Data centres form the backbone of the digital economy.
As demand for data grows over the years, more storage space will be needed to handle increasingly voluminous amounts of information.
This trend is likely to continue as businesses embrace big data and digitalisation.
Large technology companies such as Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) are also tapping on cloud computing to grow their sales.
According to Ericsson, global mobile data traffic is also expected to grow by 40% per year between now and 2025.
As an investor, you can participate in the growth of the digital economy by parking some money in the data centre sector.
To do so, you can either purchase pure-play data centre REITs or industrial REITs that contain data centres within their portfolio.
Here are three data centre-focused REITs that look ready to increase their distributions.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a pure-play data centre REIT that owns a total of 21 data centres across nine countries valued at S$3.5 billion as of 31 March 2022.
The REIT made its debut back in December 2014 with Keppel Corporation Limited (SGX: BN4) as its sponsor.
Since then, Keppel DC REIT has raised its distribution per unit (DPU) every single year without fail, from S$0.0651 in the fiscal year 2015 (FY2015) to S$0.09851 for FY2021.
There are indications that the REIT’s track record can continue.
First, it reported a slight 0.2% year on year increase in its DPU to S$0.02466 for the first quarter of FY2022 (1Q2022).
When annualised, DPU comes up to S$0.09864, around 0.1% higher than FY2021.
Second, Keppel DC REIT conducted a slew of acquisitions last year that should boost DPU for FY2022, such as the purchase of its maiden data centre in China and its second data centre in London.
With a gearing level of 36.1% and a low cost of debt of just 1.8%, the REIT has sufficient debt headroom to acquire more data centres in the future.
Moreover, Keppel DC REIT also has more than S$2 billion worth of potential data centre assets for acquisition through its sponsor.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is an industrial REIT that owns a total of 143 properties worth S$8.8 billion as of 31 March 2022.
Half of the REIT’s assets are located in the US while the other half is in Singapore.
Data centres make up around 54% of MIT’s total assets under management (AUM).
The industrial REIT has a reputable sponsor in Mapletree Investments Pte Ltd, a unit of Temasek Holdings.
It has also demonstrated a knack for growing its AUM and DPU through the years.
AUM increased four-fold from S$2.2 billion in the fiscal year 2010/2011 (FY10/11) to the current S$8.8 billion.
DPU increased from S$0.0841 in FY11/12 to S$0.138 in FY21/22.
MIT’s DPU has the potential to continue growing as the REIT is currently redeveloping flatted factories in Kolam Ayer 2 into a new high-tech industrial precinct for a total cost of S$500 million.
This project is expected to complete by the first half of next year.
MIT also has a right of first refusal over the future sale of a 50% interest in Mapletree Rosewood Data Centre Trust by its sponsor.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is the newest kid on the block, having just been listed back in December last year.
Its portfolio comprises 10 data centres located in the US and Canada, with an AUM of US$1.46 billion as of 31 March 2022.
DCR’s data centres are all freehold and enjoy 100% occupancy.
For 1Q2022, the REIT reported distributable income that was 1.9% above its forecast, at US$12.1 million.
Aggregate leverage currently stands at 26% with an average cost of debt of 2.1%, providing significant debt headroom for the REIT to acquire data centres to add to its initial portfolio.
DCR’s sponsor is US-listed Digital Realty Trust (NYSE: DLR), the sixth-largest US REIT with a total of 290 data centres and more than 4,000 global customers.
The sponsor’s pipeline can help DCR to grow its portfolio of US$15 billion, and near-term acquisitions of US$500 to US$1 billion have already been identified.
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Disclaimer: Royston Yang owns shares of Mapletree Industrial Trust, Alphabet, Keppel DC REIT and Digital Core REIT.
