Deepens footprint in China
? KDC REIT is acquiring two data centres in Guangdong for S$297.1m
? Deal to be DPU accretive, acquisition to be funded by debt and equity
? Reiterate Add with a slightly higher DDM-based TP of S$2.63
Acquiring two DCs in China for S$297.1m
KDCREIT has entered into agreements with Guangdong Bluesea Data Development Co
Ltd (Bluesea) and its parent company Guangdong Bluesea Mobile Development Co Ltd to
acquire two data centre (DC) facilities, on a fully fitted basis, in Jiangmen, Guangdong for
Rmb1,380.6m (c. S$297.1m) or at a 0.6% discount to independent valuations. The two
DCs will be named Guangdong DC2 and Guangdong DC3, upon completion of the deal.
We expect the acquisition to strengthen KDCREIT’s foothold in China, Asia’s largest data
centre hub. The properties will be leased to Bluesea on a triple-net basis for 15 years. With
the long lease term, KDCREIT’s weighted average lease to expiry would lengthen to 8.8
years (from 7.7 years as at 1Q22) and portfolio occupancy increased marginally to 98.9%.
Acquisitions to be completed between late-2022F and 3Q23F
KDCREIT expects to complete the acquisition of Guangdong DC2 in 2H22F and the
purchase of Guangdong DC3 by 3Q23F. Guangdong DC2 is already fully-fitted and will be
fully paid upon the completion of the transaction. Guangdong DC3 will be fitted out, with its
expected completion date scheduled to take place by 3Q23. Meanwhile, KDCREIT will
make an initial partial payment for Guangdong DC3. Bluesea will pay rent for the building
shell as well as interest on the initial payment paid by KDCREIT. The latter will pay the
remainder of the purchase price when the fit-out works are completed. Under the terms of
the lease agreement, the initial annual rent payable by Bluesea for Guangdong DC2 and
DC3 is S$13.6m each.
KDCREIT intends to fund the acquisitions with debt and new equity
Management indicated that it intends to fund the acquisitions with a mix of debt, new equity
and/or existing cash. The structure and timing of the equity fund raising exercise have not
been determined as yet. Based on management’s assumption of a 55/45 debt/equity
funding structure, the proforma financial effect of the acquisition would be a 2.7% accretion
to DPU and 1.5% uplift to its book NAV. KDCREIT’s gearing could rise from 36.1% as at
end-1Q22 to 37.2% post transaction.
Reiterate Add rating
We raise our FY22-24F DPU by 0.7-3.21% as we factor in the contributions from the new
acquisitions and assume a 55/45 debt/equity funding structure. Our DDM-based TP rises
to S$2.63. Following its recent share price decline, KDCREIT is trading at c.5.3% FY22F
dividend yield. We believe the longer-term demand for data centres remain intact and will
underpin KDCREIT’s income resilience in the longer term. Potential re-rating catalysts
include a faster pace of acquisitions while downside risks include larger-than-expected
impact from higher electricity cost.