CGS-CIMB and DBS Group Research have reduced their near-term earnings projections for Keppel DC Real Estate Investment Trust (Reit) in view of rental arrears owed by its tenant in Guangdong, though both brokerages remain split on the Reit’s outlook.

CGS-CIMB downgraded its call to “hold” from “add”, while cutting its price target to S$1.88 from S$2.53, assuming a default from the tenant, Bluesea, on top of unfavourable foreign-exchange movements and a higher cost of debt.

On Saturday (Jan 27), the research house said it had cut its FY2024 to FY2026 estimates for Keppel DC Reit by 17.5 to 22.6 per cent, as it was “expecting the worst” for the Reit’s Guangdong data centres.

Its analysts assume no rent contribution from Bluesea for FY2024.

They further expect Keppel DC Reit to take over two of the data centres from FY2025 before gradually leasing them out, while also considering Guangdong Data Centre 3 as a potential option for divestment.

DBS also said it does not expect rental contributions from Bluesea in FY2024. It lowered its price target to S$2.20 from S$2.45 previously, to account for a more than 15 per cent reduction in distribution per unit (DPU) estimates for the year. 

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The research house however maintained its “add” call, due to a positive outlook for the rest of Keppel DC Reit’s portfolio, which in its view continues to benefit from structural growth in the data centre space.

It also highlighted a potential sooner-than-anticipated resolution with Bluesea as an “immediate catalyst, emphasising the Reit’s potential for recovery”, given its unit price decline when concerns over the rental defaults first emerged.

DBS’ analysts are also positive on a recent High Court ruling in favour of Keppel DC Reit, which acknowledged the Reit’s claim for outstanding rents owed by another tenant, DXC Technology Services Singapore.

This initial court decision “strongly suggests Keppel DC Reit’s high likelihood” of securing complete rental payment from DXC, said the analysts, ahead of the trial that is slated to begin in February.

Units of Keppel DC Reit : AJBU 0% were trading S$0.05 or 2.8 per cent lower at S$1.71, as at 4.03 pm on Monday.