On Wednesday, Keppel (OTC:KPELY) DC REIT (KDCREIT:SP) (OTC: KPDCF) received an upgrade from Goldman Sachs (NYSE:GS), shifting from a Sell to a Neutral rating. The firm also raised the price target of the data center real estate investment trust to SGD2.24, up from SGD1.79.
The upgrade reflects the improved fundamentals of the Singapore market for data centers, as prices have increased by 39% from 2020 to October 2024, based on mid-point valuations by DC Byte.
Keppel DC REIT, with 53% of its existing portfolio assets located in Singapore, appears to be well-positioned in the market, especially after the recent renewal of two major leases at more than 40% rent reversion.
Goldman Sachs has factored in a higher rent reversion of 20-30% for Singapore assets into its analysis, which has led to an upward revision of FY24-26 distribution per unit (DPU) estimates by 1-4%. This revision supports a forecast of DPU growth of 5% and 9% over FY25E/26E.
The analyst from Goldman Sachs noted that the revised 12-month DDM-based target price of SGD2.24, previously set at SGD1.79, implies a 2.5% upside from the current valuation. This positive outlook is backed by the strong positioning of Keppel DC REIT in the Singapore market and the anticipated growth in rental income due to the favorable market conditions and strategic lease renewals.
The upgrade and new price target suggest that Keppel DC REIT is expected to maintain a steady performance in the coming years, as the demand for data center services in Singapore continues to rise. The revisions to the DPUs indicate confidence in the REIT's ability to capitalize on the current market trends and deliver value to its investors.
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