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
