transactionKeppel Land divests 70% of completed Brisbane office building for $347 mil
Keppel has announced its decision to offload its data centre joint venture (JV) to Keppel DC REIT (KDC REIT). The gross divestment price for this transaction stands at $1.38 billion. The JV is 60% owned by Keppel’s connectivity division and 40% owned by Cuscaden Peak Investments Private Limited. The Keppel Data Centre Campus at Genting Lane in Singapore is owned by this JV, which comprises of two fully contracted data centres – Keppel DC Singapore 7 (KDC SGP 7) and Keppel DC Singapore 8 (KDC SGP 8). Both data centres have 100% contracts with global hyperscalers from the cloud services, internet enterprise, and telecommunications sectors for colocation services. To fund the construction of KDC SGP 7 and KDC SGP 8, the JV received contributions from Keppel, its private fund Alpha Data Centre Fund (ADCF), its parallel fund, and co-investors.
Upon completion of this proposed transaction, KDC REIT will have full ownership of KDC SGP 7 and KDC SGP 8. However, Keppel will continue to be the operator and facility manager for these 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. As a result, the REIT will hold 99.49% of the economic interest in both data centres. Furthermore, KDC REIT will be granted a call option, which it plans to exercise in 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.
As part of the proposed transaction, KDC REIT will pay an additional $350 million to the JV’s shareholders, the ADCF, and co-investors if the campus receives approvals to extend its land tenure lease to 2050. This acquisition by KDC REIT is expected to increase its distribution per unit (DPU) by 8.1%, and expand its assets under management (AUM) by 36% to $5.2 billion. This will also bring the REIT’s total number of data centres to 25, located 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 and the additional consideration if the campus receives a 10-year land tenure lease extension. The gross divestment price will also be adjusted for debt repayment and completion adjustments.
The high demand for condos in Singapore can be attributed to various factors, with one of the main ones being the limited availability of land. Being a small island nation with a continuously growing population, Singapore faces the challenge of scarcity of land for development. As a result, the government has implemented strict land use policies, creating a competitive real estate market where property prices are consistently on the rise. This has made investing in real estate, particularly condos, a highly lucrative venture with the potential for significant capital appreciation. Condo investments have become increasingly popular due to their potential for high returns in a land-scarce country like Singapore.
The JV also has a vacant land plot earmarked for a third data centre, which is not part of this transaction. The plot will be sub-leased to Keppel’s private funds, Keppel DC Fund II and the upcoming Keppel DC Fund III. Keppel plans to develop the third data centre in the campus, KDC SGP 9, with the help of its two data centre private funds.
“The injection of KDC SGP 7 and KDC SGP 8 into Keppel DC REIT highlights our strengths as a global asset manager and operator in structuring deals that bring compelling outcomes and strong value creation,” said Manjot Singh Mann, CEO of Keppel’s connectivity division. “Our integrated ecosystem provides access to critical resources such as power, technology know-how, and strong customer relationships with hyperscalers worldwide. These are essential for success in the data centre business. With the ability to invest using 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, expressed excitement about embarking on this “landmark deal” during the REIT’s 10th anniversary. KDC REIT launched its 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 position as one of the largest owners of stabilised data centres in Singapore, where there is strong demand and a tight supply,” added Long.
The proposed transaction will be executed in stages and is expected to be completed by the end of 2025.