During Keppel DC REIT’s (KDC REIT) 1QFY2026 results briefing for analysts, the focus was on a specific asset, KDC Singapore 1 (KDC SGP 1) a property in Serangoon North Industrial Estate. The REIT’s 2025 annual report had indicated that the land lease for the KDC SGP 1 asset was extended by 30 years in 3Q2025, expiring on Sept 30, 2055.
According to a JP Morgan report dated April 16, plans for KDC SGP 1’s asset enhancement initiatives (AEI) are ongoing “with management describing the potential AEI as “transformational” rather than minor works”.
Power appears to be sufficient for a new tenant, possibly a hyperscaler, other analysts suggest.
“On funding, it is too early to call whether this would be done on the REIT’s own balance sheet although management is also open to working with partners if they bring complementary capabilities,” JP Morgan says.
A transformational AEI could involve loss of income in the near term. According to KDC REIT’s annual report, in FY2025, KDC SGP 1 contributed $16.3 million or 3.7% of total gross revenue, with an occupancy of 53.3%. JP Morgan suggests this contribution could be offset by management fees in units or capital top-ups to bridge the income gap, especially if there are underlying lease commitments.
Elsewhere, the tenant at Cardiff Data Centre is likely to vacate by the middle of this year. “Management is working on re-leasing or is open to divesting, as it is not considered a core asset. A power study is ongoing,” JP Morgan said.
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A two-pronged approach is being used for Gore Hill in Sydney. JP Morgan says there is good progression on renewal discussions and re-leasing efforts have been recalibrated for the remaining 20% of vacant space.
Back in Singapore, KDC SGP 2’s occupancy declined to 91.1% in 1Q2026 compared to 98.2% in 4Q2025. “This is predominantly driven by a client downsizing non-DC space requirements. Management noted a broader sector trend of customers moving away from non-data centre space, and with occupancy currently measured on floor area usage, this may be reviewed to better reflect data centre space,” JP Morgan says.
KDC REIT’s occupancy rate depends on the net lettable area (NLA) that is occupied. REITs such as NTT DC REIT’s occupancy depends on IT load. Digital Core REIT reports both occupancy by NLA and the IT load of the customers.
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Electricity costs are almost fully passed through to tenants, with KDC REIT’s exposure largely limited to common areas at less than 3% of portfolio operating expenses. For instance a 10% rise in electricity tariffs will only affect 0.1% of distributions per unit (DPU), JP Morgan says.
In 1QFY2026, for the three months to March 31, KDC REIT’s gross revenue rose by 18.4% y-o-y to $120.96 million while net property income (NPI) increased by 19.4% to $105.17 million. Distributable income rose by 20.7% to $74.6 million translating into a 13.2% rise y-o-y in DPU to 2.833 cents.
The higher NPI was mainly due to the acquisition of Tokyo Data Centre 3; higher contributions from contract renewals and escalations but partially offset by the divestment of Kelsterbach Data Centre.
The higher distributable income and DPU were also mainly due to contributions from strong portfolio performance, acquisitions of Tokyo Data Centre 3 and remaining interests in Keppel DC Singapore 3 and 4.
Finance costs were higher mainly due to new acquisition loans drawn in 4Q2025 but average cost of debt in 1Q2026 was a low 2.6%, down 20 bps q-o-q.
Rental reversions in 1Q2026 surged by +50.3%, largely from Singapore. The vast majority of large co-location contracts have been renewed over the past two years, and the 6% of contracts due for renewal in 2026 are smaller ones closer to market rates.
“Management flagged that while the 1Q2026 headline reversion is strong, the forward outlook is different from a few months ago, and some level of moderation in reversions is expected,” JP Morgan says.
KDC REIT’s unit price rebounded on the 1Q2026 business updates. The annualised DPU yield based on the closing price on April 15 is 4.84%. JP Morgan has an end-2026 price target of $2.55 for KDC REIT.
