In the internet era with more 5G applications, data usage will be enormous with explosive growth for next decade. So, Keppel DC Reit is positioned nicely to host data storage, collecting consistent growing rental as passive incomes. Keppel DC Reit has nearly 100% business in data center (recently extending to related business such as partnership with M1)   while Mapletree Industrial Trust has about 1/3 businesses in this growing sector. Mapletree Industrial Trust is the largest Data Center REIT in Singapore but share price (near to fair value) currently is not as attractive as Keppel DC Reit.

Over the past 5 years, Keppel DC Reit has experienced 3X in share prices from $1 to peak of $3 but the gains is not limited to share price appreciation. Its dividend is doubled every few years, therefore suitable to position as mid-fielder stock to have a balance of both growth (price appreciation) and dividend (passive income).

After reaching 100% Optimism level during peak of pandemic, Keppel DC Reit has experienced slower growth with sector rotation. The prices over the past 1 year has been bearish, declining by about 20%, falling to low optimism < 25% currently, creating another rare opportunity for long term investor with dividend yield about 4%.  However, due to bearish price trend, it is currently more suitable for contrarian investor who could apply Average Down strategy to minimize the risk of " Buy Low get lower" .

Therefore, similar to many other crisis giant stocks at low Ein55 Optimism level (eg. Top Glove, Tencent or Alibaba. an investor may need to " Wait" for " crisis" in prices (but strong in business) to Buy Low or entering in several batches, either Average Down or Average Up, eg. wait for next mini rally to Buy slightly Higher only after uptrend is established for short term, eg when above $2.40-$2.50 resistance for Keppel DC Reit).

Due to defensive business nature of Keppel DC Reit, Ein55 intrinsic value is about $2.80, current price is only about 20% discount (despite low Ein55 Optimism level). It is more suitable for Buy Low and Hold Long Term, collecting 4% dividend yield (potentially doubled every few years).Keppel DC Reit has to grow bigger with more yield accretive acquisitions (eg. recent new REIT in Guangzhou of China) to sustain this high growth with many more global competitors (both demand and supply for data center increase at the same time).

 

Keppel Data Centres in tie-up to explore Australia liquid hydrogen supply chain

KEPPEL Data Centres has tied up with 4 energy players to explore the development of a liquid hydrogen (LH2) supply chain between Western Australia and Singapore, and potentially Japan.

The partners are Australia' s Woodside Energy, City Energy, Osaka Gas Singapore and City-OG Gas Energy Services.

Together, the 5 parties will explore the technical and commercial aspects of such a supply chain. The study will continue until mid-2022, they said in a joint statement on Wednesday (Dec 22). They have also inked a memorandum of understanding (MOU).

Keppel Data Centres chief executive Wong Wai Meng said the MOU will explore the feasibility of using LH2 from Australia to power the company' s data centres in Singapore, with potential applications for other Keppel business units in the future.

" This collaboration in the upstream LH2 supply chain complements the existing MOUs we have entered with various partners to explore the mid-to-downstream segments, including transportation, storage and regasification," he added.

Keppel Data Centres is a 70:30 joint venture between Keppel Corporation subsidiaries Keppel Telecommunications & Transportation (Keppel T& T) and Keppel Land. Keppel T& T is also the sponsor of Keppel DC Reit.

The MOU comes after Woodside proposed a H2Perth hydrogen facility in Kwinana - where it is looking to establish a large-scale LH2 and ammonia export hub. The project site' s location in Western Australia makes it ideal for shipping LH2 to Singapore and Japan, said Woodside chief executive Meg O' Neill.

She noted Keppel Data Centres, Osaka Gas Singapore, City Energy and City-OG Gas Energy Services as potential customers and end-users.

City Energy said the collaboration may " significantly support" its carbon reduction effort in piped town gas production or combustion.

Singapore' s piped town gas provider is also in the business of green energy solutions through its sub-brand City Energy Life which offers low-carbon home solutions, as well as City Energy Go, which provides electric vehicle charging services.

City Energy, together with Japan' s Osaka Gas, established City-OG Gas Energy Service in 2013 to provide energy solutions and retail gas to various industries. Osaka Gas Singapore is wholly owned by Osaka Gas Co - Japan' s second-biggest natural gas provider.

 

Keppel DC Reit unitholders vote in favour of investment in M1' s network assets

UNITHOLDERS of Keppel DC Reit have voted in favour of the proposal to invest a total of S$89.7 million in bonds and preference shares to be issued by M1 Network (NetCo), which owns the mobile, fixed and fibre assets of telco M1.

During the Keppel DC Reit' s extraordinary general meeting (EGM) on Thursday (Dec 2), some 95.2 per cent of unitholder votes signalled their approval of the first resolution for the NetCo bonds and preference shares investment as an interested-party transaction.

M1 is jointly owned by Keppel Corp and Singapore Press Holdings, which publishes The Business Times.In addition, 96.4 per cent of unitholder votes were in favour of the proposed fee supplement for a one-off acquisition fee payable to the real estate investment trust (Reit) manager in connection with the investment, which is non-real estate related.

In response to questions from unitholders prior to the EGM, the Reit manager said in a bourse filing on Wednesday that the expansion of its mandate in April to include real estate and assets necessary to support the digital economy " provides (Keppel DC Reit) with the flexibility to evaluate a wider range of opportunities" .

" This is an opportunistic and distribution per unit (DPU)-accretive investment, which we believe will provide Keppel DC Reit with stable and regular cash flows, as well as enhance total unitholders' returns," the Reit manager said.
It added: " While this is an opportunistic investment, we remain focused on the data centre sector, which has proven to be a highly resilient asset class especially during the pandemic."

Keppel DC Reit and M1 will have equal representation on the board of NetCo, which will acquire the telco' s mobile, fixed and fibre assets for about S$580 million through an asset-transfer agreement. These exclude M1&rsquo s 5G standalone assets, which are jointly owned between M1 and another party, as well as the co-owned and &ldquo right-of-use&rdquo assets that cannot be transferred.

Under a 15-year network services agreement, M1 and its mobile virtual network operators will use NetCo' s network capacity, while the telco handles the day-to-day operations, maintenance of the network assets and the capex works.

NetCo will fund the acquisition through external financing of up to S$493 million as well as the issuance of S$88.7 million of bonds to be subscribed by Keppel DC Reit or its wholly owned subsidiaries and the issuance of S$1 million preference shares to Keppel DC Reit&rsquo s subsidiary, KDCR Singapore 2.

In return, Keppel DC Reit will receive S$11 million each year for 15 years, comprising both principal and interest. The manager said this provides a &ldquo regular, stable cash flow&rdquo for the Reit, with an effective yield of 9.17 per cent per annum.

Keppel DC Reit intends to fund the total of S$89.7 million in bonds and preference shares through external bank borrowings and the remaining cash proceeds of approximately $15.1 million from the divestment of iseek Data Centre in Brisbane.

Assuming the Monetary Authority of Singapore approves the Qualifying Project Debt Securities (QPDS) application, the NetCo investment will bump Keppel DC Reit&rsquo s DPU up to 9.519 Singapore cents on a pro forma basis for FY2020, translating to a 3.8 per cent accretion. If the QPDS application is rejected, the NetCo bonds will be treated as ordinary bonds and the DPU accretion will be 3.1 per cent.

With the investment,  Keppel DC Reit&rsquo s assets under management (AUM) will increase 2.8 per cent to S$3.3 billion.

&ldquo Looking ahead, we will continue to capitalise on growth opportunities and enlarge our footprint in the data centre industry. We will continue to have at least 90 per cent of our AUM invested in data centres, this being our core forte and where our capabilities lie,&rdquo the Reit manager said.

  One " unloved" company from the 52-week low stock list is KEPPEL DC REIT

After hitting an intraday high of S$3.16 in October 2020, the data centre REIT' s unit price has fallen to S$2.35.   
The fall could be due to the rotation of money from " beneficiaries of the pandemic" (of which Keppel DC REIT is
part of)  to " re-opening" companies (or the so-called value stocks).   

Business-wise, however, Keppel DC REIT continues to perform well.
For its third quarter of 2021, Keppel DC REIT' s gross revenue grew 2.5% year-on-year while its distribution
per unit (DPU)  improved by 4.5% to 2.462 Singapore cents.   Over the longer term, its DPU has increased from
6.51 cents in    2015 to 9.17 cents in 2020.   

If you believe that the selldown of Keppel DC REIT units is temporary in nature and that the REIT is a
good proxy to the fast growing  technology sector, along with it having an attractive valuation, it could
provide an opportunity to have part-ownership in the REIT. 

Why is the Singapore REIT market going so strong after two years of COVID-19? 

SINGAPORE: Singapore real estate investment trusts or S-REITs have emerged as a resilient segment of the local stock exchange in the past two years.   

Traditionally a key pillar of the portfolios of individual investors in Singapore, the iEdge S-REIT Index, regarded as the S-REIT benchmark, reported a total return of 5.2 per cent since the start of 2020 to Nov 17.

This was despite S-REITs raising new equity from unitholders, creating additional units and leading to potential dilution risk. In the past 23 months, S-REITs raised a total of S$8 billion through placements and rights issues led by mega-issuances from Ascendas Real Estate Investment Trust and Frasers Commercial Trust.   

Most S-REITs largely maintained their dividends, compensating for the fall in unit prices in this period.   

Global financial markets including S-REITs initially crashed when COVID-19 became a pandemic, with investors panicking and selling liquid financial assets.    For investors daring and savvy enough to put money to work during the trough in end-March 2020, total returns from capital gains have been a whopping 57 per cent.   

Despite headlines on troubles in the retail space and how work-from-home has made offices redundant, occupancies measured by leases have remained high for S-REITs holding shopping malls and offices in Singapore, with little problems in rental collection, even if fewer are using these spaces.   

In the hardest hit hotel sector, the fall in physical property asset value was contained to less than 10 per cent at a portfolio level among the S-REITs tracked by OCBC, a good outcome despite the pandemic curbing travel.

Hospitality REITs will likely need time to recover and could do better in a 24-month timeframe as borders reopen further.   

S-REITs today generate a significant volume of trading activity for the stock exchange - about one-fourth of the daily turnover before COVID-19. Primary equity markets in Singapore also skew towards S-REITs.   

S-REITs, at S$110 billion, represents 12 per cent of Singapore& rsquo s whole equity market by market cap & ndash a figure that is 6 per cent for Australia and only 2 per cent for Japan,  the other two top REIT markets in the Asia-Pacific with large domestic economies.

WHY S-REITS STILL ATTRACT SO MANY INVESTORS 

The top-performing Singapore stock in the past 23 months goes to iFAST Corporation, an investment products distribution platform, which generated total returns of 771 per cent during this time, superseding the Bloomberg Bitcoin Galaxy Index at 750 per cent.   

This is lower than the 1,131 per cent on the Bloomberg Galaxy Crypto Index tracking cryptocurrencies.

Still, S-REITs and the Singapore commercial property market continue to attract significant investor attention.   

Investors in Singapore are very familiar with the nuts and bolts of running a property, and understand how policies like stamp duties, urban planning, zoning, tenancy and ownership rules influence whether and when investors should buy an investment property and what to look out for in assessing a property& rsquo s attractiveness.

Many like the idea of owning a passive, stable and recurring income stream. S-REITs generate fairly stable revenue, with the iEdge S-REIT Index reporting revenue per unit of S$132.5 in 2019. 

Though it dropped 6.3 per cent in 2020, analysts expect a rebound to S$135.6 this year. 

S-REITs are a good source of income. Qualifying S-REITs are encouraged to pay gains to unitholders instead of hoarding profits as they not taxed on dividends distributed to unitholders.

The key challenge is share dilution when S-REITs need to raise to acquire new properties. 

Past transactions that have stirred market discussions  include K-REIT Asia& rsquo s (now known as Keppel REIT) 87.5 per cent interest in Ocean Financial Centre in 2011, Ascott Residence Trust& rsquo s acquisition of Ascott Orchard Singapore, Citadines City Centre Frankfurt and Citadines Michel Hamburg in 2017 and Lippo Malls Indonesia Retail Trust& rsquo s acquisition of Puri Mall in 2021.   

S-REITs are also regulated as a collective investment scheme under the Securities and Futures Act, where there is a 50 per cent cap on the leverage limit for S-REITs to keep credit risks in check. As listed entities, S-REITs also follow SGX rules on the disclosure of information and the right for minority investors to vote on major matters.

S-REITS MORE ACCESSIBLE THAN EVER 

Until S-REITs were launched in July 2002, the commercial property market was inaccessible to most individual retail investors, with ticket sizes of each standalone commercial property in the millions and billions of dollars.

Today, all it takes is S$230 at last Wednesday& rsquo s prices for an individual investor to buy into CapitaLand Integrated Commercial Trust (& ldquo CICT& rdquo ), Singapore& rsquo s largest REIT, and enjoy a portion of CICT& rsquo s rental income from shopping malls and offices.   

Few investment opportunities provide such stability for 4 to 7 per cent dividend yield per year. It& rsquo s little wonder  such investment classes with a dividend income and the potential for capital gains appeal to investors with a neutral risk profile at Singapore& rsquo s median age of 42.   

Singapore has maintained an encouraging ecosystem for the development of S-REITs. Regulatory uncertainty is minimised as regulators routinely seek industry feedback from REIT managers, investors and lawyers before introducing new rules.   

The market has grown to include fund managers who invest in S-REITs as their specialty, REIT exchange traded funds and REIT derivatives.   

Bank lenders and bond investors in Singapore are highly familiar with S-REITs, together providing a pool of liquidity that allows the S-REIT market to grow bigger. Brokerages are also prepared to lend individual investors buying larger amounts of REIT units.

WILL GAINS IN S-REITS CONTINUE? 

The bigger question is whether we will continue to see capital gains in the coming 12 to 24 months as interest rates rise.    

In a world where stock market prices are affected by sentiments, Reddit fads and breaking news, S-REITs  continue to see strong investor demand because their valuation is backed by commercial properties where asset value has seen a continued upward trend.

Indeed, S-REIT indices are not a good representation of the underlying economy. They are weighted towards larger S-REITs, rather than each S-REIT& rsquo s contribution to the Singapore economy.   

The iEdge S-REIT& rsquo s top five components make up 43.3 per cent of the index which have an outsized influence on total returns.   

Three are large-cap industrial REITs with industrial properties in Singapore and countries across Asia-Pacific, Europe and the United States & ndash in a world where logistics, data centres, business parks and manufacturing facilities have been resilient through the pandemic.   

The remaining two are large-cap commercial REITs owning quality assets with tenants largely staying put despite the economic downturn, with occupancies remaining above 90 per cent.   

Beyond the broad index, S-REITs that hold hotels and shopping malls located in the city centre have been dragged by the pandemic. With the city centre hollowed out as we work from home and international travelers non-existent, these S-REITs have underperformed Industrial REITs. 

Furthermore, the S-REIT industry has been kept buoyant by an inflow of capital. The broad money supply in Singapore has surged by 10.9 per cent year-on-year as of September. With interest rates on cash near-zero, all that money needs to go somewhere. 

The S-REITs  market is unlikely to cool anytime soon. There is momentum.    Thirteen out of the 80 IPOs with primary share offering in Singapore since 2016 were S-REITs raising S$5.6 billion collectively at an average offer size of S$430 million.

Outside of S-REITs, a further S$2.7 billion was raised for two listings, Kakao Corp, the Internet company global depository receipt listing and NetLink NBN Trust, a business trust which holds infrastructure assets. 

The remaining 65 had an average offer size of S$28 million & ndash small cap listings with limited liquidity.   

Tellingly, the two upcoming IPOs  in Singapore - Daiwa House Logistics Trust and Digital Core REIT - are both S-REITs.   

The equity analyst community is still optimistic and forecasting a rise in S-REIT dividends in the next 12 to 24 months.   

Driven by the growth and resiliency of industrial assets, particularly logistics warehouse and data centres, the Big Three industrial REITs of Ascendas Real Estate Investment Trust, Mapletree Logistics Trust and Mapletree Industrial Trust also recorded average total returns of 15.6 per cent in the past 23 months.

DON& rsquo T DISMISS SGX 

Looking ahead, Singapore investors should not be so quick to dismiss the SGX, given the current slew of corporate restructuring exercises with the potential for capital gains, which may not be immediately apparent to new individual investors in the market.

Buying S-REITs is likely to remain a cornerstone investment strategy for many individual investors. The more pertinent decision points remain how much S-REITs should feature as a percentage of one& rsquo s investment portfolio and which specific ones to invest in. 

Still, until a next financial crisis with significant liquidity stress, we are unlikely to repeat the kind of capital gains seen from March 2020 to date in S-REITs.   

A lot of the negatives has since been priced in, with the broad iEdge S-REIT Index trading at 1.1 times the price-to-book value, indicating that the market cap of the S-REITs as a broad basket is now higher than the value of the underlying properties. 

DBS upgrades KDC REIT, other analysts remain neutral