Digital Realty (DLR) now projects funds from operation (FFO) for 2012 in a range between $4.34 and $4.48 per share. That translates to expected FFO growth of 7.2 percent to 11.4 percent over the 2011 range of $4.02 to $4.05 a share. The company said it expected to spend $300 to $400 million acquiring income producing properties, and invest between $700 million and $900 million in redeveloping data center space.

On the leasing front, Digital Realty signed leases for 446,000 square feet of space in the fourth quarter of 2011, representing $50.9 million in annualized GAAP rental revenue. This includes approximately 165,000 square feet of Turn-Key Datacenter space at a rate of $178 per square foot, 87,000 square feet of Powered Base Building space $730 a square foot, 177,000 square feet of Built-to-Suit space leased at an average $84 per square foot, and 17,000 square feet of non-technical space at $18 per square foot. In addition, leases signed for colocation space totaled approximately $2.1 million of annualized GAAP rental revenue, bringing total annualized GAAP rental revenue to approximately $53.0 million in the fourth quarter of 2011.

‘Strongest Performances to Date’

“Lease signings in both the fourth quarter and full year 2011 represented our strongest performances to date,” said Michael Foust, Chief Executive Officer of Digital Realty. “Markets that experienced the highest level of activity during the year included Dallas, Northern Virginia, Silicon Valley, Los Angeles, Amsterdam, Singapore and Melbourne.

“In addition to the quality of our global sales and portfolio management teams, we believe that the strength of our leasing program is the result of our geographically diverse portfolio,” Foust added. “This enables us to deploy growth capital to meet our customers’ data center requirements across multiple markets, while mitigating exposure to any one market.”

Of the total leases signed during the fourth quarter of 2011, approximately 325,000 square feet was for space in the company’s U.S. portfolio. This includes:

• 104,000 square feet of Turn-Key Datacenter space leased at an average annual GAAP rental rate of $151.00 per square foot
• 28,000 square feet of Powered Base Building space at $30 per square foot
• 177,000 square feet of Build-to-Suit space at $84 per square foot
• 16,000 square feet of non-technical space leased at an average $17.00 per square foot.

Digital Realty also leased 114,000 square feet of space in Asia, and 6,000 square feet of Turn-Key Datacenter space in Europe.

Digital Realty (DLR) paid $85 million to acquire 360 Spear Street, a fully-leased 155,000 square foot data center facility located adjacent to its 365 Main Street facility in San Francisco. The release didn’t identify the tenants, but the facility serves as one of the primary data centers for cloud computing provider GoGrid, which took over space originally developed by WorldCom. The building also houses facilities for Verizon and AT&T.

Digital Realty has also completed the $63 million acquisition of a three-story, 334,000 square foot data center near the Hartsfield-Jackson Atlanta International Airport in Atlanta. The transaction was structured as a sale-leasebackwith the previous owner, a major US airline which will continue to occupy 167,000 square feet of space under a new 10-year lease agreement with Digital Realty. The balance of the data center facility is leased on a long term basis to a “leading provider of critical transaction processing solutions to companies operating in the global travel industry.”

A “Strategic Asset” in San Francisco

“These acquisitions continue our strategy of investing in institutional quality data center facilities at attractive, risk-adjusted returns for our shareholders,” said Scott Peterson, Chief Acquisitions Officer for Digital Realty. “The 360 Spear Street property adds a highly strategic asset, which abuts our 365 Main Street colocation facility in downtown San Francisco. While fully-leased today, this property has the potential to provide future expansion space for our colocation customers.

“The property in Atlanta adds a world-class facility with quality corporate customers to our global portfolio,” Peterson said. “We believe that our investment management approach to acquiring, developing and operating data center facilities will continue to provide both our customers and our shareholders a long-term platform for growth.”

Digital Realty Trust now owns 100 properties spanning 17.9 million square feet of space in 31 markets throughout Europe, North America, Singapore and Australia.

Schirmacher, who will be based in the metro New York region, joins Digital Realty from DCIM software specialist FieldView Solutions, where he was a principal and the Chief Strategy Officer. Schirmacher was previously Vice President, Global Head of Engineering and Critical Systems at Goldman Sachs. During his 12 years at Goldman Sachs, Schirmacher was focused on developing data center strategy and IT infrastructure for the company’s headquarters, trading floor, branch offices and data center facilities around the world.

Considered a thought leader within the data center industry, Schirmacher has held a leadership position at 7×24 Exchange International and spoken widely at industry conferences.

“David is a highly respected voice in the data center industry, and we are very pleased to welcome him to the Digital Realty team as head of our global technical operations,” said Dave Caron, Senior Vice President, Portfolio Management at Digital Realty (DLR). “Many people know him from his tenure at Goldman Sachs, where he led its data center strategy during a time of both tremendous growth for the company as well as significant changes in technology. He is a great addition to our organization and will play a critical role supporting our customers around the world.”

“As we continue to expand our global platform, we remain committed to maintaining our culture of operating excellence for our customers,” said Michael F. Foust, Chief Executive Officer of Digital Realty. “David shares this commitment to excellence and we are very pleased to welcome him and the wealth of experience and expertise he brings to our organization.”

“We are very pleased to partner with NAB on this strategically important facility,” said Michael Foust, Chief Executive Officer for Digital Realty. “It represents both our long term customer commitment as well as our long term investment strategy in the Australian data centre market.”

“Melbourne, like Sydney, has a limited supply of resilient, scalable data centre space available to meet customer demand for these highly reliable, flexible and secure facilities,” said Kris Kumar, Regional Head, Asia Pacific, for Digital Realty Trust. “This project for NAB will be one of two Digital Realty Tier 3 certified data centres built in Australia, as defined by the Uptime Institute. The second Tier 3 certified facility will be our data centre at our Erskine Park development site in Sydney.”

Digital Realty (DLR) paid AU 4.1 million ($4.3 million US) to acquire 162 and 163 Radnor Drive, a 30,250 square meter development site. It was the second acquisition in Australia for the real estate investment trust, which bought a development site in Sydney in July. The company had no Asia-Pacific data centers until last November, when it purchased a facility in Singapore. It has already leased more than 70,000 square feet of space, including a data center for Adobe Systems (ADBE).

The overhead cabling in the Facebook data center in Prineville, Oregon, where the initial Open Compute Project designs were implemented.

Are the custom hardware designs from the Open Compute Project only useful to companies building huge data centers? Or will they ever be practical for companies with smaller data centers? A new participant in the Open Compute initiative could play a crucial role in answering these questions.

Data center developer Digital Realty Trust has joined the project, and is adapting its multi-tenant data center designs to give customers the option of implementing elements of the Open Compute designs. The company will continue to use standard power for new buildings, but will also develop an optional layout incorporating the power architecture used in Open Compute.

“One of the criticisms of Open Compute is that many companies start out in leased facilities,” said Frank Frankovsky, Chairman and President of the Open Compute Project and Director of Technical Operations at Facebook. “Digital Realty is stepping up and show that Open Compute Project designs can work in these environments.”

Making Cutting-Edge Design Accessible

The Open Compute Project was launched in April to publish data center designs developed by Facebook for its Prineville, Oregon data center, as well as the company’s custom designs for servers, power supplies and UPS units. Facebook’s decision to open source its designs prompted expectations that the move could democratize data center infrastructure, making  cutting-edge designs available to companies that can’t afford their own design team.

While it might be straightforward for companies to integrate the Open Compute designs when building their own data centers, Facebook’s customizations provide challenges in multi-tenant facilities. These include servers that operate at 277 volts of AC power instead of the traditional 208 volts, a cooling design optimized for warmer data  center temperatures, and the use of fresh air cooling instead of chillers – a strategy which works primarily in cool climates.

Enter Digital Realty Trust, the world’s largest operator of data center space, with a portfolio of 100 facilities spanning 17 million square feet of space in 30 cities around the globe. It’s the largest player in the wholesale data center business, where providers supply customers with turn-key suites and “pods” of finished data center space

“Digital can act as an enabler for people who are not at Facebook’s scale to take advantage of this,” said Jim Smith, the Chief Technology Officer for Digital Realty Trust. “It opens up a professional opportunity for us. It’s very simple for us to make an adaptation and deploy Open Compute designs. We are focused on what’s going on in the industry, and we’re all focused on efficiency.”

Open Compute, by the Pod

Digital Realty has developed a standard design for multi-tenant data centers, featuring a 1.125 megawatt “pod” of raised-floor space. “We have begun a process to localize the Open Compute power architecture to Digital Realty pods,” said Smith. “The key component we’re going to maintain from our layout is the capacity of the (electrical) service entrance.”

Digital’s Open Compute pods will use the same generator, transformer and breaker configurations as its existing facilities, but will adopt the more streamlined Open Compute power distribution design. Open Compute servers include power supplies that allow servers to use 277-volt AC power instead of the traditional 208 volts. This  allows power to enter the building at 277/480 volts and come directly to the server, bypassing the step-downs seen in most data centers as the power passes through UPS systems and power distribution units (PDUs).

For now Digital Realty is preparing the new design, and in discussions with companies interested in turn-key space that supports Open Compute specs.   “We’ve got some interest from some of the Open Compute partners,” said Smith. While the new configuration will make Open Compute designs accessible to companies requiring as little as 1 megawatt of capacity, the most interested users are likely to be larger companies, Smith said.

“I wouldn’t be surprised if one of our customers in the 10 megawatt range might wind up being interested in this,” he said. “Some of these requirements in the 5 to 15 megawatt range, it seems like it might be a no-brainer for them.”

While Digital Realty can adapt the Open Compute electrical design, the cooling design is another matter. Facebook’s Prineville facility uses a two-story design in which the entire upper floor functions as a cooling plenum, dropping cool air into the data center from overhead. Digital Realty uses a raised-floor design, in which cool air enters the room through perforated tiles in the floor.

“They’re really doing a building-level cooling plan in Oregon,” Smith said of Facebook. “The main reason we do raised floor is that the vast majority of data center users expect to see a raised floor. The other thing it does is gives us tremendous flexibility for containment.”

The credit facility was oversubscribed, with commitments of more than $2.1 billion received from 28 financial institutions, including 15 new lenders, according to William Stein, CFO and Chief Investment Officer for Digital Realty Trust. ”This increased borrowing capacity further enhances our financial flexibility and provides us with immediate liquidity for potential acquisitions and development opportunities in our core markets,” said Stein.

“We initiated efforts to modify the facility this year in response to deteriorating market conditions emanating from the sovereign debt crisis in Europe,” Stein said in last week’s earnings call. “In addition, we sought to substantially increase the borrowing capacity to accommodate our growing global investment program and to provide immediate liquidity for potential acquisitions that may arise from the diminishing availability of capital for commercial real estate in general.”

Asia has been the focus of some of Digital Realty’s recent investments, including new facilities in Singapore, Sydney and Melbourne. The company is shopping for additional locations in the Asia/Pacific market, according to CEO Michael Foust.

“In terms of our plans to further expand in the Asia Pac region, we continue to explore development opportunities in Hong Kong where we see very attractive corporate demand from new and existing multinational customers of ours,” said Foust. “While it remains a very challenging market to enter, we have interesting prospects that we’re working diligently to secure.”

Foust said the new credit facility will help Digital Realty Trust extend its market leadership in the data center development sector.

“We are incredibly well-positioned to continue our growth program and to continue to deliver our solution across multiple markets and multiple continents,” said Foust. “We were in good shape before, and now we’re in terrific shape now. And that is a very powerful competitive advantage for us in the marketplace, because we can provide these solutions very readily without financing contingencies, which is very, very powerful in the market today.”

“We have a strong working relationship with Digital Realty Trust, which is founded on the flexibility and reliability of its Turn-Key Datacentre solution,” said Lilian Hwang, Country Manager for Information Technology Services at IBM Singapore. “This valuable partnership has allowed IBM to better meet the needs of customers through accelerating the deployment of new data centres while reducing capital costs.”

Other companies leasing space in the building include SoftLayer Technologies and Adobe Systems (ADBE). The Singapore building is Digital Realty’s first project in the Asia Pacific region, where the company has several additionalprojects under development.

“We are delighted that IBM has once again chosen to work with Digital Realty for its mission-critical data centre facility in Singapore,” said Kris Kumar, Regional Head, Asia Pacific, for Digital Realty. “Singapore plays an important role as one of the multinational commercial and financial hubs in the APAC. We are continuing to see strong demand here for our data centre solutions from new and existing global enterprises customers, such as IBM.

“We have made a similar commitment to the Australian market with the acquisition of two development sites earlier this year, one in Sydney and one in Melbourne,” Kumar added. “As the groundbreaking on our first project in Sydney approaches, we are nearly fully staffed there with local personnel who have deep roots in the Australian market and unmatched data centre expertise. We look forward to delivering the same high quality, flexible and reliable data centre solutions to Australian customers looking to expand and/or consolidate their IT systems with a long-term, financially sound partner.”

The raised floor area in a Digital Realty Trust data center.

In recent months, several leading technology companies with a history of building advanced data centers have hired Digital Realty Trust to build their new facilities. Digital Realty will build custom data centers for colocation provider Equinix in northern Virginia and Seattle and for storage vendor NetApp in Hillsboro, Oregon.

The announcements are a sign of growing momentum for Digital Realty’s build-to-suit data center business, in which the company has sought to move beyond its core business of building turn-key “wholesale” data center space.

“Customers are continuing to outsource their data center requirements and are looking for a number of flexible alternatives to meet their long term needs,” said Michael F. Foust, Chief Executive Officer of Digital Realty Trust. “As a result, we have seen a significant increase in demand for our Build-to-Suit solution. The Build-to-Suit solution provides each customer with a customized data center facility to meet their long term IT infrastructure needs.”

Favorable Supply Chain Economics

The build-to-suit offering allows Digital Realty (DLR) to build larger projects than the 1 to 2 megawatt pods that it leases in its turn-key business. Build-to-suit data centers also have a better risk profile than wholesale multi-tenant projects, which are typically built either on a speculative basis or based on a commitment from an anchor customer. In either scenario, the project goes forward before it is entirely leased.

The build-to-suit approach also allows customers to take advantage of the favorable supply chain economics developed by Digital Realty Trust, which is the world’s largest operator of data center space with more than 17 million square feet of space in 100 properties in 30 markets throughout Europe, North America, Singapore and Australia.  With that portfolio and its active construction and maintenance programs, the company is able to buy in bulk and

Over the past two years, Digital Realty Trust (DLR) has been expanding its product offerings to target the market for build-to-suit data centers. After launching the initiative in the U.S. in early 2010, the company expanded it internationally earlier this year.

Build-to-Suit is Largest Leasing Component

In the third quarter of 2011, Digital Realty leased 96,000 square feet of Build-to-Suit space at an average annual rental rate of $112 a square foot, compared to 54,000 square feet of Turn-Key Datacenter space leased at an average annual GAAP rental rate of approximately $164 per square foot (see full details in the company’s leasing update for the quarter, which was released Wednesday). The wholesale turn-key offering has been Digital Realty’s most popular offering in recent years, but over the past year there has been growth in its Powered Base Building product (undeveloped space with the power and fiber connectivity already in place) as well as build-to-suit projects.

“We have designed a suite of high quality, flexible, and cost effective solutions ranging from Powered Base Buildings and Turn-Key Datacenters to customized Build-to-Suits and scalable data centers for growing companies,” said Foust. “When combined with our financial strength and global footprint, we are uniquely positioned to meet both local and multinational enterprise customers’ requirements across industry sectors.”

The Westin Building in Seattle, where an adjacent parking garage is being transformed into a data center by Digital Realty Trust, Clise Properties and Equinix. (Photo: Rich Miller)

A parking garage in Seattle will soon become a major new data center for Equinix, with up to 1,000 cabinets of servers and storage replacing parked cars. The new facility will be located next to the Westin Building, the leading Internet hub in Seattle.

The Equinix data center will be jointly developed by Digital Realty Trust and Clise Properties, who will transform a six-story parking garage into a new facility that will nclude four floors of data center space. Digital Realty and Clise are 50-50 partners in both the Westin Building and the new project for Equinix.

Major New Capacity for Equinix

The new data center will add significant capacity for Equinix, which has two data centers in Seattle, including one at the Westin Bulding. It also reflects Seattle’s growth as a data center market, and an important gateway to the Asia-Pacific market.

The new Equinix site will add approximately 51,000 square feet of data center space and capacity for more than 1,000 cabinet equivalents, and support 4.1 megawatts of IT capacity. Equinix expects to invest approximately $60 million to build the new IBX data center, which is estimated to open in Q1 2013.

“We continue to see strong demand for Platform Equinix in the Seattle market, and we are investing in the Pacific Northwest to support the requirements of our expanding customer base,” said Charles Meyers, President of the Americas for Equinix. “By leveraging the real estate acquisitions and construction expertise of Digital Realty and Clise Properties, Inc. we will be able to bring our new Seattle IBX data center online quickly and efficiently.”

Build-to-Suit Approach

Equinix has signed a build-to-suit agreement with  Digital Realty (DLR) and Clise Properties, Inc., who will be responsible for funding the base building improvements and data center shell construction. This is the second project on which Digital Realty is building a custom facility for Equinix, as the two companies are working together on a new data center in Ashburn, Virginia.

“This year we have seen a significant increase in demand for our build-to-suit data center solution from customers that have large expansion requirements, such as Equinix,” said Michael F. Foust, Chief Executive Officer of Digital Realty. “With our financial resources and acquisitions and development expertise, we can readily deliver to customers even the most complex projects on time and on budget. We are very pleased to expand our successful partnership with the Clise organization on this important new facility.”

“We are very pleased to be working with Digital Realty on this important project for Equinix,” said A. M. Clise, Chairman and Chief Executive Officer of Clise Properties, Inc. “We have worked in close partnership with Digital Realty for a number of years at the Westin building, the Northwest region’s premier Internet Gateway data center. This new project represents our shared commitment to successfully meet our customers’ ongoing data center requirements.”

NetApp (NTAP) is a leading provider of storage and data management solutions. Under the terms of the build-to-suit agreement, Digital Realty (DLR) acquired a 5.1 acre development site in the Hillsboro Enterprise Zone’s North Industrial Area with power and connectivity in place. It will build a 55,000 square foot building that will include 18,250 square feet of technical space, with 4.5 megawatts of IT power capacity for high-performance computing. Construction of the facility will occur in multiple phases, with the first phase scheduled for completion in August 2012.

Hillsboro Tech Corridor

The site for NetApp’s new data center is located in Hillsboro’s tech corridor along Evergreen Parkway in the city’s North Industrial Area of the Hillsboro Enterprise Zone. Intel operates a huge technology campus nearby, and the local climate in northwest Oregon is ideal for air-side economization, allowing data center operators to use outside air to cool servers for up to 10 months out of the year.

Oregon also has no sales taxes, which makes it attractive to data center projects, especially in the wake of the Washington state legislature’s failure to extend tax breaks that boosted data center development in the state.

“We are very pleased to welcome NetApp and Digital Realty to Hillsboro,” said Hillsboro Mayor Jerry Willey. “Our infrastructure and attractive business environment have made Hillsboro the home to many well-known tech companies and their data centers.”

“Our objective for this new facility was to obtain the most efficient and cost-effective data center possible, in the shortest time feasible,” said Thom Bryant, vice president of Workplace Resources at NetApp. “Furthermore, NetApp already has a longstanding relationship with Oregon, and building this data center further strengthens our ongoing momentum and investment within the state.”

Build-to-Suit Gains Traction

NetApp is the second company that has previously built sophisticated data centers to turn instead to a custom build from Digital Realty, following the lead of Equinix, which hired Digital to build a new facility in northern Virginia.

“Our Build-to-Suit data center solution meets the specialized technical requirements of customers such as NetApp, while providing the customer with all the control of a do-it-yourself facility, and without the risks associated with a large-scale, capital-intensive data center construction project,” said Brent Behrman, Senior Vice President, Sales at Digital Realty. “We are very pleased to be partnering with NetApp on this important project. We look forward to delivering the facility, which will play a critical role in the growth of their business.”