Keppel DC REIT's DPU Went Up 4.3%

Keppel DC REIT (SGX: AJBU) has announced its third-quarter 2019 (3Q19) results recently. Below are the highlights of the results.

1. Improved DPUs on lower net property income

Net property income dropped 1.8%, mainly due to the absence of rental top-ups from three assets, KDC SGP 2, KDC Dublin 2 and Milan DC properties. However, its distributable income went up 5.4% to $27.4m, contributed by FX gains and lower tax expenses. Thus, the distribution per unit (DPU) went up slightly to 4.3% to 1.93¢ with a 10% enlarged unit base.

The REIT maintains its occupancy rate of 93.6%, with a weighted average lease-to-expiry of 7.7 years.

2. Downside protected with low-interest cost

Keppel DC REIT has done an equity fundraising recently. Its gearing dropped to 28.9% with a low-interest fee of 1.7%. The low gearing gives the REIT more debt headroom for future acquisitions. Besides, it has locked in 80% of its borrowings through floating-to-fixed interest rate swaps and also hedged its foreign-sourced income using the forward FX contracts till 1H21. This will help to protect its SGD distributions against any potential currency depreciation.

3. Growth catalyst

Industrialization 4.0, digitization and big data development have continued to push the demand for data centres globally. Organically, the proposed acquisition of two Singapore data centres is expected to be DPU accretive, which will also increase its asset under management by 30% to $2.6b.

FTSE EPRA Nareit Global Developed Index has recently included Keppel DC REIT to the index with effect from 23 Sep. This would increase the demand of the shares as the fund managers will rebalance their portfolios to include the REIT.

Summary:

Keppel DC REIT has been improving its fundamentals, building a quality portfolio and enjoying growth catalysts which will potentially enhance its DPUs. The only downside of the REIT is a relatively low dividend yield of less than 5%. We will continue to monitor the REIT and wait for a favourable entry point.

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