On 17 April 2025, Keppel DC REIT (“KDC”) have announced their first quarter business update for FY2025. The equity fund raising has placed KDC in a better financial position, with continued improvements to its gearing and interest coverage ratio. While it is still early to conclude, it seems that the acquisition of Keppel DC Singapore 7 & 8 (KDC SGP 7 & 8) has improved the financial performance as well for this quarter. This may provide investors with a peace of mind, though remains the key risk of tenant concentration.
Do note that during the annual general meeting on 15 April 2025, the lead independent director and chair of KDC nomination and remuneration committee Kenny Kwan failed to get re-elected. This is unlikely to have any short-term impacts to the operations of KDC. Investors will need to monitor if there are any significant updates over the next few quarters.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Keppel DC Reit lead independent director Kenny Kwan fails to get re-elected at AGM
Photo source: https://www.keppeldatacentres.com/locations/asia-pacific/singapore/dc-1/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | +4.2% | -4.0% |
| Rating | Favorable | Unfavorable |
For KDC, DPU disclosed are as follows:
- First Quarter of FY2025: SGD0.02503 per unit
- Fourth Quarter of FY2024: SGD0.02401 per unit
- Third Quarter of FY2024: SGD0.02501 per unit
DPU for the first quarter of FY2025 has increased by 4.2% to SGD0.02503 per unit from SGD0.02401 per unit for the previous quarter. The increase was due to higher net property income from acquisitions of Keppel DC Singapore 7 & 8 and Tokyo Data Centre 1 and higher contributions from contract renewals and escalations in 2024. This was offset by an enlarged unit base from the preferential share offering. The metric shifted towards Favorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.5% | 97.2% |
| Rating | Favorable | Favorable |
Occupancy rate as of 31 March 2025 has decreased slightly to 96.5%, The metric remains Favorable as it is still healthy.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 30.2% | 31.5% |
| Rating | Favorable | Favorable |
Gearing ratio as of 31 March 2025 has decreased slightly to 30.2%. The decrease seems to be attributed to the decrease in total debt by SGD100 million during the quarter. The metric remains Favorable.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 5.8x | 5.3x |
| Rating | Favorable | Favorable |
The interest coverage as of 31 March 2025 has increased to 5.8 times. The metric remains Favorable as the interest coverage is higher than my preference of 3.0 times. There are no detailed breakdowns in the business update to determine the increase, though likely it was from the improvements in net property income and decrease in gearing ratio.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.1 years | 3.2 years |
| Rating | Favorable | Favorable |
Weighted average term to maturity of their debt as of 31 March 2025 has shortened slightly to 3.1 years. KDC has 24.6% of their debt due for renewal by end of FY2026. This metric 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 | 1.33 | 1.44 |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 17 April 2025, net asset value (“NAV”) was not included in the business update for the first quarter of FY2025.
The Price to Book (“P/B”) ratio has become cheaper at 1.33. This is computed using the closing share price of SGD2.03 on 17 April 2025 and the net asset value per unit of SGD1.53 as of 31 December 2024. The metric is Unfavorable as investors are paying a significant premium, although this is a REIT with a strong sponsor.
As of 17 April 2025, the Market Capitalization is approximately SGD4,579 million.
Website: Yahoo Finance: Keppel DC REIT (AJBU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2025 | 0.40% | SGD 0.008 |
| 2024 | 6.39% | SGD 0.130 |
| 2023 | 5.03% | SGD 0.102 |
| 2022 | 4.21% | SGD 0.086 |
| 2021 | 5.49% | SGD 0.111 |
| 2020 | 3.12% | SGD 0.063 |
Do note that the dividend for the calendar year 2024 was higher due to the advance distribution of SGD0.04083 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 prudent base to project for the calendar year 2025.
With a closing share price of SGD2.03 as of 17 April 2025 and expected dividend payout for the calendar year 2025 of SGD0.089 per unit, this translates to a dividend yield of 4.39%. For my benchmark, a general reasonable yield would be around 5.25%. KDC’s dividend yield is below my benchmark and the dividend yield is Unfavorable.
Website: Reasonable Dividend Yield 2025Q2 – 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 | 2.03 | – |
| 5.25% | 1.70 | -16.5% |
| 6.25% | 1.42 | -29.9% |
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
The Federal Reserve on 16 April 2025 said on Wednesday that they would wait for more data on the economy’s direction before changing interest rates but cautioned that President Donald Trump’s tariff policies risked pushing inflation and employment further from the central bank’s goals.
Website: Powell says Fed remains in wait-and-see mode; markets processing policy shifts
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 | $1,600,000 |
| Debt Not Hedged (%) | 32.0% |
| Debt at Floating Rate Exposed | $512,000 |
| 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 | $2,560 | 1.5% |
| 100 bps | $5,120 | 3.0% |
| 150 bps | $7,680 | 4.4% |
| 200 bps | $10,240 | 5.9% |
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 79.4% of their total gross rent and the top tenant accounting for 40.8% for the month of March 2025. This is risky as KDC is heavily reliant on their top tenants for income. The withdrawal of any tenant will have a significant impact on their DPU.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +4.2% | Favorable |
| Occupancy | 96.5% | Favorable |
| Gearing Ratio | 30.2% | Favorable |
| Interest Coverage | 5.8x | Favorable |
| Debt Maturity Profile | 3.1 years | Favorable |
| Price to Book Ratio | 1.33 | Unfavorable |
| Overall | Favorable |
Overall, the metrics shifted towards Favorable to invest in KDC. KDC has seen improvements in their financial performance and position this quarter as a result from the equity fund raising. The key risks remain are the high P/B ratio and its tenant concentration. Investors will need to assess their risk appetites accordingly.
Background
Keppel DC REIT was listed on the Singapore Exchange on 12 December 2014 as the first pure-play data centre REIT in Asia.
Keppel DC REIT’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.
Keppel DC REIT’s investments comprise a mix of colocation, fully fitted and shell and core assets, as well as debt securities, thereby reinforcing the diversity and resiliency of its portfolio.
Keppel DC REIT is managed by Keppel DC REIT Management Pte. Ltd. (the Manager) and sponsored by Keppel, a global asset manager and operator with strong expertise in sustainability-related solutions spanning the areas of infrastructure, real estate and connectivity.
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Website: Keppel DC REIT (SGX: AJBU): 2024 Full Year Result
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