Corporate Office Properties Trust (COPT) today announced the formation of a new joint venture (JV) with Blackstone Real Estate, which expands on the existing data center joint ventures between the two firms. Specifically, Blackstone Real Estate acquired, through the joint venture, a 90% interest in two single-tenant, data center shell properties totaling 432k sqft at a valuation, for 100% of the joint venture, of $119m.
In turn, COPT received $107m of equity proceeds for the sale of its 90% stake in the joint venture. COPT will deploy the proceeds into its 1.7 million sqft pipeline of active development projects, which are 87% pre-leased.
COPT Data Center JVs with Blackstone – Q1 2021
As of Q1 2021, COPT owns 17 data center shells, comprising 2.7 million sqft, through two real estate joint ventures with Blackstone. Below are further details on COPT’s partnerships with entities from both Blackstone Real Estate Income Trust (BREIT) and Blackstone Real Estate.
BREIT COPT DC JV
In June 2019, COPT formed a joint venture with Blackstone Real Estate Income Trust (BREIT) valued at $265m. Through this joint venture, BREIT acquired 90% interests in seven single-tenant, data center shell properties. Subsequently, in December 2019, BREIT acquired 90% interests in two additional single-tenant, data center shell properties at an $80m valuation.
As of Q1 2021, the BREIT COPT joint venture comprises 9 facilities and spans 1.5 million sqft. In aggregate, this joint venture generates Cash NOI of $18.2m, on an annualized basis, and COPT values it at $338m. Therefore, the Blackstone Real Estate Income Trust (BREIT) COPT joint venture generates a 5.4% Cash NOI yield as of Q1 2021.
B RE COPT DC JV II
In December 2020, COPT completed the final close of its $293m Northern Virginia data center joint venture with Blackstone Real Estate. Through this joint venture, Blackstone Real Estate acquired 90% interests in eight Northern Virginia single-tenant, data center shell properties.
As of Q1 2021, the B RE COPT joint venture comprises 8 facilities and spans 1.3 million sqft. In aggregate, this joint venture generates Cash NOI of $14.4m, on an annualized basis, and COPT values it at $301m. Therefore, the Blackstone Real Estate COPT joint venture generates a 4.8% Cash NOI yield as of Q1 2021.
Finally, including today’s announcement, COPT’s partnership with Blackstone Real Estate will increase to 10 facilities, spanning 1.7 million sqft.
Total Valuation of COPT JVs with Blackstone
As of Q1 2021, COPT values its BREIT COPT and B RE COPT data center joint ventures with Blackstone at $639m. Following today’s incremental $119m joint venture, the aggregate partnership between the two firms rises to $758m, across 19 facilities.
COPT Data Center Portfolio – Q1 2021
Beyond COPT’s JVs with Blackstone, the company fully owns another 9 data center shells, comprising 2.0 million sqft. Therefore, pro forma for today’s announcement, COPT owns 28 single-tenant data center shell properties either directly or through joint ventures. Overall, these facilities comprise 375+ megawatts of power capacity and 5.2 million sqft.
Additionally, COPT’s data center portfolio includes one wholesale data center, with a critical load of 19.3 megawatts.
Amazon Web Services (AWS) – Q1 2021
COPT’s largest data center tenant is Amazon Web Services (AWS), which as of Q1 2021 comprised 9% of the company’s total rental revenue (i.e., including office tenants). AWS pays COPT $51.7m of rental revenue annually and has a 9.2-year weighted average remaining lease term. In aggregate, AWS leases 4.8 million sqft of data center space from COPT in Northern Virginia.
Most recently, in May 2021, COPT executed a long-term lease with AWS for a 265k sqft, build-to-suit development in Northern Virginia. Furthermore, COPT notes that the facility is scheduled for shell completion in Q2 2022.
Precedent Transactions – Amazon Web Services (AWS)
Demand is intense for stabilized data center assets in Northern Virginia, leased to strong counterparties like Amazon Web Services (AWS). Indeed, just last month, a data center powered shell, with a 15-year lease to Amazon Web Services (AWS), was sold for below a 4% cap rate. This represents ~50 bps yield compression from similar transactions that have taken place over the past 12 months.
For further comparable transactions, check out our comprehensive list of data center precedent M&A transactions here.