Sabey Data Center Issuer, Series 2022-1, is preparing to issue about $250 million in revenue notes that will securitize real estate and tenant lease payments on six hyper-scale data center campuses.
The lease revenue is on six data center campuses located across New York, Virginia and Washington, according to S&P Global Ratings. Series 2002-1 shares collateral with series 2020-1, 2020-2 and 2021-1 notes issued by previous Sabey Data Center Issuer trusts.
The current issuance has no new properties added to the master trust, but the aggregate appraisal value increased to about $2.0 billion, from $1.5 billion, since the 2021-1 series. Increased construction and leased capacity at existing data centers accounted for the higher appraisal value, the rating agency said.
Guggenheim Securities is the sole structuring advisor, and sole active bookrunning manager, while Midland Loan Services will service the notes.
S&P expects to assign ratings of ‘A+’ to the $175 million A-2 notes, and ‘BBB’ to the $75 million, ‘B’ notes.
Sabey Data Center Issuer, 2022-1, has another important feature in common with previous deals: the class A-2 notes are pari passu to several other classes of notes from previous series, including:
· 2020-1 classes A-1 and class A-2
· 2021-1 class A-2
The class B notes from the 2022-1 transaction are subordinate to the class A notes, S&P said.
In an era where environmental, social and governance (ESG) risks are just at consequential as other elements of a securitization deal’s collateral, S&P noted that data centers are more exposed to environmental risks than other property types.
“Physical climate risk could impact not only the building structure, but also access to power,” the rating agency noted in a recent pre-sale report. Also, a considerable level of resources are required to generate the necessary power to run data centers, so the properties have elevated exposure to waste and pollution.
Data centers also have significant greenhouse gas emissions, because of the significant amounts of energy needed to provide lighting and climate control.
Among the deal’s strengths are Sabey Data Center Properties’ long operating history in the real estate and data center industry. Also, the lessees behind the underlying leases have a high average credit quality—69% of them have an investment grade rating, of ‘BBB-’, or an equivalent one.
The collateral pool also has a low customer turnover rate, kept in place by the high cost of relocating.
The transaction is not without its drawbacks: tenant diversity is limited in the collateral pool. One tenant accounts for about 18% of the leased turnkey capacity and 16% of the total annualized adjusted base rent (AABR). The top five tenants account for half of the collateral pool’s total AABR.
