Digital Realty Trust, Inc. has announced the formation of a $187.6 million joint venture between an affiliate of Digital Realty and an affiliate of Griffin Capital Essential Asset REIT, Inc. ("GCEAR").
Digital Realty contributed to the joint venture, which was formed on September 9, 2014, an approximately 132,280 sq ft Turn-Key Flex® data center in Ashburn, VA, valued at approximately $185.5 million (excluding $2.1 million of closing costs), or $20,611 per kW. The property is expected to generate forward 12-month cash net operating income of approximately $13.1 million, representing a 7.05% cap rate. The property is 100% leased, with a weighted average remaining lease term of approximately seven years. GCEAR will hold an 80% interest in the joint venture and Digital Realty will retain a 20% interest. Digital Realty will continue to manage the property, and will receive management fees and will also be entitled to participate in certain excess cash flow and capital proceeds for managing the property.
The joint venture has arranged a $102.0 million five-year bank loan at LIBOR plus 225 basis points, representing a loan-to-value ratio of approximately 55%. The transaction generated net proceeds to Digital Realty of approximately $168.4 million, comprised of Digital Realty's share of the initial draw-down on the bank loan in addition to the GCEAR fund's equity contribution, less Digital Realty's share of closing costs.
"We are pleased to establish this relationship with Griffin Capital Essential Asset REIT," commented Jeff Hoppen, managing director, Capital Markets for Digital Realty. "This joint venture transaction 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 benefit of reducing our tenant concentration while establishing an attractive private market valuation benchmark for our Turn-Key Flex® properties."
Proceeds from the transaction will initially be used to pay down debt, and will eventually be used to fund ongoing investment activity and other corporate purposes. Digital Realty's 2014 core FFO per share guidance remains unchanged at $4.85-$4.95.