Digital Realty, Prudential Real Estate In $369 Mln. Joint Venture

(RTTNews) - Digital Realty Trust Inc. (DLR), a provider of data center solutions, Wednesday the formation of a $369 million joint venture with an investment fund managed by Prudential Real Estate Investors, the real estate investment management and advisory business of Prudential Financial Inc. (PRU).

Digital Realty seeded the joint venture with nine Powered Base Building data centers and valued at about $366.4 million.

The properties are expected to generate cash net operating income of about $24.5 million in 2013, representing a 6.7% cap rate. The properties are 100% leased, with an average remaining lease term of about 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 joint venture has arranged a $185 million five-year unsecured bank loan at LIBOR plus 180 basis points, representing a loan-to-value ratio of approximately 50%.

The deal generated about $328.6 million of net proceeds to Digital Realty, comprised of Digital Realty's share of the initial draw-down on the bank loan in addition to the PREI fund's equity contribution, less Digital Realty's share of closing costs.

Digital Realty will recognize a gain on depreciated book value of about $115 million on the sale of the 80% interest in the nine properties during the third quarter of 2013.

Proceeds from the deal will initially be used to pay down debt, and will eventually be used to fund future investment activity.

Digital Realty plans to revise 2013 guidance to reflect closing of the joint venture.