China Securities Co.,Ltd.: The AI revolution drives growth in IDC demand, and data center REITs usher in new opportunities.

China Securities Co.,Ltd. released a research report stating that AI is driving the comprehensive transformation of data centers toward AIDC. The national average rack utilization rate is 56.7%, but structural divergence is pronounced: high-power racks in core areas exceed 80% utilization, while low-power traditional racks face oversupply risk, and high-quality assets remain in short supply. The share of third-party operators has risen to 43.1%, with third-party customized colocation and self-build becoming the primary sources of industry incremental growth. China's data center REITs are still in their infancy, with vast room for growth compared to overseas markets. The two listed products are located in core hubs, with operations steadily improving, high rack utilization rates, 100% collection rates, and strong cash flow certainty. On the expansion front, the first batch of REITs has initiated follow-on offerings: Runze plans to inject assets from the same park, VNET plans cross-regional expansion into Langfang, Jiangtian Data has received NDRC recommendation, and Aofei, Zhengtong, and others are poised to follow; it is recommended to focus on projects with "superior location, stable operations, reasonable valuation, and growth potential." China Securities Co.,Ltd.'s main viewpoints are as follows: Scale growth hits a stage high, with dual-track evolution toward high density and green development Data center supply scale achieved a CAGR of 20.1% from 2021 to 2025. High-density racks have become the primary direction for new construction and renovation, and AI is driving the comprehensive transformation of IDC toward AIDC. At the policy level, the "East Data West Computing" initiative and energy consumption red lines continue to tighten, requiring newly built or renovated large data centers to reduce PUE to below 1.25 and hub nodes to achieve over 80% green power share. On the demand side, rack count reached 13.73 million by the end of 2025, with intelligent computing power achieving a CAGR of 60.4% from 2020 to 2024, and computing demand continues to expand. On the supply side, the national average rack utilization rate is only 56.7%, but structural divergence is pronounced: high-power racks in core areas exceed 80%, while low-power traditional racks are relatively oversupplied, and high-quality assets remain in short supply. Industry competition intensifies; customized colocation will become the primary incremental growth in the computing era In terms of business model, third-party IDC centers on rack colocation, with long contract terms, high-quality customer resources, energy consumption quotas, and customized construction and development capabilities forming barriers to entry. AIDC power density has significantly increased, driving supply concentration toward two paths: customized wholesale and ultra-large-scale self-build, with power acquisition and energy efficiency control becoming core competitive barriers. In terms of competitive landscape, four types of entitiestelecom operators, third-party IDCs, cloud vendors, and local state-owned capitaleach have their own advantages. The market share of third-party operators increased from 39.3% in 2021 to 43.1% in 2023, showing a continuous upward trend. Overseas markets have formed three differentiated platform types: retail interconnection, wholesale development, and mature asset holding. Data center REITs have enormous development space, operations are steadily improving, and expansion is poised for takeoff From an international comparison perspective, China's data center REITs have enormous room for development. The seven representative REITs across China, the US, and Singapore show significant divergence in scale and distribution rates, with China's distribution rate level falling between those of the US and Singapore. The two listed data center projects are both located in core hubs, with operations steadily improving. Looking ahead, the first batch of REITs has initiated a follow-on offering race: Runze plans to expand with assets from the same park, VNET plans cross-regional injection into Langfang, and sector expansion is imminent. Jiangtian Data has received NDRC recommendation, and projects such as Aofei and Zhengtong are poised to follow. Diversified capital tools including Pre-REITs and inter-institutional REITs are being advanced in parallel. Investment recommendation: Focus on projects with "superior location, stable operations, reasonable valuation, and growth potential" Data center REITs are public infrastructure funds that use mature IDC assets as underlying assets and distribute stable cash flows to investors. The research framework should be developed along four main lines: "asset qualityoperational stabilityvaluation reasonablenessexpansion growth potential." Asset quality examines location, PUE, and power capacity; operational stability examines billing rate/rack utilization rate, tenant concentration, and remaining contract terms; valuation reasonableness examines income approach discount rates, CapRate, and distribution rates; expansion growth potential examines asset reserves and approval progress. Because some wholesale projects adopt a "power-excluded" model where electricity costs do not enter the profit and loss statement, gross margin/EBITDA margin cannot be directly compared horizontally with power-included calculations. Focus on projects with "superior location, stable operations, reasonable valuation, and growth potential" Prefer assets in first-tier periphery or national hub nodes. Under the dual constraints of low-latency demand and energy consumption quotas, the scarcity of core locations continues to strengthen, building long-term safety margins; rack utilization rate 90%, anchor tenants are high-credit entities such as telecom operators, remaining contract terms 5 years, and collection rate maintained at 100%, ensuring high cash flow certainty; reasonable valuation, with income approach discount rates matching asset risk, distribution rates offering sufficient spread relative to risk-free rates, and P/NAV in a reasonable range around 1.0x; growth potential, with sponsors having ample asset reserves, reasonable expansion consideration that can achieve distribution rate accretion, and power density upgrade capabilities to adapt to the evolution of AI computing demand. Risk warnings 1. Risk of continuously tightening energy consumption and PUE policies. Rising energy efficiency standards for new and existing data centers may increase renovation costs or restrict the operation of some high-PUE assets; if local energy consumption, green power, and carbon emission requirements are further strengthened, projects may face shutdowns for renovation and rising compliance costs. 2. Risk of overall REITs market liquidity and valuation correction. The sector has weakened overall since 2026. If market style continues to shift, products with previously high premiums still face valuation digestion pressure; combined with narrowing spreads between risk-free rates and distribution rates, secondary price volatility and redemption pressure may intensify. 3. Risk of expansion asset injection falling short of expectations. There is uncertainty regarding the approval progress of reserve assets, consideration levels, and the distribution rate accretion effect after injection; if approval pace, issuance windows, or asset operations fall short of expectations, scale expansion and distribution accretion may slow.