Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2009
Business Overview: The Company is a Real Estate Investment Trust (REIT) focused on owning, acquiring, developing, and managing technology-related real estate, specifically Turn-Key Datacenter and Powered Base Building solutions. As of September 30, 2009, the portfolio consisted of 78 properties (excluding one unconsolidated joint venture) with approximately 13.8 million rentable square feet, including 1.9 million square feet held for redevelopment. Properties are located primarily in North America (65 properties) and Europe (13 properties).
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Operating Revenues | $163.2 million | $467.4 million |
| Net Income | $23.9 million | $66.3 million |
| Net Income Attributable to Common Stockholders | $12.4 million | $33.0 million |
| Diluted EPS (Common) | $0.16 | $0.43 |
| Operating Cash Flow (9 Months) | $218.7 million | |
| Total Debt (Carrying Value) | $1.60 billion | |
| Cash and Cash Equivalents | $41.2 million | |
| Revolving Credit Facility Availability | ~$587.0 million (of $750.0 million capacity) |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 15.0% for the three months and 22.9% for the nine months ended September 30, 2009, compared to the same periods in 2008. This growth was driven by new leasing at same-store properties and the acquisition of four new properties during the trailing twelve months.
- Profitability: Net income attributable to Digital Realty Trust, Inc. increased 28.0% for the three months and 53.0% for the nine months year-over-year. Operating income rose 35.6% (three months) and 45.5% (nine months).
- Expense Increases: Operating expenses increased due to higher utility rates, maintenance costs, and depreciation from redevelopment projects placed into service. Interest expense increased significantly (43.5% for three months; 39.5% for nine months) due to higher average debt balances, including the issuance of 5.50% exchangeable senior debentures in April 2009.
- Accounting Changes: The Company adopted new accounting guidance on January 1, 2009, regarding convertible debt instruments and noncontrolling interests. This resulted in retrospective adjustments to prior period results, including increased interest expense due to the amortization of debt discounts.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects to incur approximately $85.0 million to $95.0 million in capital expenditures for the redevelopment program during the quarter ended December 31, 2009. Construction contract commitments stood at approximately $42.0 million as of September 30, 2009.
- Acquisitions: The Company expects acquisitions for the quarter ended December 31, 2009, to be approximately $100.0 million to $105.0 million.
- Liquidity: The Company maintains a $750.0 million revolving credit facility maturing in August 2010. Management intends to use net cash from operations, the credit facility, and future debt/equity issuances to meet liquidity requirements.
- Risks and Contingencies:
- Economic Conditions: Global economic downturns and tighter credit conditions may impact tenant ability to pay rent and the Company's access to capital.
- Interest Rate Risk: Approximately 9.4% of total debt is variable rate and unhedged. The Company uses interest rate swaps and caps to hedge approximately $229.9 million of variable rate debt.
- Foreign Currency: Operations in the UK, Ireland, France, Netherlands, Switzerland, and Canada expose the Company to currency fluctuation risks.
- Vendor Investigation: The Company is investigating allegations of over-billing by a vendor; management does not currently believe this will have a material effect on financial results.
Key Facts for Investor Verification
- Debt Maturities: Significant debt maturities include $149.8 million on the revolving credit facility in 2010 and $172.5 million on exchangeable senior debentures potentially redeemable in 2011.
- Occupancy Rates: The portfolio was approximately 95.2% leased as of September 30, 2009, excluding 1.9 million square feet held for redevelopment.
- Tenant Concentration: Savvis Communications accounted for approximately 9.4% of total operating revenues for the three months ended September 30, 2009. No other single tenant exceeded 10%.
- Dividend Policy: The Company intends to distribute 100% of taxable income to maintain REIT status. Quarterly dividends were declared for all share classes in October 2009.
- Joint Venture Commitments: The Company is committed to making future capital contributions of $22.9 million to the Digital Realty Trust Datacenter Park - Dallas joint venture.