Under the Spotlight AUS: DigiCo Infrastructure REIT (DGT)

DigiCo’s has a portfolio of 13 data centres (including three development sites) leveraged to the growing need to store and access data quickly and securely. It has 586 customers and installed capacity of 76 megawatts (MW) across Australia, Chicago, Kansas City and Dallas. Most of its assets are co-location data centres, where multiple tenants rent space in the same centre. It also has hyperscale centres, which are used by large cloud platform providers.

AI is turbocharging the growth in data, adding to demands from the corporate transition to cloud-based computing. Data centre capacity in Australia is forecast to more than double from 1,350 megawatts (MW) in 2024 to 3,100 MW by 2030. Additional investment in Australia’s data centre capacity is forecast to exceed $26b over this period.

If the demand for data centres is well known, the supply challenges are less understood. Access to land and reliable power are big issues, especially in large competitive markets like Sydney. This has led to data centres in tier 2 markets providing spillover capacity. The U.S. industry faces the same constraints, with tier 2 markets there growing their share of leasing activity. There are also pressures on the data centre supply chain as developers wait for critical equipment. 

DigiCo is a REIT, which means it makes money as a landlord leasing space in its data centres. Like the commercial or industrial property markets, investors will focus on the outlook for leasing rates as more supply is built over coming years. The prospectus forecasts Australia’s data centre supply will increase at an average annual rate of 16.3% over 2024 to 2027, compared to 15.9% demand growth. U.S. supply growth is forecast to increase at a 13.8% annual pace vs a demand growth of 12.1%. The prospectus shows DigiCo plans to add 161MW of capacity. 

While DigiCo is leveraged to a hot thematic, it remains to be seen whether it has the scale to compete for clients at a time when billions are flowing into new data centres. The prospectus shows it has a 3% share of the Australian data centre market (based on installed capacity). That’s well behind Airtrunk and CDC – the latter 48% owned by Infratil ($IFT) – with 25% and 24% respectively. NextDC has a 14% share. Last week’s Under the Spotlight highlighted Equinix and its 268 data centres, while rival Digital Realty ($DLR) operates more than 300 data centres either directly or through joint ventures.