Keppel DC REIT Eyes Redevelopment of Aging Singapore Facility as H1 Income Jumps 18.5%

Aging Asset in Redevelopment Queue

Keppel DC Real Estate Investment Trust is preparing to gradually vacate its Keppel DC Singapore 1 facility in Serangoon North, opening the door to a potential redevelopment of the six-story structure originally built in the 1990s. CEO Loh Hwee Long confirmed the move during an earnings briefing on July 23, describing it as a "calibrated ramping down process."

The 225,956-square-foot co-location facility, converted to a data center in 2001 and retrofitted in 2013, posted a 46.5% occupancy rate for the first half of 2026, well below the portfolio average of 92.5%. Fifteen tenants currently occupy the site, which contributed S$16.5 million in attributable gross revenue. The land lease runs until September 2055, and the weighted average lease expiry stands at just 1.1 years, giving management room to execute the transition without abrupt contract terminations.

The decision reflects a broader shift in Keppel DC REIT's strategy. While the trust winds down its oldest Singapore asset, it is doubling down on hyperscale, AI-ready infrastructure elsewhere in the region.

Hyperscalers Drive Revenue Growth

Demand from technology hyperscalers underpinned strong half-year results. Distributable income climbed 18.5% to S$150.7 million, while revenue rose 14.5% to S$242 million. Distribution per unit increased 11.3% to S$0.05714, up from S$0.05133 a year earlier.

Hyperscalers now represent half of the REIT's top ten clients. A single unnamed hyperscaler accounts for 43.5% of portfolio rental income, according to Charmaine Cai, head of portfolio management. That concentration reflects both the credit quality hyperscalers bring and the sustained capacity requirements tied to cloud expansion and artificial intelligence workloads across Asia.

Portfolio reversion for the first half reached roughly 10%, driven by renewals that took effect during the period. Acquisitions also played a role. The trust's purchase of Tokyo Data Centre 3 and increased stakes in Keppel DC Singapore 3 and 4 added full-period contributions to the income line.

Net property income for the half rose 15.1% to S$210.4 million, compared with S$182.8 million in the prior year.

Sydney Asset Sees Sharp Upside

The Gore Hill data center in Sydney secured new and renewal contracts in the second quarter at what management described as a "strong rate." Cai said income from the Gore Hill facility is expected to double by the end of 2026, with further upside as leasing progresses.

Gore Hill sits within the Gore Hill Technology Park, a precinct that has attracted enterprise and hyperscaler tenants seeking proximity to Sydney's central business district and subsea cable landing stations. The renewed leasing momentum there contrasts with challenges in other geographies.

Cardiff Vacancy Drags Portfolio Occupancy

Portfolio occupancy slipped to 92.5% as of June 30, down from 95.6% in the first quarter, driven by a contract expiry at the Cardiff data center in Wales. Loh noted the Welsh asset contributes less than 0.5% of portfolio income. Excluding Cardiff, occupancy stands at 95.3%.

The Cardiff facility has been a marginal contributor since acquisition, and the expiry underscores the risks of holding smaller, non-core assets in secondary markets. Management has not disclosed whether it intends to divest or re-tenant the site.

Balance Sheet Headroom

Keppel DC REIT maintained an aggregate leverage ratio of 34% as of June 30, leaving approximately S$673 million in debt headroom to the 40% regulatory threshold. The average cost of debt was 2.6% for the half, and the interest coverage ratio stood at 6.9 times, providing cushion for further acquisitions or capital expenditure tied to redevelopment.

The trust will pay its distribution on September 18.

Analyst Outlook

Equity analysts maintained buy ratings across the board. DBS set a target price of S$2.60, under review, citing full-period contributions from increased stakes in Keppel DC Singapore 3 and 4, the commencement of new contracts at Gore Hill in the second half, and contractual rental escalations. OCBC pegged its target at S$2.86, while Citi set S$2.69.

Units of the REIT traded at S$2.30 on July 23, down 1.7%.

The redevelopment of Keppel DC Singapore 1 will test management's ability to execute a transition without revenue disruption, even as hyperscaler tenants continue to absorb new capacity across the portfolio. With AI infrastructure demand showing no signs of cooling, the trust's pivot toward larger, modern facilities aligns with where the money is flowing in Asia's data center market.