Keppel Secures 10-Year Lease Extension for AI-Ready Data Centre Campus: Financial Implications for Investors

Key Points from the Announcement

• 10-Year Land Lease Extension Granted: Keppel Ltd. and Keppel DC REIT Management Pte. Ltd. have received conditional approval from the authorities for a 10-year extension of the land tenure for the Keppel Data Centre Campus at Genting Lane, Singapore. The new lease extends to 15 July 2050.
• Completion of Divestment Transaction: This extension is a critical part of the ongoing divestment of two AI-ready hyperscale data centres—Keppel DC Singapore 7 (KDC SGP 7) and Keppel DC Singapore 8 (KDC SGP 8)—to Keppel DC REIT. Following the lease extension, Keppel DC REIT will pay a final sum of S\$350 million out of a total consideration of S\$1.38 billion to Keppel’s joint venture (Keppel JV with Cuscaden Peak Investments Private Limited) for securing the extended lease.
• Financial Impact on Keppel: Keppel’s share of the S\$350 million payment is approximately S\$70.9 million, reflecting its effective stake in the Keppel JV, including indirect interests via Alpha Data Centre Fund.
• Growth in Assets Under Management (AUM): Post-extension and acquisition of remaining interests in Keppel DC Singapore 3 and 4, Keppel DC REIT’s AUM will increase by about 8.5%, from S\$5.7 billion to S\$6.2 billion.
• Strategic Benefits: The lease extension provides Keppel DC REIT with the flexibility to execute asset enhancement initiatives (AEI), such as fitting out unutilised space in KDC SGP 8 into new data halls, which is expected to drive revenue and valuation uplift. It also supports client retention and portfolio resilience.
• Pipeline for Further Growth: Keppel will leverage the extended lease to advance the development of Keppel DC Singapore 9 (KDC SGP 9), the third data centre in the campus, via its private funds (Keppel Data Centre Funds II and III).
• Singapore Data Centre Market: The announcement emphasises the supply-constrained nature of Singapore’s data centre market and Keppel DC REIT’s ability to capture rising demand, especially for AI-ready hyperscale assets.

Important Information for Shareholders

• Potentially Price-Sensitive Developments:
  • The approval of the 10-year lease extension and the completion of the S\$1.38 billion divestment are significant milestones. The payment of S\$350 million for the lease extension and the subsequent increase in AUM by 8.5% could positively influence Keppel DC REIT’s valuation and future earnings.
  • Asset enhancement initiatives enabled by the longer lease are expected to unlock additional revenue streams and create further value for investors.
  • The extension increases Keppel DC REIT’s runway for growth and client retention, supporting a resilient and high-quality stream of cash flows, which may appeal to yield-focused investors.
  • The development of KDC SGP 9 with Keppel’s private funds signals ongoing expansion and potential future transactions, contributing to Keppel’s pipeline of AI-ready data centres.
• Conditional Nature of Lease Extension: Investors should note that the lease extension is subject to fulfilment of certain conditions, which may introduce execution risk.
• Exclusions for Keppel DC REIT: Keppel DC REIT does not hold any economic interest in KDC SGP 9 and is not responsible for its construction costs.
• Recent Acquisitions: The increase in AUM also factors in the acquisition of Tokyo Data Centre 3 and uplift in valuations for the 100% interests in KDC SGP 7 and 8.

Detailed Financial and Strategic Implications

The transaction underscores Keppel’s strategy of mobilising investment capital, developing leading-edge data centres, and crystallising value through divestment and asset enhancement. For Keppel DC REIT, the lease extension and associated AEI are timely catalysts in a market constrained by limited supply. These developments are expected to strengthen portfolio resilience, unlock growth opportunities, and support sustainable returns for shareholders.

The S\$350 million lease extension consideration is a direct monetisation of the extended tenure, and Keppel’s share (S\$70.9 million) will be recognised based on its effective interests. The increase in managed assets (AUM) and expected revenue/valuation uplift from AEI are material for the REIT’s future performance and could lead to share price appreciation given the strategic positioning in a high-demand market.

Investors should monitor further announcements regarding the fulfilment of lease extension conditions and the execution of AEI, as these will be key to realising the expected benefits.

Contact Information

For more information, media and investors can contact Keppel Ltd. and Keppel DC REIT representatives, as listed in the announcement.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult with a professional advisor before making any investment decisions. The information presented is based on the company’s official announcement and may be subject to change pending further developments.

View Keppel Historical chart here