Keppel DC REIT Enters Japan With $140M Tokyo Data Centre Buy

Keppel DC REIT has agreed to buy a western Tokyo data centre at a deal value of JPY 23.4 billion ($140 million), taking advantage of low borrowing costs to secure the trust’s first asset in Japan.

The Singapore-listed REIT will hold a 98.47 percent effective interest in the property, known as Tokyo Data Centre 1, while sponsor Keppel Ltd will acquire the remaining 1.53 percent, the trust’s manager said Thursday in a release. The seller is an unrelated third party.

The precise location wasn’t disclosed for the freehold multi-storey property, which was completed in 2019 and offers a net lettable area of 190,166 square feet (17,667 square metres). It is master-leased on a triple-net basis to a Fortune Global 500 company and hyperscaler with a remaining lease term of roughly seven years, according to Temasek-backed Keppel.

“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,” said Loh Hwee Long, CEO of the trust’s manager. “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.”

Built-In Hedge

The acquisition is to be funded with low-cost, yen-denominated debt, providing a “natural hedge” over capital value, Keppel said. The REIT’s average cost of debt is estimated to improve to 3.3 percent with aggregate leverage of 39.4 percent.

Upon completion of the transaction by the end of the third quarter, Keppel DC REIT’s assets under management are expected to increase to S$3.8 billion ($2.8 billion) across 23 data centres in Asia Pacific and Europe.

The trust’s manager sees an opportunity for positive rental reversion and potential for further organic growth driven by demand for generative AI and tight data centre supply in Japan, Asia’s second-largest server-hosting market (after China).

Japan has an operational data centre capacity of 1.3 gigawatts, with Tokyo properties making up more than 80 percent of total capacity, according to research by Cushman & Wakefield.

Digital Infrastructure Drive

In March, Keppel signalled its growing interest in digital infrastructure in Asia’s second-largest economy with the announcement of a deal with real estate giant Mitsui Fudosan to explore data centre development and investment opportunities in Japan and Southeast Asia.

In addition, the private Keppel Data Centre Fund II has a framework agreement with Mitsui Fudosan on the proposed forward purchase of an under-development facility in western Tokyo that will mark Keppel’s first data centre project in Japan.

The $1.1 billion KDCF II fund, which is backed by investors including China’s Asian Infrastructure Investment Bank, will work exclusively with Mitsui Fudosan on the acquisition of the purpose-built data centre with a planned gross floor area of more than 300,000 square feet.

Mitsui Fudosan’s sister firm Mitsui & Co, a trading arm of the Japanese group, announced in 2021 that it planned to invest JPY 300 billion in the construction of domestic data centres by 2026.