Digital Realty Banks on Singapore Tech Boom, Powers On New Unit

Zacks Equity Research

Digital Realty Trust, Inc. DLR recently “powered on” its third data center — Digital Loyang II (SIN12) — in Singapore. The move comes as part of the company’s expansion strategy to capitalize on the country’s digital economy, rapidly-growing FinTech industry, and aid in the operation of crucial industries.

The new, 50-megawatt SIN12 facility offers a total footprint of 34,000 square meters. It provides scope for global enterprise customers to grow their core digital assets on PlatformDIGITAL™ in the Singapore market. This facility is located neighboring to Digital Loyang I, or SIN11, with diverse high-count fiber routes connecting both data centers.

Strategically situated close to the Changi North Cable landing station, a vital sub-sea internet hub for the region, as well as less than 25 kilometers from Singapore's central business district, the Digital Loyang campus will offer up to 50 megawatts of critical power capacity to regional and global customers. The facility has already drawn solid attention from tenants. It has been partially pre-leased to a major Singaporean multinational banking corporation as well as a leading global cloud provider.

Notably, with growth in cloud computing, Internet of Things (IoT) and big data, and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are likely to keep witnessing a booming market. Also, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years. These factors are anticipated to significantly drive growth of data-center REITs, including Digital Realty, Equinix, Inc. EQIX, CyrusOne Inc. CONE and CoreSite Realty Corporation COR.

Specifically, Digital Realty is poised to benefit from the solid data-center demand, as well as accretive acquisitions, expansions and development efforts. In fact, in the Digital Capitals Index, Singapore is placed in the sixth spot and is anticipated to move up to the fifth place overall in the global rankings by 2024.

Already established as a key digital economy hub, Singapore has earned its reputation for being one of the world’s leading centers for business and finance, transportation and logistics, along with technology manufacturing. It also has a superior position with respect to development and adoption of emerging technologies, with usage of artificial intelligence, IoT and blockchain technology in several industries, while use of 5G is projected to grow in the near future.

Particularly, the four emerging technologies — Artificial Intelligence (AI), IoT, 5G and Blockchain — combined added S$12.5 billion to Singapore's economy in 2019. Specifically, IoT contributed the most at 51% of the total or S$6.4 billion. Furthermore, these new technologies are expected to contribute an estimated S$29.4 billion to Singapore's economy in 2024, and reach a whopping $49.8 billion by 2029.

Nevertheless, Digital Realty faces intense competition in the industry. Amid this, aggressive pricing pressure will also likely prevail in the upcoming period. Furthermore, the company has a substantial debt burden.

In the past six months, shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to. Its shares have gained 7.5%, as against the industry’s decline of 20.4% during the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



 

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