Keppel DC REIT Earnings: Strong Data Center Demand and Tight Supply Boosting Rental Reversion

Keppel DC REIT's first-half results beat our expectations, recording a positive rental reversion of more than 40% for a major contract renewal at its Singapore data center. This can be achieved due to very strong demand for colocation data centers in Singapore while supply remains tight. Management is confident that this favorable demand/supply market dynamic in Singapore, as well as Dublin, will benefit the trust in negotiating its remaining lease expiries for 2024, and it expects to maintain a healthy occupancy and positive rental reversions. We lift our rental assumptions slightly to account for the strong rental reversion performance but moderate our 2026 recovery assumptions for its Guangdong data centers as there is no visible improvement at this stage. Consequently, our 2024-25 distribution per unit estimates are raised by 2.3%-2.5%, while our 2026 DPU estimate is lowered by 2.5%. We retain our fair value estimate of SGD 1.80 per unit and think the units are fairly valued currently.