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

Yesterday evening, Keppel DC REIT (SGX: ABJU) released its earnings for the quarter and year ended 31 December 2016.

As a quick background, Keppel DC REIT has 11 data centres in its portfolio as of 31 December 2016. These centres are spread across seven countries in Asia Pacific and Europe. The real estate investment trust is also fairly new as it had its initial public offering only in December 2014.

You can read more about the REIT’s IPO here. You can also catch the results from its previous quarter here.

Financial highlights

The following’s a rundown on some of the latest financial figures from Keppel DC REIT:

  1. Gross revenue was $26.8 million in the reporting quarter, up 8.4% from the same quarter the year before. For the full year, gross revenue was $99.1 million, representing a decline of 3.2%.
  2. Net property income (NPI) for the fourth quarter of 2016 was up 14.2% year-on-year to $24.9 million. For the full year, NPI was $90.9 million, or up 4.5%.
  3. Keppel DC REIT’s distribution per unit (DPU) for the reporting quarter was 1.31 cents, down a hefty 20.1% from the 1.64 cents recorded in the same quarter the year before. Keppel DC REIT had issued 242.0 million new units on 15 November 2016 in a preferential offering and that caused the decline. For the whole of 2016, DPU was 6.14 cents, some 5.7% lower than in 2015.
  4. Keppel DC REIT’s investment properties are currently valued at around $1.2 billion. The REIT ended 2016 with an adjusted net asset value per unit of $0.926, up 4.3% from a year ago.

Beyond these, Foolish investors may also want to keep an eye on the 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:

2017-01-23 Frasers Commercial Trust Debt Table
Source: Keppel DC REIT’s earnings presentation; interest coverage based on earnings before interest and taxes (EBIT) vs. finance costs

You can see that the REIT’s current aggregate leverage is 28.3%, down slightly from 2015. Total borrowings had increased, but the average cost of debt declined to 2.3% while the interest cover ratio remained stable.

Looking at the debt profile, investors have to keep an eye on 2018, when about 35% of outstanding loans will mature. Keppel DC REIT has also hedged 83% of its borrowing costs.

Operational highlights and future outlook

The REIT ended 2016 with a portfolio occupancy rate of 94.4%, slightly higher compared to its previous quarter, but down from the 94.8% seen a year ago. The REIT’s weighted average lease expiry (by leased lettable area) is at 9.6 years, up from 8.7 years seen at end-2015.

Keppel DC REIT’s manager had summarized the outlook for the REIT in the earnings release with the paragraphs below:

“The outlook of the global economy remains uncertain. In the World Bank’s Global Economic Prospects report release on 10 January 2017, global growth is projected at 2.7% in 2017, down 0.1 percentage point from the forecast in June 2016.

Against this backdrop, the Manager continues to see growth potential in the data centre industry. The expanding requirements of the digital economy and massive-scale cloud providers will continue to propel wholesale colocation growth. In particular, demand for data centre space remains strong in Asia Pacific and Europe.”

Although Keppel DC REIT’s manager appears to be optimistic about the REIT’s long-term prospects, an increase in data centre space in Singapore is expected to exert near-term pressure on rental rates.

Keppel DC REIT’s units last traded at a price of $1.22 each yesterday. This translates to a historical price-to-book ratio of about 1.3 and a distribution yield of 5%.

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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.