Keppel DC Reit Crashing Hard!
KDC reit peaked at the $3 level and has crashed 1/3 to around the $2 levels now, as readers will be familiar with me shouting bear on reits previously… this is one of them that I had mention a couple of times being overvalued due to its high price to book value and low dividend yield… in the past I remember this reit trading like 2.5 times book or even higher… super scary.. the dividend yield was just 2.5% or lower as there was just way too much hyper on data and so called growth
In march there was a dispute with KDC with its tenant DXC and recently its results were disappointing
basically DPU was flat… gone are the days of high growth already…
with NAV also flat at 1.33 its now trading at over 1.5 times book value which is not cheap… I feel it still has pretty of downside.. it could easily come down to 1.50 level or a 50% crash from peak
DPU looks decent because of their low borrowing cost of just 1.8%… as the 10 year risk free goes higher towards 3% or 4%… many companies that rely on debt will have to pay a higher borrowing cost as they renew their debt… I think easily their borrowing cost will shoot up from 1.8% to 3% or 4% in the coming years… this will put downward pressure on DPU…
Fundamental wise Data Centers uses a lot of electricity and the cost of energy will only be going up… so higher power bills + higher interest cost will likely send KDC’s DPU lower for entire 2022 vs 2021…I expect both 2022 and 2023 DPU drop sharply.. thus KDC still has a lot of downside to go.. just think about it base on fundamentals
I remain bearish on reits… as I warned of the high inflation coming since 2020… does it make sense to collect 4% or 5% dividends when the cost of housing, food and energy is going up by 5% to 10% each year? I honestly believe a dividend heavy portfolio in the current environment is very risky… you are basically just protecting your wealth only..
if you are age 60.. fully retired.. then holding properties to collect rental, Banks and Reits for dividends makes sense… just spending off your passive income is fine… don’t need to care so much about inflation and just enjoy your last 20 years I guess haha
if you are age 20 to 40 and still looking to grow your portfolio, then I believe your portfolio should have little to no reits… they are most likely to super underperform in the next 5 to 10 years due to the new high inflation environment… inflation will not be transitory.. we all know that
In the past from 2008 to 2020 reits had been a super performer.. those were the day in which reit investors brag about 10% to 20% returns due to the zero rate environments… gone are the days of zero rates… the we are entering a new world of higher rates and higher inflation!