Digital Realty Buys 365 Main Sites for $725M

365main-sanfran

The 365 Main flagship data center in San Francisco.

In the largest deal yet in its acquisition spree, Digital Realty Trust will buy the 365 Main portfolio of five data center properties from Rockwood Capital for about $725 million, the company said this morning. The transaction adds 919,000 square feet of data center space in five major markets, along with more than 200 customers.

The deal also provides Digital Realty Trust (DLR), the world's largest operator of wholesale data center space, with 250,000 square feet of additional space in Chandler, Arizona that can be developed into turn-key data centers. Digital Realty is also acquiring $13 million of uninstalled data center infrastructure improvements.

'Extending Our Leadership'
"Upon closing, the addition of these high quality, mission critical data center facilities to our operating portfolio will further extend our leadership position as the largest wholesale data center provider in the U.S.," said Michael Foust, CEO of Digital Realty Trust. "The portfolio is leased to a diverse roster of over 200 tenants in various industries."

The deal comes more than two years after the first reports that the 365 Main properties were for sale. There has been periodic industry chatter that a deal might be in the works, with Digital Realty often mentioned as a potential suitor. Big deals were difficult to come by during the economic downturn and accompanying credit crunch, but as industry deal activity picked up this spring, reports emerged that a deal was near.

Formed from AboveNet Assets
365 Main was formed to operate a San Francisco data center after AboveNet filed for bankruptcy in 2003. Rockwood Capital, which owns the building, has backed 365 Main in an expansion that has created a national network of five data centers:

365 Main also owned a development property in Newark, Calif., which was not mentioned in today's announcement.

Retail / Wholesale Split

The San Francisco facility is unique in 365 Main’s portfolio in its retail colocation model, in which it leases cabinets and cages directly to customers. In its other markets, 365 Main employed a wholesale data center model, leasing large chunks of data center space to customers, who can use it for their own operations or to sell cabinets and cages to others.

The acquisition is scheduled to close on July 2. Digital Realty said it will fund the acquisition with "available cash, borrowings under the company's revolving credit facility and the sale of debt or equity securities." The company announced plans to sell 4.25 million shares of common stock.