The unlevered returns are closer to 15% not 11% in this environment, and when you can raise money in the mid single digits and turn it into a 15% return that is called minting money. True the returns are nothing like YHOO, AMZN, EBAY, GOOG but there is much greater certainty in their cash flows. They can raise cash via debt if they wanted to because they have plenty of unencumbered assests (350 East Cermak is probably the most valuable data center in the world and no mortgage). The other thing you are overlooking and the most important is that same facility growth in rents has been above 20% for several quarters now, and given market pricing due to the imbalance of supply and demand this can contnue for years. Remember most of the leases that are coming up for renewal for the next few years were signed during the tech bust when rents per quare foot were next to nothing and now they are going to get repriced way higher (like 3 times higher in some cases) this built in growth needs to be included in your valuation not just growth via raising money and building new facilities.
All that beign said. At $44 I would not buy any new shares, but I wouldn't sell all of them either, just take some of the profits off the table.
I got the below from the recent Q. If you assume 8.7% of rents can be marked up 20% (add 1.74% to growth)then that does not justify the growth premium especially since the average contract has 8 years to maturity.
'Our lease expirations through December 31, 2010 are 8.7% of net rentable square feet excluding space held for redevelopment as of June 30, 2009.'
8.7% in 2010 is more than in 2009 and there is more in 2011 than 2010. Also the markup on an apples to apples basis is way more than 20%. 20% is the blended same facility growth rate over the last few quarters and its that high because they are marking rents to market sometimes 300% higher than the old rate. With a greater amount of space coming up in each of the next few years they are primed for accelerating growth and that is part of the reason for the premium (a well deserved one). Lets not forget that almost every other REIT is experiencing negative growth and declining occupancy that could go on for a few years, and DLR is growing 20% same facility during the worst economic environment of our lifetime a premium is well deserved.
Like I said before I wouldn't be a buyer here because I don't think there is huge upside at almost $46, but I wouldn't sell all of my shares (maybe some) and I wouldn't short.
Well said. I will look into the rent increases but as for yields on the last conference call they said they yield 11-13%. We may be talking about two different yields. I was calculating rent divided by cost of putting up a facility.