Keppel DC REIT near 1-year low. Is the worst over?



By Gerald Wong, CFA • 20 Apr 2024 • 0 min read

Keppel DC REIT's share price recently fell to trade near its 1-year low after dividends were cut further.

keppel dc reit share price dividends april 2024

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What happened?

At a recent webinar on the Singapore stock market, I received several questions on Keppel DC REIT.

Many investors wanted to know what is driving weakness in Keppel DC REIT’s share price, which has fallen sharply in recent months to trade near a 1-year low. 

From S$2.10 in December 2023, Keppel DC REIT’s share price has declined by more than 20% to close at S$1.64 as of 19 April.


Just recently, Keppel DC REIT announced a dividend of 2.192 cents for the first quarter of 2024, a 13.7% decline compared to the previous year. 

This followed a 16.1% decline in its dividends in 2023 compared to the previous year. 

In this post, I will be sharing more about what is driving the decline in dividends, and what to look out for next. 

What you need to know about Keppel DC REIT’s latest results

#1 – Decline in dividends compared to the previous year 

Source: Keppel DC REIT

Gross revenue for 1Q 2024 improved by 18.4% year on year to S$83.4 million.

The better performance was attributed to the settlement sum of S$13.3 million received from DXC Technology Services for a partial default of payment relating to the provision of colocation services at 25 Serangoon North Avenue 5.

The net settlement sum of S$11.2 million from DXC will be distributed equally over the four quarters of 2024.

Despite the higher gross revenue, Keppel DC REIT’s net property income increased by a more moderate 11.2% year on year to S$71 million due to loss allowance taken for its Guangdong Data centres. 

Finance costs continued to climb, jumping almost 24% year on year to S$13 million.

As a result, distribution per unit (DPU) fell by 13.7% year on year to S$0.02192.

Find out how much dividends you would have received as a shareholder of Keppel DC REIT in the past 12 months with the calculator below.  

#2 – Portfolio occupancy remains high despite challenges with Chinese tenant

Source: Keppel DC REIT

Keppel DC REIT found itself embroiled in a difficult situation last year when one of its Chinese tenants, Bluesea, defaulted on its rental obligations.

A letter of demand was issued to Bluesea in December last year to recover a sum in arrears of around S$9.1 million and rental in arrears of about S$8.5 million along with late fees amounting to S$0.6 million.

This tenant took up space in three of Keppel DC REIT’s Guangdong data centres and contributed around 8.5% to the REIT’s gross revenue for the third quarter of 2023.

It should be noted that Bluesea’s troubles resulted in a S$0.00326 impact on Keppel DC REIT’s 1Q 2024 DPU.

Excluding this, DPU would have fallen just 0.9% year on year to S$0.02518.

Outside of the challenges faced with Bluesea, Keppel DC REIT reported decent operating metrics. 

Portfolio occupancy stood high at 98.3% as of 31 March 2024. The REIT manager also secured new and renewal contracts with positive rent reversion.

#3 – Healthy debt metrics

Source: Keppel DC REIT

Moving on to the REIT’s debt metrics, its aggregate leverage was at a moderate 37.6%, a slight increase from 37.4% as of December 2023.

The good news is that the data centre REIT’s average cost of debt declined by 0.1% from 31 December 2023 to come in at 3.5% for 1Q 2024.

Interest coverage ratio also remained healthy at 4.6 times and the REIT has 73% of its debt on fixed rates.

The dip in Keppel DC REIT’s cost of debt, coupled with the hedging of the bulk of its loans to fixed rates, is likely to lead to a moderation in the increase in finance costs in the coming quarters.

#4 – Divestment of Intellicentre Campus and reinvestment of proceeds

Source: Keppel DC REIT

Just last week, Keppel DC REIT announced the divestment of its full interest in Intellicentre Campus in Sydney for A$174 million.

This transaction was conducted at a 148% premium to the REIT’s original investment of around A$70 million and was also an impressive 35.4% premium to the property’s 2023 valuation of A$128.5 million.

Part of the proceeds (A$90 million) was then reinvested into an Australian Data Centre Note with an initial yield of 6.97%.

This note has an 8.5-year tenure and also has in-built rental escalations.

What Keppel DC REIT did here was to substitute a physical asset with a financial one and it was a savvy move as the REIT does not have to worry about its tenant and take care of the data centre’s power and operating costs.

The manager expects a slight 0.7% DPU accretion arising from this transaction.

The remainder of the proceeds will be used to pay down loans of around A$43.2 million with the remaining A$22.3 million to be used for repaying debt, funding acquisitions, or general working capital purposes. 

#5 – Sturdy data centre fundamentals

Finally, Keppel DC REIT has released statistics and information on the data centre market (see above).

The continued shift to cloud computing, along with digitalisation and the surge in demand for artificial intelligence, has contributed to a strong and growing demand for data storage.

The shortage in data centre space is likely to persist and should translate to positive rental reversions for the REIT.

What would Beansprout do?

Keppel DC REIT’s share price fall appears to be driven by a decline in its dividends, due to challenges faced with at its Guangdong data centres and higher financing costs. 

While there are some bright spots from the settlement received from DXC, we will await more updates on the recovery process relating to its China asset to gain clarity on the prospects of Keppel DC REIT. 

In our view, investors will likely take time to regain confidence in the REIT given the challenges relating to the recently acquired asset in China. 

Analysts also seem to a more neutral view on Keppel DC REIT’s share price outlook based on the latest data as of 19 April 2024.


For investors with the longer term time horizon, the fundamentals of the global data centre industry still appear robust.

Keppel DC REIT is also on the lookout for more opportunities to recycle capital like what it did for the Intellicentre Campus.

Keppel DC REIT is expected to offer a dividend yield of 5.4%, above its historical average of 4.7%.


In the meantime, we would also need to be mindful that expectation that the Fed may not cut its interest rates so quickly may impact sentiment on Singapore REITs. 

If you are keen to understand more about how higher interest rates may impact Singapore REITs, join us for our free webinar on "What's next for Singapore REITs?" on 24th April by registering here

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