Keppel DC REIT in turbulence

Lifetime Membership Since the start of the year, stock market sentiments have been pretty much bearish. The US Federal interest rate hikes, combined with the Russia-Ukraine conflict, have created much uncertainties for the market. For this reason, it is not surprising that the unit price of Keppel DC REIT (SGX: AJBU) turned sluggish, falling by 17% year-to-date. Several members of SG Wealth Builder have written to express their concerns on the falling Keppel DC REIT unit price.

From $3.00 in January 2021 to the current $2.05, the correction in Keppel DC REIT unit price has lasted for more than a year. As the plunge started before the events unfolded in 2022, the drop is indeed puzzling. In this regard, unitholders have every reason to be concerned. Some of them are also wondering if it is worthwhile to continue holding the stock. Although I am not vested in this counter and could not advise members or readers on the course of actions for their investments, I would like to share my investment approach for S-REITs.

Currently, I am vested in another S-REIT, Mapletree Logistics Trust. I entered at $1.96 in last year. Like Keppel DC REIT, Mapletree Logistics Trust has been in a severe bout of correction mode since last year, falling by 11.7% year-to-date. Hence, the predicament faced by Keppel DC REIT investors is not actually unique.

Notwithstanding the paper loss, I am not losing sleep because I invested in Mapletree Logistics Trust primarily for the long-term due to its stable distributions, which are paid on a quarterly basis. For me, Mapletree Logistics Trust is part of my retirement portfolio and I see the dips in prices as opportunities for accumulation.

My opinion is that those who had bought this counter should not be too focused over the capital depreciation nor the short-term price volatility. Fundamentally, S-REITs allow investors to gain exposure to property without having to fork out too much capital. In addition, the distribution yields are typically better than government bonds and fixed deposits. At current Keppel DC REIT unit price, the distribution yield is about 4.8% (assuming the distributions remain the same as last year). This is quite an attractive return as compared to fixed income and deposits.

To be honest, I am a big fan of Keppel DC REIT (SGX: AJBU) as I have been contemplating to invest in an S-REIT with special focus in data centres. Being majority-owned by Temasek Holdings and listed in the Straits Times Index (STI), Keppel DC REIT stands out as an attractive investment proposition. Yet, the unfolding events in 2022 could possibly shape the business dynamics in the coming years. In this article, I will share my insights.

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 in Keppel DC REIT (AJBU) share currently. Whether the unit 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.

Moratorium on new data centers to hit Keppel DC REIT?

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