After market hours yesterday (19 April 2022), Singapore’s first pure-play data centre REIT in Keppel DC REIT (SGX:AJBU) released its business updates for the first quarter of the financial year 2022 ended 31 March 2022. As the REIT have switched to reporting its full financial statements on a half-yearly basis, it only provided an update of the key financial results. Also, no distribution payout is declared for the current quarter under review as it has switched to paying out a distribution to its unitholders on a half-yearly basis.

Before I begin to look at some of the key updates (pertaining to its financial performance, portfolio occupancy and debt profile), let me do a quick introduction about the REIT for those of you who are new to it – the REIT is currently a component of Singapore’s benchmark Straits Times Index (STI), and at the time of writing, its portfolio comprises of 21 data centre properties located in several geographical locations – Singapore (6), Australia (2), China (1), Malaysia (1), Germany (2), Ireland (2), Italy (1), the Netherlands (3), as well as in the United Kingdom (3).

Financial Performance (Q1 FY2021 vs. Q1 FY2022)

The following table is the REIT’s financial performance on a quarter-on-quarter (q-o-q) basis:

Q1 FY2021Q1 FY2022% Variance
Gross Revenue
(S$’mil)
$66.7m$66.1m-0.9%
Property Operating
Expenses (S$’mil)
$5.7m$6.0m+4.9%
Net Property
Income (S$’mil)
$61.0m$60.1m-1.4%
Distributable Income
to Unitholders
(S$’mil)
$42.0m$44.5m+5.9%

My Observations: I am personally disappointed by the slowdown in terms of the growth of its gross revenue and net property income over the quarters, where, from a double-digit percentage growth years ago, it has gradually slowed to single-digit percentage growth, and now a negative growth.

No doubt its distributable income to unitholders saw a 5.9% q-o-q gain (mainly due to recent data centre acquisitions and investment in debt securities, but partially offset by lower contributions from its Singapore assets as a result of provisions made for a client payment under dispute at KDC SGP 1, and higher electricity costs), but just like how its gross revenue and net property income have trended over the years, its growth have slowed significantly (from a high of 20-30+% of q-o-q growth to just a low single-digit percentage growth in the recent quarters.)

Portfolio Occupancy Profile (Q4 FY2021 vs. Q1 FY2022)

Next, let us take a look at the data centre REIT’s portfolio occupancy profile – where I will be taking the stats recorded for the current quarter under review (i.e. Q1 FY2022 ended 31 March 2022), and compare them against the stats recorded in the previous quarter 3 months ago (i.e. Q4 FY2021 ended 31 December 2021) to find out whether or not it has continued to remain resilient, or just like its financial performance, its showing signs of deterioration:

Q4 FY2021Q1 FY2022
Portfolio Occupancy
(%)
98.3%98.7%
Portfolio WALE
(years)
7.5 years7.7 years

My Observations: It’s good to note that in terms of its portfolio occupancy profile, it has improved compared to the previous quarter.

Lease expiries is also very well-spread out – where 17.1% of the leases (by rental income) will be expiring in the remaining quarters of the current financial year, 13.0% will be expiring in FY2023, 23.4% in FY2024, and the remaining 46.5% of the leases will be expiring only in FY2025 and beyond.

Debt Profile (Q4 FY2021 vs. Q1 FY2022)

Just like how I have studied the REIT’s portfolio occupancy profile in the previous section, I will also be reviewing its debt profile by comparing the statistics reported for the current quarter under review against the previous quarter 3 months ago, and they are as follows:

Q4 FY2021Q1 FY2022
Aggregate Leverage
(%)
34.6%36.1%
Interest Coverage
Ratio (times)
10.8x10.0x
Average Term to
Debt Maturity (years)
3.9 years3.8 years
Average Cost of
Debt (%)
1.6% 1.8%

My Observations: While the data centre REIT’s debt profile have increased slightly, but in my opinion, it continues to remain healthy – particularly its aggregate leverage, at 36.1%, still remains plenty of headroom for the REIT to embark on further yield-accretive acquisitions to improve its returns to unitholders. Another thing to note is that its interest coverage ratio, at 10.0x as at 31 March 2022, remains one of the highest among the Singapore-listed REITs.

Its debt maturity profile is also well-spread out over the years – with 11.4% of its borrowings maturing in the remaining months of the current financial year, 12.7% maturing in FY2023, 4.5% expiring in FY2024, and the remaining 71.4% expiring only in FY2025 and beyond. Also, 76% of its loans have also been hedged through floating-to-fixed interest rate swaps – which means that the impact of interest rate hikes is pretty minimal (in my opinion.)

Closing Thoughts

The data centre’s negative gross revenue and net property income growth for the current quarter under review (compared against the same time period last year) is a damper in my opinion. Also, a slowdown of these 2 financial statistics (in terms of its growth percentage) over the financial years is indeed some cause for concern here.

As the REIT has a very healthy debt profile, it is more than capable to fund for further yield-accretive acquisitions to improve on its financial performance in my opinion, and I look forward to more of such activities happening in the coming quarters ahead.

With that, I have come to the end of my review of Keppel DC REIT’s latest business update. Do take note that everything you’ve just read in this post is purely for information purposes only, and that they do not represent any buy or sell calls for the REIT’s units. As always, you’re strongly advised to do your own due diligence before you make 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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