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%.
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.
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?