On 24 January 2025, Keppel DC REIT (“KDC”) have announced their full year result for FY2024. With the completion of equity fund raising at a price above the net asset value per unit, this resulted in a significant increase in net asset value per unit as of 31 December 2024 as compared to 30 June 2024. This also helped to decrease their leverage significantly, which overall helped to strengthen their financial position.
Do note that DPU saw a decrease from the previous quarter, and worth noting that the top tenant of KDC saw a decrease in proportion of rental income, from 42.0% as of September 2024 to 39.2% as of December 2024. This was despite an increase in rental income proportion for the other tenants in the top 10. Investors will need to take note and monitor, as well as assess if the acquisition of Keppel DC Singapore 7 & 8 (KDC SGP 7 & 8) will be beneficial to unit holders over the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://www.keppeldatacentres.com/locations/asia-pacific/singapore/dc-1/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -4.0% | -6.5% |
| Rating | Unfavorable | Unfavorable |
With effect from February 2025, I will be using the quarter-on-quarter DPU changes as references for REITs that share their quarterly DPU changes. This is due to REITs are usually not as affected by seasonal changes.
For KDC, DPU disclosed are as follows:
- Second Half of FY2024: SGD0.04902 per unit
- Fourth Quarter of FY2024: SGD0.02401 per unit
- Third Quarter of FY2024: SGD0.02501 per unit
Take note that in the comparison above, I am using the DPU that is not adjusted from the impact of new units raised via the pro-rata preferential share offering. DPU for the fourth quarter of FY2024 decreased by 4.0% to SGD0.02401 per unit from SGD0.02501 per unit for the previous quarter. The decrease is due to the enlarged unit base from the preferential share offering. The metric remains Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 97.2% | 97.6% |
| Rating | Favorable | Favorable |
Occupancy rate as of 31 December 2024 decreased slightly to 97.2%, The metric remains Favorable as it is still healthy.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 31.5% | 39.7% |
| Rating | Favorable | Unfavorable |
Gearing ratio decreased significantly to 31.5% as of 31 December 2024. The decrease in gearing was due to the equity fund raising in the fourth quarter of FY2024, which significantly increased assets while total borrowings remained relatively unchanged at SGD 1.7 billion. The metric has shifted towards Favorable as there is now headroom from the MAS limit as well as opportunities to raise debt if required for acquisitions.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 5.3x | 5.1x |
| Rating | Favorable | Favorable |
The interest coverage increased slightly to 5.3 times as of 31 December 2024. The metric remains Favorable as the interest coverage is higher than my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.2 years | 3.4 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt has shortened slightly to 3.2 years as of 31 December 2024. KDC only has 27.8% of their debt due for renewal in FY2026. This remains Favorable as there is sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.44 | 1.64 |
| Rating | Unfavorable | Unfavorable |
The Price to Book (“P/B”) ratio has become cheaper at 1.44. This is computed using the closing share price of SGD2.20 on 31 January 2025 and the net asset value per unit of SGD1.53 as of 31 December 2024. The significant increase in net asset value from the previous quarter was due to the equity fund raising in the fourth quarter of FY2024. The metric is Unfavorable as investors are paying a significant premium although this is a REIT with a strong sponsor.
As of 31 January 2025, the Market Capitalization is approximately SGD4,860 million.
Website: Yahoo Finance: Keppel DC REIT (AJBU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2025 | 0.37% | SGD 0.008 |
| 2024 | 5.89% | SGD 0.130 |
| 2023 | 4.64% | SGD 0.102 |
| 2022 | 3.89% | SGD 0.086 |
| 2021 | 5.06% | SGD 0.111 |
| 2020 | 2.88% | SGD 0.063 |
Do note that the dividend for the calendar year 2024 was higher due to the advance distribution of SGD 0.04083 per unit ahead of the equity fund raising. Excluding this advance distribution, dividend for the calendar year amounted to SGD 0.08917 per unit, which would be a reasonable base to project for the calendar year 2025.
With a closing share price of SGD2.20 as of 31 January 2025 and expected dividend payout for the calendar year 2025 of SGD0.089 per unit, this translates to a dividend yield of 4.05%. For my benchmark, a general reasonable range would be around 5.25%. KDC’s dividend yield is below my benchmark and the dividend yield is Unfavorable.
Website: Reasonable Dividend Yield 2025Q1 – 5.25%
If using dividend yield of 5.25% as a benchmark, based on the dividend of SGD0.089 there is potential for KDC to see its share price drop by another 22.9% to SGD1.70.
| Yield | Share Price | Downside |
|---|---|---|
| Current | 2.20 | – |
| 5.25% | 1.70 | -22.9% |
| 6.25% | 1.42 | -35.3% |
Interest Rate Sensitivity
The Federal Reserve on 30 January 2025 have kept interest rates unchanged at a range of 4.25% to 4.50%. This is due to significant uncertainty in the U.S. economic landscape, with a healthy set of macroeconomic fundamentals that have changed little in recent months, but coming decisions from the Trump administration on immigration, tariffs, taxes and other areas that could prove disruptive.
Website: Fed leaves rates unchanged, sees no hurry to cut again
As KDC have debts that are exposed to floating rate, any change in interest rate will result in KDC experiencing changes to their cost of debt. The debt profile of KDC is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $1,700,000 |
| Debt Not Hedged (%) | 34.0% |
| Debt at Floating Rate Exposed | $578,000 |
| Distributable Income FY2024 | $172,733 |
I have performed the interest rate sensitivity analysis as below:
| Change in Interest Rates | Change in Distributable Income (SGD’000) | Change as % of FY2024 Distribution |
|---|---|---|
| 50 bps | $2,890 | 1.7% |
| 100 bps | $5,780 | 3.3% |
| 150 bps | $8,670 | 5.0% |
| 200 bps | $11,560 | 6.7% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to change by the basis points above, it will translate to the respective changes in distribution as above.
Key things to note
Tenant profile
KDC have a high tenant concentration with the top 10 tenants contributing to 78.2% of their total gross rent and the top tenant accounting for 39.2% for the month of December 2024. This is risky as KDC is heavily reliant on their tenants for income. The withdrawal of any tenant will have a significant impact on their DPU.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -4.0% | Unfavorable |
| Occupancy | 97.2% | Favorable |
| Gearing Ratio | 31.5% | Favorable |
| Interest Coverage | 5.3x | Favorable |
| Debt Maturity Profile | 3.2 years | Favorable |
| Price to Book Ratio | 1.44 | Unfavorable |
| Overall | Neutral |
Overall, the metrics indicate that it remains Neutral to invest in KDC. The equity fund raising helped to improve the financial position of KDC. This will allow them to continue to capitalize on the continued growth of the global data centre market.
Background
KDC was listed on the Singapore Exchange on 12 December 2014 as the first pure-play data centre REIT in Asia.
KDC’s investment strategy is to principally invest, directly or indirectly, in a diversified portfolio of income-producing real estate assets which are used primarily for data centre purposes, as well as real estate and assets necessary to support the digital economy.
KDC’s investments comprise an optimal mix of colocation, fully fitted and shell and core assets, as well as network assets through its investments in debt securities, thereby reinforcing the diversity and resiliency of its portfolio.
KDC is sponsored by Keppel Telecommunications & Transportation Ltd (“Keppel T&T”), a wholly owned subsidiary of Keppel Corporation Limited. It is managed by Keppel DC REIT Management Pte. Ltd. (the “Manager”)., a wholly owned subsidiary of Keppel Capital Holdings Pte. Ltd. (“Keppel Capital”). Keppel Capital is a premier asset manager in Asia with a diversified portfolio in real estate, infrastructure, data centres and alternative assets in key global markets through its listed REITs and Trust, as well as private funds.
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Website: Keppel DC REIT (SGX: AJBU): 2024 Third Quarter Business Update
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