Digital Realty (NYSE: DLR), the Austin, TX-based data center operator, and Blackstone (NYSE: BX), announced that Blackstone-affiliated funds have agreed to establish a joint venture with Digital Realty to develop four hyperscale data center campuses across three Tier 1 metro areas in Europe and the U.S. Once fully built, the campuses are expected to support approximately 500 MW of total IT load.
The JV plans to construct 10 data centers on campuses located in Frankfurt, Paris, and northern Virginia. Demand for data centers continues to escalate as tech giants increase online content, cloud services, and artificial intelligence capabilities. The total estimated development cost is approximately $7 billion over the next five to six years.
Currently, 46 MW is under construction of which 33 percent is pre-leased. The remaining land capacity is in varying phases of pre-construction and will be developed to meet customer demand. Roughly 20 percent of the total potential IT load capacity, about 100 MW, is expected to be delivered through 2025, with the balance expected to be delivered in 2026 and beyond, according to the companies.
Blackstone will acquire an 80 percent ownership interest in the joint venture for approximately $700 million of initial capital contributions, while Digital Realty will retain a 20 percent interest. Digital Realty will manage the development and day-to-day operations of the joint venture, for which it will receive customary fees.
Digital Realty is involving private equity partners in its data center expansion plans as a way to diversify its capital expenditures. In its 3Q23 earnings report, before this announcement, Digital Realty guided to full-year 2023 development capex of $2.4 billion, down from $2.6 billion in 2022. The company expects 2023 leasing revenues of $5.5 billion up from $4.7 billion in 2022 and Adjusted EBITDA of $2.7 billion, an eight percent YoY increase.
“By partnering with Blackstone, the world’s largest alternative asset manager, Digital Realty is better able to deliver capacity to meet the burgeoning demand of our hyperscale customers, by accessing a deep pool of like minded private capital,” said Andy Power, Digital Realty President and CEO.
Jon Gray, President and COO of Blackstone, added, “Data centers are experiencing once-in-a-generation demand growth, driven by cloud adoption and the AI revolution.”
The joint venture is scheduled to close in two stages over the course of the first half of 2024, subject to certain regulatory and other approvals, as well as other customary closing conditions.
By John Celentano, Inside Towers Business Editor
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