Digital Realty Trust Inc.
), a niche real estate investment trust (REIT), has recently
completed the acquisition of 'Digital Chicago' - a data center
facility spanning 575,000 square feet of space in suburban Chicago,
from an unnamed seller for $22.3 million.
The acquisition is in sync with the long-term investment
objectives of the company that focuses on investing in
institutional quality data center facilities in high
barriers-to-entry markets with significant potential to generate
attractive risk-adjusted return on investments (ROI).
Spanning 22 acres, the three-building data center facility is
located in close proximity to the O'Hare International Airport
along Grand Avenue, and is capable of accommodating up to twenty
1.125 megawatt Turn-Key Flex PODs (Performance Optimized Data
Centers), or 32.6 megawatts of IT load.
The first phase of construction comprising six Turn-Key Flex
PODs is expected to be delivered and operational by mid-2013.
Turn-Key Flex data centers of Digital Realty offer a modular
approach to deliver secure, enterprise quality data center space to
meet customers' just-in-time requirements, and provide maximum
flexibility, reliability and efficiency with a dedicated electrical
and mechanical infrastructure.
The acquisition is expected to provide stabilized cash flow in
the short term, with a substantial upside potential in the
long-term and opportunity to expand its footprint in the suburban
Chicago market. Post-acquisition, the seller would continue as a
tenant on a short-term lease occupying two-thirds of the
However, Digital Realty would have the right to terminate the
lease agreement to redevelop more space to accommodate increased
demands of new or existing clients. The company would provide
primary electrical service in the facility through Commonwealth
Edison Company, which is better known as ComEd.
Over the years, Digital Realty had established itself as the
leading player in downtown Chicago data center market through the
ownership of '350 East Cermak' - the digital facility that serves
as the city's primary Internet hub. With the recent foray in
suburban Chicago, the company aims to bring on board a significant
volume of high-quality datacenter space to meet the increased
demand and provide critical infrastructure to support the economic
growth in the region.
Digital Realty operates datacenters and digital storage
facilities, which are primarily used by telecommunication companies
to maintain their Internet presence or augment their data networks.
Datacenters usually incur high costs for building and maintenance,
and as such supply is relatively inelastic.
Digital Realty provides flexible and cost effective datacenter
facilities to a wide range of customers, including domestic and
international companies across multiple industry verticals. Its
portfolio includes 103 properties throughout Europe and North
America, spanning approximately 19.7 million square feet of space
(including 2.3 million square feet of redevelopment space).
With demand for digital storage facilities increasing in recent
years, Digital Realty has benefited greatly by negotiating
favorable lease terms and maintaining strong occupancy rates. The
long-term lease agreements have also insulated the company from
short-term volatility and unfavorable market swings experienced
during the recession. This has enabled Digital Realty to continue
paying out solid dividends to its shareholders.
We presently have a Neutral recommendation for Digital Realty,
which currently has a Zacks #3 Rank, translating into a short-term
Hold rating. However, we have an Outperform recommendation and a
Zacks #1 Rank (short-term Strong Buy rating) for
MPG Office Trust Inc.
), one of the competitors of Digital Realty.
DIGITAL RLTY TR (DLR): Free Stock Analysis
MPG OFFICE TRST (MPG): Free Stock Analysis
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