DBS Group Research has maintained its "buy" call on Keppel DC REIT, following the High Court's Jan 12 ruling in its favour over a $3 million rental dispute with tenant DXC Technology Services.
The dispute arose from a five-year lease signed by DXC for Keppel DC Singapore 1 renewed in March 2020.
"However, a unilateral decision by DXC led to the relinquishment of a portion of the leased space starting from April 1, 2021," states DBS in its research note on Jan 15, adding that this was an arrangement the REIT did not accept.
The Jan 12 ruling by the court favoured Keppel DC REIT's claim of $3 million for outstanding rents from April 2021 to Dec 2021.
A related dispute on another $11.8 million will be heard next month.
"The ruling by the High Court in favour of KDCREIT marks a positive development, given that the disputed amount represents approximately 2% of the REIT's annual distributable income," says DBS.
The REIT has already provided for the contested rental since April 2021. "Any amounts recovered from this case will be considered additional income," says DBS, whose existing projections exclude this income.
"Amid lingering concerns regarding KDCREIT's Guangdong DCs, we believe that the favourable outcome in the DXC case will bring some relief," says DBS, which has a target price of $2.45.
Separately, in his Jan 15 note, Brandon Lee of Citi Research estimates that in the event that DXC resumes payment for the space it gave up, it could add around 2% to the REIT's current year FY2024's distributable income on a per annum basis.
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Keppel DC REIT could also be able to recoup another $10.2 million of losses for the period from Apr 1 2021 to Dec 31 2023, adds Lee, who has kept his "buy" call and $2.18 target price.
Keppel DC REIT changed hands at $1.84 as at 10.17am.
