Nextdc Ltd rejects chance to buy the Asia Pacific Data Centre Group portfolio

The Nextdc Ltd (ASX:NXT) share price has edged higher after rejecting the chance to buy the Asia Pacific Data Centre Group (ASX:AJD) portfolio for $300 million…

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The Nextdc Ltd (ASX: NXT) share price has climbed higher in early trade after the data centre operator advised that it has rejected the chance to buy the Asia Pacific Data Centre Group (ASX: AJD) portfolio for $300 million.

At the time of writing NEXTDC's shares are up 0.5% to $6.15.

Why did it reject the offer?

Today's announcement will come as little surprise to shareholders. Last week NEXTDC criticised the 360 Capital Group Ltd (ASX: TGP) appointed board of Asia Pacific Data Centre (APDC) for claiming that its three data centres were now worth $300 million.

According to NEXTDC, this claim was made based largely on the recent private sale of the Metronode business to Equinix.

However, NEXTDC rightly pointed out that APDC is merely a real estate investment trust that owns the base buildings and the land. It is not a data centre operator like Metronode or NEXTDC.

Chief Executive Officer Craig Scroggie stated that: "APDC's reference to Metronode's assumed 4.73% acquisition yield is akin to one suggesting that a property landlord should trade on the same capitalisation rate or multiple as its tenant be they BHP or Google. This has no logic and is simply incorrect".

APDC's properties were independently valued only a few months ago at $212.8 million.

What now?

APDC claims to have interest from a number of parties. However, I am reasonably sceptical that anyone would be willing to pay this premium and believe the offer was made opportunistically in the hope of making a quick profit.

But whatever does happen, NEXTDC would not have to contend with any increase in its rents for some time to come. NEXTDC has long term lease arrangements over the centres, with the next market rental review not due until 2021 for its Melbourne site and 2022 for the Sydney and Perth centres.

I continue to believe that NEXTDC is a great long-term buy and hold investment despite this noise.

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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