Keppel DC REIT
Price targets:
DBS Group Research ‘buy’ $2.20 OCBC Investment Research ‘buy’ $1.74 CGS International ‘hold’ $1.88
Guangdong DC overhang
Keppel DC REIT’s 1QFY2024 ended March distribution per unit (DPU) of 2.192 cents was in line with the expectation of DBS Group Research, which has kept its “buy” call and $2.20 target price.
In a business update on April 19, the REIT’s portfolio occupancy held steady at 98.3%, along with positive rent reversions and rental escalations. The DPU of 2.192 cents for 1QFY2024 was 19.1% higher q-o-q.
DBS warns that the ongoing concerns regarding key tenant Bluesea’s leases at the Keppel DC REIT’s Guangdong data centre will result in a “significant overhang” as rental payments continue to be missed.
On the other hand, the settlement sums of $11.2 million from DXC offer some relief, partially mitigating the income loss from the Guangdong data centres.
“We anticipate that positive rental reversions and escalations will help counterbalance the impact of higher financing costs and less favourable forex hedges this year,” adds DBS.
DBS says it has already assumed no income contribution from Guangdong this year. “Any positive developments in this regard would be considered an upside to our estimates,” says DBS.
CGS International analysts Natalie Ong and Lock Mun Yee have kept their “hold” call due to the lack of catalysts and the lack of clarity on the resolution of Bluesea.
OCBC Investment Research is assuming no income from China this year and next. “We had previously assumed that Keppel DC REIT would seek to novate the master leases of its Guangdong data centres to new leases with the underlying sub-lessees, which now seems unlikely in the foreseeable future,” the team explains. —