Keppel Data Centre REIT ("KDC") just released a remarkable 1H FY2025 results with distribution income surging 57.2% year on year and delivering a super impressive 12.8% growth in distribution per unit ("DPU") of 5.133 cents. Annualised this and the current yield will be 4.43% per annum based on the S$2.32 per unit as at 25 July 2025. Market price of KDC has rallied 5.9% within 2 short weeks as many investors were awed by the spectualar results from KDC. Still, there may be a few potential downsides that retail investors need to be mindful on, especially for those who suddenly find KDC full of prospects, and want to ride the data centre AI wave.
1. Investing in KDC Is Not As a REIT But a Growth Stock.
Then again, if we look back at the announced acquistion of the Singapore data centres by KDC in November 2024, it is already clear that DPU will increase by around 8%. Also, the newly acquired Singapore data centres have very short tenure of 25 years and I thought that even with a 4.31% distribution yield, the current market price of KDC seems very much overvalued if we benchmark to the current risk free government bonds. The distribution yield of 4.31% is thus still extremely low as unit-holders need to prepare to plough back capital into KDC at the end of 25 years for additional extension. The only pausible explantion here is that many investors are treating KDC as a "growth" stock.
2. Overhanging Issue at Guangdong Data Centres.
There has been no news suggesting that the tenant (Bluesea Data Development) has resumed rental payments or that it has settled its arrears. So question remains whether its Guangdong data centres are now white elephants.
The only reference I found was the AGM minutes on 15 May 2025 which only mention that 100% quarterly allowances has been made to zerorise income contributions from Guandgong DCs. Also, KDC management are adopting investment assets at fair value for its accounting treatment based on independt valuation reports. So, in event that the situation worsen, investors may have to repay loans relating to those China investments at a loss which will hit future distributions.
 |
| Extract of AGM Minutes on Guangdong troubled DCs. |
Parting Thoughts
I am not sure whether one should keep chasing and accumlating KDC at its current sky high market valuation. Its market price is currently S$2.32 per unit as at 25 July 2025 while its NTA is only S$1.53 per unit (as at 31 December 2024) and this means that one is paying a jaw dropping premium of +51.2% over its NTA. Nevertheless, if I want to increase my investments into REITs with data centres exposure, I will probably choose Mapletree Industrial Trust followed by KDC rather than DigiCore REIT or the recently listed NTT Data Centre REIT.
No comments:
Post a Comment