Analysts remain positive on the counter, with Citi, DBS and OCBC maintaining their ‘buy’ call
[SINGAPORE] Keppel DC Reit plans to gradually vacate its Keppel DC Singapore 1 (KDC SGP 1) data centre for a potential redevelopment, said its management on Thursday (Jul 23).
“For the KDC SGP 1, we are making preparations for a potential redevelopment of the asset,” said Loh Hwee Long, CEO of the manager of the real estate investment trust (Reit) during an earnings call.
It is a six-storey data centre co-location facility located in the Serangoon North Industrial Estate, with a total gross floor area of 225,956 square feet.
The property was originally built in the 1990s, and converted into a data centre in 2001. It subsequently completed major retrofitting works in 2013 to further upgrade data centre specifications.
The occupancy rate of KDC SGP 1 for H1 2026 stood at 46.5 per cent, against the portfolio occupancy rate of 92.5 per cent. It is currently occupied by 15 clients, and has an attributable gross revenue of S$16.5 million.
Weighted average lease expiry (Wale) of the data centre stood at 1.1 years, and the land title expires in September 2055.
“From that standpoint, there will be a calibrated ramping-down process,” he said.
This strategy to potentially redevelop the data centre comes as the company is seeing sustained growth in demand for data centres in its portfolio, particularly from tech hyperscalers.
“Hyperscalers remain a key focus for us, given their strong credit profiles and sustained demand for data centre capacity,” said Charmaine Cai, head of portfolio management at Keppel DC Reit.
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Hyperscalers accounted for half the group’s top 10 clients, with the top unnamed client being a hyperscaler contributing 43.5 per cent of the portfolio’s rental income.
Growth was further driven by contributions from positive reversions and escalations secured in prior periods, as well as acquisitions of Tokyo Data Centre 3 and remaining interests in Keppel DC SGP 3 and 4, the manager said.
“The acquisition of two high-quality, AI-ready hyperscale data centres in Singapore will strengthen Keppel DC Reit’s position as a top data-centre owner in the region,” said OCBC analyst Andy Wong.
Portfolio reversion for H1 2026 stood at about 10 per cent, reflecting renewals that commenced during the period.
Moreover, the manager’s Gore Hill data centre in the Gore Hill Technology Park in Sydney, Australia, secured new and renewal contracts in Q2 2026 at a “strong rate”, noted Keppel DC Reit.
“We expect to see income from the (Gore Hill data centre) asset to double from end-2026, with further upside as leasing progresses,” Cai said.
The increase in demand, underpinned by organic drivers and acquisition, has resulted in the group delivering stronger earnings, said Loh.
H1 results
The distribution per unit of Keppel DC Reit rose 11.3 per cent to S$0.05714 for its first half ended Jun 30, 2026, from S$0.05133 the year before.
Revenue was up 14.5 per cent at S$242 million, from S$211.3 million in the year-ago period.
Net property income for H1 grew 15.1 per cent to S$210.4 million from S$182.8 million.
Distributable income rose 18.5 per cent year on year to S$150.7 million from S$127.1 million.
On the capital management front, the Reit’s aggregate leverage was 34 per cent as at Jun 30, with a debt headroom of about S$673 million to a 40 per cent threshold.
The average cost of debt was 2.6 per cent for H1, while its interest coverage ratio remained “healthy at 6.9 times”.
The distribution will be paid out on Sep 18.
As at Jun 30, portfolio occupancy stood at 92.5 per cent, down from 95.6 per cent in Q1 2026, reflecting a contract expiry at its Cardiff data centre.
Loh noted that the data centre in Wales is a small asset and contributes less than 0.5 per cent of Keppel DC Reit’s portfolio. Excluding it, portfolio occupancy would be 95.3 per cent.
Dale Lai, analyst at DBS, said earnings momentum should remain positive, supported by:
- A full-period contribution from the increased stakes in Keppel DC SGP 3 and 4;
- The commencement of new contracts at Gore Hill in H2 FY2026; and
- Contractual rental escalations across the portfolio.
Analysts across the board maintained their “buy” call, with DBS setting a target price of S$2.60, which is under review. OCBC’s target was S$2.86 and Citi’s was S$2.69.
Units of the Reit ended S$0.04 or 1.7 per cent down at S$2.30 on Thursday.
