Keppel DC REIT’s \$707 Million Hyperscale Data Centre Acquisition in Japan: Game-Changer for Investors?

Key Points at a Glance

• Acquisition of Tokyo Data Centre 3 for JPY 82.1 billion (approx. S\$707 million) at a 1.1% discount to valuation.
• 15-year lease fully contracted to a leading global hyperscaler with built-in annual rent escalation.
• Accretive to Distribution per Unit (DPU): Pro forma DPU for FY2024 would rise by 2.8%.
• Portfolio Expansion: Increases assets under management (AUM) to S\$5.7 billion across 25 data centres in 10 countries.
• Preferential offering to raise approximately S\$404.5 million to partly fund the acquisition and asset enhancement initiatives.
• Portfolio resilience and diversification enhanced by exposure to another global hyperscaler and greater lease expiry profile.

In-Depth Analysis

Keppel DC REIT, Asia’s first pure-play data centre real estate investment trust, has announced a landmark acquisition that could significantly shape its investment profile and impact its share value. The REIT, together with its sponsor Keppel Ltd., has entered into agreements to acquire a 100% interest in Tokyo Data Centre 3, a newly built hyperscale facility in Inzai City, Greater Tokyo. The acquisition price of JPY 82.1 billion (approximately S\$707 million) is at a 1.1% discount to the independent valuation, reflecting prudent capital allocation and negotiation strength.

Tokyo Data Centre 3 is a freehold, five-storey, Tier III-equivalent facility constructed to the latest seismic standards with a base isolation system, ensuring operational resilience even in earthquake-prone Japan. Strategically located in Inzai City—Japan’s premier data centre cluster—the asset offers robust network connectivity and low latency to central Tokyo, making it highly attractive for hyperscale clients.

What makes this acquisition stand out is the 15-year, fully contracted lease with a top-tier global hyperscaler, featuring built-in annual rent escalation. This is a rare structure in Japan, where fixed-rent contracts are the norm, providing Keppel DC REIT with enhanced cash flow stability and inflation protection. This move expands Keppel DC REIT’s Japanese footprint to two data centre assets, deepening its presence in Asia Pacific’s largest data centre hub outside China. Demand in the Japanese market remains robust, with power and construction constraints limiting new supply—an environment that supports strong rental growth and asset appreciation.

Financial Implications and Portfolio Impact

The acquisition is expected to be immediately DPU-accretive. On a pro forma basis, if the acquisition had completed on 1 January 2024, DPU for FY2024 would have increased by 2.8%, from 9.451 cents to 9.712 cents. Portfolio occupancy will improve slightly from 95.8% to 95.9%, while the weighted average lease expiry will jump from 6.9 years to 7.2 years, further strengthening income visibility and reducing risk.

On completion, Keppel DC REIT’s assets under management will rise to S\$5.7 billion, spanning 25 data centres across 10 countries in Asia Pacific and Europe. This acquisition also increases portfolio diversification by raising the proportion of rental income from a leading global hyperscaler—a key tenant profile that is likely to reassure investors about the REIT’s forward income security.

Funding and Capital Management

To partially fund the acquisition, Keppel DC REIT has launched a pro rata non-renounceable preferential offering to raise about S\$404.5 million. Unitholders will be offered 80 new units for every 1,000 units held at an issue price of S\$2.24 per unit. The proceeds will also be used for asset enhancement at Keppel DC Singapore 8, a 30-year land lease extension for Keppel DC Singapore 1, and debt repayment. The estimated pro forma accretion from these initiatives is projected at 3.4%.

Details of the preferential offering, including eligibility and application procedures, will be provided to entitled unitholders in due course. Investors should watch for this, as participation decisions may impact portfolio weighting and returns.

Potential Price-Sensitive Information

• The accretive nature of the acquisition and the high-quality, long-term lease with a global hyperscaler could boost investor confidence and drive share price appreciation.
• The preferential offering could temporarily pressure the unit price due to dilution, but is likely to be offset by the enhanced earnings base and portfolio quality.
• Exposure to Japan’s constrained supply and robust demand market provides a long-term growth runway, distinguishing Keppel DC REIT from regional peers.

CEO’s Commentary

Mr Loh Hwee Long, CEO of Keppel DC REIT’s Manager, underscored that the deal aligns with their value creation strategy and positions the REIT to benefit from Japan’s role as a digital interconnect hub between Asia and the Americas. He emphasized the acquisition’s role in enhancing portfolio quality and income diversification, key factors for long-term investor returns.

Investor Takeaway

• This acquisition strengthens Keppel DC REIT’s competitive edge in the fast-growing hyperscale data centre sector.
• The lease structure, tenant profile, and operational location offer a unique combination of stability, growth, and downside protection.
• Investors should monitor the preferential offering for participation opportunities and potential short-term price movements.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. The value of REIT units and income derived from them can fluctuate, and past performance is not indicative of future returns. Investors should read the official offering documents and consult their financial advisors before making investment decisions.

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