Digital Realty Trust announced 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.
Digital Realty seeded the joint venture with nine 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 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."