This morning (02 December 2021), blue-chip data centre REIT in Keppel DC REIT (SGX:AJBU) held an EGM (Extraordinary General Meeting) to seek unitholders’ approval for its proposed investment in NetCo bond and preference shares.
I’ve attended the meeting as a unitholder of the REIT, and in this post, you’ll find a summary of CEO Ms Anthea Lee’s presentation, responses to questions raised by fellow attendees during the meeting (there was a chat box for attendees to ask any questions they may have regarding the proposed transaction), along with results of the 2 resolutions put to vote.
Summary of Presentation by CEO Ms Anthea Lee
- For the proposed transaction, Keppel DC REIT will be subscribing to the NetCo (a company set up by M1 to hold network assets critical to its core operations) Bonds (amounting to a total of S$88.7m), and the preference shares (amounting to a total of S$1.0m). The total amount of the transaction will be S$89.7m.
- With this transaction, Keppel DC REIT will receive from NetCo a fixed amount of S$11.0m per annum (comprising of principal and interest payments) over the next 15 years. Based on this arrangement, the REIT will be able to recover its principal in 8 years, which Ms Lee said the amount will be used to pay down existing borrowings or fund future acquisitions.
- On reasons why the REIT is proposing for this transaction, Ms Lee explained that it is a DPU accretive one (of 3.8% assuming if MAS approves the REIT’s Qualifying Project Debt Securities transaction; otherwise, the NetCo bonds will be treated as ordinary bonds and will be subjected to corporate tax, and as such, the DPU accretion will be at 3.1%), and at the same time, providing a regular and stable cashflow for the REIT over the next 15 years (which is very much within the management’s goal of providing a regular and stable distribution to its unitholders. This also provides further diversification in terms of income streams to enhance income stability.
- Ms Lee further added that proposed transaction will not subject the REIT to any operational management risks or capex obligations – M1 will perform the day-to-day operation and maintenance of, as well as capex work for the network assets.
- Finally, Ms Lee stressed that the REIT’s focus is still on physical data centre assets (she cited the REIT’s recent acquisition of data centre properties in Eindhoven, the Netherlands, as well as in Guangzhou, China), which will comprise 90.0% of its total assets under management (AUM).
Responses to Questions Raised by Unitholders during the Meeting
- A unitholder wanted to know if the proposed transaction is a strategic or a tactical one; for the latter, the same unitholder wanted to know why the 3.8% yield is considered attractive. In response to this, Ms Lee explained that the proposed transaction is not a strategic one, but rather an opportunistic one, as it provided stable and regular cash flow for the REIT and yet at the same time, the proposed transaction does not come with any operational or capex risks. On concerns regarding the yield, Ms Lee said that the yield is attractive considering the proposed transaction is under 3.0% of the REIT’s total AUM.
- Another unitholder asked why is the gearing of NetCo irrelevant for this particular proposed transaction. In response, Ms Lee said that because this proposed transaction is considered a joint venture, and that accounts of NetCo will not be consolidated.
- On a question regarding the repayment schedule, Ms Lee said that the REIT will be receiving S$11.0m of repayment every year over the next 15 years (which provides a yield of 9.17% per annum), which comprises the repayment of principal, as well as interest – and based on this arrangement, the REIT will be able to recover its principal in 8 years.
- Pertaining to a question on the percentage of 3G, 4G, and 5G network assets held by NetCo, and also whether 3G and 4G network assets will become obsolete over time, Ms Lee said that while she was unable to disclose the percentage of network assets held, but close to half of the assets are independent of network technology. Also, the 3G and 4G network assets can be upgraded as well, and as such, they will not become obsolete.
- Finally, a unitholder asked whether Keppel DC REIT’s board representation in NetCo will be reduced as the principal is being repaid over the years. To this, Ms Lee said that Keppel DC REIT will continue to have 50.0% of board representation in NetCo regardless of how much of principal remains outstanding.
Results of the 2 Resolutions Put to Vote during the Meeting
- Ordinary resolution 1, which is on the approval of the proposed NetCo Bonds and Preference Shares investment, as an interested person transaction, was passed with 95.2% (or 470,985,125) of the votes for, and 4.8% (or 23,728,551) of the votes against.
- Extraordinary resolution 2, which is on the approval of the Proposed Fee Supplement, was passed with 96.38% (or 476,772,125) of the votes for, and 3.62% (or 17,908,151) of the votes against.
Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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