Digital Core Reit to acquire 25% stake in Frankfurt asset on full debt funding

DIGITAL Core Reit is proceeding with the option to acquire a 25 per cent interest in a freehold data centre in Frankfurt, Germany on a full debt-funded basis.

This transaction was floated as one of two possible scenarios on Sep 22, when the real estate investment trust (Reit) manager first announced plans to expand its portfolio with acquisitions in Germany and potentially, the US.

In an alternative scenario, the Reit would acquire majority interests in both the Frankfurt facility and another freehold data centre in Dallas, Texas – provided that the transaction was funded by a combination of external bank borrowings and an equity fundraising.

In weighing the two options, its manager said it would take into account prevailing market conditions.

At the time, its chief executive John Stewart expressed preference for the larger deal, which was expected to increase the Reit’s portfolio value by as much as 43 per cent to US$2 billion from US$1.4 billion presently. 

On Thursday (Dec 1), the manager announced it no longer intends to proceed with plans to raise funds through equity. It expects its debt-funded purchase of the 25 per cent interest in the Frankfurt facility to close by end-2022. 

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The Frankfurt investment is said to be distribution per unit accretive by around 2 per cent on a pro forma basis, as opposed to the estimated 3.1 per cent accretion from the larger deal alternative.

Acquiring a 25 per cent interest in the Frankfurt facility, which is valued at 558 million euros or S$777.6 million, will cost the Reit a total of US$146 million.

This is significantly lower than the estimated total acquisition cost of US$700 million had the Reit pursued the larger deal alternative to acquire majority stakes in both data centres. 

The Frankfurt property has a net rentable area of 450,662 square feet.

It is primarily powered by renewable energy via unbundled Guarantees of Origin in Europe, and wind energy power purchase agreements in the US.

Units of Digital Core Reit : DCRU 0% closed Wednesday up US$0.02 or 3.4 per cent at US$0.61.