Keppel DC REIT Launches S\$707 Million Hyperscale Data Centre Acquisition and S\$404.5 Million Preferential Offering in Japan: Major Growth Catalyst or Risk?

Keppel DC REIT (“KDC REIT”) has unveiled a bold expansion move, announcing the acquisition of a newly completed hyperscale data centre in Inzai City, Greater Tokyo, Japan, for a headline price of JPY 82.1 billion (~S\$707 million). The deal, which sees KDC REIT securing a 98.47% effective interest for JPY 80.8 billion (~S\$696.1 million), is coupled with a fully underwritten S\$404.5 million preferential offering. These transactions mark a significant milestone for KDC REIT, strengthening its position in Asia-Pacific’s thriving data centre market and potentially transforming its earnings profile. Investors should carefully scrutinize the implications—both positive and negative—of this capital-intensive move.

Key Details of the Acquisition

• Asset: Newly completed (2025) 5-storey data centre, Tier III equivalent, base isolation seismic structure, located in Inzai City, one of Japan’s leading data centre clusters
• Purchase Consideration: JPY 82.1 billion (~S\$707 million) for 100% basis; KDC REIT’s effective 98.47% interest at JPY 80.8 billion (~S\$696.1 million)
• Valuation: Independent valuation at JPY 83.0 billion (~S\$714.7 million)
• Client: Fortune Global 500 hyperscaler (undisclosed, but signals blue-chip tenancy)
• Lease Terms: 15-year initial commitment, with a 5-year renewal option; built-in annual rent escalation
• Ownership: Freehold
• Net Lettable Area: ~74,465 sq ft
• Occupancy: 100%
• Completion: Expected end-2025

Strategic Rationale and Investment Merits

• DPU Accretion: The transaction is immediately accretive to Distribution Per Unit (DPU), with pro forma FY2024 DPU accretion projected at +2.8%.
• Debt Headroom: Post-acquisition aggregate leverage estimated at 34.5% (well below the 40% regulatory limit), providing ~\$559 million in additional debt headroom.
• Portfolio Strengthening: Portfolio occupancy rises to 95.9%, while the weighted average lease expiry (WALE) and income diversification improve. Top client rental contribution reduces to 42.1% from 45.3%, lowering concentration risk.
• Strategic Location: Inzai is a robust, low-seismic-risk DC cluster with strong network connectivity, favoured by global cloud and technology giants. Japan’s DC market is the largest in APAC (ex-China) and faces structural supply constraints (power bottlenecks, labour shortages, and construction delays), underlining competitive advantage for existing assets.
• Long-Term Contract with Hyperscaler: 100% contracted to a top global hyperscaler for 15 years with annual rent escalation, providing cash flow predictability and growth.
• Natural FX Hedge: Strategic use of JPY-denominated debt mitigates foreign exchange risk.

Method of Financing and Use of Proceeds

• Total Acquisition Outlay: S\$708.3 million (excluding a JPY 7.6 billion consumption tax, refundable within 9 months post-completion)
• Financing Mix:
  • ~S\$473.6 million from new JPY-denominated debt
  • ~S\$229.8 million from the Preferential Offering (equity raise)
  • ~S\$4.9 million in acquisition fees (in units)
• Preferential Offering:
  • S\$404.5 million fully underwritten, pro rata, non-renounceable
  • Allotment: 80-for-1,000 (8% of current units), at \$2.24 per unit (5.2% discount to last VWAP)
  • Keppel Group (Sponsor) commits to subscribing its full entitlement (~19.1% of the issue)
  • Use of proceeds:
    • S\$229.8 million: Acquisition of Tokyo Data Centre 3
    • S\$53.9 million: Asset enhancement initiative for Keppel DC Singapore 8
    • S\$10.7 million: 30-year land lease extension for Keppel DC Singapore 1
    • S\$104.5 million: Debt repayment
    • S\$5.6 million: Fees and expenses
  • Estimated combined DPU accretion from acquisition and value creation initiatives: +3.4%
  • Post-transaction aggregate leverage expected to be 33.5%

Preferential Offering Timeline

• Last cum date: 26 September 2025
• Ex-date: 29 September 2025
• Record date: 30 September 2025 (5:00 p.m.)
• Opening: 3 October 2025 (9:00 a.m.)
• Closing: 13 October 2025 (5:30 p.m.)
• Listing of new units: 22 October 2025 (9:00 a.m.)

Potentially Price-Sensitive Factors for Shareholders

• Significant Capital Raise and Dilution: The S\$404.5 million preferential offering represents ~8% of outstanding units. While accretive, the scale of the equity raise and new units may impact short-term trading and pricing.
• Leverage and Balance Sheet: Leverage will increase but remains below regulatory limits. However, execution risk exists if the acquisition or enhancement initiatives underperform.
• Customer Concentration Risk: Despite improvement, a substantial portion of income remains reliant on a single hyperscale tenant.
• Macroeconomic and FX Risks: Exposure to JPY assets and debt provides a natural hedge, but currency volatility and interest rate changes could impact returns.
• Execution and Integration: The asset is newly completed (2025), and performance depends on successful ramp-up and operational integration.
• Strategic Positioning: This acquisition deepens KDC REIT’s presence in Japan, a market with high entry barriers and growing demand, but also marked by supply constraints and competition.

Conclusion: Major Growth Inflection or Overextension?

Keppel DC REIT’s acquisition of Tokyo Data Centre 3 and the accompanying S\$404.5 million equity fundraising are set to materially reshape its portfolio, strengthen its strategic positioning in Asia Pacific, and provide immediate DPU accretion. The long-term, blue-chip tenancy and built-in rental escalation offer strong visibility on returns. However, investors must weigh the benefits of scale, diversification, and growth against the risks of substantial capital deployment, dilution, leverage, and continued reliance on large tenants.

This move—by far one of the largest in KDC REIT’s history—will likely be closely watched by the market and could drive significant share price action in the near term.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should consult their own financial advisors and consider their individual investment objectives and risk tolerance before making any investment decision. The information is based on public disclosures as of 22 September 2025 and is subject to change. Past performance is not indicative of future results.

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