Listed on the Singapore Exchange on 12 December 2014, Keppel DC REIT (SGX:AJBU) is the first pure-play data centre REIT in Asia, where it invests in income-producing real estate assets used primarily for data centre purposes.
At the time of writing, the REIT’s portfolio comprises 23 data centres strategically located in key data centre hubs (in Asia Pacific, it has 7 in Singapore, 2 in Australia, 1 in Malaysia, 3 in China; in Europe, it has 3 in United Kingdom, 2 in Ireland, 3 in The Netherlands, 1 in Italy, and 2 in Germany), with assets under management of approximately S$3.7 billion.
Following the conclusion of its financial year on 31 December 2022 (you can read my review of the data centre REIT’s 4th quarter and full-year results here), the REIT have released its annual report early this morning (28 March 2023.)
In this post, you’ll find notes I have taken after going through the REIT’s annual report (which I’m sharing for the benefit for those who do not have the time to go through it), along with details about its upcoming annual general meeting (AGM):
Chairman Ms Christina Tan’s Statement
Growing a Resilient Portfolio:
- Amid high inflation, aggressive interest rate hikes, and increased geopolitical tensions, Keppel DC REIT still manage to report a strong set of results for FY2022, as a result of the management’s focus on strengthening the REIT’s portfolio, while exercising prudence in terms of capital management.
- Particularly, distributable income saw a 7.7% increase to $184.9m (FY2021: $171.6m), with distribution per unit growing by 3.7% to 10.214 cents (FY2021: 9.851 cents), mainly attributable contributions from the accretive acquisitions (London Data Centre, Guangdong DC 1 & 2, and building shell of Guangdong DC 3, and Eindhoven Campus), the investment in NetCo Bonds (Bonds issued by M1 Network Private Limited), and contributions following the completion of asset enhancement initiatives (AEI) at DC1 (in Singapore), and the Dublin assets (Keppel DC Dublin 1 & 2), as well as the. Completion of Intellicentre 3 Data Centre (in Australia.)
- Gross rental income increased 2.9% to $273.5m (FY2021: $265.8m), mainly due to the acquisitions of Guangdong DC 1, 2, and building shell of Guangdong DC 3, London DC, Eindhoven DC, positive income reversions, as well as contributions following the completion of AEIs at the Dublin Assets and the completion of IC3 East DC, partially offset by net lower contributions from the Singapore colocation assets (largely arising from higher facility expenses including electricity, staff, and maintenance costs), and provisions made in relation to the dispute with DXC at Keppel DC Singapore 1, along with depreciation in foreign currencies against the Singapore Dollar, and the cessation of contribution following the divestment of iseek Data Centre.
- Other income, however, fell by $1.5m (compared to FY2021) to $3.8m, mainly due to the cessation of rental top up at Keppel DC Singapore 4, partially offset by one-off government incentives received at Guangdong DC 1.
- Portfolio occupancy was at 98.5% (FY2021: 98.3%) with a long weighted average lease expiry (WALE) by area of 8.4 years (FY2021: 7.5 years) as at the end of FY2022 on 31 December 2022. Improvements can be attributed to the newly acquired assets with long remaining lease tenures, and the Manager’s continued proactive asset management efforts to improve the occupancy and income resiliency of the portfolio assets.
Upholding Financial Discipline:
- Aggregate leverage was 36.4% (FY2021: 34.6%), with the increase mainly due to borrowings drawn to fund the acquisitions of London DC, Guangdong DC 2 and initial payment for Guangdong DC 3. Its current aggregate leverage level still provides debt headroom to pursue strategic acquisitions. The REIT’s cost of debt was at 2.2%, with its interest coverage ratio at a healthy level of 7.6 times.
- 74% of loans are fixed through interest rate swaps, with a bulk of debt expiring in 2026 and beyond. The Manager will continue to hedge its foreign currency exposure by borrowing in local currencies where investments are made to minimise the impact of significant currency fluctuations. On top of that, to enhance stability of distributions to unitholders, the REIT’s forecast foreign sourced distributions have also been substantially hedged with foreign currency forward contracts till end 2023.
Pursuing Sustainable Growth:
- A dedicated Environmental, Social, and Governance (ESG) Committee was established at the Board level in February 2022 to provide oversight of the REIT’s ESG strategy, policies, and initiatives, along with monitoring its progress in driving long-term climate risk management and decarbonisation initiatives.
- During the financial year under review, the REIT have made its maiden submissions for 2 global ESG benchmarking and reporting frameworks – the GRESB Real Estate Assessment 2022, and the CDP Climate Change 2022 Questionnaire. It is also expanding its reporting disclosures to progressively align with the recommendations of the Taskforce of Climate-related Financial Disclosures (TCFD), along with the inclusion of the relevant inventory for Scope 3 emissions in its 2022 Sustainability Report.
Driving Value Creation:
- Management is optimistic about the continued demand for data centres, against the backdrop of increasing digitalisation, continued adoption of technologies such as the Internet of Things and generative artificial intelligence, as well as the rise of digital economy. This is on top of the continued growth in the colocation market, underpinned by demand from large cloud and internet companies, as well as limited supply of data centres in key data centre markets.
- Moving forward, the REIT’s management will continue to drive organic growth in its diversified global portfolio and strengthen income resilience through acquisitions (where the Keppel Group have more than $2 billion worth of data centre assets that the REIT could potentially acquire.)
Details of Keppel DC REIT’s Upcoming AGM
When? Wednesday, 19 April 2023
Where? Suntec Singapore Convention & Exhibition Centre, Nicoll 1-2, Level 3 – 1 Raffles Boulevard, Suntec City, Singapore 039593
There will be no options for unitholders of the REIT to attend the meeting virtually.
Unitholders who have units of the REIT held in their CDP account, as well as those who have invested in the REIT through their CPF/SRS accounts can just attend the meeting with their NRIC/passport for the staff to verify your unitholding on the spot. However, unitholders with units of the REIT held in a custodian account will need to approach their brokerage to request to attend the meeting as a proxy.
I will NOT be attending the REIT’s AGM as it clashes with another one which I will be attending – CapitaLand Integrated Commercial Trust’s AGM as well as EGM, so there will not be any summaries of the meeting.
Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
Launch Event for My First Book: building your REIT-irement portfolio
After months of hard work, my first book, 'Building Your REIT-irement portfolio' is finally ready! In this easy-to-follow 178-page guide, you'll learn everything you need to know about building a REIT portfolio that can provide for you in your retirement years. You can check out a preview of the book here.
I'm extremely thankful to the team at InvestingNote and ShareInvestor for their help to organise a book launch event for me on Tuesday, 26th September 2023, from 6:00pm to 8:00pm at their office in New Tech Park.
For more details and to RSVP (seats are extremely limited), click on the link below: