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

In mid-April, Keppel DC REIT (SGX: AJBU) released its 2018 first quarter earnings update. As a quick introduction, the REIT owns data centres and currently has a portfolio of 14 such properties in 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 a high-level summary of Keppel DC REIT’s income statement for 2018’s first quarter:

Source: Keppel DC REIT 2018 first quarter earnings presentation

We can see that the REIT had enjoyed a mixed quarter with strong double-digit growth in gross revenue and net property income, but a decline in DPU.

The REIT attributed its growth in net property income to contributions from Keppel DC Dublin 2, higher variable income from Keppel DC Singapore 1, lower non-cash adjustment for straight-lining of rental income at Gore Hill DC, and lower property-related expenses at Keppel DC Singapore 3. These were partially offset by lower rental income from Basis Bay Data Centre and Gore Hill Data Centre, as well as higher property-related expenses at Keppel DC Dublin 2.

DPU came in 4.8% lower year-on-year mainly due to a one-off capital distribution in 2017’s first quarter. Excluding the capital distribution, the REIT’s adjusted DPU was up by 3.4% year-on-year.

The next slide I want to look at shows a breakdown of Keppel DC REIT’s asset value by geography:

Source: Keppel DC REIT 2018 first quarter earnings presentation

We can observe that the REIT’s assets are located in three main geographical regions: South East Asia; Europe; and Australia. 42.5% of Keppel DC REIT’s assets under management (AUM) are located in South East Asia. Europe comes in second at 39.9%, while Australia has a 17.6% cut. Having its assets distributed across three big regions reduces Keppel DC REIT’s concentration risk.

The last slide I want to talk about shows the REIT’s lease expiry profile:

Source: Keppel DC REIT 2018 first quarter earnings presentation

The lease expiry profile is an important thing to study for a REIT as it gives us clues on how stable the REIT’s rental income may be.

There are three positive traits I would like to point out with Keppel DC REIT’s lease expiry profile:

1. The REIT’s weighted average lease to expiry for its portfolio was 9.6 years (by weighted average leased area) as of 31 March 2018. That’s long.

2. Less than 8% of the REIT’s leases will expire in the next three years.

3. More than 70% of the REIT’s leases will expire only after 2023.

In all, the REIT should have good visibility on its rental income for the next few years.

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