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3 Things I Learnt From Keppel DC REIT’s 2018 Annual Report

Keppel DC REIT (SGX: AJBU) is a real estate investment trust which specialises in investing in data centres, and which has Keppel Corporation Limited (SGX: BN4) as a sponsor, shareholder, and manager. As of 31 December 2018, the REIT had around S$2.0 billion in assets under management, comprising 15 data centres with a total attributable lettable area of 1.1 million square feet.

While browsing through Keppel DC REIT’s latest annual report for 2018 released last week, I discovered three pieces of interesting information that can tell us more about how the REIT is doing.

Growth of the cloud infrastructure market

According to BroadGroup Consulting, an independent research and consulting firm that specialises in data centres, the global cloud infrastructure market is estimated to have grown by over 40% in 2018 and is expected to continue expanding at a compound annual rate of more than 25% over the next five years. BroadGroup was commissioned by Keppel DC REIT to prepare a report on the data centre industry.

The projected growth in the cloud infrastructure market is driven by a fundamental change in data usage around the world, and the way information is shared and received. As Keppel DC REIT is investing mostly in data centre assets, it is exposed to a growing market.

Acquisition-led growth

In 2018, Keppel DC REIT’s business grew largely because of acquisitions. In March 2018, the REIT completed its acquisition of Maincubes DC, which marked the REIT’s first foray into Germany. The four-storey data centre was bought for €84.0 million and is a fully-fitted TÜV-certified Level 3 Highly Available data centre.

In June 2018, Keppel DC REIT acquired a 99% interest in Kingsland Data Centre for S$295.1 million, and in August 2018, the REIT added IC3 East DC to its portfolio, which has an expected development cost of S$26.2 million to S$36.3 million. When completed in 2020, IC3 East DC will be Keppel DC REIT’s fourth data centre in Australia.

The acquisitions boosted the REIT’s portfolio and also broadened its geographical exposure to lower geographic-concentration risks. The acquisitions were also the main reason for the REIT’s 26% jump in net property income to S$157.7 million in 2018, and the 5% increase in distribution per unit to 7.32 cents.

Robust risk management framework

Keppel DC REIT discussed its risk management framework in its latest annual report:


Source: Keppel DC REIT annual report

The REIT also provided good details on the risks it has to deal with, along with the measures it has undertaken to lower each of the risks. The risks discussed include operational risk, credit risk, financing risk, financial risk, investment risk, and emerging risks; the first two categories are the most important.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Keppel DC REIT.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in any of the companies mentioned.