Keppel DC REIT (KDC REIT), very much the flavour of 2020, has been somewhat sidelined since April this year. It has also drifted down to a 10-month low, despite 1QFY2021 distributions per unit (DPU) rising by 1.4% y-o-y. Excluding capex reserves that have been set aside, DPU would have risen by 18.1% to 2.462 cents (KDC REIT distributes its DPU half yearly). DBS Bank, which is usually quite positive on REITs, has a hold rating on KDC REIT. Still, the latter’s DPU is likely to be lifted in 2HFY2021 by the completion of the Intellicentre 3 East Data Centre (in image), sited within the Macquarie Business Park precinct in Sydney, in 2Q2021.

But in April, KDC REIT and M1 signed a non-binding term sheet that may have spooked investors. The duo plan a special purpose vehicle (SPV) to own and operate M1’s current mobile as well as its fixed and fibre assets (network assets). M1 will establish the SPV, which will acquire the network assets from M1 for $580 million — which is equivalent to the net book value of the network assets as at end February. The SPV will be funded by external financing of $493 million, and KDC REIT will invest $87 million in debt securities and preference shares issued by the SPV. M1 will continue to retain 100% of the ordinary shares in the SPV. However, the board of the SPV will have equal representation from M1 and KDC REIT.

It is unclear from the announcement whether KDC REIT will have any voting rights as debt securities and preference shares do not carry voting rights. M1— which will own 100% of the ordinary shares in the SPV — could end up with all the voting rights. REITs are meant to be passive vehicles. Hence, M1 appears to be in the driving seat as the April announcement says the SPV will enter into a 15-year Network Service Agreement with the telco. The SPV will also contract its network capacity to M1, who will undertake the operations and maintenance of the network assets.

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