What Keppel DC REIT Do
Keppel DC REIT (SGX: AJBU) is a Singapore-based real estate investment trust (REIT).
It was established with the main investment strategy of investing in a portfolio of income-producing real estate assets. They are primarily used for data centre purposes, with an initial focus on Asia Pacific and Europe.
Listed on 12 December 2014, it is the first pure-play data centre REIT listed in Asia on the Singapore Exchange (SGX).
Why I Bought It
The story of how I first purchased Keppel DC REIT is an interesting one.
I have always wanted to own at least one REIT as a part of my portfolio and I got my eye on DC REIT.
With everything in life, timing plays a huge part. We have to see the situation and know when to make a move. With DC REIT, their share price was hovering above S$1 for a long time. One day, it fell to S$0.96- S$0.97 because of news about the US aiming to increase its interest rates. The market overreacted.
On January 22nd, 2016, I bought 8800 shares of Keppel DC REIT at the price of S$0.97.
How Has It Performed So Far
As of 21 July 2016, Keppel DC REIT is trading at 1.21 SGD and in terms of my absolute return on investment for this stock, it is 24.74%.
3 days back, it released their second-quarter earnings for three months period ending 30 June 2016.
Here are a brief summary of their recent results:
- With a lower property expense at S$2.76 million, it managed to increase its net property income (NPI) to S$22.1 million– which is 2.2% better than what is expected from the Initial Public Offerings (IPO) forecast
- Despite the gross revenue being 2.4% lower than what is forecasted during IPO, a higher NPI resulted in a higher distribution per unit (DPU) for 2Q 2016 of 1.67 cents
- Distribution of 3.34 cents per unit has been declared for the period from 1 January 2016 to 30 June 2016 with the book closure date on 26 July 2016 and distributions to be paid out on 31 August 2016 (Annual distribution yield higher than forecasted)
- Weighted Average Lease Expiry (WALE) remained at 8.7 years
- A forward renewal was signed for one of the major contracts expiring in late 2017 in one of the Singapore properties– plus the clients committed to expanding with an extral 6,800 sq ft of data centre space
- A client also renewed an expiring contract for a five-year term at Keppel DC Dublin 1 and took up an extra 1,600 sq ft of data centre space
- Interest coverage ratio at 9.5 times
- They have minimal exposure to Brexit as it has only one asset in the United Kingdom, GV 7 Data Centre, which contributes approximately 6.8% of the REIT’s portfolio
When Will I Sell It
Take a look at the image below:
I am sure you can agree with me on this.
Valuations of stocks being a combination of an art and a science– to answer the question of when will I sell Keppel DC REIT , let me share with you the reasons again, on why I bought Keppel DC REIT:
- I wanted the exposure to data centre rental income through this REIT because I wanted to ride on the e-commerce trend
- When I bought this stock in January this year, the market was too pessimistic about stocks in general (including REIT)– and Mr Market was asking me if I wanted to buy it– it was undervalued and so I did
- I wanted to achieve both capital appreciation and stable dividends payout
One thing that we have to understand about REIT is that the intrinsic value will never run away too much from their dividends distribution.
So, i took a few minutes to construct my thought process in an excel sheet.
For people who buy REITs for dividends, there is still a limit on how much they will pay for a REIT– in relation to how much dividends it is distributing.
Taking into account of the forecasted (and achievable) dividend distribution of 6.8 cents this year for Keppel DC REIT, people would pay up to S$ 1.36 if they still can accept a 5% dividend yield. I think that 5% is still acceptable in the current low-interest rate environment.
Using Gordon Growth Dividend Discount Model, I would have a value of S$1.70 (which would also happen if people accept a 4% dividend yield, albeit unlikely).
Thus, when will i sell? I will sell if it appreciated to around ([S$1.36+S$1.7]/2= S$1.53 [average of DDM and Market accepting a 5% dividend yield])– based on the current fundamentals as of 21 July 2016.
Otherwise, I am satisfied with my ([S$0.068/S$0.97]*100= 7.01%) annual dividend yield.
Source: http://www.keppeldcreit.com/en/home.aspx and https://www.re-thinkwealth.sg/do-you-know-how-to-value-dividend-stocks/
Disclaimer: The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.
Important: Please read my full disclaimer.
CHRIS LEE SUSANTO
Hi, my name is Chris and I am the founder of Re-ThinkWealth. A blog that focuses on personal finance self-improvement, investments, and investor psychology.
Since early 2015, I manage money for my family and invests it in Singapore and United States equities and options achieving above market return.
I use Value Investing and Options Selling strategies used by Warren Buffett (World’s richest investor) coupled with the core theory of inversion. Inversion meaning that in every investing idea, we have to scrutinise on why it would fail.
This will result in us being more conservative, and being conservative is the key to protecting and growing wealth in the long run.
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