SAN FRANCISCO, Oct. 2, 2013 — Digital Realty Trust, Inc. (NYSE: DLR), a leading global provider of data center solutions, announced today the formation of a $369 million joint venture with an investment fund managed by Prudential Real Estate Investors (“PREI”), the real estate investment management and advisory business of Prudential Financial, Inc. (NYSE: PRU).
Digital Realty seeded the joint venture, which was formed on September 27, 2013, with nine Powered Base Building® data centers totaling 1.06 million square feet and valued at approximately $366.4 million (excluding $2.8 million of closing costs), or $346 per square foot. The properties are expected to generate cash net operating income of approximately $24.5 million in 2013, representing a 6.7% cap rate. The properties are 100% leased, with an average remaining lease term of approximately nine years. The PREI®-managed fund will take an 80% interest in the joint venture and Digital Realty will retain a 20% interest. The joint venture is structured to provide a current annual preferred return from cash flow to the PREI®-managed interest, while Digital Realty will receive fees and a promote participation for managing the properties.
The joint venture has arranged a $185 million five-year unsecured bank loan at LIBOR plus 180 basis points, representing a loan-to-value ratio of approximately 50%. The transaction generated approximately $328.6 million of net proceeds to Digital Realty, comprised of Digital Realty’s share of the initial draw-down on the bank loan in addition to the PREI fund’s equity contribution, less Digital Realty’s share of closing costs. Digital Realty will recognize a gain on depreciated book value of approximately $115 million on the sale of the 80% interest in the nine properties during the third quarter of 2013.
“We are delighted to be partnering with an institution of PREI’s caliber, and we believe this transaction represents an important validation of the appeal of data centers as an asset class to a sophisticated, core real estate investor,” commented Michael F. Foust, Digital Realty’s Chief Executive Officer.
“The long lease terms and contractual rental rate increases on these Powered Base Building® data centers provide a stable rental income stream that represents a good fit with our investment objectives,” noted Cathy Marcus, managing director at PREI and senior portfolio manager of the firm’s core U.S. real estate strategy. “These institutional quality properties are fully leased to a diversified roster of credit tenants, and we look forward to realizing a stable return on this portfolio over the course of a long-term relationship with Digital Realty.”
A. William Stein, Digital Realty’s CFO and Chief Investment Officer added, “This joint venture is a significant milestone for Digital Realty, as it furthers our objective of maximizing the menu of available capital options, while minimizing the related cost. The transaction also has the ancillary benefits of lowering leverage while reducing our tenant concentration and establishing an attractive private market valuation benchmark for our Powered Base Building® product.”
Proceeds from the transaction will initially be used to pay down debt, and will eventually be used to fund future investment activity. Digital Realty plans to revise 2013 guidance to reflect closing of the joint venture on the third quarter conference call, scheduled for Wednesday, October 30, 2013.
About Digital Realty
Digital Realty Trust, Inc. focuses on delivering customer driven data center solutions by providing secure, reliable and cost effective facilities that meet each customer’s unique data center needs. Digital Realty’s customers include domestic and international companies across multiple industry verticals ranging from information technology and Internet enterprises, to manufacturing and financial services. Digital Realty’s 127 properties, including three properties held as investments in unconsolidated joint ventures, comprise approximately 23.7 million square feet as of June 30, 2013, including 2.8 million square feet of space held for development. Digital Realty’s portfolio is located in 32 markets throughout Europe, North America, Asiaand Australia. Additional information about Digital Realty is included in the Company Overview and additional information about the Digital Realty / PREI fund joint venture is included in the Digital Realty/ PREI fund Core Joint Venture materials, which are available on the Investors page of Digital Realty’s website at http://www.digitalrealty.com.
PREI, which has been investing in real estate on behalf of institutional clients since 1970, is a leader in the global real estate investment management business, offering a broad range of investment vehicles that invest in private and public market opportunities in the United States, Europe, the Middle East, Asia, Australia and Latin America. Headquartered in Madison, N.J., PREI has other offices in Atlanta, Chicago, Miami, New York, San Francisco, London, Lisbon, Luxembourg, Munich, Frankfurt,Paris, Istanbul, Abu Dhabi, Mexico City, Sao Paulo, Beijing, Hong Kong, Seoul, Singapore, Sydney and Tokyo. In addition, PREI has representatives in Milan. As of March 31, 2013, PREI managed approximately $53 billion in gross real estate assets ($37.3 billion net) on behalf of more than 490 clients worldwide. For more information, visit http://www.prei.com.