Singapore's GIC is divesting its entire 80% stake in a joint venture with Equinix, selling its interest in two hyperscale data centers near Tokyo for approximately $1.2 billion. Keppel DC REIT will acquire an 88.62% effective interest, while its parent company, Keppel Ltd., will take an additional 1.38%. Equinix will reduce its own stake from 20% to 10% but will continue operating the facilities, known as Tokyo Data Centre 4 and 5.
The deal values the underlying properties and their operating company at JPY 190 billion, or about $1.2 billion. With a current combined operating capacity of approximately 62 megawatts, this translates to roughly $19.4 million per megawatt. However, the ultimate combined capacity upon full build-out is projected to reach 90 megawatts. This valuation is lower than Keppel DC REIT's recent acquisition of Tokyo Data Centre 3 (Inzai 4) for $551 million, which was valued at about $27.6 million per megawatt.
The difference in price per megawatt can be attributed to several factors. Tokyo Data Centre 3 is reportedly leased entirely to Microsoft on a 15-year term, commanding a premium due to its single-tenant, investment-grade lease structure. In contrast, Tokyo Data Centre 4 and 5 are leased to four different investment-grade internet and IT services clients, with weighted average lease expiries of 4.5 years and 10.6 years respectively, resulting in a blended 8.3 years. Furthermore, existing rents on the GIC-Equinix properties are estimated to be at least 30% below current Tokyo market rates, offering Keppel the opportunity to reset rents higher as leases renew, with over 5% of the portfolio's income due for renewal by 2029.
This acquisition will significantly alter Keppel DC REIT's portfolio, nearly tripling Japan's share of its rental income from 9% to 23%. The total assets under management will increase from S$7.6 billion (approximately $6 billion) to a 27-property portfolio spanning 10 countries. Singapore will still account for 60% of rental income after the expansion. The S$1.39 billion total outlay will be funded through a S$591.1 million private placement, S$788.6 million in yen-denominated debt, and units issued to the manager as an acquisition fee, which is expected to increase the trust's leverage from 34% to 38%. Despite this, management projects an increase in distribution per unit by 2.6% and a slight rise in net asset value per unit from S$1.71 to S$1.75.
Separately, GIC is reportedly in talks to join KKR and Singapore Telecommunications Ltd. in a potential $10 billion acquisition of data center operator STT GDC Pte, alongside Mubadala Investment Co. Switch Inc., another data center operator majority-owned by DigitalBridge Group Inc., is also seeking a private funding round led by Andreessen Horowitz that could raise about $2 billion, potentially valuing the company at nearly $50 billion including debt.
