Keppel DC REIT upgraded to Buy by OCBC on data center acquisition

Singapore two-dollar bills

OCBC upgraded Keppel DC REIT to Buy after the REIT proposed acquiring a 99.0 percent interest in Kingsland Data Centre in Singapore.

The total acquisition cost is about S$309.6 million, including repaying the target entity’s borrowings and other fees, OCBC said in a note on Monday.

It said the initial net property income yield is expected to be 6.8 percent, based on current occupancy and rental support, but should progressively increase to around 7.8 percent, based on pre-committed occupancy of 84.2 percent, depending on how quickly clients ramp up their racks in the property.

OCBC noted that Keppel DC REIT plans to finance the deal with the net proceeds of S$298.9 million from a private placement of 224 million new units at S$1.354 a unit and the remaining proceeds from the October pro-rata preferential offering. The bank said the REIT’s gearing ratio is estimated to fall to 32.1 percent from 37.4 percent after the completion of the deal and the private placement.

That raised OCBC’s 2018 and 2019 distribution per unit (DPU) forecasts by 2.3 percent and 2.9 percent respectively, and its fair value was raised to S$1.54 from S$1.50.

The unit ended Friday at S$1.43; it was halted from trade on Monday.