Keppel DC REIT (SGX: AJBU) Maintained Double-Digit Growth In DPU



Keppel DC REIT (SGX: AJBU) has recently announced its 3Q2020 financial results. It is currently trading at 2.2% yield based on the last traded share price of $3.00 on 20 Oct.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (2.2%)

  • Price to book ratio (2.58)

  • Gearing (35.2%)

  • Interest coverage ratio (12.7x)

  • Portfolio occupancy rate (96.7%)

  • Growth catalyst


Background of Keppel DC REIT


Keppel DC REIT is the first and the only REIT with a 100% portfolio focused on data centres. It has been listed on the Singapore Stock Exchange since December 2014.

Its portfolio comprises of 17 data centres located Europe, Singapore, Malaysia and Australia.


1. Distribution per unit and dividend yield


In its 3Q 2020 financial results, Keppel DC REIT continues to deliver very strong results. Its net property income and DPU increased to $62.4m (up 47.6%) and 2.357 cents (up 22.1%)respectively. The increase in income was mainly driven by the new acquisitions and strong leasing momentum in both Singapore and Dublin's facilities.


Despite the strong results, the REIT is currently trading at an unattractive yield of 2.2%. Historically, the REIT has been paying very consistent DPU, with steady growth over the years. However, its current yield of 2.2% is one of the lowest yield as compared to other REITs listed on Singapore Stock Exchange.



2. Price to book ratio


Over the past 4 years, Keppel DC REIT has been trading at an average price to book ratio of 1.3. Its current price to book ratio of 2.58 times is almost 2 times as compared to its historical average.



3. Gearing


Portfolio leverage remained conservative but went up slightly to 35.2%. Keppel DC REIT still has more than $480m of debt headroom for future growth and acquisitions. Its debt maturity profile remains well distributed, no more refinancing required for 2020, with less than 12% of debt due for renewal in 2021.


4. Interest coverage ratio


The REIT has a super conservative interest coverage ratio of 12.7 times, which is well above our preference of 4 times. Besides, the REIT maintains a low overall interest cost of 1.6%. Keppel DC REIT continues to maintain a healthy balance sheet which enables its access to wider funding options at better rates.


5. Portfolio occupancy rate


Portfolio occupancy remains high at 96.7%. Its weighted average lease to expiry remains high at 7.2 years, which is very well distributed over the years.

Keppel DC REIT's Lease Expiry Profile (Sourse: Keppel DC REIT's Presentation Slide)


6. Growth Catalyst


The AEI works for Keppel DC Dublin 1 have been completed recently. The remaining AEI projects which include Keppel DC SGP 5 and Keppel DC Dublin 2, DC1 fit-out and IC3 East DC are on track for completion in 1H21.


Moving forward, the growth prospects should continue to be supported by strong demand in data centre and the shift in digital trends towards cloud computing services.


Summary


The key financial metrics of Keppel DC REIT still remain very healthy, however, we think that the price does not look attractive at current level.



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