Digital 9 Infrastructure plc | Proposed Placing and Offer for Subscription of Ordinary Shares
16 June 22
16 June 22
Andre Karihaloo, Investment Director at Triple Point’s Digital 9 Infrastructure plc (D9), highlights the major trends shaping the data centre market. This Q&A was originally published in “The meteoric rise of the data centre Global Data Centre Investment Outlook”.
What makes data centres attractive from an equity investor’s point of view?
There’s a lot to like – particularly with the economic backdrop right now. Many data centres (such as ours) have long-term contracts with creditworthy counterparties. There are elements of inflation protection within contracts, either through fixed annual uplifts or CPI/RPI links. And the scale of the opportunity – growth is exponential.
Market liquidity risk was seen by many respondents as an obstacle to investing in data centres. What’s your view?
Exit risk is not a major factor for us, as our investment trust is a permanent capital vehicle. There may be some investors who say they’re put off by the potential for liquidity risk. We were recently in a competitive process in Finland and have not seen a reduction in appetite. Right now, competition is intense.
What are the main constraints facing the data centre industry? Securing power is the biggest complexity. We’re seeing this right across continental Europe. But in Iceland, we don’t have that issue. The country has abundant renewable energy – from geothermal and hydroelectric – and is moving away from aluminium smelting to position itself at the forefront of the fourth industrial revolution: that means energy-efficient enterprise data centres with international, creditworthy counterparties.
Is the geography of data centres changing?
Yes. It is more sustainable and less expensive to export data than renewable power. Traditionally, all datasets were processed in cities like London and Amsterdam - not energy efficient in hydrocarbon-dominant countries. We’re educating customers on splitting datasets and migrating energy-intensive, latency-insensitive data (e.g. natural language translation, protein sequencing, aerodynamic simulations) to renewables-surplus countries. This is driving fast growth up in the Nordics.
How fast is demand growing?
We’re seeing dramatic growth, particularly in our Nordic data centres. Verne Global has done this for longer than almost any high-performance compute data centre. A decade ago, they’d build capacity then fill it in two years. Today, we start building 20MW and we’re full during construction.
Do you see any evidence of a price bubble?
It depends on how you define bubble. When we bought Verne Global, it was for around 20x EBITDA. Now, within 9 months, it’s 15x, because capacity is full and we are investing in building more. It’s about the quality of the growth platform.
How important is ESG?
It’s central to what we do. We have a detailed scorecard for all our investments – data centres, subsea and terrestrial fibre, and wireless. Would we reject on ESG grounds? Yes – and we have. In terms of metrics, we’re looking not just at PUE, but also at carbon utilisation effectiveness (CUE) and water usage effectiveness (WUE), as well as Scope 1, 2 and 3 emissions.
Looking ahead, which geographies do you see as most promising?
Subsea networks are one of D9’s competitive advantages. 98% of international internet traffic flows through them. Because of the time they take to build and our partnerships with the global tech industry (the major procurers of digital infrastructure capacity in the world), we have visibility through to the early 2030s of where capacity will be built. We will be looking to buy or build data centres in India, Africa, southeast Asia and Latin America on the back of our subsea expansion. The opportunities are huge.
This Q&A was originally published in “The meteoric rise of the data centre Global Data Centre Investment Outlook”.