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

Yesterday, Keppel DC REIT (SGX: AJBU) released its second quarter earnings report. The reporting period was from 1 April 2017 to 30 June 2017.

As a quick background, Keppel DC REIT had its initial public offering (IPO) in 2014 and currently has 12 data centres in its portfolio. The data centres are spread out across seven countries in Asia Pacific and Europe. You can read more about the REIT’s IPO here. You can also catch its last earnings report here.

Financial highlights

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

1. Gross revenue was $32.2 million in the reporting quarter, a 38.8% increase from the same quarter a year ago.

2. Net property income (NPI) was up 41.9% year-on-year to $31.4 million.

3. Distribution per unit (DPU) for the quarter was 1.74 cents, 4.2% above the 1.67 cents recorded in the same quarter in 2016.

4. As of 30 June 2017, Keppel DC REIT’s portfolio was valued at around $1.4 billion. The REIT ended its reporting quarter with a net asset value per unit of $0.968, a 5.4% increase from a year ago.

Foolish investors might 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:


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

As you can see, Keppel DC REIT’s aggregate leverage for the reporting quarter was 27.7%, down from 29.1% a year ago, despite an increase in debt from $341 million to $439 million. There were other improvements. The average cost of debt declined to 2.2% while the interest coverage ratio increased to 10.6 times.

As of 30 June 2017, 83% of Keppel DC REIT’s borrowing costs were hedged.

Operational highlights and future outlook

Keppel DC REIT ended the reporting quarter with a portfolio occupancy rate of 93.1%, a decline from the 95.1% recorded in the previous quarter. The REIT’s weighted average lease expiry (WALE) by leased area was 9.4 years. Keppel DC REIT’s WALE profile is a composite of a WALE of 3.8 years for co-location leases, a WALE of 10.8 years for fully-fitted leases, and 12.6 years for shell and core leases.

The management team summarized Keppel DC REIT’s outlook with the paragraphs below:

“In its June 2017 update on Global Economic Prospects, the World Bank forecasts a growth rate of 2.7% for the global economy in 2017. However, substantial risks were also noted from potential trade restrictions and persistent policy uncertainty that could dampen this outlook.

Despite these potential macroeconomic headwinds ahead, the data centre industry continues to be driven by global trends such as cloud adoption amongst consumers and corporations. Digital transformation remains a key part of corporations’ business strategies.

A global survey conducted by the Uptime Institute indicated a robust level of spending allocated to data centre resources, and the continued demand for high-redundancy premium data centre facilities for large enterprises’ mission-critical workloads.

These industry trends bode well for Keppel DC REIT. With its quality portfolio of data centres and the Manager’s established track record, Keppel DC REIT is well-positioned to capture value from the data centre industry and deliver sustainable returns to its investors.”

Keppel DC REIT’s units last traded at $1.32 each yesterday. This translates to a historical price-to-book ratio of 1.36 and a distribution yield of 4.9%.

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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.