Keppel DC REIT Review @ 1 August 2021

Basic Profile & Key Statistics

Keppel DC REIT (KDC) is a data centre REIT that owns 19 properties across 9 countries.

Performance Highlight

The improvement in performance is mainly due to contribution from Kelsterbach DC, Amsterdam DC and the additional income from AEI at Singapore and Dublin assets. 

Development for IC3 Ease DC was completed on 13 Jul and the 20 years master lease has commenced. On 28 April, KDC has signed a non-binding sheet for proposed investment in debt securities and preference shares into M1’s network assets. KDC will provide further announcements if and when there are material developments for this.

Together with the result announcement, KDC also announced the acquisition of Guangdong Data Centre. The acquisition would be funded by a combination of debts and equity, however, the detail has not been released yet. From the announcement, the acquisition is both DPU accretive and NAV accretive.

Related Parties Shareholding

• REIT sponsor's shareholding is low at 20.94%
• REIT manager's shareholding is low at 0.37%
• Directors of REIT manager's shareholding is low at 0.04%

Lease Profile

• Occupancy is high at 98%
• WALE is long at 4.9 years
• Highest lease expiry within 5 years is slightly low at 23.7% which falls in 2024
• Weighted Average Land Lease Expiry is slightly short at 56.6 years

Debt Profile

• Gearing ratio is moderate at 36.7%
• Cost of debt is low at 1.5%
• Fixed rate debt % is low at 67%
• All debts are unsecured debt
• WADM is moderate at 2.8 years
• Highest debt maturity within 5 years is high at 34.6% which falls in 2025
• Interest coverage ratio is high at 12.9 times

Diversification Profile

• Top geographical contribution is slightly high at 60.9% 
• Top property contribution is low at 12.9% (by valuation)
• Top 5 properties contribution is low at 50.5% (by valuation)
• Top tenant contribution is high at 39.5% 
• Top 10 tenants contribution is high at 79.5%
• Top 3 countries contribution is from Singapore, Australia and Ireland which contribute more than 80% of GRI

Key Financial Metrics

• Property yield is high at 8.5% 
• Management fees over distribution is moderate at 13.9% in which unitholders receive S$ 7.19 for every dollar paid 
• Distribution on capital is high at 5.4%
• Distribution margin is high at 58.3%

Trends

• Uptrend - DPU, NAV per Unit, Interest Coverage Ratio
• Flat - Property Yield, Distribution on Capital, Distribution Margin

Relative Valuation

• P/NAV - Lower than -1SD for 1y; Higher than average for 3y; Higher than +1SD 5y
• Dividend Yield - Higher than +1SD for 1y; Average for 3y; Lower than average for 5y

Author's Opinion

Favorable	Less Favorable
High Occupancy	Low REIT Sponsor's Shareholding
Long WALE	Low REIT Manager's Shareholding
Low Cost of Debt	Low Directors of REIT Manager's Shareholding
100% Unsecured Debt	Low Fixed Rate Debt %
High Interest Coverage Ratio	Concentrated Debt Maturity
Low Top Property & Top 5 Properties Contributions	High Top Tenant & Top 10 Tenants Contributions
High Property Yield
High Distribution on Capital
High Distribution Margin
DPU Uptrend
NAV per Unit Uptrend
Interest Coverage Ratio Uptrend

KDC continues to achieve strong YoY growth for DPU. With the completion of IC3 development and the upcoming Guangdong Data Centre acquisition, KDC performance is expected to be improved in the coming quarters. As a side note, this is the first time KDC provides WALE weighed by GRI.

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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 and 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.