Digital Core Reit proposes to raise stake in Frankfurt data centre by up to 40%

DIGITAL Core Reit has proposed to raise its stake in a data centre in Germany by 0.2 to 40 per cent, said the real estate investment trust’s (Reit) manager on Monday (Sep 9).

It would own between 50.1 and 89.9 per cent if the latest proposed acquisition from a wholly owned subsidiary of the sponsor goes through.

Digital Germany Holding, the wholly owned subsidiary of the sponsor, will hold the remaining stakes in the data centre.

While the actual amount being acquired has not been disclosed, the manager said it expects to purchase an interest of about 10 per cent.

At this acquisition amount, the deal is expected to be about 1.7 per cent accretive to the Reit’s annual distribution per unit, on a pro forma basis.

This is assuming the proposed acquisition and new units were issued on Jan 1, 2023, and the Reit held an interest of between 50.1 and 89.9 per cent in the facility through to end-December.

Earlier this year, Digital Core Reit launched a private placement to raise gross proceeds of US$120 million, in part to finance its purchase of an additional stake in the Frankfurt facility.

If the latest proposed deal at the expected purchase price was completed and new units were issued on Dec 31, 2023, its net asset value per unit would have risen to US$0.72 from US$0.69.

Acquiring an additional 10 per cent interest in the facility, which is valued at 470 million euros (S$678. 3 million), will cost the Reit some 47 million euros or S$67.8 million, excluding acquisition fee and professional expenses.

The manager of the pure-play data centre Reit intends to fund the total acquisition cost with either borrowings or both equity and borrowings on its multi-currency credit facilities.

Assuming the purchase and new units were issued at end-December, the Reit’s aggregate leverage would have increased to 35.8 per cent from 34.5 per cent.

The acquisition will improve overall portfolio credit quality, maintaining the total annualised rent contribution from investment-grade customers from 84.1 per cent as at end-June, to between 84.1 and 84.3 per cent pro forma, said the manager.

It will reduce the total annualised rent contribution from North America from 65.8 per cent as at end-June to between 54.3 and 65.8 per cent pro forma, thus enhancing geographical diversification for the Reit, it added.

The data centre has 449,546 rentable square feet of space with an occupancy ratio of 98.5 per cent and features tenants who are a “roster of blue-chip customers, each with numerous deployments across the sponsor’s global platform”, said the Reit manager.

Digital Realty Trust is the Reit’s sponsor.

The weighted average remaining lease expiry is about 5.8 years based on annualised rent as at Jun 30. Meanwhile, the lease agreements allow for the pass-through of utilities expenses, providing additional insulation against rising energy costs.

Currently, Digital Core Reit holds a 49.9 per cent interest in the Frankfurt facility. It had bought a 25 per cent interest in the data centre in December 2022, and acquired another 24.9 per cent interest in April this year.

Units of Digital Core Reit were trading up 0.9 per cent or US$0.005 at US$0.60 as at 1.21 pm on Monday.