Broker Name: CGS International
Date of Report: April 17, 2025
Keppel DC REIT: Business as Usual – A Comprehensive Analysis
1Q25 Performance Overview
- Keppel DC REIT (KDCREIT) reported a 1Q25 DPU of 2.503 Singapore cents, aligning with 25.2% of the FY25F forecast [[1]].
- The REIT achieved rental reversions of +7% in 1Q25, with a high portfolio occupancy rate of 96.5% [[1]].
- CGS International maintains an Add rating with an unchanged DDM-based TP of S\$2.48 [[1]].
Financial Highlights
- Revenue increased by 22.6% year-over-year to S\$102.2m in 1Q25 [[1]].
- Net Property Income (NPI) rose by 24.1% year-over-year to S\$88.1m, driven by contributions from SGP DC7 and SGP DC8, Tokyo DC1, and positive rental reversions [[1]].
- These gains were partially offset by the sale of Intellicentre Campus and a one-off settlement sum related to a tenant dispute at SGP1 received in 2024 [[1]].
- Distributable income grew significantly by 59.4% year-over-year to S\$61.8m in 1Q25, translating to a DPU of 2.503 Singapore cents, a 14.2% year-over-year increase [[1]].
Rental Reversion and Portfolio Occupancy
- KDCREIT experienced a +7% rental reversion in 1Q25 [[1]].
- Portfolio occupancy remained strong at 96.5% at the end of 1Q25 [[1]].
- While there were no major contract renewals in 1Q25, the REIT renewed 1.8% of its portfolio leases, primarily in Singapore and Dublin, achieving the +7% rental reversion [[1]].
- Approximately 13.6% of leases are set to expire for the remainder of FY25F, with an additional 8.2% expiring in FY26F [[1]].
- Management indicated that the bulk of FY25F renewals are scheduled for re-contracting in 2Q25F, mainly from Singapore properties [[1]].
- Given low market vacancy rates and a robust rental market in Singapore, KDCREIT is expected to continue delivering strong rental reversions upon the renewal of its FY25F leases [[1]].
Inorganic Growth Prospects
- KDCREIT’s gearing stood at 30.2% at the end of 1Q25 [[2]].
- The average debt cost remained stable quarter-over-quarter at 3.1% in 1Q25, with management expecting funding costs to remain in the low 3% range for FY25F [[2]].
- With a robust balance sheet, KDCREIT is well-positioned to pursue growth opportunities through new acquisitions, including in Japan and South Korea, and value creation through potential asset enhancement initiatives [[2]].
- SGP DC1 in Singapore, with a low occupancy rate of 72.2% and a remaining weighted average lease expiry of 1.1 years as of 1Q25, may offer potential value creation opportunities [[3]].
Investment Recommendation
- CGS International reiterates an Add rating for KDCREIT, maintaining an unchanged DDM-based TP of S\$2.48 [[3]].
- Potential re-rating catalysts include accretive acquisitions and earnings upside from greater tax transparency on earnings for SGP DC7 and SGP DC8 [[3]].
- The possibility of adding another 1.5 floors of data center hall space at SGP DC8 also presents an upside [[3]].
- Additional catalysts include the collection of arrears from Bluesea and higher-than-forecast rental reversions [[3]].
- Downside risks include lower-than-forecast portfolio occupancy affecting topline and lower-than-expected rental reversions due to a slower macro outlook [[3]].
Key Figures and Ratios
Financial Summary
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Gross Property Revenue (S\$m) | 281.2 | 310.3 | 367.9 | 389.7 | 402.4 |
| Net Property Income (S\$m) | 245.0 | 260.3 | 324.8 | 344.2 | 355.9 |
| Net Profit (S\$m) | 126.8 | 300.7 | 205.5 | 221.6 | 230.5 |
| Distributable Profit (S\$m) | 167.7 | 172.7 | 220.1 | 228.6 | 237.4 |
| Core EPS (S\$) | 0.07 | 0.17 | 0.09 | 0.10 | 0.10 |
| Core EPS Growth | (47%) | 132% | (46%) | 8% | 4% |
| FD Core P/E (x) | 27.53 | 13.27 | 21.86 | 20.32 | 19.57 |
| DPS (S\$) | 0.09 | 0.09 | 0.10 | 0.10 | 0.11 |
| Dividend Yield | 4.62% | 4.66% | 4.89% | 5.08% | 5.26% |
| Asset Leverage | 37.0% | 30.9% | 29.9% | 29.6% | 29.3% |
| BVPS (S\$) | 1.34 | 1.53 | 1.68 | 1.70 | 1.71 |
| P/BV (x) | 1.51 | 1.33 | 1.21 | 1.19 | 1.19 |
| Recurring ROE | 5.4% | 10.6% | 5.8% | 5.9% | 6.1% |
Peer Comparison
| Price (LC) as at 17 Apr 25 | Target Price (LC) (DDM-based) | Mkt Cap (US \$m) | Last reported asset leverage | Last stated NAV | Price / NAV | Dividend Yield (%) FY24A | Dividend Yield (%) FY25F | Dividend Yield (%) FY26F | Rec. | |
|---|---|---|---|---|---|---|---|---|---|---|
| Hospitality | ||||||||||
| CapitaLand Ascott Trust | 0.85 | 1.13 | \$2,450 | 38.3% | 1.15 | 0.73 | 7.2% | 7.2% | 7.5% | Add |
| CDL Hospitality Trust | 0.77 | 1.07 | \$733 | 38.8% | 1.48 | 0.52 | 7.0% | 7.7% | 8.3% | Add |
| Far East Hospitality Trust | 0.54 | 0.75 | \$828 | 30.8% | 0.92 | 0.59 | 7.5% | 7.5% | 7.3% | Add |
| Frasers Hospitality Trust | 0.60 | NA | \$773 | 35.0% | 0.64 | 0.93 | 4.1% | 4.4% | 4.8% | NR |
| Simple Average | 35.7% | 0.69 | 6.4% | 6.7% | 7.0% | |||||
| Industrial | ||||||||||
| AIMS AMP AAREIT | 1.24 | NA | \$754 | 33.7% | 1.26 | 0.98 | 7.4% | 7.3% | 7.5% | NR |
| CapitaLand Ascendas REIT | 2.63 | 3.10 | \$8,806 | 37.7% | 2.20 | 1.20 | 5.8% | 5.9% | 6.0% | Add |
| ESR-REIT | 0.21 | 0.36 | \$1,251 | 42.8% | 0.28 | 0.75 | 10.3% | 10.6% | 11.0% | Add |
| Frasers Logistics & Commercial Trust | 0.88 | 1.35 | \$2,519 | 36.2% | 1.13 | 0.78 | 7.7% | 7.6% | 7.8% | Add |
| Keppel DC REIT | 2.03 | 2.48 | \$3,484 | 30.2% | 1.53 | 1.33 | 4.7% | 4.9% | 5.1% | Add |
| Mapletree Industrial Trust | 2.02 | 2.82 | \$4,382 | 39.8% | 1.74 | 1.16 | 6.6% | 6.9% | 7.0% | Add |
| Mapletree Logistics Trust | 1.18 | 1.73 | \$4,549 | 40.3% | 1.34 | 0.88 | 7.6% | 6.8% | 6.4% | Add |
| Stoneweg European REIT | 1.42 | 1.92 | \$904 | 40.2% | 1.33 | 1.07 | 10.1% | 9.5% | 8.7% | Add |
| Sabana Shariah SSREIT | 0.36 | NA | \$291 | 37.4% | 0.50 | 0.71 | 0.0% | 0.0% | 0.0% | NR |
| Simple Average | 37.6% | 0.98 | 6.7% | 6.6% | 6.6% | |||||
| Office | ||||||||||
| Keppel REIT | 0.82 | 1.09 | \$2,400 | 41.2% | 1.24 | 0.66 | 6.9% | 7.1% | 7.2% | Add |
| OUE REIT | 0.28 | 0.32 | \$1,172 | 39.3% | 0.59 | 0.47 | 7.4% | 6.9% | 7.3% | Hold |
| Suntec REIT | 1.13 | 1.33 | \$2,523 | 42.3% | 2.05 | 0.55 | 5.5% | 5.7% | 6.1% | Hold |
| Simple Average | 40.9% | 0.56 | 6.6% | 6.6% | 6.8% | |||||
| Retail | ||||||||||
| CapitaLand Integrated Commercial Trust | 2.12 | 2.45 | \$11,798 | 38.5% | 2.09 | 1.01 | 5.1% | 5.2% | 5.6% | Add |
| Frasers Centrepoint Trust | 2.21 | 2.68 | \$3,234 | 39.3% | 2.23 | 0.99 | 5.4% | 5.5% | 5.6% | Add |
| Lendlease Global Commercial REIT | 0.51 | 0.69 | \$940 | 40.8% | 0.74 | 0.68 | 7.6% | 7.8% | 7.9% | Add |
| Mapletree Pan Asia Commercial Trust | 1.20 | 1.53 | \$4,809 | 38.2% | 1.73 | 0.69 | 7.4% | 6.8% | 6.9% | Add |
| Paragon REIT | 0.98 | 0.98 | \$2,106 | 35.3% | 0.92 | 1.07 | 6.7% | 5.2% | 5.4% | Hold |
| Starhill Global REIT | 0.49 | 0.60 | \$856 | 36.2% | 0.69 | 0.71 | 7.4% | 7.4% | 7.5% | Add |
| Simple Average | 38.1% | 0.86 | 6.6% | 6.3% | 6.5% | |||||
| Overseas-centric | ||||||||||
| CapitaLand China Trust | 0.65 | NA | \$916 | 41.9% | 1.09 | 0.59 | 8.4% | 8.5% | 8.6% | NR |
| Elite UK REIT | 0.28 | 0.35 | \$215 | 45.5% | 0.39 | 0.71 | 10.4% | 10.7% | 10.7% | Add |
| Manulife US REIT | 0.06 | 0.13 | \$103 | 60.8% | 0.23 | 0.25 | 0.0% | 0.0% | 47.5% | Add |
| Sasseur REIT | 0.62 | 0.85 | \$587 | 24.8% | 0.83 | 0.74 | 9.8% | 10.0% | 10.3% | Add |
| Simple Average | 43.3% | 0.57 | 7.2% | 7.3% | 19.3% | |||||
| Healthcare | ||||||||||
| Parkway Life REIT | 4.18 | 4.91 | \$2,075 | 34.8% | 2.41 | 1.73 | 3.6% | 3.7% | 4.0% | Add |
ESG Analysis
LSEG ESG Scores
- KDC REIT received a C+ for its combined ESG score in 2023 from LSEG, with a C+ in Environmental and Social categories and a B- in Governance [[3]].
- It achieved A+ for ESG Controversies [[3]].
- KDC retained its AA in the MSCI ESG Ratings assessment for the second consecutive year in 2023 [[3]].
- Four of KDC’s five colocation assets in Singapore achieved BCA Green Mark Gold (one asset) and Platinum (three assets) ratings [[3]].
- All of KDC’s colocation facilities in Singapore have attained BCA certifications for their energy and water management systems [[3]].
Implications and Trends
- Data centers account for 1-5% of global GHG emissions, with Singapore’s data centers consuming 7% of the nation’s total energy in 2020, leading to a moratorium on new data centers since 2019 [[3]].
- Singapore lifted the moratorium in 2022 and may enforce measures to raise the efficiency of existing data centers, requiring KDC to comply with additional requirements [[3]].
- Monitoring the energy efficiency of KDC REIT’s data centers is crucial [[3]].
- Slower implementation of responsible environmental practices could negatively affect the share price [[3]].
- KDC has set internal targets to improve resource efficiency and reduce environmental impact, with its sponsor, Keppel Telecommunications & Transportation, exploring ways to reduce the carbon footprint of data centers [[3]].
- These initiatives include studies for a near-shore Floating Data Centre Park in Singapore and projects exploring the use of liquefied natural gas and hydrogen to power and cool data centers [[3]].
- The current valuation of KDC REIT does not factor in any premium/discount to its ESG matters [[3]].
ESG Highlights
- KDC REIT is ranked 18th among 26 REITs in Singapore and 57th among 104 companies in Singapore based on LSEG’s score [[3]].
- KDC is committed to reducing its combined Scope 1 and 2 emissions by 50% from the 2019 baseline by 2030 [[3]].
- In 2023, KDC reduced Scope 1 and 2 GHG Emissions by 13.6% compared to the 2019 baseline [[3]].
- KDC aims to introduce renewable energy to at least 50% of its colocation assets by 2030 [[3]].
- As of 2023, 17% of the total electricity consumed at its colocation assets was sourced from renewable sources, such as wind energy used at its Dublin assets [[3]].
Commitment to ESG
- KDC REIT demonstrates its commitment to ESG by preparing its sustainability report according to global reporting initiative standards and attaining ESG certifications like the MSCI ESG ratings [[3]].
- It participates in various associations, including the REIT Association of Singapore (REITAS), Large Industry Energy Network (LIEN), and Principles for Responsible Investment (PRI), and has set internal targets for ESG [[3]].
Sustainability-Linked Loans
- In 2023, KDC entered into two sustainability-linked loans totaling S\$150m [[3]].
- Improved ESG performance is expected to positively impact its operations, financials, and reputation in the long term [[3]].
Financial Metrics and Analysis
P/BV vs. Asset Leverage
- Analysis of P/BV (Price-to-Book Value) against Asset Leverage indicates trends and correlations useful for valuation and risk assessment [[4]].
Dividend Yield vs. Net DPS
- Examination of Dividend Yield against Net DPS (Dividend Per Share) provides insights into income generation relative to stock price [[4]].
Profit & Loss Analysis (S\$m)
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Rental Revenues | 277.0 | 305.7 | 367.9 | 389.7 | 402.4 |
| Other Revenues | 4.2 | 4.6 | 0.0 | 0.0 | 0.0 |
| Gross Property Revenue | 281.2 | 310.3 | 367.9 | 389.7 | 402.4 |
| Total Property Expenses | (36.3) | (50.0) | (43.1) | (45.5) | (46.4) |
| Net Property Income | 245.0 | 260.3 | 324.8 | 344.2 | 355.9 |
| Management Fees | (26.8) | (27.8) | (35.6) | (38.9) | (40.0) |
| Trustee’s Fees | (0.5) | (0.6) | (0.8) | (0.8) | (0.8) |
| Other Operating Expenses | (34.0) | 145.0 | (9.7) | (10.3) | (10.7) |
| EBITDA | 183.7 | 376.9 | 278.7 | 294.2 | 304.4 |
| EBIT | 183.7 | 376.9 | 278.7 | 294.2 | 304.4 |
| Net Interest Income | (37.6) | (36.1) | (39.3) | (40.7) | (41.0) |
| Pre-tax Profit | 146.1 | 340.8 | 243.6 | 253.4 | 263.5 |
| Taxation | (15.6) | (26.8) | (24.4) | (17.7) | (18.4) |
| Minority Interests | (3.7) | (13.3) | (13.7) | (14.1) | (14.5) |
| Net Profit | 126.8 | 300.7 | 205.5 | 221.6 | 230.5 |
| Distributable Profit | 167.7 | 172.7 | 220.1 | 228.6 | 237.4 |
Cash Flow Analysis (S\$m)
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Pre-tax Profit | 146.1 | 340.8 | 243.6 | 253.4 | 263.5 |
| Depreciation And Non-cash Adj. | 37.6 | 36.1 | 39.3 | 40.7 | 41.0 |
| Change In Working Capital | (13.9) | (11.9) | (195.1) | 0.2 | 0.7 |
| Tax Paid | (8.9) | (23.2) | (24.4) | (17.7) | (18.4) |
| Others | 40.1 | (145.3) | 15.1 | 7.6 | 7.7 |
| Cashflow From Operations | 201.0 | 196.5 | 78.5 | 284.3 | 294.3 |
| Capex | (26.4) | (35.4) | (35.4) | (35.4) | (35.4) |
| Net Investments And Sale Of FA | 0.0 | (1,119.9) | (350.0) | 0.0 | 0.0 |
| Cash Flow From Investing | (26.4) | (1,155.3) | (385.4) | (35.4) | (35.4) |
| Debt Raised/(repaid) | (10.0) | 216.1 | 376.9 | 46.5 | 34.5 |
| Equity Raised/(Repaid) | 0.0 | 1,001.3 | 0.0 | 0.0 | 0.0 |
| Dividends Paid | (175.7) | (153.0) | (220.1) | (228.6) | (237.4) |
| Cash Interest And Others | (39.6) | (44.3) | (24.8) | (27.6) | (28.1) |
| Cash Flow From Financing | (225.2) | 1,020.1 | 132.1 | (209.7) | (231.0) |
| Total Cash Generated | (50.7) | 61.4 | (174.9) | 39.2 | 27.9 |
| Free Cashflow To Firm | 185.5 | (943.4) | (292.4) | 262.0 | 271.8 |
| Free Cashflow To Equity | 128.5 | (777.8) | 45.2 | 267.8 | 265.3 |
Balance Sheet Analysis (S\$m)
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total Investments | 3,656 | 4,904 | 5,289 | 5,325 | 5,360 |
| Intangible Assets | 18 | 17 | 17 | 17 | 17 |
| Other Long-term Assets | 123 | 175 | 175 | 175 | 175 |
| Total Non-current Assets | 3,797 | 5,096 | 5,481 | 5,516 | 5,552 |
| Total Cash And Equivalents | 150 | 317 | 122 | 148 | 163 |
| Trade Debtors | 54 | 106 | 121 | 128 | 132 |
| Other Current Assets | 6 | 25 | 8 | 8 | 8 |
| Total Current Assets | 209 | 448 | 251 | 284 | 303 |
| Trade Creditors | 70 | 287 | 107 | 114 | 119 |
| Short-term Debt | 72 | 87 | 87 | 87 | 87 |
| Other Current Liabilities | 6 | 12 | 12 | 12 | 12 |
| Total Current Liabilities | 149 | 387 | 206 | 214 | 218 |
| Long-term Borrowings | 1,408 | 1,628 | 1,628 | 1,628 | 1,628 |
| Other Long-term Liabilities | 96 | 101 | 101 | 101 | 101 |
| Total Non-current Liabilities | 1,504 | 1,730 | 1,730 | 1,730 | 1,730 |
| Shareholders’ Equity | 2,311 | 3,372 | 3,727 | 3,775 | 3,810 |
| Minority Interests | 43 | 55 | 69 | 83 | 97 |
| Total Equity | 2,354 | 3,427 | 3,796 | 3,857 | 3,907 |
Key Ratios
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Gross Property Revenue Growth | 1.4% | 10.3% | 18.6% | 5.9% | 3.2% |
| NPI Growth | (3.0%) | 6.3% | 24.8% | 6.0% | 3.4% |
| Net Property Income Margin | 87.1% | 83.9% | 88.3% | 88.3% | 88.5% |
| DPS Growth | (8.14%) | 0.72% | 5.05% | 3.78% | 3.67% |
| Gross Interest Cover | 3.79 | 7.32 | 5.18 | 5.47 | 5.66 |
| Effective Tax Rate | 10.7% | 7.9% | 10.0% | 7.0% | 7.0% |
| Net Dividend Payout Ratio | 132% | 57% | 107% | 103% | 103% |
| Current Ratio | 1.41 | 1.16 | 1.22 | 1.33 | 1.39 |
| Quick Ratio | 1.41 | 1.16 | 1.22 | 1.33 | 1.39 |
| Cash Ratio | 1.01 | 0.82 | 0.59 | 0.69 | 0.75 |
| Return On Average Assets | 3.13% | 6.30% | 3.65% | 3.84% | 3.96% |
| Occupancy rate (%) | 88.6% | 98.1% | 97.6% | 97.9% | 97.9% |
| Rental rate (S\$ psf) | 8.9 | 7.6 | 9.8 | 10.3 | 10.7 |
