Digital Realty Trust Inc (DLR) 2010 Q3 法說會逐字稿

Good afternoon, my name is Molly and I will be your conference operator today.

At this time, I would like to welcome everyone to the DLR third quarter 2010 investor conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

Thank you, Ms.

Matthews, you may begin your conference.

Thank you and good morning and 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 of the Digital website at www.DigitalRealtyTrust.com or you may call 415-738-6500 to request a copy.

Before we begin, I would like to remind everyone that the management of Digital Realty Trust may be making 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 forward-looking statements by the use of forward-looking terminology such as "believes," "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 commencement and related incremental revenue, construction plans and costs, development and redevelopment of additional Datacenter space, supply and demand fundamentals, and the Company's expected future financial and other results, and the assumptions underlying such results, including the Company's 2010 and 2011 guidance and the assumptions related thereto.

For a discussion of the risks and uncertainties related to our business, see the Company's annual report on Form 10-K for the year ended December 31, 2009, 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 statement, 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, taxes, depreciation and amortization or EBITDA, adjusted 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 financial data package for the third quarter of 2010, furnished to the Securities and Exchange Commission and this information is available on the Company's website at DigitalRealtyTrust.com.

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

Following management's brief remarks, we will call -- we will open the call to 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 to return to the queue.

I will now turn the call over to Mike.

Great.

Thank you, Pamela, and 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.

Following my remarks, Bill Stein will discuss our financial performance and 2010 revised and 2011 guidance.

Digital Realty Trust is a leading owner and manager of technology real estate.

Our portfolio currently contains 95 properties and consists of 131 buildings, totaling 16.4 million rentable square feet, excluding two properties; the Westin building in Seattle and 707 Fifty Central Expressway in Santa Clara that are held as investments in unconsolidated joint ventures.

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

The portfolio includes approximately 1.9 million square feet of space held for redevelopment that is an important growth driver for our business going forward.

DLR provides a variety of Datacenter facility solutions, including Turn-Key Datacenter Powered Based Building and build to suite Datacenters for domestic and international corporate customers.

Our portfolio 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 Datacenter design and investment.

Our team remained very active during the third quarter on the investment leasing and financial fronts.

We also successfully completed the integration of the Rockwood Capital properties into our operating portfolio and welcomed many talented new team members who are already making significant contributions to the Company.

In addition, at the Chandler, Arizona property, we're moving ahead with the construction of a new 250,000 gross square foot Datacenter, which will support approximately 130,000 square feet of raised floor technical space.

Continuing our program investing in income producing facilities, as well as properties for redevelopment, in August, we acquired two fully leased Datacenter properties for a purchase price of $50.3 million.

The first property is 2950 Zanker Road, located in San Jose, California and this property totals 69,700 rentable square feet.

The second property is 900 Dorothy Drive in Richardson, Texas and totals over 56,000 rentable square feet.

Both properties are individually leased to major telecom companies on long-term leases.

Also, in August 2010, we acquired 50% joint venture interest in two joint ventures with Behringer Harvard that owned a three building campus located in the important Santa Clara, California market.

This for approximately $48.1 million which includes the assumption of $22.8 million in secured loans.

The 800 Central Expressway building, a vacant 150,000 square foot improved shell building, will be contributed to our inventory of space held for redevelopment.

The new facility will be able to support the development of six Turn-Key Datacenter pods, totaling approximately 80,000 square feet of raised floor.

DLR will be responsible for the Datacenter redevelopment leasing and management of the project.

Construction is already underway on base building improvements and two Turn-Key pods are expected to be completed in the first quarter of 2011.

Behringer Harvard will continue to operate the two fully leased office buildings 700 and 750 Central.

They total approximately 300,000 square feet and provide office space for research and development that is fully leased to Hitachi Data Systems as its regional headquarters.

These buildings are held as an investment in an unconsolidated joint venture.

To date, we have completed approximately $1.3 billion in acquisitions in 2010.

This represents more than one third of our total new acquisitions of $3 billion since 2005.

As we have discussed on prior calls, large acquisitions like those completed this year tend to be lumpy and timing uncertain.

However, we continue to track a number of potential opportunities, as reflected in our 2010 guidance.

We're actively working to complete our first investment in the Asia Pac region with particular focus on Singapore, Sydney and Hong Kong, both for development opportunities as well as income property.

We expect to announce our initial investment before the end of the year in the region.

Growth in enterprise Datacenter demand is strong there and many markets are significantly underserved and we are bullish on the opportunities for DLR going forward in Asia Pac.

Our financial strength, combined with our market expertise, and strong reputation with sellers position us to take advantage of accretive investments as they become available.

Moving on to our leasing program, we commenced leases during the third quarter totaling approximately 229,000 square feet.

This includes about 146,000 square feet of Turn-Key Datacenter, leased at an average annual GAAP rental rate of $148 per square foot.

Also includes approximately 65,000 square feet of Powered Based Building, leased at an average annual GAAP rental rate of $31 per square foot.

And, approximately 18,000 square feet of nontechnical space, leased at an average annual rate of $25 per square foot.

Commencements are beginning to pick up as construction of Turn-Key space is completed that was leased in prior quarters.

So far in 2010, we've commenced Turn-Key leases representing over 21 megawatts of critical IT electrical load.

We saw a good momentum during the quarter in terms of our leasing pipeline, with signed leases totaling over 147,000 square feet.

This includes about 138,000 square feet of Turn-Key Datacenter, leased at a strong average annual GAAP rental rate of $198 per square foot.

Also includes over 9,000 square feet of nontechnical space [at an] average annual rental rate of $28 per square foot.

Pricing remains favorable in all of our markets and we're seeing particularly active demand from colocation hosting finance services companies, system integrators and financial services customers.

Existing customers are a good source of new business and our pool was greatly expanded with the acquisition of the New England and Rockwood Capital portfolios.

Reflected in our leasing results, the market continues to favor our Turn-Key Datacenter product.

Because leases are often negotiated and executed during the construction period, there can be a lag between signings and commencements.

At the end of the third quarter, our backlog of leases signed but not yet commenced totaled approximately 302,000 square feet, which represents over $46 million of annualized GAAP rent.

Approximately 215,000 square feet consists of PKD leases.

We expect approximately 87,000 square feet of these signed leases to commence in the fourth quarter and contribute incremental revenue in 2010 of approximately $2.3 million.

About 71,000 square feet of Turn-Key space is expected to commence in the first quarter of 2011 and contribute incremental revenue of approximately $11.9 million in 2011.

About 37,000 square feet is expected to commence in the second quarter of 2011 that will contribute incremental revenue of approximately $4.6 million for that year.

And, the balance of the backlog of Turn-Key signed leases, about 21,000 square feet, is expected to commence in the third quarter of 2011 and contribute incremental revenue of approximately $1.2 million for the year.

We also have about 70,000 square feet of signed leases for Powered Based Building that is expected to commence by the third quarter of 2011, contributing incremental revenue of approximately $2.7 million for that year.

The deal our sales team currently is engaged in direct discussions with prospective customers for over 1 million square feet of new Datacenter space.

And, as reflected on our Q3 signings, we continue to [see] strong demand from a variety of industry verticals.

Turning to our overall lease renewal activity.

During the third-quarter, we signed renewals totaling approximately 129,000 square feet, reflecting about 66% of expiring and early renewed square footage and reflects about 100% of the expiring GAAP rent, so we replaced all that GAAP revenue.

This represents a significant uplift in cash rent of about 16% for customers that renewed, as well as an opportunity to release and/or redevelop the remaining available space.

In fact, about three quarters of the 16,000 square feet that did not renew, represents one building, 3065 Gold Camp Drive, in Sacramento.

This 50,000 square foot building was leased to eBay on a Powered Based Building basis.

Our plan is to assign the property to our redevelopment inventory and add significant value by building out the facility as Turn-Key space.

We expect construction to begin on the project in the first quarter of 2011.

Overall, we're very pleased with our activity and lease rates.

Year-to-date we renewed or immediately replaced expiring leases representing fully 124% of expiring GAAP rent and 70% of square footage.

Focusing on our development program, third-quarter Turn-Key construction activity picked up with over 209,000 square feet underway at quarter end in eight high demand markets in the US and Europe.

This will add over 153,000 rentable square feet of Turn-Key space and approximately 56,000 square feet of build-to-suit space, this being Terremark in Amsterdam to our operating portfolio in 2010.

We already have signed leases for approximately 52% of the TKD space and are 100% leased for the build-to-suit space.

During this quarter, we will deliver approximately 103,000 square feet of Turn-Key Datacenter space to our operating portfolio with leases commenced on nearly 49% of that space.

We also delivered over 89,000 square feet of Powered Base Building during the third quarter, which was 99% leased.

Since quarter end, we have an additional 150,000 square feet of Turn-Key underway that will contribute to our growth in 2011.

Over the past six years, we've enjoyed, as a publicly traded REIT, we've seen many changes to the economy, credit markets, customer purchasing behavior and the competitive landscape.

The supply demand fundamentals have, for an extended period of time, been very favorable for us.

In fact, according to Tier 1 Research, this favorable imbalance is projected to generally persist for the next few years.

We are mindful that combined with DLR's successful track record, these opportunities will continue to attract new competition and new capital to our sector.

However, we are confident -- very confident that our operating scale, efficient cost of capital, financial flexibility and investment acumen, combined with our market leading products and customer relationships will continue to drive superior results for our shareholders.

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 review of our capital markets activities and third quarter financial performance and conclude with our revised 2010 guidance and a discussion of our 2011 guidance.

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

Since our last call, we've remained active in the capital markets and focused on two primary objectives.

First is funding our acquisition and development programs to support the growth of the Company and second is minimizing our cost of capital, enhancing financial flexibility and improving overall credit metrics.

Year-to-date, we have sourced approximately $1.8 billion of capital, including almost $200 million since our last call.

The capital markets activities, since our last call, consisted of the issuance of approximately 2.5 million shares of common stock or at the market equity distribution program, which generated approximately $150 million at an average share price of $60.72.

Year-to-date through November 3, 2010, we've generated approximately $217 million of net proceeds from the issuance of approximately 3.8 million shares at an average price of $57.66.

The proceeds have been used to repay borrowings under the Company's revolving credit facility, to redeem the Series A preferred stock, to acquire additional properties, to fund development and redevelopment opportunities and for general corporate purposes.

The exchange of an additional portion of our 2026 debentures, which further reduced our debt by approximately $25.2 million, for a combination of shares of common stock and cash.

For the nine months ended September 30, 2010, we exchanged approximately $62.5 million of the 2026 debentures for a combination of approximately 2 million shares of common stock and cash, eliminating shorter tender debt that carried a GAAP interest cost of 6.75% per APB14-1.

The remaining $110 million face amount of the 2026 debenture remains outstanding under the original terms.

The redemption of 4.14 million shares of our 8.5% Series A preferred stock, which constitute all of the outstanding shares for $103.5 million at a redemption price of $25 per share plus accrued and unpaid dividends.

While the exchange of the 2026 debentures and the redemption of the Series A preferred stock resulted in some non-cash charges, the net effect of these efforts will further reduce our cost of capital, while maintaining our commitment to a strong investment grade balance sheet.

Our total debt to quarter end was $2.5 billion and our ratio of debt to total enterprise value was 29.7% based on the September 30, 2010 stock price of $61.70.

Based on yesterday's closing stock price of $59.34, our ratio of debt to total enterprise value would be 30.5%.

Our adjusted EBITDA to cash fixed charge coverage ratio was 2.7 times and our adjusted EBITDA to cash debt service coverage ratio was 3.6 times for the quarter.

Net debt to adjusted EBITDA multiple was 5 times at the end of the quarter.

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.

We currently have approximately $662.2 million of liquidity, which includes $54 million in short-term investments, plus funds that can be drawn on our revolving credit facility.

If we were to utilize the full amount of liquidity, we would remain in compliance with the covenants contained in our revolving credit facility, our prudential shelf facility and outstanding secured and unsecured debt.

On August 31, 2010, we exercised the first of two one-year extension options on our revolving credit facility, extending the maturity date to August 31, 2011.

The pricing on the facility is currently LIBOR plus 110 basis points.

In the fourth quarter of 2010, we have $3.7 million of principal amortization remaining and no debt maturing.

In 2011, assuming the exercise of extension options, we have approximately $170.2 million of ongoing principal amortization and debt maturities, which includes the remaining $110 million of the 2026 debentures.

As of September 30, 2010, our weighted average cost of debt including interest rate swaps was 5.35% and the weighted average maturity was 4.9 years including debt extension options.

Now, I'd like to turn to our third-quarter financial results.

FFO was $0.81 per diluted share in unit, up 6.6% from FFO of $0.76 per diluted share in unit in the previous quarter and up 9.5% from $0.74 per diluted share in unit in the third quarter of 2009.

FFO per diluted share in unit for the second quarter of 2010 was negatively impacted by $0.02 related to non-core expenses.

Excluding the impact from these non-core items in both quarters, FFO was $0.90 per diluted share in unit in the third quarter, up 15.4% from the second quarter of $0.78 per share in unit.

In my prepared remarks on the last call, we said that we expected the impact on 2010 both per diluted share in unit from the remaining non-core charges to be between $0.08 and $0.11 per diluted share in unit, consisting of acquisition related expenses between $0.04 to $0.05 per diluted share in unit and financing charges between $0.04 and $0.06 per diluted share in unit.

This quarter, FFO of $0.81 per diluted share in unit was affected by $0.09 of non-core charges, consisting of approximately $0.04 per diluted share in unit for transaction expenses relating to our acquisition activities and $0.05 per diluted share in unit for financing charges, which included $0.04 per diluted share in unit for charges relating to the redemption of the Series A preferred and $0.01 for charges relating to the exchange of the 2026 debentures.

As stated in today's third-quarter earnings press release, for the fourth quarter 2010, we are projecting additional financing charges of $0.03 per diluted share in unit.

These charges are primarily related to the potential redemption of another preferred stock series in the [fourth] quarter, provided a limited waiver through the restricted payments covenant in our revolving credit facility and prudential shelf facility is obtained.

This redemption would further reduce our cost of capital and improve our credit metrics.

Adjusted funds from operations or AFFO for the third quarter of 2010 was $74 million, up 25.6%, over the second quarter 2010 of 58.9%.

The diluted AFFO payout ratio for the third quarter of 2010 was 70.7%, compared to second quarter 2010 AFFO pay out ratio of 73.3%.

EBITDA adjusted for preferred dividends, cost of redemption of the Series A preferred stock and noncontrolling interest was $131.9 million in the third quarter of 2010, up 14.7% from $115 million in the second quarter of 2010 and up 35.6% from $97.3 million for the third quarter of 2009.

Keep in mind that this third-quarter EBITDA has been reduced for the transaction expenses previously reported.

Turning briefly to the income statement.

Total operating revenues increased in the third quarter of -- to $237.5 million, up 20.3% from $197.5 million in the previous quarter and up 45.5% from $163.2 million in the third quarter of 2009.

Operating expenses also increased in the quarter to $177.1 million from $143.3 million in the prior quarter.

This increase was attributable to three primary factors.

Higher operating expenses associated with new Turn-Key space that was delivered during the third quarter.

Prior to the third quarter, the operating costs for the space was being capitalized and is now being expensed.

Two, higher operating costs associated with the 365 Main portfolio and co-location facility, in particular, both of which occurred early in the third quarter.

In addition, we added 71 new employment -- employees from the 365 Main operating company.

And, three, as Mike mentioned in his comments, the termination of the eBay lease at our Sacramento facility during the quarter.

Operating expenses were still being incurred without reimbursements.

G&A was slightly lower in the third quarter over the second quarter.

Transaction expenses were higher in the third quarter, over the previous quarter, primarily due to the Rockwood Capital portfolio acquisition.

There have been a few analysts' comments regarding EBITDA margins.

If one adds $4.6 million of transaction expenses to our Q3 EBITDA, our Q3 margin is 57.5%.

Our current Q4 forecast for EBITDA margin shows a margin of approximately 60% when adjusting for transaction expenses, which, as you can see, is slightly higher, not only this quarter but the prior quarter.

NOI margin expressed as a percentage of total rental revenue, which we believe is appropriate, given the volatility of transaction expenses which appears in EBITDA, is stable and has been stable right around 80%.

Same store NOI was $112.4 million in the third quarter of 2010, unchanged from the previous quarter, primarily due to the termination of the eBay lease combined with a portion of the new Turn-Key space that was delivered in the third quarter and up 5% from $107 million in the third quarter of 2009.

Same store NOI adjusted for straight line rents and purchase accounting adjustments, which we refer to as same-store cash NOI, was $102.7 million in the third quarter of 2010, also unchanged from the previous quarter and up 9.3% from $94 million in the third quarter of 2009.

Total development construction work in progress, at quarter end, was $239 million of which $117 million is construction cost and $122 million is allocated acquisition cost.

This compares to second quarter construction work in progress of $214 million.

The estimated hard cost to complete the ongoing September 30, 2010, work in progress is $399 million.

Moving to our full-year results, we've increased the midpoint and narrowed the range for our 2010 FFO guidance to between $3.28 and $3.30 per diluted share in unit and increased core FFO guidance to between $3.40 and $3.42 per diluted share in unit as adjusted for certain non-core items.

This guidance represents expected FFO growth per share of 11.9% to 12.6% over 2009 reported FFO of $2.93 and expected FFO growth of 16.4% to 17.1%, over 2009 FFO of $2.92 per diluted share in unit when adjusting for $0.01 of non-core revenue items.

The following revised 2010 FFO guidance assumptions represent our current view, towards our full-year results includes estimated total transaction expenses and financing charges.

Commencement of leases, which will contribute $70 million to $75 million of GAAP rental revenue on an annualized basis.

Pod architecture service revenue recognized between $3 million to $4 million.

Development and redevelopment capital expenditures of $300 million to $350 million.

Portfolio level capital expenditures of $50 million.

Total G&A of $48 million.

Total transaction expenses of $8 million to $9 million and total financing charges of $9.5 million to $10.5 million, including additional fourth-quarter financing charges of $2.5 million to $3.5 million, primarily related to the potential redemption of another preferred stock series.

Turning now to our 2011 guidance.

FFO per diluted share in unit for the year ending December 31, 2011 is projected to be between $3.70 and $3.90.

This guidance represents expected FFO growth of 12.1% to 18.9% over the 2010 revised range of FFO between $3.28 and $3.30 per diluted share in unit.

The following 2011 FFO guidance assumptions represent our current view for its full-year results and include estimated total transaction expenses and balance sheet restructuring charges.

Acquisitions of income producing properties for the year totaling $200 million to $450 million at average cap rate of 9%.

Commencement of leases which will contribute $90 million to $110 million of GAAP rental revenues on an annual basis.

Pod architectural services revenue recognized between $5 million to $7 million.

Development and redevelopment CapEx of $450 million to $525 million.

Portfolio level capital expenditures of $75 million.

Total G&A of $53 million and transaction expenses for new acquisitions of between $5 million to $6 million.

Any financing related charges are expected to be a function of opportunities presented by the capital markets to further reduce our cost of capital, enhance financial flexibility or improve per credit metrics.

This concludes our formal remarks.

We are now happy to take your questions.

At this time (Operator Instructions) Your first question comes from Rob Stevenson with Macquarie

Hi everyone, this is [Nick Yulitel] on with Rob.

I just wanted to see if you could talk a little bit with fourth-quarter trends are looking versus third quarter on the leasing side?

They seem to be pretty consistent.

At least with the amount of activity we are working on today.

So we are very positive about the ongoing consistent demand that we are seeing in our ability to execute leases.

Okay and then I guess I was wondering for the guidance, as far as the lease expirations in 2011, what are your assumptions about the types of rental spreads -- rent rates spreads you guys can achieve there?

Generally speaking, for the Turn-Key Datacenter, probably looking at up lifts between 10% and 15%.

For the Powered Based Building product that's true Powered Based building probably up lifts of about 20% on a cash basis.

Do keep in mind though that we have got about a total of almost 800,000 square feet that is non-Datacenter space.

From legacy assets that they might be office and electrical assembly space, a lot of space that we are looking to redevelop into Turn-Key Datacenter space both in Wakefield, Massachusetts as well as in Atlanta.

With properties that will have leases at least partially expiring.

So, just want to make sure people understand that a lot of the space that is rolling is space that is either non-technical space or is non-technical space that will be turning into Turn-Key

And in that regard there have been some questions about our guidance.

There's about $6 million to $7 million of rent related to that space.

That we have this year that will be disappearing next year until that space is redeveloped.

Okay thanks that is helpful.

And just finally I just wanted to see if you had any comments you would be able to share on 111 Eighth Avenue in Manhattan.

You guys are in the building as a tenant, it is for sale.

There has been sort of reports about how the bidding is going.

I mean, is there anything you can talk about how you sort of view that bidding process and how it could be very strong pricing for that building.

Yes it's a really interesting building.

It's the old Port Authority building.

It's almost 3 million square feet, and it's in Chelsea which is a very up-and-coming kind of social area.

So the building is -- of that 3 million feet only 900,000 gross square feet is Datacenter.

So the great, great majority, 2 million feet is office.

And from what we have seen in the business press, speculation is that Google is a top front runner for acquiring the building according to the press, which would make sense because they have over 500,000 feet of office space in their building for their East Coast headquarters.

So, that seems to be -- it's really trading at New York City office type economics.

Okay thanks guys.

Your next question comes from the line of Michael Bilerman with Citi.

Good morning.

I'm on with Mark Tandon.

Just looking at the acquisitions in the quarter, if you were to take the run rate NOI about $86 million over just under $800 million of income producing assets that you bought you are going into these deals north of an 11 cap which is certainly higher than the pro formas that you had discussed and I'm just curious is there anything in the 3Q numbers that would be causing it to be higher and then on the flip side if that really is the going in 11, where does the 11 go to really driving accretion going forward?

I think on 365 Main the performance might be a little better than we are underwritten by a little bit.

But not sure where you're -- I'm not sure we would get to quite 11%

Yes, if you just look on page 12, and you take the NOI from a full quarter, you get to annualized number of that $86 million and then if you flipped to your acquisition page you quickly can sort of see that you have about $775 million of purchase price excluding the asset and redevelopment in Silicon Valley.

So $86 million over $775 million is 11.

Yes, I mean there was some pick up at 365.

In the Sentinel was close to 11 when we bought it.

That was in January.

That was in January.

Does this include additional leasing?

Page 12.

(inaudible).

We will have to get back to on that.

Okay we can follow up on that after the -- the other thing was Mike you've gone through all the signed leases and you talked about when those rents commence for their share of the annual.

What is the annual income -- annualized income total related to the leases that have been already signed that is not in numbers yet?

Let's see I think we in my comments we got about 300,000 square feet that is in backlog that will contribute on an annualized basis about $46 million of annualized revenue.

Now that will be phasing in over several quarters here.

The next three or four quarters.

That doesn't have any capital associated with it to spend?

The capital is under way.

In a number of cases we're still building out the spaces, so there will be capital associated with some of those.

Can you -- about -- is it $10 million, $15 million more?

Do you have a sense of how much more capital is needed to generate that annualized NOI [or] revenues?

I don't have that break down.

I mean we do look at our capital allocation literally suite by suite, building by building, I just don't have it broken down for those particular suites.

Okay, thank you.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Just curious, Bill, on the guidance here.

In particular for actually 2010.

I noticed on the core guidance you are bumping it up by I think you said $0.03 or so.

How to do that at the same time that you are lowering your lease commencement guidance by 10% for the full year and you are lowering your pod architecture income?

What is driving it the other way?

You are lowering the assumption and raising the guidance.

I think the leasing assumption was annualized rent.

It is not -- we don't give guidance on rental revenue recognized in 2010.

I understood but your -- the full-year commencements annualized is going down 10%; it is not going to drive your number higher.

No but to the extent that you have got timing issues so let's just say a lease commences December 15, it's the reduction in the annualized really doesn't matter.

It could commence earlier.

So the reduction annualized I would say doesn't really affect.

What we are talking --

But my point is rather than figure out what the timing is or what the nuance is, I am just curious, what is the driver of the guidance up higher?

Because it's not lease commencements, because directionally it is going down right?

And it is not pod architecture income, is it?

You don't have an acquisition assumption in here but you talked about Asia as an incremental investment.

Is there going to be a contribution from incremental acquisitions?

No, no.

Asia won't contribute.

We have recognized some revenues earlier in the quarter than might have been initially anticipated from leasing.

So these were leases signed while we were waiting for buildings to be completed.

And the buildings were completed earlier than scheduled, so revenue recognition began earlier than we thought.

It doesn't really affect the annual.

And on sort of Asia, because there is no acquisition guidance, can you give us a number order of magnitude or is that first foray anticipated in the 2011 range of $200 million to $450 million?

I think we are hoping this deal will close in the fourth quarter.

The first Asia deal the first Asia acquisition, so it is not included in the -- in 2011 although there are some perspective Asian acquisitions in 2011.

And this initial project that we are focused on in Singapore is a development project that we would be acquiring, and it is very far along but it is not an income producing asset.

Okay.

Safe to say you would do that with a partner?

No.

Likely on our own.

Okay.

I'll hop in the queue, thank you.

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

Yes, good afternoon, thank you.

Michael, how would you characterize the pricing environment on deal renewals today?

Are you seeing any kind of pressure from customers asking additional discounts compared to what it was a year ago or 18 months ago?

Because when you look at on your same [store] growth, clearly that has been moderating for the past couple of quarters and this quarter we saw most like a 7% growth especially on the rental rate I'm just curious to see what is driving that?

I think when you look at same store we are so leased up there is just not that much space left to lease which is why our redevelopment inventory has historically and will continue to be so important for continued growth because we have this inventory almost 2 million square feet of space that we are building out as Turn-Key and providing as Powered Base Building and that is giving us a lot of opportunity to continue to grow revenues in the portfolio overall.

So, we'll get benefit of lease expirations and rollovers in a lot of the same store.

As I mentioned earlier we are probably looking at up lifts in general anywhere from 10% to 15%.

We actually had a little bit higher cash uplift this past quarter of about 16%.

So if you look at the Powered Base Building, which a lot of the lease rollover for Datacenter is more Powered Base Building type rents, and those typically have been going up in the 20% range.

So, we will still get some good up lifts in those cases, but a lot of the growth is coming from our continued development and delivery of a product that is underpinned by very stable portfolio occupancy.

Got it.

I think what I was trying to understand this is because when you go back a year ago or two you had these deals that were signed seven or eight years ago and as they came up for renewal, clearly you guys saw 15% to 20% growth up lift in the rental rates, just with existing customers.

If I'm looking at today, are you still getting the same of kind of an uplift or is it kind of moderated?

It is pretty similar.

Like I said we are looking at I think for PKD we will probably average around 10% but the -- and in some higher, the great majority though are leases that are priced more like key [TVD] rents because the tenants put the improvements in so those might -- will typically be more like around 20% so we think for Datacenter oriented product we are going to average somewhere in the midteens on average.

Got it.

And if you look at the markets are there any markets that you are seeing strong demand both from a demand perspective or are there any markets that you are seeing some incremental pricing pressure today if you look across your portfolio?

Pretty consistently in terms of our strong high demand markets, Santa Clara, Phoenix, Dallas, northern Virginia, northern New Jersey, London, Paris, Amsterdam, we are seeing some good local demand in Boston and we are building out space for that.

So I would say pricing has stayed pretty stable all in all across the markets.

Maybe growth has moderated probably in northern New Jersey a little bit but if you look at the deals we are doing and our return on investment, we are still in that low to midteens unlevered return so which is encouraging for us.

Thanks Mike.

Your next question comes from the line of Michael Bowen with Guggenheim Security.

Okay.

Thank you very much.

So I wanted to ask a couple questions on the operating expenses.

Should we expect that absent the three items that you mentioned that you will go back to a normal run rate that we have been seeing in the past quarters starting again in the fourth quarter here?

And then I guess second question is we have heard Google talking about potentially opening a Datacenter perhaps in India.

We have seen Facebook and Yahoo and Amazon and some of the other was doing some builds of their own.

I was wondering if you might be aware of tell us whether you're seeing any slow down in demand for wholesale Datacenter space on those types of customers?

Thank you.

Sure I think on our operating margins both on an EBITDA basis, an NOI basis we are seeing them very stable at very healthy margins.

I think one thing to note is the third quarter is seasonally we always have higher utility costs.

That is almost all reimbursed by the customers but you will see operating expenses blip up in the third quarter due to the utility costs right now.

[Earning] costs that you see.

And then with -- talking about what we characterize the Internet enterprises your Googles, Microsofts, companies like that especially that have big balance sheets and large cash balances historically they have typically built their own facilities.

And that's been the trend so I don't see a change in that trend at all.

The Internet companies are good market segment for us but keep in mind it's 10% of our revenues.

And will probably continue to be that ratio.

So a very good customer base for us but 10% of our revenue not 50% or 60%.

We don't see a change in the trend for the Internet enterprises and we think our relationship to our portfolio will be pretty consistent going forward.

Okay, thank you.

Your next question comes from the line of Suzanne Kim with Credit Suisse.

Hi first question.

Did the leasing costs or lease renewals increase sequentially from a little over -- around $11 to about $22, can you comment on that?

And then do provide any guidance that would help us get to AFFO like a straight line if you can provide that for 2011 that would be really helpful.

We don't provide AFFO guidance.

And the reason we don't is the -- it's just the item you're pointing out.

Leasing commissions are very hard to forecast, which affect AFFO.

And when you look at those renewals and the cost for renewals it can vary pretty widely depending on the particular space and the length of the lease term as well.

And whether or not there is a broker representing the customer that is in the space.

Yes, we've done some leases -- some renewals that were very long 10 to 15 year leases that are going to drive those commissions significantly higher.

But when you look at amortized over the life of the lease term it all washes out.

Okay great.

So in terms of the AFFO I was trying to get at the straight line but you don't provide 2011 guidance for that, do you?

We really don't.

Okay.

So as I said, the leasing commissions are hard because you don't know what the structure of the lease is going to be basically and as Mike said, and on a straight line you might do a deal where you make it a few months of free rent and you don't necessarily have that today.

We don't know what that deal is going to be when we give 2011 guidance.

Okay thank you so much.

Your next question comes from the line of Jonathan Akin with RBC Capital Markets.

Yes, good morning.

I was curious if you could comment a little bit about Asia Pac and the types of requirements that you're seeing in that region?

Sure.

Especially we have had a lot of focus on Singapore and Australia and Hong Kong.

And Singapore is very broad-based demand, a lot of international companies which mirrors their very strong international commercial activity that goes on in Singapore.

Historically it has been very active in trade and finance and a variety of verticals and it's a very fiber rich location in terms of transcontinental and regional telecommunications fiber networks.

So, we have a significant amount of potential demand from existing customers of ours as well.

So, that gives us a lot of insight into the demand dynamics in that market, and certainly very underserved from a wholesale provider perspective.

So, we are very bullish on Singapore.

When you look at some of the Australian markets Sydney, Brisbane good markets underserved relative to demand, and those are demands driven primarily from Australian based companies.

Or companies for Australian business.

And so we are getting pretty comfortable looking at opportunities both for development as well as potential income producing assets as well.

Hong Kong is a very strong high demand market underserved, lot of high barriers to entry in terms of new development in that market place.

So, it has been tricky to sort out how we are going to enter the Hong Kong market though we are looking at some development opportunities there right now.

That might pan out but in the shorter term more near-term, really focusing on Singapore and the Sydney market.

And then as you think about competitive supply in some of the major markets on the continent in Europe and maybe throw London in there as well how would you characterize those and the different moving parts there?

Yes, as typical we are very focused on where we are seeing the high amount of business activity from the corporate enterprise.

And that focuses us on London, Paris, Amsterdam and Dublin.

Frankfurt we think is also an attractive market although we have not entered that market at this point.

That is not to say we would not do build to suits in other locations, but for our spec product serve immediate needs of the customer, it is really those four or five markets that we are focused on and we are seeing consistent demand actually demand picking up in London over the last couple quarters which has been encouraging.

Competitive supply picking up notably in any of those major markets?

No, actually not.

They really continue to be relatively underserved from a product perspective.

Thank you very much.

Your next question comes from the line of Mitch Germain with JMP Securities

Good afternoon.

Mike, can you just talk about the current infrastructure you have in place in the Asia Pac region?

Sure.

We have a small but growing team there, in Sydney and in Singapore, and we are bringing on board our technical operations team and managing on the ground with folks from our European technical operations team and designing construction on the technical specifications are very similar in Asia to the European technical specs.

So we've inserted several of our team members from our European operations as well as Dana Langston who is heading up the coordination of our due diligence and the hiring and setting up.

Chris Kumar is our market leader head of our original operations, and does development there in the region, and he splits his time between Singapore and Sydney.

Great and you had 365 Main for a quarter now.

You talked about a little pick-up, can I get your initial impressions on the deal, the assets, the people?

Sure.

The integration has gone extremely well, and we have integrated almost the entire staff into our operations .

As you know, one of the buildings the 365 Main building itself is a colocation facility here in downtown San Francisco and a lot of the staff is operating that facility as well as providing more hands services in Phoenix and El Segundo as well.

And that has gone extremely well, and brought on a really good team that I think it is going to allow us to be more flexibility in providing some of these very nuts and bolts hands-on services that customers require and financially, the properties are performing well.

We are really excited about the opportunity to build the next phase in Phoenix, that ultimately will contribute about 130,000 feet of raised floor space about 250 gross.

And in the Chantilly, Virginia property we are already expanding one of the tenants pretty significantly into the vacant redevelopment building.

Out of the three on that site in Virginia one is a redevelopment opportunity, a vacant building and we are already expanding one of the tenants into that.

And we are actually expanding a couple of the tenants in Phoenix as well, so really good activity and we are very pleased with the

And just for 2011 guidance, Bill.

I know you talked about this year a debt -- I'm sorry a preferred redemption charge in the fourth quarter.

Is that going to carry forward into 2011 guidance?

No that was one time

The savings on the preferred

Oh, the savings on the preferred carries forward in 2011, correct.

Great, thanks guys.

Your next question comes from the line of John Stewart with Green Street.

Thank you.

Bill, I wanted to come back to your roll over for next year.

You got 1.4 million feet rolling at $40 a foot and it sounds like you're going to take about 10% to 15% of that space to redevelop it.

But as I recall, a good chunk of your 2011 roll was legacy's [SATA] space that was signed essentially out of bankruptcy so I would have thought you would have a much bigger mark-to-market than 10% to 15%, even though it may be Powered Based.

Can you give us any granularity on that roll?

No, it's not established.

Basically, the big roll in 2011 is the converse technology space in Wakefield, Massachusetts and that is a single tenant office property.

That's about 370,000 feet of which we will have about I believe about half of that retained.

About half of that we'll be redeveloping as data center in Wakefield largely.

And then we have a large building in Atlanta also that probably part of that will not be renewed.

It is shelf space but it is shelf space we can redevelop and we acquired at a very low cost.

So, that will give us actually more product and much more value-add opportunity in Atlanta as well.

Okay thank you.

And then you have honestly been very active on the acquisition front this year.

Calling for $200 million to $450 million next year.

Can you give us a sense for what the opportunity set looks like and also with respect to CapEx, your guidance is obviously a bit below where you have been executing, is that just out of an abundance of caution or are you seeing cautioned pricing come down?

Well, it's really hard -- good question and it's really hard to project on the pricing depending where the particular opportunities reside and whether they are long-term leases.

With long-term leases, domestically we are probably looking more at nine cap range.

In some of the multi tenant situations, we might see somewhat higher cap rates than that.

And then, we are looking at opportunities in some of the national interchange which might tend to be more in Europe at least more in that 9 of 9.5 range.

Okay.

And then just lastly wanted to come back to integration on 365 Main.

And specifically wondered if you could address the really the some of the co-location assets and basically smaller individual tenant signs and greater number of leases has presented a challenge or if that is just you have absorbed that without really any hiccups?

No it has gone smoothly.

In large part because we have kept the team in place that has done such a good job on running the properties and providing good service to the customers and the leasing team.

So we are always going to have as is typical, with the short-term leases that you have in a co-location facility more a little more churn than you might see in our longer-term leases, but at the same time it is such a great facility that the leasing and renewal process is going well there.

Okay, thank you.

In next question comes from the line of Vincent Chao with Deutsche Bank.

Hey, good afternoon everybody.

Just a follow up question on the acquisition guidance.

I know it's lumpy and it's hard to predict but in terms of how you laid it out within your guidance, how should we think about timing of that at this point?

I think you can assume mid quarter.

I'm sorry?

I'm talking about for 2011.

Spread out mid-quarter, so take 25% of it and put it in February 15 another 25% --

Evenly over the course of the year?

That's what I would do.

And then on the --

It could be a little bit take the first quarter could be lighter than they the last three so if you don't want to put anything in the first quarter that would be okay.

It's probably going to be more second half of the year midyear

Okay thank you that is helpful and then in terms of the development project are you guys are hoping to close on in the fourth quarter sounded like that is fairly far along in terms of (inaudible) is that part of the 90 to 110 rents that you are expecting or would it be later on?

That would be later.

Okay.

That would be later.

Probably -- in our pro formas, it is more 2012 yes because there is construction associated with that project.

Okay I thought that the comments there is that it was pretty close to done, that's why I'm asking.

Okay, that is helpful.

And just lastly in terms of the yields you talked about the yield on the acquisitions side, but in terms of development yield that you're expecting on your deployment there, any change for the 12 to 14 that you have been talking about for a while?

No on average that is holding.

Some cases a little higher in some cases maybe a tiny bit but always in double digits and so what we are very comfortable with that 12% to 14% stabilized range.

Okay thanks.

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

Great thanks.

Bill, the guidance calls for $800 million or so of development CapEx and acquisitions.

Just first to clarify, does guidance also assume a potential equity raise and second, how should we think about the kind of leverage you would like to use to fund the growth next year?

Well.

Excuse me.

I think I've stated on prior calls that we would like to keep debt to EBITDA at five or lower the good news about the business we have is that the EBITDA grows at a pretty good pace you can see that when we were report our EBITDA quarter over quarter and versus last year.

So having said that there will be certainly some equity to stay within the five times, and then there will be unsecured debt and there may be some preferred stock as well particularly as we call these various series of preferred stock.

As the market seems to be opening up again.

Did I hear you say that guidance also include some charges for balance sheet restructuring and if so can you quantify what those charges might be next year?

The guidance doesn't include anything for balance sheet restructuring.

I think what I said was that we are going to take that based on the what the capital market presents, so at this point we have no plans for anything additional, but to the extent that the market gives us an opportunity to reduce capital costs.

We will take it and then we'll just have to present those costs to the investors.

And for the most part it has been non-cash.

Okay and I guess finally you mentioned the cost to complete these in development build out for stuff under construction is around $400 million.

What is the square footage associated with these group of assets and what does that mean and for the estimated cost per square foot for the development you have underway?

Hold on a second.

Part of the challenges is to give you a number right now on that is because various projects are partially underway.

And we haven't put into our guidance everything that we are delivering next year fully and that may be underway or just beginning to be underway.

Probably right now, the size where you see in the supplemental and what we have brought on -- this quarter we have gone almost 400,000 feet under construction right now.

And that's when we can go back and look at the timing on those deliveries.

Which we have, we just haven't weighted it out for you.

I guess on average though what is the average cost to do new Turn-Key developments that you're seeing today?

Yes we are around the twin 650 and 750 a square foot would probably be pretty typical.

And that's with land or ex land?

That would be in most cases without land.

On the lower end, on the higher end would be more 750 with land.

Okay thank you.

Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

Thanks I apologize but wanted to dig into that 2011 guidance.

Bill, it sounds like $0.93 clean is what you are guiding towards in the fourth quarter if you exclude the additional transaction expense?

Or preferred redemption charge I mean?

Is that fair?

Not quite.

There is a property tax reversal most likely in the fourth quarter, basically we are getting we have been appealing some property taxes and the tax bills are coming in and so in the first three quarters there is been over accrual and I think there's going to be a reversal in the fourth quarter that will somewhat distort what the Q4 run rate is.

You could be above the -- It's not a good run rate you're saying

It is not a good run rate.

Basically, I think we are there is about $3.5 million to $4 million of property tax reduction in the fourth quarter that is in the number you see.

So then the question is will that continue in 2011?

It certainly won't continue -- you can't take Q4 and multiply it times four because three quarters of those or depending on when the property was acquired but some portion of that as a reversal of over accruals in the prior quarter.

And then it's a question of what the local tax real estate and taxing authorities do, and so our practice has been to basically accrue earlier in the year at the higher number and then if we are surprised by what the tax authorities do we will reverse it out in Q4.

This year is particularly large it's not usually as large although we do have -- in the past two years a successful tax appeal that we reported on.

So, which has been maybe about the size to.

So I know where you're going with the question and I was just cautioning you against taking the current Q4 run rate and multiply it times four because you do have to adjust for this property tax.

You are getting hip to us.

But my other questions maybe framing in a different way is I am looking at your same store and as sure portfolio continues to grow and get seasoned and the base continues to grow, your same store portfolio I noticed on page 10 on a GAAP basis at least your up 5% year-over-year in the fourth quarter.

Pretty dramatic slowdown from the 16% in 1Q, the 10% in 2Q, and I know there is some movement moving parts here.

But as it relates to next year, is 5% a fair growth rate?

I think it's a function of buildings filling up

This portfolio is 95% leased though.

Yes that is within the core portfolio, but there's some redev base they that we picked up in same store to where we calculate it, but I don't think-- I think it's wrong to say it's going to be 5% because the same store pool is going to be increased on 12-31-2010 to reflect properties that have been acquired this year.

So that will cause basically give us more space to lease that will go into the same store calculation.

What you are seeing --

I'm trying to get a sense of what the core stabilized portfolio growth will look like relative to what you provide on page 14.

Contractually we've got a 3% which is seems like a pretty good -- from a cash flow standpoint.

On an NOI basis?

On an NOI basis right not on a GAAP says.

And then you have rollover but as we said this year -- we have some single tenant assets that are rolling, one of which is really office space.

But both of which will be converted or redeveloped as data centers, and it's going to take a little bit of time to get that done.

Right.

We lose the revenues when it has been pulled out of service.

But you expect as it relates to your roll, so whatever the total roll is, for next year I don't have it in front of me -- I assume it's $55 million or something like that.

You're talking about $6 million $7 million rolling vacant than net of the roll ups and the roll downs that we talked about in the vacancy that roll down will you end up with more or less than the $6 million by the end of the year?

Based on that roll?

We are expecting to have a roll up, a modest roll up.

Right so -- $50 million of it's going to roll up 15% 20% and $6 million is going to go dark.

Is that is that a fair way to think about it?

Yes roughly.

That's pretty close.

Yes, roughly between 10% and 15% on that up lift on average, and I think that that's probably not a bad way and keeping in mind we're talking about $6 million or $7 million of revenue which is meaningful, but it's not probably over $1 billion of top line revenue next year.

So, while it's meaningful you've got to make sure you put it in the context of the size of the portfolio and all of the new leasing we are doing and the redevelopment we are going to be doing on a couple of those assets.

Okay my last question is just on this eBay deal.

I didn't hear was or lease termination fee?

Was it an early termination?

Not really.

No.

Was early or --?

No.

So they are leaving -- because we don't see a lot of these they were using it as a Datacenter, what is going to happen from a CapEx perspective?

How much are you expending to spend in Powered Based Building that was already built out by existing tenants, so maybe this would be a good example of what happens when space build out by tenant space rolls.

Yes in this case it's pretty much what we would call telcos space.

Not really -- their utilization was never really at enterprise Datacenter it was really more network applications for them.

So we've got what we would call good Powered Base Building improved shell, but we really have to go in and really build what we would consider enterprise Turn-Key space.

So we may be looking and I don't have a budget in front of me on that particular project, but we might end up putting in $400 a foot into that building on a gross basis, on a 50,000 foot building to develop Turn-Key.

That's off the top of my head.

As opposed to the an ordinary build out from a Powered Based shell that would be $700 you said?

I mean yes well from a Powered Based once we get a Powered Based shell that increments is usually around $500 a foot over and above the shell.

Okay

Figure about $150 to $200 to get to the Powered Base Building per gross square foot then another $500 over and above that generally speaking.

Okay.

So this is about $100 a savings here you are talking about?

I think so, but frankly our teams are looking at this right now so we haven't finalized our budgets on that redevelopment yet.

Okay.

Thank you.

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

On the construction cost numbers you gave before for Turn-Key $650 to $750, how does that compare when you're buying material for your new development or redevelop versus what you are doing six to 12 months ago and are you seeing any particular shortage and components for your development?

No, no shortages.

We've spent a lot of time with our suppliers really managing that supply chain so our suppliers for electrical gear and cabling at HVAC equipment, UPS equipment, they are very tuned in to our development plans and our -- we've got our factory orders in and they are managing their manufacturing process around our requirement.

Because frankly in some cases we are the largest customers globally for some of these very large manufacturers the electrical gear.

So we are managing that process I think very effectively and making sure we continue to drive a verbal pricing for us and delivery.

Are those trends of late fairly flat over the last year or two in terms of pricing overall and do you see any upward pressure potentially in the pricing of sourcing and materials?

For the components, no actually we have been seeing pricing come down because we have been able to partner so effectively with the suppliers.

So that has given -- because we can work that way, it lowers the cost of construction for the suppliers as well.

So it's kind of a win-win all around it allows us to keep a lid on our cost and in a lot of cases go down a little bit.

Yields are fairly flat and you have been able to by better in your construction costs are coming down what type of real pressure have you seen of late in market or spot rents in some of the space such that the yield wouldn't go up you wouldn't see some other dynamic in the pricing structure?

Well we will see how it turns out.

This is been kind of a continuous process so it is not really a step function with the cost.

On the revenue side, we are seeing rates hold pretty well, we may see a little bit of rates going down or a little bit in New Jersey perhaps.

But still, we are able to maintain double-digit returns on our spec developments so we think that the combination of our costs and rates holding fairly well.

Maybe going down like I said a little bit in New Jersey.

But we look at our returns on a suite by suite basis and we are still well into 12% to 14% range.

And did you look after these return levels on your development, last question sorry, your -- I assume in today's environment you are underwriting fairly flattish rent?

Yes because we are is pretty conservative in that way.

And also we want to make sure that we can satisfy our existing customers who are buying in multiple markets with us.

And so we can drive our velocity by being reasonable on the pricing with our existing customer base.

Great thank you.

Your next question comes from the line of Michael Bilerman with Citi.

Just wanted to come back to leverage and equity for a second.

Bill you talked about a five-time debt to EBITDA target which is effectively where you are today.

There is not a tremendous amount of pickup heading into the fourth quarter outside of the tax I guess reversal.

And you've got about $800 million of plan to spend next year, you tapped the ATM in the quarter I guess at what point do you target a larger equity raise prefund some of those acquisitions in a more structured fashion?

Well we are showing EBITDA growth in the fourth quarter just to be clear on that.

A modest amount of ATM equity in the fourth quarter would bring us keep is that they five times, so that's not so much of an issue.

And we are seeing pretty good EBITDA growth into next year as well.

Having said that, I think we'll take a look at where the market is and be opportunistic.

We have flexibility as to when we access the markets.

I want to get back to your question though on 360 foot, they third quarter acquisitions.

I think this is showing the NOI it on a GAAP basis and the underwriting is or the performance that you saw I think were on a cash basis.

So that would account for some of the difference between the 9.5 and the 11 and to be fair the asset has outperformed as well.

Our underwriting is which were a little on the conservative side.

Even so straight-line rents only one up $1 million sequentially and your FAS actually went down $600,000 so unless there was material things on the other side, it would still seem that you're north of the 10.5% even if all that straight-line was associated with the acquisition.

I don't think we're anywhere close to 10.5% on cash

Your straight-line rents sequentially went from $10.6 million to $11.9 million we can go through the dynamics afterwards.

Just to the redevelopment you said it was $5 million to $6 million of revenues comes out next year.

What is the basis for those assets that you are pulling into redev?

I can't give you that right now.

Won't you be capitalizing some of that cost as you move into redev so the FFO impact while you are losing some of the revenue on the top line you are capping the vacancy?

We would probably -- once we begin designing construction we can capitalize operating cost and interest associated with the progress and that is in there but we are losing the top line.

Right but you would then your capitalizing

The 6 to 7 I gave is the net effect the net loss

6 to 7 is net FFO impact of pulling stuff into redevelopment?

NOI affect which in this case would be FFO.

But as you spend money you will capitalize the spend?

Additional money is capitalize definitely.

Okay thank you.

You still have the top line and the NOI loss you can't do anything about that.

Next question comes from the line of Rob Salsberry with UBS.

Hey guys its Ross Nussbaum, here with Rob.

To questions one, in conjunction with your guidance for next year are you prepared to give the gross EBITDA guidance?

What is underpinning the FFO guidance?

We have not given EBITDA guidance in the past.

So we certainly wouldn't do it at this time it is something that we would consider but we haven't done in the past.

Actually when I gave the EBITDA margin for the fourth quarter of 2010, that's it for some that we have done that.

But that was really in response to some specific comments that were out there about EBITDA margins eroding, which is not the case.

But, that is something we will look at doing going forward

Appreciate that and then I recognize this is been a really long call but it seems to me that when we all got on the phone and an hour and half ago that the market was looking to you guys for reassurance after the [Equinox] scare recently that in your business demand is holding strong, pricing is holding stable, and acquisition and development yields are holding.

And I just want to make sure we hear that message from you.

Is that the message that you would like people to leave this conference call with, that all of those things are generally true?

Absolutely.

Absolutely.

That is a very good point and if hasn't come across as what we were -- and the discussion that we are seeing -- very good returns.

Our returns on construction are holding very strong.

Our acquisition performance this year has been spectacular on income producing assets and then we are seeing more opportunities for the future and we are opening new markets that we think are very exciting and will have really good impact on our business going forward.

So when you look at the fundamental demand for the enterprise quality Datacenter, by all indications and everything we are seeing it's very positive and when we look at our customers you brought up Equinox and if you look at the folks that are in the co-location managed services, cloud computing space, demand from those customers including Equinox, Savis, TaraMark, Telac, I mean all of these customers of ours are doing quite well and some of the regional names that you might not be as familiar with are doing quite well.

So we are very positive about the whole secular demand and the landscape for our business.

And the fact that we have developed our operating scale very effectively to maintain cost and lower operating costs for our customers so given that cost of occupancy down and then having the financials scale to have of flexibility to fund our growth is going to give us a leg up on most of our competitors going forward and allow us to continue this growth trajectory that we have.

I'll have to give you guys some pom-poms and red bulletins to make sure that message keeps getting delivered.

Thanks.

Absolutely

What I would say is given our even though there is admittedly more interest in the space, we have a significant cost of capital advantage over any competitor our construction cost are lower so we can maintain the same margins, maintain the same yields and really I think meet any competition quite capably.

Thank you, appreciate it.

Your next question comes from the line of Chris Lucas with Robert Baird.

Good afternoon guys.

Just a quick understanding of the mechanics here.

When you make an investment in a new country like Singapore, how do you actually do that in terms of avoiding currency issues and how is the rent structured?

And then is there for external costs that you net out in terms of obtaining your results because of local taxes or other things that you can get around?

So, we will definitely at the end of the day this asset will be in Singapore dollars and the rent will be in Singapore dollars and there will be debt associated with the asset that's in Singapore dollars.

From that standpoint I think we are pretty well hedged.

From a tax standpoint, we will be structuring this through a (inaudible) space to holding company somewhat analogous to we do in Europe in Europe we use Luxemburg.

There will be certain raise some tax leakage but we employ one of the big four firms to help us structure a way to minimize tax leakage.

So, on the return expectations there of those post-or pre-leakage?

We evaluate everything post-leakage.

You have to.

Anything domestic is essentially tax-free, so if you go overseas you need to make the tax adjustments, so its apples to apples.

Okay great, thank you

I want to get back to one question that Michael Bilerman raised, while we don't give EBITDA guidance but I will say, Michael, is our EBITDA growth in the fourth quarter will generate additional debt capacity of $65 million.

So that you can probably back into that EBITDA number now.

And are no further questions at this time.

Great, well we appreciate everybody's time and focus on DLR and I want to congratulate once again our team in the US and internationally for continued great performance and continually we think we outperform the competition and allow us to continuing to be a leader in the Datacenter space.

And continue to grow the value for our shareholders.

Great.

That's all for today.

Thank you.

This does conclude today's conference call.

You may now disconnect.