Keppel DC REIT (KDCREIT SP): 1Q25 Business Update, DPU, and Growth Opportunities

Broker Name: CGS International

Date of Report: April 17, 2025

Keppel DC REIT: Business as Usual – Maintaining an Add Rating

Key Takeaways

• Keppel DC REIT’s (KDCREIT) 1Q25 distribution per unit (DPU) of 2.503 Singapore cents is in line with forecasts, representing 25.2% of the FY25F forecast. [[1]]
• KDCREIT achieved rental reversions of +7% in 1Q25, with portfolio occupancy at 96.5%. [[1]]
• The “Add” rating is maintained with an unchanged DDM-based target price (TP) of S\$2.48. [[1]]

1Q25 Performance Overview

KDCREIT reported significant year-over-year (YoY) increases in revenue and net property income (NPI) for 1Q25: [[1]]

• Revenue: Increased by 22.6% YoY to S\$102.2 million. [[1]]
• NPI: Increased by 24.1% YoY to S\$88.1 million. [[1]]

These gains were attributed to contributions from SGP DC7 and SGP DC8, Tokyo DC1, and positive rental reversions. These 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 substantially by 59.4% YoY to S\$61.8 million in 1Q25, translating to a DPU of 2.503 Singapore cents, a 14.2% increase YoY. [[1]]

Rental Reversion and Portfolio Occupancy

In 1Q25, KDCREIT experienced a +7% rental reversion. Portfolio occupancy remained strong at 96.5% at the end of 1Q25. Although there were no major contract renewals during the quarter, KDCREIT renewed 1.8% of its portfolio leases, primarily in Singapore and Dublin, achieving the noted +7% rental reversion. The REIT has 13.6% of leases expiring for the remainder of FY25F and a further 8.2% in FY26F. [[1]] Management indicated that the bulk of the FY25F renewals are due to be re-contracted in 2Q25F, mainly from its Singapore properties. [[1]] Given low market vacancy rates and a robust rental market in Singapore, KDCREIT is expected to continue delivering strong rental reversions when its FY25F leases are renewed. [[1]]

Inorganic Growth Prospects

KDCREIT’s gearing stood at 30.2% at the end of 1Q25, and the average debt cost remained stable quarter-over-quarter (QoQ) at 3.1%. Management expects funding costs to remain in the low 3% range for FY25F. 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. [[1]] 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. [[2]]

Investment Thesis

The FY25-27F DPU forecasts remain unchanged, and the DDM-based TP is maintained at S\$2.48. Potential re-rating catalysts for the stock over the next 12 months include: [[2]]

• Accretive acquisitions. [[2]]
• Potential earnings upside from greater tax transparency on the earnings for SGP DC7 and SGP DC8. [[2]]
• The possibility of adding another 1.5 floors of data center hall space at SGP DC8. [[2]]
• Collection of arrears from Bluesea. [[2]]
• Higher-than-forecast rental reversions. [[2]]

Downside risks include lower-than-forecast portfolio occupancy affecting its topline and lower-than-expected rental reversions due to a slower macro outlook. [[2]]

Peer Comparison and Financial Performance

KDCREIT is compared against its peers in the SREIT sector, including hospitality, industrial, office, retail, overseas-centric, and healthcare REITs. [[2]] The table below summarizes key metrics for these REITs: [[2]]

Financial Summary

Key financial data for KDCREIT is summarized as follows: [[1]]

Key Changes in this Note

There are no changes noted in this report. [[1]]

Major Shareholders

The major shareholders of KDCREIT and their respective holdings are: [[1]]

• Keppel Corp Ltd: 21.3% [[1]]
• Cohen & Steers: 5.0% [[1]]
• Matthews International Capital Management: 4.9% [[1]]

Analyst Information

The analysts covering KDCREIT are: [[1]]

• LOCK Mun Yee [[1]]
• LI Jialin [[1]]

ESG Overview

LSEG ESG Scores
KDCREIT 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. It achieved A+ for ESG Controversies. In 2023, KDC retained its AA in the MSCI ESG Ratings assessment for the second year. [[3]]

Green Certifications
Four out of KDC’s five colocation assets in Singapore achieved the Building and Construction Authority (BCA) Green Mark Gold (one asset) and Platinum (three assets) ratings. All of KDC’s colocation facilities in Singapore have attained BCA certifications for their energy and water management systems. [[3]]

ESG Implications

Data centers collectively account for around 1-5% of global greenhouse gas (GHG) emissions. In Singapore, data centers consumed 7% of the nation’s total energy in 2020, leading to a moratorium on new data centers since 2019. The moratorium was lifted in 2022, and measures to raise the efficiency of existing data centers may be enforced over time, requiring KDC to comply with additional requirements. [[3]]

ESG Highlights

• KDC REIT is ranked 18th among the 26 REITs 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. In 2023, KDC reduced Scope 1 and 2 Greenhouse Gases (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. As of 2023, 17% of total electricity consumed at its colocation assets was sourced from renewable sources, such as wind energy used at its Dublin assets. [[3]]

ESG Trends

In 2023, KDC entered into two sustainability-linked loans totaling S\$150 million. More efforts to improve its ESG score will positively impact its operations, financials, and reputation in the longer term. [[3]]

Key Ratios and Drivers