At the heart of Asia’s digital trends lies the explosive growth of data centers. These technological powerhouses are the lifeblood of the region’s digital transformation, fueling the increasing demand for digital services and serving as the backbone of progress.
In the recent report of Research and Markets, it stated that the Asia-Pacific Data Center Market will reach US$ 53.58 Billion in 2028 and expand at a CAGR of 12% from 2023 to 2028. This remarkable growth is fueled by the soaring demand for data center operations and a surge in investment, driving the region’s unstoppable ascent.
As the tide of investment rises, exploring the realm of investment portfolios can be a challenge. Particularly, when it comes to data center real estate investment trust (REIT) opportunities in Asia, there are numerous intricacies to unravel.
Data Center REIT Industry in Asia
The data center real estate investment trust (REIT) industry in Asia is experiencing rapid growth as the demand for digital services continues to rise in the region.
According to Fredrik Johansson, Founder and Managing Director of Balder Investment, “cloud adoption, increasing digitalization, and recent data onshoring regulations are key growth drivers for data center demand, these in turn are fueling the large-scale expansion by hyperscalers and enterprise users in the region.”
In Asia, Johansson said that “the data center assets under management (AUM) growth is primarily driven by the greenfield development of assets. REIT’s are an attractive exit vehicle for private investors once their development assets stabilize.”
“Public equity compliments managers’ private development vehicles and allows them to manage assets across their full lifecycle. Due to the lack of stabilized data center assets available for sale in the region, a strong development pipeline balanced across the mature, growth, and emerging markets is critical for success.”
Measuring the Success & Profitability of Data Center REIT Operations in Asia
Johansson said that a successful manager in the data center REIT industry focuses on growing the assets under management (AUM) by making accretive acquisitions that increase the dividend yield while maximizing the weighted average lease expiration (WALE).
Metrics Used to Track Progress
Here’s an elaboration on the key metrics to track progress in this regard:
Dividend yield: Dividend yield is a financial metric that measures the dividend income generated by the REIT in relation to its stock price. A successful manager aims to increase the dividend yield over time, indicating a higher return on investment for shareholders. This can be achieved through strategic acquisitions that enhance the income-generating capacity of the REIT’s portfolio.
Distribution per unit (DPU) growth: DPU is a measure of the cash distribution made to each unit holder of the REIT. A successful manager strives for consistent DPU growth, which indicates increasing profitability and cash flow. This growth can be achieved through effective capital deployment, optimizing occupancy rates, and securing long-term lease agreements with reliable tenants.
Net Asset Value (NAV) per unit: NAV per unit represents the net value of the REIT’s assets after deducting liabilities, divided by the total number of units outstanding. A successful manager aims to increase the NAV per unit over time, reflecting the growth and appreciation of the REIT’s asset base. This can be achieved through strategic acquisitions, operational efficiency, and proactive asset management.
By tracking these key metrics, investors can assess the performance and progress of the data center REIT. Increasing dividend yield and DPU growth indicate a higher return on investment, while an increasing NAV per unit suggests value creation for unit holders.
Capitalizing on the Digital Boom in Asia
The digital boom in Asia has transformed the region into a vibrant hub of digital innovation and technological advancement. With a large and increasingly connected population, Asia has witnessed remarkable growth in digital technologies, services, and industries.
To capitalize on this digital boom, businesses need to strategically position themselves to tap into the immense opportunities presented by the region’s growing digital landscape.
With a large and tech-savvy population, expanding e-commerce market, and increasing digital connectivity, Asia offers a fertile ground for digital innovation and business growth.
“We are in an exciting period of growth for the data center industry in Asia. As the market continues to mature in the coming years, we can expect more REIT listings in Asia which will allow investors to capitalize on the digital boom in the region,” said Johansson.
