Thursday, April 9, 2015

Keppel DC REIT 1st Quarter Result

Keppel DC Reit has just released their earnings report. Like about 35mins ago...


Here it is:


The numbers are no doubt good, as they manage to beat the IPO forecast marginally.
But note that good results doesn't mean share price will go up tomorrow because many at times, it depends on analysts expectations, whether it meets their earnings target. If earnings good but miss expectations, share price can fall tomorrow. There's a saying: buy on rumor, sell on news.

Here are the important things to note:

1. Current Weighed Average Lease to Expiry (WALE) is 7.5years. Here's the definition: WALE.
I ll give an example to illustrate:

Assuming the property is 90% occupied:
Tenant A occupies 30% of the space and lease expires in 10 Years
Tenant B occupies 40% of the space and lease expires in 8 Years
Tenant C occupies 20% of the space and lease expires in 7 Years.

So WALE= (0.3*10)+(0.4*8) +(0.2*7)+(0.1*0)= 7.6 Years!

A higher WALE is generally perceived to be more favorable to reit holders as they face lesser risk of vacancy. Imagine your 7 years of rent is more or less secured.

However, it may not always be the case. For instance, First Reit, with WALE of 10.7 and occupancy of 100%, I dont see an issue of losing their tenants or risk of vacancy subsequently, as I believe it gives opportunity for First Reit to charge a higher rental price after lease expiry. Not too sure for Keppel DC Reit though, but report looks good for now.

2. They will only start paying dividends from listing date to 30th June. So one can expect to collect dividends after 30th June when the 2nd quarter earnings are out. Here it is:

The distributable income to Unitholders is based on 100% of the taxable income available for distribution to
Unitholders. No distribution has been declared for the financial period under review. The REIT will be declaring
distributions on a half-yearly basis and the first distribution will be for the period from Listing Date to 30 June 2015.
3. Their current interest coverage ratio stands at 8.1 times. It is calculated by taking company' earnings(take note it's earnings before Interest and Tax) and divided by Interest Expense. It is a measure to determine the ability of a company to pay interest on its debt.


Image Source: http://www.investopedia.com/terms/i/interestcoverageratio.asp

So the higher the ratio the better it is. If one company has no debt, the denominator would be zero and interest coverage ratio is infinite. If a company is full of debt, and not much earnings, the ratio will approach zero.

So how good is 8.1 times? Or isit better not to have debt? 

 I cant judge based on the interest coverage ratio alone. Think about it, if I can borrow money from bank at interest of 1% and use the money to hold properties and generate returns of 8%, isn't it a wise choice to have debt? In the low interest rate environment, it is good have debt. In fact all REITS have debt. To me, the ultimate factor in determining their ability to cover their debt is their future prospect and their ability to lease out in the long term/ rental appreciation . If management are confident that their occupancy rate remains high and stable, 8.1 is definitely adequate with a margin of safety.

To read more on the results, please download and read the quarterly report. Due to my study and work commitments, I can't possibly cover all parts of the report, but if you would like to ask me any questions/ or spot any mistakes in my posts, please drop me an email : flyfox17@hotmail.com. and pardon me for my poor vocab and grammar. It really took awhile for me to even construct proper sentances in my primary school days, and I am kinda struggling these days too...

FYI,  I am vested in this stock. 3000 shares at entry price of $0.96.





Thanks for reading! :)



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