Leveraging Successful Global Data Centre Business Models for the benefit of Hong Kong 26 September 2011
Digital Realty Trust Our data centres enable customers to deliver critical business operations. We do this by providing enterprise customers with secure, reliable and cost effective data centre facilities and services. We are focused on investing in and acquiring, developing, managing and operating data centre facilities to support our customers needs while providing risk-adjusted returns for our shareholders. 1
Global Platform for Growth Portfolio totals 97 assets comprising 17.2 million square feet, including 2.2 million square feet of space held for redevelopment. (1) Portfolio is located in 30 markets throughout North America, Europe, Singapore and Australia. (2) (1) As September 6, 2011. (2) Includes land parcels to be developed. 2
Customer Diversification No single customer accounts for more than 10.6% of annualized revenue Customer Type by Percentage of Annualized Revenue (3) Major Customers Percentage of Annualized Revenue CTL (Qwest / Savvis) 10.6% Equinix 4.2% Facebook 4.1% Telx 3.6% Morgan Stanley 3.5% NTT 2.6% AT&T 2.4% Softlayer Technologies 1.8% Level 3 / Global Crossing 1.8% (4) Amazon 1.8% Total 36.4% 3
Our Typical Customer Landscape Colocation & Managed Service Providers System Integrators Corporate Enterprise Users International Network & Telecom Providers Provide space, power, connectivity and services Outsourced IT solutions for corporate enterprises May provide network cross-connects & peering, and/or cloud/grid computing services Shorter term contracts of 1-2 years for colo Operate owned and leased assets Mission-critical IT applications Trend to consolidate data centers from server closets in office buildings Operate owned and leased assets Providing bandwidth/network access to Internet for enterprise customers Consisting of telecom companies, data carriers, wireless providers, and Internet Service Providers (ISPs) Primarily located in Internet Gateway data centers DIGITAL REALTY TRUST 4
Increased Utilization Rates Will Drive Data center Expansion Hong Kong Multi Tenant Data Center Utilization Rate (%) 100 99 Top Global Multi-Tenant Data center Markets North America Europe Asia New York London Hong Kong 90 89 94 Silicon Valley Frankfurt Tokyo Northern Virginia Amsterdam Singapore 80 80 84 Chicago Paris Sydney Dallas Melbourne 70 2009 2010 2011 2012 2013 Singapore Multi-Tenant Data Center Utilization Rate (%) Los Angeles Sydney Multi Tenant Data Center Utilization Rate (%) 100 90 88 94 96 98 100 90 89 92 96 99 80 83 80 83 70 2009 2010 2011 2012 2013 70 2009 2010 2011 2012 2013 Source : Tier 1 Research, Multi Tenant DC Supply 2010 Report: Mid Year Update 5
Top DLR Investment Markets U.S. Europe Asia/Pac New Jersey London Singapore Northern Virginia Paris Sydney Silicon Valley Amsterdam Melbourne Dallas Dublin Phoenix Boston Potential Market for expansion: Hong Kong Note: As of September 6, 2011. 6
Consistent Access to Capital DLR has raised approximately $6.7 billion of capital from 2004 through Aug 2011 Capital Raised ($ millions) $1,800 $1,600 Equity Preferred Debt $1,639 $1,400 $1,200 $1,000 $800 $910 $730 $836 $746 $600 $612 $603 $615 $400 $200 $0 2004 2005 2006 2007 2008 2009 2010 2011 7
DLR Employs a Conservative Capital Structure Conservatism in capital management allows us access to attractive sources Financial Metrics Current Capital Structure Weighted average cost of debt: 5.13%; 88.9% fixed rate debt Leverage ratios : Net Debt / Total Enterprise Value: 31.1% Net Debt / LQA Adj. EBITDA: 4.9x Variable Rate Debt 4.1% Fixed Rate Debt 28.3% Coverage ratios (4) : Debt service: 3.9x Fixed charge: 3.2x Investment grade rating (BBB/Baa2) by all three agencies Equity 64.1% Preferred 3.6% Total Equity Capitalization: $6.3 billion Total Enterprise Value: $9.8 billion 8
Increase in complexity and revenue/risk Shift from data centre value chain to ecosystem Mature markets in the US and EU have seen a marked definition of business models The Data Centre Ecosystem Applications / Cloud Managed Hosting Major Growth Drivers Simple Hosting Colocation Networks Neutral Data Centre Facilities & Services ENABLER 9
DLR's Proprietary Market Research on APAC In 2010, DLR commissioned an independent research to study the client opportunity in the Pacific Rim Information was gathered from a web-based survey using a panel of IT decision-makers 151 survey participants from Australia, Hong Kong and Singapore (approximately 1/3 from each geography) The results of this survey inform DLR's preference for target markets Preferred City Location for New Data Center (Multiple responses were allowed) 10
Different capital considerations in the ecosystem Ecosystem players have identified and addressed their limitations, risks and opportunities $18,000 $16,000 $18,000 Capex Cost of Revenue ($/sqm) Revenue per sqm per annum $14,000 $12,000 $ 12,000 $ / sqm of DC $10,000 $8,000 $6,000 $4,000 $ 3,500 $ 3,000 $2,000 Predominantly Colocation Models Predominantly Managed Services Models 11
Asia Pacific drivers for data centres The Asia Pacific region is demonstrating a shortage of quality data center capacity to address the rapid growth in technology needs The rapid growth in dependence on Information and Communications Technology ( ICT ) has led to dramatic increases in the need for data processing, networking and storage technologies across organizations Business imperatives including agility and speed to market, security, general compliance and regulatory requirements are forcing organizations to redesign their Information Technology framework Existing data centers in major metros of Singapore, Sydney, Melbourne, Hong Kong, Shanghai and Tokyo are at capacity in terms of space and/or power and are unable to address the growing market demand The advent and increasing adoption of Cloud Computing combined with exponential growth in content distribution is continuing to drive demand for new data center development Most Enterprise customers are adopting two streams of technology solutions Private/Hybrid Cloud based services for non-critical applications Outsourcing of infrastructure (space, power, cooling and some services) to leverage opex solutions and segregate risk management 12
Singapore Case study Occupancy Customer take-up is progressing 18+ months ahead of timeline due to strong demand. Construction Status Levels 2 thru 7 designed for five data halls each customer move-ins in progress Customer profile Large global customers of DLR Mature organisations that prefer an outsourced opex solution Capital to be spent more wisely on core business The shift has begun in APAC De-coupling of data centre facilities and services, from network and compute Understanding of different risk profiles and their management Selective sourcing Vs Outsourcing Understanding of capital investment horizons Technology obsolescence (4 5 years) Vs Data Centre obsolescence (20-25 years) Government Provides guidance on Singapore as a destination for data centres to customers (EDB & IDA initiatives) Active involvement of financial regulator (MAS) in financial sector outsourcing, setting standards and addressing risk for financial customers Neutral to DC business models when allocating land, incentives, licensing, ground leases Property Type Location NRA 7 story, multi-tenant data center currently capable of delivering 30 MW of gross power capacity 29A Jurong International Business Park ~370,500 square feet Date Acquired December 2010 Acquisition Strategy Acquire high quality wholesale data center development project (base building only) in a high demand, supply constrained market and design and construct DLR POD s for lease 13
Summary Takeaways for Hong Kong Government Hong Kong is well-positioned to attract significant data centre investment but needs to address its current limitations as a destination for data centre industry players Government release of land to build sites should be on an accelerated timeline (less than 12 months) Government should be agnostic to DC business models.this would allow significant industry investment into the country and attract global customers to select HK to meet their data centre requirements Define incentives and open window demonstrating clear guidelines for customers Simplify ground leases and remove investment uncertainty on land releases Recognise the implicit role of data centre facilities organisations in being able to invest in HK and provide the catalyst for Enterprise end-users, IT services, Cloud providers etc to use HK as their data centre destination DLR has a strong demand pipeline for Hong Kong from its global customer base and is looking to make a significant investment in Hong Kong to satisfy its global customer demand 38 14
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