Singapore-listed data center real estate investment trust Keppel DC REIT Management Pte. Ltd has entered Japan with acquisition of a hyperscaler data center in Tokyo for S$201 million ($149 million).
Keppel DC REIT Management said in a statement that the firm, as manager of Keppel DC REIT, and Keppel Ltd, have entered into an agreement to acquire a 100 percent interest in a shell and core data center located in Tokyo, Japan.
The total purchase consideration represents a 2.5 percent discount to the property’s valuation of JPY 24 billion ($153 million).
Keppel DC REIT will have a 98.47 percent effective interest in the property, while the remaining 1.53 percent effective interest in the property will be held by Keppel.
The freehold multi-storey property, named Tokyo Data Center 1, was completed in 2019 with a net lettable area of 190,166 square feet.
It is master leased on a triple-net basis to a Fortune Global 500 company and hyperscaler.
With the remaining lease term of approximately seven years, there is an opportunity for positive rental reversion and potential for further organic growth on the back of growing demand for generative artificial intelligence (AI) and tight data center supply in Japan.
“Our first acquisition in Japan, one of the largest and fastest growing data center markets in Asia, demonstrates our ability to acquire quality assets in key data center hubs,
“Japan is a core market and the addition of Tokyo Data Centre 1 will further strengthen our portfolio’s geographical, as well as income diversification,” said Loh Hwee Long, Chief Executive Officer of Keppel DC REIT.
The acquisition marks Keppel DC REIT’s maiden entry into Japan, the second largest data center hub in Asia, which is projected to expand at a compounded annual growth rate of over 10 percent from 2024 to 2028.
It is noted that demand for data centers in Japan and Tokyo is expected to continue rising with the proliferation of generative AI, growth of cloud services, digital transformation, and technological developments such as the internet of things.
Tokyo has an estimated operational information technology (IT) load of more than 1,000 megawatts (MW), which makes up over 80 percent of the total operational capacity in Japan.
Strategically located in West Tokyo, Tokyo Data Center 1 is part of a primary data center hub.
It is built to the latest seismic design standards with base isolation system.
According to the statement, the inclusion of Tokyo Data Center 1 will enhance Keppel DC REIT’s portfolio occupancy from 98.1 percent to 98.2 percent and increase the weighted average lease expiry (WALE) by lettable area from 6.5 years to 6.6 years.
Post-acquisition, Keppel DC REIT’s portfolio will be strengthened through geographical diversification, increased exposure to shell and core leases and a higher proportion of rental income derived from clients with investment grade or equivalent credit profiles.
The acquisition of Tokyo Data Center 1 is estimated to be completed in the third quarter of 2024.
Keppel DC REIT’s assets under management will increase to $3.8 billion with a total of 23 data centers across 10 countries in Asia Pacific and Europe.
The acquisition is expected to be 1.1 percent accretive to distribution per unit (DPU).
Tokyo Data Center 1 is expected to be funded through Yen-denominated debt, providing natural hedge over its capital value.
As Yen-dominated loans are lower in costs, this is expected to bring down the costs of financing. Upon completion of the acquisition, Keppel DC REIT’s average cost of debt will improve to 3.3 percent with an aggregate leverage of 39.4 percent.
Keppel DC REIT was listed on the Singapore Exchange in 2014 as the first pure-play data center REIT in Asia.
The firm’s investment strategy is to principally invest, directly or indirectly, in a diversified portfolio of income-producing real estate assets which are used primarily for data center purposes, as well as real estate and assets necessary to support the digital economy.
Keppel DC REIT’s investments comprise a mix of colocation, fully-fitted and shell and core assets, as well as debt securities, thereby reinforcing the diversity and resiliency of its portfolio.
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