3Q21 Outlook Q&A: Keppel DC REIT

[Natalie]

Replying to #

Q; Quite a number of REITs listed in SGX are in data centre business. What is your comment to Keppel DC Reit?

Q: However, Keppel DC price is dropping so much… May i know any particular reason? Thanks

Q: why is Kep DC reit price trend low recently

Q: DC keppel reits..why reason for recent stock fall  

 

Keppel DC REIT (KDC) is sponsored by Keppel T&T. The Keppel group has expertise developing, operating and managing data centres. 70% of leases are colocation leases, which command a higher rent compare to shell&core, master leases, double net and fully fitted leases as there is a management charge for facility management and provision of Machine & Electrical equipment. Colocation leases have a shorter WALE and require more active management. KDC has been able to improve the portfolio productivity by conducting asset enhancement initiatives such as converting non-data centre space to data centre halls and bringing on more power so that the data centres can power more servers and racks.

 

Other industrial REITs that have data centre assets include Ascendas REIT (10%) and Mapletree Industrial Trust (30%), most of which are leased out on shell&core, master leases, double net and fully fitted leases. These lease types provide longer WALEs, but that also means little opportunity for assets which have good occupancy (>90%) to provide rental growth beyond the annual rental escalations (2-4%).

 

KDC’s price trend could be due to the market reacting to the (a) lack of acquisitions and the increased competition for data centres, (b) the expansion of mandate which may result in a loss of “pure-play data centre” status and (c) the potential a data centre REIT IPO by Digital Realty.

 

KDC’s expansion in investment mandate will allow Keppel DC REIT to acquire data centres as well as assets to support the digital economy such as fibre connection assets like deep sea cables, telephone towers, warehouses, distribution centre and business parks. On a  positive note, the expansion of investment mandate may also accelerate acquisitions as some data centre deals come as a portfolio which include some non-data centre assets. With their initial, narrower mandate, vendors will not approach KDC and hence KDC will miss the opportunity to review such opportunities. 

 

60% of KDCs assets are located in Singapore, where the moratorium on data centres remain in place and may result in a demand-supply gap. This implies a strong likelihood that market rents will be bided up over the next 1-2 years, coinciding with KDC’s Singapore WALEs of 1.2-1.8 years.

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