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

Keppel DC REIT (SGX: ABJU) released its fiscal first-quarter earnings report yesterday evening. The reporting period was from 1 January 2016 to 31 March 2016.

The real estate investment trust (REIT) had its initial public offering (IPO) in 2014, so it can be considered a relatively new kid on the block. Keppel DC REIT currently has nine data center properties spread out across six countries in Asia Pacific and Europe. You can read more about the REIT’s IPO in here and catch up with its last earnings report here.

Financial Highlights

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

  1. Gross revenue was $24.8 million in the reporting quarter, a 4.5% drop from the same quarter a year ago. It is also 2.8% lower than the REIT’s own forecast given in its IPO prospectus.
  2. Net property income (NPI) also fell by 2.5% year-on-year and came in 2.1% below the forecast. For the first quarter, NPI was $21.2 million.
  3. Distribution per unit (DPU) for the quarter was 1.67 cents, 3.7% more than the 1.61 cents recorded in the same quarter last year and 2.1% higher than the forecast.
  4. Keppel DC REIT’s investment properties were valued at around $1.1 billion as of 31 March 2016. The REIT ended the reporting quarter with a net asset value per unit of $0.902 as of 31 March 2016, up 3.7% from a year ago.

Foolish investors might want to keep an eye on the REIT’s debt profile too. 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
Source: Keppel DC REIT’s earnings presentation; interest coverage based on earnings before interest and taxes (EBIT) vs. finance costs

As you can see, aggregate leverage rose to 29.6%, up from 26.7% a year ago. The REIT’s total borrowings also increased, but its average cost of debt and interest cover remained stable. Looking at the debt maturity profile, the first real refinancing test for Keppel DC REIT will come in 2018, when about 45% of its outstanding loans will mature. Keppel DC REIT had also hedged 87% of its borrowing costs.

Operational highlights

Keppel DC REIT ended the reporting quarter with a portfolio occupancy rate of 92%, slightly lower compared to its previous quarter and the same quarter a year ago.

The REIT’s weighted average lease expiry (WALE by lease lettable area) was 8.7 years. Keppel DC REIT’s WALE profile is a composite of a WALE of 2.3 years for co-location leases, a WALE of 9.4 years for fully-fitted leases, and 15.4 years for shell & core leases.

Overall, the REIT’s leases also have built-in annual rental escalations of 2% to 4%.

The management team had summarized the outlook for the REIT in the paragraphs below found in the earnings release:

“The volatile market conditions and soft commodity prices continue to dent the prospects of the global economy, which is expected to achieve modest recovery. Despite the uncertain economic prospects, the data centre industry fundamentals remain sound.

Global trends such as multi-device ownership, proliferation of smart devices as well as the growth of cloud computing are expected to continue, increasing data creation and storage requirements. According to Cisco’s Global Cloud Index 2014-2019, data centre traffic on a global scale is forecasted to see a three-fold increase from 2014 to 2019 at a compounded annual growth rate (CAGR) of 25% to 10.4 zettabytes.”

Foolish summary

Keppel DC REIT last traded at $1.07 yesterday. This translates to a historical price-to-book ratio of 1.2.

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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.