UOB Kay Hian Private Limited
9 July 2025

Keppel DC REIT: Riding the Hyperscale Data Centre Wave as Singapore Vacancy Tightens

Introduction: UOB Kay Hian’s Latest Insights on Keppel DC REIT

Keppel DC REIT (KDCREIT), Asia’s first pure-play data centre real estate investment trust, is reinforcing its strategic positioning in a fast-evolving digital infrastructure landscape. With its latest pivot towards hyperscale data centres and a robust acquisition and divestment strategy, KDCREIT is poised to benefit from structural growth drivers such as artificial intelligence (AI) and cloud adoption. UOB Kay Hian maintains a BUY rating with an updated target price, reflecting confidence in KDCREIT’s growth trajectory against a backdrop of tightening Singapore vacancy and surging rental reversions.

Stock Snapshot and Recent Performance

• Share Price: S\$2.22
• Target Price: S\$2.69 (Down from S\$2.87)
• Upside Potential: +21.2%
• Market Cap: S\$5,009 million (US\$3,920 million)
• Shares Outstanding: 2,256.3 million
• 52-Week Range: S\$2.37 / S\$1.79
• Major Shareholder: Temasek Holdings (21.8%)

Strategic Pivot: Focus on Hyperscale Data Centres

KDCREIT is sharpening its focus on hyperscale data centres—facilities with power capacities of 20-50MW—catering to the significant and growing needs of cloud and AI workloads. In 2024, KDCREIT completed the acquisition of three major hyperscale assets:

• SGP7 and SGP8 in Singapore (acquisition completed 27 Dec 2024)
• Tokyo Data Centre 1 in Japan (acquisition completed 31 Jul 2024)

This repositioning comes as KDCREIT actively divests smaller, sub-scale assets to concentrate resources on its core growth markets. Recent divestments include:

• Intellicentre Campus, Sydney, Australia (A\$174.0m, completed 24 Jun 2024)
• Basis Bay Data Centre, Cyberjaya, Malaysia (RM55.1m, to complete 2 Jan 2025)
• Kelsterbach Data Centre, Frankfurt, Germany (€50.0m, completed 24 Mar 2025)

Portfolio Evolution: Growth from Hyperscale Tenants

Hyperscale tenants, including leading internet enterprises, now account for 63.1% of KDCREIT’s rental income as of March 2025. The REIT stands to benefit from the strategic partnership between its sponsor, Keppel Group, and Amazon Web Services (AWS), which covers energy, connectivity, and data centre infrastructure, supporting AWS’s regional expansion.

Active Acquisition Pipeline and Market Focus

KDCREIT is actively scouting for further acquisition opportunities in preferred markets such as Japan, South Korea, and Europe. The focus is on data centres optimized for AI inference workloads, an area where Singapore’s world-class connectivity offers a competitive edge. The REIT avoids assets geared towards AI training workloads, which are subject to volatility from ongoing advances in algorithmic efficiency.

Unlocking Value from Existing Assets

SGP7 and SGP8:

• Full 12-month contribution expected in 2025 (minimal impact in 4Q24)
• Current contracted rents are 15-20% below market rates, providing rental uplift potential
• SGP8 holds 1.5 floors (~19,380 sqft) of unutilized space, with plans to convert into data halls

SGP1:

• Occupancy dropped to 72.2% in 1Q25 and expected to fall below 60% post DXC Technology Services’ exit in 2Q25
• Presents an opportunity to enhance SGP1 into an AI-capable data centre by securing increased power capacity and converting non-data centre space to data centre use
• Land lease expires Sep 2025, with a 30-year extension option

Market Dynamics: Singapore’s Tight Vacancy Underpins Rental Growth

Singapore’s data centre market remains supply-constrained, with limited new supply expected before 2028. The Infocomm Media Development Authority (IMDA) recently awarded only four operators (Equinix, GDS, Microsoft, and AirTrunk-ByteDance Consortium) with 80MW of new capacity in July 2023. However, only Equinix and GDS have acquired land, and new capacity is unlikely to be operational before 2028. This tight market supports sustained positive rental reversions for KDCREIT at high single to low double digits through 2026.

Rental Reversion Outlook: Surge Expected in 2Q25

• 1Q25 saw a mild 7% positive rental reversion, mainly on shell & core leases (1.7% of rental income)
• Key colocation leases up for renewal in 2Q25 represent 13.6% of rental income, with SGP4’s lease expiry (WALE 0.3 years as of Mar 2025) comprising a major portion
• Rental reversion for Singapore colocation leases is forecast to surge to 30-40% in 2Q25

Inclusion in Straits Times Index (STI)

KDCREIT was included in Singapore’s benchmark Straits Times Index (STI) effective 23 June 2025, underscoring its status as a leading REIT in the region.

Financial Highlights and Key Metrics

Geographical and Tenant Diversification

• Singapore: 65.3% of investment value
• Australia: 5.4%
• Ireland: 6.1%
• China: 5.5%
• Germany: 4.5%
• Netherlands: 4.7%
• Japan: 4.2%
• United Kingdom: 2.9%
• Italy: 1.1%
• Malaysia: 0.3%

Rental Income by Contract Type:

• Colocation: 75.8%
• Fully-fitted: 17.1%
• Shell & Core: 7.1%

Rental Income by Trade Sector:

• Internet Enterprises: 63.1%
• IT Services: 16.9%
• Telecommunications: 15.9%
• Financial Services: 3.2%
• Corporate: 0.9%

Lease Expiry Profile

KDCREIT maintains a well-staggered lease expiry profile, with only 13.6% of rental income expiring in 2025 and a significant 62.3% of rental income secured beyond 2030.

Key Risks and Earnings Revisions

• DPU forecasts for 2026F lowered by 7% (positive rental reversion expectation revised from 18% to 10%)
• 2027F DPU cut by 12% due to continued provisions for three Guangdong data centres

Investment Catalysts to Watch

• Growing demand for colocation space, especially for AI applications
• New acquisitions of hyperscale data centres in Japan, South Korea, and Europe
• Backfilling vacant spaces in Guangdong, China

Conclusion: Strong Growth Outlook with Defensive Qualities

Keppel DC REIT’s repositioning towards hyperscale data centres, its strategic asset recycling, and its focus on markets with tight supply create a robust foundation for sustainable growth. With positive rental reversions expected, a resilient tenant base, and a well-capitalized balance sheet, KDCREIT remains a compelling play for investors seeking exposure to the secular growth of digital infrastructure and AI-driven demand. UOB Kay Hian reaffirms its BUY rating, with a target price of S\$2.69, offering a promising upside for long-term investors.