01—Abstract
Summary
Summary of the 10-K filed February 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Digital Realty Trust (DLR) closed 2011 as a technology-focused datacenter REIT with 101 consolidated properties (excluding three unconsolidated joint venture properties), roughly 18.3 million rentable square feet including 2.4 million square feet held for redevelopment, and 94.8%a leased excluding redevelopment space.
Total operating revenues rose 22.8% to $1.06 billionb, net income attributable to common stockholders reached $130.9 million ($1.32 diluted EPS), and FFO per diluted share was $4.06 versus $3.39 in 2010. Growth was driven by new leasing at same-store properties, the 2010 acquisitions (including the New England and 365 Main portfolios) and 2011 development deliveries, with the largest single tenant, CenturyLink (Savvis/Qwest), representing about 10.2% of annualized rent. The balance sheet expanded materially: total assets grew to $6.1 billion and total debt was about $2.9 billion, with roughly 27% debt-to-total-enterprise-value and approximately 91% of debt fixed-rate or hedged.
Management upsized its unsecured liquidity by replacing its prior facilities with a $1.5 billionc global revolving credit facility (maturing November 2015, expandable to $2.25 billion), of which about $1.2 billion was available at year end. The company also issued $400 million of 5.25% notes due 2021, $287.5 million of 7.0% Series E preferred stock, and raised about $457 million of common equity through at-the-market programs, while guiding to $700-900 million of 2012 development and redevelopment capital expenditures.
Key risks for investors include tenant concentration, the speculative nature of much of the 2.4 million square feet of redevelopment space, the 9.2% of square footage expiring through 2013, reliance on the revolver for funding, California earthquake exposure (about 28% of annualized rent), and the dilution potential of convertible preferred stock and exchangeable debentures. The company's REIT structure requires distributing at least 90% of taxable income, and the 2012 quarterly common dividend was declared at $0.73d per share ($2.92 annualized).
02—Key points
Key Highlights
- Revenue growth: total operating revenues increased 22.8% to $1,062.7 million in 2011, with rental revenue up 20.3% to $820.7 million.
- Earnings and FFO: net income available to common stockholders was $130.9 million ($1.32 diluted EPS), and diluted FFO per share rose to $4.06 from $3.39 in 2010.
- Portfolio scale and occupancy: 101 consolidated properties with about 18.3 million rentable square feet, 94.8% leased excluding 2.4 million square feet of redevelopment space, across 31 metropolitan areas.
- Liquidity: a new $1.5 billion global revolving credit facility (maturing November 2015) had roughly $1.2 billion available at December 31, 2011.
- Capital raising: issued $400 million of 5.25% notes due 2021, $287.5 million of 7.0% Series E preferred stock, and about $457 million of common equity via at-the-market programs.
- Leverage: debt-to-total-enterprise-value of about 27%, a board policy cap of 60%, and roughly 91% of indebtedness fixed or hedged.
- Tenant concentration: CenturyLink (Savvis/Qwest) accounts for about 10.2% of annualized rent; the top 20 tenants represent about 49%.
- Dividend: the quarterly common dividend was $0.68 through 2011 and was raised to $0.73 for the first quarter of 2012 ($2.92 annualized).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 28, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $1.06B$865.40M | +22.8% |
| Operating Expenses | $758.40M$623.10M | +21.7% |
| Operating Income | $304.31M$242.31M | +25.6% |
| Interest Expense | $149.35M$137.38M | +8.7% |
| Net Income | $156.26M$102.29M | +52.8% |
| EPS (Basic) | $1.33$0.69 | +92.8% |
| EPS (Diluted) | $1.32$0.68 | +94.1% |
| Shares Outstanding (Basic) | 98.41M84.28M | +16.8% |
| Shares Outstanding (Diluted) | 99.17M86.01M | +15.3% |
05—Questions
Frequently Asked Questions
How did Digital Realty's core operating performance change in 2011?
Total operating revenues grew 22.8% to $1.06 billion and operating income rose to $304.3 million from $242.3 million. Same-store rental revenue increased by about $53.7 million, driven by new leases including redevelopment space, while new properties added revenue from 2010 and 2011 acquisitions and development deliveries. Operating expenses grew 21.7%, largely from higher utility costs and depreciation tied to acquisitions.
How much refinancing and liquidity risk does the company carry?
Total consolidated debt was about $2.9 billion at year end, with a weighted average term to maturity of roughly 4.8 years. Near-term maturities are modest, at $156.7 million in 2012 and $244.6 million in 2013, while $1.06 billion matures after 2019. The company had about $1.2 billion of undrawn capacity under its global revolver, but the revolver's borrowing base depends on unencumbered assets and it carries covenants restricting new debt and distributions after a default.
What concentration and lease-rollover risks should investors watch?
The 20 largest tenants represent about 49% of annualized rent, and CenturyLink alone is about 10.2%. Leases covering 9.2% of square footage (excluding redevelopment space) expire through 2013. Roughly 2.4 million square feet is held for redevelopment, much of it built speculatively without signed leases, and about 28% of annualized rent is in California, which is exposed to earthquake risk.
Could the share count increase materially and dilute common stockholders?
Yes. Series C and Series D convertible preferred stock, the 2029 exchangeable debentures, and Series E preferred stock (under change-of-control conversion) can all convert into common shares. Potentially dilutive shares excluded from 2011 calculations totaled roughly 21.5 million, including about 6.3 million from the 2029 debentures and 6.2 million from Series D preferred. Common shares outstanding rose from 91.2 million to 106.0 million during 2011, largely from equity issuance.
Is the dividend covered by cash flow, and how is it funded?
Net cash provided by operating activities was $401.0 million in 2011, compared with $286.7 million in total dividend and distribution payments, so operating cash flow covered distributions. As a REIT, the company must distribute at least 90% of taxable income, and it has historically distributed 100%, so it may need to rely on equity or revolver borrowings to fund growth. Dividends paid in excess of certain per-share thresholds can increase the dilution from convertible securities.
06—Continue