Keppel DC REIT DPU rises by 0.4%: Our Quick Take

Summary of Keppel DC REIT 3Q24 results

Keppel DC REIT (KDC) provided an operational update for 3Q24. 

• DPU for 3Q24 was 2.501 cents, 0.4% higher than 3Q23, and 6.1% above 2Q24. This is after setting aside reserve for capex. 
• This translates to annualised distribution yield of 4.46%.

Net property income was 0.2% lower year-on-year but 4.6% higher than 2Q24. Distributable income rose by 1.9% year-on-year to S$44.7m, lifted by higher finance income from the Australian note.

3Q24 rental income rose 8.9% year-on-year. This was driven by 1) 2-month contribution from Tokyo Data Centre acquired on 31 Jul; 2) 40% rental reversion for a contract in 2Q24, and a 1-1/2-month impact from another contract renewal in 3Q24, also at >40%. These contract renewals are mainly in Singapore, where demand for data centre space outstrips supply. 

About 11.5% of leases by rental income is due for renewal in 2024. These are mainly Singapore assets, giving room for further rate enhancements. On the other hand, about 0.6% of the leases lettable area and 3% of gross rental income is expiring in Australia, where one hyperscaler tenant exited to relocate to its own premises at end Sep. Keppel DC REIT is targeting to fill the space with tenant from retail enterprises. The impact on the overall portfolio occupancy of 97.6% is likely to be small, in our view.

Aggregate leverage rose to 39.7%, from 35.8% at end-Jun, after taking on more debt to finance the purchase of Tokyo data centre. 

Cost of debt has lowered to 3.3% due to lower-cost Yen loan taken up and the decline in Euribor. 

About 29% of its debt are on floating rates. Further decline in Euribor, after ECB recent rate cuts, would help to lower cost of debt.

Beansprout's take on Keppel DC REIT's 3Q24 results

Rental income is expected to be grow in 4Q24, backed by the rental uplift, offset marginally by the exit of the tenant in Australia. 

Keppel DC REIT, with 53.1% of its assets in Singapore, is expected to benefit from the strong demand, which is exceeding supply. 

There is room for further positive rent reversion for Keppel DC4 and DC2, with weighted average lease expiry of 0.8 years and 1.2 years, respectively.

Keppel DC REIT could look to acquisitions for growth, in markets such as Japan and South Korea, including assets from the sponsor. 

Sponsor Keppel Ltd has S$2bn worth of data centre assets under development and management. In the near term, Keppel DC REIT could seek to extend the land tenure at Keppel DC1 expiring in Sep 2025.

Keppel DC REIT trades at a price-to-book valuation of 1.64x, above its historical average. 

Related links:

• Keppel DC REIT share price and share price target

• Keppel DC REIT dividend forecast and dividend history

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