Why Keppel DC REIT Could Be Different

If you are reading this, then it probably means that this article has been stored at a data centre somewhere in the world. That’s exactly what Keppel DC REIT (SGX: AJBU) does – it stores data.

Keppel DC REIT is a data centre REIT which provides companies with storage space for data. They do this by housing large scale servers in their data centre.

You might now be wondering why a company would want to store their precious information somewhere else. One of the reasons could be that data centres are highly reliable and secure facilities.

They are set up to cater for almost everything that can possibly go wrong. These include backup servers; extra cooling systems and electrical power to ensure minimal down time. The backup servers also provide security in the worst of times.

Keppel DC REIT has 10 data centres that are located in 7 countries, namely Singapore, Netherlands, Australia, Malaysia, Germany, Ireland and United Kingdom.

One advantage that Keppel DC REIT has over other REITs is that its portfolio has a Weighted Average Lease Expiry (WALE) of around 10 years. This means, unlike other REITS, they don’t have to keep renewing leases every few years.

Rental escalations have been built into their rental agreements, which range between 2% and 4% yearly. This ensures growth in revenue for the company year after year. It gives the company great stability, as it has some degree of predictable future earnings.

This stability and predictability can come in very handy for investors, as it allows us to calculate returns with some certainty.

Keppel DC REIT is currently trading at $1.045 a share. The shares have a book value of $0.86, which implies a Price-to-Book of 1.22. It has a dividend yield of about 6.2%, assuming similar earnings for the rest of the financial year.

In addition, Keppel DC REIT has an aggregate leverage (Gross Borrowings/Total Assets) of around 30%, with interest payments of around 2.5%. That doesn’t look too onerous.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor, Esjay, does not own shares in any of the companies mentioned.