01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Digital Realty Trust (DLR) reported FY2009 results with total operating revenues up 20.8% to $637.1 milliona and net income available to common stockholders of $47.3 million, or $0.61 diluted EPS, versus $0.38 in 2008.
Growth was driven by new leasing at same-store properties, redevelopment projects placed into service, and six acquisitions in 2009 (about $225 millionb). Same-store revenue rose about $93 million, though interest expense climbed 39% to $88.4 million as debt grew to roughly $1.8 billion, and total debt-to-market capitalization was about 27% against a 60% policy ceiling. The filing highlights concentration and forward-looking risk.
The top 20 tenants generate about 57%c of annualized rent, with Savvis Communications (9.8%) and Equinix (5.0%) as the largest. The portfolio is concentrated in Silicon Valley (17.9%) and Chicago (11.8%), and about 1.8 million square feet of space is held for redevelopment, much of it built speculatively. Lyondell Chemical was in bankruptcy at year-end but was current on rent.
Management expects 2010 redevelopment capex of $440d–475 million and acquisitions of about $525 million, including the $375 million New England Portfolio closed in January 2010. To fund this, the company raised $500 million of 5.875% notes due 2020, $100 million plus $17 million of Prudential notes, and $53.5 million of common equity through at-the-market sales.
For investors, the key trade-offs are strong occupancy-driven growth and a rising dividend (quarterly common dividend increased to $0.45 in Q4 2009, from $0.31 in 2008) against heavy capital needs, a revolver of $750 million maturing August 2010 with $521.5 million available, and dilution risk from exchangeable debentures and convertible preferred stock. Approximately 88% of debt was fixed-rate at year-end.
02—Key points
Key Highlights
- Total operating revenues rose 20.8% to $637.1 million in 2009, and diluted EPS was $0.61 versus $0.38 in 2008.
- Portfolio of 81 properties with 14.4 million net rentable square feet, about 95.0% leased excluding 1.8 million square feet held for redevelopment.
- Concentrated tenant base: the top 20 tenants represent about 57% of annualized rent, and Savvis and Equinix are the largest at 9.8% and 5.0%.
- Total consolidated debt of about $1.8 billion, roughly 88% fixed-rate after hedging, with an effective interest rate of 5.45%.
- Subsequent to year-end, the company closed a $375 million New England Portfolio acquisition, a $500 million 5.875% senior note offering due 2020, and $117 million of Prudential term notes.
- The 2010 outlook calls for $440–475 million of redevelopment capex and about $525 million of acquisitions, funded through the revolver, debt, and at-the-market equity of up to $400 million.
- Dividend declared for Q4 2009 was $0.45 per share, up from $0.36 in Q3 2009; the company is a REIT that distributes at least 90% of taxable income.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
| 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 |
05—Questions
Frequently Asked Questions
How did Digital Realty's earnings and revenue change in 2009?
Total operating revenues increased 20.8% to $637.1 million, driven by new leasing at same-store properties and six acquisitions. Net income available to common stockholders was $47.3 million, or $0.61 per diluted share, up from $26.7 million, or $0.38, in 2008. Interest expense rose 39% to $88.4 million as debt grew.
How concentrated is the tenant base and what is the main tenant risk?
The top 20 tenants account for about 57% of annualized rent. Savvis Communications (9.8%) and Equinix Operating Company (5.0%) are the largest. Lyondell Chemical was in bankruptcy at year-end, though it stayed current on rent. Tenant defaults or non-renewals in a concentrated base could materially affect revenue.
How is the company financing its growth, and what are the near-term refinancing needs?
The company relies on its revolver ($750 million capacity, $205.5 million drawn, $521.5 million available), which matures in August 2010 with two one-year extensions. It also raised $500 million of 5.875% notes due 2020, $117 million of Prudential notes, and up to $400 million of at-the-market common equity. Debt-to-total-market-cap was about 27% against a 60% policy limit.
What are the main risks from the exchangeable debentures and convertible preferred stock?
The 4.125% 2026 debentures ($172.5 million), 5.50% 2029 debentures ($266.4 million), and Series C and D convertible preferred stock could dilute common holders if the stock trades above conversion prices. The 2026 debentures carried about $96.7 million of excess exchange value at year-end. Repurchase rights could also force cash outflows when the company needs to conserve cash.
What is the outlook for development and redevelopment exposure?
About 1.8 million square feet is held for redevelopment, much of it built on a speculative basis without signed leases. Management expects to spend $440–475 million on redevelopment in 2010. If the space cannot be leased at expected rates, or if costs overrun, revenue and returns could fall short of projections.
06—Continue