Digital Realty Trust DLR recently announced the conclusion of its joint venture (JV) deal with Brookfield Asset Management’s affiliate — Brookfield Infrastructure. The move comprised Brookfield acquiring around 49% of the total equity interests in the JV, which owns and operates Ascenty.
Notably, Ascenty is a reputed data-center provider in Brazil, and Digital Realty’s Brazilian subsidiary Stellar Participações Ltda. completed the buyout of Ascenty from Great Hill Partners for nearly $1.8 billion, late last year. As part of the move, Digital Realty entered into a separate bilateral equity commitment letter with Brookfield Infrastructure in 2018, per which Brookfield funded a major chunk of the equity investment, and in exchange, gained this 49% stake in the JV.
For Digital Realty, the data-center investment in South America through this investment vehicle is a strategic fit. This is because the Latin America region is viewed as a hub of future digital transformation and in fact, the under-served region is likely to register robust growth in the upcoming period. Therefore partnership with Brookfield, which offers local expertise in infrastructure investments, seems strategic as it will help capitalize on this favorable trend.
Admittedly, with growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies, data-center REITs are experiencing a boom. Additionally, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years.
These factors are expected to significantly propel growth of data-center REITs, such as Digital Realty, Equinix, Inc. EQIX, CoreSite Realty Corp. COR, CyrusOne Inc. CONE and others. Nevertheless, aggressive pricing pressure is likely to continue in the upcoming period.
Digital Realty currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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