On 18th April 2023, Keppel DC REIT announced their 1Q2023 Operational Updates. Even though Keppel DC REIT is not in my stock portfolio, the REIT is in my watch list. How did the REIT fare? Let us take a look at its 1Q2023 updates.
In their presentation slides, Keppel DC REIT shared the key highlights which was their distributable income and Distribution (DPU) for 1Q 2023 increased by 4.1% and 3.0% year-on-year respectively. This was mainly due to contributions from acquisitions and proactive asset management.
The majority of rental income is derived from clients with investment grade or equivalent credit profiles.
Keppel DC REIT has also obtained approvals for the NetCo Bonds to be qualified as Qualifying Project Debt Securities (QPDS). I will not write about NetCo here. You can click the link above and read up more about the investment from Keppel DC REIT into M1’s assets.
Keppel DC REIT 1Q2023 Financial Performance
Diving into the details of the higher distributable income and DPU, these were mainly due to the increase in gross revenue from the acquisitions of Guangdong Data Centre 2 and building shell of Guangdong Data Centre 3.
The increase was also attributed to the completion of asset enhancement initiatives (AEI), renewals and income escalations and tax savings from approvals obtained for the NetCo Bonds to be qualified as Qualifying Project Debt Securities (QPDS).
The increase were partially offset by net lower contributions from some of the Singapore colocation assets arising from higher facilities expenses including electricity costs, higher finance costs from the refinanced loans, as well as unhedged loans. Foreign currencies also depreciated against SGD.
Debt
As of 31st March 2023, Keppel DC REIT has an aggregate leverage of 36.8%.
In terms of debt, Keppel DC REIT has completed the refinancing of all loans
due in 2023 by April 2023. As you can see from the above chart, debt is diversified across five currencies, with the bulk of debt expiring from 2026 and beyond.
Interest rates exposures are mitigated with 73% of loans fixed. With 73% of debt fixed, an increase in interest rates would only affect the remaining 27% unhedged borrowings. A 100bps increase would have an estimated 2.2%
impact to 1Q 2023’s DPU on a pro forma basis.
Occupancy
As at 31 Mar 2023, Keppel DC REIT maintained high portfolio occupancy of 98.5%. Weighted Average Lease Expiry (WALE) stood healthy at 8.2 years.
Current Dividend Yield
Based on the current share price of S$2.11 and full year FY22 DPU of 10.214 cents, this translate to a current dividend yield of 4.84%.
As you can see from the price chart above, the share price of Keppel DC REIT has increased 31.87% over 6 months, driving down the dividend yield.
Summary of Keppel DC REIT 1Q2023 Operational Updates
I always like to end my updates with a summary of the pro and cons.
Here are the pros:
- Healthy aggregate leverage of 36.8% which spells room for further growth.
- Distributable income and Distribution (DPU) for 1Q 2023 increased by 4.1% and 3.0% year-on-year respectively which in my opinion is not an easy feat in current economic instability.
- Bulk of debt expiring from 2026 and beyond.
- High portfolio occupancy of 98.5%.
- Long WALE at 8.2 years thus injecting stability.
The cons are:
- Foreign currencies also depreciated against SGD, eroding income and distribution.
- Net lower contributions from some of the Singapore colocation assets arising from higher facilities expenses including electricity costs, higher finance costs from the refinanced loans.
- Low current dividend yield of 4.84%.