Digital Core Reit proposes to raise stake in Frankfurt data centre for $170.7 million

SINGAPORE – Digital Core Reit is proposing to acquire a further 24.9 per cent stake in a German data centre, raising its holding to 49.9 per cent.

However, the proposed €117 million (S$170.7 million) interested-person transaction requires unit holders’ approval.

Digital Core Reit Management, the manager of the pure-play data centre real estate investment trust (Reit), said in a regulatory filing on March 6 that raising its stake in the freehold data centre in Frankfurt is expected to be approximately 3.2 per cent accretive to the annual distribution per unit.

The manager intends to fund the total acquisition cost with proceeds from the sale of the Silicon Valley properties and a portion of the proceeds from a private placement in February.

At the time, the manager launched a private placement of new units at 62.5 US cents apiece to institutional, accredited and other investors, raising US$117 million (S$156.5 million) in net proceeds.

The acquisition will improve overall portfolio credit quality, increasing the total annualised rent contribution from investment-grade customers from 78 per cent as at 2023 to 87 per cent pro forma for the transaction, said the Reit manager.

It will reduce the total annualised rent contribution from North America from 82 per cent as at 2023 to 71 per cent pro forma for the transaction, thus enhancing geographical diversification for the Reit, it added.

The data centre has 449,546 rentable sq ft of space with an occupancy ratio of 92 per cent and features tenants that 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 lease agreements allow for the pass-through of utilities expenses – providing additional insulation against rising energy costs – while the weighted average remaining lease expiry is approximately 2.7 years based on annualised rent as at Dec 31, 2023.

Digital Core Reit bought a 25 per cent interest in the facility in December 2022, and would own 49.9 per cent if the proposed acquisition of the 24.9 per cent stake from a wholly owned subsidiary of the sponsor is approved at an extraordinary general meeting that is to be convened.

Digital Germany Holding, the wholly owned subsidiary of the sponsor, will hold the remaining 50.1 per cent of stakes in the data centre.

Units of Digital Core Reit closed 0.8 per cent higher at 61.5 US cents on March 7. THE BUSINESS TIMES