Digital Realty Commences $143M Offering

SAN FRANCISCO-Locally headquartered Digital Realty Trust Inc. has commenced a potential $143-million public offering of common and preferred stock that it will use to pay down unsecured debt. The company went public in November, selling 20 million shares at $12 per share for gross proceeds of $240 million. The company went public with 23 properties that were part of a private equity fund established in 2001 by CalPERS (95%) and CB Richard Ellis Investors (5%), and CalPERS continues to own 40% of the company’s operating partnership. The company has since acquired 10 additional operating properties–giving it a total operating portfolio of about 7.3 million sf–and its stock price now stands at around $18 per share. The current offering is for up to 4.83 million shares of common stock and up to 2.53 million shares of series B cumulative redeemable preferred stock. Citigroup and Merrill Lynch & Co. are the joint book-running managers for the common stock offering, and together with UBS Investment Bank, are the book-running managers for the series B cumulative redeemable preferred stock offering.Digital Realty expects net proceeds to be $143.1 million (if underwriters fully exercise their options), including $82.2 million from the common stock offering and $60.9 million from the series B preferred stock. The proceeds will be used to repay borrowings under its unsecured credit facility. At June 30, the outstanding balance on the unsecured credit facility was $188 million, according to SEC filings. The facility is bearing interest at Libor plus 1.625% per annum, which equaled a rate of 4.97% at the end of June. The credit facility expires in November 2007, subject to a one-year extension option. On June 30, Digital Realty closed on the acquisition of 642,000 rentable sf in five data centers and one office building for $109 million. One of the five acquired data centers is located near Denver and is 100% leased to Ameriquest Mortgage Co. through February 2012. The 80,000-sf property is home to Ameriquest’s corporate data center operations and was purchased for about $16.4 million. The remaining four acquired data centers, and the acquired office building, are located in the California cities of Santa Clara and El Segundo and are 100% leased to national Internet carrier Savvis Inc. through February 2019. The portfolio of properties was purchased for $92.5 million. The entire acquisition has an expected un-leveraged first-year cap rate of 10.8%.Generally speaking, the company’s properties are located in markets where technology tenants are concentrated, including the Atlanta, Boston, Dallas, Denver, Los Angeles, Miami, New York, Phoenix, Sacramento, San Francisco and Silicon Valley metropolitan areas. The portfolio consists of telecommunications infrastructure properties, information technology properties, technology-manufacturing properties and regional or national headquarters of technology companies. Digital Realty CFO William Stein could not be reached Thursday for comment. In January, Stein told GlobeSt.com the company buys its properties for between $200 and $225 per sf. The properties it purchases typically were improved at a cost of between $500 and $1,000 per sf, he says, and its acquisitions are made with maximum 60% leverage, per agreements related to its revolving credit facility.