PhillipCapital Research analyst Darren Chan has downgraded Keppel DC REIT to “accumulate” and lowered his target price to $1.86 from $2.26 following the trust’s FY2023 results release.
Chan notes that Keppel DC REIT’s FY2023 distribution per unit (DPU) of 9.38 cents fell short of his expectations at 94.7% of his FY2023 forecast. This is mainly due to the uncollected rental and coupon income of about 5.5 months amounting to $10.5 million at the Guangdong Data Centres (GDCs).
As at Feb 9, Guangdong Bluesea Data Development, the tenant at GDC 1, 2 and 3, has only settled RMB500,000 of the RMB48.3 million in arrears. Therefore, Chan thinks Bluesea will likely be unable to meet its rental obligations, and Keppel DC REIT will have to eventually replace the tenant.
To this end, PhillipCapital expects further loss provisions in the REIT’s FY2024. Chan points out that the REIT management is working with Bluesea on a recovery roadmap and is also reserving its rights to terminate the acquisition of GDC 3, adding that there is currently a RMB100 million deposit on the data centre.
After factoring in the default and eventual replacement of Bluesea, PhillipCapital has cut their FY2024, FY2025 and FY2026 DPU estimates for Keppel DC REIT by 14%, 11% and 8% respectively.
Chan notes that the REIT’s organic growth will stem from renewals in FY2024, given that 27.5% of leases expire next year. The analyst expects the trust to record portfolio rental reversions of about 4% for FY2024.
As at 11.51am, units in Keppel DC REIT are trading 3 cents higher or 1.72% up at $1.77.
