Keppel DC REIT’s Latest Earnings: Stable Performance In Its First Year

Keppel DC REIT (SGX: AJBU) is a one-of-a kind real estate investment trust listed in Singapore in that it owns and manages data centers.

The REIT currently has nine operational data centres located in six countries (Ireland, the United Kingdom, Netherlands, Malaysia, Singapore, and Australia) and an additional data centre that is under development in Germany. The operational data centres have a collective value of S$1.07 billion as of 31 December 2015.

Creation of data around the world has been growing and it is projected that global cloud traffic will quadruple from 2014 to 2019. That is a staggering 33% compound annual growth rate, which means demand for data centers may continue to increase as well.

Keppel DC REIT was listed on December 2014. It announced its first full-year results (because of the timing of the REIT’s listing, its numbers are from 12 December 2014 to 31 December 2015) yesterday evening. Let’s take a look at the earnings release to get a better understanding of Keppel DC REIT’s first-year performance.

During the year, Keppel DC REIT reported gross revenue of S$107.7 million, 1.7% higher than the forecast given in its IPO (initial public offering) prospectus.  The higher top-line had made its way steadily to the bottom-line, resulting in the REIT’s net property income (S$91.3 million) and distributable income (S$60.4 million) outperforming the forecast by 1.7% and 1.9%, respectively.

The REIT’s financial report highlighted some of the positives and negatives that happened during the year.

For the positives, they include (1) higher variable rental income from the Singapore properties, (2) other income from two other properties, (3) rental contributions from a newly acquired data centre in Sydney, Australia, and (4) lower property expenses in other countries apart from Singapore due mainly to the deprecation of foreign currencies against the Singapore dollar.

For the negatives, the REIT had higher than forecast property expenses as a result of higher property tax in Singapore and higher contracted facility management costs for its properties in Singapore and one property in Australia.

The REIT announced a distribution per unit of S$0.0328 for the second-half of the reporting fiscal year. For the full period, (which, as a reminder, is slightly longer than a year) the REIT’s distributions come up to S$0.0684 per unit.

The annualised distribution, thus, comes in at S$0.0648 per unit. At the REIT’s closing price yesterday of S$1.01, this implies an annualized distribution yield of 6.4%.

The REIT’s net asset value (NAV) per unit stands at S$0.92 as of 31 December 2015, implying a 9.8% premium at a price of S$1.01.

The aggregate leverage ratio for the REIT was at a decent 29.2%. Here are some other important details about the REIT’s balance sheet and financial strength:

Average cost of debt 2.5% per year for 2015
Debt tenor 3.3 years on average
Interest cover in 2015 9.4 times

Source: Keppel DC REIT’s earnings release

Referring to the table above, Keppel DC REIT has a high interest cover (earnings before interest & taxes divided by finance costs), which could signal a cushion, when it comes to the servicing of debt. The REIT also has 83.3% of its total borrowings coming due in 2018 and 2019; the progress of debt-refinancing may be worth watching for investors.

From Keppel DC REIT’s latest results, it seems to me that it has performed reasonably well.

For more  investing analyses and important updates about the share market, check out the Motley Fool's free weekly investing newsletter Take Stock Singapore. This newsletter can teach you how to grow your wealth in the years ahead, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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