Keppel DC REIT Analysis @ 21 October 2020

Update: 6 December 2020

Distribution on capital should be 5.1% instead of 5.9% as mentioned below.

Basic Profile & Key Statistics

Keppel DC REIT (KDC) is the only pure data centre REIT listed in Singapore. KDC currently owns 18 properties across 9 countries in which Singapore contributes the most income.

Quarter Performance Review

Gross revenue, net property income and distributable income increased by a lot for more than 46% YoY while DPU increased by 22.1% YoY. This increase is mainly due to contributions from acquisitions of Keppel DC Singapore 4 and DC1 in 4Q 2019, Keppel DC Dublin 1 in Mar 2020 and Kelsterbach Data Centre in May 2020 which are not available in 3Q 2019.

There are also a few AEI and development ongoing for KDC in which all are estimated to complete by 1H 2021.

Lease Profile

Occupancy increased slightly to 96.7%. WALE (by NLA) is long at 7.2 years where the highest lease expiry (by GRI, from the latest annual report) of 29.4% falls in the year 2021. Weighted average land lease expiry is slightly short at 55.56 years (by valuation). One thing to note for KDC WALE, WALE by GRI will be significantly shorter than WALE by NLA. However, WALE by GRI information is not provided. 

Above is extracted from the 2019 annual report, for comparison between lease expiry by NLA and GRI. Based on rough estimation, WALE by GRI would be around 40% shorter than WALE by NLA. Therefore, this quarter WALE by GRI is estimated to be around 4.3 years.

Debt Profile

Gearing remains at a healthy level of 35.2%. Cost of debt is low at 1.6% despite 100% unsecured debt. Fixed rate debt % is low at 68%. Interest cover ratio is high at 12.7 times. WADE is long at 3.4 years where the highest debt maturity of 38.6% falls in the year 2025.

Diversification Profile

Top geographical contribution is moderate at 55.1%. Top property contribution is low at 14.1%. Top tenant and top 10 tenants contributions are high at 41% and 81.1%. The top 3 countries which contribute to a total of more than 80% of income are Singapore, Australia and Ireland.

Key Financial Metrics

Property yield, distribution on capital and distribution margin are high at 8.2%, 5.9% and 58.5% respectively. Management fee is moderate in which unitholders receive S$ 7.19 for every dollar paid to the manager. There is a small portion of income support which amounts to 2.9% for the past 12 months distribution. 

Trends

DPU, NAV per unit and interest cover ratio are on an uptrend. Property yield is on a slight uptrend. Distribution margin is on a slight downtrend.

Relative Valuation

i) Average Dividend Yield  - Average yield at 5.05%, apply the annualized DPU of 8.562 cents will get S$ 1.70. 

ii) Average Price/NAV - Average value at 1.48, apply the latest NAV of S$ 1.164 will get S$ 1.72.

Author's Opinion

Favorable	Less Favorable
Low Cost of Debt	Concentrated Lease Expiry
100% Unsecured Debt	Concentrated Debt Maturity
High Interest Cover Ratio	High Top Tenant & Top 10 Tenants Contribution
Long WADE
Low Top Property Contribution
High Property Yield
High Distribution on Capital
High Distribution Margin
DPU Uptrend
NAV per Unit Uptrend
Interest Cover Ratio Uptrend

KDC performance has improved tremendously mainly due to rapid acquisitions of Data Centres. Those AEI and development works which are estimated to complete by 1H 2021 should further boost the distribution moving forward. Whether KDC would be able to deliver the same performance improvement in the future would very much depend on its upcoming acquisition size and frequency.

As for KDC share price, just this year alone, it has appreciated by around 40% to date, while the 9M distribution YoY growth is at 16.5%. So far, its share price has yet to soar after the recent STI index inclusion.

For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss, or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.