To The Moon

$KEPPEL DC REIT(AJBU.SI)$

A few weeks ago I wrote about Keppel DC REIT and its support level.

Well, that's all been crushed to smithereens. 

We are back to prehistoric times of COVID support / low at 1.644. Keppel DC is trading at 1.68 as we speak. 

If this breaks, I'm putting my neck out there and saying next support is 1.566 formed between July to Sep 2019. Note that support/resistance levels from a long time back may have lower impact than recently established levels.

CAPITAL OUTFLOW TO OTHER FIXED INCOME 

The drop in REITs share price is almost global.  As 5% Fed terminal rate in 2023 is anticipated, yield in other fixed income assets (e.g. bonds) increases. 

When yield of these less volatile assets (compared to REITs) increases, capital starts to shift. This selloff is what we are seeing now.

The REIT share price has to reflect a yield that is higher than interest rates and take into account future earnings drop. For Keppel DC REIT, its dividend yield is almost 6% now and PE is 9x.  Present metrics indicate fair value, barring any reduction in earnings or dividend cut.

FUTURE EARNINGS 

REITs have debt which eats into earnings as interest rates increases and cost of borrowing goes up.  

On the flip side, revenues may increase too as property purchase become expensive and renting is preferred. This might allow rental yield to increase. 

On the balance, I am not expecting a significant decrease in earnings, but a more controlled one, if any in the next earnings report.

In summary, the widespread drop in REITs stock price is a result of higher interest rates and some extent currency volatility (not mentioned in detail here). If Keppel DC REIT is in your watchlist, good value is fairly close by. 

@TigerStars@Daily_Discussion@MillionaireTiger@Tiger_chat