The manager of Keppel DC REIT has entered into an agreement to acquire a shell and core data centre located in Tokyo, Japan for JPY23.4 billion ($201 million).
The total purchase consideration represents a 2.5% discount to the property’s valuation of JPY24 billion.
Keppel DC REIT will have a 98.47% effective interest in the property, while the remaining 1.53% effective interest in the property will be held by Keppel.
The freehold multi-storey property Tokyo Data Centre 1 was completed in 2019 with a net lettable area of 190,166 sqft. 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 a base isolation system.
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, the manager notes in a filing.
The acquisition marks Keppel DC REIT’s maiden entry into Japan, the second largest data centre hub in Asia, projected to expand at a compounded annual growth rate of over 10% from 2024 to 2028.
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Tokyo has an estimated operational IT load of more than 1,000 megawatts (MW), which makes up over 80% of the total operational capacity in Japan.
“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,” says CEO of the manager Loh Hwee Long.
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.
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The acquisition of Tokyo Data Centre 1 is estimated to be completed in 3Q2024. Keppel DC REIT’s assets under management will increase to $3.8 billion with a total of 23 data centres across 10 countries in Asia Pacific and Europe.
The acquisition is expected to be 1.1% accretive to distribution per unit (DPU).
Tokyo Data Centre 1 is expected to be funded through yen-denominated debt, providing natural hedge over its capital value. As yen-denominated 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%.
Shares in Keppel DC REIT closed 2 cents higher or 1% up on July 10 at $1.85.
