Keppel DC REIT: Raising at Least SGD 985 Million to Acquire Two Singapore Data Centers

We increase our fair value estimate for Keppel DC REIT to SGD 2.34 per unit from SGD 2.10 following its plan to raise at least SGD 985 million to acquire two Singapore colocation data center buildings, Keppel DC Singapore 7 and Keppel DC Singapore 8. We like that these are artificial intelligence-ready hyperscale data centers, which continue to ride on strong secular demand driven by increasing digitalization, higher cloud adoption, and artificial intelligence. Singapore, where the data centers are located, remains power-constrained and management said the colocation vacancy rate was around 1% as of end-June 2024. The trust estimates that the acquisition would have brought distribution-per-unit accretion of 8.1% to the pro forma first-half 2024 performance (if this deal had been completed on Jan. 1) as well as a further SGD 350 million expense for the extension of the land lease tenure and tax transparency for these data centers. We lift our DPU estimates for fiscal 2025-26 by 5.4%-7.1% after factoring in this acquisition and updating our assumptions. We think the units are fairly valued currently.