Digital Realty, TPG to acquire Northern Virginia data centres

Digital Realty, TPG to acquire Northern Virginia data centres

Andy Power Digital Realty.jpg

Digital Realty and TPG have established a joint venture in which TPG will acquire a majority stake in three hyperscale data centres in Northern Virginia.

Digital Realty will maintain a minority interest in the portfolio while continuing to manage day-to-day operations of the assets.

"We welcome this partnership with TPG, a highly distinguished investment partner," said Digital Realty chief investment officer Greg Wright.

"The completion of this stabilised hyperscale data centre joint venture bolsters and diversifies Digital Realty's capital sources with an experienced partner and further enhances the efficiency of our balance sheet.

The three hyperscale data centres contributed to the joint venture at an aggregate value of US$1.5 billion.

The assets contain around 104 megawatts of IT capacity and are primarily leased by investment grade customers.

Based on annualised in-place cash NOI on June 30, 2023, net of signed leases and known move-outs, the transaction values the three facilities at approximately a 6% cap rate.

Digital Realty will receive approximately US$1.3 billion of gross proceeds related to the joint venture and the associated financing, which will be used to pay down debt for transaction related expenses and general corporate purposes.

"Demand for data centres continues to grow rapidly due to data proliferation and the mass adoption of cloud computing. These are long-term trends that we expect will only be accelerated by recent advancements in AI," said Ty Newell, Business Unit Partner with TPG Real Estate.

"Located in the largest and most densely connected data centre hub in the world, the Portfolio is well-positioned to address this demand. We are excited by the outlook for the Ashburn market and look forward to working alongside a world-class partner in Digital Realty."

Financial results

Alongside its partnership with TPG, Digital Realty reported revenues for the second quarter of US$1.4 billion, a 2% increase from the previous quarter and a 20% increase for the same quarter last year.

The company delivered Q2 net income of US$116 million and net income available to common stockholders of US$108 million.

Digital Realty generated Q2 of 2023 adjusted EBITDA of US $697 million, a 4% increase from the previous quarter and a 14% increase over the same quarter last year.

The company reported second quarter of 2023 funds from operations (FFO) of $466 million, or $1.52 per share, compared to $1.60 per share in the previous quarter and $1.55 per share in the same quarter last year.

"Digital Realty's second-quarter results demonstrate the positive momentum in our operating business, with improving fundamentals highlighted by strong enterprise leasing activity along with robust renewal spreads and healthy organic growth," said Digital Realty president and CEO Andy Power.

"We advanced our funding plan by completing two capital recycling transactions that generated more than US$2 billion in gross proceeds, helping to position Digital Realty for the opportunity that lies ahead."

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