Digital Realty Trust is planning to sell common stock to finance the acquisition of a five-property portfolio of data centers from Rockwood Capital , a move that demonstrates a shift in demand in the sector as more companies move records and other data online. Developing or redeveloping data centers is capital-intensive and Digital's ability to tap the public markets gives it a competitive advantage, said Steven Berkman , partner at Paul Hastings , who is not connected to the offering.
The San Francisco-based real estate investment trust will pay $725 million for the properties, which are located in California, Arizona and Virginia and are leased to more than 200 tenants. The acquisition also includes 250,000 square feet of space for development. "Demand continues to grow and supply is not keeping up, which is putting upward pressure on pricing," Berkman said. The current level of demand doesn't even take into account the healthcare system, which is fragmented. "When that gets online there will be another wave of demand for storage," he added.
DLR is trading at around $55, only $4 less than its 52-week high. Its 52-week low is $55.13 per share. The REIT is selling 4.25 million shares and will use the remainder of proceeds to fund future acquisitions, development opportunities or pay down outstanding debt and preferred securities, it said in a statement. Credit Suisse Securities , Citi and Bank of America Merrill Lynch will leading the sale. Calls to Digital were not returned by press time.
Some states are offering incentives and tax breaks to attract data centers. Yahoo 's data center, in Lockport, N.Y., received a 20-year Payment in Lieu of Taxes incentive that includes no property taxes for the first 10 years, reduced rates after that and exemptions from sales tax. The data centers also benefits from the naturally cooler climate in upstate New York, which reduces energy cooling costs. The 30-acre property cost $450,000 to buy and has created 125 new jobs that pay $65,000-$75,000 per year. Virginia, Nebraska and Oregon have similar incentives in place according to published reports.
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Copyright © 2010 Institutional Investor
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
