Keppel DC Reit unitholders vote in favour of investment in M1's network assets

UNITHOLDERS of Keppel DC Reit have voted in favour of the proposal to invest a total of S$89.7 million in bonds and preference shares to be issued by M1 Network (NetCo), which owns the mobile, fixed and fibre assets of telco M1.

During the Keppel DC Reit's extraordinary general meeting (EGM) on Thursday (Dec 2), some 95.2 per cent of unitholder votes signalled their approval of the first resolution for the NetCo bonds and preference shares investment as an interested-party transaction.

M1 is jointly owned by Keppel Corp and Singapore Press Holdings, which publishes The Business Times.

In addition, 96.4 per cent of unitholder votes were in favour of the proposed fee supplement for a one-off acquisition fee payable to the real estate investment trust (Reit) manager in connection with the investment, which is non-real estate related.

In response to questions from unitholders prior to the EGM, the Reit manager said in a bourse filing on Wednesday that the expansion of its mandate in April to include real estate and assets necessary to support the digital economy "provides (Keppel DC Reit) with the flexibility to evaluate a wider range of opportunities".

"This is an opportunistic and distribution per unit (DPU)-accretive investment, which we believe will provide Keppel DC Reit with stable and regular cash flows, as well as enhance total unitholders' returns," the Reit manager said.

It added: "While this is an opportunistic investment, we remain focused on the data centre sector, which has proven to be a highly resilient asset class especially during the pandemic."

Keppel DC Reit and M1 will have equal representation on the board of NetCo, which will acquire the telco's mobile, fixed and fibre assets for about S$580 million through an asset-transfer agreement. These exclude M1's 5G standalone assets, which are jointly owned between M1 and another party, as well as the co-owned and "right-of-use" assets that cannot be transferred.

Under a 15-year network services agreement, M1 and its mobile virtual network operators will use NetCo's network capacity, while the telco handles the day-to-day operations, maintenance of the network assets and the capex works.

NetCo will fund the acquisition through external financing of up to S$493 million as well as the issuance of S$88.7 million of bonds to be subscribed by Keppel DC Reit or its wholly owned subsidiaries and the issuance of S$1 million preference shares to Keppel DC Reit's subsidiary, KDCR Singapore 2.

In return, Keppel DC Reit will receive S$11 million each year for 15 years, comprising both principal and interest. The manager said this provides a "regular, stable cash flow" for the Reit, with an effective yield of 9.17 per cent per annum.

Keppel DC Reit intends to fund the total of S$89.7 million in bonds and preference shares through external bank borrowings and the remaining cash proceeds of approximately $15.1 million from the divestment of iseek Data Centre in Brisbane.

Assuming the Monetary Authority of Singapore approves the Qualifying Project Debt Securities (QPDS) application, the NetCo investment will bump Keppel DC Reit's DPU up to 9.519 Singapore cents on a pro forma basis for FY2020, translating to a 3.8 per cent accretion. If the QPDS application is rejected, the NetCo bonds will be treated as ordinary bonds and the DPU accretion will be 3.1 per cent.

With the investment, Keppel DC Reit's assets under management (AUM) will increase 2.8 per cent to S$3.3 billion.

"Looking ahead, we will continue to capitalise on growth opportunities and enlarge our footprint in the data centre industry. We will continue to have at least 90 per cent of our AUM invested in data centres, this being our core forte and where our capabilities lie," the Reit manager said.

Units of Keppel DC Reit closed 0.4 per cent or S$0.01 higher at S$2.39 on Dec 2, following the announcement.