Azrieli invests $135m in North American data centers

Danna Azrieli Photo: Eyal Yitzhar
Danna Azrieli Photo: Eyal Yitzhar

The Israeli income-producing real estate company has acquired 20% of Compass Holdco, with an option to increase the stake to 33%.

Israeli income-producing real estate company Azrieli Group Ltd. (TASE: AZRG) today announced a $135 million investment for a 20% stake in North American data center company Compass Holdco. The agreement between the parties was signed yesterday and the funds have already been paid to Compass.

Azrieli has also agreed an option for further investments in Compass at the same price that will increase its holdings to 33% by the end of 2020. Azrieli's partners in Compass are the Ontario teachers' pension fund (54.5%), which Azrieli describes as "one of the largest investment institutions in Canada;" the Redbird Capital Partners investment fund, whose investments "focus on communications, sports, hosting, energy, and financial services infrastructure (24%);" and Compass's management (2.5%).

Azrieli said, "Most of Compass's activity is in data centers in North America." According to Azrieli, Compass's annual net operating income (NOI) "close to after the transaction date" will be $38 million. Compass's net debt amounts to $201 million, and its leverage rate in future development is 40-50%.

Azrieli says that Compass has 10 active sites and three sites in construction and development. The company is active mainly in the eastern and central US and in Montreal, and its centers are located "close to communications networks and high-tension electric cables." Azrieli notes that Compass has "management experienced in development data centers and relations with strategic customers."

Earlier this year, Azrieli reported in its financial statements that it was considering "activities in areas tangential to its activity, such as data centers, which fit in with the company's business strategy and the development of its core activity." Azrieli has now published a presentation in which it says, "The group's board of directors and management believe that this area is suitable for its investment strategy."

Azrieli says that it examined and studied this market for two years, and that the data centers sector "is one of the fastest-growing sectors in income-producing real estate, with tenants "among the world's leading technology companies."

The income-producing real estate in this sector is occupied by computers and servers of various types of companies. Azrieli says, "Renting is in electrical units, not field units."

According to Azrieli, there are three main important aspects in the location of this type of real estate: proximity to communications networks, access to sources of electricity, and preference for cold regions with low electricity costs.

Market growing by 35% a year

The figures presented by Azrieli, controlled by chairman Danna Azrieli, show that the annual revenue in the global data centers market in 2018 was $91 billion, that and by 2020, "The market is expected to grow by an average annual rate of 35%, reaching $307 billion by 2022."

Azrieli says that the US market is the global leader, with 60% of the global data centers capacity located in North America, 20% in the Asian Pacific region, 13% in Europe, and 7% in the rest of the world.

Looking ahead, Azrieli cites a trend towards "an increase in the costs and complexity of internal data centers management, which makes outsourcing more worthwhile… more companies will hire IT services from cloud computing providers and shift the task of building and maintaining their IT infrastructure to a limited group of experts in the field."

Azrieli, managed by chairman Danna Azrieli and CEO Eyal Henkin, is the largest income-producing real state company on the Tel Aviv Stock Exchange (TASE) with a current market cap of over NIS 28 billion, following a 30% jump in its share price this year. The company owns 17 shopping malls, 14 office properties, and three assisted living facilities in Israel, as well as eight overseas officer properties, mostly in the US. Its rental space totals 1.2 million square meters, and the company also has 10 projects in development and design and eight projects for expanding and upgrading properties.

Azrieli was represented in the transaction by DLA Piper US and Adv. Zohar Lande and Ariella Dreyfuss from Barnea & Co law firm.

Published by Globes, Israel business news - - on July 18, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Danna Azrieli Photo: Eyal Yitzhar
Danna Azrieli Photo: Eyal Yitzhar
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