UOB Kay Hian Private Limited Friday, 11 April 2025
Data Centre REITs – Reasoning AI Models Usher In The Next Wave Of Demand
The advent of new Reasoning AI models, including OpenAI GPT-5, will drive the next wave of demand for data centres. Demand for data centres is correlated to new product cycles, rather than import tariffs.
Introduction
Reasoning AI models consume over 100 times more resources vs conventional AI models. The next generation of reasoning AI models require vastly more computing time and power. According to Jenson Huang, the CEO of Nvidia, reasoning AI models consume more than 100 times more resources compared to conventional non-reasoning AI models.
Impact on Data Centre REITs
Increased Demand: The usage of reasoning AI models reduces error and minimises the tendency for AI models to hallucinate.
More Resources Required: More powerful AI models coming soon, including OpenAI GPT-4, xAI Grok3 and DeepSeek R1. Meta Platforms has just launched the Llama 4 model in Apr 25. OpenAI will be launching GPT-5 by end-25.
Estimated Global Data Centre Capacity
GW Estimated Global Data Centre Capacity
2023 219GW
Demand for Advanced-AI Capacity
33% CAGR: Demand for data centres is projected to expand by a CAGR of 22% from 2023 to 2030 to reach annual demand of 219GW.
AI-Ready Data Centres: 70% of demand is for AI-ready data centres by 2030.
Singapore’s Subsea Cables and Landing Sites
Singapore targets investments of at least S$10b to double its capacity for international subsea cables and landing sites over the next decade to support the pervasive usage of new AI applications.
Company Analysis
Digi Core REIT (DCREIT SP)
Target Price: US$0.88
Recommendation: BUY
Market Capitalization: US$630m
Yield (%): 7.4 (Hist), 7.4 (Fwd), 8.1 (1Y), 8.1 (2Y)
Debt to Equity: 52.9%, 34.0%
P/NAV: 0.61
Keppel DC REIT (KDCREIT SP)
Target Price: S$2.55
Recommendation: BUY
Market Capitalization: S$3,350m
Yield (%): 4.7 (Hist), 5.4 (Fwd), 5.8 (1Y), 6.1 (2Y)
Debt to Equity: 49.9%, 31.5%
P/NAV: 1.30
Mapletree Industrial Trust (MINT SP)
Target Price: S$2.70
Recommendation: BUY
Market Capitalization: S$4,106m
Yield (%): 7.0 (Hist), 7.0 (Fwd), 6.9 (1Y), 6.9 (2Y)
Debt to Equity: 64.0%, 39.8%
P/NAV: 1.11
Peer Comparison – Data Centre REITs
Name Ticker Rec Price (10 Apr 25) Market Capitalization (US$m) Yield (%) Debt to Equity
CapLand Ascendas REIT CLAR SP BUY 2.55 8,374 6.0 6.5
Digi Core REIT DCREIT SP BUY 0.485 630 7.4 8.1
Keppel DC REIT KDCREIT SP BUY 1.99 3,350 4.7 5.4
Mapletree Ind Trust MINT SP BUY 1.93 4,106 7.0 6.9
Digital Core REIT (DCREIT)
Acquisition: DCREIT completed the acquisition of a 20% interest in a second fully-fitted freehold data centre in Osaka, Japan from Mitsubishi Corporation for ¥13b (US$87m) in Mar 25.
Rental Income: The deal is expected to be accretive to pro forma 2024 DPU by 1.8% and increases pro forma aggregate leverage as of Dec 24 from 34.0% to konfl 7.3%.
Keppel DC REIT (KDCREIT)
SGP7 and SGP8: KDCREIT completed the acquisition of 99.49% economic interest in SGP7 and SGP8 on 27 Dec 24. The two data centres are designed for AI inference workload with ultra-low latency connectivity and provide NPI yield of 6.5-7.0%.
Target Price: The acquisition is accretive to pro forma 1H24 DPU by 8.1%.
Mapletree Industrial Trust (MINT)
Diversified Portfolio: MINT intends to diversify into established data centre markets in Asia Pacific (Australia, Japan and South Korea) and Europe (London, Dublin, Frankfurt, Amsterdam and Paris).
Right of First Refusal: It has the right of first refusal to acquire the remaining 50% stake in Mapletree Rosewood Data Centre Trust, which owns 13 data centres across North America, from sponsor Mapletree Investments.
Sector Catalysts
Rising Demand: Rising demand generated by reasoning AI models.
Supply Constraints: Supply constraints in Singapore and the US.
Assumption Changes
DPU Forecasts: We maintain our existing DPU forecasts.
Risks
Escalation of Trade Conflicts: Escalation of trade conflicts between the US, Europe and China.
Conclusion
The report concludes with an analysis of the data centre REITs and their potential for growth. The target prices for the REITs are based on DDM (cost of equity: 6.75%, terminal growth: 2.5% for DCREIT; cost of equity: 7.0%, terminal growth: 3.51% for KDCREIT and MINT).
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