THE manager of Keppel DC Real Estate Investment Trust (Keppel DC Reit) has proposed to acquire interests in two artificial intelligence (AI) ready hyperscale data centres from a joint venture (JV) led by sponsor Keppel for S$1.4 billion.
The JV owns the Keppel Data Centre Campus at Genting Lane in Singapore, which comprises the two data centres and a vacant land plot earmarked for a third data centre, which has been excluded from the deal.
Keppel DC Reit will purchase a 49 per cent interest in the JV, as well as subscribe for two new classes of securities issued by the JV for up to S$1.03 billion.
This will entitle Keppel DC Reit to 99.49 per cent of the economic interest from the two data centres – KDC SGP 7 and KDC SGP 8.
Keppel DC Reit will also be granted a call option, which the manager expects to exercise in the second half of 2025, to acquire the remaining 51 per cent stake in the JV from Keppel, which holds the remaining 0.51 per cent economic interest.
As part of the proposed transaction, Keppel DC Reit shall pay an additional S$350 million should a 10-year land tenure lease extension to 2050 be approved for the Keppel Data Centre Campus by the relevant authorities. This will be paid to the JV’s shareholders, Keppel’s private fund Alpha Data Centre Fund and its parallel fund (collectively known as ADCF), and co-investors.
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The deal is expected to be completed by end-2025, Keppel and Keppel DC Reit said in a joint statement on Tuesday (Nov 19).
Accretive aquisition
The proposed acquisition by Keppel DC Reit will expand its assets under management by 36 per cent to S$5.2 billion, with 25 data centres across Asia-Pacific and Europe.
The total acquisition cost includes the estimated purchase consideration of about S$1.39 billion, other expenses of about S$37.8 million and acquisition fees of about S$13.8 million.
Keppel DC Reit manager said it intends to finance part of total outlay with about S$973.2 million from the net proceeds raised from an equity fund raising launched on Tuesday.
About S$83.4 million will also be drawn down from debt facilities to pay for the acquisition. The manager will also issue acquisition fee units amounting to about S$10.2 million to finance the deal.
Loh Hwee Long, chief executive of Keppel DC Reit’s manager, said: “The proposed acquisition will deliver strong positive cash flows and be immediately distribution per unit accretive.”
He added that the new assets will allow the Reit to “capture potential upside from rental uplifts and capacity expansion”.
Keppel DC Reit’s manager is also positive on the growing demand for data centre space as supply remains constrained in the short to medium term. “This tight demand-supply dynamic is likely to continue to have an upward pressure on colocation rates,” it added.
On a pro forma basis, the proposed acquisition is expected to lift Keppel DC Reit’s distribution per unit for the first half of fiscal year 2024 by 8.1 per cent. It would also raise the Reit’s net asset value per unit for H1 to S$1.53 from S$1.37.
Assuming that the deal was completed on Sep 30, 2024, Keppel DC Reit’s aggregate leverage is expected to fall to 37.9 per cent, from 39.7 per cent.
KDC SGP 7 and KDC SGP 8 have a combined net lettable area (NLA) of 150,455 square feet. Their weighted average lease expiry by NLA stood at 4.5 years as at end-September 2024.
Both data centres have attained the Building and Construction Authority’s Green Mark (Platinum Award). They can handle artificial intelligence inference workloads and can accommodate fit-out modifications, including liquid cooling.
The deal is not expected to have any material impact on the earnings per share and net tangible assets per share of Keppel for the financial year ending Dec 31, 2024.
The proposed transaction is subject to the approval of Keppel DC Reit’s unitholders at an extraordinary general meeting, which will be convened at a later date.
Post divestment, Keppel will continue to earn recurring income from asset management and operation and maintenance of the two data centres, and will also develop the third data centre in the Keppel Data Centre Campus with Keppel’s private funds.
Shares of Keppel were trading up 1.5 per cent or S$0.10 at S$6.68 as at 10.28 am on Tuesday. Keppel DC Reit called for a trading halt on Tuesday morning; its units ended the previous day 0.5 per cent or S$0.01 lower at S$2.19.
