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 Nov 2023

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 centers.

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
  

• 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 centers in Singapore)
  

• Too richly valued for a long duration of time despite the low underlying land lease

Updates From Recent Performance (Q3 2023)

General Comments:

• Distributable income experienced a decrease of -2.1% due to higher borrowing costs. (Cost of debt had increased from 2.20% in FY2022 to 3.2% in Q3 2023)

Positive Headwinds:

• Global colocation data centre demand is expected to remain strong and is estimated to grow at 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.)

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- Work In Progress -

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

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Disclaimer:

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