Digital Realty Trust Inc. (DLR), a niche real estate investment trust (REIT), concluded the refinancing of its global revolving credit facility and term loan totaling $3 billion. The move is a strategic fit as it enabled the company to enhance its capacity, extend maturities and lower its borrowing expenses.
In particular, the global revolving credit facility of $2 billion bears 2 six-month extension options and can be enhanced up to a total of around $2.55 billion U.S. dollar equivalent. This credit facility is slated to mature in Nov 2017.
On the other hand, for the $1 billion multi-currency term loan, the maturity remains unchanged at Apr 2017. However, 2 six-month extension options are added and total commitments can be augmented up to $1.1 billion. As a matter of fact, the company has upsized its global revolving credit facility by $200 million and enhanced its term loan by $250 million.
As a result of this refinancing, based on Digital Realty’s senior unsecured debt rating of BBB/Baa2, the all-in pricing reduced by 20 basis points (bps) for the global revolving credit facility and by 25 bps for the multi-currency term loan. Also, the company managed to obtain better covenants terms and definitions.
This 5th largest unsecured credit facilities among US REITs is a strategic fit as it infuses capital and offers financial flexibility to Digital Realty for its acquisitions, development and redevelopment moves and aids in debt payback, meet working capital needs and expand globally.
Also, the refinancing capability is a testament of the institutional lender community's superior view about the company’s balance sheet and underlying business. Digital Realty enjoys the benefit of drawing the funds in U.S, Canadian, Singapore, Australian and Hong Kong Dollars, as well as Euro, Pound Sterling, Swiss Franc, Mexican Pesos and Japanese yen denominations.
Digital Realty operates data centers and digital storage facilities, which are primarily used by companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.
With the rise in demand for digital storage facilities in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have insulated the company from short-term volatility and unfavorable market swings experienced during the recession.
Digital Realty currently has a Zacks Rank #3 (Hold). Some better performing REITs include CubeSmart (CUBE), Highwoods Properties Inc. (HIW) and SL Green Realty Corp. (SLG). All of these stocks carry a Zacks Rank #2 (Buy).
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