Is Keppel DC REIT Share Price Reasonable?

Updated: Feb 12



Key Highlights:

  • Keppel DC REIT's 4Q19 DPU grew 4.3%

  • The annualised yield and price to book ratio are 3.4% and 1.97 respectively



1. Improved net property income but offset by weaker foreign currencies


Net property income jumped 14.3% to $48.5m on higher contributions from Singapore properties, as well as the new acquisitions of KDC SGP 4 and DC1 in Q4 2019. However, the increase was partially offset by the absence of rental top-up from KDC SGP 5, Milan DC and KDC DUB 2. The depreciation of AUD and EUR currencies against SGD was also the main factor that offsets the net property income.


The REIT maintains its occupancy rate of 94.9%, with a weighted average lease-to-expiry of 8.6 years.



2. Downside protected with low-interest cost


Keppel DC REIT's gearing remains low at 30.7% with a low-interest cost of 1.7%. The low gearing gives the REIT more debt headroom for future acquisitions. Besides, it has hedged 82% of its borrowings through floating-to-fixed interest rate swaps and also hedged its foreign-sourced income using the forward FX contracts. This will help to protect its SGD distributions against any potential currency depreciation.



3. Growth catalyst


Moving forward, the REIT plans to increase power capacity at KDC SGP 5 in 2H20. Besides, the fit-out shell and core space at DC1 are on track to be completed in 3Q20. The construction of Intellicentre 3 East Data Centre is expected completion in 4Q20.



Summary:


With the Industrialisation 4.0 and the increase in demand on data centres, Keppel DC REIT is in a good position to tap on the sector growth. The only downside of the REIT is a relatively low dividend yield of 3.4%. We will continue to monitor the REIT and wait for a favourable entry point.


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