OVERLAND PARK, Kan.,
Feb. 25, 2019 /PRNewswire/
-- QTS Realty Trust (NYSE: QTS), a leading provider of
software-defined and mega scale data center solutions, announced
today the formation of a joint venture with Alinda Capital Partners
("Alinda"), a leading infrastructure investment firm with
approximately $7 billion of assets
under management. QTS contributed a 118,000 square foot hyperscale
data center under development in Manassas, VA to the venture. The facility was
contributed at a stabilized value of approximately $240 million, excluding associated closing costs,
representing a 6.75% cap rate. QTS and Alinda will each take a 50%
interest in the venture, which will be reflected as an
unconsolidated joint venture on QTS' reported financial statements
beginning in the first quarter 2019.
Through this expected initial joint venture, QTS is able to:
- Raise upfront net capital proceeds of approximately
$53 million at closing, which will
grow to approximately $87 million as
the asset stabilizes, including QTS' share of joint venture
debt
- Reduce its capital funding requirement by an aggregate of
approximately $120 million over the
course of the full development of the stabilized Manassas facility while retaining a 50%
proportionate stake in the NOI generated by the facility
- Increase the expected stabilized ROIC on QTS' capital
contribution in Manassas from
approximately 9% to approximately 12% including incremental
management and development fees.
In addition, through the programmatic nature of its broader
strategic partnership with Alinda, QTS has the opportunity to
structure additional joint venture agreements, enabling future
equity capital contributions from Alinda at a valuation that is
comparable to the initial joint venture in support of QTS'
hyperscale growth strategy.
The Manassas data center is
currently leased to a global cloud-based software company subject
to a 10-year lease agreement. The customer has currently signed
commitments to lease the entire powered shell as well as nine
megawatts of turn-key data center capacity. The customer is
expected to sign future commitments, scaling to the full 24
megawatts of gross turn-key power capacity available at the data
center over approximately a two year period. The first phase,
representing the powered shell and five gross megawatts of turn-key
data center capacity, commenced in the first quarter of 2019 and
the second phase, representing four gross megawatts of additional
turn-key capacity is expected to commence in the second quarter of
2019.
The joint venture has arranged a credit facility of up to
approximately $165 million secured by
the Manassas facility at LIBOR
plus 225 bps. At closing, QTS received net proceeds from the joint
venture of approximately $53 million,
comprised of equity contributions from Alinda and joint venture
debt. QTS' proportionate share of the upfront joint venture debt is
approximately $27 million. As
incremental development at the Manassas facility takes place and future
phases are delivered to the customer, QTS will draw additional
proceeds from the venture based on the pre-set stabilized 6.75% cap
rate for all phases delivered within the first three years of
development, thereby not sacrificing future value from the joint
venture's growth. Upon full stabilization, QTS expects to receive
net proceeds aggregating to approximately $87 million associated with the Manassas data center, including the joint
venture debt, while materially reducing QTS' capital requirements
in the facility. QTS expects to use the net proceeds from the joint
venture to pay down outstanding borrowings on its revolving credit
facility and for general corporate purposes, including ongoing data
center development.
The joint venture agreement announced today represents
potentially the first closed transaction as part of a broader
strategic partnership with Alinda. The strategic partnership
outlines a programmatic framework under which Alinda will be given
the opportunity to partner with QTS and contribute equity capital
for specific data center development projects in support of QTS'
go-forward hyperscale growth strategy at a cap rate that is
comparable to the initial joint venture agreement. Including equity
capital associated with the initial joint venture, the strategic
partnership outlines Alinda's initial capacity to potentially
contribute up to $500 million of
equity capital in aggregate over a five year period. In addition to
joint venture debt proceeds, this would represent in excess of
$1 billion of potential JV funding to
support QTS' future hyperscale data center development
strategy.
"We are pleased to partner with Alinda, a premier infrastructure
investor, to enhance QTS' access to capital in support of its
accelerating and capital efficient growth initiatives," said
Chad Williams, Chairman and CEO –
QTS. "This strategic partnership gives QTS a unique ability to
optimize capital, materially enhances the overall return on capital
profile within our portfolio and expands our available sources of
capital funding with an experienced infrastructure investor. In
addition, the implied valuation encompassed in the joint venture
agreement demonstrates the strong underlying value of data center
assets within QTS' broader platform."
"The quality and long-term cash flow visibility of QTS'
world-class data center facilities aligns well with our investment
strategy focused on essential infrastructure assets," said
Jim Metcalfe, Partner and Head of
Global Investments – Alinda Capital Partners. "This joint venture
represents the first transaction of our broader strategic
partnership and we are excited to deepen our relationship with an
appetite to initially deploy as much as $500
million of equity capital alongside QTS over the next five
years."
Financial Impact
The joint venture, which closed on
February 22, will be reflected as an
unconsolidated joint venture on QTS' reported financial statements
beginning in the first quarter 2019. Consistent with GAAP
accounting standards, revenue from the unconsolidated joint venture
will be removed from QTS' reported GAAP financial statements. Also
consistent with GAAP accounting and NAREIT-defined standards, QTS
anticipates including its proportionate ownership of EBITDAre and
Funds from Operations from the joint venture in its reported
EBITDAre and Funds from Operations results, respectively.
QTS expects the closing of the joint venture will result in a
reduction in its full-year 2019 reported revenue of approximately
$12M, representing 100% of the
expected revenue from the Manassas
facility. In addition, QTS expects the consummation of the initial
joint venture will result in an approximately $3M reduction in its reported 2019 adjusted
EBITDA to reflect the impact from its 50% reduced proportionate
ownership in the Manassas
hyperscale development project contributed to the unconsolidated
joint venture.
As the joint venture provides the opportunity for QTS to balance
a higher return on capital, against reduced capital spending, QTS
does not anticipate the closing of the joint venture will have a
material impact on its 2019 reported Operating FFO per share. As
leasing in the facility ramps to full stabilization over the next
several years, QTS expects the Manassas joint venture to ultimately result in
approximately $0.02 - $0.03 of reported annual OFFO per share
accretion.
The impact of the initial joint venture has been fully
incorporated into the Company's 2019 financial guidance provided in
conjunction with its fourth quarter 2018 earnings release. QTS will
provide additional details on its joint venture agreement with
Alinda during its fourth quarter 2018 earnings conference call.
Deutsche Bank Securities Inc. and Jefferies LLC served as
financial advisors to QTS, and Hogan Lovells US LLP served as legal
advisor to QTS.
Greenberg Traurig, LLP served as legal advisor to Alinda.
About Alinda Capital Partners
Alinda Capital Partners
is one of the world's largest and most experienced infrastructure
investment firms. Alinda is a long-term investor in infrastructure
assets that provide essential services to communities. Alinda's
infrastructure businesses serve over 100 million customers annually
in more than 550 cities globally, and are run by a workforce of
over 80,000 people. To learn more https://www.alinda.com/
[alinda.com]
About QTS
QTS Realty Trust, Inc. (NYSE: QTS) is a
leading provider of data center solutions across a diverse
footprint spanning more than 6 million square feet of owned mega
scale data center space throughout North
America. Through its software-defined technology platform,
QTS is able to deliver secure, compliant infrastructure solutions,
robust connectivity and premium customer service to leading
hyperscale technology companies, enterprises, and government
entities. Visit QTS at www.qtsdatacenters.com, call toll-free
877.QTS.DATA or follow on Twitter @DataCenters_QTS.
Investor Relations Contact
Stephen Douglas, VP Finance
ir@qtsdatacenters.com
Media Contact:
Carter B.
Cromley
(703) 861-7245
carter.cromley@qtsdatacenters.com
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SOURCE QTS Realty Trust, Inc.