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Keppel DC Real Estate Investment Trust (Keppel DC Reit) and its sponsor Keppel are jointly acquiring a 100 per cent interest in a shell and core data centre in Tokyo, Japan, named Tokyo Data Centre 1.
The total purchase consideration of 23.4 billion yen (S$195.3 million) stands at a 2.5 per cent discount to the property’s valuation of 24 billion yen, said the Reit manager on Thursday (Jul 11).
The deal represents Keppel DC Reit’s first acquisition in Japan, which its manager’s chief executive, Loh Hwee Long, highlighted as one of the largest and fastest-growing data centre markets in Asia.
“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,” he said.
Upon completion of the acquisition in Q3 2024, the Reit will hold a 98.47 per cent effective interest in the property. The remaining 1.53 per cent interest will be held by Keppel.
Funding of the acquisition will be made through yen-denominated debt, which the manager said will provide a natural hedge over the property’s capital value.
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“As yen-denominated loans are lower in costs, this is expected to bring down the costs of financing,” it added.
It estimates the acquisition to improve Keppel DC Reit’s average cost of debt to 3.3 per cent, though average leverage would rise to 39.4 per cent. This is opposed to a 3.5 per cent cost of debt and an aggregate leverage of 37.6 per cent reported as at end-March.
Acquiring Tokyo Data Centre 1 is expected to be 1.1 per cent accretive to the Reit’s distribution per unit (DPU), while boosting its assets under management to S$3.8 billion.
Based on pro-forma calculations, the Reit’s FY2023 DPU would have been S$0.09488 had the acquisition been completed on Jan 1, 2023, versus S$0.09383.
Including Tokyo Data Centre 1 in Keppel DC Reit’s portfolio is also estimated to enhance portfolio occupancy to 98.2 per cent from the current 98.1 per cent, while increasing weighted average lease expiry by lettable area to 6.6 years from 6.5 years.
Completed in 2019, Tokyo Data Centre 1 is a freehold multi-storey property with a net lettable area of 190,166 square feet in West Tokyo.
Keppel DC Reit’s manager said it is master leased on a triple-net basis to “a Fortune Global 500 company and hyperscaler”.
Given the tenant’s remaining lease term of about seven years, the manager foresees positive rental reversion and potential for “further organic growth on the back of growing demand for generative artificial intelligence and tight data centre supply” in Japan.
Units of Keppel DC Reit ended Wednesday up S$0.02 or 1.1 per cent at S$1.85, while Keppel shares were S$0.11 or 1.7 per cent higher at S$6.68.
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