10-KPeriod: FY2009

DIGITAL REALTY TRUST, INC. Annual Report, Year Ended Dec 31, 2009

Filed February 26, 2010For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) in its 2010 10-K filing for the period ending December 30, 2009, highlights significant growth and operational stability amidst challenging global economic conditions. The company's portfolio comprises 81 technology-related real estate properties, with a strong focus on data center facilities. Despite the economic downturn, DLR maintained a high occupancy rate of approximately 95.0% (excluding space held for redevelopment) and continued to expand its property portfolio through strategic acquisitions. However, the report emphasizes substantial risks related to dependence on external capital, global economic volatility, tenant concentration, and the specialized nature of its real estate assets. The company's financial strategy involves a commitment to REIT qualification requirements, including significant distributions to shareholders, which relies heavily on access to capital markets for funding acquisitions and development activities. The filing underscores DLR's proactive management of interest rate risk through hedging instruments and notes its ongoing development and redevelopment projects. Key financial metrics indicate revenue growth driven by new leasing and acquisitions, though operating expenses also increased due to portfolio expansion and utility costs. Investors are cautioned about the potential for impairment charges on real estate valuations and the risks associated with lease expirations and tenant defaults, particularly given the high concentration of rent from its top 20 tenants. The company's access to capital remains a critical factor for future growth and operational flexibility.

Financial Highlights

31 data points
Beta

Revenue

$637.14M

Net Income

$87.66M

13.8% Net Margin

EPS (Diluted)

$0.61

Total Assets

$3.75B

Cash & Equivalents

$72.32M

Free Cash Flow

$283.81M

Financial Statements
Beta
Revenue$637.14M
Operating Expenses$459.35M
Operating Income$177.79M
Interest Expense$88.44M
Net Income$87.66M
EPS (Basic)$0.62
EPS (Diluted)$0.61
Shares Outstanding (Basic)75.95M
Shares Outstanding (Diluted)77.02M

Key Highlights

  • 1Digital Realty Trust (DLR) owned 81 technology-related real estate properties, totaling approximately 14.4 million net rentable square feet, as of December 31, 2009.
  • 2The company maintained a high occupancy rate of approximately 95.0% for its portfolio, excluding space held for redevelopment.
  • 3A significant portion of DLR's revenue is derived from a concentrated tenant base, with the top 20 tenants accounting for approximately 57% of total annualized rent.
  • 4The company's growth strategy relies heavily on external sources of capital, including debt and equity financing, which are subject to market conditions and lender/investor perceptions.
  • 5DLR is exposed to risks from global economic conditions, including tighter credit conditions and potential impacts on liquidity and financial stability for both the company and its tenants.
  • 6The portfolio is geographically concentrated, with key markets including Silicon Valley (17.9% of annualized rent), Chicago (11.8%), and New York/New Jersey (10.3%).
  • 7DLR is actively managing its balance sheet, with approximately 88.5% of its total debt at fixed rates as of December 31, 2009, and utilizes interest rate swaps and caps to hedge interest rate risk.

Frequently Asked Questions

The primary risks highlighted include adverse impacts from global economic conditions and tighter credit markets, significant dependence on external capital for growth and operations, tenant concentration with the top 20 tenants accounting for 57% of annualized rent, potential impairment charges due to declining real estate valuations, and the specialized nature of its technology-related real estate which makes it susceptible to industry-specific downturns and technological obsolescence.

As of December 31, 2009, DLR reported approximately $1.8 billion in outstanding consolidated long-term debt. The company actively manages its interest rate exposure by utilizing a mix of fixed and variable rate debt, with 88.5% of its debt at fixed rates (including swapped debt). DLR employs interest rate swap agreements and caps to hedge its exposure to fluctuations in LIBOR, EURIBOR, and GBP LIBOR on its variable-rate debt.

DLR's growth strategy centers on investing in and redeveloping technology-related real estate, particularly data centers. This growth is expected to come from internal development of existing space and new acquisitions. The company's ability to execute this strategy is heavily reliant on its access to third-party sources of capital, including equity and debt financing. The REIT structure mandates significant distributions to shareholders, limiting retained earnings, thus underscoring the importance of continuous capital market access.

DLR has a significant concentration of revenue from its largest tenants. As of December 31, 2009, the 20 largest tenants represented approximately 57% of the total annualized rent. Savvis Communications alone accounted for 9.8% of annualized rent. This concentration exposes the company to substantial risk if any of these major tenants experience financial difficulties, default on leases, or choose not to renew their agreements, which could materially adversely affect revenues and results of operations.