Digital Realty Trust’s DLR, Brazilian subsidiary, Stellar Participações Ltda., recently completed the previously-announced buyout of a Brazilian data center provider — Ascenty from Great Hill Partners — for nearly $1.8 billion.
Earlier Digital Realty had entered into a separate bilateral equity commitment letter with Brookfield Asset Management’s BAM affiliate — Brookfield Infrastructure — per which Brookfield will fund half of the equity investment amounting to around $613 million. In exchange, Brookfield will own 49% of the joint-venture entity which is likely to own Ascenty.
This agreement with Brookfield, subject to certain closing norms, will likely close in first-quarter 2019.
Initially, the transaction was funded with $600 million from a non-recourse term loan with maturity of five years, the roll-forward of equity interests of Ascenty management in exchange for Digital Realty’s Operating Partnership Units worth $300 million. Further, approximately $1 billion was borrowed as unsecured corporate debt.
Nonetheless, the permanent capital structure for Ascenty will be finalized in first-quarter 2019.
Per management, the acquisition will enable Digital Realty to cement its position as a major data-center provider in Latin America. Particularly, its efforts to expand in Latin America region is a strategic fit as the company views it as a hub of future technological transformation.
Management also believes the deal will boost the company’s global platform, aiding it to become a premier global data-center solutions provider. In addition, it adds proprietary fiber network and strategic high value assets to the company’s portfolio.
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. This, along with improved outlook for economic growth, will significantly propel growth of data-center REITs, such as Digital Realty, Equinix, Inc. EQIX, CoreSite Realty Corp. COR and others.
Digital Realty currently has a Zacks Rank #3 (Hold). Shares of the company have declined 1.7%, which is narrower than the industry’s loss of 3.6%, in the past six months.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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