Digital Realty, TPG establish $1.5bn hyperscale data centers joint venture

Digital Realty (NYSE: DLR), a provider of cloud- and carrier-neutral data center solutions, has joined forces with TPG Real Estate, an alternative asset management firm, in a joint venture. In this deal, TPG will acquire a majority stake in three hyperscale data centers in Northern Virginia worth $1.5 billion. Digital Realty will retain a minority interest and continue managing daily operations, ensuring a smooth customer experience.

Digital Realty’s Chief Investment Officer Greg Wright expressed his enthusiasm for the partnership, saying, “The completion of this stabilized hyperscale data center joint venture bolsters and diversifies Digital Realty’s capital sources with an experienced partner and further enhances the efficiency of our balance sheet.”

Ty Newell, Business Unit Partner with TPG Real Estate, commented on the increasing demand for data centers and the potential of the new venture, “Located in the largest and most densely connected data center hub in the world, the Portfolio is well-positioned to address this demand. We are excited by the outlook for the Ashburn market and look forward to working alongside a world-class partner in Digital Realty.”

These three hyperscale data centers, valued at an aggregate of $1.5 billion, were contributed to the joint venture. They contain about 104 megawatts of IT capacity and are primarily leased by investment-grade customers. The transaction, based on the annualized in-place cash NOI at June 30, 2023, values the three facilities at approximately a 6.0% cap rate. This partnership results in Digital Realty receiving around $1.3 billion of gross proceeds, which will be used to pay down debt, for transaction-related expenses, and for general corporate purposes.

TPG’s investment in the Portfolio is made through TPG Real Estate Partners, their dedicated opportunistic real estate fund series. This promising partnership aligns with the increasing need for hyperscale data center infrastructure amid the growing prevalence of cloud computing and data proliferation.

Recently, Indian conglomerate Reliance Industries Limited announced plans to invest along with Brookfield Infrastructure and Digital Realty in the development of data centers in India.