Keppel DC REIT preferential offering - What should investors do?

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. 

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Related links:

• Keppel DC REIT share price history and share price target
• Keppel DC REIT dividend history and dividend forecast 

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