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Keppel DC Reit demands $9.1 million late payment from China data centre tenant

SINGAPORE – Keppel DC Reit’s wholly owned subsidiary in China, KDCR Guangdong, issued a letter of demand on Dec 15 to its tenant of three Guangdong data centres (DCs) to recover 48.3 million yuan (S$9.1 million) of owed rentals and related expenses.

The Reit’s China unit also requested the tenant, Guangdong Bluesea Data Development, to top up security deposits of 32.2 million yuan.

The manager noted that KDCR Guangdong has been in “close discussion” with Bluesea, which paid the instalments up to October but failed to make the payment due at the end of November.

Keppel DC Reit acquired its first DC in China from Bluesea and its parent company for 635.9 million yuan in July 2021. The fully fitted DC was renamed Guangdong DC 1.

In June 2022, the Reit acquired two more DC facilities from Bluesea, which were subsequently named Guangdong DC 2 and Guangdong DC 3, for 1.6 billion yuan.

All three DCs were leased back to Bluesea for 15 years on a triple net basis.

While Guangdong DC 2 was fully fitted, Guangdong DC 3 is expected to be fully fitted in the third quarter of 2024, during which partial payment was made for Guangdong DC 3.

Bluesea should pay the Reit rent for the building shell and interests on the partial payment.

The remainder of the payment for Guangdong DC 3 will be paid when the fit-out works are completed.

The letter of demand requires the tenant to make payment owed. If the tenant fails to do so, the landlord can terminate the framework agreement, among other actions.

The Reit reserves the right to terminate the transaction documents relating to the acquisition of Guangdong DC 3, said the manager.

“The properties contributed approximately 8.5 per cent of Keppel DC Reit’s gross revenue for the third quarter ended Sept 30,” the manager noted.

On a full-year basis for financial year 2023, if the rent, coupon and recoveries in relation to the properties as at Dec 31 cannot be recovered, the Reit would face a negative impact on the distribution per unit (DPU) of about 0.655 cents. This represents 6.4 per cent of the Reit’s DPU for the previous financial year.

The manager highlighted that it is exploring all options to “seek full recourse” against Bluesea for its breach of the lease agreements and framework agreement, and advised unit holders to stay cautious when dealing with the units.

Units of Keppel DC Reit closed 19 cents, or 9.1 per cent, lower at $1.89 on Dec 15. THE BUSINESS TIMES

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