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There’s A Huge Market Ahead For Keppel DC REIT, But Larger Competition Looms

Keppel DC REIT (SGX: AJBU) was listed back in December 2014.

During its initial public offering (IPO), units of Keppel DC REIT were offered at S$0.93 apiece. The REIT closed trading at a unit price of S$1.43 on 11 December 2017, providing its early investors a total return of over 70% since its IPO (including dividends). As Foolish investors, we want to look beyond the stock price movement to understand the underlying business.

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And for that, we can turn to Keppel DC REIT’s IPO prospectus. The document contains a wealth of information on the REIT’s business and market.

Opportunities and competition

Last week, I took a look at the different types of data centre services there are: real estate investors, wholesale co-location, retail co-location, and cloud and managed services. We also found out that Keppel DC REIT’s leases are mostly based on co-location services.

Source: Keppel DC REIT’s quarterly presentation

According to research from BroadMedia Consulting (BMC), a group that was commissioned by the REIT’s manager for an industry study, the wholesale co-location space has a market size of US$12 billion to US$16 billion, while the retail co-location segment provides a potential market of US$15 billion to US$20 billion.

But the two segments have strong players in them, as the table below shows:

Source: Keppel DC REIT’s quarterly presentation

In the wholesale co-location space, Keppel DC REIT is expected to compete with Digital Realty, a US-based REIT. The latter has a market cap of US$22 billion. Another competitor would be Global Switch. Elsewhere, Equinix, a near-US$35 billion market-cap company, is a competitor in the retail co-location space. TeleCity, which was acquired by Equinix in 2016, was the other competitor named by BMC.

In short, the addressable market might be significant for Keppel DC REIT, but it will have to deal with competitors with significantly more resources than it has.

Hang on for more on Keppel DC REIT next week.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chin Hui Leong doesn’t own shares in any companies mentioned.