With AI and cloud growth, Singapore data-centre REITs have grown into one of the hottest AI plays for investors.
As a Singapore REIT investor, I decided to line up the three “pure-play” data centre Singapore REITs – Keppel DC REIT, Digital Core REIT, and NTT DC REIT head-to-head, to figure out who deserves a spot in my portfolio.
Before we compare them, let’s have an overview of the three Singapore data-centre REITs below:
I’ll score the three REITs across eight categories according to my own internal scoring system.
1. Dividend yield and Compounded Annual Growth Rate (CAGR) of dividend
KDCR yields ~5%, the lowest here but its 11-year DPU CAGR of growing dividends consistently at ~4.8% per year is impressive! As long-term dividend hunters, I prefer a slightly lower starting yield that keeps growing my dividends!
NTDC leads on current yield at ~8.4% (pro-rated from its maiden DPU), 2.6% above IPO forecast. However, with a short history since IPO, it has yet to prove its mettle.
DCR’s ~7.5% yield looks appealing at first glance but masks its -1.6% per year decline in CAGR DPU since IPO! Value destructive for income investors.
Verdict:
1st – KDCR
2nd – NTDC
3rd – DCR
2. Valuation and Potential Price Growth
Despite recent ~11.3% rise in NTDC’ portfolio valuation from US$1.50B at IPO to US$1.67B, its price (US$0.94) trades below its book value (US$1.08) at a Price to Book value (P/B) of ~0.87X, I find potential room for re-rating and growth for NTDC’s price.
DCR has been trading at a steep discount to its book value (US$0.79) at ~0.61X reflecting its declining track record. However, a turnaround could unlock substantial upside to DCR’s price.
KDCR, the tested and proven first-mover, commands a premium ~1.3X P/B above its book value ($1.71), leaving limited further upside.
Verdict:
1st – NTDC
2nd – DCR
3rd – KDCR
3. Total returns track record and CAGR since IPO
KDCR wins this category decisively, delivering a stunning total return of 243% and CAGR of +11% per annum over 11 years.
NTDC ranks second, disadvantaged by its short history, but its maiden DPU beating IPO forecast by 2.6% is a promising sign.
DCR takes last place here with total returns of -26% and a -6% CAGR over 4+ years since IPO.
Verdict:
1st – KDCR
2nd – NTDC
3rd – DCR
4. Financial Stability and Safety
In these volatile times and potentially higher for longer interest rate environments, KDCR tops this category with the greatest financial strength from its low leverage, highest interest coverage, lowest cost of debt and highest fixed rate debt.
With its lower leverage and higher ICR, NTDC edges out DCR to take second place in terms of financial stability and safety.
Verdict:
1st – KDCR
2nd – NTDC
3rd – DCR
5. Sponsor Strength and Pipeline of assets for right of first refusal (ROFR)
DCR wins this category, backed by Digital Realty – one of the largest global data owner-operators with more than 300 assets, granting DCR a pipeline of ROFR assets worth up to US$15Bn and potentially make it the largest DC S-REIT.
NTDC’s sponsor, NTT is Japan’s telco giant and the world’s #3 colocation DC operator with more than 160 data centres globally.
With its sponsor’s 2,000 MW pipeline of data centres and ~130 MW earmarked for near-term acquisition, this could potentially double NTDC’s portfolio from 90 MW to 200+ MW!
KDCR benefits from strong institutional backing via blue-chip asset manager, Keppel Ltd (Temasek-linked), though its ROFR pipeline is less publicly quantified.
Verdict:
1st – DCR
2nd – NTDC
3rd – KDCR
6. Customers concentration and occupancy
With the sponsor being its 2nd largest tenant, it gives me more assurance and adds stability to NTDC. NTDC’s top 3 tenants and top 10 tenants are also more diversified than the other 2.
KDCR ranks last as its top tenant contributes almost half of its income and poses greater concentration risk. It is also likely the tenant may have more bargaining power in lease negotiations.
Verdict:
1st – NTDC
2nd – DCR
3rd – KDCR
7. AI and Cloud Growth
With ~70.4% of its rental income from hyperscalers, and top 4 clients being Fortune 500 hyperscalers, KDCR appears focused on AI positioning and growth.
DCR’s ~60% of rental income coming from hyperscale cloud service providers places it second.
With a balanced tenant mix of 49% hyperscaler; 51% colocation tenants, new entrant NTDC scores least here, for now.
Verdict:
1st – KDCR
2nd – DCR
3rd – NTDC
8. Recent strategic positioning and developments
In a recent revolutionary move, DCR announced a strategic portfolio reset. It would sell 3 US and 1 Canadian DC assets and recycle proceeds for its first entry into Singapore and increase its stake in an existing Osaka DC asset.
This multi-pronged move ticked all the right boxes:
(a) Lifts DPU by ~4.1%,
(b) Entering prime Singapore DC market
(c) Reduces leverage from 39% to 36%
(d) Strengthens foothold in Japan
(e) Using sales proceeds for unit buy back (hopefully strengthening its price!)
A rare combo move – accretive, deleveraging, and diversifying simultaneously, scoring DCR tops!
KDCR’s two freehold hyperscale acquisitions in Japan places it second.
This strategic move adds 3 new investment grade tenants, reduces top tenant concentration (43.5% to 38.3%), increases DPU (+2.6%), boosts Japan contribution from 9% to 23%, and scales up AUM to S$7.6Bn.
NTDC is still finding its footing post-IPO, with no transaction to-date. NTDC’s story rests on potential – leveraging on the sponsor’s global assets footprint.
Verdict:
1st – DCR
2nd – KDCR
3rd – NTDC
My final thoughts
KDCR takes the crown as the undisputed King of data-centre Singapore REITs. Topping 4 out of 8 categories, KDCR is a proven compounder, with impressive CAGR dividend growth since IPO and remarkable total shareholder returns. A great pick for newbies eyeing their first DC REIT.
New kid on the block, NTDC muscles past DCR to take 2nd place. I found an unpolished diamond in NTDC. With its high yield, low gearing giving it firepower for acquisitions, sponsor’s strength and reasonable valuation, NTDC is shaping to be the growth challenger to watch.
Despite DCR’s longer track record, strongest sponsor, recent strategic assets recycling and pipeline of assets, DCR came out last. Proof that a great resume doesn’t always win!
Since I already own KDCR and DCR, I’ll be looking to buy NTDC and partake in its growth story before the AI boom prices it in!
