Business Context and Reporting Period
Digital Realty Trust, Inc. filed a Form 8-K on July 24, 2008, reporting material definitive agreements entered into by its operating partnership. The company is a Maryland corporation headquartered in San Francisco, California.
Key Financial Metrics and Capital Structure
- Debt Issuance: Sold $25.0 million in aggregate principal amount of 7% senior unsecured term notes due 2011 to affiliates of Prudential Investment Management, Inc.
- Private Shelf Facility: Secured an uncommitted multi-currency facility for up to an additional $175.0 million of senior unsecured fixed-rate term notes over three years.
- Revolving Credit Facility: Increased commitments by $25.0 million to an aggregate of $675.0 million.
- Outstanding Borrowings: As of July 25, 2008, borrowings under the revolving credit facility totaled $47.7 million.
- Use of Proceeds: Funds are designated for property acquisitions, development/redevelopment activities, and general corporate purposes.
Material Changes Versus Prior Period
The filing details a significant expansion of the company's debt capacity and liquidity options. The revolving credit facility commitment increased from $650.0 million to $675.0 million. Additionally, the company established a new private shelf facility with Prudential, allowing for future debt issuance up to $175.0 million, subject to fixed interest rate agreements.
Guidance, Covenants, and Risks
- Covenants: The new notes and shelf facility include covenants substantially similar to the revolving credit facility, including limitations on additional indebtedness, investments, and mergers.
- Financial Ratios: The company must maintain specific financial coverage ratios and a pool of unencumbered assets.
- Distribution Restrictions: To maintain REIT status, distributions on common stock or other equity interests cannot exceed 95% of funds from operations (as defined) during any four consecutive fiscal quarters, subject to adjustments.
- Documentation: Full provisions of the private shelf facility and credit facility amendment will be filed as exhibits to the next Form 10-Q.
Investor Verification Checklist
- Verify the specific terms and interest rate mechanics of the $175.0 million private shelf facility in the upcoming Form 10-Q.
- Confirm the company's current compliance with the financial coverage ratios and unencumbered asset pool requirements.
- Monitor the utilization of the $675.0 million revolving credit facility, noting the current $47.7 million outstanding balance.
- Review the definition of "funds from operations" used in the 95% distribution limitation covenant.