Keppel DC REIT Makes Bold Move With \$707 Million Acquisition of Hyperscale Data Centre in Greater Tokyo

Key Points for Investors

• Acquisition of Tokyo Data Centre 3: Keppel DC REIT, together with Keppel Ltd., has entered into agreements to acquire a 100% interest in Tokyo Data Centre 3, a freehold, newly built hyperscale data centre in Inzai City, Greater Tokyo, for JPY 82.1 billion (approx. S\$707 million), representing a 1.1% discount to the asset’s independent valuation.
• Strong Tenant Profile: The entire facility is leased to a leading global hyperscaler on a 15-year contract with built-in annual rent escalation, providing highly resilient and growing cash flows—an advantageous structure compared to the predominantly fixed-rent contracts common in Japan.
• Strategic Expansion in Japan: This transaction marks Keppel DC REIT’s second data centre in Japan, deepening its presence in Asia Pacific’s largest data centre hub (excluding China), where demand outstrips supply due to power and construction constraints.
• DPU Accretive & Enhanced Portfolio Resilience: The deal is immediately accretive to Distribution per Unit (DPU), projected to raise FY2024 DPU by 2.8% from 9.451 cents to 9.712 cents. The acquisition will also lift portfolio occupancy and extend the weighted average lease expiry (WALE).
• Capital Raising Initiative: Keppel DC REIT is launching a pro rata non-renounceable preferential offering to raise approximately S\$404.5 million, offering 80 new Units for every 1,000 held at S\$2.24 per unit. Funds will be used to part-finance the acquisition, enhance existing assets, extend land leases, and for debt repayment.
• Portfolio Growth: Post-acquisition, assets under management will rise to S\$5.7 billion with 25 data centres across 10 countries in Asia Pacific and Europe.

Details Every Shareholder Should Know

• Price-Sensitive Developments:
  • Major Acquisition: At over S\$700 million, this is a significant capital deployment, impacting the REIT’s gearing and funding profile.
  • DPU Accretion: The acquisition is forecasted to immediately improve unitholder returns, a key metric for income-focused investors.
  • Preferential Offering: The equity fundraising could impact the unit price in the near term due to dilution, but is geared towards securing long-term accretive growth.
  • High-Quality Tenant: The facility is fully leased to a “leading global hyperscaler” (identity not disclosed), adding a highly secure and stable income stream.
  • Lease Structure: The 15-year lease has built-in annual escalations, unlike most Japanese data centre leases, which are typically fixed, offering a rare inflation-hedged income stream.
  • Strategic Location: Inzai City is an established data centre cluster, offering robust network connectivity and low latency to Central Tokyo, and the facility meets Tier III-equivalent and strict seismic standards.
  • Portfolio Impact: Occupancy will slightly rise from 95.8% to 95.9%, and WALE will extend from 6.9 years to 7.2 years, contributing to greater income visibility and diversification.
  • Asset Enhancement & Lease Extension: Proceeds will also fund asset enhancement at Keppel DC Singapore 8 and a 30-year land lease extension at Keppel DC Singapore 1, further strengthening the portfolio.

In-Depth Transaction Analysis

Keppel DC REIT’s acquisition of Tokyo Data Centre 3 comes at a strategically opportune time. Japan’s data centre sector is experiencing robust demand, with supply lagging due to power and construction bottlenecks. This newly built, freehold five-storey facility in Inzai City, an established data centre cluster, is constructed to Tier III-equivalent standards and includes state-of-the-art seismic protection. The data centre is managed by a reputable global operator with over 20 years of experience in the sector.

The acquisition price of JPY 82.1 billion (S\$707 million) is at a 1.1% discount to the independent valuation, reflecting Keppel’s disciplined approach to capital deployment. Keppel DC REIT will own a 98.47% effective stake, with Keppel Ltd. retaining 1.53%. The entire data centre is leased to a major global hyperscaler for 15 years with annual rent escalation, providing a rare inflation-linked income stream. This is particularly significant in the Japanese market, where most data centre leases are fixed and do not offer such escalation clauses.

The deal is forecasted to be immediately DPU-accretive—on a pro forma basis, had the acquisition closed on 1 January 2024, FY2024 DPU would increase by 2.8%. Portfolio occupancy will also rise, and the WALE will extend to 7.2 years, enhancing income visibility and defensive characteristics. After the acquisition, Keppel DC REIT’s assets under management will reach S\$5.7 billion, comprising 25 data centres in 10 countries.

To partially fund the purchase, Keppel DC REIT is launching a non-renounceable preferential offering to raise gross proceeds of S\$404.5 million, with 80 new Units for every 1,000 held at S\$2.24 per unit. The proceeds will also be used for asset enhancements at Keppel DC Singapore 8 and for a 30-year lease extension at Keppel DC Singapore 1, as well as for debt repayment, supporting the REIT’s long-term growth and stability. The estimated pro forma DPU accretion after all deployments is approximately 3.4%.

This acquisition signals Keppel DC REIT’s commitment to value creation through disciplined expansion in high-growth digital hubs. The addition of a high-quality, long-term leased asset in a critical interconnect location between Asia and the Americas positions the REIT for resilient, sustainable growth. However, investors should be aware of the short-term dilution from the equity offering and the increased exposure to the Japanese market.

What Could Move the Share Price?

• Immediate DPU Accretion: Higher yields are typically positive for REIT valuations.
• High-Quality, Long-Term Tenant: The security of income from a global hyperscaler could attract more institutional investors.
• Equity Fundraising: While strategic, the preferential offering may create short-term pricing pressure due to dilution.
• Expansion in Japan: Investors may re-rate the REIT as it deepens its presence in a high-demand, supply-constrained market.
• Enhanced Portfolio Strength: Improved occupancy, longer WALE, and greater diversification bolster defensive qualities.

Investor Information

Details of the preferential offering, including eligibility and application procedures, will be dispatched to entitled unitholders in due course. For further information, contact Keppel’s Investor Relations or visit www.keppeldcreit.com.

Disclaimer

This article is for informational purposes only and does not constitute investment advice. The value of units and income derived from them may rise or fall. Investments in Keppel DC REIT are subject to risks, including possible loss of the principal amount invested. Past performance is not indicative of future results. Please consult your financial adviser before making any investment decisions.

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