Keppel DC Reit and telco M1 signed a non-binding term sheet to establish a special purpose vehicle on April 28, 2021.

  Keppel DC Reit and telco M1 have signed a non-binding term sheet to establish a special purpose vehicle (SPV) to own and operate M1' s network assets, the companies said in a joint media release on Wednesday.

 

M1 will be responsible to establish the SPV, which will acquire M1' s current mobile, fixed and fibre assets for S$580 million in cash.

 

The consideration will be funded through external financing of S$493 million and an S$87 million investment by Keppel DC Reit, in return for a combination of debt securities and preference shares to be issued by the SPV. While M1 will retain 100 per cent of the SPV' s ordinary shares, M1 and Keppel DC Reit will be equally represented on the board of the SPV.

 

The SPV will enter a 15-year network service agreement with M1, in which the SPV will contract its network capacity to the telco while M1 handles the operations and maintenance of the network assets.

 

The proposed transaction is subject to satisfactory due diligence, negotiation and execution of definitive agreements, relevant regulatory approvals and if required, shareholders' or unitholders' approval, among other conditions.

 

M1 is jointly-owned by Keppel Corporation and The Business Times' publisher Singapore Press Holdings.

 

M1 chief executive Manjot Singh Mann said the proposed transaction is part of the Keppel Group' s asset-light business model, and will free up capital for investment in new capabilities and other growth initiatives.

 

Anthea Lee, chief executive of Keppel DC Reit Management, noted that the planned investment is in line with the Reit' s drive to support the global digital economy. " It also allows us to gain a foothold in Singapore' s connectivity landscape, which we can leverage when seeking further opportunities for real estate and assets that support the digital economy," she said.

 

In a separate announcement on Wednesday, Keppel DC Reit said it is expanding its investment mandate to include real estate and assets necessary to support the digital economy. This is expected to strengthen the Reit' s portfolio for long-term growth while maintaining its focus on real estate assets used primarily for data centre purposes.

 

KEPPEL Data Centre (DC) Reit on Tuesday posted a distribution per unit (DPU) of 2.462 Singapore cents for the first quarter, up 18.1 per cent from the first quarter of last year, buoyed by accretive acquisitions and asset enhancements in 2020.

 

Distributable income went up 17.5 per cent year on year to S$42.03 million, it said in an operational update.

 

Meanwhile, net property income rose 10 per cent to S$60.99 million and gross revenue rose 10.6 per cent to S$66.69 million.

 

The Reit manager said asset enhancement works at two data centres, Keppel DC Dublin 2 in Ireland and DC1 in Singapore, totalled approximately S$72 million. DC1, located just outside the Woodlands Regional Centre, has been leased to 1-Net Singapore on a fully-fitted basis.

 

The development of Intellicentre 3 East Data Centre, sited within the Macquarie Business Park precinct in Sydney, is expected to complete in the second quarter.

 

As of March 31, 2021, Keppel DC Reit had portfolio occupancy of 97.8 per cent and weighted average lease expiry of 6.6 years by leased area.

 

Net asset value per unit stood at S$1.18, down from S$1.19 as at end-December 2020.

 

The Reit' s average cost of debt was 1.5 per cent per annum, and its interest coverage ratio was 13.1 times. Aggregate leverage was 37.2 per cent.

 

Some 67 per cent of its borrowings are hedged with floating-to-fixed interest rate swaps, with the remaining unhedged borrowings in euro.

 

The Reit is seeking to mitigate the impact of currency fluctuations by hedging forecasted foreign-sourced distributions till H2 2022, with foreign currency forward contracts. It is also engaging banks to refinance loans due in Q4 2021.

 

Data centres are a " resilient asset class with long-term growth visibility" and a proxy to the fast-growing technology sector, the manager said in the update.

 

It cited figures from Danseb Consulting, which recorded hyperscalers' spending on co-location data centres rising by 25 per cent in 2020, of which 70 per cent was met by co-location providers.

 

Co-location services rent physical space for companies to store their servers and other data centre hardware, which may be costly and inefficient for the companies to manage themselves.

 

Enterprise spending on cloud infrastructure grew more than 30 per cent in 2020 and is expected to continue expanding at a compound annual growth rate of over 20 per cent through 2025.