HMC Capital Acquires iseek, Launches $4 Billion DigiCo REIT by 2025

About HMC Capital Limited

HMC Capital Limited (HMC, the Group, ASX: HMC) is a diversified, large-scale alternative asset manager focused on digital infrastructure, the energy transition, real estate, private credit and private equity. The Group applies its balance sheet to execute high ROE opportunities aimed at growing Assets Under Management through asset warehousing, underwriting, and M & A activity. HMC has established unlisted funds, two listed REITs and recently developed funds focused on energy transition and digital infrastructure.

Acquisition of 7 Australian-based data centre business

HMC has announced the planned acquisition of leading Australian-based data centre business, iseek, for $400 million. The business comprises 7 operating data centres across Queensland, South Australia and NSW plus a substantial data centre development pipeline.  The iseek acquisition includes the foundation assets of HMC Capital’s strategy to establish an ASX-listed Digital Infrastructure REIT by calendar year 2025.

Iseek has in place long-term customer relationships with government tenants in Brisbane and Adelaide. Fifty-two percent of IT capacity has been allocated to clients under contractual agreements for an average contract term of 47 months. Clear visibility exists on near-term lease-up opportunities across existing facilities, driven by a strong sales pipeline to take up the under-utilised capacity.  This is in addition to the long-term expansion optionality in place for development upside because of the strategic asset footprint of the existing data centre sites.

The $400 million acquisition price represents 19 times forecast CY25 EBITDA of $21 million. Given the earnings upside from increased capacity utilisation of existing sites, the high quality of tenants and expansion prospects of the asset footprint, this does not appear to be a demanding acquisition multiple.

Acquisition consideration for the iseek business comprises $150 million upfront cash and $250 million of scrip in the soon to be launched DigiCo Real Estate Investment Trust IPO. The major shareholders and Founders of iseek have agreed to escrow most of their scrip in the REIT until release of the FY25 and FY26 results.

Launch of a $4 billion Global Digital Infrastructure REIT

The 7 operating data centres acquired through the iseek acquisition will seed the $4 billion DigiCo REIT by calendar year 2025.

DigiCo REIT will be a diversified owner, operator and developer of data centres, with a global portfolio targeting value-add and development opportunities.  The target annualised distribution yield from the commencement date of the REIT to 30 June 2025 is 4 percent, augmented by contracted revenue growth, lease-up and value-add opportunities and developments.

HMC’s intention is to raise $2.6 billion of new equity to acquire $4 billion of Assets Under Management (AUM), comprising $2.4 billion of operating assets in Australia and an additional $1.6 billion of data centre assets located in North America. These initial acquisitions will be the foundation assets of the DigiCo Infrastructure REIT with $4 billion of AUM at an implied FY25 Enterprise Value/EBITDA multiple of 26.1 times.

HMC Capital will invest a minimum of $500 million or about 19 percent in DigiCo REIT. This investment will be funded from HMC’s recent $300 million equity raising and the $150 million upsize in the Group’s corporate credit facility. HMC has sufficient asset level financing and balance sheet liquidity to underwrite the acquisition of the proposed DigiCo foundation assets of $500 million.  Should the DigiCo REIT IPO be delayed, HMC has the capacity to defer settlement of the iseek acquisition until 31 March 2025 and to not proceed or defer settlement of the US data centre acquisitions.

What’s next?

HMC anticipates that the DigiCo REIT IPO will be listed pre-Christmas with 13 data centres in its portfolio. The IPO is Australia’s largest ASX listing this year.

Fees payable to HMC for managing DigiCo REIT are broadly in line with the fee constructs of HMC’s HealthCo Healthcare & Wellness REIT and its HomeCo Daily Needs REIT.

The demand outlook for out-sourced data centre services is robust. The benefits of outsourcing include lower costs, fewer technical staff, exceptional reliability and enhanced security, and easy scalability.

HMC is rapidly building on its $12.7 billion AUM through the existing five-platforms now in place and the Group’s stated $20 billion medium-term AUM target is firmly within sight.

The launch of the Digital Infrastructure platform is aligned with the digitalisation megatrend and is set to become a significant contributor to HMC’s recurring management fee income stream.  Combined with the other four existing institutional scale platforms, the DigiCo Infrastructure REIT is a key driver of shareholder value accretion in the decade ahead.