The sale/leaseback model continues to see traction among data center operators and investors. In the latest example, Carter Validus Mission Critical REIT has acquired two properties from data center provider IO, which will continue to use the facilities through a long-term lease. Carter Validus paid $125 million to purchase the IO Phoenix and IO Scottsdale buildings, the company's first two facilities.
The financial transaction will have no impact on operations in the two data centers, where IO will continue to support customers on a "business as usual" basis. IO also leases its properties in New Jersey and Singapore.
In a sale-leaseback deal, a property owner sells a property to an investor, while agreeing to continue to lease space in the building. The transaction generates cash for the former owner (now the tenant), and provides the new owner with steady rent. These deals are particularly attractive when the initial owner is a blue-chip company with a strong credit rating.
Carter Validus has a track record of buying properties owned by service providers, who then become the tenants and continue to operate their business. It has done three sale-leaseback deals with AT&T, and also has acquired buildings housing data centers operated by Internap, Peak 10, Atos and Equinix.
Focus on Core Competencies
The companies said the partnership allows both to focus on their core competencies. IO will continue to deliver colocation and cloud services across its global data center footprint, while landlord Carter Validus will gain revenue from the lease.
“This transaction is aligned with IO’s long-term strategic plan,” said Anthony Wanger, president of IO. “Partnering with Carter Validus allows IO to concentrate its focus on what we do best: Operating world-class IO data centers for our customers.”
As a real estate investment trust, Carter Validus Mission Critical REIT owns real estate and generates income from tenant leases. The company is focused on two sectors, data center and healthcare, citing societal trends that it believes will boost demand for data storage and outpatient healthcare.
“We are excited about adding IO to our roster of strong data center tenants in our portfolio and look forward to our continued relationship with them,” said Michael Seton, president and chief investment officer, Carter Validus Advisors, LLC. “The quality of these two assets will be a great addition to our growing portfolio of high quality mission critical assets.”
IO Phoenix is one of the world's largest data centers, with more than 500,000 square feet of space, and is divided between traditional raised-floor colocation space and modular deployments using IO's factory-built IO.Anywhere enclosures. IO Scottsdale, which was the company's initial data center, is a 125,000 square foot facility. IO opened Scottsdale in 2007, followed by the Phoenix site in 2009.