Broker Name: CGS International
Date of Report: April 17, 2025
Keppel DC REIT: Business as Usual – A Deep Dive into 1Q25 Performance and Future Growth
Key Takeaways from Keppel DC REIT’s 1Q25 Results
- DPU In Line: 1Q25 DPU of 2.503 Singapore cents is in line, representing 25.2% of the FY25F forecast [[1]].
- Rental Reversions: Achieved strong rental reversions of +7% in 1Q25, indicating robust demand [[1]].
- Occupancy: Portfolio occupancy remains high at 96.5%, showcasing stability and asset quality [[1]].
- Rating: Maintained Add rating with an unchanged DDM-based Target Price (TP) of S\$2.48, reflecting confidence in future performance [[1]].
Detailed 1Q25 Performance Analysis
Keppel DC REIT (KDCREIT) demonstrated significant year-over-year growth in revenue and Net Property Income (NPI) in 1Q25 [[1]]. Revenue increased by 22.6% to S\$102.2 million, and NPI rose by 24.1% to S\$88.1 million [[1]]. This growth is attributed to contributions from SGP DC7 and SGP DC8, Tokyo DC1, and positive rental reversions [[1]]. However, these gains 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 saw a substantial increase of 59.4% year-over-year, reaching S\$61.8 million in 1Q25 [[1]]. This translated to a Distribution Per Unit (DPU) of 2.503 Singapore cents, a 14.2% increase year-over-year [[1]].
Rental Reversion and Portfolio Occupancy Dynamics
In 1Q25, KDCREIT experienced a +7% rental reversion, underscoring the strong demand for its data center spaces [[1]]. Portfolio occupancy remained robust at 96.5% at the end of 1Q25 [[1]]. Although there were no major contract renewals during the quarter, KDCREIT successfully renewed 1.8% of its portfolio leases, primarily in Singapore and Dublin, achieving the aforementioned +7% rental reversion [[1]].
The REIT has 13.6% of leases expiring for the remainder of FY25F and an additional 8.2% in FY26F [[1]]. Management has indicated that the majority of FY25F renewals are scheduled to be re-contracted in 2Q25F, mainly from its Singapore properties [[1]]. Given the low market vacancy rates and a still robust rental market in Singapore, KDCREIT is expected to continue delivering strong rental reversions when its FY25F leases are renewed [[1]].
Strategic Positioning for Inorganic Growth
KDCREIT’s gearing stood at 30.2% at the end of 1Q25 [[2]]. The average debt cost remained stable quarter-over-quarter at 3.1% in 1Q25 [[2]]. Management anticipates funding costs to remain in the low 3% range for FY25F [[2]]. With a solid balance sheet, KDCREIT is well-positioned to pursue growth opportunities through new acquisitions, including potential investments in Japan and South Korea, as well as value creation through asset enhancement initiatives [[2]].
With a low occupancy rate of 72.2% and a remaining weighted average lease expiry of 1.1 years as of 1Q25, SGP DC1 in Singapore may present potential value creation opportunities [[3]].
Investment Recommendation
The Add rating is reiterated with an unchanged DDM-based TP of S\$2.48 [[3]]. Potential re-rating catalysts for the stock over the next 12 months include accretive acquisitions and potential earnings upside from greater tax transparency on the earnings for SGP DC7 and SGP DC8 [[3]]. The possibility of adding another 1.5 floors of data center hall space at SGP DC8 also presents an opportunity [[3]]. Additional catalysts include the collection of arrears from Bluesea and higher-than-forecast rental reversions [[3]].
Downside risks include lower-than-forecast portfolio occupancy, which could affect its topline, and lower-than-expected rental reversions due to a slower macro outlook [[3]].
Financial Performance
Figure 1: Results comparison [[2]]
| FYE Dec (S\$ m) |
1Q FY25 |
1Q FY24 |
yoy chg |
4Q FY24 |
qoq chg |
Prev. FY25F |
Comments |
| Gross revenue |
102.2 |
83.4 |
22.6% |
76.2 |
34.2% |
367.9 |
Slightly above. 1QFY25: 27.8% of our FY25F forecast |
| Property operating exp |
(14.1) |
(12.4) |
13.9% |
(13.0) |
8.4% |
(43.1) |
|
| Net Property Income |
88.1 |
71.0 |
24.1% |
63.2 |
39.5% |
324.8 |
Slightly above. 1QFY25: 27.1% of our FY25F forecast |
| NPI margin (%) |
86.2 |
85.2 |
|
83.0 |
|
88.3 |
|
| Finance costs |
(12.5) |
(13.0) |
-4.1% |
(12.6) |
-1.0% |
(53.8) |
|
| Finance income |
3.9 |
2.8 |
40.1% |
5.6 |
-30.7% |
14.5 |
|
| Distributable income |
61.8 |
38.8 |
59.4% |
47.1 |
31.2% |
220.1 |
|
| DPU (Scts) |
2.50 |
2.19 |
14.2% |
2.40 |
4.2% |
9.93 |
In line. 1QFY25: 25.2% of our FY25F forecast |
Peer Analysis
Figure 2: SREIT peer comparison table [[2]]
|
Price (LC) as at 17 Apr 25 |
Target Price (LC) (DDM-based) |
Mkt Cap (US \$m) |
Last reported asset leverage |
Last stated NAV |
Price / Stated NAV |
Dividend Yield (%) FY24A |
Dividend Yield (%) FY25F |
Dividend Yield (%) FY26F |
Bloomberg Ticker |
Rec. |
| Hospitality |
| CapitaLand Ascott Trust |
1.13 |
1.15 |
2,450 |
38.3% |
0.73 |
1.13 |
7.2% |
7.2% |
7.5% |
CLAS SP |
Add |
| CDL Hospitality Trust |
1.07 |
1.48 |
733 |
38.8% |
0.52 |
1.13 |
7.0% |
7.7% |
8.3% |
CDREIT SP |
Add |
| Far East Hospitality Trust |
0.75 |
0.92 |
828 |
30.8% |
0.59 |
1.13 |
7.5% |
7.5% |
7.3% |
FEHT SP |
Add |
| Frasers Hospitality Trust |
0.60 |
0.64 |
773 |
35.0% |
0.93 |
1.13 |
4.1% |
4.4% |
4.8% |
FHT SP |
NR |
| Simple Average |
|
|
|
35.7% |
|
|
6.4% |
6.7% |
7.0% |
|
|
| Industrial |
| AIMS AMP AAREIT |
1.24 |
1.26 |
754 |
33.7% |
0.98 |
1.13 |
7.4% |
7.3% |
7.5% |
AAREIT SP |
NR |
| CapitaLand Ascendas REIT |
2.63 |
2.20 |
8,806 |
37.7% |
1.20 |
1.13 |
5.8% |
5.9% |
6.0% |
CLAR SP |
Add |
| ESR-REIT |
0.21 |
0.28 |
1,251 |
42.8% |
0.75 |
1.13 |
10.3% |
10.6% |
11.0% |
EREIT SP |
Add |
| Frasers Logistics & Commercial Trust |
0.88 |
1.13 |
2,519 |
36.2% |
0.78 |
1.13 |
7.7% |
7.6% |
7.8% |
FLT SP |
Add |
| Keppel DC REIT |
2.03 |
1.53 |
3,484 |
30.2% |
1.33 |
1.13 |
4.7% |
4.9% |
5.1% |
KDCREIT SP |
Add |
| Mapletree Industrial Trust |
2.02 |
1.74 |
4,382 |
39.8% |
1.16 |
1.13 |
6.6% |
6.9% |
7.0% |
MINT SP |
Add |
| Mapletree Logistics Trust |
1.18 |
1.34 |
4,549 |
40.3% |
0.88 |
1.13 |
7.6% |
6.8% |
6.4% |
MLT SP |
Add |
| Stoneweg European REIT |
1.42 |
1.33 |
904 |
40.2% |
1.07 |
1.13 |
10.1% |
9.5% |
8.7% |
SERT SP |
Add |
| Sabana Shariah SSREIT |
0.36 |
0.50 |
291 |
37.4% |
0.71 |
1.13 |
0.0% |
0.0% |
0.0% |
SSREIT SP |
NR |
| Simple Average |
|
|
|
37.6% |
|
|
6.7% |
6.6% |
6.6% |
|
|
| Office |
| Keppel REIT |
0.82 |
1.24 |
2,400 |
41.2% |
0.66 |
1.13 |
6.9% |
7.1% |
7.2% |
KREIT SP |
Add |
| OUE REIT |
0.28 |
0.59 |
1,172 |
39.3% |
0.47 |
1.13 |
7.4% |
6.9% |
7.3% |
OUEREIT SP |
Hold |
| Suntec REIT |
1.13 |
2.05 |
2,523 |
42.3% |
0.55 |
1.13 |
5.5% |
5.7% |
6.1% |
SUN SP |
Hold |
| Simple Average |
|
|
|
40.9% |
|
|
6.6% |
6.6% |
6.8% |
|
|
| Retail |
| CapitaLand Integrated Commercial Trust |
2.12 |
2.09 |
11,798 |
38.5% |
1.01 |
1.13 |
5.1% |
5.2% |
5.6% |
CICT SP |
Add |
| Frasers Centrepoint Trust |
2.21 |
2.23 |
3,234 |
39.3% |
0.99 |
1.13 |
5.4% |
5.5% |
5.6% |
FCT SP |
Add |
| Lendlease Global Commercial REIT |
0.51 |
0.74 |
940 |
40.8% |
0.68 |
1.13 |
7.6% |
7.8% |
7.9% |
LREIT SP |
Add |
| Mapletree Pan Asia Commercial Trust |
1.20 |
1.73 |
4,809 |
38.2% |
0.69 |
1.13 |
7.4% |
6.8% |
6.9% |
MPACT SP |
Add |
| Paragon REIT |
0.98 |
0.92 |
2,106 |
35.3% |
1.07 |
1.13 |
6.7% |
5.2% |
5.4% |
PGNREIT SP |
Hold |
| Starhill Global REIT |
0.49 |
0.69 |
856 |
36.2% |
0.71 |
1.13 |
7.4% |
7.4% |
7.5% |
SGREIT SP |
Add |
| Simple Average |
|
|
|
38.1% |
|
|
6.6% |
6.3% |
6.5% |
|
|
| Overseas-centric |
| CapitaLand China Trust |
0.65 |
1.09 |
916 |
41.9% |
0.59 |
1.13 |
8.4% |
8.5% |
8.6% |
CLCT SP |
NR |
| Elite UK REIT |
0.28 |
0.39 |
215 |
45.5% |
0.71 |
1.13 |
10.4% |
10.7% |
10.7% |
ELITE SP |
Add |
| Manulife US REIT |
0.06 |
0.23 |
103 |
60.8% |
0.25 |
1.13 |
0.0% |
0.0% |
47.5% |
MUST SP |
Add |
| Sasseur REIT |
0.62 |
0.83 |
587 |
24.8% |
0.74 |
1.13 |
9.8% |
10.0% |
10.3% |
SASSR SP |
Add |
| Simple Average |
|
|
|
43.3% |
|
|
7.2% |
7.3% |
19.3% |
|
|
| Healthcare |
| Parkway Life REIT |
4.18 |
2.41 |
2,075 |
34.8% |
1.73 |
1.13 |
3.6% |
3.7% |
4.0% |
PREIT SP |
Add |
ESG Analysis
LSEG ESG Scores
KDCREIT received a C+ for its combined ESG score in 2023 from LSEG, with a C+ in both the Environmental and Social categories and a B- in Governance [[3]]. It achieved an A+ for ESG Controversies [[3]]. KDCREIT retained its AA rating in the MSCI ESG Ratings assessment for the second consecutive year [[3]].
Green Building Certifications
Four out of KDCREIT’s five colocation assets in Singapore have achieved Building and Construction Authority (BCA) Green Mark Gold (one asset) and Platinum (three assets) ratings [[3]]. All of KDCREIT’s colocation facilities in Singapore have attained BCA certifications for their energy and water management systems [[3]].
Implications of Data Center Energy Consumption
Data centers collectively account for around 1-5% of global greenhouse gas (GHG) emissions [[3]]. In Singapore, data centers consumed 7% of the nation’s total energy in 2020, leading to a moratorium on new data centers since 2019 [[3]]. Although the moratorium was lifted in 2022, measures to raise the efficiency of existing data centers could be enforced over time [[3]]. KDCREIT may need to comply with additional requirements to improve the energy efficiency of its data centers [[3]].
ESG Highlights and Trends
- ESG Ranking: KDCREIT is ranked 18th among the 26 REITs in Singapore and 57th among 104 companies in Singapore, based on LSEG’s score [[3]].
- Emissions Reduction: Committed to reducing combined Scope 1 and 2 emissions by 50% from the 2019 baseline by 2030. In 2023, it reduced Scope 1 and 2 GHG emissions by 13.6% compared to the 2019 baseline [[3]].
- Renewable Energy: Aims to source at least 50% of the colocation assets’ electricity from renewable energy 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]].
- Sustainability-Linked Loans: In 2023, KDCREIT entered into two sustainability-linked loans totaling S\$150 million [[3]].
Improving its ESG score will positively impact KDCREIT’s operations, financials, and reputation in the long term [[3]].
Financials
P/BV vs Asset Leverage
