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Keppel DC REIT: First Half 2025 Financial Highlights · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive, your shortcut to being truly well-informed.
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  Today, we're really digging into Keppel DC REIT.
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  We're looking at how they're navigating, you know, these huge shifts in the
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  digital world, the whole AI explosion, global economic stuff,
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  and really asking, is their strategy building a true internet powerhouse?
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  Our goal is to break down their first half 2025 results, figure out what's driving
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  the numbers, and see what their outlook tells us about, well,
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  this absolutely critical industry.
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  Exactly. And in a sector that's evolving so rapidly, understanding the details
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  of financial health, the strategy of key players like Keppel, D.C., REIT, it's vital.
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  These numbers, they really give us a window into the bigger picture,
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  you know, the trends shaping our digital future.
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  Okay, so let's jump right into those headline figures. Keppel,
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  D.C., REIT, they've put out a really strong set of numbers for the first half of 2025.
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  Their distributable income, or DI, that's basically the cash generated for you,
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  the unit holders, in a REIT, it jumped, over 57% year-on-year.
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  That's up to $127.1 million. Wow, 57%.
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  Yeah. And maybe the number most people look at, the distribution per unit,
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  or DPU, that saw an impressive 12.8% increase year-on-year.
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  So that's 5.133 cents for the period.
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  And just so you know, that DPU gets paid out September 15, 2025.
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  We also saw gross revenue climb quite a bit, 34.4%.
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  And net property income, NPI, that was up a healthy 37.8%. Profit after tax
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  also solid, up 22.8%. So generally a really positive picture.
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  Those are definitely powerful indicators.
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  And that DPU growth, the 12.8%, that's really worth highlighting.
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  Because remember, they did an equity fundraise back in the fourth quarter of 2024.
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  That means more units out there. Right. Which usually dilutes the DPU.
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  Exactly. Usually you'd expect it to maybe flatten or even dip slightly.
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  So seeing it grow almost 13% despite that larger unit base, that signals really
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  strong underlying performance.
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  It suggests, you know, not just favorable market conditions,
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  but really efficient use of that new capital. Every dollar invested is pulling
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  more than its weight, essentially.
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  And just for context, the annualized yield based on the June 30th price of 2.33
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  cents, that works out to 4.41%. Okay, so impressive numbers across the board.
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  But let's peel back the layers now. What actually drove this performance?
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  What were the key engines here? It looks like a big piece, maybe the primary
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  piece, was income coming in from those strategic acquisitions they made back in 2024.
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  Specifically, Keppel DC Singapore 7 and 8 and also Tokyo Data Center 1.
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  Yes, those were significant additions.
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  And beyond the new properties, they're reporting something called strong portfolio reversion.
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  About 51% in the first half of 2025. Now, for anyone wondering,
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  portfolio reversion basically means when leases expired or were renewed,
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  they managed to sign them at much higher rates. Much higher. 51% is remarkable.
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  It really is. It shows just how much demand there is, right?
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  Driven by that ongoing digital economy growth.
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  And related to that, higher variable rent from other renewals and built-in escalations,
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  that also boosted the gross rental income. Plus, interestingly,
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  their finance costs actually decreased, down 5.3% in the first half. How did that happen?
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  Lower floating interest rates, it seems, and some smart loan repayments.
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  You've nailed the core drivers there.
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  Those acquisitions, Keppel DC, Singapore 7 and 8, Tokyo DC 1,
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  they're what we call accretive, meaning they started adding to earnings pretty much straight away.
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  It shows they're deploying capital effectively, picking the right assets,
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  And that 51% portfolio reversion, that's a massive signal.
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  It tells you demand for their data center space is red hot. They have significant pricing power.
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  Like being a landlord in a booming property market, but for data centers. Exactly.
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  Being able to hike rents by half on renewals, that really speaks volumes about
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  the market dynamics. It's very healthy for their profitability.
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  And yeah, the finance cost reduction that points to good treasury management,
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  taking advantage of lower rates, paying down debt when possible.
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  It directly boosts the distributable income because it lowers their expenses.
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  Financial discipline pays off. Okay, but it's important to get the full picture.
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  Were there any sort of counterweights to this growth? There were, yes.
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  It's important to be balanced. While the growth was, you know,
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  phenomenal, it was offset partly by a couple of things.
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  They sold off their Kelsterbach data center in Germany back in March 2025,
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  and they divested the IntelliCenter campus in Australia. Yeah.
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  In the first half of last year, 2024. So the income from those is gone.
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  Okay, so some digressments took away income streams. Right. And they also didn't
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  have a one-off dispute settlement payment this year that they received back in 2024.
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  And maybe more significantly for the DPU specifically, their other trust expenses went up.
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  This was mainly due to making loss allowances for some uncollected rent.
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  Specifically VAT, from their Guangdong data centers in China.
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  That particular issue actually impacted the first half 2025 DPU by nearly half
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  a cent, 0.492 cents, to be precise.
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  So yeah, very strong growth overall, but these operational details are part
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  of the story too. That's a really crucial clarification.
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  So those divestments, does that suggest they're strategically pruning the portfolio,
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  getting rid of older or less core assets?
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  And how are they managing everything, the assets, the finances to keep this
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  momentum going, especially with those kinds of complexities?
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  I mean, looking at their overall portfolio health, it still looks pretty strong.
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  Occupancy is high, 95.8%. And the whale, the weighted average lease expiry,
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  is 6.9 years by letable area, which sounds great. Very long term.
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  It is. That 6.9 years by area gives you a sense of long-term stability across the physical space.
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  But then it notes the whale is shorter, 4.7 years, if you measure it by rental
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  income. What's that about?
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  Ah, yeah. The difference is interesting. It's because a bigger slice of their
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  income comes from what are called collocation assets. That's where multiple
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  tenants rent smaller spaces within the same data center.
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  These deals often have shorter terms compared to leasing on an entire building
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  to one hyperscaler, for instance.
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  OK, so more tenants, shorter leases on average for those income streams. Is that a risk?
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  Not necessarily a risk, more of a different dynamic. It actually gives them
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  more opportunities to reprice leases upwards more frequently,
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  especially in a market like this where demand is high, like that 51 percent
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  reversion we talked about.
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  But yes, it does mean they have more leasing activity to manage compared to
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  having just a few massive long-term tenants. It's a trade-off.
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  But what's really key is how these pieces fit together. High occupancy plus
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  that reasonably long whale provides stable, predictable income.
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  That's absolutely vital for a REIT that needs to pay out consistent distributions.
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  It does sound like they're managing prime digital real estate effectively.
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  And they seem quite proactive about it too. They're not just sitting on assets.
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  They've mentioned divesting Kelster back, as you said. And Basis Bay in Malaysia
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  is next, expected in Q3 2025.
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  They call it non-core. So that sounds like active optimization,
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  right? Unlocking value, repositioning for the future.
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  Exactly. It shows agility. They're constantly evaluating the portfolio,
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  making sure the assets align with where the market is heading.
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  And looking ahead, they're not just divesting. They're aiming to acquire the
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  full 100% interest in Keppel DC Singapore 7 and 8 in the second half of this
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  year, plus get a land lease extension there.
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  And they're also working on a 30-year land lease extension for Keppel DC Singapore 1.
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  So doubling down on key Singapore assets.
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  Absolutely. Securing those assets long term in a prime location like Singapore
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  is strategically very important.
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  And their client base reflects that quality, too. It's well diversified globally.
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  Internet enterprise clients, often those big cloud providers,
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  the hyperscalers, they make up the biggest chunk, about 67.4% of rental income.
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  Hyperscalers like AWS, Google Cloud, Microsoft Azure. Precisely.
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  Those giants. Having them as major tenants is a huge plus.
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  They need massive amounts of space, usually on long contracts.
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  They act as really stable anchor tenants. It reduces risk because you're not
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  overly reliant on any single smaller client.
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  Many of their top 10 clients are Fortune Global 500s or these hyperscalers. Makes sense.
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  And turning to the money side, the capital management, you mentioned financial discipline earlier.
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  Their aggregate leverage is only 30.0% as of June 30th.
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  That sounds quite low for a REIT, doesn't it? It is relatively conservative, yes.
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  Very healthy. And that gives them significant debt headroom,
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  apparently around $898 million for future growth or acquisitions.
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  Plus, they've hedged 76% of their total debt, about $1.6 billion using interest rate swaps.
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  That must provide a lot of stability against rising rates. A huge amount of stability.
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  That low leverage and high hedging ratio are critical right now.
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  It protects them from interest rate volatility.
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  Those swaps basically lock in their interest payments on most of their debt.
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  So unexpected rate hikes have less impact on their bottom line.
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  They even did a sensitivity analysis.
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  It showed that if rates jumped a full percentage point, 100 basis points,
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  their interest coverage ratio would only drop from a very healthy 5.9 times
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  down to 4.4 times. Still very comfortable.
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  Shows good risk management. Right. And they also mentioned getting a CEF $100
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  million green loan facility in April for Keppel, D.C., Singapore 7 and 8.
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  Is that just branding or does it actually mean something?
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  Oh, it definitely means something. It's not just marketing.
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  Green loans are specifically tied to environmental performance criteria for
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  the assets being financed.
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  It aligns them with the growing focus on sustainability, which attracts ESG
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  investors, environmental, social, governance investors.
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  And often these green loans can come with slightly better interest rates,
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  which again helps their finance costs.
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  It also reflects their broader ESG commitments, like aiming for a 10% cut in
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  power usage effectiveness, that's PUE, a key data center efficiency metric by 2025 for some assets.
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  And they've also committed to another virtual power purchase ingredient in Ireland
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  for their Dublin sites, buying renewable energy.
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  So sustainability is baked into the financing and operations now.
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  Increasingly, yes. It's becoming table stakes in this industry,
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  both for attracting capital and for managing long-term operational costs and reputation.
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  Okay, so we've covered the solid performance, the drivers like acquisitions
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  and reversions, the portfolio management, the prudent capital strategy.
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  What does it all mean looking ahead? How are they positioned for the future,
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  especially with, you know, the uncertain global economy, but also this massive
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  AI boom everyone's talking about?
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  On one hand, you've got global macro issues, trade tensions,
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  maybe tariffs, geopolitics.
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  The World Bank even trimmed its 2025 global growth forecast to 2.3 percent.
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  That sounds like a headwind.
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  It is a headwind. Absolutely. You can't ignore the broader economic context.
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  But here's where the data center industry is, well, a bit different.
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  It has its own powerful tailwinds.
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  Despite those macro concerns, the fundamental demand drivers for data centers
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  are incredibly strong right now. Almost detached, you could argue.
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  And the main reason you hit on it, the rapid commercialization of genitive AI
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  and accelerating digitalization trends across industries.
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  So the AI demand is just that powerful? It's overriding the general economic
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  sluggishness, at least for this sector? To a large extent, yes.
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  Think about the sheer computing power AI requires and these vast amounts of
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  data processing and storage.
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  McKinsey estimates global data center demand could grow somewhere between 19%
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  and 22% per year through to 2030.
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  That's compound annual growth. Wow, 19 to 22% CAGR. That's huge.
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  It's massive. And they reckon 70% of the workloads running in data centers by
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  then could be AI-related. That's a fundamental shift.
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  70%. So the nature of data centers is changing because of AI.
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  Profoundly. And regionally, Asia-Pacific is set to become the biggest co-location market by 2030.
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  CBRE thinks demand will continue to outstrip supply there, pushing vacancy rates down.
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  Plus, you've got the big U.S. hyperscalers pouring capital into building out
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  their infrastructure in APAC. In Europe.
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  Europe's seeing strong demand too, especially from hyperscalers.
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  Vacancy rates there are projected to hit a record low of 7.6% next year.
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  And because supply is tight, partly due to higher construction costs,
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  you might see prices jump 10% or more in key markets like London and Frankfurt.
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  It's a landlord's market globally, really. Okay, so against that backdrop,
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  Keppel DC REITs strategy seems pretty well aligned.
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  They keep saying they're focused on high quality accretive acquisitions and
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  proactively managing the portfolio.
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  It sounds like they're positioned to ride this way, focusing on growth in the right places.
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  Their inclusion in Singapore's Straits Times Index, the main stock market benchmark,
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  kind of underlines that strong performance, doesn't it?
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  It does. It's a recognition of their scale and performance. And specifically.
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  Looking forward, besides securing those Singapore assets we mentioned,
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  they're actively hunting for third-party acquisitions in Japan,
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  South Korea, and Europe.
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  Always focused, it seems, on hyperscale data centers. Which makes perfect sense
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  given the demand profile we just discussed.
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  So this raises the key point, really. Despite those macro uncertainties lingering
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  in the background, the specific, intense demand for data center capacity supercharged
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  by AI creates this unique, powerful growth path.
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  And Keppel DC-REIT, with their disciplined approach, their strong balance sheet,
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  their focus on hyperscale.
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  They seem very well positioned to navigate this and capture that growth.
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  It's about being in the right place at the right time with the right strategy.
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  What a fascinating deep dive.
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  So to quickly recap for everyone listening, Keppel DC REIT delivered a really
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  strong first half in 2025, driven largely by smart acquisitions coming online
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  and their ability to significantly raise rents on existing properties thanks
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  to that booming digital demand.
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  All of this is happening against the backdrop of this massive AI-powered expansion
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  in the data center sector globally. Absolutely.
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  And maybe a final thought to
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  leave you with. Consider the sheer energy demands of this AI revolution.
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  How will the need for ever more powerful yet sustainable data centers continue
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  to push innovation, not just in technology, but in energy infrastructure,
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  in cooling, in real estate itself?
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  What new challenges, but also opportunities might emerge as AI becomes even
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  more deeply woven into everything we do? It's something that will shape investment
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  in infrastructure for years to come.
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  A really thought-provoking point to end on. Thank you for joining us on this
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  deep dive into the world of data centers and Keppel DC REIT.