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Digital Realty Trust, Inc. (NYSE:DLR)

Q4 2008 Earnings Call Transcript

February 26, 2009 1:00 pm ET

Executives

Pamela Matthews – Director, IR

Michael Foust – CEO

Bill Stein – CFO and Chief Investment Officer

Analysts

Irwin Gusman – Citi

Jordan Sadler – KeyBanc Capital Markets

Michael Bowen – Piper Jaffray

Sri Anantha – Oppenheimer

George Auerbach – Banc of America

Michael Knott – Green Street Advisors

Susan Gutierrez – JMP Securities

Dave Rodgers – RBC Capital Markets

Tayo Okusanya – UBS

Michael Bilerman – Citi

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Digital Realty Trust fourth quarter and year-end 2008 earnings conference call. (Operator instructions) This conference call is being recorded today, Thursday, February 26 of 2009.

I would now like to turn the conference over to Pamela Matthews, Director of Investor Relations. Please go ahead, ma’am.

Pamela Matthews

Thank you and good morning, 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 Investor Relations section of Digital’s website at www.digitialroyaltytrust.com or you may call 415-738-6500 to request a copy.

Before we begin I would 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 such forward-looking statements by the use of forward-looking terminology such as believes, expects, may, will, should or similar words and phrases. You can also identify forward-looking statements by discussions of future events or trends or discussions that do not relate solely to historical matters, including statements related to future demand, financing opportunities, financial ratios, liquidity, capital expenditures, property results, dividend policy, and the company’s expected financial results for 2009.

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, 2007 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, earnings before interest, taxes, depreciation, and amortization or 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 accounts – accounting principals. Explanations of such non-GAAP items and reconciliations to net income are contained in the company’s supplemental operating and financial data for the fourth quarter of 2008 furnished to the SEC 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 manage the call in a timely manner, questions will be limited to two 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. I’ll begin with a brief overview of Digital Realty Trust. Then I’ll review the success of our portfolio operations during the quarter and the year and conclude with an overview of our annual US data center market demand survey that was completed last week. Following my remarks, Bill Stein will discuss in detail our liquidity position and our fourth quarter and full year 2008 financial performance.

DLR is the leading owner and manager of technology real estate. Our portfolio currently contains 25 – 75 properties, totaling 13 million rentable square feet excluding one property, the Westin Building in Seattle that’s held as an investment in an unconsolidated joint venture. Our properties are located in 27 metro areas across North America and Europe. The portfolio includes approximately 1.6 million square feet of space held for redevelopment, which continues to be an important source of growth for the company.

DLR provides a variety of datacenter facilities solutions, including Turn-Key Datacenter, Powered Base Building, and build-to-suit datacenters for domestic and international corporate customers. Our properties serve a wide range of industry vertical markets, including information technology, Internet enterprises, financial services, telecom network providers, energy companies, and other Fortune 1000 firms.

In the space of unprecedented economic and market challenges, we are especially proud of the company’s performance in 2008. Our team finished the year by turning another very successful quarter, especially with respect to leasing, operations, and finance. Demand has remained high for our datacenter products and we continue to closely manage our balance sheet to maintain comfortable levels of liquidity. We are confident that we will continue to achieve good earnings growth in 2009.

Portfolio occupancy excluding space held for redevelopment was 94.9% at year-end, a slight decline from 95.2% at the end of the third quarter. This was primarily due to timing of lease commencements including the previously planned termination of a portion of the Qwest lease for 350 East Cermak, the conversion of redevelopment space to operating portfolios at our Paris property, and the acquisition of a vacant building for a leading Internet enterprise company with lease commencement after the quarter-end in January 2009. Occupied square footage actually increased in the fourth quarter by 108,000 square feet to 10,810,000 square feet.

Turning now to our acquisition and leasing accomplishments, on December 10, 2008 we acquired the remaining 50% interest in a joint venture that owns 1500 Space Park Drive and 1201 Comstock Street in Santa Clara, California for approximately $20.6 million. The portfolio – the properties are 100% leased respectively to a major Internet enterprise and to a global computing technology company.

On November 20, 2008 we acquired an 110,000-square foot facility located in Manassas, Virginia for approximately $10.6 million. Upon completion of the acquisition, we signed a long-term lease with a leading Internet enterprise company, which commenced in January 2009. This brings our total acquisitions for the year to approximately $101.2 million.

As previously announced, for the year ended December 31, 2008 we commenced leases, totaling approximately 1.1 million square feet, which represents a 50% increase over leases commenced for the year ended December 31, 2007. This includes first, nearly 696,000 square feet of Turn-Key Datacenter space, leased at an average annual GAAP rental rate of $142 per square foot. Second, over 269,000 square feet of Powered Base Building space leased at an average annual GAAP rental rate of $42 per square foot, and third, approximately 180,000 square feet of non-technical space leased at an average annual GAAP rental rate of $22 per square foot.

For the quarter ended December 31, 2008, we commenced leases totaling approximately 320,000 square feet of space. This includes nearly 164,000 square feet of Turn-Key Datacenter leased at an average annual GAAP rental rate of $154 per square foot, approximately 119,000 square feet of Powered Base Building at an average annual rental rate of $49 per square foot, and approximately 38,000 square feet of non-technical space leased at an average annual GAAP rental rate of $15 per square foot.

For the year ended December 31, 2008, we signed leases representing over $1 billion in contract value, a 50% increase over the total contract value of leases we signed in 2008. Leases signed in 2008 totaled over 1.1 million square feet. This includes approximately 594,000 square feet of Turn-Key Datacenter space leased at an average annual GAAP rental rate of $153 per square foot, over 299,000 square feet of Powered Base Building leased at an average annual rental rate of $56 per square foot, and approximately 242,000 square feet of non-technical space leased at an average annual GAAP rental rate of $18 per square foot.

Now for the quarter ended December 31, ’08, we signed leases totaling approximately 276,000 square feet. This includes signed leases of 120,000 square feet of Turn-Key Datacenter space at an average GAAP rental rate of $180 per square foot, approximately 8,000 square feet of Powered Base Building at an average rental rate of $54 per square foot, and approximately 149,000 square feet of non-technical space at $17 per square foot.

Leases were signed in the fourth quarter with customers that include IBM, Cisco, Cigna Insurance, Facebook, and NTT America. Despite the challenging market conditions, we continue to see attractive pricing and strong demand for our top markets, particularly for our Turn-Key Datacenter product. This level of demand is consistent with the results of the US data center market demand survey that was completed for us last week and as well as the results of the European survey that we released last week. The surveys are conducted for us by Campos Research & Analysis. The US survey was conducted during January and February of ’09 and consisted of 300 senior level executive of firms with greater $1 billion of annual revenues and/or more than 5,000 employees.

The highlights of the results are as follows. Firstly, 84% of respondents said that they will definitely or probably expand data center space in the next 12 to 24 months. Also, the average IT budget is estimated to increase 6% in 2009 with data centers representing about 35% of the overall budget. Average data center spending is expected to increase by 6.6% over 2008.

64% of respondents plan to expand in two or more locations. In addition, the average requirement for new data center space is 21,000 square feet, up 17% from 2008. And lastly, the average projected kW per rack is up to 7.8 kW, up 8% from 2008. Overall, results of the survey indicate that at this time, the current economic environment does not appear to be materially impacting demand. A more detailed overview of the survey results is scheduled to be released in an upcoming press release.

Consistent with the results of the survey, the DLR sales team currently is engaged in direct discussions with over 77 megawatts of new data center prospects. In addition, we have identified 5 million square feet of active requirements seeking space in our top markets.

Turning to our redevelopment program, we currently are underway in construction projects in high-demand markets in US and Europe that will add 490,000 gross rentable square feet of additional data center space to our operating portfolio in 2009 including the HSBC build-to-suit in suburban London. In addition, we have construction underway in London, Paris, Northern New Jersey, Northern Virginia, Chicago, Dallas, and Silicon Valley.

In 2008, we delivered approximately 605,000 rentable square feet of Turn-Key space and over 50 megawatts of IT load. Overall, our leasing and product delivery programs contributed to strong results in 2008 and remain on track into 2009.

We are mindful of the many economic forecasts that predict slow or negative growth in 2009 and the global credit crisis shows few signs of abating in the near future. And we understand how these macroeconomic trends might affect our business. That’s why we have structured our business model with the operating flexibility to adapt to business cycles and with the financial flexibility to adapt to changes in credit and equity markets.

Our confidence in our financial strength and operating platform is due to the talented dedicated people on our team who have consistently kept Digital Realty playing out in front. We thank all of them for a job well done and we look forward to reporting on our progress in the year ahead.

Now, I would like to turn the call over to our CFO, Bill Stein. Bill?

Bill Stein

Thanks, Mike. Good morning and good afternoon everyone. I will begin with a discussion of our liquidity position and then review our fourth quarter and full year 2008 financial results. Following my remarks, we will open the call to your questions.

Liquidity remains a critical concern for all businesses including REITs and maintaining a strong balance sheet with financial flexibility is a top priority for us. Since our last call, we have sourced approximately $141 million of additional capital that added to our liquidity position, further buttressing our balance sheet while providing potential growth capital for later this year or next year.

At February 13, we completed an underwritten common stock offering of 2.5 million shares, resulting in approximately $83.3 million in net proceeds. At November 5, 2008, we funded a second draw from the Prudential Shelf Facility of $33 million at an interest rate of 9.32% with a five-year maturity. On January 6, we closed a third draw from the Pru facility for $25 million at an interest rate of 9.68% with a seven-year maturity. The proceeds from these transactions were used to repay borrowings under our revolving credit facility and for other general corporate purposes.

On January 6, 2009, practical completion of construction was achieved on a datacenter facility located on London’s perimeter. After drawing down 9.2 million pounds today and putting in place an interest rate swap, there is a 42.8 million pound outstanding on this loan. The loan is a five-year interest-only financing with an all-in swap fixed rate of 4.18% and no amortization. As a footnote, clearly this is a loan from a different era.

The total outstanding loan represents a 75% loan-to-value ratio based on an updated valuation prepared for the bank. In addition, we are in a documentation stage for a secured debt financing on a domestic property that would generate approximately $18 million of proceeds. The loan has a three-year maturity with a one-year extension at an interest-only rate of LIBOR plus 3.5% with principal amortization on a 15-year schedule.

Our total debt at quarter-end was $1.4 billion and our ratio of debt to total market cap was 29.8% based on the December 31, ’08 stock price of $32.85. Based on yesterday’s closing stock price of $28.93, our ratio of debt to total market value capitalization would be 31.9%. Our adjusted EBITDA to cash, fixed charge coverage ratio was 3 times and our adjusted EBITDA to cash debt service coverage was 5.2 times for the quarter.

As of December 31, ’08, the average cost of debt including interest rate swaps was 5.36% and the weighted average maturity was 4.9 years including debt extension options. A description of how we calculate these ratios can be found in the back of our supplemental operating and financial data report furnished to the SEC and available now on our website.

Turning now to our revolving credit facility, we currently have approximately $100 million outstanding on the credit facility. We are holding $60 million of that in short-term interest investments, which represents our estimate of funding requirements for the next 30-day period. We have $623 million for immediate liquidity through short-term investments and funds that can be drawn on our revolving credit facility. If this capacity were fully utilized our pro forma debt to total market cap would be approximately 39.7% based on yesterday’s closing stock price.

We remain comfortably in compliance with the covenants contained in our revolving credit facility, the Prudential Shelf facility, as well as our outstanding secured debt. Looking ahead, based on our current plans, we expect our capital requirements for 2009 to total between $383 million and $433 million, which includes $275 million to $325 million of redevelopment CapEx plus portfolio level CapEx of $40 million and $68 million of ongoing principal amortization and debt maturities. This assumes that we exercise the one-year extension option on 350 East Cermak loan in June of 2009.

If we fund all of our cash needs through the end of 2009 entirely on our revolver, we would have approximately $190 million to $240 million of liquidity at the end of 2009. In 2010, including the $95 million loan at 350 East Cermak, we have a total of $109 million of debt maturing and principal amortization. The Cermak property is expected to generate approximately $40 million of NOI in 2009.

Before moving on to our fourth quarter and full year financial results, I would like to briefly address our current dividend policy. As a reminder, last quarter we increased our common stock dividend by 6.5% or $0.02 per share to $0.33 per quarter, one of the few REITs to do so. We are currently paying approximately $26.7 million in dividends and distributions per quarter. We have done extensive internal analysis with the various dividend options other REITs have employed to preserve capital and/or improve liquidity including the stock cash dividend split. After our review, we have determined to maintain our current quarterly cash dividend distribution, but we’ll continue to monitor this as the year progresses and market conditions evolve.

Now, I would like to turn to our fourth quarter and full year 2008 results. The fourth quarter FFO per diluted share and unit of $0.76 per share includes approximately $0.07 of additional FFO from certain significant items that do not represent ongoing revenue streams. These items consist primarily of the remaining $4 million from the net termination fee of $11.9 million from Qwest at our 350 East Cermak property and property tax adjustments for two properties totaling $3.1 million. This is offset by $700,000 in straight line rent expense related to facility leases. After adjusting for these items, FFO was $0.69 per diluted share and unit.

As I discussed on our last call, third quarter FFO of $0.69 per diluted share and unit included approximately $0.06 per share of additional FFO from certain significant items that do not represent ongoing revenue streams. After adjusting for such items, third quarter FFO was $0.63 per diluted share and unit. After adjusting for one-time items in all quarters, fourth quarter FFO per diluted share and unit increased 9.5% over the third quarter and 30.2% over the fourth quarter of 2007.

For the full year 2008, FFO per diluted share and unit was $2.62 per share. When adjusting for one-time items plus $0.02 per share of additional non-recurring FFO discussed on our first quarter 2008 call, 2008 FFO per diluted share and unit was $2.48. This represents a 21% increase over reported 2007 FFO per diluted share and unit of $2.05. After adjusting for approximately $2.5 million or $0.03 per diluted share and unit of additional FFO from items that do not represent ongoing revenue streams in 2007, 2008 FFO per diluted share and unit increased 22.8% over 2007.

Adjusted funds from operations or AFFO for the fourth quarter of 2008 were $44.3 million or $0.56 per diluted share and unit. This compares to a third quarter 2008 AFFO of $44 million or $0.55 per diluted share and unit. The AFFO payout ratio for the fourth quarter of 2008 was 58.9%, up from third quarter AFFO payout ratio of 56.4%.

EBITDA adjusted for preferred dividends and minority interest was $90 million in the fourth quarter of 2008, up 11.5% from $80.7 million in the third quarter and up 51.8% from the $59.3 million for the fourth quarter of 2007. For the full year, EBITDA adjusted for preferred dividends and minority interest was $303.9 million in 2008, up 34.2% year-over-year from $226.4 million excluding the $18 million gain on the sale of assets in 2007.

We are paying considerable attention to the impact of the challenging economy on our tenants and business. At this time, our accounts receivable aging and delinquencies remain consistent with historical norms and we believe we maintain adequate bad debt reserves. One of our tenants filed for bankruptcy during the fourth quarter. That tenant leases approximately 12,000 square feet of Turn-Key Datacenter space as its primary datacenter for US operations and 3,000 square feet of office space. This tenant is current on its rent and we believe that this tenant will affirm its lease in bankruptcy. The tenant’s current monthly tax rent is approximately $94,000.

Same-store NOI was $76.7 million in the fourth quarter of 2008, up 9.3% from $70.2 million in the third quarter of 2008 and up 23.7% from $62 million in the fourth quarter of 2007. Same-store NOI adjusted for straight line rents and FAS 141 adjustments, which we refer to as same-store cash NOI, was $67 million in the fourth quarter, up 3.9% from $64.5 million in the third quarter of 2008 and up 25.9% from $53.2 million in the fourth quarter of 2007. These increases were primarily the result of new leasing commencing in our properties during the 12-month period ended 12/31/08.

I would now briefly review specific items in the statement of operations and provide additional detail on the results for the quarter. For the fourth quarter, rental revenues increased to $111.4 million, up 8.8% from $102.4 million in the previous quarter. The increase was primarily due to the commencement of leases signed in previous quarters. Rental revenues for the full year 2008 were $404.6 million, up 26.6% from $319.6 million in 2007, reflecting the commencement of leases signed during the year for Turn-Key and Powered Base Building space.

G&A decreased during the quarter to $8.6 million, down from $11.3 million in the previous quarter, primarily due to the acceleration of the outperformance plan in the third quarter and lower audit and tax related fees and a state tax refund in the fourth quarter. G&A expense in future periods maybe higher as a result of audit and tax related fees, compensation expense, marketing spending, and other items.

G&A was $38.6 million in 2008, up from $31.6 million in 2007. The increase was due primarily to the growth of headcount from 153 employees at the end of 2007 to 210 employees at the end of 2008. In addition, occupancy expense increased approximately 850,000 in 2008 relating to our San Francisco, Boston, and London office rents.

Turning now to our balance sheet. During the fourth quarter, we capitalized 19% or $4.1 million of interest related to construction projects, which compares to 22% or $4.4 million in the third quarter of 2008. We capitalized approximately 25% or $2.4 million in compensation expense compared to approximately 26% or $2.8 million in the third quarter of 2008.

Finally, as noted in our earnings release, we are not changing guidance at this time. This concludes our formal remarks. We would now be happy to take any questions that you might have. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) And our first question comes from the line of Michael Bilerman with Citi. Please go ahead.

Irwin Gusman – Citi

Good morning, it’s Irwin Gusman here with Michael. Mike, there was some news over the last couple of weeks about new data center technology being marketed by Dell that effectively allows data centers to run at higher temperatures, the purpose of which is to reduce obsolescence in legacy data centers. Can you explain that technology a little bit and how you see it sort of affecting demand for your product?

Michael Foust

Yes, it’s not a new technology at all. It’s marketing, trying to sell more Dell service, which is good. I mean, we already won our data centers at temperatures well into the 70-degree Fahrenheit up to the mid-70s depending on the circumstances. So, this isn’t really anything new and in that particular article, the ASHRAE and standard they were talking about being set was standards that our engineers participated on the standards setting committee. So, it’s no new news, but just good operating practices though that they are pointing out that you can’t run these facilities much higher and so at the higher temperature – so you can lower your cooling costs and run your data center more efficiently.

Irwin Gusman – Citi

Fair enough. And some of your publicly traded peers have talked about slower rates of bookings among enterprise tenants. Can you talk about what you are seeing and sort of layer that into the analysis that you did that was just published a week ago?

Michael Foust

Sure. We are seeing our velocity of signings and levels of demand staying pretty steady from what we have seen in the previous quarters. So, we haven’t seen any material change at all to our experience with our prospective customers. So, it’s kind of moving along at relatively the same pace.

Irwin Gusman – Citi

Would you say that financial services is still – I think you mentioned 30 to 40% of sort of external demand or the demand that you are tracking for your development pipeline?

Michael Foust

Probably around 25% or so roughly.

Irwin Gusman – Citi

Okay, thank you.

Operator

Thank you. Your next question comes from the line of Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Jordan Sadler – KeyBanc Capital Markets

Hey, guys. Just – coming back to the construction, what’s under construction at year-end, I think you mentioned in your comments it’s in the supplement of about 408,000 square feet. Two questions about it. One, it doesn’t look like the Manassas property is included in there and just if you could confirm that and then second, could you tell me – characterize how leased this portion of the pipeline is or how leased that portion of the pipeline is?

Michael Foust

Sure. Yes, you are right. The Manassas property is not included in there and that property was acquired and leased to the tenant and the tenant is using their capital to build out the space. So, we identified the side and have the power and fiber and the tenant wanted to use their capital to build that out. So, you are right, it’s not included in that amount.

Jordan Sadler – KeyBanc Capital Markets

How leased is the 409,000?

Michael Foust

I’d say it’s probably more than 50%, probably two-thirds or so is signed leases on it and we’ve got tenants under negotiation for virtually all the space.

Bill Stein

Jordan, for example, included in that number would have been the HSBC facility in Wayland [ph], as well as the Cressex [ph] facility, both of which commenced in January.

Jordan Sadler – KeyBanc Capital Markets

Okay. Just to get a segue into the question I have for you, Bill, which is what does the backlog look like?

Bill Stein

The signings that haven’t commenced?

Jordan Sadler – KeyBanc Capital Markets

Yes, sir.

Bill Stein

Okay. Looking into the first quarter, there is about 85% of what we have signed, will commence. And then second quarter about 10%, and 5% in the third quarter.

Jordan Sadler – KeyBanc Capital Markets

What’s the amount in terms of revenue?

Bill Stein

Revenue? Call it roughly $30 million in the first quarter of annualized GAAP rent and $5 million in the second and $5 million in the third.

Jordan Sadler – KeyBanc Capital Markets

Those numbers are the contribution to 2009 numbers?

Bill Stein

No, that is our annualized.

Jordan Sadler – KeyBanc Capital Markets

Those are annualized?

Bill Stein

Those are annualized. If you want the contribution of ’09, I’d call it like 28 plus in the first quarter, 3 plus in the second quarter, and between 1 and 2 in the third.

Jordan Sadler – KeyBanc Capital Markets

Okay. And then lastly, on Manassas, I’m curious what shell rents look like these days?

Bill Stein

Yes, hey Jordan. Before we go on, all of those revenues are stated in dollars and some of the leases that commenced like the HSBC and Wayland lease in particular and there are some leases also in Paris that have some currency risk associated with them.

Jordan Sadler – KeyBanc Capital Markets

Okay, makes sense. And just lastly, on Manassas, I’m curious what shell rents look like these days.

Michael Foust

Yes, that one because we didn’t make any additional Powered Base Building improvements, we really turned around and leased that more on a high-end industrial rent. So, the returns are good, but the rents are – don’t reflect the true Powered Base Building.

Jordan Sadler – KeyBanc Capital Markets

Okay. Low-20s?

Michael Foust

Actually lower than that just because it’s more of an industrial building rent, but the returns are very good for us.

Jordan Sadler – KeyBanc Capital Markets

Okay.

Bill Stein

Returns are very good for an industrial building.

Michael Foust

Because we are able to play it right. So –

Jordan Sadler – KeyBanc Capital Markets

Okay, I’ll hop back in the queue. Thanks, guys.

Michael Foust

Thanks.

Operator

Thank you. Our next question comes from the line of Michael Bowen with Piper Jaffray. Please go ahead.

Michael Bowen – Piper Jaffray

Okay, thank you. Nice quarter. I had a couple of questions. First of all, I guess first question for Bill. Bill, how do you think about going forward here when you make your decisions about doing either equity or debt offerings? I mean, obviously I know debt is expensive here, but one can make the argument that the equity is not necessarily cheap either. I just want to understand your methodology with regard to that. Second question, you guys had already pre-announced that – I believe your number of square footage for signed leases in the fourth quarter was I think 276,000 and one thing that struck me was that that was down sequentially and down year-over-year. So, I wanted to get a feel for it if you could now that we are two months into – almost two months into first quarter, how signed leases are progressing in the first quarter, whether you are seeing a pickup there and I guess that really dovetails off the other question with regard to some of your other non-REIT peers in the space are experiencing slowness in bookings. So, I want to get an idea on how things are tracking. Thanks.

Bill Stein

Okay, I’ll address the balance sheet and Michael will address the second question. So, we have plenty of capacity on our revolver as I indicated. But our objective is to maintain as much liquidity on that facility as we can. We also have plenty of capacity within our financial covenants to add more debt. So, I think given the choice today, we would look at debt rather than equity. The market is being a little stingy in terms of allowing company’s access to debt as you are probably – as you probably know. But we are in the market – as I said, we are documenting one small mortgage, the $18 million deal. Then we are going to market with another package or two in the US and we are looking at another secured financing in Europe as well. So, our bias at this point would be to achieve mortgage debt if we could get it at reasonable rates. Fortunately, we’ve got plenty of room on the credit facility and so, we are not in any dire need to go back to market in either case. I think in terms of whether or not we go back to the equities, we saw the last raise, it’s basically an opportunistic small raise, we were concerned that – in terms of timing, we were concerned that the announcements coming out of the administration might not be well received and that that might put a little downward pressure on the market. So, we thought it would be an appropriate time to take a little equity, not a lot of equity because frankly we didn’t need it, we didn’t know, I mean the stock price could go higher. So, in a sense, we were dollar averaging it.

Michael Bowen – Piper Jaffray

Okay.

Michael Foust

And then regarding your question on signed leases, a couple of things I think, leases in our world tend to be very chunky. They are sizeable square footages, sizeable dollar amounts, and we had an extremely high quarter in the third quarter, actually the highest quarter we ever had. So, I think some of those deals that may have been fourth quarter deals percolated into the third quarter and if you look overall for the year, it did – it’s quite good. Also, in November/December, I think almost all businesses really kind of pulled back their reins and took stock of kind of where their situations were going to be going forward and yes, there is definitely a slowdown in those two months. And then that we’ve seen mid-January – companies seem to have their budgets in place and seem to have their strategic and tactical plans in place. So, we are seeing that our leasing activity at a very good pace right now. So, I think there is a bit of a low there at the end of the year, last two months of the year that now has – activity has picked up again.

Michael Bowen – Piper Jaffray

Okay. Thank you.

Operator

Thanks. Our next question comes from the line of Sri Anantha with Oppenheimer. Please go ahead.

Sri Anantha – Oppenheimer

Yes, good afternoon. Thank you. Mike, I think in your prepared remarks you talked about this potentially 5 million of opportunity in the marketplace. Could you just maybe give us some color on that? How much of that demand do you think is coming from your existing tenants as opposed to new tenants? And second question for Bill. Bill, I know you guys have maintained the guidance, is it possible to give some kind of a breakdown? I know previously you guys talked about Turn-Key and Powered Base lease commencements of about 500 to 570. Just based on your recent plans, it looked like more of it is coming from Turn-Key as opposed to Powered Base. Should we expect that to continue in 2009? Thanks.

Michael Foust

So, in regards to kind of that universal prospects we see out there, probably somewhere around 25% to 30% or so would be from existing customers and the rest from other prospective customers out there or people we are aware of. Some of that might also be folks that are considering doing it themselves and building and owning their own datacenters, which we see a lot of. And that’s been the typical program in the past and what we’ve also see in those – a number of these companies that are looking at doing it themselves are now looking at DLR as a great opportunity to be able to maybe spread their requirements out over several years and to be able to utilize our Turn-Key solution for their facilities. So, it’s a pretty broad range of prospective customers, but – but we are pleased to see that kind of activities out there in the market.

Bill Stein

Yes, relative to guidance, as I said we are not making any changes there at this time neither to the output nor the assumptions, but having said that, there is I think going to be more leasing out of the Turn-Key space than Powered Base during the year. And I think that’s a fair assumption, Sri.

Sri Anantha – Oppenheimer

Thanks, guys. Good quarter.

Operator

Thank you. Our next question comes from the line of George Auerbach with Banc of America. Please go ahead.

George Auerbach – Banc of America

Hi, good afternoon. Mike, you mentioned that demand to your markets was flattish quarter-over-quarter at around 5 million square feet. But if you begin to see tenants push back on rents just given the macro weakness and uncertainty as – which markets and industries seem most affected?

Michael Foust

Well, we haven’t seen pushback on rents thus far. So, we are being conservative and we are not projecting significant increases in rents. I mean, where rents are typically at that – providing good returns currently. In terms of what verticals might be slowing down, gosh, the one – our primary vertical market with some of the Internet enterprises and financial services and some of the broader corporate Fortune 1000s, we really – I couldn’t say that we are seeing a particular slowdown in any of them.

George Auerbach – Banc of America

Okay. Bill, what was your construction in progress for the year that you were capitalizing at year-end?

Bill Stein

Year-end, it’s a little over 400, 403.8 to be precise. But as I said, quite a bit of that includes Wayland and Cressex, which were coming out in January. That’ll all be that – but the numbers will be in the queue, which is (inaudible) on credit.

George Auerbach – Banc of America

Okay. And finally, have you seen construction costs on the redevelopment pipeline abate over the last 12 months, just given the pullback in some commodity markets and a general slackening in demand?

Bill Stein

Really no. With that said, our team has done a great job of standardizing and industrializing, if you will, our engineering design and construction and equipment purchasing. But I can’t say that there has been any kind of significant decrease overall in cost. And I think what you see is, for a lot of this electrical equipment and generators and what not, the equipment is billed to order not to inventory. So, as demand slackens manufacturers are also reducing their manufacturing capacity at the same time. So, they are holding on unit cost, but the good news for us is because we have our global purchasing programs in place, it gives us a lot of flexibility for equipment both here and in Europe. So, we can continue to enjoy a pretty significant cost advantage over other folks building these facilities.

George Auerbach – Banc of America

Okay, it’s helpful. Thank you.

Operator

Thanks. Our next question comes from the line of Michael Knott with Green Street Advisors. Please go ahead.

Michael Knott – Green Street Advisors

Hey, guys. Can you just give us a little color on how you thought about deploying capital this quarter for the acquisitions that you did? Obviously, the one you talked about sounded opportunistic. What about the joint venture, how did you think about preserving capital versus going ahead to do that deal?

Bill Stein

It’s a very attractive yield, Michael, on acquiring the JV equity from our partner, and from an administrative standpoint, it was good to take full ownership of the asset. These assets, once they are fully owned go into our revolver borrowing base and in the case of these two, at least the one had a debt on it and the second one we are negotiating to put debt on it. But it’s still easier to put the debt on if it’s solely owned by Digital. So, bottom line it was an extremely attractive return.

Michael Knott – Green Street Advisors

Was that on par with development or was that –

Bill Stein

I’d say so. I mean, let me put it this way, a smidge under, but without any of the risk. I mean, it’s already leased. So –

Michael Knott – Green Street Advisors

Can you just help us understand your thoughts on sort of the overall health of your tenant base in this downturn compared to what we may have seen had you been as big as you are today in the last downturn?

Michael Foust

Well, I think one big difference between 2000 to 2002 timeframe and today is that so many of these facilities were populated by ventureback.com type tenants who in many cases were really negative EBITDA startup type companies. Whereas today, the tenant base in these facilities – and this holds true for our IT services tenants as well, the (inaudible). Their customer base are corporate enterprise now for the most part and large Internet enterprises that have significant revenue, significant EBITDA. So, it’s a real different customer profile and I think it reflects the fact that these types of facilities and the Internet and data processing is really not just focused on Internet per se, but it’s utilized by corporations overall. And, I think we are seeing that both on our direct customers, as well as the customers of our system integrator and IT services tenants.

Bill Stein

Yes, Mike. Let me – and I would characterize these as essential facilities to higher-grade credits than what was taking place in the early 2000 timeframe. I think the economy is in worse shape today than it was then, but I think that the usage and the needs are very different.

Michael Knott – Green Street Advisors

Okay, thanks. That’s helpful.

Operator

Thank you. Our next question comes from the line of Susan Gutierrez with JMP Securities. Please go ahead.

Susan Gutierrez – JMP Securities

Hi, thanks. I was just wondering if you could discuss what you are seeing in the market in terms of cap rates and what the cap rate looks like on your fourth quarter acquisition.

Michael Foust

Cap rates are really hard to peg and I think similar for the – our datacenter niche as in other product types just because there is so few transactions occurring right now. Our investments in the fourth quarter, one was a building we acquired vacant for a customer in Virginia and we were able to lease to lease that at a very attractive return for ourselves, but it was a vacant building when we bought it and as Bill just mentioned, the buying of the 50% in the joint ventures, which worked out well. So, I’d have to say it’s really hard to peg cap rates today just because there is so few comps occurring.

Susan Gutierrez – JMP Securities

Okay, thanks.

Operator

Thanks. Our next question is a follow-up from the line of Jordan Sadler. Please go ahead.

Jordan Sadler – KeyBanc Capital Markets

Can you guys just clarify on the acquisition of 1500 Space Park and 1201 Comstock, I might have missed this, did the $20 million I assume that excludes – that’s just the equity?

Bill Stein

Well, 1500, you’re right; it’s just the equity. 1500 had debt in place, 1201 does not. 1201 is where we are working to put debt in place.

Jordan Sadler – KeyBanc Capital Markets

So, the $22 [ph] million, roughly half of that was the JV partners, right. So, the all-in price was probably more like $42 million, that’s the right way to look at it?

Michael Foust

Yes, it would be the right way to look at. I don’t know if that's -- that’s not the exact number, but –

Bill Stein

Yes, because our investment in our half is less than what we paid our partner for his investment, if you follow what I’m saying.

Jordan Sadler – KeyBanc Capital Markets

No, but I’ll follow up with you later. And then, you mentioned $623 million of immediate liquidity. Did that exclude what remains in terms of the commitment under the Pru facility?

Bill Stein

Yes.

Jordan Sadler – KeyBanc Capital Markets

And so, what’s – just remind me what’s left under there? Is it about $125 million to $150 million?

Bill Stein

It’s about $117 million, I think. That is an uncommitted facility though. So, when we look at our liquidity position, we don’t include that.

Jordan Sadler – KeyBanc Capital Markets

Wait, it’s committed or it’s uncommitted?

Bill Stein

It’s uncommitted. It’s always been uncommitted.

Jordan Sadler – KeyBanc Capital Markets

I thought it was actually committed, but that you drawdown on an individual. I guess I’ll follow up with you on that one as well. And then, just I guess more a big picture, I was curious in terms of your thoughts and expectations as it relates to the stimulus bill and healthcare IT spending, how, Mike you think that may factor in and if you are seeing any evidence of what may come of that type of spending?

Michael Foust

Yes, it’s interesting that you bring that up, because that’s something that we are looking at pretty closely and our sales team and some of our analysts are looking at closely to try to discern where the spending is going to occur. A lot of it is supposedly targeted for on to buying records and access and records with tension and billing and those sorts of things, which would play very well into the strategy of providing increased data processing capacity and facilities for that. So, not clear how that’s going to play out, a lot of your large healthcare companies tend to own their facilities because they own large hospitals and again, clinic buildings, but I think we have a very good value proposition for these folks that we can provide some of this increased requirements and they could put their capital into the – directly into the healthcare facilities instead of in the data centers. So, that’s one, it’s not clear how it’s going to play out, but it’s definitely a vertical that our group is focusing on.

Jordan Sadler – KeyBanc Capital Markets

Okay. And then, I just curious about what you are seeing and you may have touched on this a bit, just the mix of the 5 million square foot pipeline that you guys are tracking, Turn-Key versus shell.

Bill Stein

It would probably be – the great majority would be Turn-Key. Also I just want to reinforce that that 5 million fees, that’s requirement in the marketplace that we’ve identified. So, it’s not necessarily folks that we are negotiating with or have proposals out. We’ve got proposals, you are engaged on about 75 megawatts, which would translate to roughly 1.5 million, 1.7 million square feet or so on a kind of gross rentable basis, but what’s encouraging is that companies are seeking out data center expansion and new solutions. So, I think just in terms of kind of gross numbers it’s encouraging, but certainly folks need Turn-Key built-out space whether they do it themselves or whether they come to DLR.

Jordan Sadler – KeyBanc Capital Markets

Okay. And then, on that – the part of the amount you’re engaged on, what's the typical or expected close ratio?

Michael Foust

I think probably around 30% to 40%.

Jordan Sadler – KeyBanc Capital Markets

And then, you said that’s supposedly Turn-Key as well?

Bill Stein

Yes.

Jordan Sadler – KeyBanc Capital Markets

And last question just is on the roll. What is the mix of the roll for 2009, you have 5% of rent rolling roughly?

Michael Foust

Yes, I think we’ve got a pretty large portion is non-technical space actually.

Jordan Sadler – KeyBanc Capital Markets

Wasn’t that 2010 that you got non-technical spaces rolling or is that –

Michael Foust

Well, I think – in both years it’s about – I think about two-thirds of it is technical space and about a third is non-technical space.

Jordan Sadler – KeyBanc Capital Markets

And of the technical, how would you handicap it Turn-Key versus shell?

Michael Foust

I’ll have to take a look at that because a lot of leases are essentially Powered Base Building because of the tenant put be improvements in themselves.

Bill Stein

Yes, mostly shell.

Michael Foust

It would be more Powered Base Building type rents.

Jordan Sadler – KeyBanc Capital Markets

Any sort of process Bill, in terms of giving us maybe a little bit more color on the roll schedule given that it’s going to be a little bit more meaningful over the next couple of years in terms of the exposure?

Bill Stein

Well, we could do that. It’s in our guidance; it’s in the bottom line number.

Jordan Sadler – KeyBanc Capital Markets

I know, but it just makes it easier for us to track and sensitize as we look forward.

Michael Foust

You want to model it or something?

Jordan Sadler – KeyBanc Capital Markets

Yes, that’s what we do.

Bill Stein

You won’t accept our word for it, will you?

Jordan Sadler – KeyBanc Capital Markets

We think an awful lot of you guys.

Michael Foust

No, but I think what we will be able to do is as we start going through the year, we will be able to give more details and more clarity, but I think we’ll have a good renewal rate and in some cases where maybe tenants are not renewing or downsizing a little bit, we are getting space back that we are redeploying at good rates. So, it’s bit of a combination there, but –

Jordan Sadler – KeyBanc Capital Markets

Anybody giving back space?

Michael Foust

We are working on one lease right now with one of the larger network providers and we are actually – in San Francisco and what we are able to do is renegotiate the space on the remainder that they are keeping and that’s actually going to be somewhat higher total revenues than we are achieving now and then we’ll have 40 or 50,000 feet that we can then redeploy in just one of our Internet gateway buildings at – where we expect good rents. So, kind of getting our – from the benefit of accommodating a customer, but still maintaining our revenue profile at the same time and with space to grow.

Jordan Sadler – KeyBanc Capital Markets

Okay.

Bill Stein

Qwest was a big give-back too in the fourth quarter.

Jordan Sadler – KeyBanc Capital Markets

There was one in the fourth quarter?

Bill Stein

Yes, that’s what Qwest was, the termination fee.

Jordan Sadler – KeyBanc Capital Markets

Right. Any prospects on backfilling that space?

Michael Foust

Yes, I mean we’ve signed one pod customer and we’ve got prospects that we are negotiating with for virtually all the space.

Jordan Sadler – KeyBanc Capital Markets

So, leased by year-end safely?

Michael Foust

Yes.

Jordan Sadler – KeyBanc Capital Markets

Okay.

Bill Stein

Signed.

Michael Foust

Yes, we expect to have signed leases for the floor by the end of the year.

Jordan Sadler – KeyBanc Capital Markets

Thank you.

Operator

Thank you. Your next question comes from the line of Dave Rodgers with RBC Capital Markets. Please go ahead.

Dave Rodgers – RBC Capital Markets

Hey, Bill, I just wanted to follow up. $380 million to $430 million is the number I wrote down for capital deployment. Was that just for ’09 or did that include all the finishing on the redevelopment and development spending and did that also include acquisition?

Bill Stein

That’s ’09, that includes redevelopment CapEx, that includes portfolio CapEx, that also includes debt maturities and amortization. That’s all capital outflows, not just CapEx for redev.

Dave Rodgers – RBC Capital Markets

So, if we just look at I guess the capital spending for redevelopment, development, TIs, other improvements that are planned from now till completion, what does that number look like?

Bill Stein

I mentioned that that was $275 million in the quarter.

Dave Rodgers – RBC Capital Markets

Okay, thank you. With respect to acquisitions –

Michael Foust

That’s part of our guidance that.

Dave Rodgers – RBC Capital Markets

Which was consistent with the – I just wanted to make sure that that was consistent. With respect to the acquisitions or opportunities, I didn’t hear you address this, and if you did, I apologize but with respect to distressed opportunities or similar to the Manassas acquisition, industrial other types of asset, can you just comment broadly on what you’re seeing?

Michael Foust

We’re really not seeing anything distressed leases, any assets that even might tend to being distressed are assets that aren’t built out. So, and there maybe some interesting opportunities as we need to fill-in in certain markets and bring online some incremental space, but by and large, assets that are leased are enjoying good cash flow and typically are under-levered and there is really – you don’t see distressed in our sector at this point. But we are keeping our eyes open for opportunistic – or I wouldn’t say opportunistic, but opportunities that we see where maybe on a risk-adjusted return an acquisition might look interesting or there might be some portfolio situations down the road, but – and then, the Manassas building that was more kind of a buy-to-suit if you will, we – one of our existing customers needed to expand and so we went out and found a building for them. And we will certainly look to do more of that and I’m thinking that perhaps finally maybe 2009 might be the year where sale lease-backs might be attractive to owners, especially corporates who would want to do sale lease-back on corporate-owned facilities. So, I have been saying that every year for the last five years, but maybe this year will be a year where we may have some opportunities there.

Bill Stein

We’ve also looked at some situations where mortgage debt was presented to us at a discount mortgage debt on data centers, but have not been able to come to an agreement on pricing on any of that.

Dave Rodgers – RBC Capital Markets

What type of discounts are being offered?

Bill Stein

Not big enough for us.

Dave Rodgers – RBC Capital Markets

All right. Thanks, guys.

Operator

Thanks. Your next question comes from the line of Tayo Okusanya with UBS. Please go ahead.

Tayo Okusanya – UBS

Yes, good afternoon. I just wanted to push a little bit more on the acquisition environment. In the two acquisitions you did, one, who was the JV partner on 1500 Space Park again and just based on the pricing you guys paid, what exactly were the cap rates on those two deals?

Michael Foust

The partner in that market is Pelio & Associates and a very experienced Santa Clara developer and investor, and we are not disclosing the exact economics on that.

Tayo Okusanya – UBS

Okay.

Michael Foust

But it was consistent with kind of our risk-adjusted returns for that kind of a lease facility.

Tayo Okusanya – UBS

And then the Pru financing, could you kind of just walk us through the basic terms of that again?

Bill Stein

Which one? The one we did in the fourth quarter or the first quarter?

Tayo Okusanya – UBS

The fourth quarter.

Bill Stein

The fourth quarter was $25 million, I’m sorry that was the fourth quarter – the fourth quarter was $33 million at 9.32%, that was five years interest only, five-year book. And the first quarter was a $25 million draw for seven years interest only at 9.68.

Tayo Okusanya – UBS

And you said you still have $117 million of draw you can make against this, but it’s an uncommitted facility. Is that correct?

Bill Stein

It’s an uncommitted facility. So, Pru doesn’t have to make any of it available and the pricing is subject to negotiation every time we draw.

Tayo Okusanya – UBS

Got it, got it. Okay, thank you very much.

Bill Stein

So far they’ve made it available, but I think for the purposes of liquidity planning.

Tayo Okusanya – UBS

You guys don’t include it? Great, thank you.

Operator

Thank you. Next question is a follow-up from the line of Sri Anantha. Please go ahead.

Sri Anantha – Oppenheimer

Mike, I know you’ve said on your comments that you haven’t seen any material slowdown in your leasing signing activity. Is it safe to assume that given that you are already through mostly two months in the 1Q that the pace of new lease signing in 1Q is at least on part of it what you have signed in 4Q?

Michael Foust

Probably not signing, negotiations are up, but I think a majority of the signings will happen early in the second quarter.

Sri Anantha – Oppenheimer

Got it. And in the past you guys have made comments that Chicago was one of your strongest markets. Is that still the case today? At least it does seem to be that a couple of your peers seem to be in Chicago. They’ve generally been – market being slower than expected in that part of the market.

Michael Foust

Yes, there is a real dichotomy between our building and the central CBD type properties. Our building being 350 Cermak, really is the fortress Internet gateway that has a lot of financial services, a lot of the trading, commodity trading platforms, a lot of these applications need very low latency because of the power infrastructure and the network infrastructure in there. It’s very attractive for customers. So, our demand is very strong in that market and I think just reflects and suburban market is a different tenant base perhaps and I’m speculating it might be more of a tenant base that tend to do it themselves, some of the large insurance companies that already own big corporate campuses, I’m kind of speculating in my part, but why it might be a little bit significantly slower in the suburbs than at 350 Cermak.

Bill Stein

Sri, we are not able to tout or endorse any other third-party data source, but Tier One did a report on this within the last month. I think it was entitled The Tale of Two Cities if I remember it right.

Sri Anantha – Oppenheimer

Got it. And Bill, on your guidance for 2009, does the lease commencements include any contribution from acquisitions? And secondly, I know previously you talked about average annualized gross rent of $125 per square foot. But so far, what you have signed is much higher, any reason why that could be lower in 2009?

Bill Stein

There is nothing in for acquisitions right now other than the deal that we talked about that we subsequently – that might even be in the leasing budget rather than the acquisition budget. We are not changing guidance on rents Sri, at this time.

Sri Anantha – Oppenheimer

I know you don’t want to change, but I’m just curious why it would be only $125 rent, you are signing at much higher rates today.

Bill Stein

It’s a blend.

Sri Anantha – Oppenheimer

Got it. Okay, thanks.

Operator

Thanks. Your next question is a follow-up from the line of Michael Bilerman. Please go ahead.

Michael Bilerman – Citi

Yes. Bill, just in the supplemental on page 19 where you evolve the annualized base rents for 1500 Space Park, that’s $5.1 million of annualized rents. That’s 50% or is that listed at 100%?

Bill Stein

Which page are you, Michael?

Michael Bilerman – Citi

Page 19, whether you list these annualized rents at your share or at joint venture?

Bill Stein

I need to find it first. It should be the whole thing, Michael.

Michael Bilerman – Citi

If you take $5.1 million and you can put a margin on that and you look at the gross value implied by the $20.1 million, you get to a very, very low cap rate. I guess I’m just trying to put the pieces together, all right? There was a $44 million gross mortgage on it and your 20.1 would equate to an $85 million valuation for the asset and if it’s only $5.1 million of rents that would be a very low cap rate. Even if it’s 50% then you gross it up and apply your typical 63%, 64% margin, you’d still be in the $7 million.

Michael Foust

You’re talking two buildings now and you’re talking the equity only.

Michael Bilerman – Citi

Right, I’m just trying to figure what the – I mean, which other building get – got paid for in the $20.2 million?

Bill Stein

1201 Space Park.

Michael Foust

1201 Comstock.

Bill Stein

1201 Comstock.

Michael Bilerman – Citi

As part of the valuation for that?

Bill Stein

It was a buyout of both properties in the joint venture.

Michael Bilerman – Citi

And these were the original contribution properties?

Michael Foust

No. No, these were our joint venture properties that we developed over the last year.

Michael Bilerman – Citi

The 1201 and then there was a lease subsequent to signing I guess so there was no income?

Michael Foust

Correct. Yes, yes, 1201 – well, both of these were billed that we started out as spec builds, and then subsequently both properties were leased and 1201 Comstock was completed and then lease commencement in January.

Michael Bilerman – Citi

And so, what was that – what sort of rental income is coming off 1201?

Michael Foust

We haven’t provided it. That will be in the first quarter, but our supplemental is only through December of ’08.

Michael Bilerman – Citi

Thank you. Can you give a sense of what the rents were on that square footage? And so, it was only 24,000 square feet, so?

Michael Foust

Not specifically, I mean we’ve got NDAs with the tenants in most of these cases. So, we’ll be providing that, but I don’t think we are prepared to give that right now.

Bill Stein

That Wells Fargo loan LIBOR was a very high loan-to-cost loan.

Michael Bilerman – Citi

$344 million [ph]?

Bill Stein

Yes.

Michael Bilerman – Citi

Was there a by-sell in the joint ventures?

Bill Stein

No, not that I recall.

Michael Bilerman – Citi

And so, they approached you or you approached them?

Bill Stein

It was mutual I’d say. I mean, this is a private developer and –

Michael Bilerman – Citi

They seemed to get most of the prices out when you did the re-fi in September.

Bill Stein

Yes, we did very well on the re-fi.

Michael Bilerman – Citi

And is there any – we are clearly seeing on the retail side, there is a lot of tenants obviously asking for some rental lease and I was curious just given the high operating costs that the tenants would be paying in the datacenter and I recognize they are in many cases mission critical, but I got to assume that’s a big piece of the operating budget. I’m just curious to see how tenants are reacting in this sort of environment.

Michael Foust

Well, yes, certainly we are seeing lease rates holding at similar levels that we’ve experienced over the last couple of quarters. So, we are not seeing significant reductions at all.

Michael Bilerman – Citi

I’m just wondering if tenants – you are finding a lot in retail tenants are actually coming and asking for reductions on their existing space. You are saying that that’s not occurring with any of your tenants?

Michael Foust

Yes, that’s correct, specifically not now.

Bill Stein

And Michael, some of what flows through reimbursements here are utility costs, which are significant and the tenant needs the power to function.

Michael Foust

And just going back to the 1201 Comstock building, I don’t have the rents at my fingertips here, but you’re going to see that they are Turn-Key rents that are very consistent with what we’ve been achieving with lease signings on the previous couple of quarters.

Michael Bilerman – Citi

Okay, thank you.

Michael Foust

And it’s a smaller building as well.

Operator

Thank you. (Operator instructions) And our next question is a follow-up from the line of Michael Knott. Please go ahead.

Michael Knott – Green Street Advisors

Hey guys, I just wanted to ask you about your assessment of the overall mark-to-market in your existing portfolio. I think you had said previously it was in the 20 to 25% range. Do you feel like the current environment has lessened that at all and if so, by how much?

Michael Foust

I think so, because at least up to this point, lease rates are consistent with where they’ve been in the past couple of quarters. So, I don’t think that would – on general terms, that would change.

Michael Knott – Green Street Advisors

Thank you.

Operator

Thank you. And management, at this time, I’ll turn the call back over to you for closing comments.

Michael Foust

Great. Well, I appreciate everybody being on the call and your interest in DLR and I want to thank our team members here for a great year in 2008 and we expect to keep the program rolling along at a very good pace. So, thank you everyone.

Operator

Thank you. Ladies and gentlemen, that will conclude today’s teleconference. If you would like to listen to a replay of today’s conference, please dial into 303-590-3000 or 1-800-405-2236 and enter the access code of 11125411 followed by the pound sign. We thank you again for your participation. And at this time, you may disconnect. Have a nice day.

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