On July 26, Keppel DC REIT announced its manager has entered into agreements with Guangdong Bluesea Data Development Co (Bluesea) and its parent company, Guangdong Bluesea Mobile Development Co, to acquire Guangdong Data Centre, a fully-fitted data centre facility in Jiangmen, Guangdong Province, for RMB635.9 million (approximately $132 million). This marks Keppel DC REIT’s first data centre acquisition in China.
The property will be fully leased back to Bluesea on a triple net basis for 15 years. Situated within the Bluesea Intelligence Valley Mega Data Centre Campus, and within the Greater Bay Area, the facility is the first of six data centre buildings to be completed. As part of this agreement, Keppel DC REIT will have the right of first refusal to acquire the remaining five data centres within the campus.
During a results briefing, Anthea Lee, CEO of Keppel DC REIT’s manager, says she is not in a position to share the asset value, but the data centres are of similar size as the Jiangmen, Guangdong data centre that Keppel DC REIT is acquiring. Lee says that net property income (NPI) yield of the Jiangmen data centre is in the “high 8%, close to 9%” range.
Based on pro forma numbers, the accretion is likely to be 1.9%, assuming funding is with a mixture of equity and debt. The KDC REIT announcement assumes 26.7 million new units priced at $2.499 will be issued via equity fund raising, and around 0.7 million new units will be issued to the manager for acquisition and management fees.
Based on the annualised DPU of 4.924 cents recorded in 1HFY2021, units in KDC REIT are yielding 3.94%. China’s risk-free rate stands around 2.89%. Hence, despite some tax leakage, the data centre is likely to be accretive.
“We are confident in these data centres because we know the underlying [space] in the data centre has been strongly leased. We can’t share the security deposit [amount]. As we’ve always mentioned, we look at the location, the specs [of the property] and rental rate so that it is able to provide us with sustainable income for the long term,” Lee says.
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When asked whether KDC REIT would be prepared to take on larger portfolio deals, Lee replies, “we have to be very careful and factor in the necessary capex. I don’t think we are handicapped and we have an advantage because of our lower cost of capital to make more impact on DPU accretion. But we have to be more careful when looking at portfolio deals and look at each asset one by one”.
Lee alludes to the likelihood of the government lifting its moratorium on data centres in Singapore. “Moratorium is not there to be there perpetually. It will take a while before new data centres are built,” she says pointing out that KDC REIT has high retention rates for its tenants.
Photo: Keppel DC REIT
