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Digital Realty Clinches Delta Deal

Zacks Equity Research

Digital Realty Trust Inc. (DLR), a niche real estate investment trust (:REIT), disclosed the closure of the acquisition of 1500 Towerview Road in Eagan, Minn. The company shelled out $37 million for this data center facility, which is fully leased to Delta Air Lines Inc. (DAL).

Spanning over 329,000 square feet on 39 acres of land, this 3 level facility includes around 86,000 square feet of raised-floor data center space and has 8 megawatts of IT capacity. It was structured as a sale-leaseback transaction and Delta Air Lines has inked an 8-year, triple net lease with Digital Realty for the facility.

The acquisition is in line with the long-term investment objectives of Digital Realty, that focus on investing in institutional-quality data center facilities in high-barrier-to-entry markets that possess substantial prospects to generate attractive risk-adjusted return on investments. Alongside, the deal is expected to strengthen its relationship with an existing client.

With the rise in demand for digital storage facilities in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have insulated the company from short-term volatility and unfavorable market swings experienced during the recession.

Digital Realty operates data centers and digital storage facilities, which are primarily used by companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.

Digital Realty currently has a Zacks Rank #3 (Hold). However, 2 other REIT stocks that are performing well and deserve a look include Federal Realty Investment Trust (FRT) and Simon Property Group Inc. (SPG), both carrying a Zacks Rank #2 (Buy).

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