The two IPOs at the tip of the megatrend iceberg

In this issue:

• What healthcare and data centre Reits say about our larger preoccupations 
• The Federal Reserve’s lump of coal

Good morning, BT readers. 

Here’s some yuletide cheer for investors – Singapore’s initial public offering (IPO) scene spent 2024 in a prone position, but it might rise again in 2025 (yes, that’s a completely different holiday, I know).

There are two mega listings in the pipeline that could not only inject some life into the market, but more importantly, be emblematic of larger investor preoccupations next year. 

Note: Big Money will take a break on Dec 30 and return on Jan 6. As you head into 2025, may you crush your enemies, see them driven before you, and hear the lamentations of their women.

What’s happening?

Real estate investment trusts (Reits) will come to the Singapore Exchange’s rescue in 2025, market watchers are hoping. 

Specifically, Japan’s Nippon Telegraph & Telephone Corp might list a data centre Reit that could raise as much as US$1 billion, while French property asset manager Praemia REIM is considering a healthcare Reit that might raise several hundred million US dollars in Singapore. 

In a listings environment that has seen only four new ones – Catalist listings, at that – in 2024 so far, having IPOs of that scale next year might as well be the Second Coming.

Why it matters

In the Biblical tale of the Garden of Eden, there are two trees that are specifically mentioned – namely, the tree of life and the tree of the knowledge of good and evil. (Some scholars say that those two trees are one and the same, but I’m a columnist on a deadline, not an arborist.)

Today, we still crave the fruit of both trees – life and knowledge – in equal measure (the distinction between “good and evil” probably vanished in the 1980s when Gordon Gekko appeared).

Now, we are crunching ever more data to feed an insatiable curiosity, while relentlessly prolonging our lifespans so that we can hang around longer to ask ChatGPT even more questions.

And from these ancient twin hungers, the modern edifices of data centres, cooling towers, hospitals and nursing homes have arisen. Whether or not you’ve heard of a Reit, these structures will take up increasing amounts of space in 2025, physically and cognitively. 

Data centres

Between 2023 and 2030, demand for data centre capacity that can handle the needs of artificial intelligence (AI) will rise at an average rate of 33 per cent a year, a McKinsey & Company report estimated.

Even if all current data centre projects in the pipeline are completed on time, there will still be a supply deficit of more than 15 gigawatts (GW) in the US alone by 2030, the report said. 

The capacity of a 5 GW data centre – the kind that OpenAI’s Sam Altman is pushing for – is roughly equivalent to the output of five nuclear reactors, which could power three million homes.

And while demand soars, supply remains tight. You can’t build these things just anywhere, it turns out. From January to May this year, Johor rejected almost a third of the data centre applications that it received because of the strain that these buildings would place on water and power supplies.

This demand-supply imbalance is a problem for Altman to solve, but a “generational opportunity” for investors, said Peter Hayes, PGIM Real Estate’s global head of investment research. 

As it is, rental reversions and transaction prices for data centres are “consistently reaching record highs”, and this upward trajectory shows “no sign of abating”, DBS Group Research analysts said in a report earlier this month.

Last month, Macquarie Research tapped CapitaLand Ascendas Reit and Keppel DC Reit as its top picks for data centre plays. Keppel DC Reit will get even heftier, buying two AI-ready hyperscale data centres from its sponsor in a S$1.4 billion deal set to be completed by end-2025. 

As Nippon Telegraph & Telephone Corp contemplate their Reit listing in Singapore, they have probably observed that investor euphoria can only go so far. Earlier this month, DigiCo Infrastructure REIT, a data centre operator, slumped 9 per cent during its A$2 billion trading debut in Sydney. Analysts had pronounced the Reit overpriced, and the market agreed.

Healthcare

It will please precisely nobody to know that global healthcare spending will not only keep up with inflation next year but actually surpass it, growing nearly 6 per cent in US dollar terms and 1.9 per cent in real terms, according to the Economist Intelligence Unit.

But once investors manage to swallow their bile, their appetite for the sector will be voracious. Just last week, the US$450 million IPO of Saudi Arabian healthcare firm Almoosa whipped up US$46 billion worth of orders.  

As billionaires reach for immortality, the rest of us will mirror their aspirations on a more modest scale. All those data centres with their formidable computing power will turbocharge our efforts through AI, from lowering cardiovascular mortality to preventing dementia. Our reward for succeeding? The chance to spend yet more money on aged care. 

Singapore, a gold medallist in the longevity Olympics, will feel this expenditure keenly. The country’s annual national health expenditure is expected to balloon from S$22 billion in 2018 to S$59 billion in 2030 as the population ages. By 2030, one in four citizens will be aged 65 or older.

If or when Praemia REIM lists its healthcare assets here, it will be in good company. Parkway Life Reit, which owns hospitals and nursing homes, has been dubbed “a rare jewel” amongst S-Reits by analysts for its “highly visible, stable and sustainable offerings”. This year, the Reit staked out yet more ground, buying 11 nursing homes in France. 

Based on its website, Praemia REIM’s existing portfolio of healthcare and education properties in Europe appears to cover much of the life-death continuum, from children’s nurseries to retirement homes.

Distributions in sickness and in health, ’til share buyback do us part – what’s not to like?

The big number: 25 basis points

The US Federal Reserve might have cut rates by another 25 basis points last week, but it was pretty Grinch-ey about it, signalling only two rate cuts next year. 

S-Reits promptly lost all their chill, falling across the board on the news. Retail Reits fell down and broke their crown the hardest, and US office Reits came tumbling after. 

If you’re looking to load up on a pullback, Frasers Centrepoint Trust and CapitaLand Integrated Commercial Trust are DBS Group Research’s top picks for the retail Reit sector. 

Only Jerome Powell can help US office Reits now, but if you’re keen on local office space, Keppel Reit is an analyst favourite. The Reit will be the main beneficiary of the “upward pressure on rents and occupancy” in the core Central Business District, a DBS Group Research report said earlier this month. 

(Disclosure: I am long all the S-Reits mentioned.)

5 big reads

• The Fed is as clueless as markets When the stewards of monetary policy are so uncertain, the best course of action is to do nothing.
• 8 question sets shareholders should ask SingPost’s board over planned sale of Australian business Beats playing 20 questions. 
• Battery-maker CATL considers Hong Kong listing to raise US$5 billion The listing will be the city’s biggest since early 2021.
• South-east Asia startups missing out on region’s AI-fuelled tech boom Can local tech companies profitably compete on the global stage?
• All eyes on MAS review group as potential issuers wait on the sidelines The real impact will depend on what announcements are made – and when.