Digital Realty: Data Center Deals in Pipeline

Digital Realty Trust (DLR) said today that it is likely to buy a number of occupied data centers that are on the market - not because the properties are distressed, but because they are among the easiest assets for their owner to sell.

In a conference call with analysts, executives of Digital Realty provided additional details about their plans to acquire several income properties, which generate revenue through rent from existing tenants. The company first discussed the plans this spring.

CEO Michael Foust said the deals were likely to conclude early in the fourth quarter of 2009, and involved "properties that are investor-owned and perhaps an outlier in the portfolio." Foust said the acquisition efforts focused on finished data centers that were fully leased to single tenants.  

Digital Realty CFO Bill Stein emphasized that these were not distressed properties, but said in some cases sellers may be seeking to raise cash to address challenges elsewhere in their portfolios. Fully-leased properties can be less complicated to sell than buildings that are partially leased or would require additional investment.

"We feel we have an opportunity to acquire very good assets at about 60 percent of their replacement costs," said Foust. "There are a handful of opportunities. We'll be seeing more of them in 2010."

Stein also said that lenders were slowly becoming more open to making loans secured by real estate, a key strategy for owners of large real estate portfolios to manage their liquidity.