Digital Realty Trust Inc (DLR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by.

Welcome to Digital Realty Trust fourth quarter 2009 earnings conference call.

During today's presentation all parties will be in a listen-only mode.

Following the presentation the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Thursday, February 25, 2010.

I would now like to turn the conference over to Ms.

Pamela Matthews, Director of Investor Relations.

Please go ahead, ma'am.

Thank you and good morning and good afternoon to everyone.

By now you should have all received a copy of the Digital Realty Trust earnings press release.

If you have not, you can access one in the investor section at the Digital website at www.digitalrealtytrust.com or you may call 415-738-6500 to request a copy.

Before we begin I'd like to remind everyone that the management of Digital Realty Trust may make forward-looking statements on this call that are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially from expectations.

You can identify these forward-looking statements by the use of forward-looking terminology such as believe, expects, may, will, should, pro forma or similar words or phrases.

You can also identify forward-looking statements by discussions of strategy, plans, intentions, future events or trends or discussions that do not relate solely to historical matters.

Including such statements that relate to lease commencements, rent increases, lease renewals, customer survey results, our dividend policy, run rate NOI and the Company's expected financial results for 2010 including the assumptions related thereto.

For a further discussion of the risks and assumptions related to our business see the Company's annual report on Form 10-K for the year ended December 31st, 2008, and subsequent filings with the SEC including the Company's quarterly reports on Form 10-Q.

The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Additionally, this call will contain non-GAAP financial information including funds from operations or FFO, adjusted funds from operations or AFFO, earnings before interest, tax, depreciation and amortization or EBITDA, same store net operating income or NOI and same store cash NOI.

Digital Realty Trust is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles.

Explanations of such non-GAAP items and reconciliations to net income are contained in the Company's supplemental operating and financial data for the fourth quarter of 2009 furnished to the Securities and Exchange Commission and this information is available on the Company's website at www.digitalrealtytrust.com.

Now I would like to introduce Michael Foust, CEO, and Bill Stein, CFO and Chief Investment Officer.

Following management's remarks we will open the call your questions.

To manage the call in a timely manner, questions will be limited to two per caller.

If you have additional questions, please feel free to return to the queue.

I will now turn the call over to Mike.

Great.

Thank you, Pamela.

Welcome to the call, everyone.

I'll begin with a brief overview of Digital Realty Trust and then I'll review the success of our portfolio operations during the quarter, the year and then conclude with an overview of our annual US data center market demand survey.

Following my remarks, Bill Stein will discuss our fourth quarter and full year 2009 financial performance, recent capital markets activities and revised 2010 guidance.

DLR is the leading owner and manager of technology real estate.

Our portfolio currently contains 84 properties totaling 14.9 million rentable square feet excluding one property -- the Westin building in Seattle -- that's held as an investment in an unconsolidated joint venture.

Our properties are located in 27 Metro areas across North America and Europe.

Portfolio includes approximately 1.8 million square feet of space held for redevelopment.

DLR provides a variety of data center facility solutions including Turn-Key data center, Powered Base Building and build to suit data centers for domestic and international corporate customers.

Our properties serve a wide range of industry vertical markets including information technology, Internet enterprises, financial services, telecom network providers, energy companies and other fortune 1000 firms.

We are recognized as an industry leader in data center design and investment.

By most metrics we achieved a very strong performance in 2009, especially in the midst of the challenging economic environment.

Our team grew earnings both by leasing newly developed facilities and by making attractive investments in stablized properties.

This activity was supported by cost effective financing that allowed us to maintain our growth trajectory while maintaining a solid conservative balance sheet and achieving investment grade debt ratings.

With our sound financial foundation we continued to expand our footprint in 2009 through acqusitions and our redevelopment program greatly extending our lead as the world's largest wholesale data center provider.

At a the same time we maintain high occupancy levels for our properties, ending the year at 95% occupied at the portfolio and 94.8% occupied in the same store basis net of the redevelopment inventory.

We also continue to focus on driving down operating expenses and improving margins.

As market conditions evolved over the year we identified select opportunities to acquire income producing assets from sellers who are looking to either return or redeploy capital.

As a result, we added approximately 583,000 square feet of stablized properties at an average going in cash cap rate of well over 10%.

We also added new inventory in the form of land in northern Virginia and the redevelopment campus in Dallas -- markets where demand for our product exceeds the supply.

Our fourth quarter 2009 activity began with the acqusition in October of 1350 Duane Avenue and 3080 Raymond Street -- two fully leased adjacent data center facilities totaling 185,000 square feet located in Silicon Valley.

The purchase price of approximately $90.5 million included the assumption of a $52.8 million loan.

In December we acquired a two property data center portfolio in northern Virginia which we refer to as the Nokes Beaumeade portfolio.

This consists of four fully leased buildings totaling 332,000 square feet and a parcel of land capable of supporting the development of up to 140,000 square feet of new data center.

The purchase price was approximately $63.3 million.

Including these properties and the remaining non-controlling interest in a fully leased facility in Silicon Valley from the Company's JV partner, the Company completed six acqusitions totaling 1.4 million square feet totaling $251.6 million in 2009.

At the end of the year we announced plans to acquire a three property portfolio located in Massachusetts and Connecticut which we refer to as the New England portfolio.

The $375 million acqusition closed on January 22nd, 2010.

Portfolio totals approximately 550,000 square feet, significantly expanding our presence in an important market.

And the properties are released to a diverse roster of 36 tenants in various industries, many of whom represent important new customer relationships for us.

As previously announced, for the year ended December 31, 2009, we commenced leases totaling approximately 757,000 square feet.

This includes over 369,000 square feet of Turn-Key Data Center, leased on an average annual GAAP rental rate of $177 per square foot.

It also includes approximately 190,000 -- 194,000 square feet of Powered Base Building, leased at an average annual GAAP rental rate of $59 per square foot and thirdly includes approximately 194,000 square feet of non-technical space leased at an average annual rental rate of $17 per square foot.

During the fourth quarter we commenced leases totaling approximately 91,000 square feet.

This includes nearly 53,000 square feet of Turn-Key Data Center space, leased at an average annual GAAP rental rate of $173 a foot, approximately 20,000 square feet of Powered Base Building leased at an average annual GAAP rental rate of $29 per square foot, and approximately 18,000 square feet of non-technical space leased at an average rental rate of $22 per square foot.

In 2009 overall we've signed leases totaling approximately 434,000 square feet.

This includes 332,000 square feet of Turn-Key space, leased at an average annual rental rate of $158 a foot, also includes over 35,000 feet of Powered Base Building at an average annual GAAP rate of $27 a foot, and approximately 67,000 square feet of non-technical space at an average rental rate of $22 per square foot.

As we indicated in our last call, we saw lease signings pickup in the fourth quarter of '09.

During the quarter we signed leases totaling approximately 156,000 square feet.

This includes about 116,000 square feet of Turn-Key Data Center space leased at an average annual GAAP rental rate of $126 per square foot, also includes approximately 30,000 feet of Powered Base Building at an average rate of $26 per square foot, and approximately 10,000 square feet of non-technical space at an average rate of $31 per square foot.

Lease to rental rates for new signings were lower in the fourth quarter reflecting the fact that we did not happen to sign any European leases in the quarter and thus did not realize the currency translation effect in the statistics.

In addition, leases were signed in a couple more competitive markets where we continue to drive down construction operating costs, providing pricing flexibility and strong return on investment.

The projected annual average unleverred cash NOI returns for the leases signed in the quarter are over 14%.

Of the leases signed but not yet commenced as of December 31, we expect approximately 128,000 square foot to commence in the first quarter of 2010 which will contribute incremental revenue of over $14 million.

The balance of the backlog of leases signed, approximately 47,000 square feet, is expected to commence in the second quarter and contribute incremental revenue of over $4 million for the year.

Turning to our strong lease renewal activity, through 2009 we signed renewals totaling approximately 1.3 million square feet reflecting 92% of expiring and early renewal square footage, reflecting 108% of associated revenue with those leases and a 22.5% increase in GAAP rental rates for the leases renewed.

We achieved a significant number of Powder Base Building extensions and renewals where tenants originally built out the data center improvements.

And overall renewal success further illustrates the stickiness of our tenant base.

We expect to continue to achieve an average increase in rents of 10% to 15% upon renewal.

In the beginning of this quarter we have added two pages to our supplemental packets breaking out lease expirations by property type, including corporate and Internet gateway centers as well as technology office and manufacturing.

We hope you find had detail helpful and we welcome your comments.

In terms of our development program at year-end 2009 we were underway on construction projects in high demand markets in the US and Europe that will add over 222,000 rentable square feet of data center space to our operating portfolio in 2010.

This includes a new 135,000 square foot facility in northern Virginia and an additional 87,400 square feet of Turn-Key space and of that Turn-Key space 78% is preleased.

We have construction and site work underway in London, Paris, northern New Jersey, northern Virginia, Dallas and Silicon Valley.

We take a very measured disciplined approach to aligning our redevelopment activity with real demand for our product, particularly the Turn-Key Data Center.

This allows us to manage our capital allocation and meet our return on investment objectives.

In 2009 we delivered approximately 427,000 rentable square feet of Turn-Key space and generated an expected average cash return on investment capital of over 14% for those leases that year.

The DLR sales team currently is engaged in direct discussions with over one million gross square feet of new data center prospects.

To help us match our redevelopment activity with demand, each year we sponsor US and European market surveys that are conducted for us by Campos Research & Analysis.

We'll be distributing greater detailed results of the US survey in a press release next week and plan to release the results of our European survey later in March.

In addition to the press release, a presentation of the US survey results will take place in a Webinar on March 15 featuring IDC Vice President Michelle Bailey and DLR Senior VP Chris Crosby.

To register for the event please visit www.digitalrealtytrust.com.

As background, the metrics in this study are based on the web-based surveys of 300 IT decision makers at large corporations in North America with annual revenues of at least $1 billion or at least 5,000 employees.

All survey participants are directly involved in the process of managing corporate data centers, executing contracts for new data centers, implementing new data centers or expanding existing facilities and these were senior level executives including C-level execs in IT, MIS, IS or Finance.

Some of the highlights of the survey are as follows.

83% of respondents are planning data center expansions in the next 12 months to 24 months.

36% will make those expansions during 2010.

60% of the respondents overall will add two or more facilities as part of their data center expansions.

The survey also identified the need for additional power being the top reason for data center expansions, rising from fifth place on last year's survey.

Data center and IT budgets are both projected to increase by 8% in 2010, up from 6% last year.

Of those planning to expand, 70% are planning large projects of at least 15,000 square feet in size or two megawatts or greater in power.

And 83% of respondents plan to expand with a partner that specialized in data center design and construction or data center leasing.

In addition to pointing out strong demand for data center space and increasing IT budgets, this year's results show the increasing importance for corporations to partner with the data center expert when expanding their facilities.

Furthermore, power availability, energy efficiency and financing options have emerged as key factors in the decision making process.

Data centers for today's corporate enterprises have become a critical component for their business infrastructure.

Consistent with our experience in the market, the increased role of C-level executives in making these IT decisions demonstrates the importance of achieving operating and cost efficiencies as companies continue to expand their data center operations.

Finally, after a particularly rewarding year, we remain mindful of the complex and challenging economic headwinds that persist.

We believe that our success is based on our flexible business model that has demonstrated its ability to adapt to business cycles and capitalize on opportunities as they become available.

Furthermore, we believe our prudent financial management combined with our market leading position and unmatched team of real estate and technical professionals will continue to provide a solid foundation for growth in the months and years ahead.

I'd now like to turn the call over to our CFO Bill Stein.

Bill?

Thank you, Mike.

Good morning and good afternoon, everyone.

I will begin with a discussion of our recent capital markets activities, fourth quarter and full year 2009 financial performance, and conclude with our revised 2010 guidance.

Following my remarks we will open the call to your questions.

As Mike mentioned, 2009 was a particularly rewarding year for DLR.

We raised approximately $620 million in capital during the year from a variety of sources to fund the growth of our Company and to retire approximately $151 million of debt.

Our focus on maintaining a strong balance sheet with financial flexibility remained a top priority for us.

This ultimately resulted in our obtaining a BBB/Baa2 stable investment grade debt ratings from all three major rating agencies in November when we also celebrated our fifth anniversary as a REIT.

Also worth noting is that we were the first US domiciled REIT since Boston Properties in January, 2003 to obtain investment grade debt ratings.

Since achieving investment grade status, we have funded our recent investment activity by raising $670.5 million of additional capital from various debt and equity capital markets activities.

Those activities include our at the market equity program announced on December 31, 2009, under which we can issue and sell up to $400 million of our stock.

As of February 24, 2010, this program has generated net proceeds of $53.5 million from the issuance of approximately 1.1 million shares at an average price of $50.54; two $50 million draws on January 20th and a third, $17 million draw, on February the 3rd on our Prudential shelf facility.

The notes sold in January were issued as series D and series E.

The series D notes have an interest rate of 4.57% per year and a five year maturity.

The series E notes have an interest rate of 5.73% a year and a seven year maturity.

The notes sold in February are referred to as a series F notes and have an interest rate of 4.5% per year and a five year maturity.

The draws totaling $117 million have a weighted average interest rate of 5.06% and a weighted average maturity of 5.8 years.

And finally our inaugural unsecured bond offering closed on January 28th.

The response from the market was very positive and we issued $500 million of 10 year notes with an interest rate of 5.875% a year, yielding 6.105%.

The proceeds from these transactions were utilized temporarily to repay borrowings under a revolving credit facility, to fund acqusitions and our development/redevelopment program and for other general corporate purposes.

Our total debt at quarter end was $1.8 billion and our ratio of debt to note total market cap was 27% based on the December 31 stock price of $50.28.

Based on yesterday's closing stock price of $51.12, our ratio of debt to total market value capitalization would be 26.7%.

Our adjusted EBITDA to cash, fixed charge coverage ratio was 2.7 times and our adjusted EBITDA to cash debt service coverage was 4.2 times for the quarter.

Net debt to adjusted EBITDA multiple is 4.2 times for the quarter.

As of December 31, our weighted average cost of debt including interest rate swaps was 5.45% and our weighted average maturity was 4.2 years including debt extension options.

Pro forma for our 2010 capital market activities weighted average cost of debt is 5.96% and weighted average maturity is 5.6 years with extension options.

A description of how we calculate these ratios can be found in the back of our supplemental operating and financial data report furnished to the SEC and available on our website.

Turning now to our liquidity, we have approximately $835 million of liquidity consisting of $108 million in short term investments and then funds that can be drawn on our revolving credit facility.

If this capacity were fully utilized, our pro forma total debt to market capitalization would be approximately 32% based on yesterday's closing stock price of $51.12 and our pro forma net debt to adjusted EBITDA would be 5.6 times.

We expect to maintain our net debt to adjusted EBITDA at 5.5 times or lower.

If we were to utilize the full $835 million, we would remain in compliance with the covenants contained in our revolving credit facility, Prudential shelf facility and outstanding unsecured debt.

As we continue to fund our growth through investment grade bond market and other sources, we remain committed to maintaining a conservative investment grade capital structure.

Assuming extension options are options -- are exercised -- in 2010, we have $15 million of principal amortization and no debt maturing and in 2011 we have approximately $234 million of ongoing principal, amortization and debt maturities including $172.5 million for the 4.125% exchangeable senior debentures which can be put to the Company at 100% principal amount in 2011.

Based on the conversion rate the strike price is $32.22 per share.

These debentures are currently trading at approximately 158% of principal amount.

Moving on to our dividend, on Tuesday we announced an increase of 7% or $0.03 a share to $0.48 per quarter for our common stock dividend.

This is the third consecutive quarterly dividend increase.

In October, 2009 we increased the fourth quarter dividend by 25% and in July, 2009, we increased the third quarter dividend by 9%.

In total we've grown our dividend by over 45% over the past three quarters.

These increases resulted from the growth in our taxable income and the need to meet our 2009 and anticipated 2010 REIT distribution requirements.

As we've previously stated, our policy is to distribute at least 100% of our taxable income to minimize the payment of federal income taxes by the REIT and we expect that future dividend increases will be based on such policies subject to our Board of Directors' approval.

Now I'd like to turn to our fourth quarter and full year 2009 results.

The fourth quarter FFO per diluted share in unit of $0.79 includes approximately $0.01 per share of additional FFO or about $700,000 from certain items that do not represent ongoing revenue streams.

After adjusting for these items FFO was $0.78 per diluted share and unit.

There were no material non-recurring items affecting FFO or net income in the quarter ended September 30, 2009.

The fourth quarter 2008 FFO per diluted share and unit of 75% included approximately $0.07 of additional FFO from certain items that do not represent ongoing revenue streams.

After adjusting for these items in all quarters, fourth quarter FFO per diluted share and unit increased 5.4% over the third quarter of 2009 and 14.7% over the fourth quarter of 2008.

For the full year 2009 FFO per diluted share and unit was $2.93.

This represents a 13.1% increase over reported 2008 FFO per diluted share and unit of $2.59.

When adjusting for one time items, 2009 FFO per diluted share and unit was $2.92.

After adjusting additional FFO for items that did not represent ongoing revenue streams in 2008, 2009 FFO per diluted share and unit increased 18.2% over 2008 FFO of $2.47.

Adjusted funds from operation or FFO for the fourth quarter of 2009 was $53.1 million or $0.62 per diluted share.

This compares to a third quarter 2009 FFO of $49.2 million or $0.59 per diluted share.

The FFO payout ratio for the fourth quarter of 2009 was 72.2%, up from the third quarter FFO [coverage] of 61% which reflects the 25% increase in our dividend last quarter.

EBITDA adjusted for preferred dividends and non-controlling interest was $101.5 million in the fourth quarter of 2009, up 4.3% from $97.3 million in the third quarter and up 12.7% from $90.1 in the fourth quarter of 2008.

For the full year EBITDA adjusted per preferred dividends and non-controlling interest was $378 million in 2009, up 24.2% year over year from $305 million in 2008.

Run rate NOI was $114.8 million for the quarter ended December 31, 2009.

Pro forma for the Sentinel acqusition annualized run rate NOI is approximately $497 million.

Same store NOI was $108 million in the fourth quarter of 2009, up 2.7% from $105.2 million in the third quarter of 2009 and up 19.5% from $90.4 million in the fourth quarter of 2008.

Same store NOI adjusted for straight line rents and purchase accounting adjustments which we refer to as same store cash NOI was $96.3 million in the fourth quarter of 2009, up 4.6% from $92.1 million in the third quarter of 2009 and up 25.4% from $76.8 million in the fourth quarter of 2008.

I will now provide some additional details on the results of operations.

Total construction work in progress at year-end 2009 was $185 million of which $111 million is construction costs and $74 million is allocated to acqusition costs.

This compares to third quarter construction work in progress of $210 million.

As noted in our press release, we are raising annual guidance range of FFO per diluted share and unit to $3.18 to $3.30.

This revised guidance represents projected FFO growth of 8.5% to 12.6% over FFO per diluted share and unit of $2.93 for the year ended December 31, 2009.

The increased 2010 guidance is based on the following assumptions.

Acqusitions of additional income producing properties totaling $150 million at an average cap rate of 10%, commencement of leases which will contribute $80 milion to $90 million of GAAP rental revenue on an annualized basis, POD Architectural Services revenue recognized between $7 million to $10 million, development and redevelopment capital expenditures of $440 million to $475 million, portfolio level capital expenditures of $50 million, total G&A of $48 million and non-cash interest expense of approximately $4.2 million with respect to our 4.125% exchangeable senior notes due 2026 as a result of accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion.

This concludes our formal remarks.

We are now happy to take your questions.

Thank you Mr.

Stein.

(Operator Instructions) Our first question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Please go ahead.

Hi, guys.

Good morning.

First question just clarification on the guidance.

I feel like we're missing something because you're saying the recurring FFO in this quarter is $0.78 a share.

Annualized that gives us $3.12 a share looking forward to 2010.

The midpoint of your guidance is $3.24.

Now you've already done north of $400 million worth of acquisition activity at 10 caps or so call it, offset by I understand all the capital raising you've done.

So let's call those a wash, but even if you did 5% same store NOI growth in the year, on your same store base of north of $400 million, you'd be at, north of $0.20 above the $3.12.

You'd be at $3.32 and that's excluding the backlog you guys just talked about of $18 million.

So I feel like the number is light.

What might be dragging it down?

We have about $110 million on the balance sheet of cash.

That's really effectively not earning anything from the capital that was raised in January.

It's going to take about a quarter I would think to deploy that into construction, be about roughly -- well, maybe even more than that.

But we're basically holding cash back for acquisition opportunities on the balance sheet.

We have -- we raised $670 million of capital in early January, some of which was equity.

I'm not sure if you have that in your numbers.

I do.

I also didn't have the acquisitions as aggressive and as early as you completed them.

So something of an offset.

Is there anything on the expense side that's lifting up the expenses for the year or alternatively on the revenue side are there any move outs.

I appreciate the new disclosure.

It looks great and very helpful on pages 24 and 25 of the supplemental.

So thank you for that.

Anything there, any rollout that we should be -- or leases that are maturing that won't roll?

No.

I don't think there's anything necessarily in that.

I think it might be, partially, too we're being pretty conservative on the timing of new leasing and, while we have a lot of activity and it continues to have probably the same level of funnel activity as we've seen, I think part of it's being conservative on timing of deals.

Okay.

So that lease -- so the leasing trend that you saw in the fourth quarter that accelerated a little bit that you talked about on the last call and this one, did that not carry over into January right away -- or early this year?

You level off?

I think we'll see similar level in the first half.

I think first quarter just -- the first quarter leasing of all kinds of real estate tends to be a little bit slower as people get back from the holidays and re-energize themselves.

But I think in the first half we'll see similar trends in leasing in the fourth quarter and we're comfortable with meeting our guidance overall and -- but, these deals tend to be lumpy as we always say.

So we like to tend to be on the more conservative side.

Fundamentally, Jordan, it's pretty early in the year.

This is February and if you just look at our history, we tend to not aggressively increase guidance early in the year.

No.

I'm aware.

Just making sure I had my T's crossed and my I's dotted.

Thank you.

Thank you.

Our next question comes from the line of Michael Bilerman with Citigroup.

Please go ahead.

Hi.

This is Mark [Montane] here with Michael.

Just had a couple questions.

After the activity so far year to date it appears your equity distribution program still has close to $350 million remaining.

Just wanted to make sure is it safe to assume that this program plans to be fully utilized and also wondering if you could give some clarity around what's your expected time frame for utilizing this.

Well, clearly with over $100 million of cash on the balance sheet we're not going to be utilizing it, until we've used that cash.

And then it's really just a function of being mindful of the ratios that the agencies would like us to live within and issuing the equity on a price that is attractive.

So we'll be selective and opportunistic in terms of when we issue.

I don't -- I think whether or not we can -- the timing for the issuance of it will be totally a function of our acquisition opportunities.

Okay.

And it looks like I guess along the same lines you said, you have $100 million on the balance sheet.

It it also looks like you increased your assumption for development and redevelopment of CapEx by about $100 million from last quarter.

That's correct.

Is this a function of increased confidence or is something else at play?

I think it's increased demand that we're seeing in certain markets where we feel we need to have inventory.

Michael Bilerman speaking, just a quick question just on same store NOI.

Do you have at least the gross book value of assets that would have produced the 20% rise in same store NOI year over year.

Just thinking obviously that there's some capital that you spent to generate those returns that's not particularly the same space NOI.

So I'm just trying to determine the return on invested capital year over year.

Does that make sense?

It does.

We spent $347 million last year on redev but not all that was generating revenue at year-end.

So, we'd have to go back and tie it to the leases that were commenced.

Yes..

I'm just trying to -- because obviously it's a big headline number, but reality is there's capital that you're expending to do it.

I guess the way to back into it is just allocate some equity and take a look at the interest expense that you lay out on the same store pool and back into it that way.

That could work.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Srinivas Anantha with Oppenheimer.

Please go ahead.

Thank you.

Mike, I think you mentioned about the survey.

Could you contrast the results of the survey that you guys have done versus your prior surveys.

Has the percentage of interest in terms of outsourcing increased or stayed relatively the same?

I'm just trying to understand how did the results of the survey compare to what you guys have done in the past?

Yes.

I wish I could go into more detail for you today.

We will have a press release coming out on it and the survey available I think in the next week or so.

I don't have the specific comparison at my fingertips, but I do believe that it shows a very consistent level of demand.

And with IT spending ticking up a little bit -- and I think ticking up also the number of respondents who are planning on new data center facilities relative to last year.

So I think there's a positive trend.

I just don't have the specific comparison.

And you also mentioned the pipeline -- the sales pipeline -- of new opportunities is roughly one million gross square foot.

Is that correct?

That's right.

That's a little over that and that's consistent with past quarters and that represents potential customers that with whom we're engaged on various levels of the sales cycle.

Got it.

And has there been any big change with the sales cycle or is it still pretty long from what you guys have done or seen in the past?

It's still long.

We haven't seen any shortening.

Now we haven't seen it extended, but it's still that six, nine month process.

Gosh, we actually signed a couple of leases in the fourth quarter with customers with whom we've been working for a year.

And now that's unusual, but it's illustrative of -- folks are very deliberate in their process and in their decision process and what helps us is having the speculative space that we're building so when they are ready to pull the trigger, we have facilities available that they can deploy into.

Got it.

And, Bill, when I'm just looking at your guidance, the net income to common per diluted share it's -- based on 2010 numbers it's clearly doubled from 2008.

I'm just curious, how much of that growth is coming from your base properties versus acquisitions?

I would say first of all taking into the account the fact that you have straight line rents, so the growth in -- the organic growth from the contracts -- from the leases is hidden from a GAAP accounting standpoint.

The majority of that would be from acquisitions and some redevelopment but we did almost $600 million worth of acquisitions in the last three months of last year and January of this year.

So a lot of that is acquisitions related at this point.

Got it.

And, just one last question -- just based on the acquisition that you guys closed on January 28th, we should see a nice step-up function in your revenues on a sequential basis.

Correct?

Oh, yes.

Okay.

Thanks.

Thanks, Bill.

Thanks, Mike.

Thank you.

Our next question comes from the line of Will Marks with JMP Securities.

Please go ahead.

Thank you.

Hello, Bill.

Hello, Mike.

Can you tell me -- I don't think you mentioned the number you gave for the full year 2009 the renewals on the 1.3 million square feet, 22.5% increase.

Since then any change in that figure?

I know there -- not since then, but fourth quarter let's say or even January?

Well, in the renewals that was tagged by those are both leases expiring in the year and some early -- a few early renewals -- reflected the 1.3 million feet of new signings there -- new renewal signings.

We're still early in the year clearly.

So I don't have, any specific -- .

Maybe that's the year for the fourth quarter versus the full year.

Oh, I don't have the fourth quarter specifically in front of me, but the fourth quarter was consistent with the rest of the year and, I can tell you looking at lease expirations that are coming up in the first half of 2010, some of those we've already handled early this year or redeployed leases off our expiration -- redeployed them for our new tenants already.

So we've gotten a good jump on the 2010 renewals.

Will, if you turn to page 27 of the supplement, renewals are are broken out by quarter.

Okay, thank you.

One other question on just supply.

I feel as if we've been hearing for years about just the limited amount of supply growth in the industry and when do you think that's going to change?

Is it ever going to change?

Are we going to see new money coming in and changing the dynamic there?

Well, what we are seeing are -- on a project by project basis -- we're seeing shelf space being marketed as data center space and where they have transformer power to the buildings and developers looking to sign a lease and then look to finance with their partners -- the buildouts.

So there's somewhat more space like that available.

And it remains to be seen how much folks are going to be willing to build on a speculative basis like we do with our POD Design and -- but right now we continue to see a pretty healthy dynamic between -- from our perspective -- between supply and demand.

Okay.

Thank you.

Thank you.

Our next question comes from the line of [Chris Kayen] with Morgan Stanley.

Please go ahead.

Good morning.

I'm wondering if you can talk for a moment about pricing in the private markets, how you've seen that evolve in terms of yields.

We've seen, prospectively yields coming in in other sectors, wonder what you're seeing there.

And I suppose a related question would be, have you at all been talking to the secured debt markets and if that's opening up at all for the asset classes?

So in terms of private and in terms of new investments?

Yes, I'm sorry.

Yes, property acquisitions.

It's -- there are not many transactions and we've represented almost all the transactions I think, for stabilized assets.

So there's really not a hard and fast trend.

I think what's going to continue to keep cap rates relatively higher relative to other property types and in that 10% plus range, is the fact that the price per square foot for these assets tends to be high because of the data center fitout.

And we're in a very good position to underwrite these assets because we don't worry about alternative use in our underwriting.

If -- some of the assets we acquire maybe have five years left, four years left in a lease and for us we see, if a tenant were to move out, we see that as opportunity to raise rent substantially because we can operate and manage this as a data center where unless you have that specific expertise, you're looking at an asset that may have a much higher per square foot cost on a purchase than a typical suburban asset might have.

Especially compared to R&D or industrial.

So I think the fact that you're buying this infrastructure is going to keep the cap rates significantly higher than you see in other asset types.

That's helpful.

So it sound like the tenor of your negotiations haven't been on prospectively lowering yields.

And then just a different question is around tenants.

You commented last time on the health of the IT provider say, the co-location tenants.

Has anything evolved over the last 90 days?

No.

We continue to see that category of customer continuing to have a lot of demand.

Would you say that's the strongest category?

Financial services is still very strong, including life companies and Wall Street-type companies.

I think those two and the Internet companies interestingly enough.

A lot of those companies -- and the Internet companies I'm probably referring to Microsoft, Google, Yahoo!

, Facebook -- while a number of those companies tend to build and own their own assets, there's still a lot of demand coming out of that segment, especially with the social networking and related

Thank you.

Thank you.

Our next question come from the line of Michael Knott with Green Street Advisors.

Please go ahead.

Hi, guys, good morning.

I wanted to ask -- just following up on the acquisitions question, do you guys have any comments on how your acquisition prices have fared relative to replacement costs for some of those spaces?

Yes.

That's a real good question.

While I was just mentioning that the cost per square foot oftentimes is higher than one might expect for a suburban office or an R&D building.

So from our perspective often well below replacement costs.

So, might be 25% to 30% below replacement costs which makes us very comfortable on a redeployment if we had to.

Great.

That's helpful and then the other question I have is can you just talk about your thoughts on prospects for redevelopment.

Obviously in your guidance you continue to have a pretty large slug of capital to be allocated to development, redevelopment.

Can you just talk about the prospects for that?

I think you mentioned 14%-type yields on recent leasing in that category.

Can you just talk about Powered Base versus Turn-Key, just a little more color on that topic.

Sure.

And I think we're going to see typically slightly higher return on costs for the Turn-Key -- 100 to 150 basis point probably.

Overall returns we're still targeting in that 12% to 15% range, unlevered NOI return on costs on speculative development we think we're -- and clearly we've been able to achieve that very solidly -- being over 14% recently.

So we think -- we're very comfortable in that range and we think that's sustainable.

Okay.

Thank you.

Thank you.

Our next question comes from the line of George Auerbach with ISI Group.

Please go ahead.

Great.

Thank you.

Bill, what was the construction progress figure on the balance sheet at the end of the fourth quarter?

I mentioned that in my remarks.

Let's see.

I am looking.

It's $185 million and $111 million of that is construction and $74 was acquisition cost.

Okay.

And getting back to the earlier question, can you help us think about that $440 million to $475 million of development and redevelopment CapEx in 2010?

How much of this relates to costs that you need to spend to complete current redevelopments and how much would relate to incremental development throughout the year?

Well, it's all related to either current with what's underway right now as well as projects that will be getting underway -- in sequential new PODs and buildings.

I don't know if we have it broken out specifically.

Could you give us an idea the square footage of starts that you would expect or are looking to start in 2010?

Boy, that is a very good question.

I don't have it at my fingertips right now.

That's something we can probably get out to folks.

Okay.

And I guess last question the data center leases that expire in 2010 and 2011 are at an average rent of just under $16 a foot compared to an average rent in that portfolio of $46.

Should we expect that those rents will rise to the $46 level or is there something about those leases or those markets that you would expect a much lower increase in those renewals?

I think overall we'll see more of an average -- when you go through the whole portfolio.

More in that 15% -- 10% to 15% -- maybe slightly higher.

One of the aspects that tend to keep it from going all the way up to the $40s is on some of the leases the tenants have renewals that may be based on a specific set uptick in rent or maybe on market relative to not necessarily data center, but another product type like Powered Base Building for -- it won't be defined as Powered Base Building -- it will be defined more as technical space or R&D space.

So there's some limitations on how far we can push relative to market that might be embedded in the options to renew that tenants would have.

George, the other thing that complicates this is that to the extent that some of these leases are below market and they are below market when we bought the properties.

FAS 141 basically marks those leases to market.

So you might see a -- from a cash standpoint -- you might see a significant jump, but from a GAAP standpoint the increase would not be as great.

Okay.

Thank you very much.

Thank you.

Our next question comes from the line of Dave Rodgers with RBC Capital Markets.

Please go ahead.

Hi, guys.

I thought I heard in your commentary maybe you talked about some pressure on rents and having done some deals in some highly competitive market situations.

So I wanted to get a little more color on that.

I was trying to get a sense of where that pressure was coming from if I understood that comment correctly.

And then just to take off of that how narrow is the market demand today and how do you see that changing by the end of this year?

Sure.

There's a couple instances.

The fact that we didn't have any European leases signed, so we didn't get the currency effect and in a couple markets we see some cost competitiveness where some competitors may choose to compete more on a price basis.

And that's why, we -- one of the reasons -- we continue to work to crank down our development costs and our operating costs.

We can maintain really healthy returns and still be able to be price competitive in almost all circumstances.

So I don't it see that as widespread, but we'll get some markets where there's a little more price competitiveness than others.

And I guess on the second part of that how I guess narrow is the demand today when you talk in the context of those markets and then maybe seeing some broader exposure by the end of year?

You addressed it with your survey but how do you see the demand expanding across your subset into the rest of the year?

I think it's going to be pretty steady at a good level.

I mentioned that we're marketing to customers right now who are in the market with over a million square feet and this is specific to the markets that we're operating in with product.

And that's been pretty consistent and, we've been seeing in the first quarter, new requirements that are cropping up that frankly we haven't counted on.

And so we're feeling good about the level of demand and I think it's too early to say we're going to see an acceleration of that demand, but we see it at a healthy level right now.

Thank you.

(Operator Instructions) Our next question is a follow-up question from the line of Jordan Sadler with KeyBanc Capital Markets.

Please go ahead.

Hi.

I didn't catch this.

You might have spoken about it.

On the acquisition pipeline can you maybe just give us some color around it in terms of what the trend has been in terms of assets coming for sale and would you be exploring any new markets?

As been typical through our whole experience, most acquisition opportunities tend to be lumpy -- being on the larger side and sometimes they're not widely marketed.

So it's -- a lot of these opportunities are generated internally through ongoing relationships that we have.

There are some potential four, five building portfolios that might or might not be available which would definitely be on the larger side.

And we're continuing to evaluate those situations.

So there's opportunities out there and we're confident that we'll be able to continue to execute on the acquisition.

It's hard to give you a specific number -- here's square footage or dollar amount -- just because a number of them tend to be off market situations.

But qualitatively maybe have you seen more come for sale in the first quarter so far?

Have you seen increased activity, less reluctant sellers?

There's definitely activity with some potentially large opportunities.

So I would say that we're encouraged by the opportunities that we're seeing that we think might be available.

We're also encouraged by the potential build to suits that we're bidding on right now that would lend themselves to obviously 2011, 2012 growth.

But some of these build to suit opportunities, potential sell leasebacks as well -- could be very interesting growth drivers for us going forward.

What are the return opportunities look like in those baskets?

I think typically we're seeing double-digit.

I would say on average -- if you wanted to throw out average depending on location and credit quality, et cetera -- you're going to be 9.5 to 10.5 -- and some locales could be significantly higher, but I would say on a typical market -- larger markets -- it would be in that range.

Okay.

And just a question on new markets.

Would you be interested in exploring new markets maybe globally, Asia?

Yes.

And we definitely have an appetite to look at new markets, South Asia, AsiaPac.

We like -- we're focused mostly on opportunities where we can go in with a partner -- go in with a customer for whom we can either do build to suit or sell leaseback -- to establish a particular market and I think we'll continue to be on the conservative side, but there's opportunities.

I think we'll -- we are looking at right now.

Thank you.

(Operator Instructions) And, management, I show there are no further questions at this time.

Please continue with any closing remarks.

Well, thank you very much, everyone, and I appreciate everyone's time today.

And I do want to thank again our staff and team here at DLR for a really great 2009.

People performed extremely well in some really challenging economic environments and continue to do so in 2010.

So thanks, everyone.

Ladies and gentlemen, if you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 1-303-590-3030 and entering the access code 4198813 followed by the pound key.

The replay will be available until March 4th, 2010.

This concludes the Digital Realty Trust fourth quarter 2009 earnings conference call.

AT&T would like to thank you for your participation.

You may now disconnect.