Mapletree and its Reit to buy US$1.37b of data centres

Singapore

MAPLETREE Investments and Mapletree Industrial Trust (MIT) are set to acquire a North America data centre portfolio worth US$1.37 billion (S$1.9 billion) from data centre provider Digital Realty.

They have formed a 50:50 joint venture (JV) to buy 10 powered shell data centres (called the Powered Base Building data centres) from Digital Realty for US$557.3 million.

The JV will also enter into a venture with Digital Realty to co-invest in three existing Digital Realty fully fitted hyper-scale data centres (called the Turn-Key Flex data centres) for US$810.6 million. The JV between Mapletree Investments and MIT will have an 80 per cent interest in the Turn-Key portfolio.

The 13 properties comprise 2.1 million square feet of total net lettable area on predominantly freehold land located across six states in the US; one property is in Toronto, Canada. Six properties are concentrated in Northern Virginia, the world's largest data centre market.

The data centres are wholly leased to nine established tenants, with a long weighted average lease to expiry of 9.1 years, by gross rental income.

About 92 per cent of the leases, by gross rental income, have fixed annual rental escalations of 2 per cent or more; 91.5 per cent is derived from triple net leases in which all outgoings are borne by tenants.

The proposed property manager is Mapletree US Management, a wholly owned subsidiary of Mapletree Investments.

Digital Realty will continue to manage the data centres for a year-long transition period.

The purchase consideration represents a discount of 3.4 per cent to the independent valuation of the portfolio.

The acquisition will be financed through a combination of debt and equity. The total acquisition cost for MIT is US$694.5 million, and the proposed debt financing includes external onshore loans.

If required, MIT and Mapletree Investments will provide a unitholder's loan to the JV, pending the finalisation of the external onshore loans.

The final decision regarding the proportion of debt and equity has not been made.

The pro forma distribution per unit accretion is 3.5 per cent, while the pro forma net asset value per unit accretion is 3.3 per cent.

This is based on the assumption that about 60 per cent of the MIT acquisition cost will be funded by debt, and the balance funded with equity raised from an issuance of 157 million new units at an issue price of S$2.25 per unit. Projections were prepared based on MIT's audited financial statements for FY18/19.

Hiew Yoon Khong, group chief executive of Mapletree, said: "We have deepened our presence in the fast-growing data centre sector with our second portfolio acquisition in North America. This portfolio acquisition adds high-quality properties in key data centre markets underpinned by global cloud and co-location players."

Digital Realty said the transaction advances its objective of self-funding its growth and diversifying sources of equity capital. Proceeds will be redeployed into data centre investment opportunities.

The Turn-Key portfolio joint venture is expected to be completed in late 2019, and the acquisition of the powered shell data centres, in early 2020.

The entry into the joint venture by MIT constitutes an interested-person transaction, while the subscription of units by MIT in relation to the JV constitutes an interested-person transaction and interested-party transaction.

MIT's counter closed flat at S$2.33 on Monday.