Keppel DC REIT Expands UK Portfolio With Purchase of Vodafone Facility

Keppel DC REIT has added a third UK property to its portfolio through a £57 million ($76.45 million) acquisition announced this week, as it faces new competition on the Singapore Exchange.

The Singaporean trust has agreed to buy a freehold property west of London from a joint venture of London-based property investment firm Fiera Real Estate and Saudi Arabian asset manager SEDCO Capital, with plans to use the asset as its third UK data centre, the trust’s manager said Monday.

“We are pleased to strengthen our presence in London, a top global data centre hub, with the acquisition of a data centre with a long leaseback period to a strong tenant,” said Anthea Lee, the manager’s chief executive. “Our acquisition of London Data Centre reflects our judicious criteria for identifying and evaluating potential high-quality assets in key data centre hubs and other prime locations, with strong tenancies that yield stable and regular income.”

The move comes as the top-performing REIT attempts to ride the projected “record” growth of the data centre sector in key European markets, with CBRE forecasting new supply in Frankfurt, London, Amsterdam and Paris to more than double to 394 megawatts by year-end compared with last year’s 173MW, while take-up will remain strong at 355MW or 90 percent of total new supply.

Improving Lease Profile

Keppel DC REIT said the UK facility comprises three connected two-storey buildings with 94,687 square feet (8,797 square metres) of total space housing a data centre and an ancillary office. The property sits on 4.7 acres (1.9 hectares) in Bracknell, a commercial centre in the Thames Valley region of southeast England. The trust’s manager declined to provide details on the power capacity of its new property.

The facility is currently operational and fully leased until 2039 to an unnamed “leading telecommunications company” under an existing triple-net lease on a shell and core basis, which will extend its portfolio lease profile to 8.1 years in weighted average lease expiry from 7.7 years. The deal is expected to be completed in the first quarter.

In 2016, London-based Palmer Capital had teamed with SEDCO Capital to acquire Waterside House, a 94,867 square foot office property in Bracknell, which is leased to Vodafone’s Cable & Wireless unit through 2039. Together with its partner, Palmer Capital, which was acquired by Fiera Real Estate in 2018, had paid £35.2 million for the property five years ago, with the two-storey facility then described as a recently refurbished Grade A office asset.

Set to be renamed London Data Centre, the new facility will add to Keppel DC REIT’s UK server-hosting portfolio, which already includes the two-storey Cardiff Data Centre in the Welsh capital and the two-floor GV7 Data Centre in Greenwich View Place, London, increasing the proportion of its shell and core data centre leases to 20.9 percent from 18.3 percent previously.

The REIT acquired the 18-year-old property in Cardiff in October 2016 for £34 million, while the trust already owned the 1987-vintage Greenwich facility, which was renovated in 2000, even before its SGX listing in 2014.

In the past six months, Keppel DC REIT picked up two data centres overseas when it bought a €37.2 million ($44.1 million) facility in the Netherlands in September, to follow its July acquisition of its first data centre in China, paying RMB 635.9 million ($98 million) for the facility in Guangdong province.

The latest acquisitions bring the REIT’s total data centre portfolio to 21 across Asia Pacific and Europe: six in Singapore, three each in the UK and the Netherlands, two each in Australia, Germany and Ireland, and one each in China, Italy and Malaysia.

Appetite for Data Centres

In explaining its expansion in the UK, Keppel DC REIT pointed to the country’s growing data centre market, with London receiving healthy demand from hyperscalers and cloud providers, as Singapore’s top-performing REIT in 2020 moves to scale up its business and stay ahead of rivals.

The competition among data-centre-focused REITs listed on the Singapore Exchange became more intense this year after Digital Core REIT, backed by US-based provider Digital Realty, debuted on the SGX early this month with a $600 million IPO. Digital Core REIT has an initial portfolio of 10 freehold data centres worth $1.4 billion across the US and Canada.

Another Singaporean investor expanding its footprint overseas is Digital Edge, which formed a $100 million joint venture with a Philippine real estate firm two weeks ago to build a 10MW data centre in the Greater Manila area, to follow its purchase of five facilities in Japan worth $230 million earlier this month.

Real estate advisory CBRE is projecting a record year for growth of new data centre supply across key European data centre markets London, Frankfurt, Amsterdam and Paris, estimating 90MW of new supply to be delivered by year-end and majority of 70MW are already being built for certain clients.

While London experienced a “quieter quarter” with only 4MW of additional rack space launched between July and September, CBRE noted that interest among clients remains, especially from companies in the financial services, media, gaming and healthcare sectors.