Keppel DC Reit spends $1.5 billion on two freehold data centres in Japan

Keppel DC Reit and Keppel agreed on September 1 to purchase the majority of two data centers in Tokyo for 190 billion yen, or S$1.5 billion. The data centers, Tokyo Data Centre 4 and 5, are fully-fitted hyperscale co-location facilities owned outright by the seller. Upon completion in Q4 2026, Keppel DC Reit will own 88.62% of each property, while Keppel's Japan subsidiary will hold the remaining 1.38%.

The existing operator will retain a 10% stake in each center. The acquisition will immediately increase distribution per unit accretion and provide growth potential through rent escalators and reversion opportunities. Keppel DC Reit plans to raise $600 million through a private placement on September 10, pricing the shares between $2.096 and $2.142, representing a 2.5% to 4.6% discount to the Aug 31 average price.

The trust also plans to distribute distributable income in July and September, with an estimated range of $0.02241 to $0.02281 per unit. The purchase price is about 2.1% below the valuation of the assets at 194 billion yen. After the acquisition, the funds will provide about a 2.6% distribution per unit, up from $0.10381 to $0.10649 on a pro forma basis.

The data centers boast a contracted average annual rent escalation of 2.8% and in-place rents estimated to be at least 30% below market rates. Weighted average lease expiry stands at 4.5 years for Tokyo Data Centre 4 and 10.6 years for Tokyo Data Centre 5. The data centers are fully occupied by four internet enterprise and IT services clients, three of which are new to the Keppel DC Reit portfolio, broadening its client base and reducing client concentration risk.

The top client will account for about 38.2% of portfolio rental income post-acquisition, down from 43.5% as of June 30. Japan's contribution to portfolio rental income will rise to about 23% post-acquisition, up from 9% as of June 30. However, the Reit's portfolio will still be anchored in Singapore, accounting for about 60% of rental income post-acquisition.

The acquisition will increase the Reit's portfolio contracted power capacity from 95% to 96%, extend the portfolio weighted average lease expiry by lettable area from 6.7 years to 6.8 years, and grow assets under management from $6.3 billion to about $7.6 billion across 27 data centers in 10 countries. The manager intends to fund the acquisition through a mix of equity and yen-denominated debt.