Keppel DC REIT Posts 8% Drop in Annual DPU as Finance Costs Jump 56%

Singapore-listed Keppel DC REIT’s distributions per unit sank 16.1 percent year-on-year in the second half of 2023, dragging full-year DPU to a decline of 8.1 percent, as the data centre trust wrestled with higher finance costs and a difficult tenant in China.

Distributable income fell 9.3 percent last year to S$167.7 million ($125 million), the trust’s manager said Friday in a release. And while gross revenue climbed 1.4 percent to S$281.2 million, finance costs ballooned to S$48.5 million, up 56.1 percent.

Keppel DC REIT also cited allowances for uncollected income from its three Guangdong data centres, whose sole tenant, Bluesea Data Development, owed four months of unpaid rent totalling RMB 45 million ($6.3 million) as of December. Following the issue of a letter of demand for default on rent and coupon payments, the trust has recovered RMB 500,000 of the amount as talks continue with Bluesea, a unit of Hong Kong-listed Neo Telemedia.

“Portfolio asset valuation was stable year-on-year, with assets under management at S$3.7 billion,” the manager said. “The stronger valuations in Singapore, Australia, Ireland, Italy and the Netherlands, helped to offset the lower valuations at certain assets which were impacted by the higher interest rate environment and the stronger Singapore dollar.”

Leasing Overcomes Headwinds

Keppel DC REIT’s full-year gross rental income rose 1.3 percent to S$278 million, mainly due to contributions from prior-year acquisitions and positive reversions and escalations.

The increase was dulled by net lower contributions from Singapore co-location assets amid higher facility expenses. The depreciation of foreign currencies against the Singapore dollar resulted in lower foreign-sourced income.

Occupancy in the 23-asset portfolio stood at 98.3 percent at the end of 2023, down slightly from 98.5 percent in the first half, with a weighted average lease expiry of 7.6 years.

Strong demand for data centres drove new, renewal and expansion contracts for facilities in Singapore, Australia, Ireland and the Netherlands with positive reversions, said the trust’s manager, which is owned by Temasek-backed Keppel Corporation.

“The impact of inflation was mitigated by the positive reversions and built-in income and rental escalations,” it said.

New Tech to Drive Demand

The manager said Keppel DC REIT would continue to pursue opportunities in key international data centre hubs and drive growth through active asset management and portfolio optimisation.

The conflicts in Ukraine and the Middle East, tight global financial conditions and evolving state policies affecting the data centre and online industries — notably in China — are expected to keep weighing on global economic growth, which is projected to slow for a third straight year to 2.4 percent in 2024, according to World Bank forecasts.

“Despite these challenges, the rapid growth of artificial intelligence along with other modern technologies, such as streaming, gaming and autonomous driving, is expected to underpin continued strong data centre demand,” the manager said.