Digital Core REIT to Take Majority Stake in Frankfurt Data Centre With Buy of Up to $213M

Digital Core REIT plans to acquire a further interest in a Frankfurt data centre from its sponsor, US server-hosting giant Digital Realty, in a deal that would give the Singapore-listed trust a majority stake in the German facility.

The REIT’s manager intends to add an interest of between 0.2 percent and 40 percent to the trust’s existing share of 49.9 percent in Digital Frankfurt (Sossenheim) at an estimated cost ranging from $1.1 million to $213 million, according to a Monday stock filing.

Based on current market conditions, the manager expects to purchase a roughly 10 percent stake in the 34-megawatt data centre, it said. Digital Core REIT most recently upped its stake in the facility from 25 percent to just under half in a $129 million deal announced in March and completed in April.

“The acquisition of an additional stake in the Frankfurt facility will enhance portfolio diversification while maintaining overall portfolio credit quality and solidifying important commercial relationships,” Digital Core REIT CEO John Stewart said in the filing, pointing to key tenants including a Fortune 50 software maker and a Fortune 25 tech company, both of which he declined to name.

98.5% 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 98.5 percent occupied by 22 tenants with a weighted average lease expiry of 5.8 years by annualised rent.

The Frankfurt facility is the sole European property in Digital Core REIT’s 10-asset portfolio, which also comprises data centres in North America and Japan for a total of $1.4 billion in assets under management. The newly announced transaction aims to provide a more meaningful presence in Frankfurt, according to the filing.

The REIT’s US business has taken a hit from the bankruptcies of key tenants Cyxtera and Sungard. Upon completion, the Frankfurt deal will reduce the total annualised rent contribution from North America from 65.8 percent as of June to an amount as low as 54.3 percent, the manager said.

Digital Core REIT plans to fund the acquisition cost of the increased stake with either borrowings or a combination of equity and borrowings, depending on prevailing market conditions.

European Leadership

Digital Realty is the top data centre operator in Europe, 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.