Digital Realty Trust, Inc. (NYSE:DLR), the real estate investment trust focused on investments in cloud- and carrier-neutral data centers, colocation and interconnection solutions spaces, recently revealed that it has agreed to acquire a majority stake in Teraco, an Africa-based carrier-neutral colocation provider, for about $3.5 billion.
Digital Realty will acquire this stake from a consortium of investors, including Berkshire Partners and Permira. The deal is likely to close in the first half of 2022.
Transaction Details
The deal values Teraco at about $3.5 billion at a cap rate of roughly 3.5% on projected 2022 cash net operating income of approximately $121 million.
The company expects the transaction to be roughly 1% dilutive to Digital Realty’s core FFO (Funds From Operations) per share in 2022, breakeven in 2023 and accretive thereafter.
Strategic Impact
With an increasingly young population adopting digital means rapidly, Digital Realty’s acquisition of the leading carrier-neutral colocation provider of Africa represents a strategic move to strengthen the company’s capabilities in the region.
Teraco’s wide range of customers across industries, presence in key areas and substantial underwater prowess is expected to be beneficial to Digital Realty in the long run.
Management Commentary
The CEO of Digital Realty, A. William Stein, said, “This highly strategic transaction immediately cements Digital Realty as the leading colocation and interconnection provider in Africa, a region experiencing rapid digital transformation. This investment will enhance our ability to serve customers on a global basis by adding significant regional scale with a premier, network-dense portfolio in South Africa’s most strategically important metros.”
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Price Target
Recently, BMO Capital analyst Ari Klein reiterated a Buy rating on the stock with a price target of $180, which implies upside potential of 2.8% from current levels.
Consensus among analysts is a Strong Buy based on 10 Buys and 2 Holds. The average Digital Realty price target of $178.17 implies upside potential of 1.8% from current levels. Shares have gained 29.4% over the past year.
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