4 S-REITs to Buy for Data Centre Growth

April 18, 2023

Data centre REIT Singapore

The demand for data centres has been growing rapidly in recent years, driven by a host of factors.

These include the growth ofcloud computing, e-commerce, social media, Artificial Intelligence (AI), big data analytics, Internet of Things (IoT) and 5G.

According to a report by Cushman & Wakefield, the global data centre market is expected to grow at a compound annual growth rate (CAGR) of 14.7% from 2020 to 2025, reaching US$136 billion in revenue.

Singapore is one of the leading data centre markets in Asia Pacific, due to its strategic location, robust infrastructure, stable political environment, pro-business policies and strong internet connectivity.

Investors who want to tap into this growth potential can consider investing in real estate investment trusts (REITs) that own or have exposure to data centre properties.

So, for dividend investors who want some growth from their REITs, here are four S-REITs that provide exposure to data centre opportunities.

Pure-play data centre REITs

One of the most direct ways to gain exposure is through a pure-play data centre S-REIT, a specialised type of investment vehicle.

This means they’re exclusively focused on owning, operating, and managing data centres as their primary asset class.

By investing in this type of S-REIT, investors gain exposure to the rapidly growing and evolving data centre industry, which caters to the ever-increasing demand for data storage, processing, and management solutions.

Here are two pure-play data centre S-REITs that investors can consider.

1. Keppel DC REIT

Keppel DC REIT (SGX: AJBU) is the first pure-play data centre REIT listed in Asia. It owns a portfolio of 23 data centres across nine countries, including Singapore, Australia, Germany, Ireland, Malaysia, the Netherlands, Italy, the UK and China.

As of 31 December 2022, the REIT had assets under management (AUM) of S$3.7 billion.

Keppel DC REIT has a diversified tenant base of over 100 customers, comprising mainly blue-chip companies in the internet enterprise, telecommunications and IT services sectors.

Some of its key tenants include Equinix, Facebook, Google and IBM. Its portfolio has a high occupancy rate of 98.5% and a long weighted average lease expiry (WALE) of 8.4 years as of 31 December 2022.

Aside from that, it is also sponsored by Keppel Corporation Limited, a leading conglomerate with business interests in energy and environment, urban development, connectivity and asset management.

The Keppel Group has over S$2 billion worth of data centre assets that are under development.

Keppel DC REIT has delivered stable and growing distributions to its unitholders since its listing in 2014.

In FY2022, it achieved a distribution per unit (DPU) of 10.214 cents, representing a year-on-year increase of 3.7%.

Based on its current price of S$2.07, it offers a 12-month forward dividend yield of 4.9%.

2. Digital Core REIT

Digital Core REIT (SGX: DCRU) is the second pure-play data centre REIT listed in Singapore and the first digital infrastructure-focused REIT in Asia.

It was listed on the SGX Mainboard on 6 December 2021 with an initial portfolio of eight data centres across six countries, namely Singapore, Japan, Australia, Germany, Canada and the US.

As of 31 December 2022, its portfolio consists of 11 data centres with a total of 1.2 million net rentable sq ft and a valuation of US$1.58 billion.

Digital Core REIT has a diversified tenant base of over 70 customers, comprising mainly global cloud service providers, telecommunications companies, and financial institutions.

Digital Core REIT’s top customers in its portfolio consist of Fortune Global 500 cloud companies, global colocation and interconnection providers, social media platforms and IT services companies.

The REIT’s portfolio has a high occupancy rate of 98.0% and a WALE of 4.5 years as of 31 December 2022.

In FY2022, it achieved a DPU of 3.98 US cents, representing an annualised distribution yield of 9.4% based on its current share price.

Diversified REITs with data centre exposure

Another way is to invest in a diversified S-REIT with a degree of data centre exposure.

This is a more broad-based investment vehicle that owns and manages a variety of real estate assets, including data centres.

By investing in this type of S-REIT, investors can access the growing data centre market while maintaining a balanced and diversified portfolio across multiple real estate sectors such as office, retail, industrial, and residential properties.

3. Mapletree Industrial Trust

Mapletree Industrial Trust (SGX:ME8U), or simply known as MIT, is a REIT that owns and manages a diversified portfolio of industrial properties in Singapore and North America.

As of December 31, 2022, MIT had a total of S$8.8 billion in AUM, encompassing 85 properties located in Singapore and 56 properties in North America.

Among these properties are 13 data centres that are held through a joint venture with Mapletree Investments Pte Ltd.

MIT’s diverse property portfolio comprises data centres, hi-tech buildings, business park buildings, flatted factories, stack-up/ramp-up buildings, and light industrial buildings.

MIT is managed by Mapletree Industrial Trust Management Ltd. and sponsored by Mapletree Investments Pte Ltd.

As of 31 December 2022, the AUM for its entire portfolio stood at S$8.8 billion with about 53.5% of it coming from the data centre segment.

MIT’s data centre portfolio has an occupancy rate of 93.8%. At its current share price, MIT’s 12-month forward distribution yield stands at 5.7%.

4. CapitaLand Ascendas REIT

CapitaLand Ascendas REIT (SGX: A17U) is Singapore’s first and largest listed business space and industrial REIT, with a portfolio of more than 200 properties across Singapore, Australia, the UK, Europe, and the US.

Its portfolio comprises business spaces, logistics & distribution centres, industrial properties, and data centres.

As of 31 December 2022, CapitaLand Ascendas REIT had a total AUM of S$16.4 billion with about S$4.4 billion (or 27%) coming from the industrial and data centres segment.

These data centres are located in Singapore, Australia, and the UK.

CapitaLand Ascendas REIT’s industrial and data centre segment has an average occupancy rate of 91.9%, outperforming the industrial average of 89.1%.

The tenants are mainly global cloud service providers and telecommunications companies.

It has a 12-month forward distribution yield of about 5.5% based on its current unit price of S$2.88.

Take advantage of structural growth for data centre REITs

You can take advantage of the structural growth for data centres by investing in S-REITs with exposure to data centres.

Pure-play data centre S-REIT can provide higher growth potential in a thriving industry while a diversified S-REIT with data centre exposure offers a more balanced investment approach, spreading the risk across different property sectors.

Investors should carefully consider their risk appetite and investment objectives when deciding which type of S-REIT is most suitable for their portfolio.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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