Why This Singapore REIT Shares Keep Falling?

Here's what you need to know why this Singapore REIT shares fall 14% since its peak in August 2020. Can it go back up again?

Why this Singapore REIT share price keeps falling this year?

It’s a darling of the Singapore REIT market. And amongst one of my favourite Singapore REITs

If you’d bought its shares at a peak one year ago, you’d lost 14.3% on your investments.

So what exactly happened?

Before I explain why this major Singapore REIT’s shares keep falling, this is what you might want to know.

Source: Yahoo! Finance

Keppel DC REIT (SGX:AJBU) is a data centre powerhouse.

Now, data centres are massive, dedicated spaces to hold your high-powered computers and servers.

These computers and servers run huge amount of data per second — to help stream your online videos to surfing social media on smartphones all over the world.

As more digital content gets uploaded on the internet, the more data centres the world needs.

And it’s going to get bigger.

Samsung, Google, Apple have all released their 5G phones, or at least set to release their 5G phones soon.

Big semiconductor companies like Qualcomm said it expects 5G phones to hit 550 million by this year.

Our Singapore government wants to go full 5G coverage by 2025.

And it’s estimated by 2026, there will be at least 7.5 billion people all over the world with a smartphone. Of which, 3.5 billion people will have a 5G subscription. 

That’s massive.

Think about how much physical space is needed to store data across the world.

That’s why Keppel DC REIT is a highly popular Singapore REIT. 

Actually, if you’d bought the stock since IPO in 2014, shares will be up 185% (excluding dividends).

And Keppel DC REIT makes sure there’s enough high-quality data centres to provide reliable equipment like cooling systems and infrastructure so nothing goes wrong.

Today, Keppel DC REIT owns 20 data centres across Singapore, Malaysia, Australia and major parts of Europe — Germany, Ireland, The NEtherlands and the U.K.

It’s one of the biggest data centre REIT listed on the Singapore Exchange.

When the COVID pandemic came in full force, Keppel DC REIT benefitted as many companies new online practices.

That’s why, if you ask me, Keppel DC REIT’s tenants are one of the most stable businesses today.

These tenants are technology companies, telco operators and IT services companies.

Once these tenants rent from Keppel DC REIT, they stick around for a long time.

That’s why tenants have no problem paying rent to Keppel DC REIT even during the COVID pandemic.

And Keppel DC REIT could keep on growing.


So why this Singapore REIT shares keep falling?

You see, despite it being a Singapore REIT, Keppel DC REIT is considered a “growth stock”.

I’ll explain.

Keppel DC REIT is riding on the technology revolution today. 

So, the stock market wants Keppel DC REIT to grow as fast as any other technology stocks.

Last year, Keppel DC REIT grew its revenues by 36% .

But in its latest first quarter results, its revenue grew only 10%. 

The market was “disappointed”.

I’ve no doubt Keppel DC REIT holds good data centres.

But the stock market wants it to grow even faster.


Keppel DC REIT is a heavy dividend payer

And here’s the thing.

Like any other Singapore REIT, dividends are a crucial piece for Keppel DC REIT.

Keppel DC REIT is required to pay at least 90% of its taxable income (or distribution) as dividends.

In other words, Keppel DC REIT cannot always reinvest its earnings to grow the business.

Instead, it needs to buy more data centres to grow.

But they are not the only ones buying data centres. There’s big competition.

You could disagree with me here.

At some point, Keppel DC REIT’s growth could slow as their portfolio gets bigger and bigger. 

That’s why, shares are falling right now.

On a side note, I like data centres. They have a strong future. Data centres provide landlords like Keppel DC REITs with steady dividends.

And give investors like myself the income I need.

In fact, since this Singapore REIT got listed, it grew its annual dividends from 6.8 cents per unit in 2015 to 9.1 cents per unit in 2020.

If you ask me, I think its annual dividend payout can also continue to grow. Agree?

Sometimes, investing can be simple. 

Always here for you, 

Willie Keng, CFA

Founder, Dividend Titan

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2 years ago

Hi Willie.. agreed with your views on Dat centre positive potential. In the case of Keppel DC, the REIT is overpriced if growth in Dpu is not strong given its slower acquisitions. The REIT is over value at this current price which is not Low risk price as you has guided in your articles. Tks

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