Keppel DC Reit FY2020 results

Keppel DC Reit (Keppel DC) has announced their 4^th Quarter FY 2020 financial results. Judging from its result, this stock is not affected by the pandemic in terms of business revenue.

OVERVIEW

Keppel DC performance has been impressive, from $0.93 at IPO, it has gone up to around $2.9 in 5 years, with 1 rights issue (2016) and 1 preferential offering (2019) to fund its acquisitions (data centres).

Some maybe worried when there are rights issue or preferential offerings. But if the management knows what it is doing and it increases the Assets Under Management (AUM) and is Dividend Per Unit (DPU) accreditive, why not. Keppel DC shows the way (see image below).

From 8 properties and AUM of $1 billion at IPO, Keppel DC now has 19 properties with AUM of $3 billion. Net leasable area has increased from 597,000 sqft at IPO to 2,089,000 sqft. This excludes a property of 88,000 sq ft that is still under development and will be ready in the 1^st half of 2021.

REVENUE AND NET PROPERTY INCOME

Although the net leasable area has increased by more than 3 times, the gross revenue has not increased by at the same rate. The gross revenue has grown by around 2.5 times. One point to note is that the margin has increased to 91.9% compared to 84.8%.

DISTRIBUTION PER UNIT (DPU)

Year-on-year, Keppel DC dividend per unit (DPU) has increased by 20.5%, from 7.61 cents to 9.17 cents. It is impressive considering that since IPO, 5 years ago till now, the DPU has increased by only 34% from 6.84 cents to 9.17 cents. Those who bought Keppel DC at IPO are getting a yield of around 9.8% if they have not participated in any rights issue or preferential offerings. For those who participated in both, the yield is around the range of 5.7%. The current yield of the stock at $2.9 is 3.1% as data centre stocks are highly sought after in the global markets.

OCCUPANCY LEVEL AND WEIGHTED AVERAGE LEASE EXPIRY (WALE)

Keppel DC occupancy level has increased to 97.8% from 94.9% in FY2019.

Due to their acquisitions, WALE has dropped from 8.6 to 6.8 years, with 7% of the lease up for renewal next year. 

CAPITAL MANAGEMENT AND GEARING

Keppel DC debt is now at $1.2 billion. What is interesting is that the average cost of debt has decreased over the years from 2.5% at IPO to 1.6%. Their borrowings on fixed rate have also decreased to 63%.

Around 12% of the debt will be due in 2021. With its valuation and track record, refinancing it is not going to be an issue.

Keppel DC’s gearing is at 36.2%. There is still room for them to take on debt or make acquisition if required.

NET ASSET VALUE (NAV)

NAV is at $1.19 compared to IPO’s NAV of $0.92. Which means during IPO, the P/NAV was around 1. Compared to today, the P/NAV is 2.4. Again, this shows how much data centre stocks are valued by investors.

Keppel DC’s management track record speaks for itself. Hopefully, they are able to find attractive acquisitions overseas. It is not going to be easy since data centres are so highly valued and sought after. Their grown in Singapore is limited due to government regulations on renewable energy for data centres. Should there be any corrections driving the share price to below $2.6, I will be happy to add on to it. Else, I will probably just sit and hold on to this share till the fundamentals change.