Keppel DC REIT - OCBC Investment 2024-04-22: Uncertainties Over China Operations Remain

• Keppel DC REIT (SGX:AJBU)’s 1Q24 business update reflected ongoing uncertainties surrounding its China operations, as DPU fell 13.7% y-o-y to S$2.192 cents, although this was an increase of 19.1% on a q-o-q basis.

1Q24 results slightly below expectations

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• Keppel DC REIT’s gross revenue and net property income (NPI) jumped 18.4% and 11.2% y-o-y to S$83.4m and S$71.0m, respectively. This was driven by the positive outcome over a legal dispute with one of its tenants DXC Technology Services Singapore Pte Ltd (DXC), which resulted in a settlement sum of S$13.3m in Keppel DC REIT’s favour.
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DPU impacted by Guangdong DC, finance costs & FX rate

• While rental income from its Guangdong data centres was still being recognised, the ongoing arrears meant that Keppel DC REIT has continued to book loss allowances under its property expenses, and the impact to its 1Q24 DPU was -S$0.326 cents.
• DPU was also adversely impacted by higher finance costs and less favourable FX hedges in FY24.
• Regarding the situation with its master lessee in China, Keppel DC REIT did receive a token sum of CNY650k in 1Q24. It could take 12-24 months for the recovery roadmap to pan out, and should Keppel DC REIT try to take over the space, it would likely see an operating loss. As such, Keppel DC REIT will keep the master lessee for now.

Portfolio occupancy stable at 98.3%

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OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2024-04-22 SGinvestors.io

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