Keppel DC REIT and Keppel Ltd have agreed to acquire a 100% interest in a shell and core data centre in Tokyo, Japan for 23.4 billion yen (US$142.3 million).
The purchase amount represents a 2.5% discount to the property’s valuation of 24 billion yen. Keppel DC REIT will take a 98.47% stake in the property, while the remaining 1.53% interest will be held by Keppel.
A freehold multi-storey property, Tokyo Data Centre 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 centre supply in Japan.
“Our first acquisition in Japan, one of the largest and fastest growing data centre markets in Asia, demonstrates our ability to acquire quality assets in key data centre hubs,” says Loh Hwee Long, chief executive officer of Keppel DC REIT Management, the manager of the real estate investment trust. “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.”
The acquisition marks Keppel DC REIT’s maiden entry into Japan, the second largest data centre hub in Asia, which is projected to expand at a compounded annual growth rate of over 10% from 2024 to 2028. Demand for data centres in Japan is expected to continue rising with the proliferation of generative AI, growth of cloud services, digital transformation, and technological developments such as Internet of Things.
Tokyo, in particular, has an estimated operational IT load of more than 1,000 megawatts, which makes up over 80% of the total operational capacity in Japan.
Geographical diversification
Strategically located in West Tokyo, Tokyo Data Centre 1 is part of a primary data centre hub. It is built to the latest seismic design standards with base isolation system.
The inclusion of Tokyo Data Centre 1 will enhance Keppel DC REIT’s portfolio occupancy from 98.1% to 98.2% 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 Centre 1 is estimated to be completed in the third quarter of 2024. Keppel DC REIT’s assets under management will increase to S$3.8 billion (US$2.82 billion) with a total of 23 data centres across 10 countries in Asia-Pacific and Europe.
The acquisition 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% with an aggregate leverage of 39.4%.
