The manager of Keppel DC REIT says the REIT has received valid acceptances and excess applications for a total of 237,305,023 preferential offering units, as at the close of the preferential offering on Dec 10. 

 

Valid acceptances and excess applications stood at 119,529,616 and 117,775,407 preferential offering units, or 80.5% and 79.4% respectively.  

 

According to the manager, a total of 28,883,447 excess preferential offering units, which were not validly accepted or not taken up, is set to be allotted to satisfy applications for excess preferential offering units.

 

In the allotment of excess preferential offering units, preference will be given to the rounding of odd lots. 

 

The manager, directors of the manager and substantial unitholders who have control or influence over Keppel DC REIT or the manager in connection with the day-to-day affairs of the REIT or the manager or the terms of the preferential offering, or have representation (direct or through a nominee) on the board of directors are expected to rank last in priority for the rounding of odd lots and allotment of excess preferential offering units.

 

The manager adds that a total of 148,413,063 preferential offering units will be issued at the issue price of $2.03 per preferential offering unit to raise gross proceeds of approximately $301.3 million.

 

Keppel DC REIT&rsquo s preferential offering units are expected to be listed and quoted on the mainboard of the SGX-ST with effect from 9.00 a.m. on Dec 18. 

It is on the basis of 86 preferential units for every 1,000 existing units

 

THE manager of Keppel DC Real Estate Investment Trust (Reit) on Monday (Dec 2) announced the launch of its preferential offering for 148.4 million new units at an issue price of S$2.03 apiece. 

 

The non-renounceable preferential offering, which is on the basis of 86 preferential units for every 1,000 existing units, opens on Monday at 9 am and will close on Dec 10. 

 

It is part of an equity funding exercise to raise gross proceeds of around S$1.1 billion, the manager said on Nov 19. The exercise also includes a private placement, which closed on Nov 20 at S$2.09 apiece with 334.9 million new units issued, and the issuance of sponsor subscription units. 

 

The S$2.03 issue price represents a discount of 4.5 per cent from the six-month volume-weighted average price of S$2.12229 per unit. 

 

The preferential offering will close at 5.30 pm for acceptances made via the application form, electronic applications via the Singapore Exchange investor portal and remittances via PayNow, and at 9.30 pm for acceptances made via electronic applications through an ATM of a participating bank. 

 

Entitled unitholders who wish to accept their allotment of new units under the preferential offering should do so according to the instruction booklet that the Reit&rsquo s manager launched on Monday. 

The private placement draws &lsquo strong demand from new and existing unitholders globally&rsquo , says the manager

 

KEPPEL DC Real Estate Investment Trust (Reit) closed its private placement at S$2.09 apiece with 334.9 million new units issued, said the manager on Wednesday (Nov 20).

 

The private placement, which was 3.4 times subscribed, raised gross proceeds of about S$700 million after it was upsized. This brings the total size of the equity fundraising to about S$1.1 billion, from about S$985 million previously.

 

The equity funding exercise, which was announced on Tuesday, comprises a private placement, a non-renounceable preferential offering and an issuance of sponsor subscription units.

 

The issue price of the private placement represents an approximate 5.1 per cent discount to the volume-weighted average price (VWAP) of S$2.2017 per unit for all trades done on the Singapore Exchange on Monday, up to the time the agreement was signed on Tuesday.

 

For illustrative purposes, the issue price represents a 3.3 per cent discount to the adjusted VWAP of S$2.1609 per unit, after subtracting an advanced distribution of S$0.04083 per unit.

 

The private placement drew &ldquo strong demand from new and existing unitholders globally&rdquo , with a majority of them being long-only investors and real estate specialists, said the manager.

 

Trading of the private placement units is expected to start on Nov 28.

 

The issue price of the preferential offering has been fixed at S$2.03 per new unit. The allotment ratio is fixed on the basis of 86 new units for every 1,000 existing units.

 

The issue price of S$2.03 represents a discount of about 7.8 per cent to the VWAP, and about 6.1 per cent to the adjusted VWAP &ndash for illustrative purposes.

 

Some S$301.3 million is expected to be raised from the preferential offering, while about S$85 million will be raised from the issuance of sponsor subscription units.

 

The amount raised from the issuance of subscription units will be used to partially fund the purchase of two hyperscale data centres from the Reit&rsquo s sponsor Keppel.

 

The issue price per subscription unit has been fixed at S$2.09 per unit, equal to the issue price of the private placement.

 

About S$945.2 million or 94.4 per cent of the gross proceeds from the private placement and preferential offering will be used to partially fund the acquisition of the two data centres.

 

Gross proceeds from the private placement and preferential offering amount to S$1 billion.

 

About S$43.1 million or 4.3 per cent will be used to repay and refinance debt and/or capital expenditure, as well as pay for upgrades to properties.

 

Another S$13 million or 1.3 per cent is for paying estimated fees and expenses incurred by the Reit in connection with the equity fundraising exercise.

 

The remaining amount will be used for general corporate purposes and/or working capital purposes.

The deal, which will be 8.1% accretive to the Reit&rsquo s distribution per unit, is expected to be completed by end-2025

 

THE manager of Keppel DC Real Estate Investment Trust (Keppel DC Reit) has proposed to acquire interests in two artificial intelligence (AI) ready hyperscale data centres from a joint venture (JV) led by sponsor Keppel for S$1.4 billion.

 

The JV owns the Keppel Data Centre Campus at Genting Lane in Singapore, which comprises the two data centres and a vacant land plot earmarked for a third data centre, which has been excluded from the deal.

 

Keppel DC Reit will purchase a 49 per cent interest in the JV, as well as subscribe for two new classes of securities issued by the JV for up to S$1.03 billion.

 

This will entitle Keppel DC Reit to 99.49 per cent of the economic interest from the two data centres &ndash KDC SGP 7 and KDC SGP 8.

 

Keppel DC Reit will also be granted a call option, which the manager expects to exercise in the second half of 2025, to acquire the remaining 51 per cent stake in the JV from Keppel, which holds the remaining 0.51 per cent economic interest. 

 

As part of the proposed transaction, Keppel DC Reit shall pay an additional S$350 million should a 10-year land tenure lease extension to 2050 be approved for the Keppel Data Centre Campus by the relevant authorities. This will be paid to the JV&rsquo s shareholders, Keppel&rsquo s private fund Alpha Data Centre Fund and its parallel fund (collectively known as ADCF), and co-investors.

 

The deal is expected to be completed by end-2025, Keppel and Keppel DC Reit said in a joint statement on Tuesday (Nov 19).

 

Accretive acquisition

The proposed acquisition by Keppel DC Reit will expand its assets under management by 36 per cent to S$5.2 billion, with 25 data centres across Asia-Pacific and Europe.

 

The total acquisition cost includes the estimated purchase consideration of about S$1.39 billion, other expenses of about S$37.8 million and acquisition fees of about S$13.8 million.

 

Keppel DC Reit manager said it intends to finance part of total outlay with about S$973.2 million from the net proceeds raised from an equity fund raising launched on Tuesday.

 

About S$83.4 million will also be drawn down from debt facilities to pay for the acquisition. The manager will also issue acquisition fee units amounting to about S$10.2 million to finance the deal.

 

Loh Hwee Long, chief executive of Keppel DC Reit&rsquo s manager, said: &ldquo The proposed acquisition will deliver strong positive cash flows and be immediately distribution per unit accretive.&rdquo

 

He added that the new assets will allow the Reit to &ldquo capture potential upside from rental uplifts and capacity expansion&rdquo .

 

Keppel DC Reit&rsquo s manager is also positive on the growing demand for data centre space as supply remains constrained in the short to medium term. &ldquo This tight demand-supply dynamic is likely to continue to have an upward pressure on colocation rates,&rdquo it added.

 

On a pro forma basis, the proposed acquisition is expected to lift Keppel DC Reit&rsquo s distribution per unit for the first half of fiscal year 2024 by 8.1 per cent. It would also raise the Reit&rsquo s net asset value per unit for H1 to S$1.53 from S$1.37.

 

Assuming that the deal was completed on Sep 30, 2024, Keppel DC Reit&rsquo s aggregate leverage is expected to fall to 37.9 per cent, from 39.7 per cent.

 

KDC SGP 7 and KDC SGP 8 have a combined net lettable area (NLA) of 150,455 square feet. Their weighted average lease expiry by NLA stood at 4.5 years as at end-September 2024.

 

Both data centres have attained the Building and Construction Authority&rsquo s Green Mark (Platinum Award). They can handle artificial intelligence inference workloads and can accommodate fit-out modifications, including liquid cooling.

 

The deal is not expected to have any material impact on the earnings per share and net tangible assets per share of Keppel for the financial year ending Dec 31, 2024.

 

The proposed transaction is subject to the approval of Keppel DC Reit&rsquo s unitholders at an extraordinary general meeting, which will be convened at a later date.

 

Post divestment, Keppel will continue to earn recurring income from asset management and operation and maintenance of the two data centres, and will also develop the third data centre in the Keppel Data Centre Campus with Keppel&rsquo s private funds.

The manager intends to declare an advanced distribution of S$0.04063 to S$0.04103 per unit in connection with the private placement

 

THE manager of Keppel DC Reit plans to launch an equity funding exercise to raise gross proceeds of about S$1 billion, it announced on Tuesday (Nov 19).

 

This comprises a private placement to raise around S$600 million in gross proceeds, and a non-renounceable preferential offering to raise gross proceeds of about S$300 million. It will also include an issuance of subscription units to raise about S$85 million.

 

The private placement units will be priced between S$2.074 and S$2.128 apiece.

 

This represents a discount of between 3.3 and 5.8 per cent to the volume-weighted average price (VWAP) of S$2.2017 per unit for trades done on Monday.

 

The manager also intends to declare an advanced distribution of between S$0.04063 and S$0.04103 per unit in connection with the private placement.

 

Assuming an advanced distribution of S$0.04083 per unit is deducted, the private placement issue price range represents a discount of between 1.5 and 4 per cent to an adjusted VWAP of S$2.1609 per unit &ndash for illustrative purposes.

 

Under the preferential offering, new units will be priced between S$2.03 and S$2.08 apiece. This represents a discount of between 5.5 and 7.8 per cent to the VWAP of S$2.2017 per unit.

 

The preferential offering issue price range represents an approximate 3.7 to 6.1 per cent discount to the adjusted VWAP of S$2.1609 per unit, for illustrative purposes.

 

Meanwhile, the issue price for the sponsor subscription unit will be the same as the private placement issue price.

 

On Tuesday, Keppel DC Reit&rsquo s manager entered into a subscription agreement with Keppel DC Investment Holdings (KDCIH), a wholly owned subsidiary of Keppel Data Centres.

 

Under the agreement, KDCIH will subscribe for about S$85 million worth of subscription units. The units are expected to be issued to KDCIH in early 2025.

 

Some S$888.2 million, or 98.7 per cent of gross proceeds from the private placement and preferential offering, will be used to finance Keppel DC Reit&rsquo s proposed acquisition of two data centres in Singapore.

 

Around S$85 million raised from the sponsor subscription units will be used to finance the acquisition as well.

 

About S$11.8 million, or 1.3 per cent of the gross proceeds from the private placement and preferential offering, will be used to pay for fees and expenses incurred by the real estate investment trust in relation with the fundraising exercises.

 

The remaining amount from the placement and preferential offering will be used for general corporate purposes and/or working capital purposes.

 

The placement launched on Tuesday and will close on Wednesday, while the preferential offering will begin on Dec 2 and close on Dec 10. The record date for the preferential offering and advanced distribution is Nov 27.

 

Analysts are remaining upbeat on Keppel DC REIT (KDC REIT) after the REIT reported a &ldquo strong&rdquo set of results for the 3QFY2024 ended Sept 30 on Oct 18. The REIT reported a quarterly distribution per unit (DPU) of 2.501 cents, bringing its 9MFY2024 to above the consensus estimate at 77% of its full-year forecast. 

 

Some analysts, like PhillipCapital&rsquo s Darren Chan, are more buoyant about the REIT&rsquo s outlook. On Oct 21, Chan upgraded his call on KDC REIT to &ldquo neutral&rdquo from &ldquo reduce&rdquo after KDC REIT&rsquo s 3QFY2024 DPU exceeded his expectations, achieving 27% of his FY2024 forecast. 

 

&ldquo This was due to the exceptionally strong positive portfolio rental reversions, continuing the trend from 2QFY2024. A major contract renewal in Singapore secured a positive reversion of over 40%,&rdquo writes the analyst, who has also raised his target price to $2.16 from $1.93.

 

Morningstar Equity Research analyst Xavier Lee has similarly raised his fair value estimate to $2.10 from $1.80 previously, while keeping his rating of three stars as KDC REIT&rsquo s results beat his expectations.

 

&ldquo Strong demand and tight data centre supply in Singapore continue to drive strong rental reversions, as the trust recorded another positive rental reversion of more than 40% for a major renewal in the third quarter of 2024,&rdquo he writes in his Oct 18 report.

 

Like its peers, the team of analysts at OCBC Investment Research has kept its &ldquo hold&rdquo call on KDC REIT but with a raised fair value estimate of $2.15 from $1.97 previously. KDC REIT&rsquo s 3QFY2024 results also surpassed the team&rsquo s expectations due to the earlier-than-expected completion of the data centre acquisition in Japan and the Australian data centre note subscription.

 

Meanwhile, Citi Research analyst Brandon Lee and the team at DBS Group Research have both maintained their &ldquo buy&rdquo calls with unchanged target prices of $2.29 and $2.20 respectively. 

 

In its 3QFY2024 business update, KDC REIT posted its seventh consecutive quarter of positive rent reversions, with a major contract renewal in Singapore achieving a reversion of over 40%. 

 

Citi&rsquo s Lee highlighted that the REIT&rsquo s operational updates showcased the strength of Singapore&rsquo s data centre sector with its second straight quarter of positive reversions coming in at over 40%.

 

&ldquo KDC REIT has 11.5%/18.1%/9.3% (by rental income) of colocation leases (majority should be in Singapore we think) due for expiry in 4QFY2024/FY2025/FY2026, which we expect continued double-digit reversions for Singapore,&rdquo he writes in his Oct 18 note. &ldquo [This is] in view of Singapore&rsquo s existing tight vacancy of [around] 1% to persist next few years amid limited supply and robust demand.&rdquo

 

PhillipCapital&rsquo s Chan also expects to see positive rental reversions for the 11.5% of leases by gross rental income (GRI) expiring in 4QFY2024, driven by similar levels of colocation renewals in Singapore.

 

Other positives, in the analyst&rsquo s view, is the REIT&rsquo s lower cost of debt. In 3QFY2024, KDC REIT reported an average cost of debt of 3.3%, down from 3.5% in 2QFY2024. &ldquo 71% of debt is on a fixed rate, with no debt due in FY2024, with most of the debt expiring from FY2026 and beyond,&rdquo Chan notes.

 

At the same time, KDC REIT&rsquo s gearing increased by 3.9 percentage points q-o-q to 39.7% as the REIT took on JPY debt to fully fund the acquisition of Tokyo data centre (DC) 1, which has since commenced contributions. 

 

Meanwhile, rental income from its Guangdong DCs continues to be a &ldquo net off&rdquo via loss allowances, with an impact of 0.32 cents to the quarter&rsquo s DPU. &ldquo To date, Bluesea owes over a year in rental income totalling around $26 million. Asset valuations at the Guangdong DCs are likely to be affected by the non-collection of rents,&rdquo notes Chan.

 

He concludes: &ldquo KDCREIT stands to benefit, as it has a diversified portfolio of data centres in key markets. Potential inorganic growth opportunities could be the sponsor&rsquo s Keppel DC Singapore 7 asset situated at Genting Lane, or Keppel DC Singapore 8, which topped up in March.&rdquo

 

The team at OCBC has also raised their FY2024 and FY2025 DPU forecast by 2.7% and 1.2% respectively as they adjust the timing of the Tokyo DC acquisition and factor in lower borrowing cost estimates. 

 

They write: &ldquo Based on a closing price of $2.22, KDC REIT is   trading at a relatively low FY2024 and FY2025 distribution yield of 4.2% and 4.3%, respectively, but we see upside potential with accretive acquisitions likely to   come, especially in Singapore from its sponsor.&rdquo

 

Although Morningstar&rsquo s Xavier Lee is similarly encouraged by the REIT&rsquo s positive rent revision in the period, subsequently increasing his FY2024 to FY2025 DPU by 4.9% to 6.5%, he has lowered his FY2026 DPU estimate by 8.9% on a delayed recovery for its Guangdong DC.

 

&ldquo We also tightened our terminal value cap rate assumptions by 20 bps, given the strong demand for data centres and lower interest rate environment.

 

&ldquo While we continue to like the trust for its data centre portfolio that benefits from strong structural tailwinds such as artificial intelligence, we think the trust is fairly valued currently and encourage investors to wait for a better entry price,&rdquo he adds.

 

Citi&rsquo s Lee notes that KDC REIT is well-positioned to look at acquisitions, with Singapore continuing to be a key strategic market and a key foundational piece. 

 

&ldquo Aside from continuing to be on the lookout in Singapore, KDC REIT will also look at Japan and South Korea. KDC REIT expects some cap rate tightening for some markets (except Japan) following the recent interest rate cuts, though it has not seen actual transactions that have taken place on asset-by-asset basis,&rdquo he continues.

 

He notes that in Singapore, the REIT is looking at a cap rate of 6% to 7% with a general land tenure period of 20 to 30 years, and is not keen on financial engineering with any form of financial support to be supported by real or committed leases.

 

For Japan and South Korea, cap rates are respectively at 3% to 4% and mid-5%-to-early-6%.

 

Lee also sees that the REIT has a fair amount of opportunities within its portfolio and is trying its best to see how it can procure power across its portfolio globally. 

 

He writes: &ldquo For example, in Europe, Kelsterback DC is in a good location in Frankfurt and the DC component is a subset of the owned real estate, hence there could be potential to procure more power, though it is still early days with nothing concrete.&rdquo

 

On China, the Citi analyst notes that KDC REIT does not expect significant changes to its China asset values in FY2024 after conversing with valuers.

 

Finally, the team at DBS sees that KDC REIT&rsquo s outlook remains favourable, with around 26% of its leases set to expire in FY2025, providing room for continued positive rental reversions, which will be a key earnings driver.

 

&ldquo Despite the increase in gearing to 39.7%, we are confident that KDC REIT&rsquo s portfolio valuations will hold up, and there is potential for improvements by December 2024. KDC REIT&rsquo s proactive management and exploration of repositioning opportunities should further support portfolio valuations.&rdquo

 

They add that the REIT&rsquo s Guandong DCs will resume 50% of their income contribution in FY2025, although this would result in a $4 million to $5 million shortfall in earnings if this is not realised.

Distributable income rises 1.9% on the year to S$44.7 million

KEPPEL DC Reit : AJBU +1.35% posted a distribution per unit (DPU) of S$0.02501 for the third quarter ended Sep 30, up 0.4 per cent from S$0.02492 in the previous corresponding period.

 

Distributable income rose 1.9 per cent on the year to S$44.7 million, from S$43.9 million.

 

The higher distributions came amid increased rent from strong reversions, a partial-settlement payout received in relation to a dispute with DXC technology services, as well as contributions from the Tokyo data centre, which it acquired in July this year.

 

However, this was partially offset by loss allowances for the Guangdong data centres, higher finance costs and depreciation of foreign currencies against the Singapore dollar, said the manager of the real estate investment trust (Reit) in a business update on Friday (Oct 18).

 

Finance costs rose 1.4 per cent on the year to S$13 million from S$12.8 million.

 

Revenue for Q3 climbed 8.9 per cent to S$76.9 million, from S$70.7 million the year before. This came from contributions from acquisitions, and &ldquo strong reversions and escalations&rdquo across the portfolio.

 

The Reit manager also noted that positive reversions persisted in Q3, buoyed by a contract renewal in Singapore for which the reversion exceeded 40 per cent.

 

Net property income was slightly lower, falling 0.2 per cent to S$64.5 million.

 

The Reit&rsquo s aggregate leverage rose to 39.7 per cent as at end-September, up 390 basis points from three months earlier. The average cost of debt was 3.3 per cent.

 

The manager noted the Reit&rsquo s &ldquo favourable&rdquo debt profile as at Sep 30. In Q3, it secured seven-year loan facilities totalling 25 billion yen (S$218.8 million), in connection with the acquisition of Tokyo Data Centre 1.

 

The Reit recorded a portfolio occupancy of 97.6 per cent, with portfolio weighted average lease by lettable area at 6.3 years.

 

This comes as the Reit increased its geographical diversification, with new acquisitions and re-lease vacancies to enhance asset options, said its manager.

 

In its outlook, the manager is positive on the continued growth for data centres, buoyed by increasing digital transformation and the adoption of technologies, such as generative artificial intelligence.

 

It is also expecting vacancy in data centres to fall for the third consecutive year, as take-up in the Frankfurt, London, Amsterdam, Paris and Dublin markets is projected to reach 440 megawatts this year on the back of rising demand for capacity.