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Keppel revealed on Nov 19 that it plans to sell its data centre joint venture (JV) to Keppel DC REIT (KDC REIT) for a total gross divestment price of $1.38 billion. The JV, in which Keppel’s connectivity division holds a 60% stake and Cuscaden Peak Investments Private Limited holds 40%, owns the Keppel Data Centre Campus in Singapore’s Genting Lane. The campus consists of two fully operational data centres, Keppel DC Singapore 7 and Keppel DC Singapore 8, which are leased out to global hyperscalers from the cloud services, internet enterprise and telecommunications sectors.
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The construction of both data centres was funded by the JV, as well as Keppel’s private fund, Alpha Data Centre Fund, and its parallel fund (ADCF), along with co-investors. Upon completion of the proposed transaction, KDC REIT will gain full ownership of KDC SGP 7 and KDC SGP 8, while Keppel will continue to serve as the operator and facility manager of the two data centres.
KDC REIT will acquire an initial 49% interest in the JV and subscribe for two new classes of securities issued by the Keppel JV for up to $1.03 billion. This will entitle the REIT to 99.49% of the economic interest from both data centres. In addition, the REIT will also be granted a call option, which they plan to exercise around the second half of 2025, to acquire the remaining 51% stake in the Keppel JV from Keppel. This remaining stake holds an economic interest of 0.51% in the data centres.
Under the proposed transaction, KDC REIT will pay an additional $350 million to the JV’s shareholders, ADCF and co-investors, if the campus receives approvals to extend its land tenure lease to 2050. The acquisition by KDC REIT is expected to boost its distribution per unit (DPU) by 8.1% and expand its assets under management (AUM) by 36% to $5.2 billion, with a portfolio of 25 data centres across Asia Pacific and Europe.
Keppel’s share of the divestment will amount to approximately $280 million. This gross divestment price includes the estimated consideration for Keppel’s 51% stake in the JV if the call option is exercised, as well as an additional consideration to be paid if the campus is granted a 10-year lease extension. The final gross divestment price will also be adjusted for debt repayment and completion adjustments.
The JV also has a vacant plot of land earmarked for a third data centre, which is not part of the transaction. The plot will be subleased to Keppel’s private funds, Keppel DC Fund II and the upcoming Keppel DC Fund III, and Keppel aims to develop the third data centre, KDC SGP 9, with their two data centre private funds.
“The injection of KDC SGP 7 and KDC SGP 8 into Keppel DC REIT showcases our abilities as a global asset manager and operator to structure deals with compelling outcomes and strong value creation for our company, private funds and REIT,” says Manjot Singh Mann, CEO of Keppel’s connectivity division. “Our integrated ecosystem gives us access to power and other vital resources, technology know-how and strong customer relationships with hyperscalers worldwide, which are essential for success in the data centre business. With the ability to invest with multiple pools of capital, Keppel can develop a robust pipeline of AI-ready data centres that offer effective solutions for customers and attractive investments for our funds and REIT.”
Loh Hwee Long, CEO of KDC REIT’s manager, says the REIT is “excited” to embark on this “landmark deal” during its 10th anniversary. The REIT first launched its IPO in 2014. “The proposed acquisition will generate strong positive cash flows and immediately boost DPU. These assets will not only enhance our portfolio’s income resilience but also allow us to capture potential upside from rental uplifts and capacity expansion. Additionally, their inclusion further solidifies Keppel DC REIT’s position as one of the largest owners of stable data centres in Singapore, where there is high demand and limited supply,” he adds.
The proposed transaction will be carried out in stages and is expected to be completed by the end of 2025.