Keppel DC Reit First Quarter 2019 Financial Results

I seldom share on the financial results due to a lack of time and inexperience in looking through financial statements/results.

Here are some takeaways I had from Keppel DC Reit First Quarter 2019 Financial Results which was released on 15 Apr 19.

Please DYODD. I am vested in this stock.

DISTRIBUTION PER UNIT (DPU)

The gross revenue has increased by 26.4% to $48 million. More importantly, the distribution per unit (DPU) has increased by 6.7% to 1.92 cents compared to last year, mainly due to the contributions from its new acquisitions of maincubes Data Centre in Germany, and Keppel DC Singapore 5.

I am always thankful and appreciate it each time DPU increases. It is the hard work of the trust manager and its fore-sight. Many a times, we take it for granted that DPU is to remain the same or increase. If you want a case of decreasing DPU, go look through Sabana Reit’s DPU from the period of 2011 to 2015.

OCCUPANCY LEVEL

Currently, Keppel DC Reit overall occupancy level is 93.2%. While majority of its data centres are at 100% occupancy level, there are a couple which is pulling the overall occupancy level down. The main two data centre dragging it down are the Basis Bay Data Centre in Malaysia and Keppel DC Dublin 1 in Ireland whose occupancy levels are 63.1% and 61.8% respectively.

Keppel DC Dublin 1 occupancy level has actually improved slightly. Last year, its occupancy rate was 56.6%. But then, they have shared that the low occupancy level was because that data centre was an old asset. This was the reason why asset enhancement is being carried out at the site to improve energy efficiency. Hopefully, when this is completed in 2020, the occupancy level will increase.

As for Basis Bay Data Centre in Malaysia, the occupancy level used to be 100% until 2017 when it dropped to 63.1%. Back then the site was fully occupied until the master lessee downsized its operations from three to two floors. Since then, the Reit has not been able to lease out the remaining floor.

Weighted Average Lease Expiry (WALE)

The WALE has fallen from 9.1 years in 2017 to 8.0 years. I am not too concerned about this for now because of the following reasons:

-        Only 2.4% and 4.9% of the leased area is due for expiry in 2019 and 2020 respectively

-        2021 is the year to watch as 16.3% of leased area is due for expiry

-        It is hard to switch data centres because of the amount of preparation and work required to ensure a seamless migration (unless it is closing down of operations or downsizing)

-    Demand for data centre is expected to remain strong with internet of things, 5G mobile network, and autonomous vehicles and machines. Basically, everyone and everything is consuming data these days.

GEARING

Its aggregate leverage (gearing) is at 32.5%. This is below the regulatory ceiling of 45% which means that the reit can still embark on more acquisitions without the need for rights issue depending on the size of the acquisition(s). Currently, 81% of its borrowings are hedged at a fixed rate while the remaining 19% are tied to the Floating Rate.

NET ASSET VALUE (NAV)

Its NAV is $ 1.05. Do note that it is currently trading above its NAV.

GROWTH SINCE LISTING

Keppel DC Reit ’s property portfolio has grown from $1 billion to S$2 billion since its inception. Although there was a rights issue then in 2016. Personally, I think that the management has done quite well in growing the portfolio. While there will always be room for improvement, I am not one to take the growth in stock value (NAV), DPU and stock price for granted.

Hopefully, the management can continue their track record and bring Keppel DC Reit to new highs.