Business Context and Reporting Period
Company: Digital Realty Trust, Inc. (DLR)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Digital Realty Trust is a Real Estate Investment Trust (REIT) focused on owning, acquiring, developing, and managing technology-related real estate, primarily data centers and corporate data centers. As of December 31, 2009, the company owned 81 properties (excluding one unconsolidated joint venture) totaling approximately 14.4 million net rentable square feet, with 1.8 million square feet held for redevelopment. The portfolio is concentrated in key technology markets in North America and Europe, with a 95.0% occupancy rate excluding redevelopment space.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Operating Revenues | $637.1 million | $527.4 million |
| Operating Income | $177.8 million | $128.4 million |
| Net Income (Consolidated) | $91.2 million | $67.9 million |
| Net Income Attributable to Common Stockholders | $47.3 million | $26.7 million |
| Diluted EPS (Common) | $0.61 | $0.38 |
| Cash Flow from Operating Activities | $283.8 million | $217.8 million |
| Total Consolidated Indebtedness | $1.78 billion | $1.39 billion |
| Revolving Credit Facility Availability | $521.5 million | $611.4 million |
| Cash and Cash Equivalents | $72.3 million | $73.3 million |
Note: The filing text does not provide a specific "Funds From Operations" (FFO) figure in the selected financial data tables, though it is referenced as a key metric for REITs.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 20.8% to $637.1 million, driven by new leasing at same-store properties and the acquisition of six new properties in 2009.
- Profitability: Net income attributable to common stockholders increased 77.1% to $47.3 million, primarily due to higher operating income and lower non-controlling interest allocations.
- Debt Expansion: Total indebtedness increased by approximately $400 million to $1.78 billion. This included the issuance of $266.4 million in 5.50% exchangeable senior debentures due 2029 and increased draws on the revolving credit facility to fund acquisitions and development.
- Portfolio Expansion: The company acquired six properties in 2009, including the 1350 Duane Avenue/3080 Raymond Street facility in Silicon Valley ($90.5 million) and the Beaumeade/Nokes portfolio in Northern Virginia ($63.3 million).
- Dividends: The quarterly common stock dividend increased to $0.45 per share in Q4 2009, resulting in a full-year dividend of $1.47 per share, compared to $1.26 in 2008.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management expects to continue acquiring properties and redeveloping space to drive growth. The company anticipates capital expenditures for redevelopment in 2010 to range between $440 million and $475 million. Acquisitions for 2010 were projected at approximately $525 million, with a significant portion ($375 million) already committed to the New England Portfolio acquisition closed in January 2010. The company maintains a policy to limit indebtedness to 60% of total market capitalization, which stood at approximately 27% as of year-end 2009.
Key Risks and Contingencies:
- Economic Conditions: The filing highlights significant risks related to the global economic recession, tighter credit conditions, and potential tenant defaults. One major tenant, Lyondell Chemical Company, was in bankruptcy but remained current on obligations.
- Liquidity and Capital Markets: Access to capital markets is a critical risk. The company relies on third-party sources for growth capital due to REIT distribution requirements. Disruptions in credit markets could limit the ability to refinance debt or fund acquisitions.
- Interest Rate Risk: Approximately 11.5% of total debt was variable rate and unhedged as of year-end 2009. Rising rates could increase interest expense.
- Development Risk: The company holds 1.8 million square feet for redevelopment. Delays in construction, cost overruns, or inability to lease this space at favorable rates could materially impact results.
- Concentration Risk: The 20 largest tenants represented 56.7% of annualized rent. The top tenant, Savvis Communications, accounted for 9.8% of annualized rent.
Investor Verification Checklist
- Debt Maturities: Verify the repayment schedule for the $205.5 million revolving credit facility maturing in August 2010 and the $172.5 million exchangeable debentures due 2026 (first redemption date August 2011).
- Acquisition Integration: Monitor the integration and performance of the $375 million New England Portfolio acquired in January 2010, which was not included in 2009 results.
- Redevelopment Progress: Track the lease-up rates and capital expenditure burn for the 1.8 million square feet of redevelopment space, particularly the 87,000 square feet under construction.
- Tenant Concentration: Assess the financial health of top tenants, specifically Savvis Communications and Equinix, which together represent nearly 15% of annualized rent.
- Dividend Sustainability: Confirm that cash flow from operations remains sufficient to cover the increased dividend rate ($1.92 annualized) and REIT distribution requirements without excessive reliance on debt.