Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 25, 2007
Purpose: This filing provides audited statements of revenue and certain expenses for individually insignificant rental operating properties acquired during the year ended December 31, 2006, which are significant in the aggregate. It also includes unaudited pro forma condensed consolidated financial information reflecting these acquisitions and significant 2007 financing transactions.
Key Financial Metrics
Acquired Properties (Rule 3-14 Data): The filing details four specific properties acquired in 2006. Financials are presented as "Revenues in excess of certain expenses" (excluding depreciation, interest, and amortization):
- 14901 FAA Boulevard (Dallas): Acquired June 30, 2006 for ~$50.6 million.
- Revenue (Jan 1 - June 29, 2006): $812,574
- Net of Certain Expenses (Jan 1 - June 29, 2006): $534,771
- Revenue (Full Year 2005): $1,650,260
- 600 Winter Street (Waltham, MA): Acquired Sept 13, 2006 for $8.7 million.
- Revenue (Jan 1 - Sept 12, 2006): $638,738
- Net of Certain Expenses (Jan 1 - Sept 12, 2006): $476,355
- Revenue (Full Year 2005): $907,437
- 2001 Sixth Avenue (Seattle): Acquired 49% interest Nov 1, 2006 for ~$30.5 million.
- Revenue (10 months ended Oct 31, 2006): $17,994,733
- Net of Certain Expenses (10 months ended Oct 31, 2006): $6,921,130
- Revenue (Full Year 2005): $21,339,731
- Unit 9 Blanchardstown Corporate Park (Dublin): Acquired Dec 20, 2006 for ~€36 million (~$47.9 million).
- Revenue (Jan 1 - Dec 19, 2006): €5,502,221
- Net of Certain Expenses (Jan 1 - Dec 19, 2006): €1,750,644
- Revenue (Full Year 2005): €825,141
Pro Forma Consolidated Results (Year Ended Dec 31, 2006): Reflects historical results adjusted for acquisitions and 2007 financing as if they occurred on Jan 1, 2006.
- Total Operating Revenues: $297,909,000
- Total Operating Expenses: $223,685,000
- Operating Income: $74,224,000
- Net Income from Continuing Operations Available to Common Stockholders: $907,000
- Basic EPS: $0.02
- Diluted EPS: $0.02
Debt and Liquidity (Pro Forma as of Dec 31, 2006):
- Total Assets: $2,244,319,000
- Total Liabilities: $1,227,031,000
- Cash and Cash Equivalents: $108,505,000 (Includes $58.1M from preferred stock proceeds)
- Notes Payable (Line of Credit): $34,452,000 (Reduced by $111M using preferred stock proceeds)
- Mortgage Loans: $804,686,000
- Exchangeable Senior Debentures: $172,500,000
Material Changes and Transactions
- Acquisitions: The company acquired four properties in 2006 that are individually insignificant but significant in aggregate. These include data centers in Dallas, Waltham, Seattle, and Dublin. The Dublin property saw a significant increase in occupancy from 16.1% in 2005 to 97.0% by Dec 19, 2006.
- Financing (2007 Transaction): On April 10, 2007, the company issued 7,000,000 shares of 4.375% Series C Cumulative Convertible Preferred Stock for net proceeds of approximately $169.1 million.
- Debt Repayment: Pro forma adjustments reflect the use of preferred stock proceeds to temporarily repay $111 million of outstanding notes under the unsecured credit facility.
- Operating Partnership Redemptions: Approximately 6.4 million Operating Partnership units were redeemed for common stock in Q1 2007, reducing minority interest.
Guidance, Outlook, and Risks
Management Commentary: The filing states that management is not aware of any material factors relating to the acquired properties that would cause the reported financial information not to be indicative of future operating results. The pro forma statements are presented to show the impact of acquisitions and financing but do not purport to represent actual future results.
Risks and Contingencies:
- Tenant Concentration:
- 14901 FAA Blvd: 100% leased to Savvis Communications Corporation.
- 600 Winter St: Leased to a single tenant.
- 2001 Sixth Ave: High technology/communications tenants comprised 88% of 2005 revenue; no single tenant >10%.
- Blanchardstown: Significant tenants include Amazon, IBM, Allied Irish Bank, and PayPal.
- Debt Maturity: The 2001 Sixth Avenue property has a $55 million mortgage maturing in 2010 with a balloon payment of approximately $44.2 million.
- Foreign Currency: The Dublin property is denominated in Euros, exposing the company to currency fluctuation risks.
Investor Verification Checklist
- Verify the occupancy rates and lease expiration dates for the 100% leased properties (14901 FAA Blvd and 600 Winter St) to assess renewal risk.
- Confirm the status of the $44.2 million balloon payment due on the 2001 Sixth Avenue mortgage in 2010.
- Review the impact of the April 2007 Series C Preferred Stock issuance on future dividend obligations ($7.656 million annualized pro forma).
- Assess the currency exchange risk associated with the Dublin property (Unit 9 Blanchardstown) given the Euro-denominated revenues.
- Validate the pro forma EPS of $0.02, noting the significant dilution from the redemption of Operating Partnership units and the impact of preferred dividends.