Keppel DC Reit and Keppel take 90% stakes in two Japan hyperscale data centres
The acquisition signals confidence in Japan’s data-centre segment and could support income growth through 2.8% annual rent escalation and rents at least 30% below market.
Keppel DC Reit and Keppel are acquiring 90% interests in two fully occupied Greater Tokyo data centres valued at JPY190 billion ($1.55 billion).
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Keppel DC Reit and Keppel are collectively acquiring 90% effective interests in two freehold, hyperscale data centres — Tokyo Data Centre 4 and Tokyo Data Centre 5 — in Greater Tokyo.
Located in Inzai City, one of Japan’s most established hyperscale data-centre clusters, the two fully fitted, colocation assets are fully occupied by four investment-grade internet enterprise and IT services clients.
The total purchase price on a 100% basis is JPY190 billion ($1.55 billion), which is at a 2.1% discount to the assets' valuation of JPY194 billion, said the Reit manager in a Sept 1 bourse filing.
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The Reit will take an 88.62% stake in each data centre, while Keppel, through its interest in Keppel Japan KK, will hold a 1.38% effective interest.
Keppel DC Reit will thus pay about JPY168.4 billion for its effective interest in the two data centres.
Meanwhile, the existing operator will retain a 10% stake in each asset, to ensure "alignment of interests and operational continuity", the bourse filing stated.
Keppel DC Reit said the acquisition will increase its distribution per unit immediately while also offering multiple avenues of long-term income growth. The assets benefit from contracted average annual rent escalation of about 2.8%, and the in-place rents are estimated to be at least 30% below prevailing market rents.
The weighted average lease expiry is roughly 4.5 years for Tokyo Data Centre 4 and 10.6 years for Tokyo Data Centre 5.
With the acquisition, Japan's contribution to the Reit’s portfolio rental income increases to about 23%, from 9% as at end-June this year.
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Loh Hwee Long, CEO of the manager of Keppel DC Reit, said this expands its network of institutional and operational partners, and strengthens its ability to source and access future investment opportunities globally.
Three of the four investment-grade clients across the two Tokyo data centres are new to the Reit's portfolio, which broadens its client base and reduces client concentration risk.
Its manager plans to fund the acquisition with a mix of equity and yen-denominated debt. The deal is expected to be completed in the fourth quarter of this year.