Keppel DC REIT Announces Major S\$350 Million Lease Extension for Singapore Data Centres

Keppel DC REIT Management Pte. Ltd. has announced the proposed payment of a significant lease extension consideration of S\$350 million in connection with a 10-year extension of the land lease for Keppel DC Singapore 7 (KDC SGP 7) and Keppel DC Singapore 8 (KDC SGP 8), both located at 82 Genting Lane, Singapore 349567.

Key Highlights

• Lease Extension Overview:
  • JTC Corporation has approved a 10-year extension of the land lease, expiring now on 15 July 2050 instead of 15 July 2040.
  • This extension is subject to certain conditions, including the development of a planned third data centre (KDC SGP 9) by Memphis 2 (DC 2) Pte. Ltd. on a portion of the land.
• Financial Details and Transaction Costs:
  • Lease Extension Consideration: S\$350.0 million, payable to a consortium of previous shareholders, Keppel Griffin Pte. Ltd., and previous noteholders.
  • Total Transaction Cost: Estimated at S\$365.6 million, including S\$9.9 million upfront land premium, S\$3.5 million acquisition fee (payable in units to the REIT Manager), and S\$2.2 million in stamp duty, professional, and other fees.
  • The transaction will be financed primarily through SGD-denominated debt financing (S\$350 million), existing cash (S\$12.1 million), and issuance of new units for the acquisition fee (S\$3.5 million).
• Valuation and Security Structure:
  • The lease extension consideration is in line with independent valuations conducted for KDC SGP 7 and KDC SGP 8, with and without the lease extension.
  • Payment Undertaking Deeds have been entered into, which provide that if the lease extension is not granted or is revoked due to certain conditions (e.g., JTC’s terms not being met or being prejudicial), up to S\$410 million (calculated pro-rata) may be returned to Keppel DC REIT by the undertaking parties.
• Strategic and Portfolio Impact:
  • The extension allows Keppel DC REIT to execute asset enhancement initiatives (AEI), such as the fit-out of unutilised space at KDC SGP 8, driving potential revenue and valuation uplift.
  • The extended land tenure is expected to improve tenant retention, enhancing the resilience and quality of cash flows.
  • The weighted average land lease expiry of the Singapore portfolio will increase from 21.7 years to 25.0 years by rental income.
  • Assets under management (AUM) will increase by approximately 8.5%, from S\$5.7 billion to S\$6.2 billion, including both the lease extension and associated acquisitions.
  • KDC SGP 9 may be considered a future acquisition target for Keppel DC REIT once stabilised.

Important Shareholder Considerations and Price Sensitivity

• Major Transaction: The S\$350 million lease extension constitutes a major transaction under SGX Listing Manual rules, having received unitholder approval at the 2024 EGM. The size and strategic impact could significantly affect Keppel DC REIT’s financial profile and market perception.
• Interested Person Transaction: The transaction involves payments to entities associated with both the Sponsor (Keppel Ltd.) and Temasek Holdings, both controlling unitholders and shareholders. This heightens scrutiny and transparency requirements.
• Return of Capital Provisions: Should the lease extension not materialise or be revoked under adverse conditions, Payment Undertaking Deeds allow for the return of up to S\$410 million (including finance costs), with undertakers required to maintain sufficient net asset values to guarantee repayment.
• Potential Execution Risks: The lease extension is contingent on the development of KDC SGP 9 and other conditions set by JTC. If these are not met or JTC’s offer terms are materially prejudicial, the transaction could be unwound, and capital may be returned, affecting future growth prospects and asset valuations.
• Financial Effects: The transaction is expected to have a material impact on Keppel DC REIT’s leverage, portfolio weighting, and potentially distributions to unitholders. Full pro forma effects are detailed in the referenced circular.

Additional Details

• Data Centre Specifications:
  • KDC SGP 7: Seven-storey, Tier III-equivalent, 186,608 sq ft GFA, fully contracted, TOP received March 2023, CSC in January 2025.
  • KDC SGP 8: Six-storey, Tier III-equivalent, 290,041 sq ft GFA, fully contracted, TOP received August 2024, CSC in January 2025.
  • Both centres have achieved BCA’s Green Mark Platinum Award for new data centres.
• Director and Substantial Unitholder Interests:
  • Detailed breakdowns of directors’ and substantial unitholders’ holdings provided; no proposed board changes in connection with this transaction.
  • Temasek and Keppel Ltd. have deemed interests in over 20% and 19% of REIT units, respectively.
• Documentation:
  • Lease Extension Agreement, Payment Undertaking Deeds, and KDC SGP 9 Supplemental Lease are available for inspection.

Potential Share Price Impact

This announcement is price sensitive and has the potential to move Keppel DC REIT’s share price due to:

• The scale of the transaction and its impact on asset base and lease tenure.
• The involvement of major shareholders and interested persons.
• The return of capital risk management structure, mitigating downside risks.
• The strategic significance in consolidating Keppel DC REIT’s position in Asia’s top data centre hub, Singapore.

Disclaimer

This article provides a summary and analysis of public disclosures made by Keppel DC REIT. It is for informational purposes only and does not constitute investment advice. Investors should consult their professional advisors and assess their own risk before making any investment decisions. The past performance of Keppel DC REIT is not indicative of future results. Forward-looking statements in this article are subject to risks, uncertainties, and changes in market conditions.

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