Keppel DC REIT: Positioned for Growth in the Digital Economy
Keppel DC REIT (KDCREIT) stands out as a prominent player in the rapidly growing data center sector, driven by global trends of increasing digitalization and cloud adoption. Listed as the first pure-play data center REIT in Asia on the Singapore Exchange in December 2014, KDCREIT has consistently expanded its portfolio to capture the burgeoning demand for digital infrastructure.
Investment Thesis
KDCREIT offers an attractive proxy to the rising need for data center facilities. Its diversified tenant pool includes internet enterprises, IT services, telecommunications, and financial services. The REIT boasts a robust portfolio, supported by a weighted average lease to expiry (WALE) of 6.3 years by lettable area and 4.4 years by rental income as of 30 September 2024. Additionally, it faces minimal debt maturities in FY2025, reducing refinancing risks compared to peers.
Proposed Singapore Acquisitions
KDCREIT is set to acquire two AI-ready hyperscale data centers, KDC SGP7 and KDC SGP8, in Singapore for an agreed property value of SGD 1,030 million. These assets, built to tier III-equivalent specifications and carrier-neutral, promise attractive net property income (NPI) yields of 6.5-7.0%. Post-acquisition, KDCREIT’s Singapore-based assets under management (AUM) will rise to 65.5%, reducing its exposure to China. Furthermore, a third data center (KDC SGP9) is planned on the same land site, offering future growth potential.
Financial Highlights
For FY2023, KDCREIT reported gross revenue of SGD 281.2 million and net property income of SGD 245 million. The REIT completed an equity fundraising exercise, raising SGD 1,001.3 million to finance the acquisitions, which are accretive to its FY2025 distribution per unit (DPU) forecast by 4.0%.
Fair Value Upgrade
OCBC Investment Research raised the fair value estimate for KDCREIT from SGD 2.15 to SGD 2.44, citing improved portfolio quality and growth potential. The recommendation remains a “BUY.”
Commitment to ESG
KDCREIT has shown a strong commitment to environmental, social, and governance (ESG) practices. It aims to halve Scope 1 and Scope 2 emissions by 2030 and introduce renewable energy to at least 50% of its colocation assets. Additionally, the REIT is a signatory of the Climate Neutral Data Centre Pact, reinforcing its sustainability objectives.
Peer Comparisons: Competitive Landscape in the Real Estate Sector
1. CapitaLand Ascendas REIT
CapitaLand Ascendas REIT (CAPD.SI) focuses on industrial, business park, and logistics properties. For FY2025, the REIT is expected to deliver a price-to-earnings (P/E) ratio of 16.9, dividend yield of 6.0%, and return on equity (ROE) of 6.5%. While it offers attractive dividend payouts, its price-to-book (P/B) ratio of 1.1 signals a relatively conservative valuation.
2. Frasers Logistics & Commercial Trust
Frasers Logistics & Commercial Trust (FRAE.SI) specializes in logistics and commercial properties. It is expected to maintain a solid dividend yield of 7.8% for FY2025, with a P/E ratio of 14.9. However, its lower ROE of 5.0% indicates moderate profitability compared to peers.
3. Mapletree Industrial Trust
Mapletree Industrial Trust (MAPI.SI) operates in both industrial and data center sectors. It is forecasted to achieve a P/E ratio of 16.3 in FY2025, along with a dividend yield of 6.2% and an ROE of 7.5%. The trust’s balanced portfolio and steady growth make it a strong contender in the sector.
4. Mapletree Logistics Trust
Mapletree Logistics Trust (MAPL.SI) focuses on logistics properties across Asia. It is projected to deliver a P/E ratio of 19.6 and a dividend yield of 6.4% in FY2025. Despite its lower ROE of 4.9%, the trust benefits from a diversified portfolio and strong market presence.
Valuation Analysis
Keppel DC REIT outshines its peers in several key metrics, including its attractive NPI yields, strong DPU growth prospects, and robust ESG initiatives. While other REITs such as CapitaLand Ascendas and Mapletree Industrial Trust present competitive dividend yields and stable financials, KDCREIT’s focus on hyperscale data centers and AI-ready assets positions it uniquely for long-term growth in the digital economy.
Conclusion
Keppel DC REIT is strongly recommended as a “BUY” due to its strategic acquisitions, attractive yield profile, and commitment to ESG practices. While peers like CapitaLand Ascendas and Mapletree Industrial also offer solid investment opportunities, KDCREIT’s focus on AI-ready data centers and its dominant position in Singapore make it a standout choice for investors seeking exposure to the digital economy.
