Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: December 24, 2009
Event: Entry into a Material Definitive Agreement to acquire a three-property data center portfolio in Massachusetts and Connecticut (the "New England Portfolio").
Key Financial Metrics and Transaction Details
- Purchase Price: Approximately $375.0 million (subject to limited adjustments), payable in cash at closing.
- Asset Size: Approximately 550,290 square feet across three properties (Bedford, MA; Needham, MA; Trumbull, CT).
- Funding Source: Expected to be initially funded via borrowings under the company's revolving credit facility.
- Tenant Profile: 35 leasehold tenants and 15 licensees across diverse industries.
- Occupancy: Estimated at approximately 98% of total available square feet as of September 30, 2009.
- Lease Terms: Weighted average remaining lease term of 7.5 years as of September 30, 2009.
- Annualized Rent: Approximately $40.7 million (excluding ~$681,000 in license fees).
- Property Taxes: Pre-acquisition annual tax of $1,831,142 based on the most recently available tax years.
- Capitalization Rate: Management anticipates a 2010 capitalization rate consistent with 2010 acquisition guidance (specific rate not disclosed).
Material Changes and Transaction Conditions
The filing reports a material expansion of the company's asset base through the acquisition of the New England Portfolio. The transaction is subject to various closing conditions, including the receipt of requisite consents. If conditions are not satisfied by January 15, 2010 (subject to extensions), either party may terminate the agreements without liability, except for damages related to property or willful breach. The portfolio has been renovated to modern data center standards within the last four years.
Guidance, Outlook, and Risks
- Capitalization Rate Outlook: Management expects the anticipated 2010 capitalization rate to align with their 2010 acquisition guidance. However, they caution that this is a non-GAAP calculation based on diligence data and actual results may differ due to tenant bankruptcies, collection difficulties, or unanticipated expenses.
- Future Plans: No present plans for renovation, improvement, or redevelopment other than normally recurring capital expenditures and tenant improvements.
- Preferred Stock Adjustment: Effective December 11, 2009, the conversion rate for the 4.375% Series C Cumulative Convertible Preferred Stock was adjusted to 0.5225 shares of common stock per $25.00 liquidation preference (equivalent to a conversion price of $47.85 per share) due to dividend payments exceeding reference levels.
- Debt Exchangeability: The $172.5 million aggregate principal amount of 4.125% Exchangeable Senior Debentures due 2026 became exchangeable during the quarter ending March 31, 2010, as the market price condition was satisfied.
- Risks: Forward-looking statements are subject to risks including global economic deterioration, IT spending decreases, tenant defaults, interest rate increases, and failure to obtain financing.
Investor Verification Checklist
- Verify the final closing date and confirmation that all closing conditions were met by the January 15, 2010 deadline.
- Confirm the final purchase price and any adjustments made at closing.
- Monitor the impact of the $375 million acquisition on the company's leverage ratios and liquidity position post-closing.
- Review subsequent filings for the actual 2010 capitalization rate and net operating income compared to management's initial estimates.
- Track the exchange activity of the 2026 Debentures and the conversion activity of the Series C Preferred Stock.