Keppel DC REIT would be offering 261.138 million units at S$0.93 each under the IPO of which, 53.763 million would be made available to the general public while the rest 207.375 million units would be placed to institutional and other investors.
In a separate but concurrent deal, nine other cornerstone investors would be collectively subscribing for 290.316 million units at the listing price. These cornerstone investors include asset and wealth managers (like Eastspring Investments (Singapore) Limited and Fortress Capital Asset Management (M) Sdn Bhd), DBS Bank and its clients, and individuals like Lim Chap Huat and Gordon Tang. Lim happens to be the owner and executive chairman of property group Soilbuild Group Holdings Ltd.
Keppel DC REIT would have a market capitalisation of S$821.12 million upon listing (882.93 million units at S$0.93 each). The REIT’s public offer opened last Friday and would close at 12 noon tomorrow. Trading of the REIT’s units is expected to start at 2 pm on 12 December.
Check out the Keppel DC REIT portfolio.
Data Center Industry
There are 4 key highlights about the data centre industry given in the prospectus.
- Explosive growth in internet usage and internet-enabled devices is driving data creation, especially in the video streaming, file sharing, e-commerce, and social networking spaces. Global data created has grown from 0.4 zettabytes (1021 bytes) in 2008 to 4.0 zettabytes in 2013; the amount of data created is then forecasted to jump nearly seven-fold to 28.1 zettabytes in 2018
- There’s a projected increase in organisations outsourcing their data centre needs as in-house data centres are less cost efficient and are becoming increasingly complicated to run. For an idea of how big the increase can be, the Asia-Pacific region is expected to see the proportion of outsourced data centres jump from 12.1% in 2013 to 38.5% in 2018.
- With the increase in data creation (as seen above) comes the growth in data transmission. Keppel DC REIT’s prospectus contains forecasts for global growth in IP (internet protocol) traffic to expand at an annual compounded rate of 21.0% between 2013 and 2018.
- According to the REIT, there are “high barriers to entry” in being a third-party data centre provider. That’s because ”substantial upfront costs and significant technical knowledge and expertise are required” and customers tend to prefer providers “with proven track records.”
Financials
Keppel DC REIT has delivered a set of impressive results over the past two years based on its pro-forma financials. Gross revenue had spiked by 24.6% from S$81.2 million in 2012 (the REIT’s financial year coincides with the calendar year) to S$101.2 million with net property income following suit with a 24.5% jump to S$88.8 million. The first nine months of 2014 also saw continued growth, as Keppel DC REIT’s gross revenue and net property income saw year-on-year increases of 10.8% and 11.4% respectively.
Despite heady double-digit historical growth rates, the REIT’s forecasts are less rosy. In 2016, gross revenue is projected to increase by only 2.1% from S$100.4 million in 2015 to S$102.5 million; net property income is expected to grow at a similar pace of 2.27% from S$85.1 million to S$87.0 million. For 2015 and 2016, the total return available for distribution is expected to come in at S$56.24 million and S$58.75 million respectively. With 882.93 million units outstanding, that works out to forecasted distributions of 6.36 and 6.65 Singapore cents respectively.
Based on Keppel DC REIT’s listing price of S$0.93, it would have forward yields of 6.8% an 7.1% for 2015 and 2016 respectively.
At the listing date, Keppel DC REIT would have S$295 million in borrowings with an aggregate leverage of 27.8% (excluding the finance leases pertaining to the land rent commitments for certain properties). With that low leverage ratio, one can say that Keppel DC REIT’s balance sheet is pretty solid and can be a foundation for future growth.
Use of proceeds
This is the interesting part, Keppel DC REIT’s listing would see it raise gross proceeds of S$821.1 million. And as mentioned earlier, the REIT would also draw upon S$295 million worth of borrowings. This would give the REIT a total sum of S$1.116 billion to work with. Yes that's S$1 billion with a B to work with.
Of that, S$537.9 million (48.2%) would go towards acquisition of the Singapore-based properties and the minority interests of the other properties in the portfolio. There are more details on this found in Page 102 of the prospectus.
The remaining sum (51.8%) would be used for redemption of certain investors in the REIT (30.5%), repayment of existing debt (18.6%), expenses related to the listing (2%), and working capital (0.7%).
Overall
Once it is listed Keppel DC REIT would have a net asset value
(NAV) of S$0.866 which will give its units a price to NAV ratio of 1.07. Although I will not be subscribing, this is sure on my watchlist.
Information from Keppel DC IPO Prospectus.
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