Digital Realty in 'A Different World'

The continued resilience of Digital Realty Trust (DLR), a real estate investment trust (REIT) specializing in data center assets, is making headlines in commercial real estate trade publications.

The continued resilience of Digital Realty Trust (DLR), a real estate investment trust (REIT) specializing in data center assets, is making headlines in commercial real estate trade publications. Globe Street noted the company's strong fourth-quarter results today in a story titled "Digital Realty Trust Booms Through Recession."

"Digital Realty Trust is living in a different world than most of the rest of the commercial real estate industry," writes Globe Street's Brian Miller. "The datacenter REIT’s 11-million-square-foot operating portfolio is 95% leased, demand appears high and new average rents are three-times higher than expiring rents."

Digital Realty Trust is a leading beneficiary of three trends we've been noting here at DCK over the last year: the mission-critical nature of data center operations, the incumbent advantage of existing specialists in a supply-constrained market, and the enterprise shift to buy rather than build in order to preserve capital.

Analysts have noted this as well. “Despite the deepening economic downturn, DLR is seeing solid pricing and demand in almost all regions and sectors,” Baird Analyst Will Marks said in a client note on Friday. “This is difficult for many to fathom, particularly in light of what happened to the datacenter market during the last downturn and the severity of this global recession in comparison to the last one.”

In last week's earnings call, Digital Realty CEO Michael Foust said demand has remained solid. "We are seeing our velocity of signings and levels of demand staying pretty steady from what we have seen in the previous quarters," said Foust. "We haven’t seen any material change at all to our experience with our prospective customers. It’s kind of moving along at relatively the same pace."

During the fourth quarter Digital Realty had 276,000 square feet of new lease signings with customers including IBM, Cisco, Cigna Insurance and NTT America. One unnamed tenant filed for bankruptcy protection, but is expected to continue to lease 12,000 square feet of turnkey data center space as it seeks to reorganize.

Last week Digital Realty Trust announced a new lease with Tata Communications in its London portfolio, as well as the purchase and lease of an entire 110,000 square foot property in northern Virginia to a “leading IT enterprise company.”

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