The industrial REIT sector was one of a few areas that were not badly impacted by the pandemic.
In 2020, many REITs in this sector saw resilient occupancy and stable, if not growing, rental income.
Some, such as Keppel DC REIT (SGX: AJBU), have even thrived amid the crisis.
Keppel DC REIT occupies a unique niche within the industrial REIT sector as its portfolio consists of data centres.
As of 31 December 2020, the REIT’s portfolio held 19 assets spread across eight countries and was valued at S$3 billion.
Recently, Keppel DC REIT released its second-half and full-year 2020 earnings.
Here are three key findings that investors should know about this data centre REIT’s earnings report.
Improved earnings and DPU
The REIT announced strong numbers for its second half, with gross revenue up 42.6% year on year to S$141.6 million.
Net property income (NPI) rose 43.1% year on year to reach S$129.9 million.
Distribution per unit (DPU) increased by 27.5% year on year to S$0.04795.
For the full year 2020, revenue gained by 36.3% year on year while NPI grew 37.7% year on year.
Full-year DPU was S$0.0917, representing a trailing 12-month dividend yield of around 3.2%, based on the current share price.
Healthy operating and financial metrics
Portfolio occupancy stood at 97.8% as of end-December 2020, while weighted average lease expiry (WALE) was 6.8 years.
These two attributes provide good income visibility for the REIT.
Assets under management continue its climb, up 15.4% year on year to hit around S$3 billion.
Moving on to the REITโs debt profile, Keppel DC REIT’s aggregate leverage has increased from 30.7% at the end of 2019 to 36.2% at end-2020.
The ratio rose but remains well below the 50% maximum limit set by the Monetary Authority of Singapore in response to the crisis.
The REIT has increased the quantum of its medium-term note programme from S$500 million to S$2 billion recently.
This move was made to prepare the REIT to drawdown on more debt if need be for accretive acquisitions.
During 2020, the REIT refinanced some of their debt and now has around 12.3% of its gross borrowings due this year.
The average cost of debt remains low at just 1.6% per annum and interest cover remains high at 13.3 times.
Strong demand for data centres
Demand for data centres remains resilient during this crisis.
Hyperscale data centre operators are seeing COVID-19 boosts to revenue from cloud, digital services and online activities.
Many of these operators continue to invest in data centres, such that capital expenditure hit US$100 billion in just the first nine months of 2020, a new record and up 16% year on year.
There are other encouraging signs for the sector that should assure unitholders that Keppel DC REIT will enjoy long-term demand.
Enterprise spending on cloud infrastructure is expected to grow by 22% per year over the next five years, pushing up demand for storage solutions and making data centres more crucial than ever.
And as more and more people go online to work or study from home, smartphone subscriptions are forecast to hit 7.5 billion by 2026, up from 6.1 billion at the end of 2020.
This explosion in online data usage bodes well for data centre demand and will underpin long-term growth in data centre supply.
And then there’s also 5G networks as a catalyst for the next decade.
Telecommunication companies around the world are gearing up for the next generation of internet connectivity and are investing in 5G infrastructure.
5G subscriptions are expected to hit 3.5 billion by 2026 and account for slightly more than half of all mobile data.
These trends represent long-term tailwinds for Keppel DC REIT that can help it to grow its revenue, NPI and DPU.
Get Smart: Positioned for further growth
The REIT continues to be on the lookout for suitable acquisitions to boost its portfolio.
It had just acquired a freehold data centre and office facility in the Netherlands for around S$48.1 million in December last year, with occupancy of 99.1% and a WALE of 4.5 years.
While on the lookout for suitable acquisitions, the REIT has been proactively engaging in asset enhancement initiatives to boost unitholders’ returns.
Some of these initiatives include converting additional space into a data hall or fitting out shell and core space to cater for client expansion.
Keppel DC REIT looks well-positioned for further growth in 2021 and beyond as industry fundamentals remain healthy.
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Disclaimer: Royston Yang owns shares in Keppel DC REIT.
