Yesterday, I attended the annual general meeting (AGM) of Keppel DC REIT (“REIT”) (SGX: AJBU) held at Suntec City Convention Centre. As a recap, the REIT owns 15 data centres across eight countries that are worth a total of S$2 billion as of 31 March 2019. Here are six highlights from the AGM, with another six coming up in a future article.
1. Keppel DC REIT reported higher net property income due to tax transparency granted to four of its Singapore data centres, namely SGP 1, 2, 3 and 5. Management is constructing a new data centre in Australia Sydney. Once completed in 2020, the new facility is expected to be accretive to distribution per unit (DPU) and will be on a 20-year triple-net lease. The latest data centre would be the REIT’s fourth data centre in Australia and its second in Sydney.
2. There is a growing trend of countries requiring its data to be housed within its borders due to the fear of confidential information of their citizens being leaked out. However, this trend does not stop hyperscale data providers from setting up a hybrid structure, where some data is kept onshore, and the rest offshore. Hence, demand for data centres should still remain robust.
3. CEO of the REIT manager, Chua Hsien Yang expects Singapore to be a very important location for data centres in the coming years, as the major IT and cloud players rout billings through the country. Some examples of these companies include Google (NASDAQ: GOOGL), Apple (NASDAQ: AAPL) and Facebook (NASDAQ: FB).
4. For the data centres located in Singapore, these are Tier 3+ centres, while for overseas data centres, it will be a minimum of Tier 3. For context, a Tier 3 data centre can be defined as a location with redundant and dual-powered servers, storage, network links and other IT components. Singapore is a small country and does not have a separate grid to provide a second power source for the data centres. As such, the REIT cannot upgrade the Tier 3+ centres to Tier 4. For data centres under master leases, the REIT has no idea on the tier because these centres are not owned by the REIT.
5. However, parent company Keppel Corporation (SGX: BN4) does have an electricity generation division called Keppel Electric. Should Keppel Electric build a power generation plant, then the REIT may be able to connect to it. Should this occur, the Tier 3+ data centres could then be upgraded to Tier 4.
6. The REIT continues to be on the lookout for suitable overseas acquisition opportunities. The search centred around Asia and Europe, with an eye on the US. However, American data centres generally have low cap rates (i.e. it makes the data centre more costly to acquire) and incur high taxes, which may not make financial sense for the REIT.
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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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Singapore has recommendations for Apple, Facebook and Alphabet. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Singapore writer Chin Hui Leong own shares in Apple, Alphabet and Facebook.