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Digital Realty and Realty Income form joint venture for build-to-suit data centre development

Written by Tue 14 Nov 2023

Data centre solution provider, Digital Realty, and investment company, Realty Income, have formed a joint venture to develop two build-to-suit data centres in Northern Virginia.

The two data centres began construction in Q4 of 2022 and are expected to deliver 16MW of initial data centre capacity, which is expandable up to 48MW at the client’s option. The client was not named by Digital Realty or Realty Income.

“This transaction offers our stockholders attractive risk-adjusted returns and will support the development of two state-of-the-art facilities located in Northern Virginia, the largest data centre market in the world,” said Sumit Roy, President and Chief Executive Officer at Realty Income.

The budget for the first phase of these yield-on-cost developments is approximately £320 million ($400 million). Expanding the capacity to 48MW could increase the budget up to £642 million ($800 million).

Realty Income invested approximately £160 million ($200 million) to acquire an 80% equity interest in the venture, while Digital Realty maintains a 20% interest. 

Each partner will fund its pro rata share of the remaining £120 million ($150 million) estimated development cost for the first phase of the project, which is slated for completion in mid-2024.

President and Chief Executive Officer of Digital Realty, Andy Power, said the joint venture supports Digital Realty users’ build-to-suit requirements with a like-minded, long-term investor as its partner. 

“The transaction also further bolsters and diversifies Digital Realty’s capital sources, while enhancing our flexibility so that we can prudently support our stakeholders’ long-term capacity requirements,” said Power.

The build-to-suit facilities were 100% pre-leased to an S&P 100 investment-grade client before construction. The facilities are expected to generate a 6.9% initial cash lease yield upon lease commencement in mid-2024. 

The data centre facilities are subject to a 10-year initial lease term with extension options and 2.0% annual rent escalators.

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Written by Tue 14 Nov 2023

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