Mapletree JV Buys 13 North America Data Centres From Digital Realty for $1.37B

A joint venture between Mapletree Investments and Mapletree Industrial Trust has agreed to acquire a portfolio of 13 data centres in North America from Digital Realty for $1.37 billion according to a joint announcement by the companies, as the ever-expanding cloud continues to drive demand for server centre space.

The Singapore property firm’s second purchase of a server space portfolio space in North America, Mapletree’s latest acquisition will add 2.1 million square feet (195,096 square metres) to its facilities and comes just under two years after the group spent $750 million to acquire its first 14 North American data centres.

“We have deepened our presence in the fast-growing data centre sector with our second portfolio acquisition in North America,” said Mapletree Investments’ group chief executive officer, Hiew Yoon Khong.

The deal with the NYSE-listed data centre REIT involves the Mapletree JV purchasing ten powered shell data centres and acquiring an 80 percent interest in three turnkey hyperscale facilities.

Acquiring 3 Hyperscale Centres in the World’s Data Centre Capital

Under the terms of the agreement, a 50:50 joint venture between Mapletree Investments and Mapletree Industrial Trust is committing nearly 60 percent of the compensation involved, some $810.6 million, to purchase an 80 percent stake in a set of three hyperscale centres in Virginia.

Digital Realty, which with a $26 billion market capitalisation is the second largest REIT in the US, will retain a 20 percent interest in the trio of assets, and will continue to manage the facilities. Hyperscale data centres are facilities which are designed to meet the needs of, and be operated by major cloud providers, as companies such as Amazon Web Services, Google Cloud and SAAS providers compete to expand their cloud-based platforms.

The three hyperscale projects, which total 703,847 square feet of net leasable area, are located in Ashburn, Virginia, which is part of the largest data centre market in the world, accounting for 32 percent of server space globally.

The data sheds are expected to generate a cash net operating income of $61 million in 2020, which marks Mapletree’s acquisition at a 6 percent cap rate,

Ten More Centres Across 6 States and 1 Province

As part of the same transaction, the Mapletree JV has agreed to acquire ten powered shell data centres from Digital Realty for $557.3 million.

The facilities, which were developed as shells with unfinished interiors ready to be customised by occupiers, are already fully leased and expected to generate cash net operating income next year of $37 million, representing a 6.6 percent cap rate.

As part of the transaction, Digital Realty will continue to manage the ten facilities, which are spread across Arizona, Colorado, Georgia, Massachusetts, Texas and Virginia, as well as the Canadian province of Ontario, at a standard market rate for one year following the conclusion of the sale.

Digital Realty Chief Executive Officer, A. William Stein, said that the transaction underscores the attractiveness of high quality hyperscale data centres anchored by investment grade tenants.

Leased to the World’s Largest Tech Companies

According to a Mapletree Industrial Trust investor presentation, the 13 facilities are leased to “some of the world’s largest technology companies” including HP,  AT&T, Equinix, Qualcomm, and Sivantos, with the Mapletree JV hoping to cash in on forecasts that predict the global computing market to grow at 16.1 percent annually over the next five years.

Overall, the portfolio has a weighted average lease expiry of 9.1 years, with 91.5 percent of tenants on triple net leases where all outgoings are borne by tenants, while 12 out of the 13 properties are freehold. By gross rental income, approximately 92.2 percent of the facilities are leased under contracts which stipulate fixed annual rent escalations of 2 percent or more.

“These transactions add high-quality properties in key data centre markets underpinned by global cloud and colocation players,” Hiew said.

Mapletree Industrial Trust will finance the acquisition through equity or debt financing, according to the REIT’s manager.

Deepening a US-linked Data Centre Portfolio

Mapletree spent $750 million in its first foray into the North America data centre market just under two years ago.

That transaction saw a 60:40 JV between Mapletree Investments and Mapletree Industrial Trust acquire 14 purpose-built facilities with a net lettable area of 2.3 million square feet from Carter Validus Mission Critical REIT, a non-traded real estate investment trust sponsored by US commercial real estate firm Carter Validus.

The trust marked another server facility milestone eight months ago when it entered an agreement to collaborate with Equinix to convert an industrial property in Singapore into a data centre with a gross floor area of about 256,600 square feet.

Mapletree Industrial Trust acquired the property at 7 Tai Seng Drive, which is now known as International Business Exchange (IBX) data centre, from Mapletree Logistics Trust for S$68 million ($49 million) in 2018.