Saturday, 17 April 2021

Will Mapletree Industrial Trust & Keppel DC REIT Benefit from Facebook’s Transpacific Data Connection (Bifrost and Echo)?

Recently, Facebook announced plans to build two new data submarine cables between Asia-Pacific and North America. They are dubbed Bifrost and Echo. The transpacific cables will connect Singapore, Indonesia, and North America, and are expected to increase overall transpacific capacity by 70%.

Source: Facebook. 

For Bifrost, Facebook will partner Keppel T&T of Singapore and Telin (aka PT Telekomuniskasi Indonesia International) and XL Axiata of Indonesia and is due to be completed by 2024. 

For Echo, Facebook will partner Google and XL Axiata, and is due to be completed by 2023. 

Will this increase in transpacific capacity benefits the Mapletree Industrial Trust and Keppel DC Reit? 

Mapletree Industrial Trust “MIT” (SGX: ME8U) 

MIT has just completed acquisition of US data centre located in Richmond, Virgina in March this year for US$208m with 100% occupancy, freehold status, and an initial NPI yield of 6%. 

The company has a medium term vision of allocating two-third of its S$6.8B AUM to data centres, meaning acquiring of S$1B worth of data centres per year in the next 5 years. The current data centre AUM is 40.8% after the recent acquisition. 

Out of MIT’s  data centres, 34.5% are located in North America and only 6.3% is in Singapore. 

MIT’s FY20/21 DPU of 9.25 cents based on current price of S$2.79 gives a yield of 3.3%. 

However 3Q FY20/21 DPU is 3.28 cents. If MIT can maintain this result, then average DPU per annum will be 13.12 cents translating to a yield of 4.7%

NAV per unit as of end 2020 is S$1.70. 


Keppel DC REIT “KDC” (SGX: AJBU) 

KDC acquired Amsterdam DC on 24 Dec 2020 for S$48.1m with 99.1% occupancy and an initial NPI yield of 5.1%. 

KDC’s core market is in Singapore accounting for 56% of its AUM of S$3B as of end of last 2020. 

FY2020 adjusted DPU of 9.17 cents based on current price of S$2.69 gives a yield of 3.4%. 

NAV per unit as of end 2020 is S$1.19. 


CONCLUSION

Typically, the identities of the tenants for Data Centres cannot be disclosed due to the strict confidentiality obligations under the lease agreements. 

Hence we are not really sure how Facebook and Google’s Bifrost and Echo projects will benefit MIT and KDC in the years to come. 

Nonetheless, I am very certain that there will be a strong and resilient Data Centre demand in the years ahead. 

Below are some of the positive numbers on DC spending coming from research companies. 

Source: Keppel DC REIT. 


Therefore it is in my opinion that MIT and KDC will continue to grow in their top and bottom line. 

What are your views? 


4 comments:

  1. DC are energy guzzlers, consuming >10% of total electricity generated in Singapore. Because of Singapore's green committment, moratorium has been imposed on the building of new DC since 2019, although talk is that this will be lifted this year. Even lifted, chance is that not many new DC will be approved, unless the applicant is strategic to Singapore, such as the $1.3 bil, 11-storey soon to be completed Facebook DC. With future supply limited, KDC existing DC in Singapore are rare good-class-bungalow properties, price dictators for years to come, until new technology surfaces and reduce demands for land-based physical DC (such as the experimental game-changer off-shore DC for which Keppel TT has sunk $mils in R&D). For AUM expansion, KDC/MIT/Ascendas will have to look overseas.

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    1. DC are energy guzzlers, consuming >10% of total electricity generated in Singapore. Because of Singapore's green committment, moratorium has been imposed on the building of new DC since 2019, although talk is that this will be lifted this year. Even lifted, chance is that not many new DC will be approved, unless the applicant is strategic to Singapore, such as the $1.3 bil, 11-storey soon to be completed Facebook DC. With future supply limited, KDC existing DC in Singapore are rare good-class-bungalow properties, price dictators for years to come, until new technology surfaces and reduce demands for land-based physical DC (such as the experimental game-changer off-shore DC for which Keppel TT has sunk $mils in R&D). For AUM expansion, KDC/MIT/Ascendas will have to look overseas.


      Hi retiree5559,

      Tks for the valuable comments, and additional info, and I agree with u. Indeed DCs likely to become rare in SG like GCB. Rents in DC will be inclined to rise if due for renewal. Lower WALE is not a bad thing in fact.

      SG and HK are of DC gateways in this region for most Western and Australasian companies. That said, the relationships with China remain a teething issues in HK, that SG may stand to benefit as companies are likely relocated DC from HK to SG.

      Considering the political situations of our neighbouring countries, guess SG will still be the best choice for DCs for many of the large IT companies.

      Indeed, growth here is limited by land, and as u can see most local DC companies are going abroad for acquisition. Unless we are going to put more in Ubin or Tekong or some SG islands….

      Still, we can probably envisage government to be innovative enough to produce lands/new or refurbished buildings for some more DCs here. Afterall, we are clearing some golf courses, didn’t we…. 

      For energy consumption problems, guess R&D in DC consumption will be able to resolve this issue. Amazon already have a low energy consumption DC.

      Another alternative solution to SG electricity consumption problem, is one that was already announced last Oct.

      “World's Largest Solar Farm in Australia Will Also Supply 20% of Singapore's Electricity”

      https://www.ecowatch.com/worlds-largest-solar-farm-singapore-australia-2648425842.html

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  2. Hi Rolf, thank for sharing of knowledge on the DC & energy development in Singapore. More knowledge = better judgment in making investment decisions.

    Gained some basic knowledge of DC in the course of works some years back when Big Data was a buzz word and every government department and business wanted to get involved. Was sold on the potential of DC since.

    Invested in KDC since its IPO and continue to accumulate through the 2 rights issue and whenever there was a pull back in prices after consolidation. Currently one of my top 3 REITS holding, and one of top 10 overall. Hope our faith in the DC potential is justified.

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  3. Thank you for sharing such great information also i came across this link which provide access to wide range of investments such as Private Market Shares

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