QTS and Alinda Capital Partners form $240m data center JV

QTS Realty Trust, a provider of software-defined and mega-scale data center solutions, has formed a joint venture with Alinda Capital Partners, an infrastructure investment firm. 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 percent cap rate. QTS and Alinda will each take a 50 percent 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 percent proportionate stake in the NOI generated by the facility.
• Increase the expected stabilized ROIC on QTS' capital contribution in Manassas from approximately 9 percent to approximately 12 percent 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 joint venture agreement 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 joint venture funding to support QTS' future hyperscale data center development strategy.​