Maybank Securities analyst Krishna Guha initiated coverage on Keppel DC REIT (SGX: AJBU) with a "Buy" rating and a S$2.40 target price in a July 17 research note, highlighting the REIT's strong positioning to capitalize on structural growth drivers including digital transformation, cloud migration, and artificial intelligence (AI) adoption.
The report emphasizes that data centers stand to benefit from multiple secular trends: exponential growth in data generation/consumption, accelerating enterprise cloud adoption, expanding AI applications, and increasingly stringent cybersecurity/data protection requirements. Citing DC Byte projections, Guha forecasts 17-19% compound annual growth (CAGR) for global data center demand through 2028, with Keppel's core European and Asian markets expected to mirror this trajectory.
As Asia's first pure-play data center REIT (listed 2014), Keppel currently operates 24 facilities across 10 countries with S$5 billion AUM, maintaining >96% occupancy across its Singapore, European, Chinese, Australian and Japanese assets. The REIT demonstrated operational resilience in FY2024 with rental reversions reaching 39%, contributing to 0.7% DPU growth, while Q1 2025 saw a 14.2% DPU surge through active portfolio management and strategic acquisitions.
Financially, Keppel maintains a conservative balance sheet with 30.2% gearing, 5.8x interest coverage, and S$886 million debt capacity for growth initiatives. However, the analyst notes supply constraints in European markets due to power/land scarcity could present challenges.
Backed by sponsor Keppel's decade-long data center expertise (currently operating 650MW capacity with plans to expand to 1.2GW including innovative near-shore net-zero concepts), the REIT benefits from unique development pipelines. Guha highlights Keppel's attractive 4.3% yield and below-peer gearing as key differentiators, though cautions about rising electricity/carbon costs, tightening climate regulations, interest rate volatility, and FX risks.
Trading at 1.4x P/B with a 230bps yield spread (vs. 278bps historical average), Maybank believes Keppel's strong fundamentals and sector tailwinds justify its premium valuation among SGX-listed data center REITs, which now include newcomer NTT DC REIT (US$1b IPO on July 14). The REIT's June 2023 reinstatement in the STI index further enhances its profile among Singapore's eight constituent S-REITs.