For
unitholders who bought into Keppel DC REIT (“KDC”) from Aug’20 to Apr’21 at the
range of S$2.55 per unit to S$3.04 per unit, the recent downturn in price from
May’21 till Sep’21 has been rather disappointing. This is despite many good
news being released for KDC such as over 12.5% improvement in 1st
Half FY2021 DPU, joint investment with M1 into digital network assets, maiden
foray into China Data Centre market as well as acquisition of its third new data
centre in Netherlands. The price as at 10th September 2021 is at
S$2.56 per unit.
1. Some
investors view KDC as a risk free bond.
Well, this is a very strange assertion being made by some investors indeed. I think let’s not get confused, KDC is a REIT and is equity in nature. Let’s call a spade a spade. It is definitely not a bond. It is also not “risk free” bond. I mean just take a look at its wild fluctuation in pricing over the past one year.
Well, this is a very strange assertion being made by some investors indeed. I think let’s not get confused, KDC is a REIT and is equity in nature. Let’s call a spade a spade. It is definitely not a bond. It is also not “risk free” bond. I mean just take a look at its wild fluctuation in pricing over the past one year.
KDC
is still subject to the normal business risks faced by all REITs. For example,
venture into China data centre may turn out to be a bad thing if a tenant went
bankrupt. The same business risks applies albeit perceived lower risk than
other REITs. In the event of liquidation, all unit-holders of KDC will rank
behind bond-holders and other creditors in claims.
2. Some
investors view KDC as a “growth” stock.
This is a very interesting assertion in that KDC is a growth stock. Growth stocks to me are those that has the potential to grow its business exponentially like Tesla (Cathie Wood of Ark Investment is crazy over Tesla). KDC on the other hand is growing but at a gradual stable pace- I do not think its unit price will increase 6 times over in 1 year. The slow and gradual expansion path is very unique among the Temasek government linked REITs such as those in the Mapletree family. After acquisition, (i) stablise the performance, (ii) then market price increases which brings down the current distribution yield and after that,(iii) aim for another new yield accretive acquisition to maximize the play-out of this virtuous REIT cycle.
This is a very interesting assertion in that KDC is a growth stock. Growth stocks to me are those that has the potential to grow its business exponentially like Tesla (Cathie Wood of Ark Investment is crazy over Tesla). KDC on the other hand is growing but at a gradual stable pace- I do not think its unit price will increase 6 times over in 1 year. The slow and gradual expansion path is very unique among the Temasek government linked REITs such as those in the Mapletree family. After acquisition, (i) stablise the performance, (ii) then market price increases which brings down the current distribution yield and after that,(iii) aim for another new yield accretive acquisition to maximize the play-out of this virtuous REIT cycle.
3.
Slump in price for KDC makes it slightly more attractive for investment
accumulation.
Good thing here is that the resistance price seems to hang around S$2.53 per unit. Also forward yield for the next year in view of new acquisitions made recently mean that distribution yield will be around 4.1% plus. This is so much better than the previous year of approximately 3.2%-3.5% distribution yield on very high prices of KDC at up to S$3 per unit.
Good thing here is that the resistance price seems to hang around S$2.53 per unit. Also forward yield for the next year in view of new acquisitions made recently mean that distribution yield will be around 4.1% plus. This is so much better than the previous year of approximately 3.2%-3.5% distribution yield on very high prices of KDC at up to S$3 per unit.
Of course, for those waiting for KDC to drop further
to S$2.30 per unit region, personally, I think it may be a tough and long wait.
This is because KDC has strong pipelines from its sponsor Keppel Corp as well
as the right of first refusal for another 5 data centres under development in
China Guangdong province. Its net asset value will only grow over the next few
years barring any unforeseen circumstances.
Parting
thoughts
Personally, I still do not find KDC’s current pricing super attractive to enter as it offers a low yield of a mere 4.1%. Nevertheless, being a data centre focused REIT and with an impressive track record of its performance during the worst of the COVID induced market crash in early part of 2020, I think that there may not be any good time to grab KDC at a huge discount to its intrinsic value given that the local market has now grown more familiar with this class of asset. I have accumulated another 10,000 units in KDC as I like the “slow and steady growth” story with visible pipelines.
Personally, I still do not find KDC’s current pricing super attractive to enter as it offers a low yield of a mere 4.1%. Nevertheless, being a data centre focused REIT and with an impressive track record of its performance during the worst of the COVID induced market crash in early part of 2020, I think that there may not be any good time to grab KDC at a huge discount to its intrinsic value given that the local market has now grown more familiar with this class of asset. I have accumulated another 10,000 units in KDC as I like the “slow and steady growth” story with visible pipelines.
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