I know, REIT? Two massive US data centre real estate investment trusts taken over in $10bn, $15bn deals

Coincidentally, the same day President Biden signed the infrastructure bill


Two massive US real estate investment trusts (REITs) that both focus on data centre buildouts, management and financing will both be taken over in $10bn+ acquisitions.

In the first deal, private equity investor KKR and investment outfit Global Infrastructure Partners agreed to acquire CyrusOne in a take-private transaction that values the business at $15bn.

It is quite startling that in quick succession ownership of four of the top six US data center operators will have changed

CyrusOne looks after mostly US-based DCs but has significant European holdings. It designs, builds and operates over 50 high performance data centres all over the world. The business has properties across the US (where it has just over 102 acres of colocation space and draws 83 per cent of its revenues) and Europe (17 per cent of revenues – with 99 per cent of its colo space under lease).

The private equity types at KKR, incidentally, owned a 10 per cent stake in OVH Cloud and had intended to shed some of that stock at the time of the Euro data centre designer and builder's October IPO.

In the second deal, American Tower bought CoreSite for $10.1bn. American Tower is itself a publicly listed REIT, although it is known for its focus on cell tower infrastructure. CoreSite says it operates 25 data centres across the US.

In the background is the $1 trillion Bipartisan Infrastructure Investment and Jobs Act, which was signed into being by US president Joe Biden yesterday – the same day both deals were announced. More than $130bn of this $1tn federal spending firehose will be directed at "improving digital and energy infrastructure." It's meaningful for data centres because a utilities upgrade potentially means lower cost of power and the investment in broadband infrastructure deployment means better, more robust connections.

Analysts have already seen investors buying shares of companies expected to benefit from infrastructure spending. The S&P US Real Estate REIT Index, which took a pandemic-linked dive in 2020, is up around 32 per cent from this time last year, and 99 per cent up from its March 2020 low.

CoreSite's chief executive officer, Paul Szurek, burbled: "We are excited to partner with American Tower to expand its communications infrastructure ecosystem and accelerate its edge computing strategy through the addition of CoreSite's differentiated portfolio of U.S. metro data center campuses. The combined company will be ideally positioned to address the growing need for convergence between mobile network providers, cloud service providers, and other digital platforms as 5G deployments emerge and evolve."

Analyst Megabuyte opined that the buyers of the DC businesses had been "lured by highly favourable trends as IT moves off premise and into the cloud/data centre." It remarked that American Tower was "certainly paying up for CoreSite at 29.3x 2021 EBITDA." The analyst added that as a trade buyer, American Tower "should be able to extract some synergies/strategic benefit" (it's all about edge computing in a 5G world). Megabuyte also commented on the fact that, of late, Equinix and DRT – like CyrusOne – had accepted "private equity money, for example Equinix's hyperscaler-focused JVs with Singaporean wealth fund GIC and DRT's recent Indian JV with Brookfield." It said LSE-listed investment trust Digital 9 Infrastructure, which recently acquired data centre solutions outfit Verne Global, had also raised £200m for "other DC investments."

CyrusOne and CoreSite's fellow colo giant, QTS, was acquired for $10bn in August this year and Cyxtera merged with Starboard just a month before in a $493m cash deal.

Analysts from Synergy Research Group said it was "quite startling that in quick succession ownership of four of the top six US data center operators will have changed." It said that "cloud growth and aggressive expansion of hyperscale operators" had created "such strong demand for data center capacity that the leading data center operators are having to seek outside help in funding growth."

It added: "Quite clearly there is no shortage of interested private equity investors that want a piece of the action. As we continue to track data center M&A activity, there has been a huge shift in buyers away from data center operators and toward private equity investors over the last 18 months."

The time to repurpose those old offices is now. ®

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