Keppel DC REIT has delivered a solid first quarter performance for FY26, with distribution per unit (DPU) reaching 2.833 Singapore cents, representing a 13.2% year-on-year increase. The REIT, which operates a portfolio of data centre properties across key markets, demonstrated resilient fundamentals despite some operational challenges.
Strong Financial Performance Driven by Strategic Acquisitions
The quarterly results were in line with expectations, forming 26% of full-year estimates. Growth was primarily attributed to the acquisitions of Tokyo Data Centre 3 and the remaining interests in Keppel DC Singapore 3 & 4, alongside stronger contributions from contract renewals and escalations. These gains were partially offset by the divestment of Kaltenbach Data Centre.
Portfolio rental reversion remained robust at 51% during the quarter, an improvement from the full-year FY25 figure of 45%. However, this strong performance was based on a very small percentage of total leases, approximately 0.3% of the portfolio. Portfolio occupancy eased slightly by 0.2 percentage points to 95.6%, primarily due to client downsizing of non-data centre space, whilst the portfolio weighted average lease expiry (WALE) remained healthy at 6.5 years.
Positive Financial Metrics Support Growth Strategy
The REIT’s financial position showed continued strength with the average cost of debt declining 20 basis points quarter-on-quarter to 2.6%, with 84.8% of loans secured on fixed rates. Aggregate leverage stood at 35.1%, providing approximately S$550 million of debt headroom against the 40% internal cap to support future acquisitions. Management expects the cost of debt to remain stable at 2.6% through FY26, with only 8.5% of debt due for refinancing during the year.
Ongoing Challenges in Guangdong Operations
The primary concern remains the ongoing weakness at the Guangdong Data Centres, where KDCREIT continues to recognise loss allowances for overdue rent. Bluesea, the master lessee, has accumulated over S$55 million in unpaid rent to date, with chip availability continuing to present bottlenecks in China.
Phillip Securities Research maintains an ACCUMULATE recommendation with an unchanged dividend discount model-derived target price of S$2.37. The potential recovery of overdue rent from Bluesea remains a key catalyst, though this issue remains unresolved. The stock currently trades at an FY26 DPU yield of 4.6%.
Frequently Asked Questions
Q: What was Keppel DC REIT's DPU performance in Q1 FY26?
A: The REIT achieved a DPU of 2.833 Singapore cents, representing a 13.2% year-on-year increase and forming 26% of full-year estimates.
Q: What drove the growth in Q1 FY26 results?
A: Growth was primarily driven by acquisitions of Tokyo Data Centre 3 and remaining interests in Keppel DC Singapore 3 & 4, plus stronger contributions from contract renewals and escalations, partially offset by the Kaltenbach Data Centre divestment.
Q: How strong were the rental reversions during the quarter?
A: Portfolio rental reversion remained robust at 51%, improving from the FY25 level of 45%, though this was based on approximately 0.3% of total leases.
Q: What is the current financial position regarding debt?
A: The average cost of debt declined to 2.6% with 84.8% of loans on fixed rates. Aggregate leverage stands at 35.1%, providing around S$550 million debt headroom against the 40% internal cap.
Q: What are the main challenges facing the REIT?
A: The primary concern is the ongoing weakness at Guangdong Data Centres, where master lessee Bluesea has accumulated over S$55 million in unpaid rent, with chip availability continuing as a bottleneck in China.
Q: What is Phillip Securities Research's recommendation?
A: Phillip Securities Research maintains an ACCUMULATE rating with an unchanged target price of S$2.37 derived from their dividend discount model.
Q: What is the current portfolio occupancy rate?
A: Portfolio occupancy eased slightly by 0.2 percentage points to 95.6%, primarily due to client downsizing of non-data centre space, whilst WALE remained healthy at 6.5 years.
Q: What potential catalyst could impact future performance?
A: The potential recovery of over S$55 million in overdue rent from Bluesea remains a key catalyst, though this issue currently remains unresolved.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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