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Keppel DC Reit launches S$473.8m equity fundraising to partially fund data centre acquisitions

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Keppel DC Reit is planning to raise an estimated S$473.8 million to partially pay for the acquisition of two data centres, one of which Keppel Infrastructure Trust (KIT) has a 51 per cent stake in, its manager announced on Monday.

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Keppel DC Reit is planning to raise an estimated S$473.8 million to partially pay for the acquisition of two data centres, one of which Keppel Infrastructure Trust (KIT) has a 51 per cent stake in, its manager announced on Monday.

KEPPEL DC Reit is planning to raise about S$473.8 million to partially fund the acquisition of a 99 per cent stake in data centre Keppel DC Singapore 4 (KDC SGP 4), along with a 100 per cent stake in 1-Net North Data Centre (1-Net North DC).

The proposed equity fundraising exercise comprises a combination of a private placement and preferential offering, as well as debt. Following which, Keppel DC Reit's aggregate leverage ratio will be reduced from 31.9 per cent as at June 30, 2019, to 30.3 per cent, "increasing the Reit's debt headroom to pursue further growth opportunities", its manager said in a statement on Monday.

Both acquisitions, which are slated to be completed in the fourth quarter this year, are expected to be highly accretive to Keppel DC Reit's distribution per unit, the manager said. When completed, the Reit's assets under management will grow by 30.7 per cent to S$2.58 billion, comprising 17 data centres globally.

Chua Hsien Yang, CEO of the manager, said: "Singapore is amongst the world's fastest-growing data centre markets, driven by demand from Internet enterprises as well as the IT services, telecommunications and financial services sectors. The strategic acquisitions of these two quality data centres will strengthen Keppel DC Reit's foothold in this robust market."

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The pro-forma occupancy rate for the enlarged portfolio is expected to improve from 93.2 per cent to 94.1 per cent, based on the portfolio occupancy rate as at end June, the manager said. It added that portfolio weighted average lease expiry (WALE) by leased lettable area is expected to improve from 7.8 to 8.9 years, post-completion.

The proposed equity fundraising comprises a private placement of 135 million new units in Keppel DC Reit at an issue price between S$1.703 and S$1.744 per unit; as well as a preferential offering at an issue price between S$1.67 and S$1.71 per unit. 

The private placement issue price range represents a discount of between 2.5 per cent and 4.8 per cent to the volume-weighted average price (VWAP) of S$1.7882 per unit of all trades on the Singapore Exchange for the preceding market day on Sept 13, before the underwriting agreement was entered into; while the preferential offering issue price range represents a discount of between 4.4 per cent and 6.6 per cent to the VWAP.

Keppel DC Reit's private placement was launched on Sept 16, with new units from the placement expected to be listed on Sept 25.

Separately, books closure date for the eligibility to participate in the preferential offering stands at 5pm on Sept 24. The opening date for the preferential offering has been indicated as Sept 27, with new units from the preferential offering to be listed on Oct 15, the manager said.

"To demonstrate support for the Reit's long-term growth, Keppel Group, through Keppel Telecommunications & Transportation and Keppel Capital, will irrevocably undertake to subscribe for their pro-rata units under the preferential offering," the manager said.

DBS Bank, Citigroup Global Markets Singapore, and Credit Suisse (Singapore) have been appointed as the joint bookrunners, while DBS Bank, Citigroup Global Markets Singapore, Credit Suisse (Singapore) and CLSA Singapore have been appointed as the joint underwriters for the equity fund raising.

The manager intends to use S$438.6 million, or 92.6 per cent of the gross proceeds from the equity fundraising to partially pay for both acquisitions. Another S$26.7 million or 5.6 per cent will be used to fund capital expenditure, while S$8.5 million, or 1.8 per cent will be used to pay estimated fees related to the equity fundraising. 

In addition, Keppel DC Reit's manager on Monday said it has entered into an agreement for the proposed acquisition of a 99 per cent stake in KDC SGP 4, at an agreed value of about S$384.9 million, with the remaining 1 per cent to be acquired by an entity of Keppel Data Centres Holding.

The seller for KDC SGP 4 is a 70:30 joint venture between Alpha Data Centre Fund (Alpha DC Fund), which is managed by Alpha Investment Partners, and Keppel Data Centres Holding. This deal marks the first divestment for Alpha DC Fund.

KDC SGP 4 is a five-storey facility which has a net lettable area of about 84,544 sq ft, and an occupancy of 92 per cent. It is located close to two of the Reit's existing data centres, Keppel DC Singapore 2 and 3 within the Tampines Industrial Park.

In a separate statement on Monday, KIT's trustee-manager noted that KIT's subsidiary, CityDC, is divesting a 51 per cent stake in DataCentre One to Keppel DC Reit for S$102.9 million. The remaining 49 per cent held by WDC Development (WDC), a subsidiary of Shimizu Corporation, will also be acquired by Keppel DC Reit for S$98.9 million.

DataCentre One is a joint venture company formed in June 2014 between CityDC and WDC to develop, build and lease 1-Net North DC. The estimated deal amount of S$201.8 million is payable in cash, and based primarily on the adjusted net asset value of DataCentre One. This amount includes S$200.2 million as the agreed value of 1-Net North DC, S$33.8 million in shareholder loans owed by DataCentreOne to the sellers, less S$32.2 million as the adjustments for DataCentre One's net liabilities.

1-Net North DC is a five-storey purpose-built facility located just outside the Woodlands Regional Centre at 18 Riverside Road. In June 2019, CityDC launched a tender for the sale of 1-Net North DC. The bids received were evaluated based on multiple criteria, and Keppel DC Reit was selected as the preferred bidder.

Shaun Poh, executive director of capital markets at Cushman & Wakefield, who handled the sale of 1-Net North DC noted: "The sale is noteworthy given that the supply of data centres is tight across Asia, particularly in Singapore. Data centres are tightly held in the city-state, typically by telcos, conglomerates and Reits and hardly offered in the market.

"The tight supply situation is compounded by the fact that Singapore has pledged to reduce carbon emissions, putting a lid on the allocation of land for data centre use as these assets consume high volumes of energy. As expected, this tender attracted sizeable interest from investors both local and international."

Matthew Pollard, chief executive officer of KIT's trustee-manager, said: "The divestment allows KIT to realise the remaining lease value in DataCentre One upfront, thus benefiting unitholders. Proceeds from this divestment are expected to be redeployed into quality acquisitions that will strengthen KIT's portfolio, as well as for refinancing purposes and working capital needs."

KIT intends to use part of the consideration for the repayment of DataCentre One's loans. Accordingly, the estimated net proceeds to be received by KIT is S$51.3 million, subject to adjustments at completion of the transaction.

Among other things, the divestment is conditional upon the approval of KIT's unitholders at an extraordinary general meeting to be convened. It is also expected to increase KIT's earnings per unit for the financial year ended Dec 31 when completed, the trustee-manager said.