Keppel DC REIT: Riding the Wave of Singapore’s Digital Transformation
UOB Kay Hian Research | 20 March 2025
Sustainable Growth in Singapore, Green Shoots in China
Keppel DC REIT (KDCREIT) is well-positioned to capitalize on the growing demand for data center space, driven by the rapid digitalization of businesses and the surge in data consumption. Despite a limited increase in new supply, the REIT is set to deliver sustainable growth in Singapore and witness green shoots in its China operations.
Singapore Remains Supply-Constrained
The recent IMDA award of 80MW in data center capacity to four operators, including Equinix and GDS, is expected to have a minimal impact on the market. Only Equinix and GDS have acquired land, and the new supply of 40MW will come online largely in 2027.
The tight vacancy in Singapore is expected to persist into 2025 and 2026, supporting the recent surge in positive rental reversion for colocation leases.
Acquisitions to Drive Growth
The acquisition of SGP7 and SGP8 data centers, completed in December 2024, will start contributing to KDCREIT’s earnings in the first half of 2025.
These data centers are designed for AI inference workloads and provide a NPI yield of 6.5-7.0%, accretive to KDCREIT’s pro forma 2024 DPU by 7.0%.
Repositioning Towards Hyperscale Data Centers
KDCREIT has divested its Kelsterbach Data Centre in Germany for €50.0m, a 28% premium to its valuation. The decision aligns with the REIT’s renewed focus on hyperscale data centers.
The REIT is actively scouting for acquisition opportunities in its preferred markets, such as Japan, South Korea, and Europe, to capitalize on the structural trends, including the rise of generative AI.
Executing the China Recovery Roadmap
KDCREIT is working with tenant Bluesea Development to execute the recovery roadmap for its Guangdong data centers, including building a leasing pipeline.
Occupancy for the Guangdong data centers is currently at 30%, and management expects actual signing of new leases in 2026.
Valuation and Recommendation
Maintain BUY with a target price of S$2.55, based on a DDM valuation (cost of equity: 7.0%, terminal growth: 2.5%).
The recent upsurge in positive rental reversion in Singapore and the acquisition of SGP7 and SGP8 are expected to drive KDCREIT’s earnings growth.
Key Financials
Year to 31 Dec (S$m) 2023 2024 2025F 2026F 2027F
Net turnover 277 306 426 432 434
EBITDA 208 214 299 325 342
Operating profit 208 214 299 325 342
Net profit (rep./act.) 114 296 259 261 276
Net profit (adj.) 143 127 243 261 276
EPU (S$ cent) 8.3 6.5 10.9 11.6 12.2
DPU (S$ cent) 9.4 9.5 10.7 11.5 12.1
PE (x) 26.1 33.6 19.9 18.7 17.8
P/B (x) 1.6 1.4 1.4 1.4 1.4
