Singapore’s first pure-play data centre REIT in Keppel DC REIT (SGX:AJBU) have made available its financial results for the first half of the financial year 2022 (ended 30 June 2022) shortly after market closed yesterday evening (25 July 2022.)

At the time of writing, the REIT’s portfolio comprises of 21 data centres located in the following countries (with the number of data centres in round brackets) – Singapore (6), Malaysia (1), Australia (2), China (1), United Kingdom (3), The Netherlands (3), Ireland (2), Italy (1), and Germany (2).

In this post, you will find my review of the data centre REIT’s latest set of results – in terms of its financial performance, portfolio occupancy and debt profile, and also its distribution payout declared for the first half of the financial year 2022.

Let’s begin:

Financial Performance (1H FY2021 vs. 1H FY2022, and Q2 FY2021 vs. Q2 FY2022)

In this section, I will be reviewing the REIT’s financial results both on a year-on-year (y-o-y) basis (i.e. 1H FY2021 vs. 1H FY2022), as well as on a quarter-on-quarter (q-o-q) basis (i.e. Q2 FY2021 vs. Q2 FY2022 – which I have computed manually based on its results from the first quarter, as well as from the first half of the respective financial years):

1H FY2021 vs. 1H FY2022:

1H FY20211H FY2022Variance (%)
Gross Revenue
(S$’mil)
$135.1m$135.4m+0.3%
Property Operating
Expenses (S$’mil)
$11.3m$12.3m+8.8%
Net Property
Income (S$’mil)
$123.8m$123.2m-0.5%
Distributable Income
to Unitholders
(S$’mil)
$84.3m$91.2m+8.2%

Compared to the same time period last year (i.e. 1H FY2021), its gross revenue and net property income growth were pretty much muted – contributions from the newly acquired Guangdong Data Centre (completed in December 2021), Eindhoven Campus (completed in September 2021), London Data Centre (completed in January 2022), contract renewals, as well as contributions from the asset enhancement initiatives at DC1 and the Dublin assets, and the completion of Intellicentre 3 East Data Centre in July 2021 were partially offset by the divestment of iseek Data Centre, net lower contributions from the Singapore colocation assets (largely arising from provisions made for DXC at KDC SGP 1 and higher electricity costs), along with the depreciation of the Euro, British Pounds, and the Australian Dollar against the Singapore Dollar.

Property operating expenses went up 8.8% on a y-o-y basis due to the acquisition of Eindhoven Data Centre, as well as higher property-related expenses recorded at the assets in Dublin.

Finally, the 8.2% growth in its distributable income to unitholders can be attributed to contributions to the REIT’s accretive acquisitions (of Guangdong Data Centre, Eindhoven Campus, and London Data Centre), asset enhancement initiatives (at DC1, Dublin Assets, and completion of Intellicentre 3 East Data Centre), contract renewals and client expansion, along with its investment in NetCo Bonds (issued by M1 Network Private Limited, which was completed in December 2021.)

Q2 FY2021 vs. Q2 FY2022:

Q2 FY2021Q2 FY2022Variance (%)
Gross Revenue
(S$’mil)
$68.5m$69.4m+1.4%
Property Operating
Expenses (S$’mil)
$5.6m$6.3m+12.7%
Net Property
Income (S$’mil)
$62.8m$63.1m+0.4%
Distributable Income
to Unitholders
(S$’mil)
$42.2m$46.6m+10.4%

My Observations: Just like its financial performances on a y-o-y basis which we have looked at above, its results on a q-o-q was also pretty much a muted one – with the slight improvements in its top- and bottom-line due to contributions from the newly acquired properties.

The improvement in its distributable income to unitholders for the current quarter under review (i.e. Q2 FY2022) also included the REIT’s investment in NetCo Bonds (completed in December 2021.)

Portfolio Occupancy Profile (Q1 FY2022 vs. Q2 FY2022)

When it comes to reviewing a REIT’s portfolio occupancy profile, I will always take the statistics reported for the current quarter under review (in this case, it is for Q2 FY2022 ended 30 June 2022), and compare against the statistics reported in the previous quarter 3 months ago (in this case, it is Q1 FY2022 ended 31 March 2022) to find out if it has continued to remain resilient.

With that, let us have a look at the statistics in the table below:

Q1 FY2022Q2 FY2022
Portfolio Occupancy
(%)
98.7%98.2%
Portfolio WALE
(years)
7.7 years7.6 years

My Observations: While its portfolio occupancy and WALE dipped slightly compared to the previous quarter, but personally, I’m not concerned as its occupancy rate, at 98.2% (as at 30 June 2022), still remains very healthy.

Also, its WALE continues to be lengthy – in terms of lease expiries ahead, only 5.0% of the leases (by rental income) will be expiring in the second half of the current financial year, 12.8% of the leases expiring in FY2023, 23.2% of the leases expiring in FY2024, and 59.0% of the leases only expiring in FY2025 and beyond.

Debt Profile (Q1 FY2022 vs. Q2 FY2022)

Just like how I have reviewed 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 that reported 3 months ago to find out whether or not it has continued to remain healthy, and here are the numbers:

Q1 FY2022Q2 FY2022
Aggregate Leverage
(%)
36.1%35.3%
Interest Coverage
Ratio (times)
10.0x9.2x
Average Term to
Debt Maturity (years)
3.8 years4.1 years
Average Cost of
Debt (%)
1.8%1.9%

My Observations: Compared to the previous quarter, its debt profile was a little of a mixed bag – while improvements can be seen in its aggregate leverage and average term to debt maturity, but its interest coverage ratio and average cost of debt have edged down slightly (again I’m not too concerned as the former is still on the high side – personally, anything above 5.0x is concerned to be ideal in my opinion; for the latter, at 1.9%, its average cost of debt is still on the low side.)

As to whether or not there are risks to the REIT from interest rate hikes, as at 30 June 2022, 76% of its borrowings are hedged through floating-to-fixed interest rate swaps, and this provides a pretty decent “protection” against any possible risks relating to it.

Finally, on its debt maturity profile, only 3.0% of its borrowings will be expiring in the second half of the year (which is very minimal), 12.5% of its borrowings expiring in FY2023, 4.5% of its borrowings expiring in FY2024, and a huge bulk (80.0%) of its borrowings only expiring in FY2025 and beyond.

Distribution Payout to Unitholders (1H FY2021 vs. 1H FY2022)

The management of Keppel DC REIT declares a distribution payout to its unitholders on a semi-annual basis – once when it releases its results for the first half of the financial year (which is this time round), and once when it releases its results for the second half of the financial year (normally around end-January.)

Let us take a look at the distribution payout declared this time round (i.e. 1H FY2022 ended 30 June 2022) and compare it against that declared in the same time period a year ago (i.e. 1H FY2021 ended 30 June 2021):

1H FY20211H FY2022Variance (%)
Distribution Per
Unit (S$’cents)
4.924 cents5.049 cents+2.5%

If you are a unitholder of the REIT, do take note of the following dates on the distribution payout:

Ex-Date: 01 August 2022
Record Date: 02 August 2022
Payout Date: 09 September 2022

Closing Thoughts

The data centre REIT’s latest set of results was pretty much within my expectations – without much acquisition announcements in the first half of the year, I expect its financial performance to be as such.

On its portfolio occupancy profile, no doubt its portfolio occupancy have weakened slightly, but I’m sure you’ll agree with me that at 98.2% (as at 30 June 2022), it still remains very healthy.

Also, its aggregate leverage, at 35.3%, still has plenty of debt headroom for the REIT to embark on further yield-accretive acquisitions when an opportunity to do so becomes available (at the same time, it will need to be mindful that with interest rates set to rise further in the coming months ahead, the REIT will also need to be prudent on that front.)

Finally, for those who are interested to know my views about how the REIT may perform in the second half of the year, I am of the opinion that its results will very likely be similar to that for the first half of the year (which we have just seen above), where it will be pretty much muted – unless or otherwise there are any acquisitions made (and hence contributions from the newly acquired properties.) Despite of that, I’m still confident of the management’s abilities to grow the REIT in the years ahead, and will continue to stay invested in it for the long haul.

With that, I have come to the end of my review on Keppel DC REIT’s latest “report card” for the first half of FY2022 ended 30 June 2022. Hope you’ve found the contents presented above useful, and do note that everything you’ve read about above (especially my opinions) are purely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. You’re strongly encouraged to do your own due diligence before you make any investing decisions.

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Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.

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