Wednesday, April 17, 2019

Notes from Keppel DC REIT AGM on 16 April - Steady Hands On The Wheel


Future Growth Catalysts:

  • The development of the new Intellicentre 3 East data centre (IC3 East DC) in Sydney, Australia is expected to be DPU-accretive. Upon completion by 2020, Macquarie Telecom will sign a new 20-year triple-net master lease with Keppel DC REIT (KDC) for both Intellicentre 2 and Intellicentre 3 East. The lease includes built-in annual rental escalations with renewal options. This expansion aims to meet the needs of hyper-scale cloud providers, enterprise and government customers. After witnessing the successful execution of the mainCubes DC in Germany, I am confident that IC3 East would be similarly rewarding for unitholders in 2020.
IC3 DC East Sydney is a Tier III data centre built on the vacant land next to the existing IC2 DC

  • Growth strategy remains the same. KDC has enough debt headroom to pursue inorganic growth through acquisitions. The focus will be on Asia-Pacific region. The management had looked at the US DC market, but the cap rates are lower and the taxes are higher. So, the US market is not as attractive.
  • Besides Australia and Europe, Singapore remains a key market for KDC. The rapid growth of cloud services and digital enterprises are driving demand for hyper-scale DC capacity. Singapore is a strategic DC hub in the region due to its list of considerable advantages compared to other neighbouring cities:
  1. Economic & political stability
  2. Stable energy supply from the power grid.
  3. Sufficient internet bandwidth
  4. No natural disasters
  5. Rich connectivity to Asia, the US and Europe
  6. Ease of setting up business

Risk Management:
  • KDC performs natural hedging of foreign currencies to ensure stable distribution to unitholders. They hedge the distributable income 2 years in advance.More than 80% of debts is on fixed rates, which will offer some protection against future Fed rate hikes.
  • One unitholder asked if KDC would consider building its own DC instead of acquiring them. The CEO replied that although it is cheaper to build instead of acquire , it would alter the fundamental risk profile of KDC from a REIT to a developer. There would be higher operational & development risks involved, especially at the initial stage. There are lots of testing to be done and other technical regulations to be met before a new DC can run smoothly. There is no need to take on these risks as a REIT because KDC already has a sponsor in Keppel T&T who is a reputable DC developer. It would be safer to wait for Keppel T&T or Alpha DC Fund to develop the DC and stabilise it before injecting the asset into KDC.

Competition:
  • Hyper-scale cloud providers form the largest tenant base of KDC's portfolio, they house their 'mission-critical' operations in the DC. Their top concern is the physical on-site security. Their risk appetite in this aspect is zero. So, the property manager's track record in providing top-quality security/safeguards is critical when it comes to attracting and retaining big-name tenants.Due to the solid operational track record of KDC's sponsor, Keppel T&T, the tenant retention rate is in the high 90%. The CEO also mentioned that some new DC players struggle to lease out their new DC even after a year due to a lack of track record.
  • Setting up the infrastructure of a DC is extremely costly and time-consuming. It takes a lot of capex and time to ramp up the operations. Similarly, it is a huge hassle to 'power down' operations in one DC and make a complete shift to another DC. Too much hassle and wastage. Unlike your home desktop PC, the DC cannot be 'turned off' with a flick of a switch. Besides, these hyper-scale cloud providers require their services to run 24/7. They cannot tolerate any downtime. As a result, the DC business is 'highly sticky'. As long as the on-site physical security is up to standards, tenants would not consider moving out, ever.
  • One unitholder asked a pretty common question. Since DC is such a good business, why don't these hyper-scale cloud firms save on rental costs by building their own DC? The CEO replied that contrary to popular belief, rental costs actually take up only a small portion of operating a DC. More importantly, these cloud service firms (your Amazons, Microsofts, Googles, Facebooks and such) want to grow really fast. Some of them aim to deploy up to 15 DC in a month around the world! Nobody can build so fast. Therefore, they still need to lease from DC landlords like KDC.


In conclusion, the CEO and the chairman gave me the impression that they have a good grasp of the DC business. I am happy to stay vested. Looking forward to the completion of IC3 DC East in Sydney! :)

Friday, April 12, 2019

Dividend Warrior's 2nd Pot Of Gold Series - BTO Flat Booking Day!

Recently, URA released its Draft Master Plan 2019  and new expansion plans for the two Integrated Resorts in Singapore, making me more confident that Singapore's GDP growth will remain steady over the long-term. Generally speaking, there is a high correlation between a nation's GDP growth & property values, especially in a tiny city-state such as Singapore. That's why owning a tangible piece of physical asset on this glorious sunny island has often been touted as a 'sure-win' long-term investment. 

How would increased real-estate construction boost a country's GDP per capita? In simple terms, a robust real-estate sector helps to lift the finance and insurance service sectors as property loans are likely to trend up. More infrastructure developments would also lead to increased earnings for major construction companies and their smaller sub-contractors. The economic 'trickle-down' effect is potentially huge.



3D Model of BTO Launch Site at HDB Hub ground level


The URA Draft Master Plan 2019 came out before my appointment for BTO flat booking. Talk about perfect timing! Back in February, I decided to put my CPF OA to good use. So, join me on my journey to buy the single, largest financial asset of my life! :)


Preparation Work:
  1. Received a SMS and email from HDB one month before the booking appointment, informing me to download & print the application form and other documents from the HDB portal. Through the portal, I was able to look at the BTO site map, interior floor plans and the units available for booking. 
  2. Applied for my Home Loan Eligibility letter (HLE) 2 weeks in advance.
  3. Prepared my Notice Of Assessment (NOA) & tax e-filing Form B, CPF yearly statement, CPF contribution statement over 12 months.
  4. I applied for the grants (AHG & SHG) on the appointment day itself, but you can submit your application earlier if you wish to.
  5. Did my sums to ensure I can afford the units I am eyeing. The higher the unit, the more expensive it is. I also observed that the few blocks closer to the future MRT station have slightly higher-priced units.
  6. A day before the appointment, I narrowed down my list to 3 choices. Some of my earlier picks have been booked by people who were ahead of me in the queue.

Appointment Day:
  1. Brought along all the prepared documents.
  2. Brought along my ATM card to pay the booking fee through NETS. 
  3. Arrived at the HDB Hub 15 minutes earlier to look at the materials that HDB is using for the Optional Component Scheme (OCS). These materials are displayed just next to the waiting area on the ground floor. I opted for the OCS. 
  4. Got my queue number at the kiosk. Plenty of seats at the waiting area. My number was called within 10 minutes. Approached a friendly HDB sales officer in a rather spacious cubicle setting.
  5. After going through the documents, the sales officer told me that they need my CPF statement for 2017. To my relief, there was a laptop on the desk for such situations. I logged into my CPF account and printed the statement.
  6. Told the sales officer my choice of unit and she entered the booking into the system. My 1st choice unit, which is near the future Tengah Park MRT station is available. YES!
  7. Signed the 'Option To Purchase' and paid the option fee.
  8. The sales officer explained the home financing calculations to me. She told me to note that this was just a preliminary estimate because my financial situation might change 4 years later when I collect the keys. As long as I stay employed and keep contributing to my CPF ordinary account, I should be fine. 
  9. I would be notified to come down to HDB Hub again to exercise my option to purchase within 4 months. By then, I would also know whether my grants have been approved or not.

The entire booking process was smooth-sailing and not as nerve-wrecking as I expected. The sales officer was polite and helpful. Shook her hand firmly as I thanked her and walked out of the HDB HUB with a bright orange plastic file ^__^ 



Owning a home is a keystone of wealth
Dividend Warrior

Friday, April 5, 2019

Dividend Warrior's Best Quarterly Performance In 10 Years! Another New High!




At the end of March, my portfolio market value hit a new high of S$472,287 with no new transactions done, inching ever closer to that S$500k milestone! I collected a total of $4,320 in dividends and distributions in the first quarter. Power of CD! ^^

Banks and blue-chip S-REITs have been rising steadily through March. Uncertainties from a slowdown in global economic growth, inverted yield curve, potential hard Brexit, and ongoing trade talks between the US and China did not dampen the spirits of the market. I guess the pause in Fed rate hike helped alot in supporting the current 'rising tide'. In my opinion, the interest rate is unlikely to return to its previous high of around 5% during 2006-2007. Firstly, the inflation rate in US and many other developed nations remain historically low. Secondly, the US economy is showing no signs of overheating. 


The More You Learn, The More You Earn
Dividend Warrior

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