Keppel DC Reit's DPU up 27.5%; data centre market likely to get 'very tight' in H2 2021

Singapore

THE local data centre market is expected to "get very tight" towards the second half of the year, said Chua Hsien Yang, chief executive of Keppel Data Centre (DC) Reit's manager, in an earnings call on Tuesday evening.

This is given the current moratorium that the government has imposed on building new data centres in Singapore.

While Mr Chua said that he has not received any updates regarding when the moratorium will be lifted, he understands that the government is looking to make data centres in Singapore a lot greener, and is also encouraging new developers to build in aspects whereby they can tap renewable energy, or derive a certain percentage of the power use from renewable sources.

But given the limited access to renewable energy sources locally, by imposing that condition, "it may not be something that can be fulfilled, so we are not expecting a lot more data centres to be built in the short term", added Mr Chua.

And factoring in the time needed for developments to take effect, supply will continue to be squeezed in the near term.

As it is, Mr Chua noted that Keppel DC Reit's portfolio, which stands at an occupancy rate of 97.8 per cent as at end-December, "hardly (has) any space left for clients to expand".

On Tuesday, Keppel DC Reit reported a distribution per unit (DPU) of 4.795 Singapore cents for the second half of the fiscal year ended December 2020, 27.5 per cent higher than the DPU of 3.76 Singapore cents paid out in the year-ago period.

This lifted the Reit's DPU for FY2020 to 9.17 Singapore cents, some 20.5 per cent higher than the distribution of 7.61 Singapore cents in FY2019.

Distributable income for the period rose by 39.1 per cent year-on-year to S$81.9 million from S$58.9 million, pushing the Reit's distributable income for FY2020 to S$156.9 million, an increase of 38.6 per cent from FY2019.

This growth was supported by full-year contributions from Keppel Data Centre (DC) Singapore 4 and DC1, as well as its new acquisitions in Europe, said the manager.

The distributions for H2 will be paid out to unitholders on March 8.

Similarly, the Reit's gross revenue for H2 grew 42.6 per cent to S$141.6 million from S$99.3 million last year. Net property income also rose 43.1 per cent to S$129.9 million from S$90.8 million.

This comes as it capitalised on strong demand for data centre space by undertaking proactive asset management initiatives to improve portfolio occupancy.

With an aggregate leverage of 36.2 per cent, Keppel DC Reit also has "comfortable debt headroom" for acquisition growth and asset enhancement initiatives.

During the earnings call, Anthea Lee, deputy chief executive and head of investment of the Reit's manager, said that going forward, "acquisitions will still be the main focus".

The key focus for the year will also still be on third-party acquisitions, and will remain in the Asia-Pacific, Europe and United States markets.

At present, the pipeline of assets that Keppel DC Reit has seen is "very strong", said Mr Chua, adding that "the yields we are looking at are all attractive and they will be DPU-accretive". The pipeline consists of mainly fully-fitted and colocation assets.

Ms Lee also added that the deals the Reit is seeing in the market has cap rates of about 5-7 per cent.

In its outlook, the manager of Keppel DC Reit said it expects the global trend of digitalisation to continue post-pandemic as the digital economy continues to thrive amid the Covid-19 pandemic.

While the manager acknowledged that the resilience and rapid growth of the DC market have attracted more competition for assets and capital, the entry barriers for the sector remain high, especially for quality co-location assets.

"The manager's track record, coupled with the ability to leverage the Keppel ecosystem in providing end-to-end solutions from project development and facilities management to client networking, have ensured that Keppel DC Reit is well-positioned to benefit from the growth of the data centre market," said the manager.

Units of Keppel DC Reit closed at S$2.89 on Tuesday prior to the re-sults announcement, up 1.4 per cent or S$0.04.