During a results briefing on Jan 24, Loh Hwee Long, CEO of Keppel DC REIT’s (KDC REIT) manager, said that his data centres in Singapore are likely to be largely unaffected by the restrictions placed on certain jurisdictions by the US. Indeed, KDC REIT raised its exposure in Singapore to 65.3% from 53.1% by assets under management (AUM) with the acquisition of KDC SGP7 and KDC SGP 8 in December for $1.38 billion, taking the REIT’s AUM to $4.9 billion.
By December, the US had already announced the implementation of certain restrictions on advanced computing chips for certain tiers of countries.
On Jan 13, the US Bureau of Industry and Security implemented previously announced controls on advanced computing chips and specific closed artificial intelligence (AI) model weights, alongside new licensing exceptions and updates to the Data Center Validated End User (VEU) authorisation.
The new framework classifies countries into three tiers. Tier 1 comprises the US and its 18 closest allies, which have unrestricted access to advanced AI chips. Tier 2 covers over 100 other nations with varying export restrictions and caps, including a maximum AI chip install base of up to 49,900 H100 equivalent graphics processing units (GPUs) from 2025 to 2027. Tier 3 countries are viewed as adversaries of the US.
As a so-called Tier 2 country, Singapore is not on the list of certain allies and partners under the New License Exception Artificial Intelligence Authorization (AIA). The AIA allows for the export, re-export, or transfer (in-country) of advanced computing chips without authorisation to a set of US allies and partners.
Loh says: “Even though we are classified as a Tier 2 country for GPUs, the number of GPUs allocated for Tier 2 countries is roughly about 50,000 GPUs over the next two, three years. Translating that into computing power is still quite substantial [for AI inference] workload.”
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“From a GPU compute perspective, where our assets are today, especially for those in Singapore, we focus a lot more on the AI inference part of the business, less so on the training work. [For the latter,] there will be a super high reliance in terms of the number of GPUs that are needed,” he adds.
From that standpoint, Loh suggests that KDC REIT is relatively sheltered from the restrictions that [the Jan 13 development] refers to. The work done in KDC REIT’s data centres, including the recently acquired KDC SGP 7 and 8, includes AI-inference work.
“We believe that the absence of liquid cooling in KDC REIT’s portfolio implies modest advanced AI demand, and KDC REIT’s hyperscale clients being mostly from the US suggests muted impact from the rule,” says a JP Morgan report.
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On the other hand, due to its geography, Singapore is a connectivity hub linking Southeast Asia to the global network through its 26 subsea cables and three landing sites. Additionally, Singapore is a financial hub and a data centre hub. The little red dot is also an air hub and, by history, an entrepot port.
“Singapore targets investments of at least $10 billion to double its capacity for international subsea cables and landing sites over the next decade to support the widespread usage of new AI applications. The domestic infrastructure will be upgraded to provide broadband speed of 10Gbps over the next five years. The government is working with the private sector and research institutions to scale the usage of autonomous systems using new technology, e.g., low-earth orbit satellites,” says UOB Kay Hian in a report.
“The type of AI compute work that will continue to reside in Singapore is because of its very strong connectivity features,” Loh adds. He also draws some differences between the new data centre construction in Johor. With access to more land, water and energy than is available in Singapore, the data centres across the border there will be able to perform AI modelling and training. “We are both targeting different segments,” Loh adds.
On Jan 27, mainland Chinese start-up DeepSeek launched its DeepSeek R1 version, which consumes less energy than comparable US versions and uses less advanced chips.
For power- and water-constrained Singapore, this should be good news. In a knee-jerk reaction, KDC REIT’s unit price fell by 7.9% on Jan 27. “We see limited impact from DeepSeek to KDC REIT near-term. KDC REIT’s properties are well-occupied at 97% with limited exposure to AI training and high-density AI inference as evidenced by the lack of liquid cooling deployed by its data centres,” says a JP Morgan report following the launch of DeepSeek R1.
With the exception of KDC SGP 1, which is 74.9% occupied because tenant DXC has exited, KDC REIT’s Singapore data centres are, on average, almost 100% occupied. Elsewhere, only Gore Hill Data Centre in Australia is 80% occupied.
At the start of the year, KDC REIT announced the divestment of Basis Bay Data Centre in Cyberjaya. Its occupancy was just 40.2%.
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“Acceleration of AI adoption would benefit data centre demand in Singapore and could support data centre demand in mainland China which we believe would benefit KDC REIT,” JP Morgan adds.
KDC REIT entered China under previous management, acquiring its first data centre in July 2021 and two more data centres in 2023, all in Bluesea Intelligence Valley Mega Data Centre Campus, from Guangdong Bluesea Data Development. Guangdong Bluesea has a master lease agreement but is in arrears with its rent.
Despite having to net off an investment loss from Guangdong Bluesea, KDC REIT reported a distribution per unit (DPU) of 4.902 cents for 2H2024 and 9.451 cents in FY2024, 13.2% higher y-o-y and 0.7% higher y-o-y, respectively, on an enlarged unit base after the equity fundraising (EFR) in 4Q2024.
From US to Europe
When Digital Core REIT (DC REIT), Singapore’s second pure-play data centre REIT, was listed in December 2021, its portfolio was located in North America, mainly the US, with one property in Canada. Since then, DC REIT has diversified away from North America, investing in Frankfurt and Osaka. Northern Virginia, the world’s largest data centre market, still comprises more than 39% of AUM, followed by Frankfurt with 20% and Silicon Valley with 17.3%.
During DC REIT’s 3Q2024 business updates, John Stewart, CEO of DC REIT’s manager, said that the tenant of 8217 Linton Hall in Northern Virginia will likely not extend its lease beyond June this year. That has turned out to be the case.
Stewart adds: “We are evaluating a series of options, including potentially re-leasing the facility as it is, developing an annexe in the parking lot, or potentially demolishing the existing building and developing a much larger facility on the site. If we elect to redevelop rather than immediately re-lease the property, there is potential for near-term DPU disruption. Every month of downtime corresponds to 0.06 cents of DPU. However, given the severe power constraints in a market with less than 1% vacancy — in addition to the size of the parcel and the potential access to power — we believe the opportunity for long-term value creation far outweighs the potential short-term DPU disruption.”
DC REIT’s FY2024 results will be announced on Feb 12, followed by an earnings call for analysts and media.
Too early to seek
Meanwhile, what might be the impact on other Singapore semiconductor plays? In the midst of the market frenzy over DeepSeek, the US is reportedly probing the shipment of Nvidia chips from Singapore to China via intermediaries.
In response, the Singapore government says that US companies like Nvidia are expected to comply with US export controls and Singapore’s domestic legislation.
The Ministry of Trade and Industry notes that while Singapore accounts for about 22% of Nvidia’s revenue, “most shipments associated with Singapore revenue were to locations other than Singapore, and shipments to Singapore were insignificant”. MTI adds that Singapore is an international business hub with major US and European companies having “significant operations” in the city-state.
Regardless, this issue is of interest given the semiconductor industry is a key part of Singapore’s manufacturing sector. Over the years, Singapore has not just built up an ecosystem of chips manufacturers but also those in supporting functions ranging from parts makers to testing service providers.
For one, analyst Jarick Seet of Maybank Securities sees that DeepSeek’s emergence could spur more chip demand as AI development costs could be lowered to improve AI models.
“However, AI development is still in its early phases; hence, there’s still a lot of uncertainty. I think Singapore-listed players are still highly dependent on the whole global semiconductor demand, not just from the AI industry,” says Seet.
On one hand, given how AI investment funding will be less than initially thought, the development could be cheaper and more accessible to more companies and users instead of just the top-tier big corporations. On the other hand, with fewer chips, especially the top-end ones required, the entire semiconductor supply chain would find itself compelled to adjust again. “Reducing the need for high-end chips reduces the need for the supply chain requirement to produce these higher quality end-chips,” says Seet.
Original equipment manufacturer (OEM) provider of semiconductor components, UMS, notes a similar sentiment, citing the development’s premature nature.
Stanley Loh, CFO of UMS Integration, says the company has not received any new updates from its clients about DeepSeek so far, given how it is “a very recent phenomenon.”
Citing media reports, Loh notes that DeepSeek’s AI is now restricted by “hundreds” of companies and government agencies and it is also under investigation by the US government. “Therefore, we aren’t able to give any guidance now on its potential benefits.” — with additional reporting by Douglas Toh
