Digital Realty – Successful Listing of Digital Core REIT

Digital Realty Announces Successful Listing of Digital Core REIT on Singapore Stock Exchange

Perpetual Global Partner Vehicle for “Core” Stabilized Income-Producing Data Centers

AUSTIN, TX (STL.News) Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation, and interconnection solutions, announced the successful listing of Digital Core REIT as a standalone publicly traded vehicle listed on the Singapore Exchange.  Digital Realty contributed a 90% interest in a portfolio of 10 assets concentrated in top-tier data center markets across the U.S. and Canada, valued at $1.4 billion.  The initial IPO portfolio is fully leased to a blue-chip roster of large and growing customers with a weighted average remaining lease term of over six years.  Digital Core REIT is sponsored by and externally managed by Digital Realty to provide operational support for the new vehicle and to ensure a seamless customer experience.  Digital Realty will earn fees for asset and property management as well as acquisitions, dispositions, and development.

“We are thrilled by the successful launch of this new vehicle, which is ideally positioned to help Digital Realty create value by providing a perpetual capital partner for core assets while acting as an extension of our global platform and enabling customers to continue to rely on Digital Realty’s track record of operational excellence,” said Digital Realty Chief Executive Officer A. William Stein. “We have a strong presence in Singapore, which is home to our APAC regional headquarters as well as our flagship facility in Jurong and two recently completed projects in Loyang.  We are pleased to be able to offer our global data center expertise to a broader audience of regional investors seeking exposure to core data center investment opportunities.”

Transaction Delivers Key Strategic and Financial Benefits for Digital Realty

Perpetual Capital Partner: This offering represents the farthest advancement to date in the continuing evolution of Digital Realty’s core capital sources.  In contrast to private capital partners with relatively shorter finite-lived holding periods, Digital Core REIT is expected to be an ideal perpetual capital partner, with a long-term investment horizon closely mirroring Digital Realty’s objectives.  Digital Core REIT’s mandate of investing in stabilized, income-producing data centers is well suited to addressing robust and diverse demand from large and growing customers.
Seamless Customer Experience: The new vehicle will enable Digital Realty to continue to provide a seamless customer experience.  Digital Core REIT’s assets are fully integrated into Digital Realty’s global platform, providing consistency of deployment and operations, as well as connectivity for large and growing customers.

Partner Vehicle for Incremental M&A: Digital Realty has granted a global right of the first refusal on assets that meet Digital Core REIT’s mandate of investing in stabilized, income-producing data centers that are greater than 90% occupied with no material capital expenditure requirements within the first two years.  Digital Realty expects to contribute additional stabilized core assets to Digital Core REIT in the future.  In addition, Digital Core REIT has the ability to pursue third-party acquisitions and will have the potential to co-invest alongside Digital Realty on future investment activity.

Alignment of Interests: Digital Realty expects to retain a 10% direct ownership stake in each of Digital Core REIT’s assets.  Digital Realty’s continuing involvement and an ownership interest in the assets underscores the alignment of interests between stakeholders of both organizations and is expected to preserve a seamless customer experience and help maximize the value of the assets.

“We are deeply grateful for the warm welcome we have received in Singapore,” said Digital Core REIT Chief Executive Officer John Stewart. “We aspire to be the leading pure-play data center REIT listed in Singapore, and particularly given the strong backing by the world’s largest data center owner and operator, we are excited about the opportunity to create sustainable value for all stakeholders by capitalizing on the growth of the digital economy.”

Leadership and Corporate Governance

Digital Core REIT is led by an experienced management team and Board of Directors with extensive experience in the data center, real estate investment, finance, accounting, and capital markets disciplines. John Stewart, who previously served as Senior Vice President, Investor Relations, Tax & Treasury for Digital Realty, is serving as Chief Executive Officer for Digital Core REIT.  Daniel Tith, who previously served as Head of EMEA Finance for Digital Realty, is serving as Digital Core REIT’s Chief Financial Officer.  Digital Core REIT’s Board of Directors consists of five members, including three independent directors and two Digital Realty representatives. Jeffrey S. Tapley, who has responsibility for global portfolio management at Digital Realty, is serving as Chairman of the Board.

Transaction Details

The initial IPO portfolio has been valued by an independent third-party appraiser at approximately $1.4 billion at a 4.25% cap rate. Digital Realty is retaining a 10% direct ownership interest in each of the assets in the initial IPO portfolio and is contributing the remaining 90% ownership stake to Digital Core REIT.  The purchase price for this 90% interest is approximately $1.3 billion. Digital Core REIT has arranged $550 million of unsecured credit facilities, consisting of a $200 million undrawn revolving credit facility and a $350 million fully funded term loan, representing initial leverage of approximately 27%.

Digital Core REIT will have an initial equity market capitalization of approximately $990 million.  The size of the initial public offering was $600 million. In addition, Digital Core REIT has granted the underwriters a $47 million overallotment option.  Assuming the overallotment option is exercised, the initial free float is expected to be approximately $647 million.  Digital Realty will retain the remaining $343 million, representing approximately a 35% ownership interest in Digital Core REIT, assuming the exercise of the overallotment option. Digital Realty’s interest in Digital Core REIT is expected to be accounted for as an unconsolidated investment.

Net of transaction costs and its retained ownership interests, Digital Realty, expects to generate net proceeds of approximately $960 million, assuming the overallotment option is exercised. Proceeds from the transaction will initially be used to pay down debt and will ultimately be used to fund future investment activity.

Digital Realty will earn an asset management fee of 0.5% of “deposited value,” or total assets; a property management fee of 2.0% of gross revenue; a performance fee of 3.5% of “net property income,” or net operating income; and a 1.0% acquisition fee.

BofA Securities, Citigroup, and DBS served as Joint Issue Managers, Global Coordinators, Bookrunners, and Underwriters, while BNP Paribas, OCBC Bank, and UOB served as co-managers for the offering.  Allen & Gledhill served as legal advisor to Digital Realty on the transaction.

About Digital Realty

Digital Realty supports the world’s leading enterprises and service providers by delivering the full spectrum of the data center, colocation, and interconnection solutions.  PlatformDIGITAL®, the company’s global data center platform, provides customers a trusted foundation and proven Pervasive Datacenter Architecture (PDx™) solution methodology for scaling the digital business and efficiently managing Data Gravity challenges.  Digital Realty’s global data center footprint gives customers access to the connected communities that matter to them with over 280 facilities in 49 metros across 25 countries on six continents.