Keppel DC REIT (SGX:AJBU) is the newest addition in my long-term investment portfolio (on 12 October 2021, and I have subsequently written a post to share about the reasons for my investment decision here), and as such, you will be reading about any quarterly updates, along with summaries of AGMs and EGMs the REIT conducts as and when they happen – just like how I have provided regular updates for all the other companies I have investments in.
Speaking of which, shortly after market hours today (25 October 2021), the blue-chip data centre REIT released its operational update for the third quarter of the financial year 2021 ended 30 September 2021. Even though the REIT has switched to reporting its full financial statements on a half-yearly basis, but for the current quarter under review, they still provided some key profitability figures, which I will be taking a look at in this post, along with its portfolio occupancy and debt profile.
Let’s begin…
Financial Performance (Q3 FY2020 vs. Q3 FY2021, and 9M FY2020 vs. 9M FY2021)
Q3 FY2020 vs. Q3 FY2021:
| Q3 FY2020 | Q3 FY2021 | % Variance | |
| Gross Revenue (S$’mil) | $67.7m | $69.3m | +2.5% |
| Property Operating Expenses (S$’mil) | $5.3m | $5.6m | +5.0% |
| Net Property Income (S$’mil) | $62.4m | $63.8m | +2.3% |
| Distributable Income to Unitholders (S$’mil) | $40.5m | $43.1m | +6.3% |
My Observations: On a quarter-on-quarter (q-o-q) basis, its top- (gross revenue) and bottom-line (net property income) have both recorded improvements, helped by contributions from its recent acquisition (in Eindhoven Campus in the Netherlands), along with asset enhancement initiative works.
9M FY2020 vs. 9M FY2021:
| 9M FY2020 | 9M FY2021 | % Variance | |
| Gross Revenue (S$’mil) | $191.6m | $204.5m | +6.7% |
| Property Operating Expenses (S$’mil) | $15.0m | $16.9m | +12.3% |
| Net Property Income (S$’mil) | $176.6m | $187.6m | +6.2% |
| Distributable Income to Unitholders (S$’mil) | $115.5m | $127.3m | +10.3% |
My Observations: The top- as well as bottom-line for the data centre REIT compared to last year has continued to record a steady growth, which is good to note.
Portfolio Occupancy Profile (Q2 FY2021 vs. Q3 FY2021)
In this section, let us take a look at the REIT’s portfolio occupancy profile, where I’ll be comparing the statistics reported for the current quarter under review (i.e. Q3 FY2021 ended 30 September 2021) against that reported in the previous quarter three months ago (i.e. Q2 FY2021 ended 30 June 2021) to find out if it has continued to remain resilient:
| Q2 FY2021 | Q3 FY2021 | |
| Portfolio Occupancy (%) | 98.0% | 98.1% |
| Portfolio WALE (years) | 6.5 years | 7.0 years |
My Observations: In my opinion, its overall portfolio occupancy profile, compared to the previous quarter, have continued to remain steady. Particularly, its portfolio occupancy profile, at 98.1% recorded for the current quarter under review, is the REIT’s record high.
Also, for the remaining quarter of the current financial year 2020, only 0.3% and 0.4% of the leases by net lettable area and by rental income respectively will be expiring – which to me is considered minimal. For the coming financial year 2022, 7.8% and 18.8% of the leases by net lettable area and by rental income respectively will be expiring, but according to my understanding from the REIT’s presentation slides, they are proactively in discussions with their clients on those contracts.
Debt Profile (Q2 FY2021 vs. Q3 FY2021)
Just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, I will also be comparing its debt profile reported for the current quarter under review against that reported for the previous quarter, to find out whether or not it has improved, deteriorated, or it has remained more or less unchanged:
| Q2 FY2021 | Q3 FY2021 | |
| Aggregate Leverage (%) | 36.7% | 35.1% |
| Interest Coverage Ratio (times) | 12.9x | 12.2x |
| Average Term to Debt Maturity (years) | 2.8 years | 3.2 years |
| Average Cost of Debt (%) | 1.5% | 1.6% |
My Observations: Personally, I felt that the REIT’s latest debt profile, compared to the previous quarter, has continued to remain resilient – its aggregate leverage, at 35.1%, still remains plenty of debt headroom for the REIT to make further yield-accretive acquisitions. No doubt there’s a slight decline in its interest coverage ratio (from 12.9x in Q2 FY2021 to 12.2x in Q3 FY2021), it is still considered to be very good in my opinion – in fact, its interest coverage ratio is among the highest among the S-REITs.
Looking at its debt maturity, there are no borrowings due for refinancing in the final quarter of the current financial year. For the coming year 2022, 6.8% of its Renminbi-denominated borrowings, 13.1% of its Euro dollar-denominated borrowings, and 1.8% of its British Pound-denominated borrowings will be maturing.
Closing Thoughts
No doubt in the REIT’s presentation slides, it was noted that for the third quarter, the distribution per unit was 2.462 cents/unit (an improvement compared to 2.357 cents/unit for the same time period last year), but no distribution payout was declared for the current quarter under review, as the REIT only declares a distribution payout on a half-yearly basis.
As far as the REIT’s latest set of results are concerned, as a unitholder, I am satisfied with the data centre REIT’s steady growth in terms of its financial results (both on a q-o-q, as well as on a y-o-y basis), its portfolio occupancy remaining resilient (particularly, its portfolio occupancy at 98.1% as of 30 September 2021 is a record high for the REIT), and also the fact that there still remain plenty of debt headroom (as far as its aggregate leverage is concerned) for the REIT to make further yield-accretive acquisitions before it reaches the regulatory level of 50.0%.
With that, I have come to the end of my review of Keppel DC REIT’s latest operational update. Do take note that everything you’ve just read above is purely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. You should always do your own due diligence before you engage in any investment decisions.
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Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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