Mapletree Industrial Trust today announced that is has agreed to acquire 29 data centers located in 18 states across the United States from Sila Realty Trust, formerly known as Carter Validus Mission Critical REIT, for $1.3bn USD (S$1.8bn).
During Q1 2021, Sila Realty’s 29 data centers generated net operating income (NOI) of $19.1m, which on an annualized basis, equates to $76.2m. Therefore, Mapletree Industrial Trust is valuing Sila Realty’s 29 data centers at a 5.8% NOI yield on Q1 2021 earnings. However, given some degradation in earnings following quarter-end, the valuation for the portfolio is closer to a mid-5% cap rate. Finally, the acquisition is expected to close in Q3 2021.
Portfolio – Mapletree Industrial Buys from Sila Realty
Mapletree Industrial is acquiring 29 data centers which comprise net lettable area (NLA) of 3.3 million sqft and land area of 8.4 million sqft. Specifically, the top 5 markets for these data centers, by annualized base rent, are Atlanta (22%), Sacramento (9.2%), Washington, D.C. (8.6%), San Jose (8.1%), and Los Angeles (7.4%).
In terms of classification, Sila Realty has facilities in the following data center sub-sectors: 21 are colocation, 6 are enterprise, and 2 are wholesale. Of these 29 data centers, 19 assets are powered shells and 10 facilities are fitted data centers.
Overall, Mapletree Industrial is acquiring a portfolio with 32 tenants and an occupancy rate of 87.8%. However, excluding the portfolio’s 250 Williams Street facility in Atlanta, which had a recent office lease termination, the occupancy rate of the portfolio would be 98.4%.
Notably, 89% of the leases in the Sila Realty portfolio have contractual rental escalators ranging from 1.5% to 3.0% annually. Additionally, the data centers are primarily on triple net leases with a weighted average lease expiry (WALE) of 7.9 years.
Portfolio Top Tenants
Below are the top eight tenants overall in the Sila Realty data center portfolio, which Mapletree Industrial is acquiring.
- Evoque Data Center Solutions: generates 12.1% of the portfolio’s gross rental income (GRI). Notably, Evoque is a retail colocation provider owned by Brookfield Infrastructure, which was acquired from AT&T in 2018
- Lumen Technologies: provides 7.8% of the portfolio’s GRI
- BP: contributes 7.1% of the portfolio’s GRI
- DataBank: generates 6.9% of the portfolio’s GRI. Notably, DataBank is backed by Colony Capital who owns a 20% equity interest in the company
- Sungard: provides 6.7% of the portfolio’s GRI
- InComm: contributes 6.6% of the portfolio’s GRI
- CyrusOne: generates 5.2% of the portfolio’s GRI
- Ensono: provides 4.9% of the portfolio’s GRI. Notably, Ensono is a managed service provider (MSP) that agreed to be acquired by KKR in April 2021
Finally, the properties are predominantly (94%) sited on freehold land.
Financing Mix – Mapletree Industrial
Mapletree Industrial is funding the transaction with ~60% debt and ~40% equity, through the issuance of new common units. Specifically, the company intends to raise gross proceeds of $593m USD (S$800m) to finance the equity portion of the transaction.
DBS Bank, OCBC Bank, Bank of America, and UBS are the joint global coordinators and bookrunners for the equity raise.
Transaction Rationale – Mapletree Industrial
Mapletree Industrial Trust provides rationale for why the acquisition of Sila Realty’s 29 data centers benefits its data center strategy.
Upon closing of the Sila Realty transaction, Mapletree Industrial’s data center portfolio will comprise 57 facilities across the United States. Indeed, this is an increase from 28 data centers in the U.S., prior to the transaction.
Additionally, Mapletree Industrial’s portfolio of data centers will increase to $3.4bn USD (S$4.6bn) of assets under management (AUM). Therefore, this represents a 64% increase in data center AUM from $2.1bn USD (S$2.8bn) as of March 31, 2021.
As a result, Mapletree Industrial will become one of the largest owners of data centers among listed REITs in Asia-Pacific. Indeed, another Singaporean company, Keppel DC REIT, also has an extensive data center portfolio in Southeast Asia, Australia, and Europe.
Complementary to Existing U.S. Data Centers
Sila Realty’s data center portfolio is predominantly located in the top 15 data center markets in the U.S. and Canada. As a result, following completion of the acquisition, Mapletree Industrial will have a data center presence in 13 of the top 15 data center markets in the U.S. and Canada.
Specifically, the acquisition expands Mapletree Industrial’s footprint in the United States to new “top 15” markets including Chicago, Silicon Valley, Los Angeles, and Houston. At the same time, the portfolio strengthens the company’s data center presence in both the Northern Virginia and Atlanta markets.
From a financial perspective, pro forma for the Sila Realty portfolio acquisition, Mapletree Industrial Trust will generate 64% of its gross rental income (GRI) from the top 15 North American data center markets.
Mapletree Industrial Portfolio NLA in Top 15 Data Center Markets (000 sqft)
Income Stability and Tenant Diversification
Mapletree Industrial is acquiring data centers that are primarily on triple net leases, with a weighted average lease expiry (WALE) of 7.9 years. Therefore, on a pro forma basis, the company’s overall portfolio WALE will increase from 4.0 years to 4.6 years.
Additionally, the transaction improves Mapletree Industrial’s income diversification by adding new tenants to its pro forma portfolio. For example, Evoque and Lumen Technologies both become part of the company’s pro forma top 10 tenant base.
Quantitatively, the Sila Realty acquisition reduces the gross rental income (GRI) contribution of Mapletree Industrial’s largest tenant, HP (Hewlett-Packard), from 7.3% to 6.1%. Also, the transaction reduces the overall GRI contribution of Mapletree Industrial’s top 10 tenants from 33.3% to 30.6%.
Transaction Advisors – Sila Realty
Sila Realty’s financial advisor was Moelis & Company. Additionally, Sila Realty’s legal advisor was Holland & Knight.