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

Earlier this week, Keppel DC REIT (SGX: AJBU) released its 2018 third quarter earnings update. As a quick introduction for better context later, Keppel DC REIT is a real estate investment trust that invests in data centres. Its portfolio consists of 15 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 a high-level summary of Keppel DC REIT’s income statement for 2018’s third quarter:


Source: Keppel DC REIT 2018 third quarter earnings presentation

We can see that the REIT had a good quarter. Its gross revenue, net property income, and distribution per unit (DPU) all grew by a healthy percentage. Keppel DC REIT attributed its growth to the acquisitions of Keppel DC Singapore 5 in Singapore (acquired in June 2018), maincubes Data Centre in Germany (acquired in March 2018), and Keppel DC Dublin 2 in Ireland (acquired in September 2017).

As of 30 September 2018, the REIT’s gearing ratio stood at 32.0%, which is a healthy distance from the regulatory gearing ceiling of 45%. Its occupancy rate was at 93.1%.

The next slide I want to look at shows the geographical breakdown of the value of Keppel DC REIT’s portfolio:


Source: Keppel DC REIT 2018 third quarter earnings presentation

It’s clear that the REIT’s assets are located in three main regions: South East Asia (51.7% of total assets under management), Australia (14.4%), and Europe (33.9%). Having its assets distributed across three regions reduces Keppel DC REIT’s concentration risk.

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


Source: Keppel DC REIT 2018 third quarter earnings presentation

The lease expiry profile is an important thing to study about a REIT as it can give us clues on the stability of the REIT’s future rental income.

There are three positive things to note about Keppel DC REIT’s lease expiry profile from the chart just above. Firstly, the REIT’s weighted average lease to expiry for its portfolio was a long 8.5 years (by weighted average leased area) as of 30 September 2018. Next, only 7.4% of the REIT’s leases are expiring in the next three years. Lastly, more than 68.7% of the REIT’s leases will expire only after 2023.

These three points indicate that Keppel DC REIT should have reasonable visibility on its rental income for the foreseeable future.

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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.