Keppel DC Reit

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Keppel DC REIT to expand Australian footprint in Sydney

Keppel DC REIT, will be expanding its data centre footprint in Australia with a new shell and core data centre, which will be built on the vacant land within the Macquarie Business Park precinct in Sydney. The development will be undertaken by Macquarie Telecom, the master lessee of the existing shell and core data centre, Intellicentre 2 Data Centre (“IC2 DC”). Macquarie Telecom will also be the master lessee of the new shell and core data centre when completed.

The expansion to the Macquarie Telecom data centre campus will be named Intellicentre 3 East Data Centre (“IC3 East DC”) and will feature a minimum of 86,000 sq ft of lettable area upon its completion, which is expected to be between 2019 and 2020. The costs payable by Keppel DC REIT will be based on the actual total costs of construction works, within a range of A$26.0 million to A$36.0 million, to be payable to Macquarie Telecom only on completion.

This addition to Keppel DC REIT’s portfolio is expected to be DPU-accretive. Upon the completion of the development, a new 20-year triple-net master lease with Macquarie Telecom incorporating both IC2 DC and IC3 East DC shell and core buildings will commence. The lease will include builtin annual rental escalations with renewal options.

More details in
Specuvestor: Asset - Business - Structure.
Keppel DC REIT to join the FTSE EPRA Nareit Global Developed Index

Keppel DC REIT Management Pte. Ltd., as Manager of Keppel DC REIT, announced that Keppel DC REIT will be included in the FTSE EPRA Nareit Global Developed Index with effect from 23 September 2019.

The FTSE EPRA Nareit Global Developed Index is developed by FTSE Russell in collaboration with the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (Nareit). The index is designed to track the performance of listed real estate companies and real estate investment trusts worldwide.

More details in
Specuvestor: Asset - Business - Structure.
Sold KDC Frankfurt 1 to Iron Mountain

[Image: uc?id=129DOCuB3rEKKuWs1onOQk6w5_MAFYSwD]

Stay home and stay safe, everyone.
1H2021 highlights

- Acquisition of datacentre in Guangdong; entry into China market

Private placement
You can count on the greed of man for the next recession to happen.
"Return of capital" deals could be immensely lucrative if paired up nicely with doses of financial engineering. But it depends on everything remaining constant over the period of time. In this case, it would be 15 years. I believe a lot of things have changed if we were just to look at M1 itself over the last 15 years. Also, I didn't expect that having "residual value" is actually a bad thing. Well, it could be if we are just looking at a bunch of cables+tunnels+routers.

SIAS-Keppel DC REIT: Virtual Dialogue Session for the Proposed Investment in the NetCo Bonds and Preference Shares

DG: How long is this acquisition expected to be DPU accretive?

ALMH: We cannot provide any forward-looking statements and predictions on how income will be. We looked at the DPU accretion on a pro forma basis, which will be 3.8% if the QPDS application is approved. I would also like to remind all our Unitholders that this in this deal, the principal that we put in will be repaid progressively over this 15-year period. This is something that we have considered very carefully and this is good, because we will not have to worry about what to do 15 years later. For illustrative purposes, if we had bought into some other assets we will have to think about how do we continue to maintain this value after 15 years. But in this case, there is no such concern because the capital would be
repaid to Unitholders over 15 years.

DG: Just one last question. In your due diligence, did you determine who does M1 or NetCo actually serve? I know Netlink Trust serves retail and also residential customers. Does M1 or NetCo serve the commercial lines?

ALMH: I can’t really provide too much details on that, but NetCo basically provides the core of what M1’s business is, which comprise mainly of the Network Assets, which are mobile, fibre and the fixed assets that M1 has. They also have their post-paid and pre-paid customer base in their business.
Keppel DC Reit has dropped ~10% in the last 1 week.

Based on some recent anecdotal discussion I had with certain parties who are either subcontractors or Microsoft Spore insiders in charge of data centers, It seems to align with Jim Chanos' June public bet that the mega cloud providers (Microsoft, Alphabet, Amazon etc) will probably be more competitor than customer in the future.

Since REITs classify their real estate as investment properties, their real estate will be valued at fair value (or in other words, close to full valuation). Based on 1H22 results, its NAV is at 1.37sgd. The latest share price is ~1.74sgd, implying a valuation ~1.27x NAV.

Of course, data center REITs will survive and still be around. Their buildings will still have high utilization rate. But the problem would be the current market valuation of doing at >NAV. If the cloud revolution turns from been a tailwind to disappointment, there isn't a lot of strong reasons for Mr Market to assign a >NAV valuation to Keppel DC Reit anymore.
(12-08-2021, 10:45 AM)LionFlyer Wrote: 1H2021 highlights

- Acquisition of datacentre in Guangdong; entry into China market

Private placement

Potential default from the seller's sales and leaseback in just 2 years. Doesn't look good.

Keppel DC Reit demands 48.3 million yuan late payment from China data centre tenant

The manager noted that KDCR Guangdong has been in “close discussion” with Bluesea, who paid the instalments up to October, but failed to duly make the payment due in the end of November.

Keppel DC Reit acquired its first data centre in China from Bluesea and its parent company for 635.9 million yuan in July 2021. The fully fitted data centre was renamed as Guangdong DC 1.
Updates on the sale/leaseback default. It seems like a "collaborative" approach is required over cold litigation, especially when the defaulter is on home ground and occupying the property. This is a stark contrast with KDC's recent Spore High Court win over DXC Technologies' partial payment in a DC located in Spore in Feb2024.

The Feb2024 settlement is on home ground, less complicated and took 2 years. So it would probably be much longer if it had gone to litigation for the GDCs. Probably best way to avoid it as what KDC has done.


Please provide updates surrounding the master lessee default at the Guangdong Data Centres (GDC). What does the recovery roadmap look like? Would it be better to replace the master lessee? Are there any timelines the management has to resolve this issue? What is the impact on future DPU over the next few years?

• Following the issue of a letter of demand for default on rent and coupon payments for our three data centres in Guangdong in December 2023, we have been continuing our active engagement with the master lessee to safeguard the interests of the REIT and its stakeholders.

• We believe that the master lessee remains committed to resolve the situation and has made additional partial payments totalling RMB0.65 million in 1Q 2024.

• Based on our assessment of the current situation, a firm but collaborative approach with the master lessee would be the best way forward.

• We have implemented a recovery roadmap with the master lessee that may translate to earnings to Keppel DC REIT sooner than if we were to go into litigation, which would be a long-drawn process.

• With this roadmap in place, we have more detailed insights and are receiving regular updates on the underlying performance of GDC 1 and 2, despite the properties being master lease assets.

• The recovery will take time to flow through. Nonetheless, we are starting to see some signs of recovery.

pre-AGM Q&A:

Settlement for DXC’s partial default of payment (Feb2024):
Divest at 3.6% exit yield to an Investment Banker. Put half of the face value proceeds back to the AUM created by the Investment Banker at 6.97% yield. Gets a 0.7% DPU accretion and money left to pay down other loans.

You have to applaud these financial wizards!

1Q 2024 Operational Updates

Opportunistic divestment at attractive price of A$174.0m; 3.6% exit cap rate

A$90.0m reinvested into Australia Data Centre Note with an 8.5 year tenure

Initial yield of 6.97% with annual escalation

DPU accretion of ~0.7%

KDC 1Q24 results:
When we learn from tuition, it can be either us paying for it OR someone else pays for the tuition. Unfortunately, KDC REIT has to pay for the tuition (and then others can learn from it).

KDC REIT had always been trading at a premium to NAV. And for a time, the premium was increasing. When there is a premium to your fair valued assets, it means the Market is either pricing in further increases in near term future revaluations OR you have some intangibles like brands, business relationships, platform capabilities that takes some cost to replicate.

On hindsight and unfortunately, the previous increasing premium to NAV for its share price was probably overvaluing all scenarios above.

P.S. The MoM showed that 1 of the Directors (a certain Mr Chua) had 40% against his election (and he was only appointed in Sept2023). I wonder where is this opposition coming from?


CEO further highlighted that the Guangdong Data Centres were master leased to Bluesea, which meant that the landlord has no contractual right to details of the master lessee’s operations and leasing pipeline. Despite this, the Manager has, as part of the recovery roadmap agreed with Bluesea, been given access to such information . The Manager has also stepped up engagement efforts with Bluesea, including constant site visits. The Manager’s portfolio management and asset management functions have also gathered learning points from this experience and changes will be incorporated for the benefit of the whole portfolio. Next, Chairman thanked CT for her comments and reassured unitholders that the Manager is working diligently to remediate the situation at the Guangdong Data Centres. She further shared that the Board, including the Chairman of the Audit and Risk Committee, has raised pointers and action items for the Manager to incorporate.

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