Keppel DC REIT’s (KDC REIT) 20.5% surge in DPU in FY2020 must be the highest DPU growth by an S-REIT. Even then, the 9.17 cents historic DPU, or the 9.59 cents annualised DPU translates into yields of just 3.3%. That has led to some analysts suggesting that KDC REIT’s growth is already baked into its unit price.
“Covid-19 has fueled further demand for and underpinned the importance of data centres, but we believe this has been priced in. We have factored in $300 million acquisition in FY2021 ended December,” says a CGSCIMB report following KDC REIT’s results announcement on Jan 26.
This year, KDC REIT’s AEI, augmented by acquisitions, should continue to support growth in distributable income (DI). On the AEI front, the fit-out of a new data hall at Keppel DC Singapore 5 has been completed and handed over to the client in 4Q2020, increasing the asset occupancy from 84.2% as at Sept 30, 2020, to 100% as at Dec 31, 2020.
The fit-out works at DC1 is expected to be completed in 1Q2021 and the conversion of additional space at Keppel DC Dublin 2 into a data hall remains on track for completion in 1H2021. In Sydney, Australia, Intellicentre 3 East Data Centre has topped out in October 2020 and is also on track for completion in 1H2021
In FY2020, KDC REIT’s manager completed the acquisition of Amsterdam Data Centre, a shell and core data centre facility and office property in the Amsterdam Metropolitan Area, for EUR30.0 million ($48.1 million). The data centre is located within the Schiphol-Rijk business park.
During a results briefing on Jan 26, outgoing CEO Chua Hsien Yang said the Dutch property has a NPI yield of 5.1%. Shell and core properties usually have longer leases, because the tenant fits out the centre with its own mechanical and engineering works or M&E.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
However, only 10.4% of KDC REIT’s $3 billion worth of data centres are shell and core. Some 72.3% are colocation data centres where the landlord bears the cost of M&E equipment and facility management. KDC REIT’s colocation properties are multi-tenanted with leases for 2.8 years. A further 16.9% are fully-fitted data centres where KDC REIT bears the cost of M&E equipment.
Anthea Lee, incoming CEO of KDC REIT’s manager, says she will continue the REIT’s current strategy of focusing on accretive acquisitions and AEIs. “Going forward acquisitions are still the main focus for us,” she says.
“We understand there is a strong pipeline of assets for acquisition and they are predominately fully-fitted and colocation assets with higher cap rates (5% to 7%) versus shell & core assets. The focus will still be acquiring from third parties given that the sponsor’s asset may only be ready by the end of the year,” CGS-CIMB notes.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
At the other end of the spectrum, Ascott Residence Trust’s (ART) manager on Jan 15 warned its income available for distribution for FY2020 ended December is expected to be down by between 40% and 50% from FY2019’s $165.6 million; ART’s DPS for FY2020 is expected to reduce by between 60% to 70% from the 7.61 in FY2019; and its portfolio value is likely to fall by between 6% and 8%, resulting in unrealised fair value losses of $325 million to $345 million.
When ART announced its results on Jan 27, income available for distribution fell by 43% to $93.2 million, while DPS declined by 60% to 3.03 cents. Total property value fell by 7%. Beh Siew Kim, CEO of ART’s manager, says “the valuers’ modelling has been of a gradual recovery over next four years and getting back to pre-Covid [valuations] three to four years from now.”
As a result of the continued challenges in the hospitality sector, Beh will be gradually altering the mix of ART’s properties. They are a mixture of master leased properties, minimum rent guarantee properties and long-stay properties including rental housing.
ART also announced the acquisition of a purpose-built student accommodation within a five- to 15-minute walk from Atlanta’s Georgia Institute of Technology for US$95 million ($126.3 million), at an Ebitda yield of 5% and with a 4.4% accretion to DPS. The average length of stay is around a year.
“If you look at post-acquisition, we have around 7% in rental housing and student accommodation. Ultimately we would like to pivot towards 10% to 15% in the interim, and hopefully in a longer period to between 15% and 20%, if we can grow that portfolio,” Beh says.
