Digital Realty today announced the sale of a portfolio of 11 data centers located across Europe for $672m USD (S$904.6m) to Ascendas Real Estate Investment Trust (Ascendas Reit), which is managed by CapitaLand, one of Asia’s largest real estate firms. In terms of valuation, Digital Realty was able to dispose of the portfolio, which generated $40.5m USD (S$54.5m) of net property income (NPI), at a blended 6.0% yield.

Portfolio Overview – Digital Realty Sells to Ascendas Reit

Digital Realty’s European portfolio sale comprises 11 data centers located across four European countries and five cities, which include:

  • London, UK: 3 properties
  • Manchester, UK: 1 property
  • Amsterdam, Netherlands: 3 properties
  • Paris, France: 3 properties
  • Geneva, Switzerland: 1 property
Digital Realty Portfolio Data Center Map

In aggregate, the 11 data centers have a net lettable area of 663k sqft (61.6k sqm). Additionally, the portfolio composition, in terms of asset type, is 8 triple-net powered shells and 3 colocation assets.

Digital Realty Ascendas Reit Data Center Portfolio Overview


The portfolio is 97.9% occupied by 14 customers, which operate in financial services, telecommunications, information technology, retail (supermarkets), and education.

Specifically, the portfolio’s top 10 customers include: HSBC, DXC Technology (Entserv UK), Bouygues Telecom, BT Group, Equinix, euNetworks, and GTT Communications (Interoute Managed Services). Additionally, Cogent Communications, Colt Technology Services, Eurofiber, and Zayo Group are also customers of various facilities.

Land Tenure

Of the 11 data centers, six facilities are located on freehold land. While the remaining five data centers are sited on leasehold land, with a weighted average land lease to expiry of 42.9 years.

Portfolio Valuation – Digital Realty and Ascendas Reit

Digital Realty will receive total consideration, in local currency, for the 11 data centers broken down as follows:

  • UK Data Centers (4): £250.3m
  • Continental Europe Data Centers (7): €276.9m

Additionally, on behalf of Ascendas Reit, Newmark Knight Frank provided valuations for each of Digital Realty’s 11 data centers, which is broken-out below:

UK Data Centers

Overall, Digital Realty’s four UK data centers, comprising 228k sqft (21.2k sqm), received a valuation from Ascendas of £250m.

  1. Welwyn Garden City (London): comprises 113k sqft (10.5k sqm), at a valuation of £65.5m
  2. Croydon (London): comprises 55k sqft (5.1k sqm), at a valuation of £135.6m
  3. Cressex Business Park (London): comprises 21k sqft (2.0k sqm), at a valuation of £35.5m
  4. Reynolds House (Manchester): comprises 38k sqft (3.5k sqm), at a valuation of £13.7m

Netherlands Data Centers

Overall, Digital Realty’s three Amsterdam, Netherlands data centers, comprising 184k sqft (17.1k sqm), received a valuation from Ascendas of €145m.

  1. Paul van Vlissingenstraat: comprises 66k sqft (6.2k sqm), at a valuation of €58.0m
  2. Gyroscoopweg: comprises 57k sqft (5.3k sqm), at a valuation of €18.7m
  3. Cateringweg: comprises 61k sqft (5.7k sqm), at a valuation of €68.0m

France Data Centers

Overall, Digital Realty’s three Paris, France data centers, comprising 186k sqft (17.3k sqm), received a valuation from Ascendas of €107m.

  1. Montigny-le-Bretonneux: comprises 105k sqft (9.7k sqm), at a valuation of €71.0m
  2. Saclay: comprises 21k sqft (2.0k sqm), at a valuation of €10.4m
  3. Bièvres: comprises 60k sqft (5.6k sqm), at a valuation of €26.0m

Switzerland Data Center

Finally, Digital Realty’s Geneva, Switzerland data center, comprising 66k sqft (6.1k sqm), received a valuation from Ascendas of €25.0m.

Transaction Rationale – Digital Realty

Digital Realty is strategically selling a mix of its own legacy assets, as well as sub-scale facilities acquired through its combination with Interxion, which closed in early 2020. This sale of 11 data centers exemplifies Digital Realty’s focus on recycling capital and re-investing the proceeds into more strategic opportunities, such as funding the company’s extensive development pipeline.

Overall, the company telegraphed today’s announcement on its Q4 2020 earnings call. Specifically, Digital Realty’s Chief Financial Officer, Andy Power, noted that this profile of sale would be a 50 bps to 100 bps headwind to the company’s year-over-year Funds From Operations (FFO) growth.

Nevertheless, by Digital Realty executing the sale of 11 data centers to Ascendas Reit, the company is shrewdly positioning itself for sustainable long-term growth. Below we highlight a few points of rationale for Digital Realty.

Recycling Capital

Digital Realty is selling fully-leased, mature data centers where the potential for additional appreciation is limited and is re-investing proceeds into growth developments. Indeed, the company is taking advantage of a meaningful net asset value (NAV) spread between selling data centers at a 6% yield and using those proceeds to develop new facilities at an 8.5% to 12.5% development yield.

Older and Less Differentiated

Digital Realty is ridding itself of a number of older facilities (many are 15 to 20+ years old) and less differentiated (i.e., not connectivity-rich) through the transaction with Ascendas Reit. Indeed, these facilities no longer have modern power supply, back-up power supply, and cooling systems. Therefore, they require a combination of higher maintenance capital expenditures and/or complete refurbishment.

Lease Duration

Digital Realty is enhancing its own lease duration through the transaction with Ascendas Reit, which in turn benefits the company’s credit profile and cost of capital. Specifically, Digital Realty is selling a portfolio which only has a weighted average lease expiry (WALE) of 4.6 years, by rental income. Indeed, this compares to Digital Realty signing new leases during 2020, with a weighted average lease term of 8.5 years. Furthermore, Digital Realty’s top 20 customers by annualized rent, as of Q4 2020, have a weighted average remaining lease term of 6.1 years.

Transaction Rationale – Ascendas Reit

For Ascendas Reit, the transaction with Digital Realty helps to scale the company’s data center portfolio beyond Singapore. Specifically, the portfolio will increase Ascendas Reit’s investment weighting in data centers to 10% (S$1.5bn) of total investment properties of S$15.0bn. Indeed, this 10% figure is up from only 4% or S$0.5bn at year-end 2020. Additionally, Ascendas Reit is taking advantage of what Dgtl Infra previously discussed, being the “Top 5 Data Center Markets in Europe are Booming”, as elaborated on below.

Tier 1 European Data Center Markets

Digital Realty’s portfolio comprises 11 data centers, of which nine (93% of the portfolio by asset value) are located in London, Amsterdam, and Paris, which are Tier 1 data center markets in Europe. Specifically, the cities of Frankfurt, London, Amsterdam, and Paris are commonly referred to as the “FLAP” data center markets.

FLAP Data Center Market Size in Megawatts (MW)
Europe FLAP Data Center Market Historical Growth

Overall, London, Amsterdam, and Paris rank as the first, third, and fourth largest colocation markets in Europe, respectively. At year-end 2020, these cities had a combined colocation market size of 1,383 megawatts (note this figure excludes Frankfurt).

Strong Take-Up

Take-up of colocation data centers exceeded new supply in 2020 across the FLAP markets. Specifically, this was driven by companies increasing their consumption of cloud services, in turn driving colocation demand from cloud providers. Increasingly, colocation is also satisfying the IT requirements of companies which are growing in scale and complexity.

FLAP Data Center Market Size and Take-Up in Megawatts (MW)
Europe FLAP Data Center Market Size and Take-Up

Overall, during 2020, a total of 201 megawatts of take-up occurred in the FLAP markets, which includes Frankfurt (67 megawatts), London (86 megawatts), Amsterdam (32 megawatts), and Paris (17 megawatts).

Power Capacity Growth

New supply in the FLAP markets of 174 megawatts is lower, and thus a favorable comparison to take-up. Specifically, the new supply in 2020 includes Frankfurt (62 megawatts), London (26 megawatts), Amsterdam (57 megawatts), and Paris (29 megawatts).

Vacancy Rates and Absorption

As a result, in 2020, the FLAP markets’ vacancy rate improved to 19%, from 21% in 2019. In 2021, the vacancy rate will fall even further to 17%, driven by a continuation of data center demand.

Market absorption, which represents the number of years it takes for current vacant supply to be fully let, was 2.4 years at year-end 2020. Indeed, this is lower than the 3.0 years of absorption from 2019. Moreover, absorption will decline further to 2.3 years in 2021.

Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing. Mary has over 5 years of experience in research and writing for Data Centers.


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