Unitholders can’t fault Keppel DC REIT for its capital management which to date has been prudent. In 1QFY2022, aggregate leverage was 36.1%; cost of debt was just 1.8%; interest coverage ratio for the quarter stood at 10x; weighted average debt tenor is 3.8 years, and only 11.4% of debt is up for renewal this year.
Some 76% of loans are hedged through floating-to-fixed interest rate swaps, with the remaining unhedged borrowings in Euro. The portfolio's weighted average hedge tenor is 3.4 years. With the 76% hedge in place, a 100bps rise in the interest rates would only affect the remaining 24% unhedged borrowings. A 100 bps change would have an approximately 1% impact on 1Q2022’s DPU on a pro forma basis. Moreover, all foreign-sourced distributions have been substantially hedged till 2H2023.
Although revenue and net property income fell marginally, distributable income rose 5.9% to $44.5 million, and DPU was up marginally to 2.466 cents for 1Q2022.
However, KDC REIT’s manager said it is doing an active review of portfolio exposure to identify and manage any potential risks that may arise from the geopolitical environment and rising costs (e.g. utilities and inflation).
In small print, the manager adds, “A further 10% increase in our portfolio electricity costs would have an approximately 3% impact to FY 2021 DPU on a pro forma basis.”
In Oct last year, The Edge Singapore asked KDC REIT’s manager whether rising electricity costs would impact its distributions. The manager said: “The bulk of the power that our data centres consume is used by our clients to operate mission-critical IT equipment. For our colocation assets, the power cost for each client depends on our service agreements and this cost is, generally, metered and charged back to the client. For our master leased assets, power is contracted by our clients directly with the power supplier.”
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We hope to provide more details on KDC REIT’s leasing strategy in due course. At present, KDC REIT’s annualised DPU translates into a yield of 4.44%.
