Keppel DC REIT share price in big trouble

Lifetime Membership As 2023 draws to a close, it is time to review the performance of Keppel DC REIT share price. For many unitholders, 2023 must be a watershed year for Keppel DC REIT as the data centre REIT player swims in unchartered waters, confronting a slew of uncertainties and unfamiliar challenges.

First off the bat. Keppel DC REIT was expelled from the benchmark Straits Times Index (STI) on 19 June 2023, just less than 3 years after being included in the STI. Replacing Keppel DC REIT was Seatrium, which has been loss-making for the past 5 years and showing no sign of turning around till now. On this note, the expulsion of Keppel DC REIT (an S-REIT with a strong track record of profits) from STI should come as a rude shock for many unitholders.

Of course, being listed in STI has its perks as it comes with prestige, boosts the company branding and usually leads to increased trading liquidity for the stock. In fact, shortly after being included in the STI in October 2020, Keppel DC REIT share price smashed a record high of $3.05. So I guess some unitholders may be unhappy that Keppel DC REIT had been replaced by Seatrium in the STI.

On the flipside, being listed in STI may cause some volatility to the share prices of its constituents due to short-selling activities. In recent years, Keppel DC REIT share price has endured bouts of volatility. In this regard, being removed from the STI should be of least concern for Keppel DC REIT unitholders right now as the S-REIT is currently facing other pressing issues that require some firefighting. In fact, the expulsion from STI appeared to be a non-event for Keppel DC REIT share price as the counter shrugged off the event to hit a high of $2.30 on 27 July 2023.

Like many S-REITs, Keppel DC REIT is struggling financially with the fallout from the high interest rates as it grapples with higher finance costs from the refinanced loans and floating interest rates loans. For the records, the finance costs sky-rocketed 73.4% year-on-year to hit $22.715 million for 1HFY2023. There were concerns that the ballooning finance costs would lead to lower DPU, and that nightmare arrived in the 3^rd quarter.

On 16 October 2023, Keppel DC REIT unveiled a set of 3^rd quarter business update that saw DPU declining 3.6% year-on-year to 2.492 cents per unit. Apparently, the increased in gross revenue from acquisitions could not rein in the surging debt costs and rising electricity costs. The market wasted no time in punishing Keppel DC REIT share price, which collapsed from $2.10 on 11 October 2023 to a dismal low of $1.70 on 30 October 2023.

As unitholders were still digesting the 3^rd quarter business performance, an ominous development unfolded, one that may potentially lead to train-wreck for Keppel DC REIT share price in 2024. On 15 December 2023, it was revealed that Keppel DC REIT issued a letter of demand to its tenant of Guangdong Data Centres, Guangdong Bluesea Data Development Co., Ltd to recover sums in arrears to-date of RMB 48.3 million (equivalent to approximately $9.1 million).

To rub salt into wound, the Bluesea rental default came hot on heel after the 2022’s partial payment default by DXC Technology Services at Keppel DC Singapore 1. In the 2022 saga, the amount being disputed was approximately $14.8 million for the 4-year period between 1 April 2021 and 31 March 2025.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested in Keppel DC REIT share currently. Whether Keppel DC REIT share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Keppel DC REIT share price faces uncertain 2024

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