Keppel DC REIT and Kingsland Data Centre acquisition

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Keppel DC REIT recently announced their intention to purchase a 99% interest in Kingsland Data Centre (DC) for S$295.1 million.

The deal is expected to be 100% funded by equity, and is both DPU and NAV accretive, indicating that the REIT’s share price and deal consideration amount is favourable to the REIT.




At a 6% discount to valuation of S$316.8m, the valuation cap rate is 8.25% and in line with rates for the REIT’s other data centres.

What is Kingsland Data Centre?

Kingsland Data Centre is a five-storey, purpose built, carrier-neutral colocation data centre.

It was completed in 2015 and located in Jurong. The facility was completed in phases starting from 2015.

The facility’s IT power is fully committed and committed occupancy is 84.2%, with vacancy being offices.

Also read: Good performance by Mapletree REITs

Funding

The acquisition of the property will be done by a private placement of 224 million new units in Keppel DC REIT and remaining net proceeds from the pro-rata preferential offering launched on 17 Oct 2016.

The price of each new unit is S$1.354 according to OCBC.

According to Richard Leow from Phillip securities, approximately S$298.9m will be used to partially fund the acquisition, S$4.2m to pay estimated fees and expenses and S$10.7 of acquisition cost to be funded from the balance of proceeds of the preferential offering on 17 Oct 2016.

Keppel DC REIT’s gearing is expected to decline from 37.4% to 32.1% after completion of the private placement and the acquisition.




Negatives

According to Richard, the committed occupancy of 84.2% is lower than portfolio occupancy of 93.7%, resulting in possible decline in overall portfolio occupancy the next time quarterly results are released.

He expects some hurdles in securing a tenant for the office space since it resides within the data centre. It will therefore be unable to be marketed like a typical office space.

At 3.6 year of WALE, Kingsland is much shorter than the existing portfolio WALE of 9.6 years as at 30 March 2018. However, the low WALE is in line with other co-location assets. As at end-17, Keppel DC REIT’s colocation assets had a WALE of 4.2 years.

Also read: SPH to acquire Rail Mall for S$63.2m

Positives

Lock Mun Yee from CIMB sees the deal as positive because the deal is both DPU and NAV accretive, despite being fully funded by equity.

Post completion, the proportion of assets under management in Singapore would increase from 40.6% to 49.8%.

The vacant office space would provide some upside, and estimates are that office rents could be approximately S$4.5 psf per month.


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