3 Industrial REITs That Can Continue to Grow Their DPU

Not all  REITs  are made the same.

The sector, which has grown by leaps and bounds over the last two decades, can be segmented into five major categories: industrial, commercial, retail, hospitality and healthcare.

Of these, industrial has proven itself to be one of the most resilient during the pandemic.

With the bulk of their tenants being large and reputable multinational businesses, industrial REITs have witnessed significantly less volatility with their rental income.

This crucial characteristic has allowed a select group of industrial REITs to grow their  distribution  per unit (DPU) despite the challenging economic environment.

Because of this, it makes sense for income-seeking investors to search through the industrial REIT space to look for winners that can continue to grow their DPU post-crisis.

Here are three quality industrial REITs that have the potential to pay out higher DPU in future.

Keppel DC REIT (SGX: AJBU)

Keppel DC REIT is a data centre REIT that owns 19 data centres across eight countries.

As of 31 December 2020, the REIT&rsquo s portfolio was valued at around S$3 billion and enjoyed a 97.8% occupancy rate.

The REIT had reported a strong  set of earnings  for 2020, with gross revenue up 36.3% year on year to S$265.6 million.

Net property income (NPI) jumped 37.7% year on year while distributable income climbed by 38.6% year on year.

DPU rose by 20.5% year on year to S$0.0917, with a trailing 12-month distribution yield at around 3.4%.

The REIT manager concluded three acquisitions in Europe in 2020.

Beyond that, it is also engaging in asset enhancement initiatives (AEI) which are slated for completion by the first half of this year, including the fit-out of a new data hall in Keppel DC Singapore 5 and the conversion of additional space into a data hall for Keppel DC Dublin 2.

As at the end of 2020, the REIT&rsquo s aggregate leverage stood at 36.2%, providing ample room for it to borrow more for yield-accretive acquisitions.

With data centres seen as critical infrastructure to support the rapid online shift caused by the pandemic, the global colocation market grew by 15% year on year in 2020 and is set to grow another 14% in 2021.

Smartphone and 5G subscriptions are expected to rise in the years to come, fuelling continued demand for data centres and providing Keppel DC REIT with ample growth opportunities.

 

DBS, CGS-CIMB upgrade Keppel DC Reit to ' buy' on China expansion

Keppel DC REIT posts 12.5% DPU growth to 4.924 cents for 1HFY21

Keppel DC REIT  has reported distributable income of $84.3 million for the 1HFY2021, up 12.4% y-o-y from $75 million.

Excluding an amount of capital expenditure set aside for certain properties, the REIT&rsquo s manager has declared a distribution amount of $80.4 million for the period. This translates to a distribution per unit (DPU) of 4.924  cents, 12.5% higher than the 1HFY2020&rsquo s 4.375 cents.

According to the REIT&rsquo s manager, the growth in distributable income was due mainly to contributions from the accretive acquisitions of Amsterdam Data Centre and Kelsterbach Data Centre in Frankfurt, as well as the completion of the asset enhancement initiative works at Keppel DC Singapore 5 and Keppel DC Dublin 1 in the 2H2020, and Keppel DC Dublin 2 and DC 1 in the 1Q2021. 

The REIT posted gross revenue of $135.1 million for the 1HFY2021, up 9% y-o-y from $124 million.

Property expenses for the period grew 16.2% y-o-y to $11.3 million, while  net property income (NPI) for the 1HFY2021 totalled $123.8 million, up 8.4% from $114.2 million the previous year.

Keppel DC REIT&rsquo s portfolio occupancy stood at 98% as at June 30m with a weighted average lease to expiry (WALE) of 6.5 years. Including the latest renewal lease signed in July 2021, Keppel DC REIT has only 0.8% of leases due to expire for the remainder of the year. 

Looking ahead, the manager is cautious on &ldquo certain headwinds&rdquo to the global economic recovery due to further resurgences of Covid-19 cases. Nonetheless, the manager reiterates the resiliency of the data centre sector, underpinned by trends like smart technology implementation, big-data analytics and the increasing use of 5G. 

Noting the  REIT' s recently expanded investment mandate to include real estate and assets that support the digital economy, the manager reiterates that  Keppel DC REIT will maintain at least 90% of its assets in data centres. 

In April, Keppel DC REIT had announced the proposed investment  in a special purpose vehicle  which will own M1&rsquo s current mobile, fixed and fibre assets, through a combination of debt securities and preference shares.

 

Keppel DC REIT strengthens portfolio with its first data centre acquisition in China
26 July 2021, Singapore &ndash Keppel DC REIT has entered into agreements with Guangdong Bluesea Data Development Co. Ltd. (Bluesea) and its parent company, Guangdong Bluesea Mobile Development Co. Ltd., to acquire Guangdong Data Centre, a fully-fitted data centre facility in Jiangmen, Guangdong Province, for RMB 635.9 million (approximately S$132.0 million1). This marks Keppel DC REIT&rsquo s first data centre acquisition in China.
The property will be fully leased back to Bluesea on a triple net basis2 for 15 years. With a gross floor area of approximately 20,595 sqm (221,689 sq ft), the seven-storey data centre is designed in accordance with the Code for Design of Data Centre Grade A GB, where Grade A is the highest standard for data centres in China. Situated within the Bluesea Intelligence Valley Mega Data Centre Campus, the facility is the first of six data centre buildings to be completed. As part of this agreement, Keppel DC REIT will have the right of first refusal to acquire the remaining five data centres within the campus.
Guangdong Data Centre is located within the Greater Bay Area (GBA), which includes Guangzhou, Shenzhen and Jiangmen. Surrounding the Pearl River Delta, the GBA boasts a rich ecosystem of startups, incubators and accelerators across various industry verticals3. It is also one of China' s most vibrant economic regions, with a high concentration of China&rsquo s Fortune Global 500 companies and housing many of the country&rsquo s innovative technology companies. Amongst China&rsquo s provinces, Guangdong has the highest share of large-scale data centres, commanding more than 20% of the market4.
Ms Anthea Lee, CEO of Keppel DC REIT Management Pte. Ltd. (the Manager), said, " China is the second largest data centre market5 globally as well as the largest market in the Asia Pacific region, it is expected to continue its strong growth momentum. The strategic addition of Guangdong Data Centre enables us to ride on China&rsquo s growing digital economy and underscores our focus on investing in good quality data centre assets to provide stable and sustainable income.&rdquo
Based on the valuation by Savills Valuation and Professional Services (S) Pte Ltd, an independent valuation firm appointed by the trustee of Keppel DC REIT, the market value of the property was RMB 690.0 million (approximately S$143.2 million) as at 1 July 2021. The purchase price represents a 7.8% discount to the independent valuation.
The acquisition is expected to be accretive to Keppel DC REIT' s distribution per Unit.
Post- acquisition, Keppel DC REIT' s portfolio occupancy rate will increase from 98.0% as at 30 June  2021 to 98.2%, and weighted average lease expiry will increase from 6.5 years as at 30 June 2021 to 7.3 years.
Expected to be completed in the third quarter of this year, the Manager intends to fund the purchase consideration with a mix of debt and/or equity. Post completion, Keppel DC REIT' s aggregate leverage is expected to increase from 36.7% as at 30 June 2021 to 37.5%.
With the acquisition of Guangdong Data Centre, Keppel DC REIT will have a portfolio of 20 quality data centres across Asia Pacific and Europe.

 

Keppel Data Centres and Alpha DC Fund to sell data centre in Frankfurt for EUR76 mil

Keppel Corporation  has on July 8 announced that Calcium DC, a 60:40 joint venture between Alpha DC Fund and Keppel Data Centres Holding (KDCH), is divesting a data centre facility in Frankfurt for EUR76 million ($121.6 million).

Alpha DC Fund  is managed by Alpha Investment Partners, the private fund management arm of Keppel Capital.

The facility, known as Keppel DC Frankfurt 1, is being sold to a subsidiary of information management services company Iron Mountain. The consideration will be paid in cash and was arrived at a willing-buyer, willing-seller basis, taking into account the book value of the property of EUR63 million as of Dec 31, 2020.