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Keppels’ Intellicentre 2 project was completed in 2021 (Image: Keppel Data Centres)
Data centres can be seen as the most complex asset class in the real estate market, with an announcement on Tuesday by the manager of Keppel DC REIT that it is selling a pair of Sydney data centre buildings and their underlying site showing that the challenges of the sector may extend beyond power and cooling.
The SGX-listed trust is selling its Intellicentre Campus in Macquarie Park to a unit of Macquarie Technology Group’s Macquarie Data Centres division for A$174 million ($112 million), with the facilities occupied by Macquarie Telecom, a stablemate of Macquarie Data Centres in Macquarie Technology Group, on a 20-year master lease.
Both data centres are located within Macquarie Technology Group’s Macquarie Park Data Campus northwest of Sydney, where the Aussie firm’s recently received approval to add a third facility, IC3 Super West, to bring the development to 63MW in capacity, with the company leadership tying the deal to control of the development.
“The acquisition of the land and buildings at Macquarie Park gives us long-term control of the campus at a time when we are making a significant investment in expanding capacity by building IC3 SuperWest,” Macquarie Technology Group chief executive David Tudehope said in a statement to the ASX.
With Macquarie Data Centres touting on its website that it is home to 42 percent of the Australian Federal Government, Tudehope added that, “Purchasing the land and buildings also delivers on the expectations of our customer base, which values our Australian ownership, data security and sovereign credentials.”
Selling at a Premium
Macquarie Data Centre is buying the land and buildings from Keppel DC REIT at a 35.4 percent premium to their fiscal year 2023 valuation of A$128.5 million, with that sum also representing a 148.6 percent markup from the Singapore trust’s original investment in the campus of A$70 million, Keppel said in a statement. At the agreed upon compensation, the deal represents an exit cap rate of 3.6 percent.
Keppel DC REIT CEO Hwee Long Loh
In a linked transaction, the manager of Keppel REIT is agreeing to re-invest A$90 million of the sale proceeds into bonds issued by Macquarie, which will pay A$6.3 million per year, with a CPI-linked annual escalation mechanism, for 8.5 years
The income stream from the debt instruments is designed to mirror the rental the REIT would have received from the Intellicentre campus if it had held the asset for another 8.5 years, the manager said, noting that the deal allows it to maintain its access to returns from the Australian data centre market.
“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,” Loh Hwee Long, chief executive of Keppel DC REIT Management said in a statement.
The manager said that A$43.2 million of the proceeds will be used to pay off debt related to its original investment in the Intellicentre campus. The remaining net sale proceeds of about A$22.3 million, subject to closing adjustments, will be used for purposes including repaying debt, funding acquisitions, capital expenditures or for working capital.
Exiting a 10-Year Presence
Keppel DC REIT had acquired Intellicentre 2, the first building in the campus, from Macquarie Telecom for A$43.3 million in 2015, with that deal for the 8,169 square metre (87,931 square foot) shell and core building including 20,000 square metres of freehold land, according to a statement at the time.
In 2018 the trust’s manager announced that it would add a second facility of up to 7,990 square metres of net lettable area, with the trust set to pay Macquarie Telecom between A$26 million to A$36 million to develop the project. In a 2019 investor presentation the manager of Keppel DC REIT said it would commence a new 20-year triple net master lease with Macquarie Telecom for the pair of facilities from completion of Intellicentre 3, which happened in 2021.
In January of this year Macquarie Data Centres announced that it had received approval from the New South Wales government for construction of a third data centre at its Macquarie Park Data Centre Campus, with the project recognised as a state significant development and “part of Australia’s critical infrastructure.”
Data is the New Geopolitics
In an investor presentation on the deal, Macquarie Data Centres said it would be funding the acquisition from Keppel DC REIT through an A$100 million equity sale, in addition to the notes sold to its Singaporean partner.
A section of the presentation covering the rationale for the acquisition pointed to its recently approved project as helping to drive the deal, noting that owning the land and buildings gives the company full control during the development of the new facility.
Macquarie Data Centres also pointed to potential political motivations for the deal, stating that, “Purchasing of the land and buildings also delivers on the expectations of some of our major customers who value our Australian ownership and Sovereign (sic) credentials.”
The Why Us page of Macquarie Data Centres’ website carries the headline, “Secure.Sovereign. Compliant,” above an explanation that the company’s facilities are, “Purpose built for hyperscale, global multinationals and government.”
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