01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Digital Realty Trust (DLR) closed 2012 with a substantially larger, more international portfolio after an aggressive year of acquisitions and development.
The company owned 117 technology-related properties (excluding three unconsolidated joint ventures) totaling about 21.9 million net rentable square feet, roughly 94.4% leased excluding 2.4 million square feet of space held for development. Total operating revenues rose 20.4% to $1,279.1 milliona, and net income attributable to common stockholders reached $171.7 million, or $1.48 per diluted share, versus $1.32 in 2011. Funds from operations (FFO) per diluted share and unit rose to $4.44 from $4.06, a useful gauge of operating performance for a REIT.
The growth was driven mainly by the July 2012 acquisition of the roughly $1.1 billionb Sentrum Portfolio in London, along with other U.S. and European acquisitions totaling about $1.57 billion in 2012. The balance sheet expanded materially, with total assets up to $8.8 billion from $6.1 billion and total debt of about $4.3 billion. Management reports a debt-to-total-enterprise-value ratio of roughly 32% against a self-imposed 60% ceiling.
Liquidity was supported by a $1.8 billionc global revolving credit facility, of which about $1.0 billion was available at year-end, and a new $750 million unsecured term loan. The company also raised substantial equity through a July 2012 offering of 11.5 million common shares (about $797 million net) and additional preferred stock issuance. Subsequent events include a £400 million 4.250% senior notes offering due 2025 in January 2013 and conversion of the Series D preferred stock into common stock in February 2013.
For investors, the key considerations are strong leasing momentum (rents on renewals rose 5.2% for Turn-Key Flex and 20.3% for Powered Base Building space), meaningful concentration risk (CenturyLink represents about 9.1% of annualized rent and the top 20 tenants about 47%), and increasing exposure to international markets, with London alone accounting for 12.1% of annualized rent. Investors should also weigh the rising leverage and significant development commitments, with management planning $850 million to $950 milliond of development capital expenditures in 2013.
02—Key points
Key Highlights
- Total operating revenues increased 20.4% to $1,279.1 million in 2012, up from $1,062.7 million in 2011, primarily due to new leasing and acquisitions.
- Net income available to common stockholders was $171.7 million, or $1.48 per diluted share, compared with $1.32 per diluted share in 2011.
- FFO per diluted share and unit rose to $4.44 from $4.06 in 2011, a key REIT performance measure.
- The portfolio comprised 117 properties with 21.9 million net rentable square feet, approximately 94.4% leased excluding space held for development.
- The July 2012 acquisition of the Sentrum Portfolio in London (about $1.1 billion) and other 2012 acquisitions totaling about $1.57 billion expanded international exposure.
- Total assets grew to $8.8 billion and total debt to about $4.3 billion, with debt equal to about 32% of total enterprise value versus a 60% policy limit.
- Concentration risk remains significant: CenturyLink is about 9.1% of annualized rent, the top 20 tenants account for about 47%, and London represents 12.1% of portfolio annualized rent.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $1.28B$1.06B | +20.4% |
| Operating Expenses | $912.99M$758.40M | +20.4% |
| Operating Income | $366.08M$304.31M | +20.3% |
| Interest Expense | $157.11M$149.35M | +5.2% |
| Net Income | $210.33M$156.26M | +34.6% |
| EPS (Basic) | $1.48$1.33 | +11.3% |
| EPS (Diluted) | $1.48$1.32 | +12.1% |
| Shares Outstanding (Basic) | 115.72M98.41M | +17.6% |
| Shares Outstanding (Diluted) | 116.01M99.17M | +17.0% |
05—Questions
Frequently Asked Questions
How much did Digital Realty's revenue and earnings grow in 2012?
Total operating revenues grew 20.4% to $1,279.1 million. Net income available to common stockholders was $171.7 million, or $1.48 per diluted share, up from $130.9 million, or $1.32 per diluted share, in 2011. Growth was driven by new leasing at same-store properties and by acquisitions, most notably the Sentrum Portfolio in London.
How leveraged is the company and how much liquidity does it have?
Total consolidated debt was about $4.3 billion at December 31, 2012, and debt was about 32% of total enterprise value, below the board's 60% policy limit. The company had a $1.8 billion global revolving credit facility with roughly $1.0 billion available at year-end, plus a new $750 million unsecured term loan. About 79% of total indebtedness was fixed-rate or swapped to fixed.
What are the main risks to tenant income and occupancy?
Tenant concentration is the main risk: CenturyLink (Savvis/Qwest) accounts for about 9.1% of annualized rent, and the 20 largest tenants about 47%. Lease expirations are 4.0% of rentable square feet in 2013 and 7.2% in 2014, and the company faces potential oversupply from competitors such as DuPont Fabros, CoreSite, and CyrusOne. Geographic concentration is also notable, with London at 12.1% and Silicon Valley and Dallas each at about 10.7% of annualized rent.
How is the company funding its development and acquisition pipeline?
Management expects to spend $850 million to $950 million on development capital expenditures in 2013, with about 2.4 million square feet of space held for development and about 1.4 million square feet under construction. Funding sources include operating cash flow, the revolving credit facility, term debt, and equity issued through an at-the-market program of up to $400 million and periodic public offerings. The January 2013 £400 million 4.250% notes due 2025 were also issued partly to fund acquisitions and development.
Is the dividend sustainable, and what did the company declare?
The company declared a quarterly common dividend of $0.78 per share for Q1 2013, an annual rate of $3.12, up from $2.92 paid in 2012 ($0.73 per quarter). As a REIT it must distribute at least 90% of taxable income, and it has historically distributed 100%. FFO of $4.44 per diluted share comfortably covered the 2012 dividend of $2.92, though investors should note that the dividend is at the board's discretion and that the company may need to keep raising external capital.
06—Continue