Welcome to the Digital Realty Fourth Quarter and Full Year 2014 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to John Stewart, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, Denise. Good afternoon everyone. The speakers on today's call will be CEO, Bill Stein, Chief Investment Officer, Scott Peterson, SVP of Sales and Marketing, Matt Miszewski and Vice President of Finance Matt Mercier. In addition to our press release and supplemental, we've also posted a presentation to the investor section of our website to accompany management's prepared remarks. You're welcome to download the presentation and follow along throughout the call. Before we begin, I'd like to remind everyone that management may make forward-looking statements on this call. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual results to differ materially. Such forward-looking statements include statements related to the Company's' future financial and other results, including 2015 guidance and the underlying assumptions. For a further discussion of the risks and uncertain related to our business, see the Company's Form 10-K for the year ended December 31, 2013 and subsequent filings with the SEC. Additionally, this call will contain non-GAAP financial information. Explanations of such non-GAAP items and reconciliations to net income are contained in the Company's supplemental package furnished to the SEC and available on the website at www.digitalrealty.com. Management's prepared remarks will be followed by a Q&A session. Questions will be strictly limited to one plus a follow-up and if you have additional questions, please feel free to jump back into the queue. And now I'd like to turn the call over to Bill Stein.

Thank you, John. Good afternoon. And thank you all for joining us. We had a very good year in 2014 and I would like to begin today by providing a quick update on the steady progress we've made towards our 2014 strategic initiatives shown here on page 2 of our presentation. First and foremost, we made significant headway leasing up our existing inventory during the fourth quarter. The improved utilization of our existing asset base has contributed directly to a meaningful uptick in our return on invested capital, which is up 60 basis points over the last year. Given the size of our asset base, this is a remarkable turnaround. Scott Peterson will provide greater detail on our capital recycling initiatives in his remarks, but we have completed our comprehensive portfolio review and have identified assets that no longer fit with our strategy or investment criteria. As disclosed in our press release, we took an impairment charge in the fourth quarter on three underperforming properties to write them down to their estimated fair market value at year end. As we stated last quarter, the bucket of non-core assets includes some winners and these three properties are clearly the losers. But on balance, we continue to expect to recognize gains at least on par with any impairment charges or losses. We began marketing for sale the first few non-core assets late last year. During the fourth quarter, we completed the sale of one small investment and subsequent to year-end, we closed on the sale of a non-data center building in suburban Boston. We have clear line of sight to reaching the low end of the range for our dispositions guidance and we remain pleased by the execution we're achieving on the sale of our non-core assets. The implementation of our capital…

Thank you, Bill. During the fourth quarter, we closed on the sale of a small investment we made a little less than two years ago in a developer of data centers in the southwestern U.S. and Mexico. We invested approximately $17 million and the sale generated net proceeds of roughly $32 million. Given our comparatively short holding period, we generated an unlevered IRR just over 50% on this investment and recognized a $15 million gain on sale in the fourth quarter. Since this was a gain on investment, rather than a gain on the sale of previously depreciated real estate, the gain is included in NAREIT defined FFO although we have backed it out in our presentation of core FFO. In the execution of our capital recycling program, our team has been focused on maximizing proceeds for shareholders. We've allocated two investment professionals who typically work on acquisitions to oversee this process. On our third quarter earnings call, we announced that we had identified an initial pool of nine assets for disposition. Of these nine properties, one has been sold, two are in advanced contract negotiations, one property was 100% vacant when identified, but our team now has it fully leased and it will be marketed within the next few weeks. The remaining five properties are undergoing similar value-add efforts which we believe will result in better proceeds for our investors. During the fourth quarter, we determined to bring an additional eight properties to market. Once our business plan changed from hold to sell, three of these properties no longer cleared the impairment accounting recoverability test and we took an impairment charge in the fourth quarter to write these three properties down to their estimated fair market value as of December 31. While conditions are always subject to change, we…

Thank you, Scott. As shown on page 4 of our presentation, we signed new leases totaling approximately $46 million of annualized GAAP rent during the fourth quarter. Mid-market revenue accounted for over 10% of our leasing activity and this marks the fifth consecutive quarter that our mid-market segment has delivered a consistent contribution of between $4 million and $8 million. This segment has had the intended effect of smoothing out some of the traditional lumpiness in our quarterly leasing activity and we're making steady progress towards our goal of doubling the size of this business from 4% to 8% of revenues within a three-year time frame. Social, mobile, analytics, cloud and content were the major drivers of our leasing activity throughout 2014 and the fourth quarter was no exception. These workloads accounted for nearly 75% of our fourth quarter lease signings. In addition, existing customers accounted for nearly 90% of our lease signings again in the fourth quarter, but we also added 21 new logos in the quarter, bringing our full year total to 100. Turning now to page 5. Cash rents on renewal leases were positive on average with a slight roll-down on Turn-Key leasing offset by positive cash re-leasing spreads on power based building renewals. The chart on page 6 puts our full year lease volume in perspective. And while Turn-Key rates shown here at the bottom of the chart can be skewed by geographic mix in any given quarter, the full year results clearly tell the tale of a market rent trough in 2013, followed by the beginning of a recovery in 2014. In addition to leases signed, lease commencements were likewise healthy. In fact, 2014 was a record year for lease commencements. The weighted average lag between signing and commencement held steady at five and a…

Thank you, Matt. During the fourth quarter of 2014, Digital Realty celebrated its 10th anniversary as a public Company. So I'd like to start here on page 9 and take this opportunity to recap the track record we've established. Over the last 10 years, DLR has generated annualized total returns of 22%. This is the single best performance in the REIT universe over this time frame and represents over 1400 basis points of annual outperformance relative to the RMS. We have generated mid-teens compound annual growth in both dividends and FFO per share from 2005 to 2014. We have also generated positive growth in both dividends and FFO per share every single year. As represented in the chart on the top left of page 10, Citi Investment Research recently published a report titled Don't Forget About Those Dividends and identified Digital Realty as having generated the second highest compound annual growth in dividends per share within the REIT industry over a seven and nine year period. Perhaps even more importantly, this growth has been achieved with a low volatility. We're one of only 10 REITs among the 140 constituents within the RMZ to have increased the dividend each and every year since 2005. This is a track record that we believe warrants a Blue Chip valuation rather than the discount by almost any measure as shown on page 11, at which we trade relative to the REIT universe. Similarly, moving on to page 12, we believe our balance sheet stacks up favorably relative to a Blue Chip peer group. It's worth noting here that debt to EBITDA improved another 2/10 of a turn in the fourth quarter to 4.8 times. I would also like to point out a change to the balance sheet presentation as of December 31, 2014. Five…

Thank you, Matt. I'd like to wrap up our prepared remarks by recapping our 2014 highlights as outlined here on page 16. We leased a total of 67 megawatts last year, including 28 megawatts of finished inventory and we reduced the finished inventory balance by 20 megawatts. We improved our return on invested capital by 60 basis points. That does not include the benefit of impairments, by the way, which boosts ROIC by another 10 basis points. We reversed the declining occupancy trend and finished the year up 60 basis points on the heels of three consecutive quarterly upticks. Same capital cash NOI grew 4% and we reached $1 billion of NOI. We put up 7% growth in adjusted EBITDA, 6% growth in FFO and 4% growth in FFO -- in core FFO, despite terming out over $850 million of long-term capital and selling or contributing properties that generated over $20 million of NOI. We further de-leverred the balance sheet and brought debt to EBITDA down from 5.4 times to 4.8 times. We closed out the year with a $0.03 beat in the first quarter and finally, we delivered a 41.6% total return to our shareholders, outperforming the REIT index by 1100 basis points. In short, 2014 was a very good year in terms of consistent execution on the strategic initiatives that we laid out early last year. We have work yet to be done, however and we will continue to update you on these objectives. In addition, we will look forward to sharing with you our top priorities for 2015 on our first quarter call. I would like to thank the incredibly talented team of Digital Realty employees around the world who are responsible for delivering the success we achieved in 2014. And now, we will be pleased to open up the call and take your questions. Operator?

[Operator Instructions]. And our first question will come from Jonathan Schildkraut of Evercore ISI. Please go ahead.

The results look pretty solid here and I thought the commentary about renewal pricing in the fourth quarter was very positive. I think it was up 6% on a cash basis. But when I take a look at your November deck and your expectations for GAAP and cash rent renewal rates for the full year, it seems like the full year numbers came in a little bit lighter than you were anticipating in November. I was wondering if you might walk us through some of the puts and takes as we look at that presentation versus what happened at the end of the year. Thanks.

We continue to see market rents improving long-term and all of that is driven really by a more rational supply level as we walked through in the deck in the introductory remarks. We've talked over last year and during the last presentation about some of our above market leases. The majority of those -- important to remember, the majority of those above market leases have now been resolved. We expect in 2015 that those renewals will roughly be flat. It's important to remember and we want to make sure we talk about this, that some -- there are some above market lease exposure that we do have in 2016. But if you look back at FY14, it was down about 0.9% and in Q4 was up about 0.3%. So we expect that the market rent improvements over 2015 -- in 2015 will help to mitigate our exposure and that goes back to our belief that the fundamentals in the industry are truly improving.

And as a follow-up then, just to confirm, looking at your guidance from the beginning of January to now, in both cases you guys are talking about positive rent roles on a cash basis. So you continue to be somewhat positively disposed to spot rate pricing. Wondering if you've seen any change in the marketplace between then and now, about six weeks' time period. Thanks.

In terms of January to now, I don't think we've seen any fundamental changes. We continue to see the fundamentals improving and we expect a slight improvement over the year.

Our next question will come from Jonathan Atkin of RBC Capital Markets. Please go ahead.

Yes. Related to that last point, I just wondered about spot pricing and on a like for like basis, are there any differing trends that you're seeing by region for similarly sized requirements, say six months ago, 12 months ago, versus right now? And then on the mid-market growth, I wondered how much of that growth that you quantified came from new logos.

We do see some regional performance dynamics, stability in Northern Virginia, moderate to or slight to moderate improvement in Chicago and in Dallas. And in Asia-Pac, we see strong cash indications that our investment in Asia-Pacific in particular in Singapore and Hong Kong continue to have an upward trend for us. We see that stability. I think in my opening comments, I made some remarks about both the amount of revenue that we see from existing and repeat customers, seems to be relatively stable around 90% from quarterly -- in terms of quarterly performance. And then we did add 100 new logos last year, which we think is a good coupling of growth from our existing client base and then new logos coming primarily from our mid-market efforts.

Right. And then the tenant type, there's a pie chart at the bottom of page 13 of the presentation and I just wondered, is there any particular vertical or type of tenant that you would see yourselves indexing more towards in the future?

Yes. So we try to think about it in terms of workloads for us and in workloads I covered a little bit about smack workloads. I do get entertained by the guys around the table here today using the word smack, but it's social, mobile, analytics, cloud and content. We continue to see a significant amount of additions from each of those workloads. We do have a vertical focus as well. When you talk about the areas where we're incredibly strong and dominant, financial services continues to be one of those great verticals for us, both across the large enterprise space but also starting to pop up a little bit more in the mid-market space as well. And then traditionally our IT Telco and cloud verticals remain extremely strong. You did hear a little bit of a mention of oil and gas in the preparatory remarks and energy all up. We consider ourselves to be underpenetrated in that vertical, but some of the activities and macroeconomic effects that are happening right now will tend to tip some of those folks to think a little bit differently about their data center deployment. And we would certainly expect that they would look at a provider like us as a way to resolve some of those interests. And then healthcare, I would consider an underpenetrated vertical for us as well. And in healthcare we've seen a significant uptick last year and that continues again in Q1 this year. One of the verticals, our intention is to go after more penetration through our partner activity is the public sector vertical, which I've got a personal interest in. We've got some fantastic partners including Carpathia that is just one of the partners that we intend to go to market through to help us over-penetrate that vertical.

The next question will come from Vance Edelson of Morgan Stanley. Please go ahead.

Could you give us your views on the recent Telecity merger announcement in Europe and whether that has any effect on your European strategy? Were you thinking of stepping up your European colocation presence there and might this news open any doors in that regard? Or do you see yourself as more conservative when it comes to any type of expansion or the evolution of this strategy in Europe?

Yes, Vance, this is Scott. My first comment will be regarding the announcement. We clearly -- we track all the public and private companies in our industry and we're going to continue to monitor this closely. Clearly, consolidation is appropriate as our industry evolves. I'm not sure if anybody wants to handle -- I don't think we're really thinking this is going to change our strategy and our penetration in that region at this time.

And then as my quick follow-up, with the pendulum swinging some between build to order, which you mentioned a few months ago you had transitioned to and now you're comfortable building out in small increments I think you said without a signed lease and in certain markets, is the pendulum going to swing more in that direction do you think in that more cities could become attractive for speculative builds? Or do you think this is just a near term opportunity and build to order becomes more dominant again going forward?

I think that given our abilities to shorten up the delivery time frames that build to order will continue to be a very significant part of our portfolio. But having said that, we're constantly evaluating markets for speculative development potential and as Bill said right now, there are a handful of markets that are appropriate. If you were you to track that over time, you would see that it has changed and evolved over the past several years. So we continue to revisit that on a regular basis and we look at the supply and demand and investment potential in these markets. A we will make determinations as to where speculative development is appropriate based on our evaluation of those opportunities.

The next question will come from Vincent Chao of Deutsche Bank. Please go ahead.

Just wanted to go back to the question on the same capital growth, 4%. I think that was expected to be more like 4.5% to 5.5% as of last quarter. Just curious, is that mostly just FX headwinds that caused you to miss on that front, or was there something else going on? And just as a corollary, since the dollar has strengthened some more, there might be some puts and takes on other line items in the guidance, but does that suggest that you're tracking towards the lower end of the range for same capital growth for 2015?

So in terms of 2014, we're obviously pleased with our 4% growth in same capital cash NOI. There was a little bit of FX headwind in the fourth quarter as well as some additional unanticipated expenses, primarily some non-routine generator maintenance at some of our properties in the same capital pool that contributed to the -- to missing what we had expected. But again, we're pleased with the 4% growth for 2014. In terms of 2015, we do conservatively budget and forecast for currency. We typically have a little buffer between where rates are when we go through our process and take a little haircut off of that. I would say at this point we're still comfortable with that range. But as we said overall, in terms of all the guidance metrics that if rates continue to deteriorate, that would obviously have an impact and push us down towards the lower end of the range.

Just going back to the disposition, I think last quarter the first nine assets, first bucket was talked about in the $260 million range. I think that was potentially to be sold in the fourth quarter. Just curious, should we be thinking about that $260 million on top of the current guidance for 2015 of $175 million to $400 million or is that just blend into the $175 million to $400 million for 2015?

It fits in that number, the $175 million to $400 million.

And the next question will come from Tayo Okusanya of Jefferies. Please go ahead.

Just in regards to the leasing activity during the quarter, just a lot of it was non-technical space. Just curious what exactly that was.

The non-technical space was primarily office space and I think we covered a little bit of the detail of that in the introductory remarks.

Scott talked about that related to the -- sorry, this is Matt, the other Matt. Scott talked about that related to some of the assets that are on our disposition list. So that relates to some leasing we did at some of the non-core, non-data center assets and related to some of the recurring capital that was talked about as well.

And next question will come from Colby Synesael of Cowen and Company. Please go ahead.

Just two related -- a question and a follow-up. So as relates to the product innovation and connectivity, I was wondering if you can just give us an update on your current thinking there, perhaps what's evolved in terms of how you're thinking about building out that product set. And then the second question, a follow-up to that, as it relates to the mid-market success, I was wondering if you could talk about what particular locations you're seeing the most success with that right now. Thanks.

This is Bill. We clearly had very good success for what is known as our 2N product which is our current offering and that's demonstrated by the very strong leasing results we've had this past year. But we also continue to evaluate the best ways that we can provide solutions to our customers' needs. And as needs change, we remain committed to partnering and providing the best solutions possible to meeting those needs. So to sum it up, we would see -- I think what we're going to have two products out there, where one would -- actually, we could have a range of products, but we're going to have our traditional 2N product. We will be designing something that provides the flexibility to offer different levels of redundancy.

And that would be through a partner?

Part of your question was I think regarding cloud and connectivity, the ecosystem products that we continue to work very closely on. I would say that you will see a heightened focus in 2015 on cloud connectivity products, both products that we manage directly as well as products that are managed by some of our fantastic partners that I mentioned as we move forward. And then our ecosystem and our Open-IX initiatives continue to be well underway and are seeing a great deal of success. And we now landed open Internet exchange operations on both coasts. In fact, in the 365 main in the most recent installations in 365 main, we've now connected 17 customers directly, 14 of them are in provisioning rights now and nine are pending agreements. And these are the names you would expect, Netflix and the like. So while we talk about that Open-IX initiative being long-term, we're starting to see the rhythm really pick up. And then Bill and I talk on a regular occasion with folks who provide advanced services such as remote peering and that's really an option that could help to accelerate or speed up that transition. So we're thrilled to see further adoption of our ecosystem products, Open-IX initiatives that we do through partners and then we will see some additional products moving forward. To get to your mid-market question, there's a couple of answers to that. But our best performance from a regional perspective is currently coming out of our West Coast team and I know they're listening to the call, so hopefully they just cheered downstairs a little bit. But the West Coast team is doing a pretty good job of performance. In terms of where that is landing, we're seeing a little bit of a mixture of landing places, both in the west, but also our fantastic asset management portfolio and sales teams in the Northeast have been doing a continual great job in the Boston and surrounding markets as well.

Next question will come from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

Question regarding the recent consolidation that we've seen. So interaction in Telecity and Latisys recently, thoughts on the future, any uptick? This uptick in consolidation, do you think we will see a little bit of a land grab here? Do you think we will see further consolidation across the space as folks look to maintain or increase market share?

We obviously looked at lattices. I think what you will see, what I think you're going to see is a fair amount of private companies that come to market. The public companies have some unique factors. And those factors are basically multiple related and cultural related. And you really I think need to have both to make it work and so it makes it really hard to predict what's going to happen on the public front. But I do think that with the stock price is recovering in the public sector, you're likely to see more private portfolios come to market and the public companies would have bids for those assets. Scott, do you have anything to add?

I think that's spot-on. I think as you see the industry evolve, you see companies trying to expand their product and service offerings for their customers as well as their geographic footprint. So I think you will see that and I don't know if that would qualify so much as a land grab, if you will, but I think it's trying to be a more integrated solution offering to their customers. And I think it's probably, as I said of before, I think it's a reasonable thing to expect as this industry continues to evolve.

Jordan, I think you've got unanimity amongst the senior leadership team here at Digital, that we look at everything that happens in the industry, but there's two driving components. There has to be strategic fit. If there's strategic fit, it's something good to look at. But then the economics have to make sense for everybody as well and I don't think we've seen that alignment yet.

Said differently, we're not going to do a deal just to get bigger. There has be a strategic rationale for it as well.

Along those same lines, Bill, strategically you spent 2014 taking up inventory successfully, leasing quite a bit of it, improving the return on invested capital. What do you foresee and what's the strategic plan for the balance sheet going forward? Do you stay the course on the inventory which seems to be getting a little thinner, or do you build out a little bit more speculatively? I'm just noticing the CapEx guidance, the spending guidance for development is pretty flattish year-over-year.

Well, we tried to address that earlier. I did in my remarks. But we plan to add some speculative inventory in our high demand markets and those markets are Northern Virginia, Dallas, Chicago and Singapore. So we will take speculative risk there as long as we have clear visibility on the demand.

And remember, right, 23 megawatts of finished inventory really represents about 5% of the total IT load that we've got out there. We made progress leasing it up last year. I think we're going to continue steadily making that progress and meeting the expectations that Bill helped set for these.

The next question will come from Jon Petersen of MLV and Company. Please go ahead.

I was hoping to get a little more color on your Southwest Mexico investment, redIT I believe is the firm you were invested in. If you guys were able to get a 50% IRR over an 18 month time period, curious why you would sell at this point. I assume it's a desire to simplify, but with returns that well, just curious to get more color on why you stepped away from that investment,. Also if you have any other investments in small data center companies like that you're looking to sell.

I think our only regret on that is we didn't have a lot more money invested in it. It was just a unique investment. It was a great way for us to get exposure and access to that market. As it turned out, a strategic buyer showed up with a compelling bid and it was really one -- we weren't really in a controlling position on that. It was one that was really hard to refuse. Hard to argue with taking a profit like that.

And RedIt was a company that we had sold consulting services to. That was really how we got in the door in the first place there.

And then just a follow-up. I believe on the call you mentioned that in the first quarter and third quarter you expect occupancy to dip down due to power based leases. Curious if you can quantify a little more how large those leases are and what condition the data centers will be in as power based leases and what you will do in terms of re-leasing. Will you convert them into Turn-Key?

One of the assets in particular is downtown San Francisco CBG asset that we're looking at a couple different alternatives for that property. The other one is also outside of San Francisco, CBD and it's a property that we've had history of taking back shelf space which it will be when the tenant expires converting it to Turn-Key and leasing it successfully. So I know that's the likely action plan for those -- the majority of that space that we've talked about. I think in terms of hit to occupancy, I'm quoting off memory here, but I believe it's roughly 15 basis points for each of those, 0.15% for each of those spaces.

Our next question will come from Emmanuel Korchman of Citigroup.

If we focus on the impairments for a second, looks like a couple of them you had completed redevelopments in 2011, 2012. One of them looked like a data center. What went downhill there that you got to a point where you had to take impairments on them even if you are selling them?

I think it was one where it was just part of an overly exuberant development program at the time and in those markets probably had fairly -- well, they did have fairly thin demand at the time. And so it was probably one of those projects that we wish we could have a mulligan on.

And then forgive me if I missed, but did you give a revised backlog number since you don't provide a commencement schedule anymore in the presentation?

No, we don't have a revised backlog number.

And our next question will come from Matthew Heinz of Stifel. Please go ahead.

So appreciate some of the new slides you gave us around historical return metrics, valuations versus broader REIT universe. But I'm just thinking given the recent lift in public data center peer multiples, I'm curious to hear your thoughts on where we stand now relative to private market multiples and how those spreads might be changing or influencing how you think about the outlook for external growth activity once the efficiency initiatives have run their course.

A part of it gets back to what we said is we're always looking at opportunities and we try to evaluate them by is there a strategic fit, does it do something for our Company, but just as importantly does it do something for our shareholders. There have not been a lot of, as you know, a lot of big private market transactions over the last couple of years. Most of them have gone public. I think the valuations have trended pretty closely between private and public right now, which creates a little bit of friction as it relates to trying to do accretive transactions. Will that change in the future? I have a feeling there will be some changes there. But with public market valuations being so readily accessible, the private market guys look to that to value their portfolio. And they don't really want to leave a lot on the table for the acquiring Company and their shareholders.

And sorry, just to follow up on the question that Manny had. If you look at page 7 in the presentation, the backlog we have right now is $108 million.

Thank you. The next question will come from Jonathan Schildkraut of Evercore ISI. Please go ahead with your question.

I was just looking at your top 20 customers and there seemed to be some notable movements amongst those customers. I thought most surprising was to see Facebook jump up into the top five, especially since we've seen them do some subleasing in some other facilities. I was wondering if there was any incremental color you could offer around movements in the top 20 customers. Thanks.

Sure. So we're always happy to see Facebook move up inside our top 20 list. We've had a historical fantastic relationship and that relationship continued in 2014, especially in Q1 in 2014. So in particular, we also are very solid behind the demand that that particular set of transactions has behind it. So we're very satisfied that their take in 2014 with us is a very long-term relationship in a market that is growing even faster from a social media perspective than is the U.S. market. Other notable moves, of course we've expanded our exposure to IBM as part of their SoftLayer acquisition. And we welcome that continued movement and that continued relationship across the whole organization. We were lucky enough to have a great relationship with SoftLayer as they started out and as they grew and as they were acquired we were able to strengthen our relationship with an existing client at IBM and now we're happy to rank them currently number two in the list. But the rapid growth is how we say rapid, so number one might be at risk in a little bit. But we're thrilled to have them amongst the movers and shakers in the top 20.

Let me add to that. Let me add to that too, Jonathan. If you look at the IBM in particular, they're now in 16 locations with us around the world and that's something we're particularly proud of. I think next quarter you will see additional movement on this list and possibly some new customers of moving onto this and moving up pretty quickly.

Our next question will come from Bill Crow of Raymond James and Associates. Please go ahead.

Bill, I want to go back to the M&A discussion briefly. The INXN Telecity deal, our T&T guys think that would have been a great addition for your Company and a great position you to compete against Equinix. Maybe a negative for them. You said you looked at it. I'm just wondering what caused you not to pursue it or did you pursue it but you lost out financially or it's just not the right time for your Company to pursue something like that?

First of all, Bill, this was really an off-market deal. So neither one of these companies was marketed to the broader data center universe. And if you think back on where we came from last year, it's only recently that our stock price has recovered and give us currency. We've been really focused on the five goals that I laid out last year and we've obviously made very good progress against that. But I think it's fair to say that while we've tracked really both companies, we felt that we weren't ready to take something on like that at that time.

The next question will come from Jonathan Atkin of RBC Capital Markets. Please go ahead.

Yes, so I was interested in the exposure to Houston and the oil and gas sector and are those 1.3 and 1.9%, are they mutually exclusive or is there some overlap there? And in particular, I think in a more fundamental level I'm just interested are you being cautious when you put that exposure on your slide or are there concrete signs and customer behavior that are leading you to take a more cautious stance?

So to address the first, there is overlap between those two as you can imagine. There's a number of parties in oil and gas that are located in Houston. Those are, as of 12/31, that is our exposure to both those sectors as laid out. I don't think there's anything else to add on top of that.

I think that Jonathan, the interesting part of our corporate strategy of diversification of the client base is something that shines here that we're not overexposed to any particular industry when they go through tough times for their own industry. But as I was stating, woe be me to suggest that under penetration in a vertical is a good thing, but under penetration in this case could potentially lead to opportunities. So we certainly hope that the reduction in the price of oil allows some of the folks in the Houston area to reconsider some of the deployments they are thinking about making or some of the deployments they have made, especially if they're looking at the renewals. And they look at a data center operator that could provide them with a much lower total cost of ownership with their data center facility.

Our next question will come from Tayo Okusanya of Jefferies. Please go ahead.

Additional question. Bill, just was hoping you could talk a little bit about the Board's mindset and how they're thinking about the replacement for the CFO role, specifically what they're looking for and if there's a sense of timing of how soon that could happen.

Sure. Well, we've engaged a search firm and they've generated an initial list of candidates. So we're considering both internal and external candidates. I think we have very strong candidates in both categories. In terms of background, my bias here is to find someone who is experienced in capital intensive industries because of the need to have sophistication in terms of balance sheet management. And I think real estate would clearly give you that. And I think Telco and some networking would do that as well. The advantage of real estate is that not only do you get balance sheet management expertise, but you also get hopefully connections or contacts with institutional investors in the real estate community. In terms of timing, suffice to say that I hope this will be done in less time than it took to find the CEO. I would expect that since we're running the process here that that's what will happen. And I don't know that that we will have a new CFO by the time of the next call, but it would certainly be nice if we could from where I stand.

Just one quick other minor question from me. More of a numbers question with the same store NOI for the quarter, just a couple of big moves on the operating expense side especially with property taxes coming down so much. I just wanted to understand that a little bit better.

We continually look at our portfolio and find where we can work to get the properties reassessed. And we had expected to achieve a number of lower reassessments for properties in our same -- in the same capital pool. We didn't hit all of them but we got the majority of them and that's what's driving the decline in property taxes over the prior year.

And our next question will come from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

I wanted to follow up on the M&A discussion a little bit within the market. You mentioned I think, Bill, in response that you would look to do something that was more strategic. You wouldn't look just to get bigger. I'm curious how you would define strategic, if that would be by vertical or product or more geography.

Really any of the above. So new markets, new products, new services, vertical expertise as well.

Jordan, as a follow-up, Jordan, we spent a fair amount of time looking at the lattices deal and we were short listed on that and had great respect for the team there and the Company. But it was one where the pricing was going to a point where it really wasn't going to be very compelling for our shareholders. And as a result, we weren't the most aggressive bidder on that.

Okay. What we can take away from what seems like a hard look at the lattices deal is as opposed to last year when you weren't necessarily ready and you were more focused internally, today given the recovery in the stock and the currency, et cetera and in the portfolio and the ops, that you are more ready relative to last year?

That's right.

Yes. I would agree with that. I think we always evaluate an opportunity based on how well it fits within our strategy, how well it fits within our current portfolio, what it does to enhance our company and our growth prospects and just as importantly is it a compelling investment for our shareholders.

The next question will come from Emmanuel Korchman of Citigroup. Please go ahead.

It's Michael Bilerman. Bill, your talk about Telecity interaction, you talked about where your stock was last year and your desire not to get involved given your cost of capital. Given UK takeover rules and it's a nonbinding deal, that wouldn't preclude you from getting involved at this point, right, if you have the confidence in where your stock is and your cost of capital?

That's true.

So is that something that would be on the table post?

Michael, as I said we're going to continue to monitor this transaction as it evolves very closely.

And then just in terms of the backlog, I thought you said page 7 but I'm looking at page 7 and that's absorption of finished inventory.

I misspoke. It isn't in the deck. It is $108 million as of the end of the year.

Our next question will come from Trent Trujillo of UBS. Please go ahead.

It's Ross Nussbaum here. Sorry, I'm on the cell phone. The impairments that you took in the quarter, are those three assets, assets that are included in the held for sale bucket or were these re-evaluated separate from that?

They're in the held for sale bucket, that's what ultimately, I'm sorry.

This is Matt. They are not part of the held for sale. Held for sale basically in order to qualify, we do the impairment analysis essentially as one of the first step. Held for sale usually comes along when you're much further along in the process and you've hired a listing broker and you have all your marketing materials. And so those three assets are not part of the held for sale pool.

But it sounds like you're contemplating closing of those later in the year.

Yes, they've been identified as properties for disposition they don't meet the technical qualification of held for sale, but they are on the list of assets to be disposed of this year.

And our next question will come from Emmanuel Korchman of Citigroup. Please go ahead.

Sorry. I didn't realize it was only two and then you go. The question I wanted to ask was continuing a little bit on the impairment. You talked in relation to a question before that the impairments was because you are going to sell the assets so you have to go down and see what the value is relative to what you were carrying them were. Manny asked about one of the assets, you said we wish we could have taken a mulligan on that one, we wouldn't have made the investments that we did. Have you guys gone through -- and I know impairment accounting is very different than NAV or asset value accounting, but I'm just curious if you have done a full analysis? And I know you guys have presented your NAV before, taking the NOI and just putting a cap rate on it, but I'm curious whether you've actually gone through and said well, let's value each asset as if we were going to sell it to be able to tease out whether there's any other issues like these three assets that would be in the portfolio on a mark-to-market sale basis versus a cap rate analysis on current NOI.

What we have done is we took all of the non-core, non-data center assets and we took any of the ones that we might qualify or characterize as underperforming or at risk of underperforming, because maybe short-term nature of leases, as well as any property or project that was going to require significant capital investment over the coming years. And we evaluated each one of those for its current investment potential to identify which ones we think we might have issues with, whether it is to sell them or we might have valuation issues. So yes, we did. We have gone through all that. What we haven't done to balance all that out is we didn't go and then do a fair evaluation of properties like in Chicago where we bought that with $14 million of NOI and now what, do we have $72 million of NOI there. We probably created $600 million, $700 million of value there. I would say on balance if we did that fairly, the winners would vastly swamp any of the marginal players in that.

And the effective cap rate on current NOI for those three assets would be what?

It would be below our current implied cap rate in our portfolio, quite a bit.

And ladies and gentlemen, this will conclude our question-and-answer session. The Digital Realty fourth quarter and full year 2014 results conference call has now ended. We thank you for attending today's presentation. You may now disconnect your lines.