Keppel DC REIT falls to 52-week low. What's driving the decline?

What happened?

Keppel DC REIT reported a decrease in the Distribution per Unit (DPU), with DPU for 2H 2023 falling to 4.332 cents from 5.165 cents in 2H 2022. 

This reduction, amounting to a 16.1% drop, brought the full-year DPU for 2023 to 9.383 cents compared to 10.214 cents in the previous year. 

Keppel DC REIT’s share price fell after the results to reach a 52-week low of S$1.60 on 5th February, before recovering to close at S$1.71 as of 9 February.

Let us find out more about Keppel DC REIT’s latest earnings what it they mean for the share price. 

What you need to know about Keppel DC REIT results

#1 – Lower distributions driven by higher finance costs and lower net property income (NPI) 

The decline in DPU can be attributed to higher finance costs and loss allowances for uncollected rental income particularly from the Guangdong Data Centres.

There was also lower contributions from some Singapore colocation assets due to increased facilities expenses and less favourable forex hedges. 

However, this was partly offset by positive reversions and contributions from acquisitions made in the previous year.

As a result, Net Property Income (NPI) fell by 9.1% from S$129 million in 2H 2022 to 118 million in 2H 2023. 

Financial costs surged by 43.5%, rising from $18.0 million in 2H 2022 to $25.8 million in 2H 2023. 

This increase is a reflection of the rising interest rate environment and the REIT's higher level of borrowings during the period, which contributed to the overall increase in finance costs.

#2 - Portfolio occupancy rate robust but challenges remain for China assets 

Keppel DC REIT’s portfolio occupancy rate remained robust, standing at 98.3%. 

With strong demand for data centres, Keppel DC REIT secured contracts for its data centres in Singapore, Australia, Ireland and the Netherlands with positive reversions.

In China, Keppel DC REIT’s tenant at Guangdong data centres has settled part of the rental owed amounting to RMB0.5 million (S$0.1 million) in December 2023 after the issue of a letter of demand for default on rent and coupon payments.

Keppel DC REIT is working with the tenant on a recovery roadmap and will continue to actively engage with the tenant to get the best possible outcome for Keppel DC REIT.

#3 - Leverage rate stable

The leverage rate of Keppel DC REIT remained stable with an aggregate leverage at 37.4%. 

The REIT continues to adopt a disciplined capital management approach to maintain a robust balance sheet, reflecting in a healthy interest coverage ratio of 4.7 times. 

The average cost of debt was reported at 3.3%, with a significant portion of borrowings (74%) being fixed through interest rate swaps, indicating a strategic management of interest rate exposure and a favourable debt profile with the majority of the debt maturing in 2026 and beyond.

What would Beansprout do?

Keppel DC REIT's share price decline appears to be driven by a fall in distributions, as higher property expenses and finance costs have impacted distributable income.

With the fall in Keppel DC REIT's share price, it is now trading at fairly attractive valuation.

Keppel DC REIT is expected to offer a dividend yield of 5.3%, above its historical average of 4.7%. 

Keppel DC REIT’s current price-to-book value of 1.3x is below its historical average of 1.4x.

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

Likewise, analysts seem to a more neutral view on Keppel DC REIT’s share price outlook based on the latest data as of 7 February 2024.

We will await more updates on the recovery process relating to its China asset to gain clarity on the prospects of Keppel DC REIT. 

To find out the dividend payment dates and calculate the amount of dividends you will receive, check out our Keppel DC REIT stock page.

Check out Beansprout’s REIT tool to compare Keppel DC REIT with others REITs, and choose the best REIT for your portfolio.

Related Links:

• Keppel DC REIT share price and analysis
• Keppel DC REIT dividend history

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