Keppel DC REIT Reports 13.2% DPU Growth in 2H 2024, Driven by Strategic Acquisitions and Strong Reversions

Keppel DC REIT: Financial Analysis with 3% FY 2024 Net Profit Growth

Business Description

Keppel DC REIT, listed on the Singapore Exchange since December 2014, is Asia’s first pure-play data centre Real Estate Investment Trust (REIT). The company invests in income-producing real estate assets primarily used for data centre purposes, including colocation, fully-fitted, and shell-and-core facilities. With a strong focus on the hyperscale data centre segment, Keppel DC REIT operates a diversified portfolio across key markets such as Singapore, Tokyo, Australia, and Malaysia. Its strategic alignment with the digital economy provides a competitive edge in addressing rising demand for AI-ready and advanced data centres.

Industry Position

Keppel DC REIT is positioned as a leader in the data centre industry, leveraging positive demand trends such as cloud adoption and generative AI. Competitors include other global and regional data centre REITs, but Keppel DC REIT differentiates itself through strategic acquisitions, proactive portfolio management, and leveraging its sponsor, Keppel Ltd. The REIT benefits from high portfolio occupancy (97.2% as of FY 2024) and a weighted average lease expiry (WALE) of 6.3 years, underscoring its strong market presence.

Revenue Streams and Competitive Advantage

The company derives revenue primarily from rental income through data centre leases, supported by its diversified portfolio across hyperscale and colocation facilities. Its customer base includes hyperscale cloud providers like Amazon Web Services, Google Cloud, and Microsoft Azure. Keppel DC REIT’s competitive advantage lies in its focus on AI-ready facilities, strategic acquisitions, and proactive asset management strategies, such as reinvesting proceeds from divestments into higher-yielding opportunities.

Financial Performance Analysis

Income Statement Highlights

Gross Revenue: Increased by 10.3% year-on-year to \$310.3 million in FY 2024, driven by acquisitions and strong lease reversions.
Net Property Income: Grew by 6.3% to \$260.3 million.
Distributable Income (DI): Increased by 3.0% year-on-year to \$172.7 million.
Dividend Per Unit (DPU): FY 2024 DPU rose to 9.451 cents, reflecting a modest 0.7% growth despite an enlarged unit base.

Key Financial Ratios

The distribution yield was 4.34%, based on a closing price of \$2.180 per unit as of 31 December 2024. Adjusted DPU, excluding the equity fund raising (EFR), would have been 9.504 cents, representing a 1.3% increase over FY 2023.

Portfolio Updates

Acquired three hyperscale data centres in Singapore and Tokyo, strengthening its foothold in key growth regions.
Divested the Intellicentre Campus in Sydney and Basis Bay Data Centre in Malaysia, reallocating resources into higher-yielding investments.
Reinvested proceeds into an Australia Data Centre Note with an initial yield of approximately 7%.

Capital Management

Aggregate Leverage: Improved to 31.5%, supported by the \$1.1 billion EFR completed in December 2024.
Cost of Debt: Average cost was 3.1%, with 66% of borrowings fixed through interest rate swaps.
Interest Coverage Ratio: Healthy at 5.3 times.

Key Findings

Strengths

Strong revenue growth driven by strategic acquisitions and lease reversions.
High portfolio occupancy (97.2%) and long WALE of 6.3 years.
Focus on high-demand, AI-ready data centres ensures future growth potential.
Disciplined capital management and sustainable leverage ratio.

Risks

Exposure to foreign exchange fluctuations affecting foreign-sourced income.
Higher financing costs impacting distributable income.
Potential geopolitical risks that could affect global data centre demand.

Special Activities to Improve Profitability

The company is actively pursuing strategic acquisitions in hyperscale data centres and reallocating capital from divestments into higher-yielding assets. Its focus on AI-ready facilities and leveraging economies of scale positions it well for future growth.

Recommendations

If You Currently Hold the Stock:

We recommend holding the stock. The company has demonstrated stable growth, a strong pipeline of acquisitions, and sustainable dividend payouts. Its focus on AI-ready data centres positions it to capture emerging market trends.

If You Do Not Currently Hold the Stock:

We recommend a buy, especially for long-term investors. The company’s strong fundamentals, strategic acquisitions, and growing demand for data centre services provide a compelling case for entry at current levels.

Disclaimer

The above recommendations are based solely on the analysis of the provided financial report and do not account for external market conditions or individual financial objectives. Please consult your financial advisor for personalized investment advice.