Digital Realty's M&A Train Will Slow in 2011

| About: Digital Realty (DLR)

By Ben Kolada

Wholesale data center provider Digital Realty Trust (NYSE:DLR) has been on a buying spree this year, having spent more than 10 times what it shelled out in all of 2009. In total, the company has spent $1.3 billion for acquired properties. The majority has come on just two transactions: Sentinel Data Centers and Rockwood Capital’s 365 Main portfolio. Although the deals are starting to pay off, we don’t expect that the firm will write such big checks in 2011.

With the newly acquired properties, Digital Realty’s sales have surged. The company’s revenue is projected to hit $867 million this year, which would represent a 70% increase over 2009. Compare that to the more organic growth of 26% in 2009 over 2008. The 365 Main purchase, which closed in mid-July, catapulted third-quarter total revenue 45% over the previous year’s quarter.

However, deals the size of Sentinel Data Centers and 365 Main won’t happen again for some time. San Francisco-based Digital Realty says it will continue to buy properties in 2011, but expects to spend far less than it has this year. The firm says total spending on acquisitions in 2011 will likely be in the range of $200-450 million. The midpoint of the range is about one-quarter what Digital Realty has spent so far on deals this year, but still north of the $220 million it spent in 2009.

Select Digital Realty Trust Acquisitions, 2010

Date Announced Target Deal Value
June 2 Rockwood Capital (365 Main portfolio) $725 million
January 25 Sentinel Data Centers (New England portfolio) $375 million
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Disclosure: No position