REITs are a great source of passive income.
The consistent flow of distributions that they pay provide income-seeking investors with valuable cash in their bank accounts.
The key is to look for REITs that can grow their distribution per unit (DPU).
An attractive area to watch for are data centres REITs.
With digitalisation on the rise amid a boom in online access and e-commerce, many businesses are seeing a surge in demand for data storage.
But with the prospect of higher interest rates, REIT unit prices have declined as a whole.
Investors could be looking at juicy bargains as they survey the landscape for well-run REITs that have the potential to increase their DPU in future years.
Here are three data centre REITs with unit prices trading near their year-low.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns a portfolio of 21 data centres across nine countries worth S$3.5 billion as of February 2022.
The REIT is trading at S$2.16, close to its 52-week low of S$2.11.
For its fiscal 2021 (FY2021) earnings, Keppel DC REIT reported a 2.1% year on year increase in gross revenue to S$271.1 million while net property income (NPI) inched up 1.6% year on year to S$248.1 million.
DPU rose by 7.4% year on year to S$0.9851, and the units offer a distribution yield of around 4.6%.
The data centre sector continues to look promising, with spending in 2022 expected to hit US$207 billion, up 5.8% year on year.
The number of 5G subscriptions exceeded 660 million as of end-2021, creating a heightened demand for data storage as users consume more data.
Keppel DC REIT maintained a high portfolio occupancy of 98.3% as of 31 December 2021 and had aggregate leverage of 34.6%, leaving ample room for the REIT to tap on debt for future acquisitions.
Mapletree Industrial REIT (SGX: ME8U)
Mapletree Industrial REIT, or MIT, is an industrial REIT with a total of 143 properties worth S$8.6 billion as of 31 December 2021.
As it stands, data centres make up slightly more than half (53.2%) of the REIT’s assets under management (AUM).
The REIT is trading at S$2.56, slightly higher than its 52-week low of S$2.45.
For the REIT’s fiscal 2022 third quarter (3Q2022), it reported a 31.3% year on year jump in gross revenue due to contributions from the acquisition of 29 data centres in the US.
NPI rose by 24.1% year on year to S$122.7 million while DPU increased by 6.4% year on year to S$0.0349.
Trailing 12-month DPU stood at S$0.1361, translating to a trailing yield of 5.3% for the REIT’s units.
MIT had aggregate leverage of 39.9% as of 31 December 2021 along with a low cost of debt of 2.3%.
The REIT believes that space and power limitations will constrain new data centre developments, delaying new supply and rising rents in affected markets by around 4% to 6%.
Ascendas REIT (SGX: A17U)
Ascendas REIT, or A-REIT, is Singapore’s largest business space and industrial REIT and its portfolio comprises 220 properties with an AUM of S$16.3 billion as of 31 December 2021.
Around 9% of A-REIT’s AUM is made up of data centres.
The REIT’s unit price, at S$2.83, is close to its 52-week low of S$2.76.
A-REIT reported a good set of numbers for FY2021, with gross revenue rising by 16.9% year on year to S$1.2 billion.
NPI rose by 18.6% year on year to S$920.8 million while DPU inched up by 3.9% year on year to S$0.15258.
The REIT offers a trailing distribution yield of 5.4%.
A-REIT’s aggregate leverage stood at 35.9% as of 31 December, and the REIT had a debt headroom of around S$4.8 billion before it reaches the statutory 50% limit.
The all-in cost of debt remained low at 2.2% while the interest cover ratio remained healthy at 5.7 times.
A-REIT’s UK data centres enjoyed a positive rental reversion of 6.2% for FY2021.
The manager believes that the data centres should continue to benefit from strong e-commerce adoption and increased digitalisation.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT and Mapletree Industrial Trust.
