Data center REIT pioneer Digital Realty Trust, Inc. DLR on January 7 presented at the Citi 2015 Internet, Media & Telecommunications Conference held in Las Vegas, Nevada.
Digital Realty is one of the largest 20 REITs with a market cap of $9.7 billion. The company has a track record of 10 consecutive years of dividend increases and is the only data center REIT with a BBB investment grade rating.
Digital Realty owns 131 data centers, located in 30 markets, on four continents, totaling 24.5 million square feet. This includes 1.3 million SF under development and another 1.3 million SF held for future development. The company has over 600 different tenants.
CEO and CFO Bill Stein reviewed Digital Realty's initial 2015 guidance and leasing highlights from Q4 and FY 2014, which had been previously released on January 5.
Digital Realty's Banner Year: 2014
While year-over-year performance comparisons may be challenging, Digital Realty is off and running to a great start for 2015.
Strong Post-Conference Performance
The future direction of interest rates and the price of oil are anybody's guess, but the never-ending growth of data is expected to double annually for the next several years.
5 Key Conference Takeaways
1. Sale Of Non-Core Assets. Non-data center assets formerly encumbered by a 10-year CMBS will now be sold to recycle capital. Additionally, between $175 million to $400 million of Digital Realty's legacy North American assets, located in tertiary or underperforming markets, are slated for sale in 2015.
There are currently two facilities totaling $175 million under contract anticipated to close in early Q1 2015. Notably, one vacant facility near Los Angeles, California, is being sold for an industrial use -- underscoring that data centers can be repurposed when the economics make sense.
2. Leveraging 'Intellectual Capital' And Adding To The Team. CEO and CFO Stein has been wearing both of these hats since March 2014. Stein's top priority is to hire a new CFO to free up time to focus on running a large global enterprise.
Additionally, Digital Realty is looking to hire an executive to focus solely on Asia/Pacific, which is currently being handled out of London, along with the European business.
Another critical piece of the puzzle will be to hire a new COO. Stein shared that since Digital Realty already "is heavy on real estate DNA," the goal will be "to up our game on the technology side."
3. Expansion In Europe - Development In North America. The strong U.S. dollar vs. euro, along with attractive financing will make it easier to acquire high-quality assets that will be accretive for existing shareholders, including a current goal of expanding into Frankfurt, Germany.
The majority of a $750 to $900 million development budget will be spent in North America during 2015. It makes sense to sell assets at approximately 6 percent cap rate, when there are new development opportunities in the 10 to 12 percent range.
4. Clarification Of 'Mid-Market' Definition. For Digital Realty, mid-market begins at 50 kW and probably goes up to 300 kW, (with deals under 50 kW likely being referred to channel partners). Exceptions are made for very large enterprise customers.
According to Stein, he uses the terms "mid-market" and "retail colocation" interchangeably.
5. Mega Web Giants - Next Tier. Over the past 10 years, Digital Realty has already gone through the growth curve along with customers such as Yahoo! Inc. and Facebook Inc. The process of starting with a few hundred kW, growing into double-digit MW and then customers moving out to build their own mega-data centers, is quite familiar to Digital.
However, the "next tier," or second group of: social media, mobile, analytics and cloud-focused technology growth companies appear to be more focused on investing money in core business initiatives. More data center alternatives exist today. These companies may take a different approach, than for example Google Inc -- a company that viewed its data centers as strategic facilities, to be owned and operated in-house, according to Stein.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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