UOB Kay Hian
Date of Report: Wednesday, 24 September 2025
Keppel DC REIT Expands in Japan: Tokyo DC3 Acquisition, Growth Initiatives, and Strategic Outlook

Introduction: Keppel DC REIT Accelerates Growth with Major Tokyo Data Centre Acquisition

Keppel DC REIT (KDCREIT SP), Asia’s premier pure-play data centre REIT, is executing a transformative expansion with the acquisition of Tokyo Data Centre 3 (Tokyo DC3). Backed by robust financials and a clear growth strategy, the REIT seeks to deepen its presence in Asia-Pacific’s largest data centre hub, enhance portfolio resilience, and drive distribution growth for unitholders.

Key Transaction Highlights: Strategic Tokyo DC3 Acquisition

• Acquisition of Tokyo DC3: Five-storey, freehold hyperscale data centre in Inzai City, Greater Tokyo for JPY82.1 billion (S\$707 million).
• Accretive to DPU: Pro forma 2024 distribution per unit (DPU) is expected to rise by 2.8% post-acquisition.
• Financing Structure: Partially funded via a non-renounceable preferential offering (80 new units per 1,000 existing at S\$2.24 per unit) and JPY-denominated loans.
• Portfolio Impact: Portfolio occupancy ticks up to 95.9%, weighted average lease expiry (WALE) improves from 6.9 to 7.2 years.
• BUY Rating Maintained: Target price set at S\$2.69, representing a 12.6% potential upside.

Strategic Rationale: Strengthening Hyperscale and Geographic Diversification

• Hyperscale Tenant Focus: Tokyo DC3 is fully leased to a Fortune Global 500 hyperscaler on a 15-year contract with 2-3% annual rent escalations, ensuring visible, stable cash flows and renewal options for up to five more years.
• Inzai City Advantage: The asset is located in one of Japan’s most established data centre clusters, offering superior connectivity and low latency to central Tokyo. Built to Tier 3-equivalent specs and the latest seismic standards, it ensures operational reliability for high-value tenants.
• Japan Portfolio Expansion: With Tokyo DC3, KDCREIT now holds two assets in Japan, further diversifying its Asia-Pacific exposure and reinforcing its position in a region of accelerating digital infrastructure demand.

Acquisition Economics and Funding Structure

• Yield and Leverage: The transaction delivers a net property income (NPI) yield of 4%. Aggregate leverage post-acquisition is estimated at 34.5%, leaving debt headroom of S\$559 million (up to 40% gearing).
• Comprehensive Use of Proceeds: The S\$404.5 million preferential offering will support the Tokyo DC3 purchase (S\$229.8m), asset enhancement for SGP8 (S\$53.9m), a 30-year land lease extension for SGP1 (S\$10.7m), debt repayment (S\$104.5m), and fees/expenses (S\$5.6m).
• Sponsor Support: Keppel has irrevocably committed to subscribe for its full entitlement in the rights issue, demonstrating strong alignment and confidence.

Asset Enhancement Initiatives (AEIs): Unlocking Further Value

• SGP8 (Singapore):
  • 1.5 floors of unused space offer expansion potential; S\$53.9 million will be invested to fit out half a floor for a new data hall, targeted for completion by 3Q27.
  • This AEI could further lift DPU accretion to 3.4%.
• SGP1 (Singapore):
  • Currently not a built-to-suit data centre; 30% of floor space is non-data centre and may be converted to revenue-generating halls.
  • Occupancy dropped to 56.5% in 2Q25 after a major tenant’s departure. Management plans to re-lease the space on short-term contracts, aligning expiries for a major enhancement and AI-capable upgrade starting 2028 after all leases expire.
  • Land lease extended by 30 years as of September 2025, supporting long-term value creation.

Detailed Financial Overview: Robust Growth and Resilience

Company Profile: Keppel DC REIT at a Glance

• Listing: SGX, since 12 December 2014, as Asia’s first pure-play data centre REIT.
• Portfolio: Diversified income-producing real estate assets used primarily for data centre purposes across Asia-Pacific and Europe.
• Major Shareholder: Temasek Holdings (21.8%).
• Market Capitalization: S\$5,394.3 million (US\$4,205.1 million).
• Shares Issued: 2,257.0 million.
• 52-week High/Low: S\$2.44/S\$1.84.
• FY25 NAV/Share: S\$1.59.
• FY25 Net Debt/Share: S\$0.86.

Valuation and Recommendation: Positive Catalysts and Long-Term Growth Prospects

• BUY rating maintained with a target price of S\$2.69, based on a DDM model (cost of equity: 6.5%, terminal growth: 2.8%).
• STI Inclusion: KDCREIT is now part of the Straits Times Index (STI) as of 23 June 2025, enhancing its visibility and potential investor base.
• 2026 DPU Forecast Upgraded: Raised by 1.7% due to the Tokyo DC3 acquisition.

Share Price Performance

• 1-month: +3.5%
• 3-month: +3.9%
• 6-month: +10.1%
• 1-year: +10.6%
• YTD: +9.6%

Key Catalysts and Risks

• Growing demand for colocation space from AI and cloud applications.
• Potential for further hyperscale data centre acquisitions in Japan and South Korea.
• Backfilling of vacant spaces in Guangdong, China.
• Risks include execution of AEIs, tenant concentration, and foreign exchange volatility.

Tokyo DC3 Overview: Asset Details and Strategic Importance

• Purchase Consideration: JPY82.1 billion (S\$707 million) for 100% basis; KDCREIT’s effective interest is 98.47% (JPY80.8 billion/S\$696.1 million).
• Independent Valuation: JPY83.0 billion (S\$714.7 million).
• Specifications: 5-storey, Tier III-equivalent, latest seismic standards, freehold land.
• Tenant: Fortune Global 500 hyperscaler, 15-year lease with escalation and renewal options.
• Expected Completion: End 2025.

Conclusion: Keppel DC REIT Positioned for Sustainable Growth

With the Tokyo DC3 acquisition, strategic AEIs, robust financials, and support from its sponsor, Keppel DC REIT is well-positioned to capture Asia-Pacific’s surging digital infrastructure demand. The REIT’s disciplined approach to portfolio diversification, value enhancement, and prudent capital management underpins its long-term investment appeal and reinforces its standing as a leader in the data centre REIT space.