Keppel DC REIT said its distribution per unit for the first nine months of 2026 rose 11.7% to 8.571 Singapore cents, as the data center trust finished its largest push into Japan with the S$1.37 billion purchase of two hyperscale facilities east of Tokyo.

The Singapore-listed trust, managed by a unit of Keppel Ltd., gave the figures in a business update on Oct. 23. For investors in Asian property, the update shows both sides of the data center trade: rents are rising as cloud and AI tenants compete for power, but buying into that demand is adding debt for owners when, as the trust's outlook noted, interest rates remain elevated.

Keppel DC REIT income rises on rents and Japan

Gross revenue for the nine months to Sept. 30 rose 13.3% to S$365.3 million, and net property income gained 13.1% to S$316.8 million, according to the trust's presentation. Distributable income climbed 16.7% to S$228 million.

The manager credited positive rent reversions, contracted rent escalations and the contribution from Tokyo Data Centre 3, a hyperscale site in Inzai City it bought for 82.1 billion yen in 2025. Contracts that were renewed and started in the period were signed about 14% above the expiring rents, and the third quarter alone ran at about 16%.

Those gains were partly offset by the sale of Kelsterbach Data Centre in Germany and the loss of income from its Cardiff facility in Britain. Finance costs jumped 28.1% to S$46.7 million after the trust took on acquisition loans late last year.

Portfolio occupancy by lettable area edged up to 93% from 92.5% at the end of June. Contracted power capacity, the share of power capacity that earns revenue, rose to about 96%.

Tokyo Data Centre 4 and 5 close, leverage climbs

The trust completed its purchase of an 88.62% effective interest in Tokyo Data Centre 4 and Tokyo Data Centre 5 on Oct. 1, according to a filing to the Singapore Exchange that day. It is paying about 168.4 billion yen (about S$1.37 billion) for its share, based on a total price of 190 billion yen for the two buildings, about 2.1% below their 194 billion yen valuation, Keppel said when it announced the deal on Sept. 1.

Both freehold facilities in Inzai, a cluster of large data centers in Chiba prefecture, are fully leased to four investment-grade tenants, three of them new to the trust. Keppel said rents in place are at least 30% below market and carry average annual escalations of about 2.8%. Weighted average lease expiry is about 4.5 years for the older building, completed in 2021, and 10.6 years for the 2024 building, according to DatacenterDynamics. The existing operator kept a 10% stake, and Keppel's Japan unit holds 1.38%.

The deal lifts Japan's share of portfolio rental income to about 23% from roughly 9% at the end of June, and cuts the largest client's share to about 38.2% from 43.5%, the company said. Assets under management rise to about S$7.6 billion across 27 data centers in 10 countries.

The trust paid for it with a S$625 million private placement, which the manager said was about 3.4 times covered, and yen loans. The completion filing shows S$617.5 million of placement money went to the purchase after S$1.7 million was moved from the fee budget.

That borrowing shows up on the balance sheet. Aggregate leverage rose 220 basis points from June to 36.2% at Sept. 30, the trust said, after a partial drawdown of yen loans. That figure does not include the 24 billion yen loan and a separate facility for Japanese consumption tax, both drawn on Oct. 1 when the deal closed. Including both, leverage would be 38.8% on a pro forma basis, or 37.9% excluding the consumption tax financing. Trailing 12-month interest coverage slipped to 6.5 times from 6.9 times, and the average cost of debt held at 2.6% for the nine months.

Yen debt made up 50.7% of the trust's roughly S$2.8 billion of borrowings at Sept. 30, before the Oct. 1 drawdowns, and about 69.6% of total debt was fixed. The manager expects the fixed share to rise into the high 80s in percentage terms once yen interest rate swaps take effect in December.

Dilution before the income arrives

The new units from the September placement were issued before the Tokyo buildings started paying rent, which weighed on per-unit figures in the quarter. The manager said the enlarged unit base came ahead of income contributions that begin on Oct. 1. When it announced the deal on Sept. 1, Keppel said that had the acquisition been completed on Jan. 1, 2025, it would have raised 2025 DPU by 2.6%, to 10.649 cents from 10.381 cents. The Oct. 23 presentation, prepared after the placement and loan terms were set, puts the DPU accretion at 2.0% without giving the basis.

Loh Hwee Long, chief executive of the manager, said at the time that the deal showed the trust's "disciplined approach to acquiring quality assets."

The trust's outlook section cited industry data showing data center vacancy in Asia-Pacific stable at 7%, with power availability the main constraint on new supply. It said Western and Chinese hyperscalers have committed more than US$160 billion to AI infrastructure across the region between 2024 and 2026. Capital is flowing in from other directions too, including Brookfield's deal with Naver for an AI data center in Sejong.

Keppel DC REIT pays distributions twice a year. It already paid an advance distribution of 2.261 cents covering July 1 to Sept. 9, tied to the placement. The next payout covers Sept. 10 to Dec. 31 and will be the first to include a full quarter of rent from Tokyo Data Centre 4 and 5. Further out, the trust said revenue at its Gore Hill Data Centre in Sydney is set to more than double when new contracts start from the end of 2026.