Business Context and Reporting Period
Company: Digital Realty Trust, Inc. and Digital Realty Trust, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: August 7, 2017
Context: The registrants completed two major capital raising transactions on August 7, 2017: an underwritten public offering of senior notes and an underwritten public offering of cumulative redeemable preferred stock. These transactions were executed in the context of the company's ongoing operations and a pending merger agreement with DuPont Fabros Technology, Inc.
Key Financial Metrics and Capital Structure
Debt Offering (Senior Notes)
- 2023 Notes: $350,000,000 aggregate principal amount; 2.750% interest rate; maturity February 1, 2023; offered at 99.930% of principal.
- 2027 Notes: $1,000,000,000 aggregate principal amount; 3.700% interest rate; maturity August 15, 2027; offered at 99.924% of principal.
- Guarantees: Fully and unconditionally guaranteed by Digital Realty Trust, Inc.
- Ranking: General unsecured senior obligations, effectively subordinated to secured indebtedness and subsidiary liabilities.
Equity Offering (Preferred Stock)
- Instrument: 5.250% Series J Cumulative Redeemable Preferred Stock (and corresponding Preferred Units).
- Volume: 8,000,000 shares issued.
- Liquidation Preference: $25.00 per share.
- Dividend Rate: 5.250% per annum ($1.3125 per share), payable quarterly.
- Net Proceeds: Approximately $193.2 million after underwriting discounts and expenses.
Material Changes and Transaction Details
The filing reports the creation of direct financial obligations and material modifications to security holder rights effective August 7, 2017. The company amended its charter and limited partnership agreement to authorize the Series J Preferred Stock/Units. The Notes are subject to a "make-whole" premium if redeemed prior to specific dates (30 days prior to maturity for 2023 Notes; 90 days prior for 2027 Notes).
Merger Contingency: The Notes contain a special mandatory redemption provision tied to the pending merger with DuPont Fabros Technology, Inc. (DFT). If the merger is not consummated by December 15, 2017, or the agreement is terminated, the company must redeem all Notes at 101% of principal plus accrued interest.
Redemption and Conversion Rights
- Preferred Stock Redemption: Generally not redeemable prior to August 7, 2022, except for REIT status preservation. On or after August 7, 2022, redeemable at $25.00 per share plus accrued dividends.
- Change of Control: Upon a Change of Control, the company may redeem the Series J Preferred Stock at $25.00 per share. Alternatively, holders may convert shares into Common Stock, subject to a "Share Cap" of 0.42521 shares of Common Stock per share of Preferred Stock.
Risks and Contingencies
- Events of Default: Include failure to pay interest or principal, failure to comply with the special mandatory redemption regarding the DFT merger, and bankruptcy/insolvency events.
- Subordination: The Notes are effectively subordinated to all existing and future secured indebtedness and preferred equity of subsidiaries.
- Conversion Value Risk: If the Common Stock price falls below approximately $58.795 during a Change of Control, the conversion value may be less than the liquidation preference of the Preferred Stock.
Investor Verification Checklist
- Verify the status of the DuPont Fabros Technology (DFT) Merger Agreement and the December 15, 2017, deadline for the special mandatory redemption of the Notes.
- Confirm the exact net proceeds from the Series J Preferred Stock offering ($193.2 million) and the intended use of funds (not explicitly detailed in this 8-K).
- Review the "Share Cap" mechanics for the Series J Preferred Stock to understand the dilution impact on common shareholders in a Change of Control scenario.
- Assess the impact of the new debt ($1.35 billion total principal) on the company's leverage ratios and ability to incur additional indebtedness under the indenture covenants.
- Check the specific terms of the "make-whole" premium calculation for early redemption of the 2023 and 2027 Notes.