With New $3 Billion Credit Line, Digital Realty Gets Cheaper Money, and Lots of It

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The Digital Realty Trust data center in Chandler, Arizona.

Digital Realty Trust is already a force to be reckoned with in the data center industry. Now it has access to a lot of money – a $3 billion credit facility – on better terms than before. Digital Realty’s investment-grade status provides a lower cost basis for all its operations, including financing acquisitions and tenant improvements, and with its latest moves it clearly believes it’s the REIT time to kick into high gear.

The company refinanced its global revolving credit facility and term loan. All-in pricing was reduced by 20 basis points for its $2 billion revolving credit facility and by 25 basis points for a $1 billion term loan.

The refinancing allowed the company to reduce pricing, extend loan maturities and increase its aggregate commitments by $450 million. The combined $3 billion dollars is the fifth largest unsecured credit facility among US real estate investment trusts (REITs). It’s a good business, so the money isn’t scared to back it.

"We are very pleased with the strong demand we received from the international lending community to participate in the refinancing of these facilities, which were oversubscribed with commitments totaling $4.6 billion from 27 financial institutions from around the globe," said William Stein, Chief Financial Officer and Chief Investment Officer of Digital Realty. "To satisfy this demand, we upsized our Global Revolving Credit Facility by $200 million and increased our Term Loan by $250 million. In addition, the improved pricing grid is equal to or better than any widely syndicated credit facility for a U.S. large cap investment grade REIT, including those with a credit rating higher than DLR's BBB/Baa2 rating.  We believe these positive trends illustrate the institutional lender community's view on the strength of our balance sheet and underlying business, while providing us with greater financial flexibility as we continue to expand our portfolio globally."

Credit Terms as a Business Differentiator

Why do the details of a credit facility matter? When Digital Realty has access to cheaper money than its competitors, the company can leverage that advantage in a number of ways, gaining cost advantages on competitors when it is making acquisitions, financing construction and even competing for customer leases.

Digital Realty's $2 billion dollar credit facility matures in November 2017 and has two six-month extension options. It can be increased up to a total of approximately $2.55 billion U.S. dollar equivalent. How much better are the terms? Pricing for the facility, based on the company's senior unsecured debt rating of BBB/Baa2, was reduced from 125 to 110 basis points over the applicable index for floating rate advances and the annual facility fee was reduced from 25 to 20 basis points.

The $1 billion multi-currency term loan still matures in April 2017, with two six-month extension options added. Total loan commitments can be increased up to $1.1 billion. Pricing for the term Loan was reduced from 145 to 120 basis points, based on the company’s unsecured debt rating. In addition, the company was able to achieve improved covenants terms and definitions, including the removal of the tangible net worth covenant and reducing the cap rate from 8.25% to 8.00% on data center assets.

To support the global nature of Digital Realty's operations, funds from the combined facilities may be drawn in multiple currencies several denominations: U.S, Canadian, Singapore, Australian and Hong Kong Dollars, as well as Euro, Pound Sterling, Swiss Franc, Mexican Pesos and Japanese yen. The company’s ongoing global expansion means it probably will be drawn in a variety of denominations.

"We would like to acknowledge Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC's efforts in their capacity as Joint Lead Arrangers and Joint Book Running Managers which led to a successful syndication of the two facilities and extend our gratitude to the entire bank group for their overwhelming support of the Company," added Stein.