Keppel Expands Footprint to Italy

Keppel DC REIT has expanded its geographical presence in Europe with the acquisition of the shell and core building of a data centre in Milan, Italy. The purchase consideration of the data centre is EUR 37.3 million (approximately S$57.3 million1).

The data centre comprises three interconnected four-storey buildings with a total lettable area of approximately 15,365 sqm (165,389 sq ft). The facility is sited on 11,965 sqm (128,791 sq ft) of freehold land that is approximately eight kilometres away from the Milan city centre, well connected and easily accessible via the Milan Metro system.

The data centre has been fully leased to one of the world's largest telecommunications companies, on a double-net lease structure for 12 years since January 2016. The lease provides for annual rental escalations and an option to renew for another six years. The client will continue to manage the facility, own the fit-out, as well as bear operating expenses and capital expenditure of the mechanical and electrical equipment.

The acquisition is expected to be accretive to Keppel DC REIT's Distribution Per Unit and will enhance its income stream stability through geographical diversification. The portfolio's Weighted Average Lease Expiry (WALE) will be lengthened from 8.7 years to 9.3 years, while the REIT's portion of master-leased facilities will be increased.

Commenting on the REIT's first investment in Italy, Mr Chua Hsien Yang, CEO of Keppel DC REIT Management Pte. Ltd., the Manager of Keppel DC REIT, said, "Milan is home to the Milan Internet Exchange point and is a strategic location as an emerging regional IT hub that is well connected to other European markets.

"This acquisition complements the REIT's existing portfolio profile and growth plans by increasing the proportion of European assets and master-leased facilities. The addition of the shell and core asset on a double-net basis will require minimal capital expenditure, and also adds a well-established client to the REIT's client base," he added.

According to BroadGroup, the Italian market presents opportunities with data centre demand growth forecasted to outpace supply growth. Utilisation rate is expected to rise steadily, with data centre demand projected to grow at a compounded annual growth rate of 15% from 2016 to 2020. In addition, increasing IT outsourcing, cloud adoption and data sovereignty regulations in Europe are expected to continue driving the region's data centre requirements.

The acquisition will be fully funded by debt and is expected to be completed in the third quarter of 2016. Upon completion, Keppel DC REIT's aggregate leverage is expected to increase from 29.1% to approximately 32.5%. Assets under management will increase to approximately S$1.13 billion with aggregate lettable area of approximately 70,912 sqm (763,298 sq ft) across 10 data centres, excluding maincubes Data Centre, which is under construction by the vendor in Germany and slated for completion in 2018.