Digital Realty Trust, Inc. Q4 2008 Earnings Call Transcript

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Digital Realty Trust, Inc. (DLR)

Q4 2008 Earnings Call Transcript

February 26, 2009 1:00 pm ET

Executives

Pamela Matthews – Director, IR

Michael Foust – CEO

Bill Stein – CFO and Chief Investment Officer

Analysts

Irwin Gusman – Citi

Jordan Sadler – KeyBanc Capital Markets

Michael Bowen – Piper Jaffray

Sri Anantha – Oppenheimer

George Auerbach – Banc of America

Michael Knott – Green Street Advisors

Susan Gutierrez – JMP Securities

Dave Rodgers – RBC Capital Markets

Tayo Okusanya – UBS

Michael Bilerman – Citi

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Digital Realty Trust fourth quarter and year-end 2008 earnings conference call. (Operator instructions) This conference call is being recorded today, Thursday, February 26 of 2009.

I would now like to turn the conference over to Pamela Matthews, Director of Investor Relations. Please go ahead, ma’am.

Pamela Matthews

Thank you and good morning, 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 Relations section of Digital’s website at www.digitialroyaltytrust.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 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 such forward-looking statements by the use of forward-looking terminology such as believes, expects, may, will, should or similar words and phrases. You can also identify forward-looking statements by discussions of future events or trends or discussions that do not relate solely to historical matters, including statements related to future demand, financing opportunities, financial ratios, liquidity, capital expenditures, property results, dividend policy, and the company’s expected financial results for 2009.

For a further 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, 2007 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, taxes, 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 accounts – accounting principals. 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 2008 furnished to the SEC and this information is available on the company’s website at www.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 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 free to return to the queue.

I will now turn the call over to Mike.

Michael Foust

Great. Thank you, Pamela. Welcome to the call, everyone. I’ll begin with a brief overview of Digital Realty Trust. Then I’ll review the success of our portfolio operations during the quarter and the year and conclude with an overview of our annual US data center market demand survey that was completed last week. Following my remarks, Bill Stein will discuss in detail our liquidity position and our fourth quarter and full year 2008 financial performance.

DLR is the leading owner and manager of technology real estate. Our portfolio currently contains 25 – 75 properties, totaling 13 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. The portfolio includes approximately 1.6 million square feet of space held for redevelopment, which continues to be an important source of growth for the company.

DLR provides a variety of datacenter facilities solutions, including Turn-Key Datacenter, Powered Base Building, and build-to-suit datacenters 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.

In the space of unprecedented economic and market challenges, we are especially proud of the company’s performance in 2008. Our team finished the year by turning another very successful quarter, especially with respect to leasing, operations, and finance. Demand has remained high for our datacenter products and we continue to closely manage our balance sheet to maintain comfortable levels of liquidity. We are confident that we will continue to achieve good earnings growth in 2009.

Portfolio occupancy excluding space held for redevelopment was 94.9% at year-end, a slight decline from 95.2% at the end of the third quarter. This was primarily due to timing of lease commencements including the previously planned termination of a portion of the Qwest lease for 350 East Cermak, the conversion of redevelopment space to operating portfolios at our Paris property, and the acquisition of a vacant building for a leading Internet enterprise company with lease commencement after the quarter-end in January 2009. Occupied square footage actually increased in the fourth quarter by 108,000 square feet to 10,810,000 square feet.

Turning now to our acquisition and leasing accomplishments, on December 10, 2008 we acquired the remaining 50% interest in a joint venture that owns 1500 Space Park Drive and 1201 Comstock Street in Santa Clara, California for approximately $20.6 million. The portfolio – the properties are 100% leased respectively to a major Internet enterprise and to a global computing technology company.

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