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Keppel DC REIT Reports A 6.3% Increase In Distributions For 2018’s Third Quarter

On 16 October, Keppel DC REIT (SGX: AJBU) released its earnings update for the third quarter of 2018. The REIT, which has a portfolio of 15 data centres in eight countries, posted a 6.3% year-on-year increase in distribution per unit to 1.85 cents. Here are some of the other key details from Keppel DC REIT’s latest earnings update:

1. Gross revenue and net property income spiked by 34.0% to S$47.56 million and 33.4% to S$43.04 million, respectively, compared to a year ago. The higher revenue was due to higher rental top-ups recognised, which more than offset lower ad hoc service revenue and power-related revenue. Contributions from the acquisitions of Keppel DC Singapore 5, Maincubes Data Centre in Offenbach am Main, Germany, and Keppel DC Dublin 2 also resulted in the REIT’s higher revenue and net property income.

2. The strong euro resulted in higher contributions from Keppel DC REIT’s European portfolio. But, a weaker Australian dollar resulted in lower rental income from Gore Hill Data Centre in Australia.

3. Keppel DC REIT maintains a very healthy gearing ratio of 32.0%, well below the 45% regulatory gearing limit. The REIT also has a high interest cover of 11.2. Its robust financial position will certainly afford it plenty of headroom to make yield-accretive acquisitions in the future.

4. The chart below is the breakdown of the REIT’s assets by country.


Source: Keppel DC REIT 2018 third quarter earnings presentation

5. Keppel DC REIT has three lease types: Colocation; fully fitted; and shell & core. The three lease types are based on the extent of services that Keppel DC REIT provides to its tenants. A full explanation can be found here. The following chart illustrates the percentage of the REIT’s rental income that comes from each lease type:


Source: Keppel DC REIT 2018 third quarter earnings presentation

6. The Colocation leases provide higher rental rates, while the other two provide stability and long lease expiries with tenants. The shell & core and fully fitted leases, in essence, limit downside risks for the REIT.

7. The table below shows the weighted average lease expiries of the three different tenant types:


Source: Keppel DC REIT 2018 third quarter earnings presentation

8. During the reporting quarter, Keppel DC REIT entered into an agreement to develop another data centre on vacant land within the site of one of its data centres in Sydney, the Intellicentre 2 Data Centre. Completion is expected between 2019 and 2020, and Keppel DC REIT expects the new centre to be yield accretive. In addition, upon completion, new 20-year triple net master leases with Macquarie Telecom will be signed on both data centres; the long leases should provide Keppel DC REIT with income stability.

9. Looking ahead, industry fundamentals remain robust for Keppel DC REIT. In its earnings update, Keppel DC REIT commented:

“Demand for data centre space in key european and Asian hubs continues to be underpinned by demand from hyperscale cloud players, increasing digitalisation and cloud adoption,  data centre outsourcing, and other drivers such as data sovereignty regulations. According to BroadGroup Consulting, many hyperscale cloud players are only about a third of the way through their planned data centre build-outs, signally strong potential requirements for data centre space.”

10. At the time of writing, Keppel DC REIT’s unit price is S$1.34, giving the REIT a price-to-book ratio of 1.33 and a distribution yield of 5.31%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore contributor Jeremy Chia does not own shares in any company mentioned.