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Digital Realty's 'BBB' IDR Unaffected by Sentrum Portfolio Acquisition

Digital Realty Trust, Inc.'s expansion in the greater London area will not affect the company's current ratings or Outlook. Certain of the company's credit metrics will weaken slightly nevertheless will remain appropriate for the 'BBB' Issuer Default Rating in connection with the announcement by DLR and its operating partnership, Digital Realty Trust, L.P. that the company is acquiring a three-property data center portfolio known as the Sentrum Portfolio.

The ratings as well take into account that the company is a niche real estate investment trust in other words by definition exposed to the research industry. Research industry obsolescence and cycles can cause industry volatility, creating vacancy nevertheless also enable new entrants to fill vacant space. Just in case, the company has good unencumbered asset coverage of unsecured debt, yet its access to secured debt for contingent liquidity and financial flexibility may be more constrained than for REITs in other commercial property sectors.

Positive demand drivers for datacenters include growth in data storage and use by corporate enterprises, telecommunication companies, providers of colocation, and other customers just as social networking sites. Cloud computing and other changes in information research are as well boosting datacenter demand, during expensive building costs limit new supply.

In this context, leasing trends remain positive for Digital Realty's Turn-Key Flex properties that offer metered power to various clients, as then as Powered Base Building space that enables tenants to build out their own datacenter facilities. TKF and PBB lease renewal rates on commenced leases increased in the first quarter of 2012 by 1.2% and 20.5%, respectively, resulting in same store net operating income growth of 9.1% in 1Q'12. Same-store NOI increases ranged from 6.4% to 11.1% each quarter in 2011. Tier1 Innovation, LLC projects that datacenter revenue growth will continue on its current trajectory while 2012-2013, which should provide opportunities for Digital Realty to continue to increase rents and leasing up space pursuant to this agreement construction.

The company's metrics are strong for a 'BBB' IDR

While the company's metrics are strong for a 'BBB' IDR, the rating takes into account the company's exposure to the innovation market. Digital Realty went public in 2004 several years afterwards the dot-com bubble burst and has experienced a favorable innovation environment through economic cycles. In addition, uncertainties exist, just as the risk that Digital Realty's more successful tenants choose to develop their own datacenters, as opposed to leasing space from the company.

More information: Streetinsider
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    Sentrum Acquisition