Digital Realty Strikes $1.4 Billion Data Center Deal with Singapore’s Mapletree

Digital Realty continues recycling capital to strengthen the balance sheet and generate dry powder to redeploy into core global markets with robust hyperscale and enterprise demand.

The data center provider has entered into definitive agreements with affiliates of Singapore-based Mapletree Investments Pte Ltd (MIPL) and Mapletree Industrial Trust (MIT), a publicly traded REIT listed on the Singapore exchange, to sell 10 powered-shell buildings and an 80/20 joint venture seeded with three hyperscale data centers in Ashburn, Virginia, that collectively will generate $1.4 billion in proceeds for Digital upon closing in late 2019 or early 2020.

Near-Term Impacts

Initially, Digital Realty is planning to use the proceeds to pay down debt. Digital will be reducing balance sheet leverage to 5.0x from 6.1x net debt to adjusted EBITDA upon closing the Mapletree transactions (combined with a previously announced $1.1 billion forward equity offering).

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Digital estimates that upon closing there will be a $0.30 per share reduction prior to redeploying this capital.

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However, the company believes the funds could generate between 2 percent and 6 percent accretion for shareholders, assuming the proceeds are deployed at a stabilized yield of 9 to 12 percent (for $0.15 to $0.40 per share of core FFO accretion) based on current 218 million shares outstanding.

Investor Edge

Digital Realty is monetizing a portfolio of legacy powered shells predominately located in non-core markets. The funds generated from the outright sale of the powered-shell building (Digital calls these Powered Base Buildings) portfolio can be reinvested into faster-growing global markets including Paris, Frankfurt, Tokyo, and Seoul.

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Additionally, Digital Realty has taken an important step towards self-funding its growth and diversified its sources of private equity capital with the Mapletree strategic partnership, according to a statement by CEO Bill Stein in the company press release.

MIPL manages four Singapore-listed REITs and six private equity real estate funds with assets located across Asia Pacific, Europe, UK, and US markets valued at $40.7 billion. Mapletree Industrial Trust (MIT) is a REIT listed on the Main Board of the Singapore Exchange. In addition to a portfolio of 87 industrial properties in Singapore, MIT has interests in 14 data centers in the US, which together are valued at $3.5 billion.