Keppel DC REIT: Target Price S$2.33 — Strong DPU Growth Underpinned by Robust Rental Reversions November 4, 2026
Brief Overview
Keppel DC REIT (KDCREIT) delivered 3Q26 distribution per unit (DPU) of 2.86 Singapore cents, representing a 12.6% year-on-year increase, while 9M26 DPU of 8.57 Singapore cents rose 11.7% year-on-year. The results were in line with Phillip Securities Research’s expectations, forming 25% and 74% of the full-year FY26e forecast respectively. Growth was driven by the accretive acquisition of Tokyo Data Centre 3, positive rental reversions and escalations across the portfolio, and increased effective interests in Keppel DC Singapore 3 and 4, partially offset by the divestment of Kelsterbach Data Centre, the absence of income from Cardiff DC, and higher finance expenses. Portfolio occupancy improved 0.5 percentage points quarter-on-quarter to 93%, while contracted power capacity edged up to approximately 96%.
Investment Positives
Healthy Balance Sheet Despite Recent Acquisitions
Despite an active acquisition programme, KDCREIT’s balance sheet remains in sound health. Aggregate leverage increased 220 basis points quarter-on-quarter to 36.2% following the partial drawdown of Japanese yen loans to fund Tokyo DC 4 and 5, rising to 38.8% on a pro forma basis following the completion of those acquisitions on 1 October 2026. The 3Q26 cost of debt remained stable quarter-on-quarter at 2.7%, while the interest coverage ratio stayed healthy at 6.5 times. Phillip Securities Research expects FY26e cost of debt to remain at approximately 2.7%, with the proportion of fixed-rate debt expected to increase from 69.6% to the high-80% range by December 2026 as Japanese yen interest rate swaps take effect. This progression towards a higher fixed-rate debt mix should provide further stability against interest rate fluctuations.
Strong Rental Reversions and Occupancy Improvement
Rental reversions remained robust at approximately 16% in 3Q26, building on a 9M26 average of approximately 14%. This strong leasing momentum underscores the continued demand for data centre capacity across the REIT’s markets. We expect FY26e rental reversions to remain around the 9M26 level of approximately 14%, with only 1.1% of leases by gross rental income due for renewal in 4Q26, limiting near-term downside risk from lease expiries.
Revenue Uplift from Gore Hill DC
Revenue at Gore Hill Data Centre is set to more than double as new contracts commence in 4Q26. This step-up in income contribution provides a meaningful boost to the REIT’s revenue base in the near term.
Accretive Acquisitions and Pipeline
The completion of Tokyo DC 4 and 5 on 1 October 2026 adds to the REIT’s earnings base from 4Q26 onwards. Full-year contributions from these recent acquisitions, combined with organic rental growth, are expected to drive 4.5% DPU growth in FY27e. KDCREIT remains on the lookout for accretive acquisition opportunities in established data centre hubs, including Japan, South Korea, Singapore and Europe, with a preference for assets leased to hyperscale customers.
Asset Enhancement Upside
The Keppel DC Singapore 8 asset enhancement initiative remains on track for completion in the second half of 2027, providing further upside to DPU growth beyond the current forecast period.
No Neocloud Exposure
KDCREIT has no exposure to neocloud providers and has not experienced any adverse impact from concerns over neocloud providers’ funding and delays in artificial intelligence infrastructure buildout. This insulates the REIT from a risk factor that has weighed on other data centre operators.
Enlarged Unit Base Supported by Private Placement
The September 2026 private placement enlarged the unit base by approximately 12%, providing equity funding ahead of Tokyo DC 4 and 5 contributions from 1 October 2026. This approach maintained a prudent capital structure while funding growth.
Investment Challenges
No Material Improvement at the Guangdong Data Centres
Rent collection from Bluesea at the Guangdong Data Centres remains unresolved, with loss allowances continuing to weigh on earnings. Recovery of over S$65 million in overdue rent is deemed unlikely in the near term. Guangdong DC’s rental income and corresponding loss allowances are recognised under gross revenue and property expenses respectively. Our estimates exclude contributions from the Guangdong Data Centres.
Higher Finance Expenses
Finance costs rose 34.1% year-on-year in 3Q26 to S$16.0 million, driven by new acquisition loans drawn in 4Q25 and consideration for the KDC SGP 7 and 8 lease extension. This increase partially offset the revenue gains from acquisitions and rental reversions.
Temporary Income Loss from SGP1 Redevelopment
Full-year contributions from recent acquisitions and organic rental growth are expected to drive DPU growth in FY27e, but this will be partially offset by temporary income loss from the phased reduction in occupancy at SGP1 ahead of its redevelopment.
Outlook
KDCREIT is well positioned for continued DPU growth, supported by full-year contributions from recently acquired assets, strong organic rental reversions, and the imminent revenue uplift at Gore Hill DC. The REIT’s focus on hyperscale-leased assets in established data centre markets provides a durable income stream. The Keppel DC Singapore 8 asset enhancement initiative, on track for completion in the second half of 2027, offers additional DPU upside. These positives are moderated by the ongoing Guangdong DC rent collection issue, higher finance costs, and the temporary income drag from the SGP1 redevelopment. The stock currently trades at a FY26e DPU yield of 5.5%.
Recommendation and Target Price
Phillip Securities Research maintains an ACCUMULATE recommendation on Keppel DC REIT with a lower dividend discount model-derived target price of S$2.33, down from the previous target of S$2.46. The reduction reflects a 25 basis point increase in the cost of equity to account for the higher interest rate environment. The FY26e DPU estimate has been raised by 1% after incorporating Tokyo DC 4 and 5 and the associated private placement. At the last closing price of S$2.13, the target price of S$2.33 implies a total return of 14.9%, inclusive of forecast distributions.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
Frequently Asked Questions
Q: What was Keppel DC REIT's 3Q26 DPU and how did it compare year-on-year?
A: Keppel DC REIT's 3Q26 DPU was 2.86 Singapore cents, representing a 12.6% increase year-on-year. The 9M26 DPU of 8.57 Singapore cents rose 11.7% year-on-year and formed 74% of our FY26e forecast.
Q: What drove the DPU growth in 3Q26?
A: Growth was driven by the accretive acquisition of Tokyo Data Centre 3, positive rental reversions and escalations across the portfolio, and increased effective interests in Keppel DC Singapore 3 and 4. These were partially offset by the divestment of Kelsterbach Data Centre, the absence of income from Cardiff DC, and higher finance expenses.
Q: How strong were rental reversions in 3Q26?
A: Rental reversions were approximately 16% in 3Q26, with the 9M26 average at approximately 14%. We expect FY26e rental reversions to remain around the 9M26 level, with only 1.1% of leases by gross rental income due for renewal in 4Q26.
Q: What is the status of the Guangdong Data Centre issue?
A: Rent collection from Bluesea at the Guangdong Data Centres remains unresolved, with loss allowances continuing to weigh on earnings. Recovery of over S$65 million in overdue rent is considered unlikely in the near term. Our estimates exclude contributions from the Guangdong Data Centres.
Q: How has the balance sheet held up after recent acquisitions?
A: Aggregate leverage rose to 36.2% in 3Q26, or 38.8% pro forma following the completion of Tokyo DC 4 and 5 on 1 October 2026. The cost of debt remained stable at 2.7% and the interest coverage ratio was healthy at 6.5 times. Fixed-rate debt is expected to increase from 69.6% to the high-80% range by December 2026.
Q: What is the expected DPU growth for FY27e?
A: We expect 4.5% DPU growth in FY27e, driven by full-year contributions from recent acquisitions and organic rental growth, partially offset by temporary income loss from the phased reduction in occupancy at SGP1 ahead of its redevelopment.
Q: Why was the target price lowered from S$2.46 to S$2.33?
A: The lower target price reflects a 25 basis point increase in the cost of equity to account for the higher interest rate environment. The FY26e DPU estimate was raised by 1% after incorporating Tokyo DC 4 and 5 and the associated private placement.
Q: Does Keppel DC REIT have exposure to neocloud risks?
A: KDCREIT has no exposure to neocloud providers and has not seen any adverse impact in the markets it operates in from concerns over neocloud providers' funding and delays in artificial intelligence infrastructure buildout.
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About the author
Darren Chan
Darren has over seven years of experience across both the buy-side and sell-side. During his tenure as a fund manager, he managed multiple funds and mandates, including dividend income, growth, customised, Singapore-focused, and regionally focused strategies. He holds a First-Class Honours degree in Banking and Finance from the University of London.
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