Keppel DC REIT Buys Tokyo Data Centres

Keppel DC REIT and its sponsor, Keppel Ltd, have agreed to buy a 90 percent interest in two hyperscale data centres in Greater Tokyo. The deal values the properties and their operating company at JPY 190 billion ($1.2 billion), according to a Tuesday announcement reported by Mingtiandi.

The Singapore-listed trust will take an 88.62 percent effective interest, while Temasek-backed Keppel Ltd will acquire 1.38 percent. US data centre giant Equinix will retain a 10 percent stake and continue as the operator after the transaction's expected completion in the fourth quarter. Public filings indicate Singapore sovereign wealth fund GIC is selling its entire 80 percent interest in the two assets, while Equinix is halving its stake.

This acquisition will significantly alter Keppel DC REIT's portfolio composition. Japan's contribution to the trust's rental income will jump to 23 percent, up from just 9 percent. The purchase will also lift the REIT's total assets under management to S$7.6 billion ($6 billion) from S$6.3 billion. The portfolio will expand to 27 data centres spread across 10 countries, though Singapore will continue to dominate, accounting for 60 percent of rental income.

"This acquisition demonstrates our disciplined approach to acquiring quality assets with multiple avenues for value creation," said Loh Hwee Long, CEO of Keppel DC REIT's manager.

Asset Details and Rental Upside

The two five-storey co-location facilities are located in Inzai, Chiba prefecture, a key digital infrastructure hub. Known as Tokyo Data Centre 4 and 5 by the manager, they correspond to Equinix's TY12x and TY13x buildings. The properties have a combined gross floor area of 403,128 square feet.

Both data centres are fully fitted and 100 percent occupied by four investment-grade internet and IT services clients. One client leases space in both properties. Contracted rents escalate by an average of 2.8 percent annually. A significant opportunity exists, as the manager estimates existing rents are at least 30 percent below current market levels in Tokyo.

The weighted average lease expiry (WALE) provides a stable income profile with embedded growth potential.

More than 5 percent of the properties' income is due for renewal by 2029. This creates a chance to capture market rent increases. The manager's investor presentation noted Tokyo market rents have risen to JPY 20,500-JPY 30,000 per kilowatt per month. They were JPY 17,000-JPY 20,500 between 2021 and 2023.

Deal Structure and Financial Impact

Keppel DC REIT plans to fund the total S$1.39 billion acquisition outlay through a mix of equity and debt. The financing package includes S$591.1 million from a private placement, S$788.6 million of yen-denominated debt, and S$11.7 million of units issued to the manager as a fee. The trust has launched the placement to raise gross proceeds of at least S$600 million.

This financing is expected to increase the trust's aggregate leverage to 38 percent, up from 34 percent. Including temporary debt for refundable consumption tax, leverage would reach 39 percent. Despite the higher debt, the acquisition is projected to boost pro forma distribution per unit by 2.6 percent. Net asset value per unit is expected to rise to S$1.75 from S$1.71.

The deal will also improve tenant concentration. Three new clients from this acquisition will reduce the largest tenant's share of the REIT's total rental income to 38.2 percent from 43.5 percent.

Inzai Market Context

The transaction follows Keppel DC REIT's previous activity in the same market. Last year, the REIT and its sponsor acquired the Inzai 4 facility for $551 million from a joint venture of Colt Data Centre Services, Fidelity Investments and Mitsui. Renamed Tokyo Data Centre 3, the 20MW facility is understood to be leased to Microsoft for 15 years.

Inzai has become a major cluster for server-hosting infrastructure. Google opened its first Japanese data centre there in 2023 as part of a $730 million investment. Sydney-based AirTrunk announced its TOK1 campus in 2020, with a planned capacity exceeding 300MW.

Other recent developments include Singapore's ST Telemedia Global Data Centres opening the first building of a two-facility campus planned for up to 70MW. US operator Stack Infrastructure, backed by Oaktree Capital Management, completed the first 18MW building of its planned 36MW campus in October 2024. Its second facility is under development.

Keppel did not name the vendors in its announcement, referring only to a global institutional investor and an established data centre owner and operator. A Keppel DC REIT spokesperson cited confidentiality reasons for not disclosing the seller's identity. Equinix did not respond to a request for comment from Mingtiandi, and GIC declined to comment.