Keppel DC REIT immune to Wuhan virus

Crisis? What crisis? Keppel DC REIT share price shrugged off all talks of impending economic meltdown in Singapore to smash a high of $2.33. Since my last coverage in October 2019, Keppel DC REIT had a great run, surging from $2.00 to the current $2.33. Will this counter be another fairy-tale among the SGX stocks?

Amid the sea of red, Keppel DC REIT share price stood out from the rest of the pack and continued to be mightily bullish. In fact, Keppel DC REIT share price increased from $2.11 on 3 January 2020 to the current $2.33. It appears that not even a black swan event like the Wuhan virus can bring down Keppel DC REIT share price.

Keppel DC REIT

The shining Keppel DC REIT share price came on the back of an aggressive expansion of its portfolio assets. In 2019, the additions of Keppel DC Singapore 4 and DC1 increased the REIT’s assets under management to about $2.6 billion, an increase from $2.0 billion as at end-2018. Then in December 2019, Keppel DC REIT announced the acquisition of Kelsterbach Data Centre, which will be the REIT’s second data centre in Germany.

To be frank, the bullish form of Keppel DC REIT share price confounded me. I was expecting the share price to correct in the latter part of 2019 because of the preferential offering. Instead, the share price roared ahead since early 2020.

The current Wuhan virus crisis will be a baptism of fire for Keppel DC REIT share price. If it continued its run, this counter will establish itself as a recession-proof REIT ideal for long-term investments. On the flip side, the surging share price inadvertently depress its distribution yield, which tumbled to a low of 2.87%. As strange as it may sound, the current trend suggests that Keppel DC REIT is becoming a growth stock, instead of a dividend counter.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Keppel DC REIT before. Whether Keppel DC REIT share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Three reasons for buying Keppel DC REIT

The top reason for investing in Keppel DC REIT is because of its unique asset class. Being a data centre service provider, Keppel DC REIT is an interesting long-term REIT play because the business is considered to be immune to economic cycles. During market downturns or pandemic outbreaks like this Wuhan virus, people are likely to shop less at shopping malls and dine out at restaurants less often. However, it is unlikely that people will reduce their usage of data even during crises. Furthermore, with 5G rolling out, demand for data will only increase exponentially in the future. Thus, if the management played the cards right, the long-term prospect would be very bright for this Keppel DC REIT.

BullionStar

Another merit of Keppel DC REIT is that the weighted average lease expiry (WALE) is 8.6 years. This is much longer than the typical 2-3 years in S-REITs that focus in shopping malls, commercial offices and industrial spaces. The long WALE of Keppel DC REIT will provide much income stability while at the same time, many of the leases and co-location arrangement have built in rental reversion escalations ranging from 2% to 4% per annum on average.

Another selling point of Keppel DC REIT is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: April 6, 2020 — 1:43 pm

4 Comments

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  1. Please check if there is a connection issue for this article. I tried to log in with my membership details, but it would not allow me to the full article. Thanks.

  2. Hi Shirley,

    Thank you for your feedback. I have emailed you on how to use the “Forget your Password” button to unlock the premium articles.

    Regards,
    Gerald
    https://sgwealthbuilder.com

  3. Last week, got a chance to buy it below $2.20. After a slight hesitation, didn’t enter and missed out on it. Just jump and no need to consider a good entry point, is it? haha

  4. Hi Leo,

    I think Keppel DC REIT share price will continue to rise in 2020 because of the 2nd acquisition of the Germany asset, which will be completed in a couple of weeks. At current entry price, the DPU yield is certainly not attractive. But the capital appreciation should not be underestimated.

    Regards,
    Gerald
    https://sgwealthbuilder.com

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