Digital Realty’s Portfolio Pruning, One Year In

About one year ago, Digital Realty Trust kicked off an initiative to get rid of properties in its massive portfolio that weren’t core to its business strategy. This was the first time the San Francisco-based real estate investment trust, formed more than a decade ago, considered selling properties.

Going through the property portfolio and “pruning” non-optimal properties annually is “good real estate behavior,” the company’s then CTO Jim Smith told us at the time, admitting that not selling anything for the first 10 years of the publicly-traded REIT’s existence was a mistake.

We checked in with Digital one year later to see how the effort is progressing. So far, the company has sold three properties and identified seven more it would like to get rid of.

Neither of the three sold were data centers. Getting rid of non-data center assets was one of the key goals of the initiative, but it wasn’t limited to those types of properties.

Digital has sold an office building in Boston, an industrial facility in Los Angeles, and a medical office in Philadelphia. It sold the three assets for $206 million total, making $194 million in net sales proceeds.

One of the seven remaining properties is a massive industrial facility in Fremont, California, leased to the solar power equipment manufacturer SolarCity, according to a report by the commercial real estate firm Lee and Associates.

The six others are all data centers: one facility in Sacramento, California, two in St. Louis, Missouri, one in Reston, Virginia, one in Herndon, Virginia, and one in Wakefield, Massachusetts.

Digital expects to make more than $150 million from sale of the remaining seven assets on the market, company CEO William Stein said on its third-quarter earnings call in October. “We expect our capital recycling program to be substantially complete by the time we report fourth quarter results,” he said.

Outside of the capital recycling program, Digital also entered into two joint ventures, selling substantial stakes in two data center properties in 2014. The company sold an 80-percent stake in one of its Ashburn, Virginia, data centers to Griffin Capital Essential Asset REIT and an 80-percent stake in two data centers in Ashburn, one in Fort Worth, Texas, and one in Sunnyvale, California, to Prudential Real Estate Investors Core Fund.

Digital made about $190 million from the Griffin Capital deal and about $330 million from the PREI Fund transaction. It continues to manage the facilities in both ventures.