Partial default by tenant at Keppel DC Singapore 1
- Litigation suit announced against DXC Technologies, a major tenant at the Keppel DC Singapore 1 property
- Dispute pertains to partial default of payment for part of DXC’s lease at the property
- Space in dispute accounts for c.8.8% of the property’s NLA
- Total amount of S$14.8m in dispute relates to the space over its 4-year lease, or S$3.7m per annum
- We estimate that impact to DPU is minimal at <2%; maintain BUY with a TP of S$2.80
Keppel DC REIT (KDCREIT) has just announced that the master lessee and facility manager (Keppel DC) of the Keppel DC Singapore 1 property has commenced a litigation suit against DXC Technology Services Singapore Pte. Ltd. (DXC).
The dispute pertains to DXC’s partial default of payment in connection with the rental payments and colocation services provided at Keppel DC Singapore 1. Some details on the property and DXC’s lease:
- Located at 25 Serangoon North Avenue 5
- Total NLA of 109,721 sqft.; latest occupancy rate of 93.1%
- Total of 25 tenants in the colocation property
- Latest valuation of S$336.0m
- DXC is one of the major tenants at the property and has a 4-year lease between 1 April 2021 to 31 March 2025
- Affected space in dispute pertains to c.8.8% of the property’s NLA
- Disputed sum translates to less than 2.0% of KDCREIT’s distributable income per year
Our thoughts
As there are currently no further details on the litigation suit, we assume that this dispute arose from part of DXC’s lease at Keppel DC Singapore 1. However, as DXC is only into their first year of the overall 4-year lease, the current impact on KDCREIT’s distributable income only amounts to c.S$3.7m. If both parties are able to resolve this dispute promptly, the impact to KDCREIT could potentially be significantly lower than the S$14.8m estimated over the 4-year lease term.
Based on our estimates, the amount in dispute translates to c.1.8% impact to KDCREIT’s FY22 DPU. At current trading price, this implies a forward yield of more than 4.6%, still a very attractive yield in our opinion. As such, we will maintain our BUY recommendation with TP of S$2.80.