Keppel DC REIT Management has entered into a sale and purchase agreement to divest its 100% freehold interest in Intellicentre Campus in Sydney, Australia, at an agreed value of A$174.0 million (US$112.53 million) to Macquarie Data Centres Macquarie Park Property SubTST (as trustee of Macquarie Data Centres Macquarie Park Property SubTrust).

The trustee and Macquarie Data Centres Macquarie Park Property SubTrust are indirect wholly-owned subsidiaries of Australian-listed Macquarie Technology Group (MTG), which is also the ultimate parent company of Macquarie Data Centres, the existing tenant of the property.

The agreed value represents a 35.4% premium to the property’s FY2023 valuation of A$128.5 million and is 148.6% higher than the original investment of approximately A$70.0 million. The divestment represents an exit cap rate of approximately 3.6%.

In conjunction with the divestment, Keppel DC REIT will re-invest A$90 million of the sale proceeds into an Australia Data Centre Note (AU DC Note) issued by Macquarie Data Centres Group. The AU DC Note is guaranteed by MTG, whose facilities house data for some of the world’s biggest hyperscalers, clouds and 42% of the Australian federal government.

Through the AU DC Note, Keppel DC REIT will retain its exposure to the Australia data centre market, and receive a regular income stream starting from approximately A$6.3 million per year, with a CPI-linked annual escalation mechanism, for 8.5 years. The income stream from the AU DC Note will mirror the rental the real estate investment trust would receive from Intellicentre Campus if the asset were held for another 8.5 years. 

The transactions are expected to be 0.7% accretive to distribution per unit (DPU) from the Australia DC Note subscription and with the cessation of property expenses and financing costs associated with the asset. Assuming that the transactions had been completed on January 1 2023, the pro forma DPU for FY2023 will increase from 9.383 cents to 9.446 cents.

The manager will repay existing loans of approximately A$43.2 million relating to the original investment of Intellicentre Campus. The remaining net sale proceeds of about A$22.3 million, subject to closing adjustments, will be used for repaying debt, funding acquisitions, capital expenditures and working capital.

 “As a whole, these transactions are DPU-accretive and present a unique opportunity for Keppel DC REIT to crystallise value from its investment in Intellicentre Campus at a highly attractive premium, while continuing to earn recurring income that mirrors the rents that we have been receiving from the asset,” says Loh Hwee Long, CEO of Keppel DC REIT Management. “They also attest to the manager’s proactive portfolio management strategy and commitment to optimize unitholders’ returns, while improving the resilience of Keppel DC REIT’s earnings..”