David Di Pilla data centre fund’s ‘upsized’ IPO poised to grow

After a string of big acquisitions and amid significant investor demand, David Di Pilla’s new REIT will list with an IPO of $2.75bn and global ambitions.

HMC Capital managing director David Di Pilla. Picture: Jane Dempster

Rapidly growing funds house HMC Capital sees the opportunity to expand the capacity of its Australian data centres and to grow further in the US as it revealed that its new $4.3bn trust, Digital Infrastructure REIT, had been underwritten and would list in mid-December.

The float is the largest real estate-related vehicle in more than a decade and is another marker for the David Di Pilla-led funds group, which already has listed funds owning shopping centres and medical properties, although the latter has underperformed.

With the heavy capital demands of data centres becoming clearer (projects often cost in order the $1bn), the trust is expected to undertake more raisings in future and grow to become a major constituent of the real ­estate investment trust index.

Industrial property powerhouse Goodman has already switched tact to focus on data centres, and other property groups are looking to follow suit in the wake Blackstone’s $23.5bn purchase of AirTrunk.

Investors are chasing the high returns that are expected to flow to data centre owners and operators in coming years, but sceptics have pointed to HMC’s lack of a long-term track record in the field.

The float is predicated on the demand driven by the AI revolution prompting large technology companies and other corporations to chase more data capacity, which the new vehicle will be able to meet by expanding its existing centres and acquiring new assets.

Mr Di Pilla is confident the fund will grow into a globally relevant vehicle as the data centre industry undergoes a step change due to the advent of AI and ­machine learning.

“There is really a very limited amount of opportunities for Australian investors to get exposure to this asset class, and that’s why we believe DigiCo will become a pretty interesting place for Australian domestic institutional and retail investors to gain that exposure,” he said.

While it is structured as self-funding, the vehicle has a wide mandate to grow. “We’ve given it a mandate where it can invest right through the data centre value chain,” Mr Di Pilla said.

The new data centre fund will begin trading on the ASX on ­December 12 after an “upsized” initial public offer of $2.75bn following significant demand from institutional cornerstone and retail investors. It has been heavily supported by local wealthy investors via retail broking houses, which could see it pick up support from local institutions once it lists.

The underwriters for the float were JPMorgan, Goldman Sachs, UBS and Macquarie Capital, and a further eight brokers were involved in distribution of the stock to clients.

HMC will tip $500m into the float, which was lower than the $750m it could have committed.

The pricing of the new trust defies traditional metrics used in the A-REIT sector. The pricing is at an enterprise valuation of 26.1 times forecast pro forma earnings in fiscal 2025. It will spin off a distribution yield of about 4 per cent.

HMC Capital lodged the IPO documents on Thursday in preparation for the listing, which will have an enterprise value of $4.3bn of data centre assets in Australia and the US. HMC’s assets under management will increase to about $17.5bn on listing, and it is on a steep growth trajectory.

The float will also significantly increase HMC’s recurring funds management revenue base, delivering material transaction revenues in fiscal 2025. DataRoom reported on the market’s anticipation of the IPO earlier this month.

HMC announced the purchase of iSeek data centres this month for $400m, adding to its $1.94bn Global Switch Australia data centres purchase. HMC and DigiCo REIT have also separately entered into agreements for the acquisition of three North American enterprise and hyperscale data centres with 44MW of contracted capacity for $1.5bn, to be part of DigiCo REIT.

The new fund is banking on being able to win new customers at its Sydney data centre, Global Switch Australia, as it is being bought from a Chinese-linked group that had aroused security concerns. It is also expected to use its initial purchase of US data centres as a springboard into that market, though some observers have questioned whether the momentum will continue in the US.

HMC will own $500m (18 per cent of total issued capital) of DigiCo REIT on completion, resulting in a free float market capitalisation of about $1.99bn.

“The establishment of the DigiCo REIT represents another landmark transaction by HMC and demonstrates our ability to build scalable growth platforms via large-scale transactions,” Mr Di Pilla said.

“The oversubscribed raising and upsized IPO is a testament to the significant level of investor demand for DigiCo’s high quality global portfolio, customer base and development pipeline.”

HMC shares rose 16c to $11.89.