Digital Realty Trust, Inc. (DLR)

DLR 
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Industry: Consumer Services
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Digital Realty Trust (DLR)

Q2 2011 Earnings Call

July 28, 2011 1:00 pm ET

Executives

A. Stein - Chief Financial Officer, Chief Investment Officer and Secretary

Michael Foust - Chief Executive Officer and Director

Pamela Matthews - Director of Investor Relations

Analysts

Todd Weller - Stifel, Nicolaus & Co., Inc.

John Stewart - Green Street Advisors, Inc.

James Feldman - BofA Merrill Lynch

William Crow - Raymond James & Associates, Inc.

Sloan Bohlen - Goldman Sachs Group Inc.

David Rodgers - RBC Capital Markets, LLC

Christopher Lucas - Robert W. Baird & Co. Incorporated

Jonathan Petersen - Jefferies & Company, Inc.

Vincent Chao - Deutsche Bank AG

Suzanne Kim - Crédit Suisse AG

Jordan Sadler - KeyBanc Capital Markets Inc.

Robert Stevenson - Macquarie Research

Presentation

Operator

Good afternoon. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Digital Realty Trust 2011 Second Quarter Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Pamela Matthews Garibaldi.

Pamela Matthews

Thank you. 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 Investors section of Digital's 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 forward-looking statements by the use of forward-looking terminologies such as believes, expects, may, will, should, pro forma or similar words or phrases. You can also identify forward-looking statements by discussions of strategies, plans, intentions, future events or trends or discussions that do not relate solely to historical matters, including such statements that relate to leasing trends, lease commitments, commencements and terms, construction, development and redevelopment plans, supply and demand for data center space, targeted cash returns, acquisition activities, capital markets activities and the company's future financial and other results, including the company's 2011 guidance and related assumptions.

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, 2010 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; core funds from operations; 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 and financial data package for the second quarter of 2011 furnished to the Securities and Exchange Commission. 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 stay within our one hour time limit, questions will be limited to one 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. My comments today will focus on providing some additional color around our leasing results, including renewals and pricing trends, as well as our recent acquisitions and construction activity.

I'll also provide our view of the supply and demand fundamentals, including absorption rates for New Jersey and Santa Clara markets. Following my remarks, I'll turn the call over to Bill, who will discuss our recent financial performance, provide an update on our capital markets activity and 2011 guidance.

As reported in our leasing results for the quarter, this was the second best leasing quarter in our history and best since the third quarter of 2008. We continue to see strong demand for our Turn-Key Datacenter solutions across 3 major regions: North America, Europe and Singapore. In addition, lease signings consist of customers representing a wide range of industry verticals, including software solution providers, managed services, cloud providers, financial services and Internet enterprises.

We made excellent progress in Singapore, where we signed leases for approximately 80,000 square feet of Turn-Key space, including a lease with Adobe in the second quarter. We are in active negotiations with several other customers and are tracking over 45 megawatts of potential demand in the Singapore market.

Other markets that experienced good activity during the quarter included Dallas, Santa Clara, San Francisco, Boston, Northern Virginia and Amsterdam. As we've stated in the past, leasing volume for both our Turn-Key and Powered Base Building products can vary quarter-to-quarter, evidenced by our lease signings through June 30, 2011, which totaled 262,000 square feet of Turn-Key and 186,000 square feet of Powered Base Building. We continue to experience strong demand across our markets for both solutions.

In terms of leasing backlog for the second half of 2011, we expect 137,000 square feet of TKD leases to commence, including approximately 112,000 square feet in the third quarter and 25,000 square feet in the fourth quarter. Expected PBB lease commencements for the balance of the year totaled 263,000 square feet, which include 110,000 square feet in the third quarter and 153,000 square feet in the fourth quarter.

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