Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: The Company owns, acquires, develops, and manages technology-related real estate, specifically Turn-Key Datacenter and Powered Base Building solutions. As of March 31, 2010, the portfolio consisted of 84 properties (71 in North America, 13 in Europe) with approximately 15.0 million rentable square feet, of which 1.8 million square feet were held for redevelopment. The portfolio was approximately 95.2% leased excluding redevelopment space.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Operating Revenues | $191.8 million | $149.1 million |
| Operating Income | $55.2 million | $39.2 million |
| Net Income | $25.6 million | $21.2 million |
| Net Income Available to Common Stockholders | $14.7 million | $10.3 million |
| Diluted EPS (Common) | $0.18 | $0.14 |
| Net Cash Provided by Operating Activities | $57.2 million | $41.4 million |
| Total Debt (Carrying Value) | $2.17 billion | $1.78 billion |
| Cash and Cash Equivalents | $50.8 million | $72.3 million |
Liquidity: The Company maintained a $750.0 million revolving credit facility with no outstanding balance as of March 31, 2010, leaving approximately $726.5 million available for use after accounting for letters of credit.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by $42.6 million (28.6%) compared to Q1 2009. This was driven by new leasing at same-store properties and the acquisition of nine new properties in the preceding 12 months.
- Acquisition Activity: The Company acquired the "New England Portfolio" (three properties) on January 22, 2010, for approximately $375.0 million. This acquisition contributed significantly to the increase in rental revenues and operating expenses.
- Expense Increases: Total operating expenses rose by $26.7 million, primarily due to higher utility/maintenance costs at same-store properties and increased depreciation from new acquisitions and redevelopment projects. Interest expense increased by $12.0 million due to higher average debt balances, including the issuance of new notes.
- Debt Structure: Total indebtedness increased by approximately $384 million. Significant financing activities included the issuance of $500 million in 5.875% Notes due 2020 and $117 million in unsecured senior notes. Proceeds were used to repay the revolving credit facility and fund acquisitions.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to incur approximately $250.0 million to $300.0 million in capital expenditures for the redevelopment program during the nine months ended December 31, 2010.
- Acquisitions: The Company anticipates acquisitions of approximately $150.0 million to $175.0 million for the nine months ended December 31, 2010, subject to market conditions and capital availability.
- Dividends: To maintain REIT status, the Company intends to distribute 90% of taxable income. A quarterly dividend of $0.48 per share on common stock was declared on April 27, 2010.
- Risks and Contingencies:
- Market Conditions: Global economic volatility and tighter credit conditions may impact liquidity, tenant financial health, and the ability to refinance debt.
- Interest Rate Risk: While 100% of debt is effectively fixed via swaps or caps, rising rates could increase costs on any unhedged variable debt or refinancing.
- Foreign Currency: Operations in Europe expose the Company to exchange rate fluctuations (Euro and British Pound), affecting revenues and asset values.
- Concentration: Savvis Communications accounted for approximately 9.2% of total operating revenues in Q1 2010.
Investor Verification Checklist
- Debt Maturities: Verify the schedule of debt maturities, noting the $750 million revolving credit facility matures in August 2010 (subject to extensions) and the $500 million 2020 Notes were issued in January 2010.
- Acquisition Integration: Assess the performance of the $375 million New England Portfolio acquisition, which was only partially owned during the quarter.
- Redevelopment Pipeline: Review the status of the 1.8 million square feet of space held for redevelopment and the associated capital requirements ($250M-$300M expected).
- Convertible Securities: Monitor the exchange rates and potential dilution from the 4.125% and 5.50% exchangeable senior debentures, which have excess exchange value if stock prices exceed specific thresholds.
- REIT Compliance: Confirm continued compliance with REIT distribution requirements (90% of taxable income) to avoid corporate-level taxation.