Business Context and Reporting Period
This Form 8-K, filed on September 13, 2017, by Digital Realty Trust, Inc. (DLR) and Digital Realty Trust, L.P., reports the consummation of the merger with DuPont Fabros Technology, Inc. (DFT) on September 14, 2017. The transaction involved the merger of DFT into a DLR subsidiary and the merger of the DFT Operating Partnership into the DLR Operating Partnership. Upon completion, DFT ceased to exist as a separate entity, and its shareholders received DLR common stock and cash in lieu of fractional shares.
Key Financial Metrics and Capital Structure
- Merger Consideration: DFT common stockholders received 0.545 shares of DLR common stock for each share of DFT common stock, plus cash for fractional shares based on a price of $121.91 per share.
- Preferred Stock Conversion: DFT 6.625% Series C Preferred Stock was converted into DLR 6.625% Series C Preferred Stock with substantially similar rights.
- New Debt: DLR incurred a $104 million senior secured term loan with a maturity date of March 1, 2023. The loan is secured by a datacenter in Ashburn, Virginia, and guaranteed by DLR and the DLR Operating Partnership.
- Debt Redemption: DLR announced the redemption of the remaining outstanding 2021 Notes (5.875% Senior Notes) at 102.938% of principal and a partial redemption of 2023 Notes (5.625% Senior Notes) at 105.625% of principal.
- Equity Issuance: DLR issued 8,050,000 shares of Series C Preferred Stock and increased its authorized common stock from 265 million to 315 million shares.
Material Changes Versus Prior Period
The primary material change is the acquisition of DFT, significantly expanding DLR's asset base and geographic footprint. The filing details the elimination of restrictive covenants on the 2021 Notes following a tender offer where approximately 79.1% of the notes were tendered. Additionally, the Board of Directors was expanded to include two appointees from DFT (Michael A. Coke and John T. Roberts, Jr.), and DFT's equity incentive plans were terminated and replaced with DLR's plans.
Guidance, Outlook, and Risks
Management Commentary: The filing confirms the successful closing of the merger and the integration of DFT's operations. It notes the appointment of new directors and the alignment of equity compensation plans.
Risks and Contingencies:
- Debt Covenants: The new $104 million term loan includes restrictive covenants limiting investments, mergers, and distributions, and requires maintenance of specific financial coverage ratios.
- Events of Default: The loan documentation defines events of default including non-payment, breach of warranties, and change of control, which could trigger acceleration of debt.
- Preferred Stock Rights: The new Series C Preferred Stock includes change-of-control conversion rights and redemption features that may impact future capital flexibility.
Investor Verification Checklist
- Verify the final exchange ratio and cash consideration paid to DFT shareholders.
- Review the terms of the $104 million term loan, specifically the interest rate margin and financial covenants.
- Confirm the total amount of 2021 and 2023 Notes redeemed and the associated costs.
- Examine the pro forma financial information (referenced in the filing) to assess the combined entity's leverage and liquidity.
- Check the updated Board of Directors composition and the terms of the new equity awards for DFT appointees.