$Keppel DC Reit(AJBU.SG)

Keppel DC REIT: Strong AI Growth, But Premium Valuation Warrants Patience

Keppel DC REIT posted another impressive 1HFY2026, with DPU climbing 11.3% YoY to 5.714 cents, supported by positive rental reversions, acquisitions of Tokyo Data Centre 3 and the remaining stakes in Keppel DC Singapore 3 & 4, while maintaining a healthy 34.0% aggregate leverage and 6.9x interest coverage. Portfolio WALE improved to 6.7 years, reinforcing earnings visibility. (The Edge Singapore⁠)

Management is also proactively reshaping its portfolio. The ageing KDC SGP 1 facility in Singapore is being gradually vacated for a potential redevelopment into a next-generation, AI-ready hyperscale data centre. Although this temporarily reduces occupancy, it reflects disciplined capital recycling and positions the REIT to capture stronger long-term demand from hyperscalers. (The Business Times⁠)

Technically, the long-term uptrend remains intact, supported by resilient earnings momentum. However, Keppel DC REIT continues to trade at a premium P/B and P/E relative to peers such as NTT DC REIT, while offering a lower forward dividend yield of around 5%. With units trading near the upper end of their 12-month valuation range, approximately one standard deviation above the trailing mean, I would remain constructive on its long-term AI-driven fundamentals but prefer accumulating on price weakness rather than chasing the current premium.

This revision strengthens the investment thesis by explaining that the temporary shutdown of KDC SGP 1 is not a negative development but a strategic upgrade to unlock higher-value AI and hyperscale demand, an important distinction for long-term investors.