On 26th July 2024, Keppel DC REIT announced their 1HFY24 financial results. In 2HFY23, Keppel DC REIT faced headwinds as distributable income fell 18.5%. Has Keppel DC REIT financial performance improved in 1HFY24? As an investor of Keppel DC REIT, I am keen to find out more.
Earlier this month, Keppel DC REIT had also announced also made its maiden foray into Japan with accretive acquisition of Tokyo Data Centre 1. The data centre was 100% leased to a Fortune Global 500 Company (Hyperscaler) on a triple-net (shell and core) lease. The DPU accretive acquisition is expected to be complete in 3Q 2024.
It seems that the manager of Keppel DC REIT has been very proactive. Now, let us take a look below to understand what the manager of Keppel DC REIT has achieved for 1HFY24.
Keppel DC REIT 1HFY24 Financial Results
In 1HFY24, Keppel DC REIT’s gross revenue was 11.9% higher year-on-year at S$157 million as compared to 1HFY23. Net Property Income (NPI) also increased by 4.2% to S$133 million. The robust financial performance was because of strong positive reversions and escalations across its portfolio.
The settlement outcome related to DXC dispute between Keppel DC Singapore 1 Ltd (KDC) and DXC Technology Services Singapore Pte Ltd was also favourable. The settlement sum of S$13.3 million relating to the DXC Dispute has been received in full and distributable income of approximate S$11.2 million will be distributed in two equal tranches on a half-yearly basis for FY 2024.
Despite a higher gross revenue, distributable income was 11.4% lower year-on-year mainly due to loss allowance made for the receivables from the Guangdong data centres, higher finance costs as well as the depreciation of foreign currencies against the Singapore dollar.
As a result, Keppel DC REIT’s Distribution Per Unit (DPU) for 1HFY24 was 9.9% lower at 4.549 cents as compared to 5.051 cents paid in 1HFY23.
| 1HFY24 (S$’000) |
1HFY23 (S$’000) |
% Change | |
| Gross Revenue | 157,180 | 140,464 | 11.9 |
| Property Expenses |
(24,531) | (13,111) | 87.1 |
| Net Property Income | 132,649 | 127,353 | 4.2 |
| Finance Costs | (25,907) | (22,715) | 14.1 |
| Amount Distributable | 80,878 | 91,311 | (11.4) |
| Distribution Per Unit (“DPU”) (cents) | 4.549 | 5.051 | (9.9) |
Keppel DC REIT’s Debt
As of 30th June 2024, Keppel DC REIT’s aggregate leverage stood healthy at 35.8%. This was 180 bps lower as compared to 1QFY24. The manager had repaid approximately S$58.5 million of loans for
Intellicentre Campus and other Euro denominated debt.
Post-acquisition of Tokyo Data Centre 1, Keppel DC REIT’s aggregate leverage is expected to be 39.2%, with a lower average cost of debt of approximately 3.3%.
As you can see from the above chart, Keppel DC REIT’s bulk of debt expires from 2026 and beyond. Thus, there is nothing worrying about its debt in 2024 or 2025.
74% of Keppel DC REIT’s debt is also hedged at fixed rates which means that an increase in interest rates would only affect the remaining 26% unhedged borrowings.
Occupancy
As of 30th June 2024, Keppel DC REIT’s portfolio occupancy stood healthy at 97.5% with a long Weight Average Lease Expiry (WALE) of 6.4 years. The manager had secured a major renewal contract with positive reversion of more than 40%.
If you noticed from the above chart, 38.8% of Keppel DC REIT’s rental income comes from Fortune Global 500 Companies (Hyperscaler). The term “hyperscaler” typically refers to companies that operate large-scale data centres and cloud services. Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform, Alibaba Cloud and Apple are some examples of hyperscalers that are also part of the Fortune Global 500.
Keppel DC REIT has recently expanded its portfolio by acquiring a hyperscaler data centre in Tokyo, Japan. This data centre, known as Tokyo Data Centre 1, is master leased to a Fortune Global 500 company and hyperscaler.
What is Keppel DC REIT’s Share Price and Current Dividend Yield?
Keppel DC REIT’s share price closed at S$1.90 on Friday, 26th July 2024. Based Keppel DC REIT’s share price of S$1.90 and FY23 full year distribution of 9.383 cents, this translates to a current dividend yield of 4.94%. The current dividend yield is too low to make an entry at this point.
Summary of Keppel DC REIT 1HFY24 Financial Results
We have come to the last section of this post. Again, let me summarize the pros and cons based on Keppel DC REIT’s 1HFY24 financial results. The pros are:
- DPU accretive acquisition of Tokyo Data Centre 1 expected to be completed in 3Q FY24.
- Gross revenue was 11.9% higher year-on-year at S$157 million.
- Net Property Income (NPI) increased by 4.2% to S$133 million.
- Strong positive reversions and escalations across its portfolio.
- Distributable income of approximate S$11.2 million from the DXC dispute will be distributed in two equal tranches on a half-yearly basis for FY 2024.
- Aggregate leverage stood healthy at 35.8%.
- Keppel DC REIT’s bulk of debt expires from 2026 and beyond.
- 74% of Keppel DC REIT’s debt is also hedged at fixed rates.
- Keppel DC REIT’s portfolio occupancy stood healthy at 97.5%. 38.8% of Keppel DC REIT’s rental income comes from Fortune Global 500 Companies (Hyperscaler).
The cons are:
- Distributable income was 11.4% lower year-on-year mainly due to loss allowance made for the receivables from the Guangdong data centres, higher finance costs as well as the depreciation of foreign currencies against the Singapore dollar.
- Distribution Per Unit (DPU) for 1HFY24 was 9.9% lower at 4.549 cents.
- Low current dividend yield of 4.94%.
There seem to be a lot of positive news ahead for Keppel DC REIT. However, based on the current share price, the low current dividend yield may be of concern for dividend investors.