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 26 January 2018, providing its early investors a total return of around 70% 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.
1. Data Growth – click here
2. To The Cloud – click here
3. Regulatory and Compliance – click here
4. Keeping Up with Changes
Traditionally, organisations kept their own data centres in-house, and had the perception that third-party sites do not possess the quality required to fulfill their individual requirements.
However, in recent years, those views have started to change.
BroadMedia Consulting (BMC), a group that was commissioned by Keppel DC REIT’s manager to prepare industry research, highlighted the increasing burden of keeping data-centres up to date:
“In recent years, however, the designing, building and operating data centres have become more complex and capital intensive, moving beyond the core competencies of many organisations.”
BMC noted that data centres require large upfront cost commitments and qualified personnel to keep up with technology changes, shifting needs of organisations, and different regulatory requirements.
Along with that, the option of third-party data centres became more appealing with round-the-clock support and faster deployment. BMC noted:
“With third party outsourced data centres that offer the support and operational expertise round the clock, redundancy through a service level agreement and access to a diverse set of network carriers, users increasingly realise that outsourcing can improve their cost structure, accelerate the deployment process and lower their overall IT risk.”
Third-party providers are able to provide flexible, per-use pricing that free up an organisation’s resources to pursue its core competencies. BMC concludes:
“Ultimately, the increased focus on capital rationalisation and trend towards an ‘asset light’ business model will continue to increase demand for outsourced third party data centre space.”
In fact, the research outfit believes that the proportion of outsourced data centres is estimated to increase to 38.5% in Asia and to 42.2% in Western Europe by 2018.
I hope that you enjoyed this series of articles for Keppel DC REIT.
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 charge. Simply 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. Motley Fool Singapore writer Chin Hui Leong doesn’t own shares in any companies mentioned.