7. For the KL Cyberjaya data centre, its occupancy rate is just 63.1% as the tenant returned one floor to the REIT. Management is actively looking for tenants in order to boost occupancy but it has been an issue as Malaysia is seeing foreign direct investment (FDI) leaving the country (due to the recent change in government). However, as this data centre contributes less than 2% to the overall portfolio asset base, it should not pose a problem for DPU.
8. When asked if the REIT would pursue greenfield opportunities by building their own data centre, rather than purchasing a completed data centre, the CEO explained that as a REIT, its purpose is to purchase ready-to-use assets, rather than focusing on development. For development, there is construction risk and also deployment risk as it takes time for the data centre to stabilise before it can be marketed to clients.
9. Keppel Telecommunications & Transportation (SGX: K11), the sponsor for the REIT, is in charge of developing data centres and then injecting them into the REIT via an arm’s length transaction. The REIT will need to commission at least two independent valuers before they can proceed with any acquisition. This is to ensure that they are not over-paying for an acquisition even if it’s from its sponsor.
10. With the introduction of a distributed ledger (based on blockchain technology), there were concerns that this trend may impact the REIT as organisations can then park their data within such ledgers, eliminating the need for data centres. However, the CEO assured the attendees that the data still needs to be kept in a physical location even for distributed ledgers, and therefore data centres will still remain relevant.
11. On the risks of a major client shifting out, this is unlikely as the REIT performs regular preventative maintenance and also provides good physical security. The REIT manager also engages clients constantly on their data storage and requirements. Clients will not shift out unless they have a compelling reason to (e.g. breach of physical security).
12. For the data centres, it is the client who buys most of the equipment, servers and network cables to fit out the centre. With such an upfront financial commitment, this makes the client more “sticky” as shifting out would also mean losing their investment in the data centre.
13. A shareholder highlighted that the largest client took up 38% of the REIT’s revenue, and asked if this would represent a major risk should the client decide to change supplier. Management responded to this concern by saying that the client is very stable and also a very large global company. They have mission-critical information within the data centres and are therefore unlikely to switch suppliers.
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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 personalised investment or financial advice. The Motley Fool Singapore writer Chin Hui Leong does not own shares in any of the companies mentioned.