Digital Realty’s Brazilian subsidiary, Stellar Participações has entered into a definitive agreement to acquire Brazil-based data centre firm Ascenty from private equity firm Great Hill Partners in a transaction valued at approximately US$1.8 billion.
Digital Realty has separately entered into an independent bilateral equity commitment letter with Brookfield Infrastructure, under which Brookfield has committed to fund half of the required initial equity investment, currently estimated to be approximately US$613 million, excluding Brookfield’s share of the transaction costs, in exchange for 49% of the total equity interests in a joint venture entity expected to ultimately own Ascenty.
Digital Realty said the move will see it position itself as a primary provider in the rapidly growing Latin American region.
It tipped Ascenty as a leading data centre provider in Latin America with an in-service portfolio of eight state-of-the-art data centres strategically located in the key Brazilian metro areas of São Paulo, Campinas, Rio de Janeiro and Fortaleza.
Most of the Ascenty facilities have been designed and built to Tier III standards and meet internationally recognised facility and service standards.
Given its high-quality portfolio, Ascenty serves a blue-chip customer base comprised primarily of leading global hyperscale cloud providers, with over 90% of Ascenty’s contractual cash rent attributable to customers whose parent entities have investment-grade or equivalent credit ratings. In addition, leases representing approximately 75% of Ascenty’s contractual cash rent, including signed but not yet commenced leases and leases pending execution that are subject to closing or other conditions, are denominated in U.S. dollars, substantially mitigating foreign currency exposure.
Digital Realty flagged the Latin American region as a key opportunity for future data centre growth, driven by growth in the working age population and rapid digitisation.
“Brazil is the fifth-largest country in the world by area and population as well as the eighth-largest economy by gross domestic product, and is poised to become the hub of Latin America’s future technological expansion,” the firm said. “Ascenty has a significant opportunity for growth through future development in Brazil and is well-positioned to meet growing demand through expansion across the Latin American region.”
Ascenty’s portfolio features 106.2 megawatts of total planned capacity, including 39.2 megawatts of capacity currently in-service, 34.0 megawatts of capacity under construction and 33.0 megawatts of potential additional capacity. “In addition, Ascenty has options or leases on five separate sites representing up to an estimated incremental 66.5 megawatts of potential future growth capacity,” said Digital Realty.
“We are pleased to expand our global footprint into Latin America and to partner with the Ascenty management team and Brookfield. We expect this acquisition will further accelerate our growth while enhancing our ability to support our customers’ digital transformation across the globe,” said Digital Realty CEO Bill Stein.
“This transformative transaction represents consistent execution against the new market strategy we articulated at our Investor Day last December, and immediately establishes us as a market leader within an historically under-served region poised for rapid growth.
“This acquisition advances our strategy of sourcing strategic and complementary assets to strengthen and diversify Digital Realty’s data centre portfolio and expand our product mix and global footprint.” said Stein.
Transaction Details and Financial Impact
The gross purchase price for Ascenty is approximately US$1.8 billion (before contractual purchase price adjustments, transaction expenses, taxes and potential currency fluctuations), in addition to approximately US$425 million of capital expenditures to fund the completion of data centre development currently under construction and to build out additional capacity to meet near-term customer demand. The US$2.25 billion of total estimated capital invested represents a multiple of approximately 15.0 – 15.5 times underwritten forward stabilised EBITDA.
The transaction is expected to close in the fourth quarter of 2018 and is subject to customary closing conditions. Digital Realty’s agreement with Brookfield is subject to certain closing conditions and is expected to close in the fourth quarter of 2018.
Upon consummation of the transaction, Ascenty will enter into a US$50.0 million senior secured first lien revolving credit facility, a senior secured first lien term loan facility of up to US$650.0 million, and a US$75.0 million senior secured first lien delayed draw term loan facility. Citi, ING and Natixis are acting as joint lead arrangers and joint bookrunners on the facilities.