Data centres a growing asset class within S-Reits

DATA centres are physical buildings or spaces within buildings that house computer systems, servers, networks, applications and data. Such facilities have increasingly been important, especially in this digital era, and are becoming a property investment asset class of its own.

A joint study by Digital Realty and Eco-Business notes that South-east Asia is one of the fastest growing data centre markets in the world.

Southeast Asia is expected to be a key driver in catapulting Asia-Pacific to be the world's largest co-location data centre markets by 2024, worth US$28 billion as estimated by Cushman & Wakefield.

Locally, Singapore has seen an exponential growth and is ranked among top five in Cushman & Wakefield's 2021 Global Data Center Market Comparison report. Singapore, being one of the region's major connectivity hubs, has a data centre market that is expected to grow at a CAGR of 4 per cent from 2020 to 2025.

SGX lists three real estate investment trusts (Reits) with substantial data centre assets - Keppel DC Reit, Mapletree Industrial Trust and Ascendas Reit.

They are constituents of the Straits Times Index and have performed defensively in the stock market in 2020, averaging 20 per cent total returns despite the pandemic.

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Keppel DC Reit, Asia's first pure-play data centre Reit, has 19 properties located across eight countries in Asia-Pacific and Europe.

The Reit noted in its FY2020 highlights that demand for data centres will remain strong and resilient, driven by demand from hyperscale operators, growth in co-location markets, enterprise spending on cloud infrastructure and smartphone usage.

Mapletree Industrial Trust in its diversified portfolio of 111 industrial-related properties has a 38.2 per cent exposure to data centres in Singapore and North America.

The 27 data centres across North America comprise 31.7 per cent of the Reit's entire portfolio. The Reit noted in its 3Q FY20/21 outlook that North American data centres are a resilient asset class with strong demand set to continue in 2021 driven by 5G adoption, edge computing and increased remote working mandates.

Ascendas Reit, Singapore's largest industrial Reit, in FY2020 reports that it has 15 per cent of its portfolio with exposure to high-specifications industrial and data centres.

Information and communications technology customers make up 11.4 per cent of its monthly gross revenue, while data centres contribute 4.4 per cent. It also announced in November 2020 the potential acquisition of a portfolio of data centres in Europe.

Aside from the trio, there are other Singapore Reits that have exposure to data centre investments or related properties.

CapitaLand China Trust (previously CapitaLand Retail China Trust) recently made an expanded investment strategy beyond retail and its maiden entry into China's business parks.

The Reit acquired five business parks and a balance 49 per cent interest in Rock Square. Its Ascendas Xinsu Portfolio and Ascendas Innovation Towers have exposure to data centre trade sectors.

The Reit aims to create value with a long-term target 30 per cent portfolio in new economy assets such as business parks, logistics and data centres.

Cromwell European Reit last year entered into an agreement with its sponsor and Stratus Data Centres, to co-invest directly into 50 per cent stakes in two data centre projects in London and Frankfurt, subject to various milestones.

The Reit in its announcement noted that data centres are a fit with its existing investment strategy and portfolio composition and expects to realise attractive risk-adjusted returns for its unitholders from the partnership. SGX RESEARCH

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

• Source: SGX Research S-Reits & Property Trusts Chartbook.