The improvement can be largely attributed to full-quarter contributions from the newly-acquired data centres here, SGP7 and SGP8; the acquisition of Tokyo Data Centre 1, which was completed last July and also contract renewals and rental escalation in 2024.
The gains were partially offset by the divestment of Intellicentre Campus in Sydney, Australia last June.
"Growth would have been more pronounced if not for elevated capex reserve, estimated at$6 million and equivalent to 10% of distributable income," notes Jonathan Koh of UOB Kay Hian in his April 21 note.
Koh notes that in 1QFY2025, the REIT was able to achieve positive rental reversions of 7% in Dublin and to a smaller extent, other smaller leases in Singapore. However, leases renewed in 1Q25 accounted for only 1.8% of rental income.
See also: ‘Value investors could look at MPACT, FEHT, Sasseur REIT and FLCT for alpha opportunities’, says DBS
Nonetheless, with the renewals, Keppel DC REIT's weighted average lease expiry has been extended from 6.3 years as at last December to 7.1 years in 1QFY2025. Portfolio occupancy, meanwhile, eased "marginally" by 0.7ppt q-o-q to 96.5% due to lower occupancy at SGP1 in Singapore and the divestment of Kelsterbach Data Centre in Frankfurt, Germany in March.
Koh's positive view on Keppel DC REIT is also from its resilient balance sheet. As of March, aggregate leverage dipped 1.3 ppt over the preceding three months to 30.2%; its average cost of debt was stable at 3.1% in 1QFY2025. About 68% of KDCREIT's borrowings are hedged to fixed interest rates.
Koh too likes Keppel DC REIT in the context of the broader environment, where there is no "visible impact" from reciprocal tariffs imposed by the US. "Singapore remains capacity-constrained, while demand in Europe remains robust. Management continues to work hard to deliver good results for unitholders," he says.
See also: RHB downgrades KORE on expectations of lower margins but higher costs
Citing the management, Koh says Keppel DC REIT is actively rebalancing its portfolio to capitalise on structural trends, specifically, the growing demand for capacity with heavier use of generative AI.
It is eyeing possible acquisitions in Japan, South Korea and Europe, with a focus on so-called "hyperscale" data centres with a capacity of 20-50MW each.
Within Singapore, the home market, supply remains tight this year and next, as new players will only come on stream largely in 2027, which thereby will help the REIT sustain positive rental reversion this year and next, says Koh, who has a target price of $2.55.
In its separate note, DBS Group Research is similarly upbeat on this stock, noting that the divestment of Kelsterbach DC and Basis Bay, as well as the ongoing portfolio rebalancing should uplift quality and margins.
"With data centre demand surging globally - particularly from hyperscalers and edge-AI needs - KDCREIT is well-positioned with assets in Singapore, Tokyo, and key European markets," says DBS.
"Despite the lack of one-off dispute settlement sum at SGP 1 received in 2024, recent acquisitions and savings in financing costs will drive earnings growth," adds DBS, which has a "buy" call and target price of $2.50.
OCBC Investment Research notes that there are ongoing concerns over the credit profile of its master lessee at its Guangdong data centres following rental arrears and sluggish recovery progress.
For more stories about where money flows, click here for Capital Section
"Even so, the recent 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 and reduce its percentage portfolio exposure to China," adds OCBC.
However, having taken into account various other changes, OCBC has trimmed its fair value from $2.43 to $2.35 even as it keeps its "buy" call.
Similar to UOB Kay Hian's Koh, Darren Chan of PhillipCapital does not see Keppel DC REIT impacted by much from either tariffs or chip export restrictions.
"Evolving AI governance and geopolitical developments, such as US tariffs, may add regulatory complexity and uncertainty to data centre demand. Nonetheless, demand remains resilient amid inflationary pressures, with no indications from Keppel DC REIT's tenants pulling back," says Chan.
Citing the REIT's management, he says Keppel DC REIT does not anticipate any material impact on the portfolio from chip supply restrictions, as their data centres do not handle training AI workloads, and any GPU requirements are not expected to reach the heavily regulated thresholds.
He has upgraded his call from "hold" to "accumulate" while keeping his $2.25 target price, on expectations that rental reversions this current 2QFY2025 may exceed 30%.
"Keppel DC CREIT's largest tenants are some of the biggest internet enterprises in the world, with its largest contributing 40.8% of rental income. The current share price implies an FY2025 DPU yield of 5%," he adds.
