2 Data Centre S-REITs to Buy for Singapore Dividend Investors

September 12, 2023

Top dividend stocks

In times of great uncertainty for investors, one thing provides comfort – dividends. That’s because the passive income that dividends generate can help tide us over while we wait for our portfolios to recover.

One of the best ways to tap into dividends in Singapore is to buy REITs, given how prominent they are on the Singapore Exchange (SGX).

With interest rates looking like they’re peaking, Singapore REITs are starting to generate more interest among investors.

However, just like any investment, we want to buy into REITs that have a solid foundation and sustainable growth.

One area which has promising long-term growth prospects for REITs is data centres, given the demand for data centres among the large public, private and hybrid cloud providers.

So, here are two pure-play data centre REITs listed in Singapore that dividend investors can buy for the long term.

1. Keppel DC REIT

Most investors will be familiar with Keppel DC REIT (SGX: AJBU), the first pure-play data centre REIT to list on the SGX.

The REIT has 23 data centres across Singapore, Australia, China, Malaysia, Germany, Ireland, Italy, The Netherlands, and the UK.

It’s one of the few Singapore REITs that has managed to keep its distribution per unit (DPU) stable despite rising interest rates in the US.

In Keppel DC REIT’s latest H1 2023 earnings, it reported a 3.6% year-on-year increase in revenue to S$140.4 million.

Meanwhile, its DPU of 5.051 Singapore cents was flat for H1 2023 versus the DPU of 5.049 Singapore cents the REIT announced for H1 2022.

As readers can see below, the REIT has strong portfolio occupancy rate along with a long weighted average lease expiry (WALE) that gives the REIT strong income visibility given over half of its portfolio has built-in income and rental escalations.

Keppel DC REIT WALE H1 2023

Source: Keppel DC REIT investor presentation, August 2023

Keppel DC REIT also has a reasonable gearing ratio of 36.3% as of 30 June 2023 and over 70% of its debt is on fixed rates.

It continues to have over S$2 billion in data centres assets under development through its sponsor, Keppel T&T, and Keppel’s private data centre funds.

At its current share price, Keppel DC REIT is offering Singapore dividend investors a 12-month forward yield of 4.7%.

2. Digital Core REIT

Next up is lesser-known data centre-focused Digital Core REIT (SGX: DCRU). The REIT has data centre giant Digital Realty Trust Inc (NYSE: DLR) as its parent sponsor.

Digital Core REIT owns 11 data centres, worth a combined US$1.59 billion in assets under management, across North America, Europe, Asia, and Latin America.

A full 100% of its assets are freehold properties and its overall portfolio had an occupancy rate of 97% as of 30 June 2023.

The REIT’s gearing ratio of 34.2% also means it has relatively comfortable headroom to take on debt for further acquisitions.

While one of the REIT’s largest tenants declared bankruptcy in Q2 2023, the REIT did update shareholders at the end of July to say that its May and July rents from the tenant have been paid, with the June rent subject to an administrative claim.

Management was still confident enough to declare a H1 2023 DPU that was flat (1.92 US cents) versus the H1 2022 DPU.

At the start of September, it was also announced that the REIT would be included in the FTSE EPRA Nareit Global Developed Index – a large REIT index that a lot of passive funds use.

This should encourage passive flows into Digital Core REIT once it’s added to the index after the market close on 15 September.

At its current share price, Digital Core REIT is giving investors a 12-month forward dividend yield of 6.6%.

Data centre REITs for consistent dividends

For long-term dividend investors, being invested into a structural growth area is important. In the REITs space in Singapore, there’s nothing more promising than data centres.

With Keppel DC REIT and Digital Core REIT, dividend investors can access the only two pure-play data centre REITs listed on the SGX.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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