Cory Diary : Keppel DC REIT - NetCo joint venture with M1

Essentially, M1 setup a subsidy company called NetCo to buy it's own M1 network asset in which KDC will invest in the bond. M1 will continue to do the operation support of it (obviously). So essentially what this means is M1 do asset sale to itself and lease back to itself. Talking about financial engineering this is really ultimate. Desperate moves ?

So what does that means to KDC ? High Yield Returns. So why aren't M1 borrows from Bank instead. Likely not cheap either for used telco assets. The banks probably value it very low to none. So essentially could be considered unsecured loans.

At this high cost of borrowing, it could be painful to M1. So need to make sure I don't touch M1 stocks at all. So what-if M1 collapsed ?  Is just a relatively small amount to KDC so unlikely to be an Eagle event but will be a dent to KDC valuation. Now, I have to watch M1 now as KDC shareholders. Could this also be a hint that there is lack of growth for KDC ?

And why don't the external lenders cover all the needs and need KDC to support some ? Could it be priority of default for bond is lower and there won't enough asset to be covered beyond what the lender will lend. Good News to Singtel ? Mean time freeze on KDC build up just to be safe.

Cory

2021-1017

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Cory Diary : Keppel DC Reit

Started my awareness on Keppel DC Reit early this year. Held it for a month and then sell it on Ex-dividend. Good kopi money. Welcome to the world of speculation.

In Aug this month, I find the price has dropped quite significantly. Started to put some money in it after the price bounce on China acquisition. This time the entry evaluation is for longer term investment from growth and dividend angles. Adding some money will kickstart my curiosity with skin in the game. 

KDC has track record of it though the yield is low due to running away price I presume. However buying low is not easy to lose a trade for a company that has a big sponsor. Ok, I do get some basics info. 

Unfortunately, there is reason for the near term dip. Seems like the market knows there is private placement coming. And today it announced 2.522 ( 2 % discount ) at the high side. So basically we pay back some kopi money for it. People who is veteran in this counter probably will sense it coming.

Blogged previously that private placement (PP) is not a bad thing especially for one who is not familiar. It helps to reinforce the decision and whether we should build up investment in it. A small price to pay to Private institutions and accredited investors who are generally more savvy and skin in the game as they are paying high side of it.

Now with this all happened, time to do a deeper understanding of the stocks. The first thing to do is to get the basic direction right. NAV, DPU, Gearing, Interests Coverage and Debt cost. This are easily available in SGX website. If you are not doing this, probability of success will be much smaller.

Before PP, the interest coverage interests ratio is 12.9 ! Debt is 1.5%. This is quite striking right ? And if you think they probably gear to the max, is not right too. Gearing 36.7%. This tells us a lot on the profitability of the business. NAV is a reference in this case as I feel running DCs is more technically talent based. And the last but not least is the DPU. Depending how we count, the yield can varies. Currently I am seeing 3.6%-3.8% range. Not shabby but certainly not in the same league as many well run property Reits. However what it lacks, it makes up with growth story.

The recent acquisition in China is a break from a dry spell since the change of CEO. And this keeps me excited even though recent China crackdown do cloud them a little. The PP left some cash untapped but personally for now not so worry considering relative to the amount raised, this Reit is significantly much larger. There are other metrics but those story will be for others to play them out as it requires more attention to dive into for some.

With 5G requiring a lot of data space, and the world going more data, this could continue for some time. With the latest Rights Issue, metric will change slightly I believe. However, is this good enough for me ?

Cory

2021-0813

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Articles in this Blog is personal take and educational purposes only. Reader should seek their own professional help when making financial decision and be responsible for their decision.