Digital Realty Leases in Sydney - Analyst Blog

Digital Realty Trust Inc. ( DLR ), a niche real estate investment trust (REIT), has recently signed a new lease agreement with Rackspace Hosting Australia Pty Limited - a premier provider of cloud computing services that uses the Internet and central remote servers to maintain data and applications. The lessee would occupy a 480 kW Turn-Key Flex data center facility in Melbourne, Australia.

The deal would enable Rackspace to mark its footprint in Australia with the launch of its first data center facility in the region. Furthermore, the lease agreement strengthens the long-term relationships of both the participating companies, as Rackspace had been one of the existing customers of Digital Realty in the U.S.

Earlier at year-end 2011, National Australia Bank had leased a 5,000 square meter data center facility from Digital Realty. The leased facility was housed in the first of two buildings located at its acquired development site in Melbourne, Australia. The data center facility, scheduled for completion in early 2013, would be one of the two Digital Realty Tier 3 certified data centers in the offing in Australia, the other being developed at Erskine Park development site in Sydney.

The internationally recognized tier certifications are provided by the Uptime Institute, a New York City-based data center professional service organization. Tier 3 certification signifies that Digital Realty's data centers could run 24/7, with a design to avoid downtime in the event of maintenance or hardware replacement.

The data center facilities of Digital Realty feature a state-of-the-art power and cooling architecture that has been optimized for green operation. The facilities typically use metered power system to ensure that clients pay only for the power consumed. In addition, each data center facility is equipped with Digital Realty's PowerVU software, which enables centralized monitoring and management of data center power consumption, energy efficiency and load analysis to increase client profitability.

The Australian data center market has been a lucrative investment option for Digital Realty as cities like Melbourne and Sydney are found to have a limited supply of resilient, scalable data centre space available to meet increased customer demand. Consequently, over the years, Digital Realty has been strengthening its operating platform in Australia with the addition of several new local team members to deliver secure, reliable and cost effective data center solutions to customers that are expanding their IT operations in the region.

Digital Realty operates data centers and digital storage facilities which are primarily used by telecommunication companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such supply is relatively inelastic.

Digital Realty provides flexible and cost effective data center facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 108 properties throughout Europe, Asia, Australia, and North America spanning approximately 20.8 million square feet (including 2.2 million square feet of redevelopment space).

With demand for digital storage facilities increasing in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swing experienced during the recession. This in turn has enabled Digital Realty to continue to pay out solid dividends to its shareholders.

The rating on Digital Realty is currently Neutral and the stock presently has a Zacks #3 Rank that translates into a short-term Hold recommendation. MPG Office Trust Inc. ( MPG ), one of the peers of Digital Realty, also has a Neutral recommendation and a Zacks #3 Rank.

DIGITAL RLTY TR (DLR): Free Stock Analysis Report

MPG OFFICE TRST (MPG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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