Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 1, 2010
Event: Entry into a Material Definitive Agreement to acquire the "Rockwood Capital/365 Main Portfolio," a five-property data center portfolio located in California, Arizona, and Virginia.
Key Financial Metrics and Transaction Details
Transaction Value: Approximately $725.0 million (subject to adjustment), to be paid in cash at closing.
Deposit: $15.0 million deposited into escrow.
Asset Size: Approximately 919,000 square feet across five properties.
Occupancy: Approximately 94% occupied as of March 31, 2010.
Tenancy: Over 200 tenants across various industries.
Development Potential: Includes approximately 250,000 square feet of additional development potential in Chandler, Arizona, and $13.0 million of uninstalled infrastructure improvements.
Target Portfolio Financials (Rockwood Predecessor Data Centers)
| Item | Three Months Ended March 31, 2010 (Unaudited) |
Year Ended December 31, 2009 |
|---|---|---|
| Total Revenue | $30,325,000 | $117,609,000 |
| Certain Expenses | $11,182,000 | $48,955,000 |
| Revenue in Excess of Certain Expenses | $19,143,000 | $68,654,000 |
Note: The financial statements exclude depreciation, amortization, interest expense, income taxes, and bad debt expense. They are prepared for SEC compliance (Rule 3-14) and are not representative of actual results of operations.
Material Changes and Future Lease Commitments
Lease Termination: Subsequent to December 31, 2009, a tenant terminated a long-term lease originally expiring August 31, 2014. This tenant accounted for $4,132,657 of future minimum rentals and $1.1 million of revenue in 2009. Management is working to re-lease this space.
Tenant Concentration: For the three months ended March 31, 2010, one tenant accounted for 15% of rental income (16% for the full year 2009).
Future Minimum Rentals (as of Dec 31, 2009): Totaling $369.3 million over the remaining lease terms, with $88.9 million expected in 2010.
Guidance, Outlook, Risks, and Contingencies
Funding Strategy: Digital Realty expects to fund the purchase with available cash, borrowings under its revolving credit facility, or the sale of additional debt or equity securities.
Closing Timeline: Expected on or about July 2, 2010, subject to due diligence and financing conditions.
Contingencies: The transaction is subject to satisfactory due diligence, receipt of estoppels, and minimum satisfactory financing. If the deal fails to close after conditions are met, Digital Realty may be liable for liquidated damages equal to the $15.0 million deposit.
Tax Implications: Properties are subject to periodic reassessment, including an anticipated reassessment of California properties upon closing. The federal tax basis will be determined at closing.
Risks: Forward-looking statements are subject to risks including global economic deterioration, credit market conditions, tenant defaults, financing failures, and changes in real estate valuations.
Investor Verification Checklist
- Verify the final purchase price and any adjustments made at closing.
- Confirm the source of funding (cash on hand vs. new debt/equity issuance) and its impact on leverage ratios.
- Monitor the re-leasing progress of the space vacated by the tenant who terminated their lease in early 2010.
- Review the final purchase price allocation to understand the impact on future depreciation and amortization expenses.
- Assess the impact of property tax reassessments in California on future operating costs.
- Confirm the closing date and whether the $15.0 million escrow deposit is retained or returned.