Tenant’s bankruptcy will not affect operations of S’pore-listed data centre Reits
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Cyxtera is a tenant at Keppel DC Reit's GV7 Data Centre in London.
PHOTO: KEPPEL DC REIT
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SINGAPORE – Keppel DC Reit said on Tuesday that Cyxtera, a Florida-based data centre operator which has filed for bankruptcy in the United States, is a tenant at its GV7 Data Centre in London.
But the Singapore-listed pure-play data centre real estate investment trust (Reit) said the GV7 Data Centre accounts for less than 2 per cent of the Reit’s assets under management (AUM) and has “no material impact” on dividends that investors can expect.
Besides GV7, Keppel DC Reit has two other data centres
The Reit also has data centre assets across Europe – in Germany, Ireland, Italy and the Netherlands.
Cyxtera, a data centre operator based in Miami, Florida, filed for bankruptcy in the US on Sunday.
Keppel DC Reit has said it is capable of managing the data centre in the event that Cyxtera cannot continue doing so, noted Mr Xavier Lee, an equity analyst at Morningstar Investment Adviser Singapore.
This should mitigate downside risk on the Reit’s earnings, he added.
Keppel DC Reit’s European assets made up 28.4 per cent of AUM by end-March, with the remainder in the Asia-Pacific (Singapore, Australia, China and Malaysia).
On Tuesday, Singapore-listed data centre provider Mapletree Industrial Trust (MIT) announced that its third-largest tenant filed for bankruptcy
The Reit’s manager added that the tenant contributed about 3.2 per cent of monthly gross rental income as at end-March.
MIT also said it has a large and well-diversified tenant base of more than 2,300 tenants, with its top 10 tenants accounting for only 29.5 per cent of the portfolio’s monthly gross rental income.
About 54 per cent of MIT’s AUM is in data centres, while the remainder is in flatted factories, business parks and other industrial buildings.
On Monday, the Singapore-listed Digital Core Reit confirmed that Cyxtera was its second-largest tenant
DBS Bank said in a report that the financial health of Cyxtera had weighed heavily on the unit prices of Keppel DC Reit, MIT and Digital Core Reit. Cyxtera’s financial woes had created an overhang in the unit prices of the three Reits over the past few months, it said.
DBS analysts Derek Tan and Dale Lai added that the confirmation of Cyxtera’s bankruptcy should provide some clarity for investors.
Morningstar’s Mr Lee said the outlook for data centres remains bright, as “technological trends such as artificial intelligence and cloud computing continue to drive strong demand for data centres”. He added that the two data centre Reits under his coverage – MIT and Keppel DC Reit – are fairly valued currently. Morningstar’s fair value estimate for MIT is $2.41, and its fair value estimate for Keppel DC Reit is $1.92.
Maybank Securities analyst Krishna Guha said there are headwinds as some players may have “exposures to tenants who may have been adversely impacted by higher cost of capital, funding slowdown for the tech/venture industries, as well as slowdown in sectors such as crypto”.
Mr Alvin Chow, chief executive of financial education company Dr Wealth, said that while investors cannot know which tenants will go bankrupt or will be in trouble, they can protect themselves by investing in those data centre Reits that have a more diversified tenant base.
“Basically, more tenants and less concentration reduce bankruptcy risks,” added Mr Chow.
Units of Digital Core Reit closed 10.5 per cent higher on Wednesday at 47.5 US cents (64 Singapore cents), extending gains from Tuesday.
Keppel DC Reit closed flat at $2.07, after rising to $2.10 in intraday trade; while MIT closed flat at $2.22, after rising to $2.23 in intraday trade.
