Keppel DC REIT Makes Landmark Entry into Japan: S\$707 Million Hyperscale Data Centre Acquisition Set to Boost Growth, Diversify Income and Lift DPU

Key Points

• Major Acquisition: Keppel DC REIT is acquiring a 98.47% effective interest in a newly built hyperscale data centre, Tokyo Data Centre 3, in Inzai City, Japan, for approximately JPY 82.1 billion (S\$707 million).
• Long-Term Lease Secured: The property is fully leased to a Fortune Global 500 hyperscaler for 15 years, with a 5-year renewal option and built-in annual rent escalation.
• DPU Accretive: Pro forma distribution per unit (DPU) is expected to rise by 2.8% post-acquisition; net asset value (NAV) per unit will also increase.
• Strategic Expansion: Strengthens Keppel DC REIT’s presence in Asia-Pacific, increasing Japan’s share in AUM from 4.3% to 16.4%, and AUM from S\$5.0 billion to S\$5.7 billion.
• Financing Structure: The purchase will be funded through a mix of JPY-denominated debt and proceeds from a recent S\$404.5 million preferential offering.
• Healthy Leverage: Aggregate leverage to rise from 30.0% to 34.5% post-acquisition, with significant debt headroom remaining.
• Portfolio Enhancement: Portfolio occupancy rises to 95.9% and WALE extends to 7.2 years. Top client income concentration reduces, improving diversification.
• Complex, Tax-Efficient Structure: Acquisition involves multiple entities and guarantees, including back-to-back guarantees with Keppel Japan for bankruptcy remoteness and risk allocation.
• Price Sensitivity: Transaction is classified as a discloseable transaction under SGX rules; DPU uplift, portfolio diversification, and accretive acquisition could be price-sensitive for shareholders.

In-Depth Analysis: What Shareholders Need to Know

Strategic Rationale and Market Impact

Keppel DC REIT’s acquisition of Tokyo Data Centre 3 marks its most significant expansion into Japan to date. This hyperscale facility, built to Tier III-equivalent and the latest seismic standards, is located in Inzai City—one of Japan’s most established data centre clusters. The property, with a gross floor area of 197,872 sq ft and net lettable area of 74,465 sq ft, provides robust network connectivity and low-latency access to Central Tokyo.
The acquisition is underpinned by a 15-year lease to a blue-chip hyperscaler, offering built-in annual rent escalation—a rare feature in Japan’s typically fixed-rent data centre market. This structure delivers predictable, resilient cash flows, supporting both income stability and growth. With power constraints and construction bottlenecks limiting new supply in Japan, the value of existing operational assets is expected to rise, reinforcing positive rental growth prospects.

Financial Impact: Immediate DPU Accretion and Portfolio Upside

The transaction is expected to be immediately DPU accretive. Pro forma DPU for FY2024 increases from 9.451 to 9.712 Singapore cents (up 2.8%), and NAV per unit rises from S\$1.53 to S\$1.56. The acquisition pushes Keppel DC REIT’s AUM up to S\$5.7 billion and expands its asset count to 25 data centres across 10 countries.
Post-deal, aggregate leverage will rise from 30.0% to 34.5% (or 35.2% including refundable consumption tax), leaving S$495–559 million in debt headroom before reaching the 40% regulatory limit. The acquisition will be funded with a mix of JPY-denominated debt (providing a natural hedge) and the proceeds of a S$404.5 million preferential offering, with S$229.8 million earmarked for this transaction. The remainder is funded by new debt and the issuance of S$4.9 million in units to the Manager as an acquisition fee.

Portfolio Resilience and Diversification

The addition of Tokyo Data Centre 3 enhances portfolio resilience:

• Occupancy increases from 95.8% to 95.9%.
• Weighted average lease expiry (WALE) extends from 6.9 to 7.2 years.
• Exposure to top client income reduces from 45.3% to 42.1%.

This improves diversification and lowers concentration risk—a key consideration for institutional investors.

Deal Structure, Guarantees and Interested Person Transactions

Due to Japanese regulations and tax efficiency, the acquisition involves a complex web of TMK (tokutei mokuteki kaisha), GK (godo kaisha), and both onshore and offshore entities. Keppel DC REIT holds 98.47% effective interest, with Keppel Japan (a Keppel Ltd. subsidiary) holding the remaining 1.53%. The purchase includes various guarantees:

• A corporate guarantee of JPY 8.21 billion (S\$70.7 million) in case the Purchaser defaults.
• A parent guarantee to facilitate the release of an existing guarantee to the client.
• An onshore loan guarantee for the related financing.
• Back-to-back guarantees with Keppel Japan for risk mitigation.

These arrangements are structured to ensure bankruptcy remoteness and limit downside risk.
The deal is a discloseable transaction under SGX rules (relative figures: 13.1% of market cap, 3.8% of net profit). It constitutes an “interested person transaction” due to Keppel Japan’s involvement. However, the Audit and Risk Committee has confirmed all terms are on normal commercial terms and not prejudicial to minority unitholders.

Japan Data Centre Market Tailwinds

Japan is the largest data centre market in Asia-Pacific (ex-China), with demand projected to reach 1.9 GW by 2028 (16.1% CAGR). Supply is constrained by power and construction bottlenecks, often resulting in seven to ten year waits for new projects. Inzai’s strategic location and existing infrastructure make this acquisition especially valuable.

Potential Price-Sensitive Elements

• DPU Accretion: Immediate uplift in distribution per unit is likely to be positively viewed by income-focused investors.
• Portfolio Diversification: Lower income concentration and longer WALE improve risk profile, which could support higher valuations.
• Increased Leverage: While leverage rises, ample headroom remains, supporting further growth without overextending the balance sheet.
• Strong Tenant Commitment: Long-term lease with a top-tier client reduces vacancy and default risk.
• Market Re-Rating Potential: Entry into a high-growth, supply-constrained market could trigger a valuation re-rating.

Conclusion

This transaction represents a transformative expansion for Keppel DC REIT, offering immediate DPU uplift, greater portfolio resilience, and strategic exposure to a fast-growing, supply-constrained market. The long-term lease with a global hyperscaler, natural hedging via JPY-denominated debt, and prudent risk management through guarantees all point to a well-structured, value-accretive deal. Investors should monitor management’s execution and integration, but the news is likely to be viewed as a positive catalyst for Keppel DC REIT’s share price.

Disclaimer

This article is for informational purposes only and does not constitute investment advice, an offer, solicitation or recommendation to buy or sell any securities. Investors should conduct their own due diligence and consult a qualified financial advisor before making any investment decision. The author and publisher accept no liability for any loss or damage arising from reliance on the information presented above. The views expressed are based on publicly available information and are subject to change without notice.

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