After a long wait of around seven years, Singapore Exchange finally saw its second pure-play data centre REIT being listed.
As a recap, the first pure play data centre REIT, Keppel DC REIT (SGX: AJBU), launched its IPO back in December 2014.
Back then, it was the only REIT that owned data centres within its portfolio.
Since then, other REITs such as Ascendas REIT (SGX: A17U) and Mapletree Industrial Trust (SGX: ME8U) have also added data centres into their respective portfolios.
However, Digital Core REIT (SGX: DCRU), which was just listed two weeks ago, now offers investors a new option when it comes to pure-play data centre exposure.
How do these data centre REITs stack up?
We compare the two to determine which may make a more attractive investment option for income-seeking investors.
Note: All USD:SGD conversions are using a rate of 1 USD: 1.37 SGD.
Portfolio composition
First, let’s look at each REIT’s portfolio composition.
Keppel DC REIT owns a total of 19 data centres spread out across eight countries including Singapore, the UK, Ireland, the Netherlands, and Italy.
With its recent Guangdong data centre acquisition expected to close this quarter, the REIT will be adding a ninth country, China, into its portfolio mix.
On the other hand, Digital Core REIT’s portfolio of 10 data centres is located in just two countries — the US and Canada.
Keppel DC REIT has the upper hand here in terms of diversification, but investors should note that Northern Virginia, where three of Digital Core REIT’s data centres are located, is the largest data centre market in the world.
Winner: Keppel DC REIT
Gearing and cost of debt
Next, we look at a key financial indicator for a REIT — its gearing level.
This metric is an important one as it determines the amount of debt headroom a REIT has so that it can gear up for yield-accretive acquisitions to boost distribution per unit (DPU).
Digital Core REIT has the lower gearing of 27% against Keppel DC REIT’s 35.1%.
Also, the former has a lower cost of debt of just 1.1% against its peer’s 1.6%.
Digital Core REIT’s debt tenor extends up to five years as compared to 3.2 years for Keppel DC REIT.
On all three strikes, the new data centre REIT comes out ahead as the winner.
Winner: Digital Core REIT
Operational indicators
Both data centre REITs enjoy very high occupancy of more than 95%.
Demand for data centres remains high as part of the ongoing shift from offline to online.
Keppel DC REIT has one up on Digital Core REIT, though, as its data centres have a slightly longer weighted average lease expiry (WALE) of seven years.
Winner: Keppel DC REIT
Distribution yield
We come to the all-important distribution yield as REITs are, after all, viewed as steady dividend-paying instruments for income-seeking investors.
Investors should note that Digital Core REIT has yet to pay out a distribution as it is newly listed. The REIT’s first distribution will be from its date of listing till 30 June 2022.
Based on its fiscal 2022 forecast DPU of US$0.0418, its projected distribution yield is around 3.8% based on its last traded unit price of US$1.10.
Keppel DC REIT has a slightly higher distribution yield of 4% based on its trailing 12-month DPU.
The REIT had just concluded acquisitions in both China and the Netherlands that are supposed to add further to DPU in 2022.
In addition, Keppel DC REIT also sealed a deal to invest in the preference shares and bonds of M1, a telecommunication company owned by Keppel Corporation Limited (SGX: BN4).
These acquisitions look set to further increase Keppel DC REIT’s DPU as we head into 2022.
Winner: Keppel DC REIT
Valuation
Finally, we assess the valuation for each REIT to determine if it is cheap, or expensive.
Keppel DC REIT is trading at around two times its book value as its unit price has surged ahead of the growth in its net asset value (NAV).
In contrast, Digital Core REIT is trading at just 1.3 times its NAV.
Winner: Digital Core REIT
Get Smart: Acquisition pipeline is another factor
It’s a mixed bag of positives and negatives for each REIT as we go through each attribute.
Investors can look at one more aspect to determine which REIT may be more attractive — its acquisition pipeline.
The pipeline represents the REIT’s growth runway as it is a list of properties that could potentially be injected by its sponsor.
Keppel DC REIT has a pipeline of around S$2 billion while Digital Core REIT’s pipeline stands at nearly US$15 billion.
When converted to Singapore dollars, Digital Core REIT’s pipeline is almost 10 times more than that of its peer.
Along with a low gearing level of just 27%, investors may see much more acquisition potential for Digital Core REIT in the years to come.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT, Mapletree Industrial Trust and Digital Core REIT.
