Hot stock: Keppel DC Reit units gain 8% on news of fundraising for acquisitions

Published Tue, Sep 17, 2019 · 09:23 AM

UNITS of Keppel DC Reit rose as much as 7.78 per cent in active trading on Tuesday, following news that it had raised S$478.2 million to partially fund a proposed acquisition of a 99 per cent interest in Keppel DC Singapore 4 and a 100 per cent stake in 1-Net North Data Centre.

The counter was up 14 Singapore cents to S$1.94 about half an hour before the market closed on Tuesday, with a volume of 20.1 million units.

The funds were raised through a private placement of 135 million units at S$1.744 each and a preferential offering of about 142 million units at S$1.71 each. The private placement, announced on Monday, drew strong demand from new and existing investors, leading to the book being approximately 9.3 times subscribed, the Reit manager said.

In a report on Tuesday, an OCBC research team said: "We are positive on this proposed deal, given that it will consolidate Keppel DC Reit's positioning in the Singapore data centre market." The team added that although the Reit is funding the acquisitions largely with equity, its pro forma distribution per unit (DPU) for FY18 is expected to be accretive.

It maintained its "buy" call on the counter, raising its target price to S$2.08 from S$1.93.

Meanwhile, Citi Research analysts Si Xian Goh and Brandon Lee held to their "neutral" rating for Keppel DC Reit and raised their target price to S$1.75 per unit.

They also trimmed their estimated FY19 DPU by 1 per cent "in view of the potential dilution from the timing differential between equity funding-raising and asset injection". However, they raised their estimated DPU for FY20/21 by about 8 per cent, on the back of the transaction.

"As more assets are added to the portfolio, we believe that Keppel DC Reit's liquidity premium should gradually narrow," the analysts wrote. "That said, we think that valuations may have overreached too far ahead of their time, with return expectations probably implying valuations rarely witnessed in the Singapore Reit space."