Keppel DC REIT preferential offering - What should investors do?
REITs
By Gerald Wong, CFA • 24 Nov 2024
Why trust Beansprout? We’re licensed by the Monetary Authority of Singapore (MAS).
Keppel DC REIT is acquiring two AI-ready data centres in Singapore for S$1.07 billion. The preferential offering will offer entitled unitholders the right to buy 86 new preferential units at S$2.03 each for every 1,000 existing units held.
What happened?
Keppel DC REIT is acquiring two AI-ready hyperscale data centres at Keppel Data Centre Campus in Singapore, KDC SGP 7 and KDC SGP 8, from a Keppel-led data centre joint venture (JV) for an acquisition cost of approximately S$1.07 billion.
The acquisition is one of the largest data centre transactions in Southeast Asia to date and will be executed in stages.
When fully completed by end 2025, the acquisition will expand Keppel DC REIT’s AUM by 36% to S$5.2 bn with 25 data centres across Asia Pacific and Europe.
With a combined weighted average lease expiry (WALE) of approximately 4.5 years, the proposed acquisition of KDC SGP 7 and KDC SGP 8 will provide opportunities for potential rental uplifts and further organic growth.
This is driven by the strong demand for data centre space while supply remains constrained in the short to medium term.
Acquisition expected to be accretive to distribution per unit (DPU)
The acquisition is expected to be 11.1% DPU accretive on an immediate basis.
Keppel DC REIT will pay an additional S$350 million if a 10 years land lease tenure extension is received, enabling Keppel DC REIT to earn the stream of cash flow over a longer period, as well as drive potential capital value uplift.
In this scenario, the expected DPU accretion is expected to be 8.1%, assuming tax transparency.
Preferential offering to fund acquisition of datacentres
The total acquisition cost including the lease extension consideration of is estimated at approximately S$1.44 bn, and expected to be financed via a combination of 70% equity raised via an equity fund raising (EFR) exercise and 30% debt.
The EFR was launched on 19 November 2024, with 334.9 mn private placement new units, 148.4 mn preferential offering new units and 40.7 mn sponsor subscription units to be issued.
Entitled unitholders will be given the right to buy 86 new preferential units at S$2.03 each for every 1,000 existing units held.
Following the completion of the EFR, Keppel DC REIT’s aggregate leverage is expected to decline to 33.3%.
With the lower gearing, management of Keppel DC REIT believes it is well-positioned to capture future growth opportunities in the sector.
As this is an Interested Person Transaction (IPT), unitholders’ approval for the proposed transaction will be sought at an Extraordinary General Meeting (EGM) to be convened.
What would Beansprout do?
We view the proposed acquisition as positive, as it will strengthen Keppel DC REIT’s foothold in Singapore and make it one of the largest owners of stabilised data centres in Asia’s top data centre hub.
In addition, the transaction is expected to be highly accretive to its distribution per unit.
As such, we would recommend Keppel DC REIT unitholders to subscribe to the Preferential Offering.
Based on consensus forecasts, Keppel DC REIT currently trades at a forward dividend yield of 4.1%, below its historical average.
Keppel DC REIT trades at a price-to-book of 1.61x, above its historical average.
Join us for our upcoming free webinar on 26 November, where we will share our latest outlook on Singapore REITs. Register for free here.
Download the full report here.
Related links:
- Keppel DC REIT share price history and share price target
- Keppel DC REIT dividend history and dividend forecast
Join our Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs.
Important Disclosures
Analyst Certification and Disclosures
The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst herein. The analyst(s) named in this report (or their associates) does not have a financial interest in the corporation(s) mentioned in this report.
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
Company Disclosure
Global Wealth Technology Pte Ltd (“Beansprout”) does not have any financial interest in the corporation(s) mentioned in this report.
Disclaimer
This report is provided by Beansprout for the use of intended recipients only and may not be reproduced, in whole or in part, or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out herein.
You acknowledge that this document is provided for general information purposes only. Nothing in this document shall be construed as a recommendation to purchase, sell, or hold any security or other investment, or to pursue any investment style or strategy. Nothing in this document shall be construed as advice that purports to be tailored to your needs or the needs of any person or company receiving the advice. The information in this document is intended for general circulation only and does not constitute investment advice. Nothing in this document is published with regard to the specific investment objectives, financial situation and particular needs of any person who may receive the information.
Nothing in this document shall be construed as, or form part of, any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities. The data and information made available in this document are of a general nature and do not purport, and shall not in any way be deemed, to constitute an offer or provision of any professional or expert advice, including without limitation any financial, investment, legal, accounting or tax advice, and shall not be relied upon by you in that regard. You should at all times consult a qualified expert or professional adviser to obtain advice and independent verification of the information and data contained herein before acting on it. Any financial or investment information in this document are intended to be for your general information only. You should not rely upon such information in making any particular investment or other decision which should only be made after consulting with a fully qualified financial adviser. Such information do not nor are they intended to constitute any form of financial or investment advice, opinion or recommendation about any investment product, or any inducement or invitation relating to any of the products listed or referred to. Any arrangement made between you and a third party named on or linked to from these pages is at your sole risk and responsibility.
You acknowledge that Beansprout is under no obligation to exercise editorial control over, and to review, edit or amend any data, information, materials or contents of any content in this document. You agree that all statements, offers, information, opinions, materials, content in this document should be used, accepted and relied upon only with care and discretion and at your own risk, and Beansprout shall not be responsible for any loss, damage or liability incurred by you arising from such use or reliance.
This document (including all information and materials contained in this document) is provided “as is”. Although the material in this document is based upon information that Beansprout considers reliable and endeavours to keep current, Beansprout does not assure that this material is accurate, current or complete and is not providing any warranties or representations regarding the material contained in this document. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permissible pursuant to applicable law, Beansprout disclaims all warranties and/or representations of any kind with regard to this document, including but not limited to any implied warranties of merchantability, non-infringement of third-party rights, or fitness for a particular purpose.
Beansprout does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained in this document. Neither Beansprout nor any of its affiliates, directors, employees or other representatives will be liable for any damages, losses or liabilities of any kind arising out of or in connection with the use of this document. To the best of Beansprout’s knowledge, this document does not contain and is not based on any non-public, material information. The information in this document is not intended for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to law or regulation, or which would subject Beansprout to any registration requirement within such jurisdiction or country. Beansprout is not licensed or regulated by any authority in any jurisdiction or country to provide the information in this document.
As a condition of your use of this document, you agree to indemnify, defend and hold harmless Beansprout and its affiliates, and their respective officers, directors, employees, members, managing members, managers, agents, representatives, successors and assigns from and against any and all actions, causes of action, claims, charges, cost, demands, expenses and damages (including attorneys’ fees and expenses), losses and liabilities or other expenses of any kind that arise directly or indirectly out of or from, arising out of or in connection with violation of these terms, use of this document, violation of the rights of any third party, acts, omissions or negligence of third parties, their directors, employees or agents. To the extent permitted by law, Beansprout shall not be liable to you, any other person, or organization, for any direct, indirect, special, punitive, exemplary, incidental or consequential damages, whether in contract, tort (including negligence), or otherwise, arising in any way from, or in connection with, the use of this document and/or its content. This includes, without limitation, liability for any act or omission in reliance on the information in this document. Beansprout expressly disclaims and excludes all warranties, conditions, representations and terms not expressly set out in this User Agreement, whether express, implied or statutory, with regard to this document and its content, including any implied warranties or representations about the accuracy or completeness of this document and the content, suitability and general availability, or whether it is free from error.
If these terms or any part of them is understood to be illegal, invalid or otherwise unenforceable under the laws of any state or country in which these terms are intended to be effective, then to the extent that they are illegal, invalid or unenforceable, they shall in that state or country be treated as severed and deleted from these terms and the remaining terms shall survive and remain fully intact and in effect and will continue to be binding and enforceable in that state or country.
These terms, as well as any claims arising from or related thereto, are governed by the laws of Singapore without reference to the principles of conflicts of laws thereof. You agree to submit to the personal and exclusive jurisdiction of the courts of Singapore with respect to all disputes arising out of or related to this Agreement. Beansprout and you each hereby irrevocably consent to the jurisdiction of such courts, and each Party hereby waives any claim or defence that such forum is not convenient or proper.
Read also
Most Popular
Gain financial insights in minutes
Subscribe to our free weekly newsletter for more insights to grow your wealth
0 comments