Earnings season for the REITs has come around once again.
One of the first few REITs to report its fiscal 2021 (FY2021) earnings was Keppel DC REIT (SGX: AJBU).
The data centre REIT has chalked up an impressive track record of unbroken rises in distribution per unit (DPU) since its IPO back in December 2014.
For FY2021, the REIT did not disappoint.
It has reported yet another encouraging set of earnings with DPU rising by 7.4% year on year to S$0.09851.
Income-seeking investors will be pleased to note that this makes it the sixth consecutive year that the REIT has raised its annual DPU.
Here are five other interesting facts about the REIT’s latest earnings.
1. A healthy set of financials
Keppel DC REIT has announced continued growth for both its top and bottom lines.
Gross revenue for FY2021 inched up 2.1% year on year to S$271.1 million while net property income (NPI) rose by 1.6% year on year to S$248.2 million.
Distributable income climbed by 9.4% year on year, with contributions from new acquisitions in Germany and Amsterdam in 2020 and the completion of a data centre development in Australia in 2021.
Asset enhancement initiatives (AEI) at data centres in Dublin and Singapore also contributed to the rise.
There was, however, a 4% year on year fall in gross revenue for the second half of fiscal 2021 (2H2021).
CFO Adam Lee explained that one-off items contributed to this decline, but did not impact distributable income.
2. Strong operating numbers
The REIT reported a set of encouraging operating numbers, too.
The portfolio occupancy rate hit a record-high of 98.3% as of 31 December 2021, while the weighted average lease expiry (WALE) stood at 7.5 years.
The data centre REIT has also enjoyed healthy portfolio growth over the year.
The REIT’s assets under management (AUM) has risen by 13.3% year on year to S$3.4 billion, contributed by both acquisitions and upward valuation adjustments.
If the acquisition of a London data centre was included, then its AUM would rise to S$3.5 billion.
3. Room for more debt-fuelled acquisitions
As of end-2021, the REIT’s aggregate leverage stood at 34.6%, allowing it to have sufficient debt headroom to tap on loans to drive yield-accretive acquisitions.
Available credit facilities were approximately S$482 million.
The REIT’s cost of debt also remained low at just 1.6%, while its interest coverage ratio was a very healthy 10.8 times.
Keppel DC REIT is also guarding against potential interest rate rises by hedging 74% of its debt to fixed rates through interest rate swaps.
4. Proactive portfolio management
The REIT manager continues to proactively manage the REIT’s portfolio of data centres.
Acquisitions have strengthened the portfolio and enabled continued DPU increases, while a recent investment in bonds and preference shares issued by telco M1 should also yield a healthy return.
In another positive development, the land lease for Keppel DC Singapore 3 has been extended by 30 years.
5. Outlook remains bright
The data centre industry continues to see strong demand due to the surge in online activity over the past two years.
Spending on data centre systems is estimated to rise by 5.8% this year to reach US$207 billion, with hyperscale operators continuing to aggressively expand their operations.
Data centre demand in the Asia-Pacific region is expected to remain strong in 2022, with 750 megawatts under construction in the five large markets of Sydney, Hong Kong, Singapore, Tokyo and Jakarta.
Data centres will remain a resilient asset class that provides a long-term rental income stream from reputable clients.
Get Smart: Yield becomes more enticing
With looming interest rate rises, the REIT sector has also taken it on the chin.
Keppel DC REIT’s unit price has fallen in tandem, hitting a 52-week low of S$2.19 recently.
Based on FY2021’s DPU of S$0.09851, the historical distribution yield stands at 4.5%.
And if the unit price falls further, it’s going to make the yield even more enticing.
Investors should remember that Keppel DC REIT’s stable tenants and long WALE should ensure rental income remains uninterrupted, thereby underpinning its DPU growth over the long term.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT.
