By Gail Kalinoski
Digital Realty’s plan to acquire Ascenty, a leading data center provider in Brazil, for $1.8 billion in a partnership with an affiliate of Brookfield Asset Management will enable the company to continue growing its global footprint and its reputation as a “one-stop shop” for global data center tenants, according to one analyst.
“Strategically it makes sense for them,” David Guarino, a senior associate at Green Street Advisors real estate research firm, told Commercial Property Executive.
The San Francisco-based REIT and global provider of data center, colocation and interconnection solutions, said its Brazilian subsidiary, Stellar Participacoes Ltda., has agreed to acquire Ascenty from private equity firm Great Hill Partners. The company separately entered into an independent bilateral equity commitment letter with Brookfield Infrastructure. Brookfield, which has been investing in Brazil for more than 100 years, is one of the Latin American country’s largest investors, with more than $40 billion in assets under management. Brookfield has committed to fund approximately $613 million of the transaction costs for 49 percent of the joint venture.
“When you’re investing in an emerging country, there is obviously a high level of risk involved in that. But they’re not stepping into this alone. Brookfield has a tremendous track record of operating in that country,” Guarino told CPE.
Another positive for Digital Realty, Guarino said, is that Ascenty management, including CEO Christopher Torto, will be staying on and own 2 percent of the joint venture. He called it a prudent move, noting that relationships are key in the data center business and it will help Digital Realty to go into a new market with a team tenants can trust. Ascenty currently owns eight assets in the key Brazilian metros of Sao Paulo, Campinas, Rio de Janeiro and Fortaleza.
In a research letter, Baird analysts David Rodgers and Richard Schiller also pointed to the importance of both the Brookfield partnership and the Ascenty management remaining in place after the deal closes in the fourth quarter.
“Joint venture, management involvement appears a solid structure,” Rodgers and Schiller wrote.
Growth in Latin America
The deal, which includes Ascenty’s development pipeline, also provides significant growth in Brazil and Latin America. The portfolio includes 106.2 megawatts of total planned capacity, including 39.2 megawatts of capacity currently in-service, 34.0 megawatts of capacity under construction and 33.0 megawatts of potential additional capacity. Ascenty also has options or leases on five separate sites representing up to an estimated incremental 66.5 megawatts of potential future growth capacity. Digital Realty said it would cost about $425 million to fund the completion of the data center development under construction and to build out additional capacity to meet near-term customer demand.
“We expect this acquisition will further accelerate our growth while enhancing our ability to support our customers’ digital transformation across the globe,” Digital Realty CEO William Stein said in a prepared statement.
Stein said the deal also immediately establishes Digital Realty as a “market leader in a historically under-served region poised for rapid growth.”
BofA Merrill Lynch is Digital Realty’s financial advisor and Latham & Watkins LLP is the REIT’s legal counsel on the pending acquisition. DH Capital is Ascenty’s financial advisor and Choate, Hall & Stewart LLP is the company’s legal counsel.
More Northern Va. land
The news about the Ascenty acquisition came the same day Digital Realty announced it was acquiring 424 acres of undeveloped land in Loudoun County, Va., for $236.5 million, or about $558,000 per acre. The site is adjacent to Washington Dulles International Airport and located near bulk transmission lines, as well as a major fiber path. It is less than four miles from Digital Realty’s existing data center campuses in Ashburn, Va. Development will be subject to market demand and delivery will be phase to meet future customer growth requirements upon build-out and lease-up of the company’s existing Ashburn campus capacity.
Digital Realty has invested approximately $1.3 billion in new development in Northern Virginia, where it has been located since 2007. Northern Virginia is the data center sector’s largest market in the U.S. and the world, driven primarily by hyper cloud users, which accounted for 5 percent of the market’s net absorption, according to CBRE. A recent JLL report noted Digital Realty was among the providers slated for new deliveries in the market between now and Q1 2019.
Last year, Digital Realty took a big step forward in its strategic growth plan, when it acquired data center provider DuPont Fabros Technology Inc. in an all-stock transaction valued at about $7.6 billion. The move made Digital Realty the second-largest data center REIT in the U.S.
Image courtesy of Ascenty