Pure-play data centre REIT Digital Core REIT (DC REIT) DCRU has reached a series of agreements to resolve the bankruptcy of its second-largest customer Cyxtera, expand into Japan and acquire additional interest in a facility in Frankfurt.
Cyxtera — a global colocation and interconnection provider representing approximately US$16 million ($21.93 million), or 22% of annualised rental revenue — filed for Chapter 11 bankruptcy protection in June. It currently occupies 100% of three shell and core facilities in Silicon Valley; 100% of two shell and core facilities in Los Angeles; and 4% of a fully-fitted facility in Frankfurt.
DC REIT has reached a definitive agreement to sell two of the three Silicon Valley facilities to Brookfield Infrastructure Partners and its institutional partners for US$178 million. The trust owns a 90% interest in both assets.
The transaction values DC REIT’s interest at US$160 million, in line with current book value. Based on 2024 contractual cash net operating income of approximately US$7.7 million, or US$7 million at DC REIT’s 90% share, the transaction represents a 4.4% cap rate.
Cyxtera has also agreed to assume and assign to Brookfield, which is acquiring its business out of bankruptcy as well as its existing lease agreement with DC REIT for the third Silicon Valley facility, with no change to the terms, conditions, or rental rate of the existing lease agreement.
DC REIT is amending its existing lease agreements with Cyxtera for the Los Angeles facilities to accelerate the lease expiration dates to Sept 30, 2024. Cyxtera has agreed to assume both lease agreements as amended and assign them to Brookfield as part of the sale of its business in bankruptcy.
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The REIT owns a 25% interest in the facility in Frankfurt, while Digital Realty owns the rest. DC REIT and Digital Realty have agreed to pay US$10 million, of which DC REIT’s 25% share will be US$2.5 million, to terminate Cyxtera’s lease agreement at the facility.
Separately, DC REIT has also signed a letter of intent to acquire an additional 20% interest in Wilhelm-Fay Straße 15 and 24 in Frankfurt from Digital Realty for EUR94 million. The transaction is expected to further improve the REIT’s geographic and customer diversification while enhancing overall credit quality. DC REIT expects to fund the transaction with a portion of the proceeds from the sale of the first two Silicon Valley facilities.
In another separate transaction, DC REIT has reached an agreement to acquire a 10% interest in a freehold facility located in Osaka from Mitsubishi Corp for 7.725 billion yen.
The transaction will establish DC REIT’s presence in Japan, improve geographic diversification and achieve international expansion, while also enhancing portfolio quality with the addition of an investment in a state-of-the-art facility in a robust data centre market.
DC REIT expects to fund the transaction with Japanese yen-denominated borrowings on its multi-currency global revolving credit facility and has entered into a swap agreement to fix the rate on a portion of the borrowings for a three-year term at an all-in borrowing cost of 1.3%.
“These transactions will significantly enhance credit quality while providing financial flexibility to fund opportunistic investments and advancing our mission of delivering sustainable value for unitholders,” says the REIT manager CEO John J Stewart.
Units in DC REIT last traded 5 US cents lower or 0.99% down at 50 US cents on Nov 1 before a trading halt at 12pm.
