Keppel DC Reit is on course to raise S$512.98 million ($410 million) from its Singapore initial public offering after pricing the deal at the very top of its S$0.90 to S$0.93 indicative range.
Sources reported no price sensitivity in the institutional order book, which closed one day ahead of schedule and about 10 times oversubscribed. Allocations were largely determined by management rather than the bookrunners and were awarded on the basis of being known to the company, or having attended the deal's roadshow.
Paper was, nevertheless, spread fairly widely among the 180 accounts, which participated. No single account was allocated more than S$11 million and long-only were given about 70%.
Keppel DC Reit's attractive yield, novelty value and visible acquisition pipeline were the three key draws for fund managers. At S$0.93, the deal has a forecast 2015 dividend yield of 6.8% and forecast 2016 dividend yield of 7.1%.
This places it at a discount to its nearest two Singapore-listed comparables, A-Reit and Mapletree Logistics Trust (MLT), which both have some data centre assets, although they comprise less than 10% of the total. The two are both trading on a forward 2015 dividend yield of about 6.4%.
In turn, the S-Reits are all trading at far cheaper valuations than US data centre trusts such as Digital Realty Trust, which is currently yielding 4.79% on a forward basis and has climbed nearly 40% so far this year.
Syndicate bankers have assigned Keppel DC Reit a fair value range spanning a forward dividend yield of 5.5% to 6.5%.
Pricing offers a pick-up of 460bp over Singapore government Treasuries. The yield on the sovereign's benchmark 10-year Treasuries bonds have tightened seven basis points over the past week providing an even better backdrop for Keppel DC's IPO.
However, the deal ran into some headwinds on Wednesday when local newspapers reported that one of its data centres had been responsible for a power outage at Singapore Exchange (SGX) earlier in November, which disrupted trading for three hours.
An SGX spokesperson told Singapore's Business Times that it had submitted an incident report related to the event to the Monetary Authority of Singapore on November 18.
Power is one of the key variables when valuing data centres, which often run up against electricity constraints long before they run out of space to rent. In Singapore, for example, data centres account for 1% of the city state's land, but consume 7% of its electricity supply.
The next stage for Keppel DC's IPO is the retail offering, which runs from December 5 to 10, with listing scheduled for December 12. The placement tranche comprised 37.6% of the total deal size, or 207.52 million units, while retail investors are now being offered 53.76 million units.
In addition, a group of nine cornerstones signed up for 53% of the offering. In order of size they comprise Wellington Management, Fortress Capital Asia, Asia pte, Eastspring Investments, DBS (on behalf of private banking clients), DBS Bank, Solibuild owner Lim Chap Huat, Myriad Asset Management and SingHaiYi Group director Gordon Tang.
There is also a greenshoe of 17.7 million secondary shares, which will almost certainly be exercised in full and will boost the eventual freefloat to 64.5%.
Keppel's portfolio comprises eight assets with a net lettable area of 524,900 square feet. It also has a visible pipeline of three data centre assets with a current net lettable area of 187,800 square feet.
The deal represents Asia's first listing of pure data centre assets, with Credit Suisse, DBS and Standard Chartered acting as joint global co-ordinators, plus Deutsche Bank and Goldman Sachs as bookrunners.
