Latest / Investor Exchange / Keppel DC REIT's Stellar 2024 Performance: Riding the Data Center Boom

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Keppel DC REIT's Stellar 2024 Performance: Riding the Data Center Boom · Investor Exchange

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  Music.
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  Specifically Keppel DC REIT and how they did in fiscal year 2024.
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  We've got their press release and their financials for the full year.
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  And you want to know how their numbers look, why, and what's next for them?
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  Yeah, definitely. Quick reminder for everyone, they're listed on the Singapore
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  Exchange, and they were the first in Asia to really go all in on data centers as a REIT.
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  Interesting. It makes you think, with data centers being so important now,
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  being early to the game must have given them a real advantage.
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  Yeah, no doubt. And their results for 2024 kind of prove that.
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  Their DPU, that's distribution per unit, it shot up by 13.2% in the second half
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  of 24, hit 4.902 cents. Wow.
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  Brings their total DPU for the year to 9.451 cents.
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  Not bad at all, especially since they did that equity fundraising thing and
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  Q4 of 24 increased their unit base, right? Exactly.
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  But even with those extra units, their adjusted DPUs still came in at 9.504
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  cents, up 1.3% year on year. Shows they're really making money.
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  Okay, so then the question is, what's making them so successful?
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  Is it just the whole data center boom in general, or is there something more
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  specific they're doing?
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  It's more than just the general trend, that's for sure.
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  Keppel DC REIT has been really proactive.
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  Like, their portfolio management is top-notch. They achieved a 39% average rental
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  reversion rate for the entire year.
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  That basically means they're getting way higher rents when they renegotiate leases.
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  39%. That's huge. How are they pulling that off? I think it comes down to two things.
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  One, everyone wants data center space right now, so they've got the upper hand in negotiations.
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  And two, they seem to really understand the market and know how to get good deals.
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  Smart. And they're not just sitting still either. They went and bought three
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  hyperscale data centers in 2024, two in Singapore, one in Tokyo.
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  This is where things get interesting. They're not just buying any data centers,
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  they're going after the hyperscale ones. You know, the kind that those big cloud
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  companies and AI companies need.
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  Huge facilities with all the bells and whistles.
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  Kipple DC Reit wants to be the landlord for those guys. Makes sense.
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  Especially when you look at those two AI-ready data centers they got in Singapore, KDC, SGP7 and 8.
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  It's like they're reading the future of the market and making sure they're ready for it.
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  Exactly. They're anticipating what's coming next and adapting their portfolio.
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  But they're not just buying stuff, they're selling too. Remember,
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  they sold off that IntelliCenter campus in Australia last year.
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  Yeah, so they're managing their assets actively.
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  What was the thinking behind that sale? It looks like a classic move.
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  They took a non-core asset, unlocked the value, and then they put some of that
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  money into a data center note, also in Australia, but with a 7% yield. That's pretty sweet.
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  Shows they're always looking for ways to get the best returns.
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  They're playing both sides. Smart.
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  So it sounds like they're on a roll. But were there any hiccups for Keppel DC REIT in 2024?
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  Any challenges? Yeah, there were a couple of things. Their data centers in Guangdong,
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  China, those had some issues.
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  Uh-oh. They had to write off a bunch of money, you know, lost allowances on receivables.
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  Sounds like they might be having trouble with some of their clients over there. Hmm.
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  That's not good. Do we know what exactly happened in Guangdong?
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  They didn't really give specifics in the reports. Okay. Something to watch, though, right?
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  Could be a sign of bigger problems in that market. Yeah, it makes you think
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  about the risks of doing business in certain places. Definitely.
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  And speaking of risks, remember interest rates were going up in the first half of 24?
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  Yeah. Well, that hit their profits, made their borrowing more expensive.
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  Shows you how even a company doing well can be affected by what's going on in
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  the economy. Yeah, for sure.
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  It's a good reminder that managing debt is super important, especially for REITs.
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  They tend to use a lot of debt to grow.
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  It makes sense. But overall, it seems like they're managing OK debt wise.
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  Yeah, their debt to equity ratio is still pretty healthy. OK,
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  so there's some bumps in the road, but their portfolio moves and their acquisitions
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  seem to have kept them on track.
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  Yeah, overall, pretty good year. So what about looking ahead?
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  What do you think is in store for Keppel DC REITs?
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  Opportunities, challenges, what's on the horizon? Well, the global economy,
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  that's a bit of a wild card right now. Right.
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  The IMF, they're saying growth should be OK in 2025, but there's always the
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  chance of something unexpected happening. Like, what if the geopolitical situation gets worse?
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  Or inflation sticks around. So cautious optimism, I guess.
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  But what about the data center market itself? Is the demand strong enough to
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  overcome those bigger economic worries?
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  It seems like data centers are doing their own thing almost.
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  Like they're not as affected by the ups and downs of the economy. The demand is just huge.
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  Cloud computing, the Internet of Things, AI, all that stuff needs data centers.
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  Yeah, it's everywhere now.
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  And vacancy rates are going down globally. That's a good sign.
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  So they're in a good spot then.
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  Seems like it. Strong demand. Plus, they're in a growing sector.
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  Keppel DC REITs management, they seem to know what they're doing.
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  They've said they want a portfolio that's future-proof, you know,
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  ready for whatever comes next.
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  And they want to expand globally, get into all the major data center hubs. That sounds ambitious.
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  It is. But look at what they did in 2024.
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  Hyperscale, AI-ready facilities. They're not just following the trends,
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  they're trying to stay ahead of them.
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  So not just riding the wave, they're trying to be the wave. But even if things
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  look good, there are always risks, right?
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  What should investors be watching out for with Kepra DC REIT?
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  One thing that's always a risk in this kind of tech-heavy sector is that technology changes so fast.
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  What's cutting edge today might be outdated tomorrow.
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  So that's something they have to think about constantly. How do they keep their
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  portfolio from becoming obsolete?
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  Good point. So what can they do about that? Well, those AI-ready facilities
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  they're investing in, that's a good start. But they can't just stop there.
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  They need to be constantly evaluating, upgrading, making sure they can meet
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  their clients' needs as those needs change.
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  So always innovating, always adapting. Exactly. And then there's another risk.
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  This one's more specific to REITs. They rely on debt financing,
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  which means they borrow money to grow. Yeah, we talked about that before.
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  And that's fine as long as interest rates stay low and the economy is doing okay.
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  But if things go south. It can get risky. So investors need to pay attention
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  to their debt levels, make sure it doesn't get out of hand.
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  So technology getting outdated, debt levels, those are the big things to watch
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  then. Those are two of the big ones, yeah.
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  And then there's always competition, of course. The data center market is hot
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  right now. Everyone wants a piece of it. So they need to keep their edge.
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  Yeah, stay competitive on price, keep innovating.
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  So lots to think about. There is, but every investment has risks.
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  It's about weighing the risks against the potential rewards.
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  And with Keppel DC REIT, the potential seems pretty good.
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  High growth sector, strong management, and they're doing all the right things
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  to position themselves for the future.
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  They're ticking a lot of boxes. And they're a good example of how the real estate world is changing.
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  Like with data centers becoming so important, it's really changing how we think
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  about space and what it's worth.
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  Yeah, it makes you wonder, what's next? Will we see fewer offices and more of
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  these giant data center complexes?
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  That's an interesting thought. And what will that mean for cities and how they're
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  planned? Yeah, lots of questions.
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  But it's clear that the digital economy is having a huge impact on real estate
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  and companies like Keppel DC REIT are leading the way.
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  It reminds you that investing is about more than just looking at financial statements.
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  It's about understanding the bigger picture, the trends that are shaping the
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  world, and finding the companies that are positioned to benefit from them.
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  Couldn't have said it better myself. Now, one last thing before we finish up.
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  We've talked a lot about the technology behind this whole data center boom.
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  But what about the people? Oh, that's an interesting angle. These data centers,
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  they're getting super complex, right?
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  So who's going to run them? Who's going to keep them working?
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  Do we need a whole new type of worker, someone who knows about AI,
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  cybersecurity, maybe even sustainable energy, all that stuff?
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  Yeah, that's a really good point. Even though it's all about tech,
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  you still need people with the right skills to make it work.
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  Reminds us that even when we're talking about finance and technology,
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  it's still people who are making it happen for sure this has been a really interesting
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  deep dive i agree thanks for joining us on the deep dive we'll be back soon with another episode.
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  Music.