Sustainable Growth In Singapore; Green Shoots In China

Keppel DC REIT (KDCREIT SP)

Broker: UOB Kay Hian

Date of Report: 20 March 2025

Keppel DC REIT (KDCREIT), the first pure-play data centre REIT in Asia, continues to demonstrate sustainable growth in Singapore and sees green shoots emerging in China. The recent acquisition of SGP7 and SGP8 in Singapore is expected to start contributing in 1H25, while the Guangdong data centres could benefit from increased demand driven by AI in 2026. [[29]]

Sustainable Growth in Singapore

Singapore’s data centre market remains supply-constrained, and the tight vacancy is expected to persist into 2025 and 2026. While Equinix and GDS have recently acquired land, the minute increase in new supply of 40MW would come on stream largely in 2027. This means the recent upsurge in positive rental reversion for colocation leases in Singapore should sustain into 2025 and 2026. [[29]]

Acquisition of SGP7 and SGP8

KDCREIT completed the acquisition of 99.49% economic interest in SGP7 and SGP8 on 27 Dec 24. The two data centres are designed for AI inference workload with ultra-low latency connectivity and provide NPI yield of 6.5-7.0%. The acquisition is accretive to pro forma 1H24 DPU by 8.1%. [[29]]

Repositioning to Focus on Hyperscaler Market

KDCREIT has entered into an agreement to divest Kelsterbach Data Centre in Frankfurt, Germany for €50.0m (S\$70.6m) in Feb 25. The selling price represents a 28% premium compared to its valuation of €39m (S\$55m). The decision to divest was in line with KDCREIT’s renewed focus on hyperscale data centres. [[29-30]]

Green Shoots in China

Management is working with tenant Bluesea Development to execute the recovery roadmap for Guangdong DC1 and DC2, including building a leasing pipeline. Occupancy for Guangdong DC1 and DC2 is currently at 30%, and management expects actual signing of new leases to be a year later in 2026. [[30]]

Furthermore, the recent deployment of DeepSeek, an innovative AI platform, has triggered an AI frenzy in China. Many local governments and state-owned enterprises are accelerating their adoption of AI, which could drive increased demand for KDCREIT’s Guangdong data centres in 2026. [[30]]

Valuation and Recommendation

UOB Kay Hian maintains a BUY recommendation on KDCREIT with a target price of S\$2.55, based on a Discounted Dividend Model (cost of equity: 7.0%, terminal growth: 2.5%). The firm believes the recent upsurge in positive rental reversion for colocation data centres in Singapore will extend into 2026, and the provisions for Guangdong data centres will extend into 1H26. [[30-31]]