A minor near-term hiccup
? KDC’s 1QFY22 DPU of 2.466 Scts came in below at 23% of our FY22F.
? We reduce our FY22-23F DPU by 1-5% after factoring in higher electricity
cost, litigation provision and updating FY21 numbers. Reiterate Add.
? We expect the higher electricity cost to weigh on its DPU in the near-term,
but demand remains strong which underpins its longer-term income stability.
1QFY22 income bumped up by debt securities investment
Keppel DC REIT’s (KDC) 1QFY22 revenue declined 0.9% yoy to S$66.1m while NPI
dropped 1.4% yoy to S$60.1m as a result of provisions made for a client payment under
dispute at KDC SGP 1, weaker Euro against S$ and higher electricity costs which offset
the effects of recent acquisitions. Distributable income, however, increased 5.9% yoy to
S$44.5m due to investment in debt securities. Consequently, 1QFY22 DPU, after
deductions of capex reserves, increased 0.2% yoy to 2.466 Scts, and came in below at
23.2% of our FY22F due to an increase in electricity cost and dispute payment provision.
KDC is able to pass through the bulk of the higher electricity cost, but not all.
Portfolio occupancy and WALE improved qoq
Portfolio occupancy improved from 98.3% in 4QFY21 to 98.7% in 1QFY22, the highest
since its listing in Dec 2014. Occupancy rate for all assets remained stable qoq, although
occupancy rate of KDC SGP 1 has not been adjusted for the ongoing litigation with DXC
Technology Services as the lease is still in place and effective. WALE lengthened from 7.5
years to 7.7 years, driven by shell & core assets, enhancing income stability. We note that
rental reversion in 1Q22 was stable, and we expect KDC to continue to deliver stable rental
reversions in 2022F, as it continues to see strong demand for data centres. Some 17.1%
of its leases by rental income are due to expire in 2022. While the potential lifting of the
moratorium on new data centres in Singapore in 2Q22 would introduce more supply, it
would take time for new data centres to be built, and we believe the firm demand and strong
stickiness of tenants would continue to support KDC’s rental income.
Balance sheet remains supportive for acquisitions
We understand that data centre’s cap rates remained stable qoq. It is actively scouting for
acquisitions, especially off-market deals. KDC’s gearing increased from 34.6% in 4QFY21
to 36.1% in 1QFY22 but remained healthy vs. the regulatory gearing limit of 50% and its
internal cap of 40%. Cost-of-debt remained low at 1.8% although it increased qoq.
Reiterate Add
We lower our FY22-23 DPU by 1-5% as we factor in higher electricity cost, litigation
provisions and update our FY21 numbers. While its near-term DPU could be impacted by
higher electricity cost, the strong demand for data centre will underpin its income resilience
in the longer term. Re-rating catalysts include a faster pace of acquisitions while downside
risks include larger-than-expected impact from higher electricity cost.