Keppel DC REIT’s Latest Earnings: What Investors Should Know

Keppel DC REIT (SGX: ABJU) released its fiscal first-quarter earnings report yesterday. The reporting period was from 1 January 2015 to 31 March 2015.

The real estate investment trust (REIT) launched its initial public offering (IPO) late last year. The trust owns eight data center properties spread out over Australia, Asia, and Europe. You can read more about the REIT’s IPO here.

Financial Highlights

Here’s a rundown on Keppel DC REIT’s latest financial figures:

  1. Gross revenue was $31.2 million in the reporting quarter, about 3% more than the IPO projection of $30.2 million
  2. Net property income (NPI) of S$26.2 million was 2% above the IPO projection of S$25.6 million.
  3. Partly as a consequence of the higher NPI, the REIT’s distribution per unit (DPU) for the quarter will be 1.94 cents, 1% more compared to the 1.92 cents given in the IPO forecast.
  4. At the end of the quarter, Keppel DC RETI’s total portfolio value stood at $989 million, giving the REIT a net asset value per unit of $0.87.

Foolish investors might want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded, and its sensitivity to the interest rate environment. These are summarized for Keppel DC REIT below.

Aggregate Leverage 26.7%
Interest Cover 8.1 times
Weighted Average Debt to Maturity 4.1 years
Annualised cost of Debt 2.5%
Hedged Borrowings 100%
Total borrowings $288 million

Source: Keppel DC REIT’s earnings presentation

For Keppel DC REIT, the real test in its flexibility of funding will come in 2018, when about 55% of its loans become due.

Operational highlights

Keppel DC REIT ended the quarter with a portfolio occupancy rate of 93.6%. The weighted average lease expiry (WALE) was 7.5 years. This was distributed between a WALE of 2.9 years for co-location properties and a WALE of 10.8 years for properties running on double/triple-net leases. In both cases, the rental rates have built-in annual escalations of 2.0% to 4.0%.

The management team summarized the REIT’s outlook in the two paragraphs below:

“Cisco projects that Asia Pacific will show the highest growth in monthly Internet Protocol (IP) traffic with a compounded annual growth rate (CAGR) of 21.0% in Asia Pacific from 2013 to 2018, while Western Europe is estimated to have a CAGR of 18.0%. On top of data creation and traffic, outsourced data centre space is projected by BroadGroup to increase significantly from 2014 to 2018 as well.

Keppel DC REIT is positioned to capture value in this growing industry, given its strategic presence in key data centre hubs, strong global clientele, and established track record.”

Foolish summary

Keppel DC REIT last traded at S$1.03 on Friday. This translates to a historical price-to-book ratio of 1.2. At the projected DPU payout of 6.36 Singapore cents in 2015, this would yield 6.2% on Friday’s closing share price.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.