Keppel DC REIT Assets

Keppel DC REIT 1Q2024 Operational Updates

Keppel DC REIT 1Q2024 Key Highlights

On 19th April 2024, Keppel DC REIT released their 1Q2024 Operational Updates. Distribution Per Unit (DPU) declined 13.7% year-on-year from 2.541 cents in 1Q2023 to 2.192 cents in 1Q2024. The DPU were impacted by higher finance costs and less favourable forex hedges in 2024. As such, recently, Keppel DC REIT share price has been going through ups and downs. What is Keppel DC REIT dividend yield? Let me share more below.

First, let me touch on Keppel DC REIT’s divestment. In this operational update, Keppel DC REIT reiterated the news of the divestment of Intellicentre Campus in Sydney, Australia where it had entered into a sale and purchase agreement to divest its 100% freehold interest in Intellicentre Campus at an agreed value of A$174.0 million (approximately S$152.1 million). The agreed value represents a 35.4% premium to the property’s FY2023 valuation of A$128.5 million (approximately S$112.3 million).

The transactions are expected to be 0.7% accretive to distribution per unit (DPU). Assuming that the transactions had been completed on 1 January 2023, the pro forma DPU for FY2023 will increase from 9.383 cents to 9.446 cents.

Now, let us take a look at Keppel DC REIT’s 1Q2024 Financial Performance.

Keppel DC REIT 1Q2024 Financial Performance

In 1Q2024, Gross Revenue was up 18.4% y-o-y to S$83.4 million. The higher gross revenue was attributed to the settlement of the sum received in relation to the dispute with DXC Technology Services and positive rental reversions and escalations.

Despite the increase in Gross Revenue, distributable income declined due to increase in finance costs and property expenses.

As a result of higher finance costs, property expenses and less favourable forex hedges, Distribution Per Unit (DPU) declined 13.7% year-on-year to 2.192 cents.

1Q2024
(S$’000)
1Q2023
(S$’000)
Change (%)
Gross Revenue83,36470,40318.4
Net Property Income71,01363,88811.2
Property Expenses
(12,351)(6,515)89.6
Finance Costs(12,992)(10,500)23.7
Distributable Income38,79146,344(16.3)
Distribution Per Unit (“DPU”) (cents)2.1922.541(13.7)

Debt

Keppel DC REIT 1Q2024 Debt Maturity Profile

As of 31st March 2024, Keppel DC REIT’s aggregate leverage stood at 37.6% which is well below my acceptable threshold of 40%.

As you can see from the chart above, Debt Maturity is well spread with minimal debt requiring financing in 2024 and 2025.

Occupancy

Keppel DC REIT 1Q2024 Lease Expiry Profile

Keppel DC REIT’s overall portfolio occupancy stood high at 98.3% with a long WALE (Weighted Average Lease Expiry) of 7.4 years.

As you can see from the above chart, Keppel DC REIT’s lease expiries are well-spread. The manager of Keppel DC REIT shared that they have secured new and renewal contracts with positive reversions.

Current Dividend Yield

Keppel DC REIT Share Price 26-Apr-2024

What is Keppel DC REIT dividend yield? Based on Keppel DC REIT’s closing share price of S$1.70 and FY23 full year DPU of 9.383 cents, this translates to a current dividend yield of 5.52%.

Keppel DC REIT 1Q2024 Operational Updates

To summarize Keppel DC REIT’s 1Q2024 operational updates, the pros are:

  • The divestment of Intellicentre Campus represents a 35.4% premium to the property’s FY2023 valuation of A$128.5 million (approximately S$112.3 million).
  • Assuming that the divestment transactions had been completed on 1 January 2023, the pro forma DPU for FY2023 will increase from 9.383 cents to 9.446 cents.
  • Gross Revenue was up 18.4% y-o-y to S$83.4 million.
  • Settlement of the sum received in relation to the dispute with DXC Technology Services.
  • Positive rental reversions and escalations.
  • Keppel DC REIT’s aggregate leverage stood healthy at 37.6%.
  • Long WALE (Weighted Average Lease Expiry) of 7.4 years (Income stability).
  • Lease expiries are well-spread.

The considerations are:

  • Higher finance costs, property expenses and less favourable forex hedges, Distribution Per Unit (DPU) declined 13.7% year-on-year to 2.192 cents.
  • Nonattractive current dividend yield of 5.52% at S$1.70 closing price.

Despite Keppel DC REIT facing headwinds, I believe the trend in Artificial Intelligence will boost the demand for Data Centres.

Having said that, I opined that the Guangdong DCs that were acquired from Bluesea continues to be a risk to Keppel DC REIT. Bluesea is a key tenant in Guangdong DCs and the recent saga of late payment continue to plague investors of Keppel DC REIT.

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