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Digital Realty Makes Notes Offering to Fund Telx Buyout

Digital Realty Trust, Inc.DLR has resorted to notes offering for financing a part of its pending Telx Holdings acquisition.

Specifically, the company through its wholly-owned subsidiary, Digital Delta Holdings priced a private placement of $500 million of 3.400% notes due 2020 and $450 million of 4.750% notes due 2025. Digital Realty Trust, Inc. and its operating partnership subsidiary, Digital Realty Trust, L.P. would fully and unconditionally guarantee the notes.

Importantly, in July, this San Francisco-based real estate investment trust ("REIT") struck a deal to acquire Telx, a private equity-owned data center firm, in a deal valued at $1.89 billion. The deal was made through Digital Delta. And with the closure of Telx acquisition, Digital Delta Holdings, LLC will be merged with and into Digital Realty Trust, L.P., with Digital Realty Trust, L.P. being the surviving entity. Digital Realty Trust would assume Digital Delta Holdings' obligations under the notes.

If net proceeds are in excess, the company plans to use that for repaying borrowings under Digital Realty Trust, L.P.'s global revolving credit facility. In case the Telx acquisition does not get materialized by Feb 11, 2016, or if the merger agreement is terminated before such date, then all of the notes will be needed to be redeemed.

Financing for the Telx acquisition is important and much required as the buyout would double Digital Realty's footprint in the fast growing colocation business and be accretive to financial metrics in 2016.

Notably, the colocation data center is where businesses can rent space for their servers or other computing hardwares. Companies may rent rack, cabinet, cage or room. Amid a rise in cloud services and need for data management outsourcing, colocations are witnessing a rapid increase in demand for their spaces. They are usually preferred over building own data centers because of the vast capital expenditures tied with own data centers.

With opportunities building up, leading to consolidation in the data center sector, we believe this feat of Digital Realty would help it ride the growth curve.

Digital Realty currently carries a Zacks Rank #2 (Buy). Investors interested in the REIT industry may consider stocks like First Industrial Realty Trust Inc. FR , Prologis, Inc. PLD and PS Business Parks Inc. PSB . All these stocks share the same rank as Digital Realty.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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