5 Things Investors Should Know About Keppel DC REIT

Listed fairly recently in December 2014, Keppel DC REIT (SGX: AJBU) is a real estate investment trust that owns data centres.

The REIT’s portfolio consists of nine operational data centres and one that is under development. These centres are in seven countries in total, namely, Australia, Germany, Ireland, Malaysia, Singapore, The Netherlands, and the United Kingdom.

Investors or potential investors in the REIT may want to know these five things which can help them better understand its business:

1. Industry outlook

Here’s a simple chart showing the outlook for growth in the data market:

Source: Keppel DC REIT 2016 second quarter earnings presentation

Various forecasts have shown how more and more data is likely to be created in the future. And this is where data centres come into play.

2. Diversified income base

It could be important for a business to have a diversified base of income to avoid concentration risk on a few main industries or customers. The rental breakdown for Keppel DC REIT is shown below:

Source: Keppel DC REIT 2016 second quarter earnings presentation

Keppel DC REIT’s customers come from five different trade sectors, although the two largest (IT services and Internet enterprise) together account for over half of the REIT’s rental income.

3. What is a data centre?

Data centres can be unfamiliar things for many people. While it’s a building, it’s not like an office building or shopping mall. So, here is a simplified introduction of a data centre:

Source: Keppel DC REIT 2015 investor presentation

4. Some key financial metrics

Here are some of the REIT’s latest financial metrics:

Source: Keppel DC REIT 2016 second quarter earnings presentation

The REIT currently has an aggregate leverage of only 29.1% – this is a long way below the 45% regulatory limit that REITs in Singapore must adhere to. Its interest coverage of 9.5 times is also a slight improvement from the 9.4 seen a year ago.

5. Increase in supply

Though there are forecasts for the data centre industry to grow rapidly in the future due to the increase in demand for data management, investors may also want to pay attention to the increase in supply of data centres as well.

Keppel DC REIT has warned in its latest earnings release that an increase in data centre space is expected in Singapore over the next two years, a development which may exert near-term pressure on rental rates.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.