Keppel DC REIT (SGX:ABJU), Asia’s first pure-play data centre REIT which invests in real estate assets used for data centre purposes (where its portfolio has a optimal mix of colocation, fully-fitted, along with shell and core assets), as well as debt securities issued by M1 Network Private Limited (NetCo) which holds network assets, have made available its business update for the first quarter of the financial year 2023 (ended 31 March 2023) after market hours this evening (18 April 2023.)
As the data centre REIT have switched to half-yearly reporting of its full financial results for the current quarter under review, it only provided some of the key financial figures, which we will be looking at in this post, together with its portfolio occupancy and debt profile. I’ll also be sharing my thoughts about the REIT’s latest set of results.
Let’s begin:
Key Financial Figures (Q1 FY2022 vs. Q1 FY2023)
In this section, let us take a look at some of the data centre REIT’s key financial figures recorded for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) compared against the same time period last year (i.e. Q1 FY2022 ended 31 March 2022):
| Q1 FY2022 | Q1 FY2023 | % Variation | |
| Gross Revenue (S$’mil) | $66.1m | $70.4m | +6.5% |
| Property Operating Expenses (S$’mil) | $6.0m | $6.5m | +9.0% |
| Net Property Income ($’mil) | $60.1m | $63.9m | +6.3% |
| Distributable Income to Unitholders (S$’mil) | $44.5m | $46.3m | +4.1% |
My Observations: On the whole, the REIT’s latest set of key financial figures is a stable one (in my opinion) – with improvements in its top- and bottom-line attributed to the newly acquired Guangdong Data Centre 2 and building shell of Guangdong Data Centre 3, completed asset enhancement initiatives, renewals, and income escalations, along with tax savings (tax savings for FY2022 of approximately $1m will form part of the distributable income over the first 2 quarters of FY2023) from approvals obtained for the NetCo Bonds to be qualified as QPDS.
However, this was offset by lower net contributions from some of the Singapore colocation assets arising from higher facilities expenses including electricity costs, higher finance costs from refinanced loans, as well as unhedged loans, along with the depreciation of foreign currencies against the Singapore dollar.
Portfolio Occupancy Profile (Q4 FY2022 vs. Q1 FY2023)
When it comes to reviewing a REIT’s portfolio occupancy profile, I will compare the figures recorded for the current quarter under review against that recorded in the previous quarter 3 months ago to find out if it has continued to remain resilient.
In the following table, you will find a comparison of the REIT’s portfolio occupancy profile for Q1 FY2023 ended 31 March 2023, against that recorded in the previous quarter (i.e. Q4 FY2022 ended 31 December 2022):
| Q4 FY2022 | Q1 FY2023 | |
| Portfolio Occupancy (%) | 98.5% | 98.5% |
| Portfolio WALE (years) | 8.4 years | 8.2 years |
My Observations: The data centre REIT’s portfolio occupancy, at 98.5%, is a very strong one. The same can also be said for its long WALE (Weighted Average Lease Expiry) by net lettable area of 8.2 years.
In terms of lease expiries (by net lettable area) in the coming years, only 9.8% of the leases are expiring in FY2023 and FY2024, 26.5% in FY2025, and 63.7% of the leases only expiring in FY2026 or later – this provides a good level of income stability for the REIT.
Debt Profile (Q4 FY2022 vs. Q1 FY2023)
Moving on to reviewing the data centre REIT’s debt profile, I will also be comparing the statistics recorded for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) against that recorded in the previous quarter 3 months ago (i.e. Q4 FY2022 ended 31 December 2022) to find out if it has continued to remain healthy:
| Q4 FY2022 | Q1 FY2023 | |
| Aggregate Leverage (%) | 36.1% | 36.8% |
| Interest Coverage Ratio (times) | 10.0x | 6.8x |
| Average Term to Debt Maturity (years) | 3.8 years | 3.8 years |
| Average Cost of Debt (%) | 1.8% | 2.8% |
| % of Borrowings Hedged at Fixed Rates (%) | 74% | 73% |
My Observations: No doubt its debt profile have weakened slightly compared to the previous quarter 3 months ago, but in my opinion, they continue to remain healthy – particularly, its aggregate leverage, at 36.8%, has a very wide headroom before the regulatory level of 50.0% is reached, allowing the REIT room to make further yield-accretive acquisitions as and when a good one comes around.
Another thing to note is that, in terms of debt maturity profile, the REIT only have a minimal percentage of borrowings due for refinancing over the next 3 years – just 4.9% in FY2023, 4.0% in FY2024, and 6.9% in FY2025. A huge bulk of the REIT’s borrowings (84.2%) will only be due for refinancing from FY2026 or later – and by then, interest rates is very likely going to come down to more manageable levels.
The only slight negative in the REIT’s debt profile is that, with just 73% of its borrowings hedged at fixed rates, the REIT may somewhat be impacted by the impacts of rising interest rates, where, a 100bps increase (in interest rates) will have an approximately 2.2% impact to Q1 FY2023’s distribution per unit on a pro forma basis.
Closing Thoughts
As a unitholder, I’m happy with the REIT’s latest set of results – financial performance continues to remain stable with a mid single-digit percentage growth in its top- and bottom-line, portfolio occupancy continues to remain very high, with a very long WALE (hence ensuring a certain level of income stability.)
Its debt profile is also considered to be very healthy – where its aggregate leverage is a very safe distance away from the regulatory limit, and also there’s only a small percentage of borrowings due for refinancing over the next 3 years. The only slight negative is that, its percentage of borrowings hedged at fixed costs (at 73%), is a bit on the low side (and as such, the REIT’s distributions will be affected by the increase in interest costs) – but given that the Fed is likely at the tail end of further interest rate hikes, it doesn’t make much sense to further increase the percentage of borrowings at fixed rates at the moment.
With that, I have come to the end of my review of Keppel DC REIT’s latest Q1 business update. As always, all the opinions shared above are purely mine, which I am sharing for educational purposes only. 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 investment decisions.
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Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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