Data center company Digital Realty is expected to launch an off-balance-sheet asset management affiliate at some point early this year, said sources familiar with the matter.

The asset management business would acquire stabilized assets from Digital Realty with development projects sprinkled in — an arrangement resembling what some executives call a yieldco or stableco.

Because Digital Realty is publicly traded, it must keep its leverage levels within investment grade criteria, limiting how much growth it can finance. But by selling mature assets to a group of investors through a yieldco-like structure, it can fund these developments with off-balance-sheet cash at relatively lower capital costs.

Two years on the job by now, Digital Realty’s chief financial officer, Andrew Power – a former banker with Bank of America and Citi – has shaken up the public company’s treasury strategy by forging partnerships with cloud, connectivity and capital providers. This has diversified the company’s capital sources and helped in funding buildout initiatives beyond the more conventional approaches of borrowing and raising equity.

For instance, in December 2023 Digital Realty teamed up with Blackstone via a joint venture “to develop four hyperscale data center campuses across three metro areas on two continents,” executives said in a press release.

The campuses in Frankfurt, Paris and Northern Virginia are expected to cost USD 7bn and eventually offer 500 MW in capacity. Blackstone controls an 80% interest in the partnership with Digital Realty holding the remaining shares.

Also, in June 2023 GI Partners bought a majority stake in two Chicago-area data centers from Digital Realty that included as part of the deal the two firms’ securitizing the Elk Grove Village properties with a 10-year, USD 450m loan.

Meanwhile, Digital Realty is the latest data-center developer and operator to explore the option of using an affiliate to drop down mature assets in the pursuit of raising more development capital. STACK Infrastructure, Compass Datacenters, Iron Mountain, CyrusOne and others are working on their own yieldco deals.

Capital raised from such asset sales also spares the sponsor’s executives from having to raise more equity or onboard new equity partners, which would dilute a company’s profits, sources said.

The proceeds from the off-balance-sheet deal would go to fund construction of facilities on a site Digital Realty owns and has powered, said one of the sources.

Digital Realty did not respond to requests for comment.