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: July 29, 2011
Reporting Period: Second Quarter ended June 30, 2011
Digital Realty Trust operates a portfolio of data centers and technology-focused real estate. As of July 28, 2011, the portfolio comprised 97 properties (excluding two unconsolidated joint ventures) totaling approximately 17.2 million net rentable square feet across 29 global markets.
Key Financial Metrics
| Metric | Q2 2011 | Q1 2011 | Q2 2010 |
|---|---|---|---|
| Total Operating Revenues | $267.9 million | $250.7 million | $197.5 million |
| Net Income | $38.2 million | $39.0 million | $19.9 million |
| Net Income Available to Common Stockholders | $32.0 million ($0.33 diluted EPS) | $32.0 million ($0.33 diluted EPS) | $9.1 million ($0.11 diluted EPS) |
| Funds From Operations (FFO) - Diluted | $119.6 million ($1.02 per share/unit) | $119.6 million ($1.02 per share/unit) | $80.6 million ($0.76 per share/unit) |
| EBITDA | $148.8 million | N/A | $104.2 million |
| Adjusted EBITDA | $155.0 million | N/A | $115.0 million |
Balance Sheet and Liquidity (as of June 30, 2011)
- Total Assets: Approximately $5.7 billion (up from $5.5 billion in Q1 2011).
- Total Debt: Approximately $3.1 billion (unchanged from Q1 2011).
- Stockholders' Equity: Approximately $2.1 billion (up from $1.9 billion in Q1 2011).
- Cash and Cash Equivalents: $27.9 million.
- Revolving Credit Facility: $341.4 million outstanding.
Material Changes vs. Prior Periods
- Revenue Growth: Total operating revenues increased 6.9% quarter-over-quarter (Q1 to Q2 2011) and 35.6% year-over-year (Q2 2010 to Q2 2011), primarily driven by new leasing activity.
- Net Income Decline (QoQ): Net income decreased 2.1% from Q1 2011 due to higher interest expense following the issuance of 5.250% unsecured senior notes in March 2011, partially offset by increased operating income.
- Net Income Increase (YoY): Net income available to common stockholders increased 200% year-over-year, primarily due to the conversion of convertible preferred stock which reduced preferred dividends.
- FFO Stability: Diluted FFO remained flat quarter-over-quarter due to increased operating income being offset by an increase in shares outstanding from an At-the-Market equity distribution program.
Guidance, Outlook, and Material Events
Acquisitions and Development
- Ashburn, VA: Acquired a 38.8-acre site for $17.3 million (April 2011) for future datacenter development.
- Dallas, TX: Acquired noncontrolling interest in Datacenter Park Dallas for $53.2 million (June 2011), achieving full ownership.
- Sydney, Australia: Acquired an 8.6-acre site for approximately $10.1 million AUD (July 2011), marking the company's first acquisition in Australia.
- London, UK: Acquired a redevelopment site for £12.9 million (July 2011).
Leasing Activity
- Leases Signed (Q2 2011): Approximately $42.9 million in annualized GAAP rental revenue (289,000 sq. ft.).
- Leases Commenced (Q2 2011): Approximately $29.0 million in annualized GAAP rental revenue (476,000 sq. ft.).
Capital Markets and Debt
- Equity: Completed a previous At-the-Market program raising $400.0 million gross. Commenced a new program allowing up to $400.0 million in sales. Net proceeds in Q2 were approximately $171.2 million.
- Debt Repayments: Repaid $16.2 million secured debt on Dallas property, $80.0 million on a New Jersey property, and $20.3 million on a London property. Post-quarter, repaid $25.0 million of unsecured notes.
- Redemption/Exchange: Initiated a repurchase offer and subsequent redemption of 2026 Exchangeable Senior Debentures. Significant conversions of Series C and Series D Convertible Preferred Stock occurred in Q2.
Risks and Contingencies
The filing highlights risks including global economic deterioration, IT spending decreases, tenant defaults, refinancing risks, interest rate fluctuations, and foreign currency exchange risks. Forward-looking statements regarding development plans and lease commencements are subject to these uncertainties.
Investor Verification Checklist
- Debt Structure: Verify the impact of the upcoming redemption of 2026 Exchangeable Senior Debentures on liquidity and interest expense.
- Development Pipeline: Confirm the timing and capital requirements for the new sites in Sydney, London, and Ashburn, particularly given the reliance on successful leasing to trigger construction.
- Equity Dilution: Assess the impact of the new At-the-Market equity program and recent preferred stock conversions on future earnings per share.
- Lease Quality: Review the mix of commenced leases (Turn-Key vs. Powered Base Building) to understand the stability of future rental revenue streams.
- Foreign Exposure: Evaluate the risks associated with the new Australian and UK acquisitions, including currency translation and local regulatory environments.