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

Keppel DC REIT (SGX: ABJU) released its fiscal third-quarter earnings report yesterday. The reporting period was from 1 July 2015 to 30 September 2015.

The real estate investment trust (REIT) had its initial public offering (IPO) late last year. As of 30 September 2015, the trust’s portfolio contains nine data center properties in Australia, Asia, and Europe.

You can read more about the REIT’s IPO in here and its last earnings report here.

Financial highlights

The following’s a quick take on Keppel DC REIT’s latest figures:

  1. Gross revenue was $25.7 million in the reporting quarter, 1.8% higher than its IPO projection.
  2. Net property income (NPI), though, fell short by 0.3% from the IPO forecast. For the quarter, NPI came in at $21.4 million.
  3. Distribution per unit (DPU) for the quarter will be 1.64 cents.
  4. As of 30 September 2015, Keppel DC REIT’s net asset value per unit is S$0.86, down slightly from the figure of S$0.88 seen at the end of 2014. The REIT’s investment properties are valued at around $1.05 billion currently (as of 30 September 2015).

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

Keppel DC REIT balance sheet details

Source: Keppel DC REIT’s earnings presentation; interest coverage based on earnings before interest and taxes (EBIT) versus finance costs

Keppel DC RETI’s aggregate leverage had rose to 30.1% compared to the previous quarter as a result of the recent acquisition of Intellicentre 2 in Sydney. Looking at the REIT’s debt profile, the first real refinancing test will come in 2018, when about 46% of the REIT’s outstanding loans will become due.

The datacenter REIT has also fixed 100% of interest rate exposure for its long term loans. On top of that, the REIT has hedged 100% of its forecasted foreign-sourced distributions up till the first-half of 2017. This would be important in protecting itself against currency swings since nearly 60% of its properties (by value) reside outside of Singapore.

In all, Keppel DC REIT appears to be well-protected against both a changing interest rate environment and fluctuating foreign exchange rates.

Operational highlights

Keppel DC REIT ended the reporting quarter with a portfolio occupancy rate of 95.1%, up slightly from the 94% in the previous quarter.

The weighted average lease expiry (WALE) by leased lettable area for the REIT also increased to 8.9 years from just 7.2 years seen in the second-quarter of 2015. The current WALE profile for Keppel DC REIT is in turn made up of a WALE of 2.6 years for co-location leases, a WALE of 9.9 years for fully-fitted leases, and 16 years for shell & core leases. Investors may also be happy to note that Keppel DC REIT’s properties have built-in annual escalations of rental rates of between 2% and 4%.

The REIT’s management team had summarized its future outlook in the paragraphs below:

“Keppel DC REIT is strategically positioned to tap the growth opportunities presented by the large and growing base of Internet users in its key investment regions. Approximately 67% of the world’s Internet users are located within Asia Pacific and Europe.

The increasing outsourcing of data centre bodes well for the REIT’s co-location business as well. Corporates are increasingly outsourcing their data centre requirements as businesses seek capital and operational efficiency. 451 Research anticipates that the global co-location market annualised revenue will rise from the current $22.8 billion to $36.1 billion by the end of 2017.”

Foolish summary

Keppel DC REIT last traded at $1.04 on Thursday. This translates to a historical price-to-book ratio of around 1.2. With the projected DPU of $0.0636 for the whole of 2015, this would yield 6.1% based on Thursday’s 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.