Digital Realty Plans Stock Offering

Digital Realty Trust (DLR) today announced that it plans to sell 5 million shares of its common stock in a public offering. The company also plans to grant the underwriters an option to purchase up to 750,000 shares of common stock to cover over-allotments. All of the shares will be offered by Digital Realty Trust and issued under Digital Realty Trust’s currently effective shelf registration statement filed with the Securities and Exchange Commission. If all 5.75 million shares were sold at the current share price of $38.81 per share, the offering would raise approximately $223 million.

UPDATE: Digital Realty says it will sell the new shares at $38.42 per share for net proceeds of $183.9 million after underwriting discounts and commissions and estimated offering expenses, or $211.6 million if the underwriters’ over-allotment option is exercised in full.

Digital Realty Trust intends to use the proceeds of the stock sale repay all or some of the money it has borrowed under its revolving credit facility, to acquire additional properties, and to fund redevelopment opportunities under its Turn-Key Datacenter program. Turn-key space is fully developed for data center use, allowing companies to accelerate their data center expansions.

Digital Realty Adds Properties in NJ, UK

Digital Realty Trust, Inc. (DLR) announced today that it has acquired a data center property in the United Kingdom and completed the purchase of a facility in Franklin Township, New Jersey.

Digital Realty said it has bought the Reynolds House Datacenter in Manchester, a technology hub in England. The 38,600 square foot facility was built as a data center in 2001 and has 23,000 square feet of raised floor, with expansion space available for an additional 7,000 square feet of raised floor. The facility is fully leased to three tenants with long term agreements.

Digital also said it has completed the purchase of 650 Randolph Road, a property in Franklin Township, NJ that was developed as a data center “shell.” The 127,800 square foot building can support 70,000 square feet of raised floor technical space. Digital Realty said it would make additional improvements to bring the facility up to its Powered Base Building specification, and then market the facility to financial service companies, system integrators and other Fortune 1000 firms.

Wall St. Journal Highlights Data Center REITs

The Wall Street Journal’s Wednesday MarketBeat column looks at defensive plays in real estate investment trusts, and spotlights the recent success of the two data center REITs, Digital Realty Trust (DLR) and Dupont Fabros Technology (DFT). Both stocks are up about 10 percent this month. An excerpt:

For technology names, much of the strength is being pushed by data center facilities, which remain a hot commodity, especially in a faltering economy when companies are looking to outsource data storage and cut down on costs. … “This is a close as you’re going to get in a growth story for REITs,” said Steve Salopek, head of small-cap equities for ING Investment Management. He added that data center REITs have a significant advantage over a “pure” data center bet, because they only own the building. By not also providing the services of a data center, these companies are more adaptable to change should demand fall in one part of the data storage world.

Some of our earlier coverage has focused on the competitive advantages enjoyed by Digital Realty, Dupont Fabros and other data center builders in the current environment.

Yahoo to Lease Digital Realty Data Center

Yahoo (YHOO) has signed a lease agreement with Digital Realty Trust, Inc. (DLR) for a Turn-Key Datacenter, and intends the new facility to qualify for LEED Gold certification as a “green” data center. The two companies did not announce the exact location of the new facility, but said it would be in a Digital Realty facility in California.

Digital Realty recently purchased 50 percent ownership of a Santa Clara data center that is intended to qualify for LEED status, and also has turn-key space available in carrier hotels it owns in Los Angeles (600 W. 7th) and San Francisco (200 Paul Avenue).

“Yahoo is committed to being an environmentally responsible business,” said Kevin Timmons, Vice President of Operations at Yahoo. “We build our datacenters based on a rigorous analysis of key components such as geographical location, climates, building materials, cost performance, and use of alternative-energy systems.”

Digital Realty Sees ‘Significant’ Surge in Demand

Data center demand is likely to surge in the second half of 2008, as U.S. enterprise companies indicate they will be increasing both the number and size of their data center projects in the next 12 months, according to new research by Digital Realty Trust. The research findings, coming on the heels of a strong first quarter, were among the factors cited as Digital Realty increased its revenue projections for 2008.

“I think we’re going to see strong demand for the next 24 to 36 months,” said Digital Realty CEO Mike Foust. “By all indicators, these data centers are not discretionary, they’re required by these companies for continued profitability. We’re also seeing a pretty significant shortfall of supply.”

Foust said that the company’s internal research suggests that in some key markets new supply will be adequate to meet just 50 percent of the expected demand. Digital Realty (DLR) became the third data center specialist to raise its revenue guidance in recent weeks, following the lead of colocation providers Equinix (EQIX) and Switch and Data (SDXC).

Digital Realty to Publish PUE Data for Its Sites

Digital Realty Trust, Inc. (DLR) has begun publishing energy efficiency data about its data center facilities using the Power Usage Effectiveness (PUE) metric. Digital Realty said it is now using PUE for measuring and reporting energy efficiency in its portfolio of 70 facilities spanning 12.6 million square feet across North America and Europe. The company said it will also publish benchmarks that will support industry-wide initiatives to make datacenters greener and reduce expenditures on energy.

PUE is an emerging standard promoted by The Green Grid and others in the data center industry to provide a consistent way to measure the ratio of power delivered to IT equipment versus the total amount of power used by the facility. PUE allows data center managers to calculate how much power is driving the actual IT equipment versus non-IT elements such as cooling and lighting.

“PUE is a compelling way to measure energy efficiency in datacenter facilities because it offers our industry an apples-to-apples comparison similar to the miles-per-gallon (MPG) fuel efficiency rating that the auto industry uses,” said Jim Smith, Vice President of Engineering at Digital Realty Trust. “Regardless of whether you are driving a pickup truck or a sports car, miles per gallon is a clear standard for measuring efficiency across all makes and models

Digital Realty Reports Strong Leasing

Digital Realty Trust (DLR), the largest data center REIT, reported strong leasing for the first quarter ending March 31. The company commenced leases totaling 334,800 rentable square feet of space, and signed new leases for 260,200 square feet of space. A lease commences when the tenant occupies the facility, which often lags the lease signing by a few months.

The company’s data center leases involved two classes of property: Turn-Key Datacenter space, which is fully developed for data center use, and Powered Base Building (PBB), which is undeveloped space with the power and fiber connectivity already in place, allowing for easy expansion. Here’s a breakdown of the space and leasing rates for the quarter.:

• Digital Realty commenced leases on 256,200 square feet of Turn-Key space leased at an average annual GAAP rental rate of $119.25 per square foot, and leased 46,300 square feet of Powered Base Building space leased at an average annual GAAP rental rate of $52.42 per square foot, and 32,300 square feet of non-technical space leased at an average annual GAAP rental rate of $19.31 per square foot.
• Leases signed during the quarter totaled 106,400 square feet of Turn-Key Datacenter space leased at an average rate of $100.05 per square foot, nearly 120,000 square feet of Powered Base Building(TM) space leased at rate of $67.60 per square foot, and 33,800 square feet of non-technical space leased at $25.93 per square foot.

The total amount of space leased was down slightly from the fourth quarter of 2007, when Digital Realty had a record total of 429,000 square feet. But the company’s leasing volume suggests that demand for data center space has not been diminished by the economic slowdown.

Data Center REITs Get Respect

Real estate investment trusts (REITs) focusing on the data center sector are a pretty exclusive group. It’s a club with only two members - Digital Realty Trust (DLR) and Dupont Fabros Technology (DFT). The investment potential of these two REITs was the subject of an Associated Press article yesterday, which appeared in a number of daily newspapers around the nation. The story notes that securities analysts from Raymond James, UBS AG and KeyBanc Capital Markets are all bullish on the sector.

The analysts’ sentiments closely track the key findings in our February series Crunch Time: The Credit Crunch and Data Centers, particularly the segment on The Incumbent Advantage. Investors interested in the sector will also want to check out our review of data center stock performance in 2007 and the first quarter of 2008.