On April 2, Hong Kong-listed Neo Telemedia announced that trading in its shares will be suspended. On March 20, in an announcement to the Hong Kong Exchange, Neo Telemedia had said there could be a delay in the publication of its annual results announcement for the 12 months to end-December 2023.
“As at the date of this announcement, the Company is still in the process of collecting and collating the necessary information and documents from its subsidiaries as required by the auditor of the Company, HLB Hodgson Impey Cheng to complete the auditing process, and hence additional time is required for the Company to prepare the 2023 Annual Result,” Neo Telemedia said in a Hong Kong Exchange filing.
Since then, Neo Telemedia has announced that it is not able to publish its results by end-March as required by the Hong Kong listing rules.
This matters because Neo Telemedia is the master lessee of Keppel DC REIT’s AJBU (KDC REIT) three Guangdong Data Centres (Guangdong DC1, Guangdong DC2, Guangdong DC3). According to KDC REIT’s annual report, China is the largest geography by net lettable area (NLA) at 21.6%, followed by Germany with 20.8% and Singapore with 19.2%.
In FY2023, the Guangdong DCs “attributable rental” should have been $24.8 million, but the master lessee Neo Telemedia did not pay rent for five and five and a half months in 2HFY2023. KDC REIT’s full-year revenue rose 1.4% y-o-y to $281.2 million.
As at end-December, the carrying values for Guangdong DC1, DC2 and DC3 were $131.1 million for DC1 and DC2, and $12.1 million for DC3. Together, they accounted for 7.5% KDC REIT’s portfolio valuation of $3,655.9 million.
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“The valuations of the Guangdong DCs 1-3 were based on in-place lease agreements given the ongoing discussions with the tenant, performed by an independent valuer. In the event where an update valuation is required, the Manager will obtain independent valuations for these assets from the independent valuer and provide the necessary updates,” KDC REIT’s manager says.
In December 2023, the Manager issued a letter of demand for default on rent and coupon payments in relation to Guangdong DC 1, 2 and 3. The Manager is working with the tenant on a recovery roadmap, and will continue to address the situation actively so as to protect the interests of the REIT.
The Manager has retained its rights to terminate the master leases, and Keppel has resources to take over the operations, if appropriate. Keppel DC REIT has also reserved its rights under the framework agreement in conjunction with the acquisition of Guangdong DC 3 in June 2022.
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KDC REIT’s unit price is down some 10% since the start of the year, and its FY2023 DPU translates into a historic yield of 5.45%. FY2024’s yield is likely to be impacted by the absence of contributions from the Guangdong DCs.
Net asset value (NAV) may be slightly impacted by a revaluation loss from the Guangdong DC but this could be offset by gains elsewhere. Moreover, KDC REIT could acquire a property in a jurisdiction where there is a positive carry.
During its results briefing in January, Loh Hwee Long, CEO of KDC REIT’s manager, said the REIT had $170 million in debt headroom for acquisition opportunities. “We continue to relook and review our portfolio to optimise returns. We are open to divestments if we see value that we can unlock and redeploy towards more accretive new acquisitions,” he had said.
Separately, on Feb 13, KDC REIT’s manager announced that its tenant in Singapore, DXC Technology Services Singapore, in which it is in dispute over DXC’s partial default of payment in connection with the provision of colocation services at 25 Serangoon North Avenue 5, had settled.
Keppel DC Singapore 1 (which owns 25 Serangoon North Avenuue 5) and DXC have reached a commercial and amicable resolution to the dispute. Payment of the agreed settlement amount of $13.3 million will be made by DXC to KDC by April 2024, as full and final settlement of the dispute.
