Keppel DC REIT: Divesting Australian Data Center at a 35.4% Premium Over Valuation

Narrow-moat Keppel DC REIT is divesting its Intellicentre Campus in Sydney, Australia for AUD 174 million to a subsidiary of Macquarie Technology Group, which is also the parent of the asset’s existing tenant. The disposal price appears attractive, at a 35.4% premium over its end-2023 valuation and a 148.6% premium over its original investment cost. This also implies an exit cap rate of 3.6%, which is lower than the Australian data center transaction cap rates that range between 5% and 6%, according to management. Concurrently, the trust will subscribe to an 8.5-year, AUD 90 million note issued by the buyer that gives an initial yield of 6.97% and comes with annual consumer-price-index-linked escalation. Management said the note’s return will mirror the divested asset’s rental income and hence expects a slight distribution per unit, or DPU, accretion of 0.7% after the transactions are completed.