Singapore-based Keppel DC Reit Management, which manages Keppel DC Reit, has entered into two agreements to acquire two data centres that will strengthen its portfolio and significantly increase its assets under management.
The first agreement involves the proposed acquisition of a 99% interest in Keppel DC Singapore 4 (KDC SGP 4) at an agreed value of approximately S$384.9 million (US$281 million), with the remaining 1% to be acquired by an entity of Keppel Data Centres Holding. The other agreement is for the proposed acquisition of 1-Net North Data Centre, Singapore (1-Net North DC) at an agreed value of S$200.2 million. Both acquisitions are expected to be completed in the fourth quarter of this year.
The acquisitions, announced on September 16, are expected to be highly accretive to Keppel DC Reit’s distribution per unit (DPU). When completed, the Reit’s assets under management will grow by 30.7% to S$2.58 billion, comprising 17 data centres in key data centre hubs globally, spanning an aggregate lettable area of a little over 1.41 million sq ft. The 17 data centres exclude IC3 East DC, which is currently under development and expected to be completed in 2020.
Keppel DC Reit Management CEO Chua Hsien Yang says the strategic acquisitions of these two quality data centres will strengthen Keppel DC Reit’s foothold in Singapore, which is one of the world’s fastest-growing data centre markets.This was driven by demand from internet enterprises as well as the IT services, telecommunications and financial services sectors
KDC SGP 4 is a five-storey carrier-neutral and purpose-built co-location facility, which is 92% occupied. Located close to two of the Reit’s existing data centres, Keppel DC Singapore 2 and Keppel DC Singapore 3, the acquisition of KDC SGP 4 will strengthen the Reit’s presence within the Tampines Industrial Park.
1-Net North DC is a five-storey purpose-built facility on a triple-net master lease with about 17 years remaining, and an option to renew for a period of 7.6 years. It is located just outside the Woodlands Regional Centre, a planned commercial hub that will serve as the Northern Agri-Tech and Food Corridor.
The acquisitions will strengthen the income resilience and stability of Keppel DC Reit’s portfolio. The pro-forma occupancy rate for the enlarged portfolio is expected to improve from 93.2%, based on the portfolio occupancy rate as of June 30 2019, to 94.1%. The portfolio’s weighted average lease expiry (WALE) by leased lettable area is expected to improve from 7.8 years to 8.9 years, post-completion.
The seller for KDC SGP 4 is a 70:30 joint venture between Alpha Data Centre Fund, which is managed by Alpha Investment Partners Limited, and Keppel Data Centres Holding. The sellers for 1-Net North DC are Keppel Infrastructure Trust’s wholly-owned subsidiary with a 51% stake in the data centre, and Shimizu Corporation’s wholly-owned subsidiary with a 49% stake in the data centre. The agreed values for both acquisitions were negotiated on a willing-buyer willing-seller basis, taking into account their respective independent valuations.
Equity fund raising
The manager intends to fund the proposed acquisitions with proceeds from a fully underwritten equity fundraising exercise of approximately S$473.8 million, comprising a combination of a private placement and preferential offering, as well as debt.
The equity fundraising exercise will reduce Keppel DC Reit’s aggregate leverage ratio from 31.9% as of June 30 2019, to 30.3%(including funds raised for capital expenditures), increasing the Reit’s debt headroom to pursue further growth opportunities.
Citi, Credit Suisse and DBS were appointed as joint bookrunners for the transaction, as well as joint underwriters, along with CLSA.
To demonstrate support for the Reit's long-term growth, Keppel Group, through Keppel Telecommunications & Transportation and Keppel Capital, will irrevocably undertake to subscribe for their pro-rata units under the preferential offering.
Keppel DC Reit is the first pure-play data centre Reit listed in Asia and on the Singapore Exchange. Its investment strategy is to principally invest, directly or indirectly, in a diversified portfolio of income-producing real estate assets, which are used primarily for data centre purposes, as well as real estate-related assets.