The manager of Keppel DC REIT has reported a lower distribution per unit (DPU) of 2.492 cents for the 3QFY2023 ended Sept 30, a 3.6% decrease from the same period a year ago. 

 

This brings its DPU for the 9MFY2023 to 7.543 cents, 1.2% lower than the 9MFY2022 DPU of 7.634 cents. 

 

For the three-month period, distributable income dropped by 6.5% y-o-y to $43.9 million. The REIT says that this is mainly due to higher finance costs and less favorable forex hedges, which were partially offset by higher finance income and tax savings. Its 9MFY2023 distributable income stands at $135 million, 2.1% lower y-o-y.

Gross revenue for the 3QFY2023 rose by a slight 0.5% y-o-y, to $70.7 million while gross revenue for the 9MFY2023 rose by 2.6% y-o-y to $211.1 million.

 

Net property income (NPI) rose slightly by 0.8% y-o-y to $64.6 million for the 3QFY2023, and rose by 2.5% y-o-y for the 9MFY2023 to $191.9 million. 

 

The REIT says its increase in its 3QFY2023 gross revenue and NPI were due to contributions from acquisitions and overall positive income reversions and income escalations. 

 

As at Sept 30, the REIT&rsquo s portfolio occupancy stood at 98.3% while its weighted average lease expiry (WALE) stood at 7.8 years by lettable area.

 

The REIT secured new and renewal contracts in Singapore, Australia, Ireland and the Netherlands, with overall positive reversions. 

 

Its aggregate leverage stood at 37.2%, and its available debt headroom stands at $182 million. The REIT has no further refinancing for 2023, with the bulk of debt expiring from 2026 and after. 

 

It has also obtained a multi-currency $120 million sustainability-linked and Islamic financing facility for six years. 

 

The manager of Keppel DC REIT AJBU -0.93% (KDCREIT) announced that Keppel DC REIT Fin. Company, a subsidiary of KDCREIT, has obtained a Sustainability-Linked Islamic Credit Facility guaranteed by Perpetual (Asia), in its capacity as trustee of KDCREIT, pursuant to a master murabahah agreement dated Spet 22.

 

The multi-currency credit facility is worth $120 million and is a sustainability-linked murabahah revolving credit facility.

 

Under the terms and conditions of the Master Murabahah Agreement, Keppel DC REIT Fin. Company will be required to early settle all amounts disbursed under the credit facility within 10 business days in the event that the manager ceases to be the manager of KDCREIT and an entity [where at least 50% of all the issued share capital of such entity is owned (directly or indirectly) by Keppel Capital Holdings and/or Keppel Corporation Limited] is not appointed as a replacement or substitute manager of KeKDCREIT in accordance with the terms of the deed of trust constituting KDCREIT and applicable law prior to such cessation.

 

Assuming the occurrence of the mandatory early settlement event, and that such occurrence would cause a cross default under other borrowings of the KDCREIT group, the aggregate level of facilities that may be affected is, as at the date of this announcement, approximately $2.07 billion (excluding interest and fees).

 

As at Sept 22, the mandatory early settlement event has not occurred.

 

DBS Group Research has increased its target price for Keppel DC Reit : AJBU 0% to S$2.45 from S$2.35 in the light of the real estate investment trust&rsquo s (Reit) strong financial performance for the first half of FY2023.

 

In its view, the Reit will maintain this positive momentum as earnings growth will be driven by accretive acquisitions over the past year, recent asset enhancement initiatives, and the protracted completion of Guangdong Data Centre 3 (Guangdong DC 3).

 

On Tuesday (Jul 25), the research house maintained its &ldquo buy&rdquo call on the Reit.

 

Its revised target price implies a forward yield of 4.1 per cent to 4.4 per cent, which is in line with the four-year average of 4.1 per cent. Keppel DC Reit&rsquo s distribution yield was 4.5 per cent in FY2022.

 

For the whole of FY2023, DBS is forecasting the Reit will report a distribution per unit (DPU) of S$0.10, slightly down from its FY2022 DPU of S$0.102. However, it projects higher DPUs of S$0.103 for FY2024, and S$0.107 in FY2025.

 

FY2024&rsquo s estimates include full-year contribution forecasts for Guangdong DC 3, which the analysts note to be on track for completion in Q3 of 2023.

 

These projections remain relatively conservative, said DBS analysts, as they do not include further acquisition assumptions which are likely to be accretive to earnings.

 

In their view, the Reit&rsquo s DC portfolio in the Asia-Pacific (Apac) and Europe will continue to benefit from the structural tailwinds of the sector.

 

The analysts also like the Reit for its consistently high occupancy rate along with support from its sponsor, Keppel Telecommunications and Transportation.

 

While DBS did not include future acquisition assumptions in its estimates, Citi analyst Brandon Lee viewed the Reit as fairly priced after taking into account its potential acquisitions.

 

The Citi research house remains &ldquo neutral&rdquo on Keppel DC Reit with a price target of S$2.16.

 

On potential acquisitions, Lee noted that the capitalisation rates in Europe and Apac have not expanded. There are also limited properties for sale despite the Reit&rsquo s efforts to seek out acquisition opportunities in these regions.

 

The short land tenure of the Reit&rsquo s Singapore assets could also pose downside risks to the portfolio, he said.

 

&ldquo If the land leases for the assets are not renewed on expiry, the negative impact to Keppel DC Reit would be quite sizeable given that these assets make up a meaningful portion of assets under management,&rdquo Lee added.

 

KEPPEL Data Centre (DC) Reit : AJBU -0.87% posted a 0.04 per cent increase in distribution per unit (DPU) to S$0.05051 for the first half of the 2023 financial year ended Jun 30. The figure was S$0.05049 in the corresponding period a year ago.

 

Distributable income rose 0.2 per cent to S$91.3 million, while net property income increased 3.3 per cent to S$127.4 million over the same time period. Gross revenue rose 3.6 per cent to S$140.5 million, the Reit&rsquo s manager announced in a bourse filing on Monday (Jul 24).

 

The acquisitions of two data centres in Guangdong, China, reversions from contract renewals and escalations, as well as tax savings from its investment into M1 network bonds (which have received approval to come under the qualifying debt securities scheme), contributed to the higher income.

 

However, distributable income went up by only 0.2 per cent, because these contributions were partially offset by higher financing costs, lower contributions from some of its Singapore assets due to higher facilities expenses, a lower government incentive sum for its Guangdong investments, as well as less favourable forex hedges.

 

Finance costs rose 73.4 per cent to S$22.7 million arising from refinanced loans and floating interest rates loans. Keppel DC Reit&rsquo s aggregate leverage stood at 36.3 per cent as at Jun 30, with 73 per cent of its borrowings on fixed rates. The Reit has no refinancing for the rest of 2023, with the bulk of debt expiring from 2026 and beyond.

 

Portfolio occupancy stood at 98.5 per cent at the end of H1 2023, with a portfolio weighted average lease expiry (WALE) of eight years by lettable area.

 

Anthea Lee, chief executive of Keppel DC Reit&rsquo s manager, said it remains &ldquo cautiously optimistic about growth opportunities&rdquo .

 

&ldquo We&rsquo ll continue to grow our portfolio through acquisitions with a focus on diversification to strengthen income resilience,&rdquo she said during an earnings call.

 

She added that the team continues to look at various opportunities across Asia-Pacific and Europe. When asked about a potential acquisition of the SGP 7 data centre being developed by Keppel Corp, Lee noted that Keppel DC Reit currently has no timeline, but said the data centre &ldquo definitely remains very much on our horizon in terms of looking at potentially acquiring it&rdquo .

 

Lee noted that Keppel DC Reit&rsquo s Guangdong Data Centre 3 would be completed by the third quarter of this year. The manager would consider whether it makes sense to do an equity fundraising to fund both the final payment for Guangdong Data Centre 3 and any acquisition opportunities that may arise.

 

In terms of expenses, Lee noted that the Reit has fixed tariffs for electricity in Singapore for 2023 and 2024, and the manager also considers how costs can be passed on. &ldquo Whenever we renew a lease, it&rsquo s not just about positive rent reversion, but also to see how we can push more of the electricity costs to be recovered from these clients,&rdquo she said.

 

The Reit&rsquo s manager said that it has a well-diversified client base with a well-spread expiry profile, with the majority of rental income derived from clients with credit profiles that are investment-grade or the equivalent. 

 

It has also secured new, renewal and expansion contracts at its data centres in Singapore, Ireland and the Netherlands, with overall positive reversions.

 

Lee said the Reit&rsquo s reversions have been &ldquo healthy&rdquo and &ldquo up to double digits&rdquo . She noted that Keppel DC Reit is operating in key hubs where demand for data centres is outstripping supply.

 

&ldquo That actually puts us in a very favourable position as landlord to negotiate, and that has also been the main reason why we have been able to get rather positive rent reversions.&rdquo

 

Over half the portfolio has built-in income and rental escalations, while the remaining contracts with no escalation have a WALE by rental income of around 1.7 years.

 

Despite macroeconomic headwinds, which include a slowdown in economic growth, the ongoing Russia-Ukraine conflict and tight financial conditions, the manager said that data centre demand is expected to remain resilient.

 

Citing data from Structure Research, it said that the global data centre co-location and interconnection market will grow 12 per cent year on year to US$72.7 billion in 2023.

 

Lee said: &ldquo The prospects for data centre demand are still very strong, given that generative artificial intelligence is going to require a lot more data centre power and compute needs.&rdquo

 

The DPU of S$0.05051 will be paid on Sep 14. Based on each unit&rsquo s closing price of S$2.16 on Jun 30, Keppel DC Reit&rsquo s annualised distribution yield would come up to 4.68 per cent.