CapitaLand completes acquisition of 5th data centre in UK

CapitaLand Ascendas REIT (CLAR) has announced the completion of the acquisition of a high-specification Tier III colocation data centre facility from an unrelated global data centre operator. The facility is situated in Watford in North-West London in the United Kingdom. After considering the agreed value of the property of £119.4 million (approximately S$199.9 million), the purchase consideration for the acquisition is £125.1 million (approximately S$209.4 million). The prevailing exchange rate is £1 equals S$1.67399 (Singapore dollars).

"As the demand for cloud and digital services continues to rise, we are capitalising on favourable market dynamics to significantly scale up our presence in the data centre sector. London ranks among the top three global data centre markets and is also Europe's largest colocation data centre market," says William Tay, the chief executive officer and executive director of CLAR.  

"This acquisition complements our data centres around London, deepening and boosting our data centre investments in the UK by 54% to S$569.8 million, as well as increasing our exposure in London to 96% of our investments in the UK. Given its strategic location and Tier III specifications, along with its robust tenancy, the facility will serve as a strong catalyst in delivering additional value to the REIT. We expect our enlarged data centre portfolio valued at S$1.5 billion to contribute a continuous income stream towards our overall DPU growth."

Tay further details the rationale and merits of the acquisition. 

According to CBRE Research, the UK is Europe's largest colocation data centre market by total operational capacity. Nearly 80% of data centre supply is concentrated around London, where major providers are located.

London stands out as the most interconnected gateway city in the European market. It boasts the highest fibre connectivity options in the UK and Europe, making it an ideal location for peering traffic worldwide, low latencies, and network redundancies. As such, London is highly sought-after by customers, particularly in the telecommunications, financial services and cloud services industries, for their cloud deployment.

As demand grows, capacity becomes increasingly scarce in Europe's largest colocation data centre market. As a result, CBRE has projected that the vacancy rate (by megawatt power) in London will continue to decline to 15.9% in 2023 (from 16.8% in 2022).
   
"The facility enjoys excellent connectivity to major transport hubs and is highly accessible from London. North-West London is a hotspot for data centre developers, providing an attractive option to the power-constrained and relatively high-cost central London region. The acquisition presents a compelling opportunity to acquire a sought-after data centre in Watford with available power and strong connectivity to meet the colocation requirements of enterprises and end-users in the area," adds Tay.

"With the latest acquisition, CLAR's data centre footprint in the UK will increase from four to five data centres. By value of CLAR's assets under management (AUM), this represents an increase of approximately 54% to S$569.8 million, with 96% of the investments in the UK located in London.

CLAR's enlarged footprint in London further enhances its strategic presence in Europe's FLAPD markets. Within Europe, approximately 93% of our data centres by AUM (approximately S$875.2 million) are located in the FLAPD markets."

"In total, CLAR's data centre portfolio will be uplifted by about 15% to S$1.5 billion in terms of AUM, comprising 63% in Europe (approximately S$940.6 million) and 37% in Singapore (approximately S$557.6 million)." 

On a pro forma basis, assuming that the acquisition was completed on 30 June 2023, the proportion of data centre properties will increase from about 7% to approximately 9% of CLAR's total investment properties valued at S$17.2 billion.

The facility is 80% occupied by five investment-grade tenants. These tenants operate in various industries, including information and communications technology, retail, energy and financial services. Three existing tenants have used the facility for more than ten years.

"The pro forma impact on the DPU for the financial year commencing on 1 January 2022 and ended 31 December 2022 (FY2022) is expected to be an improvement of approximately 0.110 Singapore cents or a DPU accretion of 0.7%, assuming the Acquisition was completed on 1 January 2022," adds Tay.

"CLAR, through its wholly-owned subsidiary Ascendas Reit (Europe Sub 3), has entered into a share sale and purchase agreement with the vendor today and completed the acquisition of the total issued share capital of the vendor's wholly-owned subsidiary which owns the property."

"The total cost of the acquisition is estimated to be £128.1 million (approximately S$214.4 million) comprising - the purchase consideration of £125.1 million (approximately S$209.4 million); the acquisition fee payable to the manager of £1.2 million (approximately S$2.0 million) (being 1% of the Agreed Value); and stamp duty, professional and other fees and expenses of £1.8 million (approximately S$3.0 million)," says Tay.  

"The total acquisition cost will be financed with a combination of the proceeds from the equity fund-raising announced on 16 May 2023 and debt financing."