On 26th January 2024, Keppel DC REIT announced their 2HFY23 financial results. The data centre REIT is currently facing headwinds as distributable income for 2HFY23 fell 18.5% to S$76.4 million. Distributable income for the full year fell by 9.3% to S$167.7 million.
The year-on-year decreases were mainly due to higher finance costs and loss allowances for the uncollected rental income from the Guangdong Data Centres. If you are not aware, Guangdong Bluesea Data Development Co., Ltd has defaulted on its rental resulting in a Letter of Demand being issued to Bluesea Data Development.
There were also net lower contributions from some of the Singapore colocation assets arising from the higher facilities expenses, and less favourable forex hedges.
Let us take a deeper look at Keppel DC REIT’s 2H FY23 financial results.
Keppel DC REIT 2HFY23 Financial Results
In 2H FY23, Keppel DC REIT’s Gross Revenue fell 0.7% to S$140.7 million.
If you noticed, property expenses rocketed 85.6% from S$12.5 million to S$23.1 million. The manager attributed the increase of property expenses due to the loss of allowance income that was caused by uncollected rental income from the Guangdong Data Centres.
Besides higher property expenses, finance costs was also higher by 43.5% which further erode earnings.
Distribution Per Unit (DPU) for 2H 2023 declined 16.1% to 4.332 cents as compared to 5.165 cents in 2H 2022.
| 2HFY23 (S$’000) |
2HFY22 (S$’000) |
Change | |
| Gross Revenue | 140,743 | 141,782 | (0.7)% |
| Property Expenses |
(23,145) | (12,472) | 85.6% |
| Net Property Income | 117,598 | 129,310 | (9.1)% |
| Finance Costs | (25,803) | (17,975) | 43.5% |
| Amount Distributable | 76,407 | 93,714 | (18.5)% |
| Distribution Per Unit (“DPU”) (cents) | 4.332 | 5.165 | (16.1)% |
Keppel DC REIT FY23 Full Year Financial Results
Keppel DC REIT’s Gross Revenue for the full year rose by 1.4% to S$281.2 million.
Despite an increase, the other financial indicators were all in the sea of red. Higher property expenses, finance costs eroded the distributable income.
As a result, the Distribution Per Unit (DPU) for the full year declined by 8.1% to 9.383 cents.
| FY23 (S$’000) |
FY22 (S$’000) |
Change | |
| Gross Revenue | 281,207 | 277,322 | 1.4% |
| Property Expenses |
(36,256) | (24,777) | 46.3% |
| Net Property Income | 244,951 | 252,545 | (3.0)% |
| Finance Costs | (48,518) | (31,072) | 56.1% |
| Amount Distributable | 167,718 | 184,872 | (9.3)% |
| Distribution Per Unit (“DPU”) (cents) | 9.383 | 10.214 | (8.1)% |
Keppel DC REIT’s Debt
As of 31st December 2023, Keppel DC REIT’s aggregate leverage stood at 37.4%. This is well below my threshold of 40%. It has available debt headroom of $169m to Keppel DC REIT’s internal cap of 40%.
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.
One of the thing I like is that 74% of Keppel DC REIT’s debt is hedged at fixed rates. This also means that an increase in interest rates would only affect the remaining 26% unhedged borrowings.
Keppel DC REIT’s Occupancy
As of 31st December 2023, Keppel DC REIT’s portfolio occupancy stood high at 98.3% with a long Weight Average Lease Expiry (WALE) of 7.6 years.
Regarding the Guangdong DCs saga, it is heartening to know that the tenant had settled part of sums in-arrears of RMB0.5m (S$0.1m). Keppel DC REIT is also working with the tenant on the recovery roadmap.
Keppel DC REIT’s Current Dividend Yield
Because of the headwinds, Keppel DC REIT’s share price has came under selling pressure. Based on Keppel DC REIT’s closing share price of S$1.68 and FY23 full year DPU of 9.383 cents, this translate to a current dividend yield of 5.59%.
At such low yield, it is no wonder investors are selling off Keppel DC REIT.
Summary of Keppel DC REIT 2HFY23 Financial Results
To summarize Keppel DC REIT’s 2H FY23 financial results, the pros are
- Gross Revenue for the full year rose by 1.4% to S$281.2 million.
- Aggregate leverage stood at 37.4%.
- Bulk of debt expires from 2026 and beyond.
- 74% of debt is hedged at fixed rates.
- Overall portfolio occupancy stood high at 98.3%.
The cons are
- Property expenses in 2H FY23 rocketed 85.6% from S$12.5 million to S$23.1 million. Finance costs was also higher by 43.5%.
- Distribution Per Unit (DPU) for the full year declined by 8.1% to 9.383 cents.
- Low current dividend yield of 5.59%.
In my opinion, bad news have been plaguing Keppel DC REIT which has caused its share price to decline due to selling pressure. I believe these bad news are only temporary. Even if a tenant defaults and vacates, Keppel DC REIT would not have any issue finding a new tenant given the strong demand for quality data centres.
Increase demand for Artificial Intelligence can be a catalyst for Keppel DC REIT. Having said that, the challenge would be the shortage of chipsets and difficulties in securing power.