Digital Realty filed a limited objection, in the United States Bankruptcy Court for the Southern District of Texas, to Sungard Availability Services’ possible assumption and assignment of certain executory contracts and unexpired leases, as part of Sungard’s ongoing Chapter 11 bankruptcy process. Upon completion of Sungard’s restructuring, which is taking the form of a sale process, a new party will assume responsibility for Sungard’s contracts and leases with Digital Realty and, in turn, obligations to continue making payments to Digital Realty.
Digital Realty, as a landlord, leases real estate to Sungard Availability Services, as a tenant. More specifically, Digital Realty, being a wholesale data center operator, provides Sungard with the use of its space for the purposes of locating communications & IT equipment and cabling. Within this space, Sungard then provides retail colocation, disaster recovery solutions, and managed services to its end customers.
While Sungard leases its facilities on fixed long-term periods from Digital Realty (i.e., 10 years), the revenue that the company generates from those facilities, such as for colocation services, is short-term (i.e., 1 to 3 years) – hence a revenue and expense duration mismatch, which has caused the company financial difficulty.
Sungard as a Tenant in Digital Realty’s Facilities
Geographically, Sungard Availability Services leases real estate from Digital Realty in Carlstadt, New Jersey; Piscataway, New Jersey; Houston, Texas; and Markham, Ontario (Canada). Presently, Sungard’s agreements at the following Digital Realty locations are unexpired, thus, rent and other charges are contractually due and will continue to come due in the future:
|Lessor / Counterparty||Property Address||City||State||Cure|
|Digital Commerce Boulevard||410 Commerce Blvd||Carlstadt||NJ||$530k|
|Digital Piscataway||365 South Randolphville||Piscataway||NJ||—|
|Digital Greenspoint||12025-12175 North Fwy||Houston||TX||$151k|
|Digital Toronto Nominee||371 Gough Road, #110||Markham||ON||$465k|
In total, Digital Realty’s various agreements with Sungard require a total cure amount of at least $1.15m to account for outstanding monetary defaults. However, Digital Realty also notes in its objection a potential issue related to the characterization of the agreements for its Piscataway, New Jersey property, as an executory contract instead of a lease. Therefore, Sungard’s cure costs have the potential to increase further.
Below are additional details on each of the four data centers which Digital Realty highlighted in its objection:
410 Commerce Boulevard – Carlstadt, NJ
Sungard Availability Services leases 235,500 sqft of gross area / 120,186 sqft of raised floor space from Digital Realty’s entity Digital Commerce Boulevard, LLC at its facility located at 410 Commerce Boulevard in Carlstadt, New Jersey. In terms of layout, this data center has 8 data halls across one floor.
365 South Randolphville Road – Piscataway, NJ
Digital Realty’s data center located at 365 South Randolphville Road in Piscataway, New Jersey offers 6.75 megawatts of UPS power capacity across 351,000 sqft. Sungard’s exact usage of this data center is unclear. Nevertheless, the company has several agreements with Digital Realty’s entity Digital Piscataway, LLC, at this location.
12025-12175 North Freeway – Houston, TX
Sungard Availability Services leases 27,291 sqft of gross area / 13,000 sqft of raised floor space from Digital Realty’s entity Digital Greenspoint, L.P. at its facility located at 12025-12175 North Freeway in Houston, Texas. This data center offers two, 2-megawatt electrical utility feeds in an N+1 configuration.
371 Gough Road, Suite 110 – Markham, ON
Sungard Availability Services leases 40,000 sqft of gross area / 20,000 sqft of raised floor space from Digital Realty’s entity Digital Toronto Nominee, Inc. at its facility located at 371 Gough Road, Suite 110 in Markham, Ontario (Canada). In terms of layout, this data center has two data halls across one floor.
Notably, the Digital Realty-sponsored company, known as Digital Core REIT, a standalone real estate investment trust (REIT), which is publicly-traded on the Singapore Exchange under the ticker symbol DCRU, owns 90% of Digital Toronto Nominee, Inc., and, in turn, 90% of the underlying operating property at 371 Gough Road. Whereas Digital Realty retains the remaining 10% interest in the underlying operating property at 371 Gough Road.
Digital Realty’s Financial Exposure to Sungard
Sungard Availability Services’ Chapter 11 bankruptcy process impacts two Digital Realty-related companies, namely Digital Realty Trust (NYSE: DLR) and Digital Core REIT (SGX: DCRU). Below is a summary of Sungard’s total financial contribution to each of these companies:
Digital Realty Trust
Sungard Availability Services is Digital Realty’s 23rd largest customer and leases ~10.5 megawatts directly from Digital Realty across six facilities in four markets, totaling ~$22m of annualized revenue, or 0.7% of Digital Realty’s total revenue.
Digital Core REIT
Sungard Availability Services is a tenant at Digital Core REIT’s 371 Gough Road facility in Markham, Ontario (Canada), where it occupies 2.7 megawatts of power capacity. Specifically, Sungard represents ~$5m of annualized revenue, equivalent to 7.1% of Digital Core REIT’s total revenue.