NORTH AMERICA – Pramerica Real Estate Investors has made its first investment in data centres with a $369m (€274m) joint venture with Digital Realty Trust in the US.
The equity investment made to the venture by PREI was about $150m.
According to industry sources, the investment was made on behalf of the real estate manager's core open-ended commingled fund, PRISA.
Tim Hennessey, a managing director with PREI, said: "We like that we had the opportunity to invest in what we see as the least risky type of data centre – power centre buildings.
"We had the chance to invest with a highly experienced operating partner like Digital Realty.
The particular data centres provide a high-quality income stream that is derived from large, publicly traded companies."
However, Hennessey conceded that investing in data centres does have its risks.
"There is the risk of technology change," he said. "However, that needs to be overlaid with the explosion in data storage and retrieval needs."
The joint venture will be 80% owned by PREI and 20% by Digital Realty.
Digital Realty seeded the venture with nine powered base building data centres.
These properties are located in three major markets in the US – Silicon Valley, California; Northern Virginia; and Texas.
The assets are planned to generate cash flow net operating income of around $24.5m this year, representing a 6.7% cap rate.
The properties are 100% leased with an average remaining lease term of approximately nine years.
Digital Realty will continue to manage the properties going forward.
The joint venture has arranged a $185m, five-year unsecured bank loan at LIBOR plus 180 basis points.
This puts the loan-to-value ratio on the venture at around 50%.
Cathy Marcus, managing director at PREI and senior portfolio manager of the firm's core US real estate strategy, said: "The long lease terms and contractual rental rate increases on the powered base building data centres provide a stable rental income stream that represents a good fit with our investment objectives.
"These institutional quality properties are fully leased to a roster of credit tenants."
