3 Things Keppel DC REIT’s Management Wants You To Know About Its Business

In late January, Keppel DC REIT (SGX: AJBU) released its 2017 fourth quarter and full year earnings update. As a quick introduction, Keppel DC REIT currently owns 13 data centres across Asia and Europe.

The Manager of Keppel DC REIT had given a presentation on the REIT’s latest results. In the presentation deck, I saw three slides on the REIT’s business that I think investors should pay attention to.

The first slide shows the progression of Keppel DC REIT’s assets under management (AUM) since December 2014:

Source: Keppel DC REIT 2017 fourth quarter earnings presentation

We can see that the REIT has added five data centres to its portfolio since its IPO in December 2014. There is, in fact, a sixth data centre – maincubes Data Centre – that will be added to Keppel DC REIT’s portfolio soon; the data centre is located in Germany and is currently under development, with an expected completion date in the second quarter of 2018. Once maincubes Data Centre is in Keppel DC REIT’s portfolio, the REIT’s AUM would have increased by about 60% since its IPO.

From December 2014 to December 2017, Keppel DC REIT’s AUM has grown by an impressive 14% annually.

The next slide I want to discuss shows the REIT’s top 10 tenants, and a breakdown of its rental income by trade sector, for the month of December 2017:

Source: Keppel DC REIT 2017 fourth quarter earnings presentation

We can see that Keppel DC REIT has a concentrated rental income profile. Three trade sectors collectively accounted for 87.2% of the REIT’s rental income in December 2017. Moreover, the largest tenant of Keppel DC REIT accounted for 34.2% of its rental income.

The last slide I want to talk about illustrates Keppel DC REIT’s lease expiry profile.

Source: Keppel DC REIT 2017 fourth quarter earnings presentation

There are a few positive points to unpack from the chart just above:

1) Keppel DC REIT’s weighted average lease expiry (WALE) by leased area was a long 9.1 years as of 31 December 2017.

2) Less than 5% of the REIT’s leases are expiring in each year over the next three years.

3) Nearly 70% of the REIT’s leases will expire only after 2023.

As such, the REIT should have a high level of visibility on its rental income for the foreseeable future. This should partially offset the high concentration risk that the REIT has in its rental income.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.