S-REITs with Data Centre exposure

Source: SGX, Bloomberg, data as of Feb 14

The rise of artificial intelligence (AI) has been a key thematic for investors in recent years, and data centre (DC) assets are a likely beneficiary as adoption of such technologies gain momentum.

Property consultancy JLL noted in its 2025 Global Data Centre Outlook that global DC capacity is projected to grow at 15 per cent per year between 2023 and 2027, but this is not enough to meet growing demand.

“The DC sector is on the precipice of enormous, transformative growth driven by the rapid advancement of AI,” it noted, adding that the convergence of rising power requirements and data center growth is leading to a “generational investment opportunity”.

Among the actively traded real estate investment trusts in Singapore (S-REITs), five have exposure to DCs, including pure-play trusts Keppel DC REIT and Digital Core REIT.

Keppel DC REIT reported last month that its net property income rose 6.3 per cent year-on-year in FY2024 to S$260.3 million. Distribution per unit (DPU) also grew by 0.7 per cent on year, to S$0.09451 in FY2024.  

The increase in DPU was driven by contributions from an acquisition and strong rental reversions and escalations. The manager noted that market trends including generative AI and strong demand for DCs has helped the REIT achieve strong rental reversion of around 39 per cent in FY2024. The REIT is focusing on the hyperscale market, continuously identifying and redeploying resources into accretive opportunities.

Meanwhile, Digital Core REIT reported last week that its same-store cash net property income rose 0.7 per cent year-on-year in FY2024, while distributable income rose 10.9 per cent to US$46.0 million.

The REIT owns a diversified portfolio of 10 facilities valued at US$1.6 billion, concentrated in core DC markets across the United States, Canada, Germany, and Japan. The manager noted that cloud and digital transformation fundamentals remain robust, while AI has dramatically accelerated global DC demand.

Elsewhere, Mapletree Industrial Trust (MINT) reported in January a 1.5 per cent year-on-year increase in DPU for its third quarter ended 31 December 2024. Meanwhile gross revenue and net property income was also up 2 per cent and 2.6 per cent respectively over the same period. 

The REIT, which has over half of its S$9.2 billion assets under management belonging to DCs, said the growth was driven by higher contributions from Osaka Data Centre and the newly acquired mixed-use facility in Tokyo as well as new lease and renewals from its Singapore and North American portfolios.

Other S-REITs that maintain some exposure to DCs include CapitaLand Ascendas Reit (CLAR), and CapitaLand India Trust. The latter has four data centres under development, with revenue contribution expected to commence from Q2 2025.

CBRE noted in its US Real Estate Market Outlook 2025 that demand for data centre capacity in North America is expected to outpace supply despite record construction activity. The demand growth is driven by digital services, cloud computing, AI and 5G deployment. 

While some AI and DC counters sold off last month over reports that Chinese AI startup DeepSeek could build models with comparable performance at a lower cost, the recent developments may still be positive for the sector.

UOB Kay Hian analyst Jonathan Koh maintained an overweight recommendation last month on the REIT sector, with buy calls on Digital Core REIT, Keppel DC REIT, MINT and CLAR. He noted that DeepSeek showcased the rapid pace of innovation in AI, and both US and Chinese AI players could utilise its techniques to reduce the cost to train new AI models, which could spur widespread adoption of AI. 

“Demand for DC for AI training and AI inference would continue to rise,” he said.

For more research and information on Singapore’s REIT sector, visit sgx.com/research-education/sectors for the SREITs & Property Trusts Chartbook.

REIT Watch is a regular column on The Business Times, read the original version.