Keppel DC REIT: Guangdong Data Centers Will Continue to Drag on Trust’s Performance

Keppel DC REIT’s first-quarter 2024 revenue and net property income were ahead of our expectations due to the recognition of SGD 13.3 million from the settlement of the dispute between the trust and its tenant DXC Technology. After deducting related expenses, management estimates that SGD 11.2 million will be distributed to unitholders in 2024. The trust is working with DXC to take back the disputed area and is hopeful it will get new tenants with positive rental reversions. After updating our model to incorporate this one-off settlement sum, we raise our 2024 distribution-per-unit estimate by 6.5% to SGD 0.0899, implying a yield of 5.5% at the current price. However, we keep our fair value estimate of SGD 1.80 per unit unchanged as longer-term earnings forecasts remain intact. We continue to see the trust as fairly valued. In our view, the lack of visibility on the full recovery of its Guangdong data centers will continue to weigh on its unit price performance and hence, encourage investors to wait for a wider margin of safety.