Keppel to divest Genting Lane data centres to KDC REIT for $1.38 bil

By Felicia Tan

/ The Edge Singapore |

November 19, 2024 11:18 AM SGT

Keppel data centre 7 in Singapore (Photo: Keppel)

Keppel, on Nov 19, announced that it will divest its data centre joint venture (JV) to Keppel DC REIT (KDC REIT) for a total gross divestment price of $1.38 billion.

The JV, which is 60%-owned by Keppel’s connectivity division and 40%-owned by Cuscaden Peak Investments Private Limited, owns the Keppel Data Centre Campus at Genting Lane in Singapore. The campus has two completed and fully contracted data centres, Keppel DC Singapore 7 (KDC SGP 7) and Keppel DC Singapore 8 (KDC SGP 8). Both data centres are 100% contracted to global hyperscalers from across the cloud services, internet enterprise and telecommunications sectors on a colocation basis.

The construction of KDC SGP 7 and KDC SGP 8 was funded by the JV, Keppel’s private fund Alpha Data Centre Fund and its parallel fund (ADCF), as well as co-investors.

Upon the completion of the proposed transaction, KDC REIT will fully own KDC SGP 7 and KDC SGP 8. Keppel will continue to serve as the operator and facility manager for 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. KDC REIT will also be granted a call option, which it expects to exercise around the second half of 2025 to acquire the remaining 51% stake in the Keppel JV from Keppel. The remaining stake holds an economic interest of 0.51% in the data centres.

As part of the proposed transaction, KDC REIT will pay an additional $350 million to the JV’s shareholders, ADCF and co-investors, should the campus receive approvals to extend its land tenure lease to 2050.

The proposed acquisition by KDC REIT is expected to be accretive to its distribution per unit (DPU) by 8.1%. It will also expand the REIT’s assets under management (AUM) by 36% to $5.2 billion with 25 data centres across Asia Pacific and Europe.

Keppel’s share of the divestment will be around $280 million. The gross divestment price includes the estimated consideration for Keppel’s 51% stake in the JV should the call option be exercised. It also includes the additional consideration to be paid should the campus be granted a 10-year land tenure lease extension assuming the call option is exercised. The gross divestment price will be adjusted for debt repayment and completion adjustments.

The JV also has a vacant land plot that’s been earmarked for a third data centre, which is not part of the transaction. The plot will be sub-leased to Keppel’s private funds, Keppel DC Fund II and the upcoming Keppel DC Fund III. Keppel aims to develop the third data centre in the campus, KDC SGP 9, with its two data centre private funds.

“The injection of KDC SGP 7 and KDC SGP 8 into Keppel DC REIT underscores our strengths as a global asset manager and operator to structure deals with compelling outcomes and strong value creation for the company, our private funds and REIT,” says Manjot Singh Mann, CEO of Keppel’s connectivity division.

“Our integrated ecosystem provides access to power and other critical resources, technology know-how and strong customer relationships with hyperscalers worldwide, which are crucial for success in the data centre business,” he adds. “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 launched its initial public offering (IPO) in 2014.

“The proposed acquisition will deliver strong positive cash flows and be immediately DPU accretive. 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. Their inclusion further solidifies Keppel DC REIT’s market position as one of the largest owners of stabilised data centres in Singapore, where there is strong demand and tight supply,” he adds.

The proposed transaction will be executed in stages and is expected to be completed by the end of 2025.

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