Keppel DC Reit acquires two Tokyo data centres for US$1.2 billion in Japan expansion push

Keppel DC Reit and its sponsor Keppel have agreed to collectively acquire nearly all of two hyperscale data centres in Greater Tokyo for 190 billion yen (US$1.2 billion), marking one of the largest data centre acquisitions by a Singapore-listed real estate investment trust in Japan. The deal, announced on Tuesday (Sep 1), underscores the growing investor appetite for digital infrastructure assets in Asia's fastest-growing data centre markets.

The transaction covers Tokyo Data Centre 4 and Tokyo Data Centre 5, two freehold, fully-fitted co-location facilities located in Inzai City, Greater Tokyo. Upon completion in the fourth quarter of 2026, Keppel DC Reit will hold an 88.62 per cent effective interest in each facility, while Keppel, through its stake in Keppel Japan KK, will hold a 1.38 per cent effective interest. The existing operator, described as an "established global data centre owner and operator," will retain a 10 per cent interest in each data centre.

The aggregate purchase consideration represents a discount of about 2.1 per cent to the assets' valuation of 194 billion yen. Keppel DC Reit will pay approximately 168.4 billion yen for its share. The Reit manager said the acquisition is expected to be immediately accretive to distribution per unit (DPU), a key metric for Reit investors. On a pro forma basis, had the acquisition been completed on Jan 1, 2025, DPU for FY2025 would have risen 2.6 per cent from S$0.10381 to S$0.10649.

To fund the acquisition, the Reit manager plans to raise at least S$600 million through a private placement scheduled for Sep 10. A total of 280.1 million new units will be issued at a price between S$2.096 and S$2.142, representing a discount of approximately 2.5 per cent to 4.6 per cent to the volume-weighted average price of all trades on Monday. Alongside the placement, the manager intends to declare an advanced distribution of distributable income between Jul 10 and Sep 9, estimated at between S$0.02241 and S$0.02281 per unit.

The two data centres are fully occupied by four investment-grade internet enterprise and IT services clients, three of which are new to Keppel DC Reit's portfolio. The manager said this will broaden its client base and reduce client concentration risk. Following the acquisition, the top client's contribution to portfolio rental income is expected to decline from 43.5 per cent as at Jun 30 to about 38.2 per cent post-acquisition.

The assets also offer embedded growth through contracted rent escalators averaging about 2.8 per cent annually, with in-place rents estimated to be at least 30 per cent below prevailing market rents. Weighted average lease expiry (WALE) stands at about 4.5 years for Tokyo Data Centre 4 and 10.6 years for Tokyo Data Centre 5. "In addition to immediate DPU accretion, Tokyo Data Centre 4 and 5 provide embedded growth through contracted rent escalators and meaningful potential reversion opportunities, while further deepening our exposure to the Japan data centre market," said Loh Hwee Long, CEO of the manager of Keppel DC Reit.

Japan's contribution to Keppel DC Reit's portfolio rental income will rise from about 9 per cent as at Jun 30 to approximately 23 per cent post-acquisition. The manager said the Reit's portfolio will remain anchored in Singapore, which will account for about 60 per cent of portfolio rental income after the deal. Portfolio contracted power capacity will increase from about 95 per cent to 96 per cent, while portfolio WALE by lettable area will extend from 6.7 years to 6.8 years. Assets under management will grow from S$6.3 billion to approximately S$7.6 billion across 27 data centres in 10 countries.

The manager said it intends to fund the acquisition through a mix of equity and yen-denominated debt. Shares of Keppel DC Reit closed flat at S$2.20 on Monday before the announcement, and the trust called for a trading halt before market open on Tuesday.