

Lease Profile

• Committed Occupancy: ± 5% from median
• WALE: Above median by 10% or more
• Highest Lease Expiry within 5 Years: ± 10% from median; Falls in 2024
• Weighted Average Land Lease Expiry: Below median by 20% or more

Debt Profile

• Gearing Ratio: ± 10% from median
• Cost of Debt: ± 10% from median
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: 100%
• WADM: Above median by 20% or more
• Highest Debt Maturity within 5 Years: Above median by 20% or more; Falls in 2027
• Interest Coverage Ratio: Above median by 20% or more

Diversification Profile

• Top Geographical Contribution: ± 10% from median
• Top Property Contribution: Below median by 20% or more
• Top 5 Properties' Contribution: Below median by 10% or more
• Top Tenant Contribution: Above median by 20% or more
• Top 10 Tenants' Contribution: Above median by 20% or more

Key Financial Metrics

• Property Yield: Above median by 20% or more
• Management Fees over Operating Distributable Income: Below median by 10% or more; $ 6.67 distribution for every dollar paid
• Operating Distributable Income on Capital: Above median by 20% or more
• Operating Distributable income Margin: Above median by 20% or more
• Operating Distribution Proportion: Above median by 5% or more

DPU Breakdown

• TTM DPU Breakdown
• 96.7% from Operation
• 3.1% from Management Fees Paid in Units
• 0.2% from Income Support
• TTM DPU = 94.9% of Distributable Income

Trends

• Uptrend: DPU from Operation, NAV per Unit, Committed Occupancy, Operating Distributable Income Margin
• Flat: Operating Distributable Income on Capital
• Downtrend: Interest Coverage Ratio, Property Yield

Relative Valuation

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

Author's Opinion

Favorable	Less Favorable
High Occupancy	Low REIT Sponsor's Shareholding
Long WALE	Low REIT Manager's Shareholding
100% Unsecured Debt	Low Directors of REIT Manager's Shareholding
Long WADM	Short Weighted Average Land Lease Expiry
High Interest Coverage Ratio	Concentrated Debt Maturity
Low Top Property Contribution & Top 5 Properties' Contribution	High Top Tenant Contribution & Top 10 Tenants' Contribution
High Property Yield	Interest Coverage Ratio Downtrend
Competitive Management Fees	Property Yield Downtrend
High Operating Distributable Income on Capital
High Operating Distributable Income Margin
High Operating Distribution Proportion
DPU from Operation Uptrend
NAV per Unit Uptrend
Occupancy Uptrend
Operating Distributable Income Margin Uptrend

Compared to the previous half-yearly period, KDC's performance has slightly declined, mainly due to a decrease in NPI and an increase in finance costs. There is no requirement for debt refinancing this year, and only 4.1% of the debt will expire in 2024. Coupled with the 73% of the debt at a fixed rate, any further increase in interest costs is expected to be minimal. As for Guangdong Data Centre 3, it is expected to be fully fitted by 3Q 2023, and it would be leased to master lease client on a fully-fitted, triple-net basis for 15 years.

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.