The REIT has an option to take its stake in Digital Frankfurt to as much as 89.9% (Image: Digital Core REIT)
Digital Core REIT will exercise its option to acquire a further 24.9 percent interest in a Frankfurt data centre from its sponsor, US server-hosting giant Digital Realty, for €117 million ($128.7 million), bringing the Singapore-listed trust’s stake in the German facility to just under half.
The deal values the 34-megawatt Digital Frankfurt (Sossenheim) data centre at €470 million and will boost Digital Core REIT’s stake in the asset to 49.9 percent, with Digital Realty maintaining a 50.1 percent share, the trust’s manager said Wednesday in a stock filing.
The stake buy is expected to improve the 12-asset portfolio’s credit quality by increasing the annual rent contribution of investment-grade customers from 78 percent to 87 percent, as rent contribution from North America shrinks from 82 percent to 71 percent. The $1.4 billion trust’s US business has taken a hit from the bankruptcies of key tenants Cyxtera and Sungard.
“The robust data centre demand environment, limited new supply, and low market vacancy rates across the Frankfurt market should support healthy pricing and an opportunity for positive rental reversions upon lease expirations,” Digital Core REIT CEO John Stewart said in the filing.
92% Occupancy
Digital Frankfurt is a purpose-built, three-storey data centre developed in successive phases from 2017 to 2022. The facility has 449,546 square feet (41,764 square metres) of leasable space and is 92 percent occupied by 14 tenants with a weighted average lease expiry of 2.7 years by annualised rent.
Digital Core REIT CEO John Stewart
The Frankfurt property gets all its power from renewable energy and connects via dark fibre to Digital Realty’s cross-town Hanauer Landstrasse campus, with direct access to more than 700 carriers and internet service providers, according to the trust’s manager.
Digital Core REIT struck a deal with its sponsor in September 2022 to acquire its initial 25 percent stake in Digital Frankfurt if certain conditions were met. The fully debt-funded transaction was completed in December of that year, and the trust retains the option to increase its stake to an amount between 50.1 percent and 89.9 percent.
The newly announced stake buy is to be funded from the proceeds of the January sale of two Silicon Valley properties to Brookfield Infrastructure Partners for $160 million and from $120 million in cash raised in a private placement last month.
German Landscape
Digital Frankfurt is Digital Core REIT’s first and only asset in Europe, where Digital Realty is the top operator with a market share of 10.1 percent and an IT load capacity of over 1 gigawatt, according to Mordor Intelligence.
In Germany, which last year overtook Japan as the world’s third-largest economy, Frankfurt has emerged as a key data centre hub. The financial capital’s market size in terms of installed base is forecast to grow from 1,220MW in 2024 to 1,960MW by 2030, Mordor said.
Another SGX-listed trust, Keppel DC REIT, notably holds two Frankfurt-area data centres as its sole assets in Germany.
Leave a Reply