Keppel DC REIT Delivers Strong 1Q 2026 Growth on Portfolio Expansion and Stable Operations

Key Highlights for Investors

• Distributable Income rose significantly by 20.7% year-on-year to S\$74.6 million in 1Q 2026, up from S\$61.8 million in 1Q 2025.
• Distribution per Unit (DPU) increased by 13.2% to 2.833 cents, compared to 2.503 cents a year earlier.
• Portfolio occupancy remains robust at 95.6%. Weighted average lease expiry (WALE) by area stands at 6.5 years, supporting income visibility.
• Aggregate leverage improved to 35.1%, with a substantial debt headroom of approximately S\$550 million. Average cost of debt decreased to 2.6% (down 40 bps year-on-year).
• Strong net property income (NPI) growth of 19.4%, driven by new acquisitions and positive rental reversions.
• Keppel DC REIT declares distributions on a half-yearly basis.

Financial Performance: Details and Growth Drivers

Keppel DC REIT’s 1Q 2026 results outpaced the previous year, highlighted by an 18.4% jump in gross revenue to S\$121.0 million. This was primarily driven by:

• The strategic acquisition of Tokyo Data Centre 3.
• Higher contributions from contract renewals and rental escalations across the portfolio.
• The completion of acquiring remaining interests in Keppel DC Singapore 3 & 4.

The above was partially offset by the divestment of the Kelsterbach Data Centre. Property expenses rose by 12.2%, reflecting the expanded portfolio base. Notably, finance costs increased 20.8% due to new acquisition loans drawn in late 2025.

Capital Management: Stability and Flexibility

• Aggregate leverage decreased by 20 bps to 35.1%, providing a healthy buffer below the regulatory limit.
• Keppel DC REIT maintains a well-staggered debt maturity profile, with a weighted average debt tenor of 3.3 years and a fixed-to-floating debt ratio of 84.8%.
• The REIT has maintained a natural hedge for approximately 71% of its overseas portfolio to mitigate currency risk.
• Interest coverage ratio (ICR) remains strong at 7.2 times, although it dipped slightly due to increased borrowings for acquisitions.
• A 25 bps change in interest rates is estimated to have a pro forma impact of ~0.3% on DPU.

Portfolio Updates: Resilient and Diversified

• The portfolio comprises 25 data centres across 10 countries with assets under management of approximately S\$6.3 billion.
• Asia Pacific makes up 84.7% of the portfolio (Singapore at 62.7%), with Europe contributing 15.3%.
• Portfolio occupancy is high at 95.6%, with major tenant renewals in 2024 and 2025 underpinning income visibility.
• Contract expiry profile is well spread: only about 6% of portfolio rental income is up for renewal each year in 2026 and 2027.
• Rental income is highly diversified: 69.6% from Internet Enterprises, 13.7% from IT Services, 13.6% from Telecoms, and 2.4% from Financial Services.
• The top 10 clients are mainly Fortune Global 500 companies and major hyperscalers, with one client accounting for more than 40% of rental income, which may be a concentration risk to monitor.

Management expects only limited direct impact from the ongoing Middle East conflict, as net electricity costs are less than 3% of operating expenses, and power procurement contracts are secured through end-2026.

Outlook: Structural Tailwinds and Expansion Opportunities

• Data centre demand remains underpinned by secular drivers such as cloud adoption and the rapid growth of AI workloads. AI inference is projected to be the largest driver of global data centre usage by 2030, according to McKinsey & Co.
• Operators are increasingly using asset recycling and platform-level capital solutions to fund large-scale data centre developments, underlining the growing institutionalisation of the asset class.
• Keppel DC REIT is well positioned to pursue disciplined growth, targeting further hyperscale acquisitions and active asset optimisation to drive long-term value creation.

The capital landscape remains dynamic, with the Federal Reserve and ECB holding rates steady but cautioning readiness to tighten if inflation persists. This may affect borrowing costs and expansion plans.

ESG Commitments and Operational Excellence

• Keppel DC REIT has pledged to achieve a 50% reduction in Scope 1 and 2 emissions by 2035 (from a 2025 baseline) and introduce renewable energy to at least 50% of fully-fitted assets by 2030.
• Recent green initiatives include launching a Green Financing Framework (~S\$608 million obtained) and maintaining green certifications for eight assets in Singapore and Dublin.
• On governance, the REIT won the Singapore Corporate Governance Award at the 2025 SIAS Investors’ Choice Awards, and achieved ~30% female Board representation.
• Staff engagement remains high, with 42.5 training hours per employee in 2025 and over 1,300 community volunteer hours dedicated.

Potential Price-Sensitive Developments

• Strong distributable income and DPU growth may lead to positive investor sentiment and share price appreciation.
• Recent acquisitions (Tokyo Data Centre 3, Keppel DC Singapore 3 & 4) are already contributing materially to earnings, supporting further expansion plans.
• Significant debt headroom and a disciplined capital management approach position Keppel DC REIT for future growth and resilience in volatile environments.
• ESG leadership and green financing may attract ESG-focused investors and funds.
• Potential risks include customer concentration, rising finance costs, and macroeconomic uncertainties such as interest rate hikes or geopolitical tensions.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Investors should consider their own investment objectives and consult professional advisors before making any investment decisions. The author and publisher accept no liability for any losses incurred from the use of this information.

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