5 things you should know about Keppel DC REIT

Keppel DC REIT logo

Keppel DC REIT released their second quarter 2017 financial results in July. This post is a review of their results and the top 5 things you should know from their announcement.


Key highlights

Distribution or dividend per unit in the first half of 2017 has improved compared to the first half of 2016, rising from 3.34 SG cents to 3.63 SG cents.

There’s been an improvement between second quarter 2017 and second quarter 2016 too.

Gearing ratio of 27.7% remains one of the lowest among Singapore REITs. The average leverage for Singapore REITs is approximately 35%.

Distribution or dividend yield of 5.56% is on the slightly lower side compared to Singapore REITs’ average of 6.2%. The lower dividend yield is due in part to price-to-book being on the higher side at around 1.2

This means that investors are possibly pricing in future growth, and many of them want to participate in it. They are therefore aggressively buying Keppel DC REIT’s shares, driving its price up.

Portfolio weighted average lease expiry (WALE) of 9.4 years is on the high side. High is good as it indicates a longer lease length of tenants and therefore security of income.

Key highlights


Portfolio update

Going further into the lease expiry profile of Keppel DC REIT, most of the leases are due to expire only after 2022. Only 5.1% of leased area is expiring for the remainder of 2017, with even lesser at 0.9% in 2018, before rising slightly to 2.0% and 1.9% in 2019 and 2020. It thereafter rises sharply to 13% in 2021.

It is likely that WALE for Keppel DC REIT will continue to remain high, given the length of leases signed by data centre tenants.

From the slide appendix, a lot of the tenants have signed leases of at least 3 years, some rising even to 10 years.

Portfolio update


Stable portfolio

Keppel DC REIT’s income continue to be generated mainly by colocation tenants.

Co-location is defined by Keppel DC REIT as follows –

“[…]typically entered into by end-clients who utilise colocation space for the installation of their servers and other mission critical IT equipment. Keppel DC REIT is
usually responsible for facilities management in respect of such colocation arrangements […]”

Of their portfolio properties, these are the tenants on a colocation scheme.

  • Keppel DC Singapore 1, 2 and 3
  • Basis Bay Data Centre in Cyberjaya, Malaysia
  • Gore Hill Data Centre in Sydney, Australia
  • Keppel DC Dublin 1 in Dublin, Ireland

Stable portfolio

Prudent capital management

On the financial side, Keppel DC REIT has a healthy 83% of borrowings which are hedged. This means that even if interest rates rise, Keppel DC REIT has locked down at least 83% of the present amount of borrowings into a fixed rate.

This 83% translates into about S$365 million of borrowings.

Presently, the average cost of debt is 2.2% per annum, one of the lowest among Singapore REITs. Despite the alternative asset class that Data Centres is, the REIT has managed to get such a low cost of borrowing and this is likely due to their strong sponsor, Keppel Corporation, and major shareholder, Temasek Holdings.

Prudent capital management

Prudent capital management (cont’d)

Lastly, the forecasted distributions or dividends up to second half 2018 from Keppel DC REIT are hedged. This means that even if the Euro, GBP and AUD depreciates and impacts the revenue that Keppel DC REIT receives in SGD, investors need not worry too much as investors are guaranteed a certain amount.

Hedging by itself is a form of insurance, but it does come with a certain cost. Keppel DC REIT is paying that small amount to ensure that investors get the dividends they deserve.

Another way Keppel DC REIT manages currency fluctuations is by borrowing in currencies that match their investments. So if there are more investments in Europe, Keppel DC REIT will seek to borrow in that currency.

These borrowings can come from European banks or from local banks like DBS, OCBC or UOB.

Prudent capital management 2

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