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What Does the JV With Mitsubishi Mean for Digital Realty (DLR)?
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In a strategic move to bolster its presence in the Dallas metro area's burgeoning data center market, Digital Realty (DLR - Free Report) , the global leader in cloud and carrier-neutral data center solutions, has joined forces with Mitsubishi Corporation. The collaboration marks a significant milestone in both companies’ expansion strategy, aiming to capitalize on the ever-growing demand for data infrastructure.
Reflecting positive sentiments, shares of DLR rose 2.1% during Monday’s regular trading session, though the gains were eroded on Tuesday due to broader market concerns.
The joint venture between Digital Realty and Mitsubishi Corporation revolves around the development of two state-of-the-art data centers in the Dallas metro area. These facilities, already 100% pre-leased to an S&P 100 investment-grade customer on a long-term basis, signify a solid foundation for the venture's success. Mitsubishi's acquisition of a 65% equity interest in the joint venture, with an initial investment of approximately $200 million, underlines its commitment to the project and confidence in the data center market's potential.
Digital Realty, retaining a 35% interest in the joint venture, will spearhead the development and day-to-day operations of the joint venture and receive customary fees. With its proven track record in delivering cutting-edge data center solutions, DLR brings invaluable expertise to the table. The company's role in managing the joint venture aligns perfectly with its core strengths, ensuring seamless execution and operational excellence.
Construction for the two data centers started in the fourth quarter of 2022, and the first phase of the project will deliver 16 megawatts (MW) of initial data center capacity. However, the customer retains the option to expand the projects up to 48 MW of total IT load during the initial lease term. This flexibility not only underscores the scalability of the infrastructure but also opens up avenues for additional revenue streams in the future.
The financial aspect of the joint venture is equally noteworthy. Each partner will fund its pro rata share of the remaining $100 million estimated development cost for the first phase, which is scheduled for completion and commencement in late 2024.
For the first phase of these yield-on-cost developments, the budget is around $400 million. However, with the potential expansion of the projects, the budget could escalate to $800 million, based on current development cost estimates. Such significant investments underscore the partners' confidence in the long-term viability and profitability of the venture.
Greg Wright, DLR’s chief investment officer, expressed enthusiasm about the collaboration, highlighting its strategic significance. He emphasized how the joint venture not only strengthens Digital Realty's partnership with Mitsubishi but also enhances the company's balance sheet, providing incremental capital to support stakeholders' longer-term capacity requirements.
With a robust foundation and strong financial backing, the venture is poised to capitalize on the immense opportunities in the data center market, driving value for stakeholders and fueling innovation in the digital landscape.
Digital Realty also sorted into JVs in recent quarters to capitalize on the rising demand for data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. In December 2023, Digital Realty entered into a JV worth $7 billion with Blackstone Inc. (BX - Free Report) , a global alternative asset manager, to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia, supporting around 500 MW of total IT load upon full build-out.
In November 2023, Digital Realty entered into a JV with Realty Income Corporation (O - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia, known for its prominence in the data center market. Realty Income invested around $200 million, securing an 80% equity interest in the venture, while DLR maintains a 20% interest. The collaboration combined Digital Realty's expertise in data center solutions with Realty Income's standing as a blue-chip net-lease REIT.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
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What Does the JV With Mitsubishi Mean for Digital Realty (DLR)?
In a strategic move to bolster its presence in the Dallas metro area's burgeoning data center market, Digital Realty (DLR - Free Report) , the global leader in cloud and carrier-neutral data center solutions, has joined forces with Mitsubishi Corporation. The collaboration marks a significant milestone in both companies’ expansion strategy, aiming to capitalize on the ever-growing demand for data infrastructure.
Reflecting positive sentiments, shares of DLR rose 2.1% during Monday’s regular trading session, though the gains were eroded on Tuesday due to broader market concerns.
The joint venture between Digital Realty and Mitsubishi Corporation revolves around the development of two state-of-the-art data centers in the Dallas metro area. These facilities, already 100% pre-leased to an S&P 100 investment-grade customer on a long-term basis, signify a solid foundation for the venture's success. Mitsubishi's acquisition of a 65% equity interest in the joint venture, with an initial investment of approximately $200 million, underlines its commitment to the project and confidence in the data center market's potential.
Digital Realty, retaining a 35% interest in the joint venture, will spearhead the development and day-to-day operations of the joint venture and receive customary fees. With its proven track record in delivering cutting-edge data center solutions, DLR brings invaluable expertise to the table. The company's role in managing the joint venture aligns perfectly with its core strengths, ensuring seamless execution and operational excellence.
Construction for the two data centers started in the fourth quarter of 2022, and the first phase of the project will deliver 16 megawatts (MW) of initial data center capacity. However, the customer retains the option to expand the projects up to 48 MW of total IT load during the initial lease term. This flexibility not only underscores the scalability of the infrastructure but also opens up avenues for additional revenue streams in the future.
The financial aspect of the joint venture is equally noteworthy. Each partner will fund its pro rata share of the remaining $100 million estimated development cost for the first phase, which is scheduled for completion and commencement in late 2024.
For the first phase of these yield-on-cost developments, the budget is around $400 million. However, with the potential expansion of the projects, the budget could escalate to $800 million, based on current development cost estimates. Such significant investments underscore the partners' confidence in the long-term viability and profitability of the venture.
Greg Wright, DLR’s chief investment officer, expressed enthusiasm about the collaboration, highlighting its strategic significance. He emphasized how the joint venture not only strengthens Digital Realty's partnership with Mitsubishi but also enhances the company's balance sheet, providing incremental capital to support stakeholders' longer-term capacity requirements.
With a robust foundation and strong financial backing, the venture is poised to capitalize on the immense opportunities in the data center market, driving value for stakeholders and fueling innovation in the digital landscape.
Digital Realty also sorted into JVs in recent quarters to capitalize on the rising demand for data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. In December 2023, Digital Realty entered into a JV worth $7 billion with Blackstone Inc. (BX - Free Report) , a global alternative asset manager, to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia, supporting around 500 MW of total IT load upon full build-out.
In November 2023, Digital Realty entered into a JV with Realty Income Corporation (O - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia, known for its prominence in the data center market. Realty Income invested around $200 million, securing an 80% equity interest in the venture, while DLR maintains a 20% interest. The collaboration combined Digital Realty's expertise in data center solutions with Realty Income's standing as a blue-chip net-lease REIT.
Shares of Digital Realty, a Zacks Rank #3 (Hold) company, have rallied 10.9% in the past three months, outperforming the industry’s increase of 5.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.
Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.