top of page
  • Writer's pictureDaniel Lee

Should You Invest In Keppel DC REIT [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Keppel DC REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To May 24

Business Description

Keppel DC REIT is an Industrial REIT that was listed in 2014 and owns 23 industrial properties across 9 countries that are mainly designed to be data centres.

What I Like About Keppel DC REIT:

  • Distribution per unit has been rising consistently (CAGR: 5~%) despite the increase in units thereby signifying the manager's capabilities to deliver yield accretive acquisitions

  • Overall portfolio’s WALE is high & occupancy rate is resilient (Figure 11)

  • Strong pipeline from sponsor that could contribute to future portfolio expansion.

What I Do Not Like About Keppel DC REIT:

  • 52% of the portfolio has an underlying land lease of less than 30 years (All the data centres in Singapore)

  • Too richly valued for a long duration of time despite the low underlying land lease and the high risk of lease decay (Figure 10)

  • High levels of tenancy concentration risk (Figure 12)

Updates From Recent Performance (FY 2023)

General Comments:

  • Distributable income experienced a decrease of -9.3% due to higher borrowing costs and loss allowances for the uncollected rental income from Guangdong Data Centers.

  • The interest cover ratio had deteriorated significantly (7.6x to 4.4x) as a result of higher borrowing costs.

  • Portfolio occupancy remained healthy at 98.3% with healthy WALE

  • The manager is working with the tenant on the recovery roadmap and reserved its rights in respect of the acquisition of Guangdong Data Centre 3.

  • Divestment of Sydney Data Centre (Intellicentre Campus) at A$174mil which is a 35.4% premium to FY 2023 valuation and 148.6% higher than the original investment. A$90mil will be used to reinvestment into an Australian Data Centre note while the rest will be used for debt repayment. The move is estimated to be 0.7% yield accretive to DPU

Positive Headwinds:

  • Global colocation data centre demand is expected to remain strong and is estimated to grow at a CAGR of 19.2% from 2023 to 2027.

Negative Headwinds:

  • Market re-pricing of Keppel DC REIT given the higher for longer risk-free rate and slowing growth expectation may result in a further downside in share price until it has reverted to its mean.

  • Uncollected rental arrears and tenant woes over Guangdong Data Centre 1 to 3 might result in a performance drag for the next few years if not resolved promptly. (DBS Oct 2023 Analys Report: worst case scenario -16% in DPU)

Download Full Report On Telegram

and continue reading my independent analyst report which will provide you with a detailed look at the fundamentals of the stock and a range of price targets to help you out with your investment decision for Keppel DC REIT:

*Join the channel click on the channel name under files download the report you want!

"Retire With REITS" eBook/Webinar

If you are new to REIT investing or would like to sharpen your investment knowledge, you can gain access to my webinar and download my e-book: "Retire With REITs" which will give you insights as to how I analyse and select the right REITs to invest in for passive income generation!

- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

Connect with me on social media platforms to receive updates on future content! You can also slide into my DMs if you have any questions :)



This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore


bottom of page