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2 Huge Trends That Are Driving Growth At Keppel DC REIT

Keppel DC REIT (SGX: AJBU) was listed back in December 2014. At its initial public offering (IPO), units of Keppel DC REIT were offered at S$0.93 apiece. The REIT closed at a unit price of S$1.42 on 25 January 2018, providing its early investors a total return of around 80% since its IPO (including dividends). As Foolish investors, we want to look beyond the stock price movement to understand the underlying business.

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, including the trends that could drive growth for Keppel DC REIT.

Trends that drive growth

In an earlier article, I had discussed the trend of data growth. In this article, let’s look at another trend.

BroadMedia Consulting (BMC), a group that was commissioned by Keppel DC REIT’s manager to prepare industry research, highlighted the growing popularity of cloud computing as a growth driver for data centres.

The paragraph below is a definition of cloud computing by BMC given in the REIT’s IPO prospectus:

“Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services), which is highly scalable and can be rapidly provisioned and released with minimal management effort or service provider interaction.”

The key phrase here is “a shared pool” whereby computing resources such as software are consolidated and shared between corporations. The benefits of cloud computing include lower costs, and less local maintenance required. As such, cloud computing is gaining popularity, BMC noted:

“Such a concept is gaining popularity among corporate and individual end users and is changing the way information technology is being consumed by placing more focus on networked or shared resources.”

BMC also said that a key requirement for shared computing resources would be an easily accessible data centre:

“As a result, data storage in commonly accessible locations is becoming increasingly important. Suppliers of cloud services require data centre space with high power density and the shift towards cloud computing is a key driver of data centre demand.”

To bolster its point, BMC highlighted two examples. Firstly, Equinix (NASDAQ: EQIX) was able to go from zero cloud customers to 400 within three years. Secondly, Amazon Web Services, a cloud infrastructure service by Amazon.com (NASDAQ: AMZN), grew by 45.5% in 2013.

Specifically, BMC believes that the popularity in cloud computing will lead to an increase demand for outsourced services:

“BroadGroup believes that these factors will directly lead to increased demand for data centre space. A particularly important aspect of the evolution towards cloud computing is the migration towards outsourced services.”

In short, as computing moves to the cloud, data centre providers such as Keppel DC REIT could stand to benefit from it.

Hang on for more on Keppel DC REIT in the coming weeks.

Meanwhile, we believe we've identified a REIT dividend dynamo whose financials are strong enough to qualify its dividend as "safe" - and have profiled this stock in a research report that's now available to download completely free of chargeSimply click here to claim your copy today!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.The Motley Fool Singapore has recommended shares of Amazon.com. Motley Fool Singapore contributor Chin Hui Leong owns shares in Amazon.com.