6 Things Investors Should Know About Keppel DC REIT

Technology companies such as Grab, AirBnB, and Facebook are likely to be familiar to many who live in Singapore.

While they are in different types of businesses (Grab provides a ride-hailing app, AirBnb is a platform that connects property owners with people seeking places to rent for the short-term, and Facebook runs a social media platform), they have one thing in common. All three require plenty of data to run their business. It is actually the same with many technology companies.

This is where data centres come into play. Data centres help support the data-needs of technology companies. In Singapore’s stock market, there is a real estate investment trust that focuses on data centres and it is none other than Keppel DC REIT (SGX: AJBU).

Here are six things investors may want to know about the REIT:

  1. The sponsor of Keppel DC REIT is Keppel Telecommunications & Transportation Ltd (SGX: K11). During the IPO of Keppel DC REIT in late 2014, Keppel T&T had injected some of its data centres into the REIT.
  2. Keppel DC REIT currently has 10 operational data centres in its portfolio that are valued at S$1.14 billion. In addition to those 10 data centres, the REIT is in the process of acquiring one data centre in Italy and one data centre in Singapore. It also has one data centre in Germany that is under development.
  3. In the first nine months of 2016, Keppel DC REIT generated gross revenue of S$72.3 million and net property income of S$66 million. It is notable that the REIT’s net property income, distributable income, and distribution per unit for the period have all exceeded its own forecast given during its listing.
  4. The REIT achieved those numbers with an aggregate leverage 29.4%, which is well below the regulatory leverage limit of 45% for REITs in Singapore. Right now, the REIT has a book value of S$0.889 per unit. At Keppel DC REIT’s current share price of S$1.25, it represents a 41% premium to its book value.
  5. In Keppel DC REIT’s latest 2016 third-quarter earnings release, it cited market researcher Jones Lang LaSalle as saying that “Cloud adoption acceleration will double the size of the data centre industry over the next five years.”
  6. The location between a data centre and its user is an important determinant of latency. Latency refers to the responsiveness of an application or program based on its communication with servers. Its effects can be noticeable when the distances involved are on the intercontinental scale.
  7. Keppel DC REIT has data centres in a number of countries such as Ireland, the United Kingdom, The Netherlands, Germany, Italy, Malaysia, Singapore, and Australia (this includes the pending acquisitions and the data centre under development). But, this wide geographical reach introduces currency risk to the operations of Keppel DC REIT since it reports in the Singapore dollar but has to deal with many different currencies.

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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 Ong Kai Kiat doesn’t own shares in any companies mentioned.