Carlyle Group Looks to Take Data-Center Investments Public
Carlyle Group is planning to spin off its data-center investments through a REIT, CoreSite Realty Corp., that has filed to raise $230M through an initial public offering of common shares.
The Washington, D.C., investment manager owns or leases 10 data centers and two others that are either under construction or could be developed, with a total of 2M square feet. CoreSite leases a total of 234,562 sf at three of the 10 properties - 32 Avenue of the Americas in Manhattan, One Wilshire in Los Angeles and 1275 K St. in Washington. It owns the remaining space, which is in Los Angeles, San Francisco, Chicago, Boston, New York and northern Virginia. Its properties are 82.6% leased to more than 600 tenants that pay $78M in annualized rent.
The REIT would join two other publicly traded companies that specialize exclusively in the data-center sector: Digital Realty Trust and DuPont Fabros Technology Inc. Other REITs, such as First Potomac Realty Trust, have also invested in the sector. Data centers, also known as carrier hotels, are leased to high-tech companies that use them for their computer and networking equipment. As such, they are designed with redundant power, high-capacity cooling and access to national data-transmission lines.
Partly because of their specialized nature, rents at data centers are relatively high, when compared to office or other industrial properties, and tenants often are reluctant to move, making them very stable. Carlyle's properties generate rents that average $65.08/sf.
The company's data-center properties have 600 tenants, among them government agencies, educational institutions, media companies and communications service providers. Facebook Inc. is the largest tenant, accounting for 10% of its revenue when a lease it has is expanded.
Carlyle first moved into the data center, or carrier hotel business in 2000, but the bulk of its holdings in the sector were purchased in 2007, when it paid a total of $150M for 427 S. LaSalle, with 174,723 sf in Chicago; 70 Innerbelt, with 132,630 sf in Boston; 12100 Sunrise Valley, with 109,292 sf in Reston, Va., and the Coronado-Stender Business Park site in Santa Clara, CA, which could be developed into 446,250 sf. It also entered into its leases at One Wilshire and 32 Ave. of the Americas.
In its filing, Carlyle pointed to an expectation that demand for data-center space is expected to grow by 12% this year, while the supply of space should grow by only 5%. It further noted that projections have demand for space outpacing supply by 250% through 2013, which should lead to significant spikes in rent. As a result, companies with available space and suitable development land should benefit.
Thomas M. Ray, a Carlyle managing director, will be president and chief executive of the REIT.
The company would have $192.4M of debt, which would equal 20% of the carrying value of its assets. That debt includes a $32M construction loan on 12100 Sunrise Valley in Reston, VA, that is being expanded to 262,769 sf. The debt matures in June 2011, but could be extended for up to two additional years. It will also have a $100M revolving credit facility.
The stock offering would be underwritten by Citi, BofA Merrill Lynch and RBC Capital Markets.
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