Singapore’s first pure-play data centre REIT – Keppel DC REIT (SGX:AJBU), released its financial results for the second half, as well as for the full-year ended 31 December 2021 (i.e. FY2021) after trading hours yesterday (24 January 2022.)
For those of you who are new to the REIT, currently, its portfolio comprises 21 data centre properties in the following countries (with the number of data centre properties the REIT has in each country in brackets): Singapore (6), Australia (2), China (1), Malaysia (1), Germany (2), Ireland (2), Italy (1), The Netherlands (3), United Kingdom (3).
In this post, you’ll read about the data centre REIT’s financial performance, portfolio occupancy and debt profile, distribution payout to unitholders, along with my personal thoughts about its latest “report card”:
Financial Performance (2H FY2020 vs. 2H FY2021, Q4 FY2020 vs. Q4 FY2021, and FY2020 vs. FY2021)
In this section, I’d be sharing with you the REIT’s financial performance for the second half of the year (i.e. 2H FY2020 vs. 2H FY2021), for the fourth quarter (which I’ve manually computed based on the financial figures reported for the third quarter and for the second half of the financial year), and finally, its financial performance for the full year:
2H FY2020 vs. 2H FY2021:
| 2H FY2020 | 2H FY2021 | % Variance | |
| Gross Revenue (S$’mil) | $141.6m | $135.9m | -4.0% |
| Property Operating Expenses (S$’mil) | $11.7m | $11.6m | -0.6% |
| Net Property Income (S$’mil) | $129.9m | $124.3m | -4.3% |
| Distributable Income to Unitholders (S$’mil) | $81.9m | $87.4m | +6.6% |
For the second half of the year, the data centre REIT’s result is a mixed bag – where it reported a lower gross revenue and net property income (as a result of an absence of an upward non-cash straight lining adjustment, cessation of excess rent paid to the vendor at Kelsterbach DC, absence of one-off revenue and expenses reduction from the Singapore colocation assets and the divestment of iseek DC), but a higher distributable income to unitholders (by 6.6%.)
Q4 FY2020 vs. Q4 FY2021:
| Q4 FY2020 | Q4 FY2021 | % Variance | |
| Gross Revenue (S$’mil) | $74.0m | $66.6m | -10.0% |
| Property Operating Expenses (S$’mil) | $6.4m | $6.0m | -5.3% |
| Net Property Income (S$’mil) | $67.6m | $60.5m | -10.4% |
| Distributable Income to Unitholders (S$’mil) | $41.5m | $44.3m | +6.9% |
Similar to its performance for the second half of the year, the REIT’s fourth quarter performance also saw its gross revenue and net property income recording a decline, and its distributable income to unitholders recording an improvement when compared against the same time period last year.
FY2020 vs. FY2021:
| FY2020 | FY2021 | % Variance | |
| Gross Revenue (S$’mil) | $265.6m | $271.1m | +2.1% |
| Property Operating Expenses (S$’mil) | $21.4m | $22.9m | +7.0% |
| Net Property Income (S$’mil) | $244.2m | $248.2m | +1.6% |
| Distributable Income to Unitholders (S$’mil) | $156.9m | $171.6m | +9.4% |
Despite its results for the second half of the year, as well as for the fourth quarter being a mixed bag (when compared against results reported for the same time period a year ago), its full-year results was a slightly improved one – with the 2.1% and 1.6% y-o-y improvements in its gross revenue and net property income mainly due to AEI (asset enhancement initiative) contributions from its Dublin and Singapore assets, full year contributions from Kelsterbach Data Centre in Germany (acquired in May 2020) and Amsterdam DC (acquired in December 2020), as well as from the acquisitions of Eindhoven Campus (in September 2021) and Guangdong DC. This also resulted in the REIT’s distributable income to unitholders recording a 9.4% y-o-y improvement.
Portfolio Occupancy Profile (Q3 FY2021 vs. Q4 FY2021)
Moving on, let us take a look at the data centre REIT’s portfolio occupancy profile – where I will be taking at look at the statistics recorded for the quarter under review (i.e. Q4 FY2021 ended 31 December 2021) and compare it against the statistics recorded in the previous quarter three months ago (i.e. Q3 FY2021 ended 30 September 2021) to find out if it has improved, remained more or less the same, or deteriorated:
| Q3 FY2021 | Q4 FY2021 | |
| Portfolio Occupancy (%) | 98.1% | 98.3% |
| Portfolio WALE (years) | 7.0 years | 7.5 years |
My Observations: From my understanding, the REIT’s portfolio occupancy rate at 98.3% the end of the fourth quarter of the financial year 2021 is a record high. Also, its portfolio weighted average lease expiry (WALE) have improved to 7.5 years (compared to 7.0 years in the previous quarter ended 30 September 2021) – as a unitholder, I’m pleased to see such results.
In terms of lease expiries in the coming few years ahead, I must say they are quite well-staggered, with 18.7% of the leases (by gross rental income) expiring in the year 2022 ahead, 13.3% of the leases (by gross rental income) expiring in 2023, and another 24.0% of the leases expiring in 2024, with the remaining 44.0% of the leases expiring in the year 2025 and beyond.
Debt Profile (Q3 FY2021 vs. Q4 FY2021)
Another area I focus my attention on (if the company I’m studying is a REIT) will be its debt profile – just like how I have studied its portfolio occupancy profile in the previous section, I’ll also be comparing the statistics recorded for the current quarter under review against that recorded in the previous quarter 3 months ago, as follows:
| Q3 FY2021 | Q4 FY2021 | |
| Aggregate Leverage (%) | 35.1% | 34.6% |
| Interest Coverage Ratio (times) | 12.2x | 10.8x |
| Average Term to Debt Maturity (years) | 3.2 years | 3.9 years |
| Average Cost of Debt (%) | 1.6% | 1.6% |
My Observations: Looking at the REIT’s debt profile recorded for the fourth quarter of FY2021 (ended 31 December 2021) compared against the previous quarter (i.e. Q3 FY2021 ended 30 September 2021), I must say they have improved – based on its interest coverage ratio (which way exceeds the 2.5x for the REIT’s aggregate leverage limit to be at 50.0%), at 34.6% (a 0.5 percentage point improvement compared to the previous quarter), there still remains ample debt headroom (of about S$1.1 billion) for the REIT to make further yield-accretive acquisitions before the regulatory limit is reached (However, I understand that the REIT intends to keep its aggregate leverage at 30.0% and 40.0% – and if based on the cap at 40.0%, there remains approximately S$334m of debt headroom.)
Finally, about 12.3% (all in Euro Dollars) of its total borrowings will be maturing in the coming financial year 2022 ahead.
Distribution Payout to Unitholders
Keppel DC REIT’s management pays out a distribution to its unitholders on a semi-annual basis (once when it releases its second quarter results, and once when it releases its fourth quarter results).
For the second half of the current financial year, a distribution payout of 1.421 cents/unit (distribution for the period between 01 July and 22 August 2021) have been distributed to the REIT’s unitholders prior to its private placement exercise in August 2021. For the period between 23 August and 31 December 2021, a distribution payout of 3.506 cents/unit has been declared for its unitholders – if you add up the 2 distribution payout amounts, this totals to 4.927 cents/unit, a 2.8% improvement compared to 4.795 cents/unit declared for the same time period last year (i.e. 2H FY2020.)
On a y-o-y basis, the REIT’s total distribution payout saw a 7.4% improvement to 9.851 cents – vs. 9.170 cents/unit paid out in FY2020.
If you are a unitholder of the REIT, do take note of the following dates regarding its distribution payout:
Ex-Date: 31 January 2022
Record Date: 03 February 2022
Payout Date: 10 March 2022
Closing Thoughts
No doubt its results for the second half of the current financial year under review is a slightly weaker one compared to last year, but do take note that some of them are one-offs – so personally, I am not too concerned about it.
As far as its y-o-y results are concerned, its also not the most impressive compared to previous years – as this is the first year where its growth rate (in its gross revenue, net property income, and distributable income to its unitholders) were at single-digit percentages (compared to growth at double-digit percentages in previous years) – personally, I’m not too particularly concerned as I am of the opinion that REITs are not under the category of “growth companies” (these are companies where their top- and bottom-lines grow at high percentage rates every year as a result of aggressive organic and inorganic expansions) and it will come a time where the percentage growth in terms of its financial results will slow down and grow at a stable rate from there on (in fact, if you look at the performance of many Singapore-listed REITs, you’ll notice that many of them are also recording growth at single-digit percentages.) That said, I am of the expectation that the REIT’s financial results will continue to grow at such percentages in the coming financial years ahead.
Apart from its financial results, its portfolio occupancy continues to remain resilient (where its portfolio occupancy as at end of the current financial year under review was a record high for the REIT), and that there remains a very healthy debt headroom (based on its aggregate leverage of 34.6% as at 31 December 2021) for the REIT to embark on further yield-accretive acquisitions as an when an opportunity to do so come along.
Finally, on a full-year basis, I’m pleased to note that its distribution payout to unitholders have continued to improved compared to the year before.
With that, I have come to the end of my review of Keppel DC REIT’s latest set of results, and I hope you’ve found the contents above useful. However, do take note that all the opinions above are solely mine, which I’m sharing for educational purposes only. You’re strongly advised to do your own due diligence before making any investment decisions.
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Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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