Keppel buys 90% of two Tokyo data centers for $1.2B

Data Center Dynamics reports that Keppel Ltd. and Keppel DC REIT have agreed with unrelated third-party sellers to buy 90 percent effective interests in two fully occupied Tokyo data centers. The properties—Tokyo Data Centre 4 and Tokyo Data Centre 5, freehold and fully fitted hyperscale colocation facilities in Inzai City—carry a JPY190 billion ($1.197 billion) valuation on a 100 percent basis. At completion, Keppel DC REIT will hold 88.62 percent of each asset, Keppel Ltd 1.38 percent through Keppel Japan KK, and the unnamed operator, described as an established global data center owner and operator, will retain 10 percent.

Keppel is buying buildings that are already generating rent from investment-grade clients on freehold land, rather than paying for ground-up development or taking on the power-procurement risk that now binds most new data center projects. The operator's retained 10 percent keeps the seller economically inside the assets after the sale, a structure that acknowledges both the seller's operating role and the buyer's need for a smooth hand-off.

Keppel DC REIT upsized its private placement to S$625 million (US$492.76 million) from S$600 million (US$472.05 million), with roughly S$615.8 million (US$485.51 million) of the proceeds earmarked for the acquisition. That equity-funded purchase, rather than a leveraged yield grab, is a statement from the manager that the value here will come from repricing the assets later, not from squeezing current cash flows.

The two buildings differ most on lease expiry: Tokyo Data Centre 4, completed in 2021 with 62,135 sq ft of net lettable area, carries a 4.5-year weighted average lease expiry, while Tokyo Data Centre 5, completed in 2024 with 101,160 sq ft, carries a 10.6-year WALE. Three investment-grade occupiers sit in Tokyo 4 and two in Tokyo 5, three of them new to the REIT's portfolio, which makes the first building a cash-flow anchor and the second a repricing event waiting to happen.

Loh Hwee Long, CEO of the REIT's manager, said the acquisition gives immediate DPU accretion and includes contracted rent escalators plus “meaningful potential reversion opportunities.” The reversion opportunity lives mainly in Tokyo 4, because a 10.6-year WALE with escalators is income, while a 4.5-year WALE is the moment when the owner discovers what the building is worth. Keppel is paying for that moment now, with equity, rather than waiting to buy the building after the uncertainty has resolved.

Strip away the percentages and the deal fits the pattern PWD has tracked: the data center buildout has shifted from securing real estate to securing power. The AI buildout's bottleneck has shifted from land and chips to electrons, and developers increasingly own generation rather than lease it. Keppel's version of that trade is to buy facilities with power already switched on and leases signed, then let the operator keep a 10 percent working interest in keeping them full.

The seller's retained 10 percent is the closest thing in the release to a second opinion, and the seller is paying its own money for the privilege. The buyer gets a stabilized portfolio; the seller keeps an economic reason to run the buildings well through the transition. That makes the deal less a data center acquisition than a shared bet on Tokyo Data Centre 4's next lease cycle, with the 4.5-year WALE as the date to watch.