Listed on the Singapore Exchange since 2014, Keppel DC REIT is the first pure-play data centre REIT in Asia. Currently, its portfolio comprises of 23 data centres situated across nine countries in Asia Pacific and Europe. As of 31 December 2022, Keppel DC REIT’s assets under management (AUM) totaled S$3.7 billion, an increase from S$3.4 billion in FY2021. With a diversified global portfolio, I was curious about Keppel DC REIT’s past year’s performance and its outlook ahead. To learn more, I attended their recent annual general meeting.
Here are eight things I learned from the 2023 Keppel DC REIT AGM.
1. Gross revenue increased by 2.3% to S$277.3 million in FY2022. Growth was mainly attributed to the acquisitions of Guangdong DC 1 and 2, along with the building shell of Guangdong DC 3, London DC, and Eindhoven DC. Additionally, there were positive income reversions, and contributions resulting from the completion of AEIs at the Dublin assets and the IC3 East DC project.
Despite comprising only 7.7% of its overall portfolio, the China segment has been the main contributor to the growth in gross revenue for the year 2022.
2. Distributable income increased 7.7% to S$184.9 million in FY2022 and distribution per unit (DPU) grew 3.7% to 10.214 cents. The REIT’s favourable performance was due to profits from beneficial acquisitions, investments in NetCo bonds, and contributions resulting from the completion of asset enhancement initiatives at DC1 and the Dublin assets.
CEO Anthea Lee also announced that Keppel DC REIT has obtained approvals for the NetCo bonds to qualify as qualifying project debt securities which means that the interest income gained will be exempted from the Singapore income tax of 17%. Based on Keppel DC REIT’s last closing price of $2.20, its expected distribution yield is 4.3%.
3. The REIT’s portfolio occupancy increased to 98.5% as of 31 March 2023 from 98.3% the year before. The REIT also has a long weighted average lease expiry (WALE) of 8.2 years. The increase in occupancy rates and the long (WALE) were the result of acquiring assets with extended lease tenures and proactive asset management efforts. Additionally, the REIT secured an offer to prolong the remaining land tenure of Keppel DC Singapore 5 for a further term of nine years. Moving forward, the management is confident of maintaining high occupancy levels and has seen healthy demand for their assets that are located in key data centre markets.
4. Keppel DC REIT’s leverage ratio increased 40 basis points to 36.8% as of 31 March 2023, which is still below its internal cap level of 40%. The average cost of debt is 2.8% and weighted average debt tenure is 3.8 years. Net asset value per unit is $1.37.
5. A unitholder was curious about the management’s strategy moving forward. In response, the CEO mentioned that they are actively looking for opportunities to grow the REIT’s portfolio, with a focus on acquiring high-quality assets in strategic data centre locations to strengthen its income resilience. To fund future acquisitions, the management may consider equity funding as they are currently focused on multiple opportunities as well as the payment for its Guangdong data center which is due in Q3 2023. Overall, the management is cautiously optimistic due to technological advancements and the strong demand in this space. Due to the high switching cost for companies when it comes to data centres, management remains highly confident in its outlook despite the uncertain macroenvironment.
6. Another unitholder asked the management about opportunities in the United States, as well as their views on the current uncertain macroeconomic environment and work-from-home trend. Currently, the CEO highlighted that despite their active search, U.S. has not had any suitable opportunities (whether in terms of price or quality). The CEO also reassures unitholders that the data centre market is a resilient asset class. As for the work-from-home trend, she believes that it is beneficial for Keppel DC REIT as more companies will shift towards cloud solutions, thereby creating greater demand for data centres.
7. A unitholder expressed his concerns regarding geopolitical tensions between the U.S. and China, and was curious on its impact on Keppel DC REIT. The CEO said that unitholders need not worry as there should be minimal impact in terms of data centre demand from the U.S. and China markets.
8. The management is confident in its future demand given the rising trend surrounding artificial intelligence. There are several industry trends that will drive the demand for data centers including the acceleration of digitalization, adoption of technologies such as internet of things, and the growth of the digital economy. In light of this, Keppel DC REIT has planned and developed facilities to capitalise on these opportunities. Currently, the company is actively collaborating with hyperscalers and cloud players to meet their demand requirements in key markets.
The fifth perspective
Keppel DC REIT is well-positioned to leverage the growing opportunities in multiple tech industries which are supported by data centres. Due to the nature of data centres, the REIT has proven to be relatively resilient and can expect to enjoy continued growth despite macroeconomic headwinds.
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