Keppel DC REIT Financial Results Ending 31 Mar 2017

The Manager remains confident of the data centre market’s growth potential although near-term pressure on rental rates is expected with data centre supply coming online in Singapore. The addition of Keppel DC Singapore 3 to the REIT’s portfolio earlier this year further strengthened the REIT’s foothold in Singapore.

  • 1.89 cents (1Q FY17)

Keppel DC REIT’s Distributable Income Registers Strong Year-on-year Growth

Key Highlights

  • Distributable income for 1Q 2017 was $21.8 million, 47.6% higher than 1Q 2016, contributed by a $1.7 million one-off capital distribution in relation to the Keppel DC Singapore 3 acquisition, income from the acquisitions announced last year as well as lower property-related and other expenses.
  • Portfolio occupancy rate of 95.1%
  • Portfolio weighted average lease expiry (WALE) of 9.2 years by leased lettable area
  • Aggregate leverage of 27.9%
  • Interest coverage ratio of 11.6 times

 

Financial Review

Keppel DC REIT Management Pte. Ltd. (the Manager) is pleased to announce that Keppel DC REIT’s distributable income had increased from $14.7 million in 1Q 2016 to $21.8 million in 1Q 2017, translating to a 47.6% growth year-on-year.

The year-on-year increase in distributable income was contributed by the one-off capital distribution in relation to the Keppel DC Singapore 3 acquisition, income from the acquisitions announced last year, as well as lower property-related and other expenses. The one-off capital distribution of approximately $1.7 million for the month of December 2016 arose from the later completion of Keppel DC Singapore 3 on 20 January 2017 and where the vendor had agreed that all the rights and obligations shall pass to the REIT as if completion had occurred on 1 December 2016. Year-on-year, there were lower rental income arising from a client downsizing its requirements in Keppel DC Dublin 1 in 1Q 2016, as well as lower variable income from Keppel DC Singapore 1 and Keppel DC Singapore 2 due to lower recurring and power revenue.

Based on 1Q 2017’s market closing price of $1.200 per Unit, Keppel DC REIT’s annualised distribution yield was 6.01%, up from 5.60% when compared to the same period last year. Excluding the one-off capital distribution of approximately $1.7 million (equivalent to 0.15 cents per Unit), the adjusted annualised distribution yield would have been 5.88%. Keppel DC REIT declares distributions on a half-yearly basis. No distribution has been declared for the quarter under review.

As at 31 March 2017, Keppel DC REIT was trading at a 26.8% premium to its Net Asset Value per Unit of $0.946.

 

Portfolio Performance

Keppel DC REIT’s portfolio remains resilient with a diversified geographical reach, well-established clientele and a long portfolio WALE.

On 20 January 2017, Keppel DC REIT completed the acquisition of 90% interest in Keppel DC Singapore 3, adding a third asset in Singapore and strengthening its presence in this key data centre hub. The REIT has also obtained tax transparency treatment for its share of the taxable income arising from the 90% interest, similar to that which was granted for Keppel DC Singapore 1 and Keppel DC Singapore 2.

Portfolio occupancy rate rose from 94.4% as at 31 December 2016 to 95.1% as at 31 March 2017, while portfolio WALE remained long at 9.2 years. A major contract at one of the Singapore colocation assets, which was expiring in 2017, was renewed for five years. The Manager will continue to manage existing leases proactively and engage with prospective clients to optimise returns from the REIT’s portfolio.

The portfolio remains balanced by a mix of master-leased facilities on long leases, and colocation facilities which provide diversity in terms of client profile and lease expiry. The REIT’s income stability is also supported by its diversified clientele of high value-added industries.

 

Capital Management

The Manager has been consistently adopting a prudent capital management approach to mitigate the effects of interest rate and foreign currency fluctuations. This has proven to be beneficial amidst market volatility, enabling the Manager to provide Unitholders with regular and stable distributions.

As at 31 March 2017, interest rates of the long-term loans have been substantially locked in with interest rate swaps, while the REIT’s forecasted foreign-sourced distribution has been hedged up to 2H 2018 with foreign currency forward contracts. There is also natural hedging in place with borrowings in currencies that match the corresponding investments.

Keppel DC REIT’s balance sheet remains healthy. The REIT’s low aggregate leverage of 27.9% provides the REIT with a comfortable debt headroom and financial flexibility to pursue growth opportunities. All of the REIT’s borrowings are unsecured with an average annualised cost of debt of 2.2% per annum and a weighted average debt maturity of 2.9 years. Interest coverage ratio was 11.6 times.

 

Outlook

The global economy is expected to grow modestly in 2017 and 2018, amidst potential market volatility and policy uncertainties, according to the Organisation for Economic Cooperation and Development’s Global Interim Economic Outlook released on 7 March 2017. Against this backdrop, the increasing demands of the digital economy and data centre outsourcing requirements will continue to underpin growth opportunities in the data centre industry. With a global client base and the Manager’s established track record, Keppel DC REIT is well positioned to tap the potential of the industry.

The Manager remains confident of the data centre market’s growth potential although near-term pressure on rental rates is expected with data centre supply coming online in Singapore. The addition of Keppel DC Singapore 3 to the REIT’s portfolio earlier this year further strengthened the REIT’s foothold in Singapore.

The Manager will maintain its focused investment strategy through a combination of proactive asset management and prudent capital management approach to capture value from the data centre industry.

 

Attachments

 

Important Notice

The past performance of Keppel DC REIT is not necessarily indicative of its future performance. Certain statements made in this release may not be based on historical information or facts and may be “forward- looking” statements due to a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, interest rate trends, cost of capital and capital availability, competition from similar developments, shifts in expected levels of property rental income, changes in operating expenses, including employee wages, benefits and training, property expenses and governmental and public policy changes, and the continued availability of financing in the amounts and terms necessary to support future business.

Prospective investors and unitholders of Keppel DC REIT (Unitholders) are cautioned not to place undue reliance on these forward-looking statements, which are based on the current view of Keppel DC REIT Management Pte. Ltd., as manager of Keppel DC REIT (the Manager) on future events. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information, or opinions contained in this release. None of the Manager,

the trustee of Keppel DC REIT or any of their respective advisors, representatives or agents shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss howsoever arising from any use of this release or its contents or otherwise arising in connection with this release. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. The value of units in Keppel DC REIT (Units) and the income derived from them may fall as well as rise. Units are not obligations of, deposits in, or guaranteed by, the Manager or any of its affiliates. An investment in Units is subject to investment risks, including possible loss of principal amount invested.

Investors have no right to request the Manager to redeem their Units while the Units are listed. It is intended that Unitholders may only deal in their Units through trading on Singapore Exchange Securities Trading Limited (SGX-ST). Listing of the Units on SGX-ST does not guarantee a liquid market for the Units.

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