Riding on strong demand for data centres, the world's first syariah-compliant data centre fund, managed out of Singapore, has just announced its initial closing of US$100 million.

The money was raised from the fund's co-sponsors – Keppel Telecommunications & Transportation Ltd (Keppel T&T) and AEP Capital Ltd, part of Saudi Arabia-based Al Rajhi Holding Group - as well as cornerstone investor, Brunei institution Perbadanan Tabung Amanah Islam Brunei.

Keppel T&T said yesterday that it has inked a deal to subscribe for US$30 million under the initial closing.

The Securus Data Property Fund plans to raise a further US$100 million through subsequent closings to reach a target size of US$200 million.

It aims to generate opportunistic returns by investing in a high-quality portfolio of data centres across its target markets in the Asia-Pacific, Europe and the Middle East. It will consider existing income-generating data centre assets as well as development opportunities. The fund is currently evaluating a number of opportunities in these target markets, which include Australia, Singapore, the Netherlands, Ireland, Dubai and South Korea, and is aiming to deploy the equity from the initial closing by end-2010.

The two joint investment managers of the fund are Keppel T&T's fully-owned subsidiary Keppel Data Centre Investment Management (KDCIM) and AEP Investment Management (AEPim). The latter is 80 per cent owned by Al Rajhi, a diversified group with operations in Saudi Arabia and United Arab Emirates involved in businesses such as real estate development, contracting and infrastructure and financial services; the remaining 20 per cent is held by former property consultant Yusof Wahid, who is now AEPim's managing partner and CEO.

As a syariah-compliant fund, Securus has a three-man committee to guide and approve the fund's investments.

Keppel T&T, together with its related companies, is an experienced data centre operator in Singapore and Ireland, with an exceptional track record of zero downtime. It provides state-of-the-art data centre co-location and business contingency services, offering a high standard of security, air handling and high density resilient power. 'As a data centre owner and manager, we have the track record and competencies to develop, operate and enhance the value of the fund's assets resulting in security of income and value growth for our investors,' said KDCIM executive director Bruno Lopez.

BT understands that Keppel T&T's data centres are not a target for acquisition by the Securus Fund. Market watchers think the fund would be interested in the Jurong Data Centre, which is owned by Jurong Data Centre Development (JDD) - a debt-laden Japan Land subsidiary that is in the process of being liquidated.

'Data centre demand has been driven by the rapid rise of information-centric trends such as e-commerce, social networking and file sharing, increasingly stringent data-related regulatory requirements and technology advancements such as cloud computing. Supply of data centre space has been unable to match the growth in demand,' Keppel T&T observed in its news release.

One of the main exit strategies for the five-year closed-end Securus Fund would be an IPO. 'There are a number of data centre-focused Reits/ companies in the US, for example Digital Realty Trust, DuPont Fabros and Equinix. These businesses have been very successful since listing and have maintained attractive valuation/trading levels even during the recent downturn,' says Jonathan King, principal and director of AEPim.

Data centres are purpose-built real estate facilities housing rack-mounted information technology computer servers. These specialised real estate assets are built and operated to high technical standards in terms of cooling, power, water-seepage prevention, fire prevention and security maintenance, and are connected to land and/or submarine fibre-optic cables for high-speed transmission of data. These mission-critical data centres provide long-term stabilised cashflows backed by long leases typically running for five to 10 years. 'Tenants of these high-quality data centres are usually blue chip businesses - such as content providers (for example Google, Yahoo), IT managed services providers (for example IBM, HP, Fujitsu) as well as banks, stock exchanges and government agencies,' notes Mr King.

'Another important point is the 'stickiness' of the tenants. It is very cost prohibitive for tenants to move out of their data centre facilities and provided they are receiving high-quality facilities management service, they are likely to remain in their current facility,' he added.

Another market watcher put the income-security that landlords of data centres enjoy this way: 'A data centre owner would not have to worry about tenants not paying up, since they wouldn't want to run the risk of the landlord pulling the plug!'

Source: The Business Times © Singapore Press Holdings Ltd. Reprinted with permission.