John McCloud is editor of Industrial Property Journal, from which this article is excerpted.
San Francisco—After announcing plans to raise $95 million through the sale of four million shares of stock, locally-based Digital Realty Trust Inc. launched initiatives to develop 330,000 sf of advanced data space in 10 US cities. The company owns and manages 49 properties in the US, Europe and Canada totaling 10 million sf.
The current initiatives involve redevelopment of office and warehouse space already scheduled for redevelopment at DRT facilities in Northern New Jersey; Boston; Philadelphia; Atlanta; Chicago; Dallas; Los Angeles;, San Francisco; Charlotte, NC; and Austin, TX. According to Chris Crosby, DRT's senior vice president of sales and technical services, demand for high-quality data space is exceptionally strong in all of those markets.
At the time of its IPO, some analysts believed too many investors had been burned by the failure of existing data centers to find and hold tenants. But the company quickly sold 21.42 million shares for a total of $257 million. While the average stock price of $12 a share was lower than the $14 to $16 a share the organizers initially hoped to achieve, the stock rose steadily during the past 18 months to close recently at $24.74 per share. It reached a high of $25.34 in May but began to decline slightly following the announcement of four million new shares.
CEO Michael F. Foust attributes the company's success to its specialization and commitment to holding properties long term. "Digital is the only owner that specializes in data-center facilities on a national and international basis," he says. "Our commitment guarantees stability and consistency of service that is in stark contrast to what many customers experience when they work with developers and investors with short-term divestiture goals."
In an interview with IPJ in December 2004, DRT chairman Richard Magnuson differentiated between investing in data centers and standard industrial real estate. He noted the former entails not just owning buildings, but also running the business inside them.
Though DRT was a fairly aggressive buyer last year, its most recent acquisitions closed in January. The $41.1 million in deals in 2005 involved four buildings totaling 474,000 sf in Piscataway, NJ; Herndon, VA; and Austin, TX. But the trust says it intends to use some of the proceeds from the new public offering to pursue new acquisitions. It will also use proceeds to temporarily reduce borrowings under its unsecured credit facility, as well as undertake the above projects.
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