01—Abstract
Summary
Summary of the 10-K filed March 3, 2014. Cited figures are marked; the original filing is the authoritative source.
Digital Realty Trust (DLR) closed 2013 with 131 properties (24.5 million net rentable square feet, including 12 properties held in unconsolidated joint ventures), roughly 92.6%a leased excluding development space, and 655 tenants.
Total operating revenues grew 15.9% to $1.48 billion, net income rose to $320.4 millionb from $216.0 million, and diluted income per share was $2.12 versus $1.48 in 2012. Growth was driven by new leasing, completed development space and acquisitions, while the 2013 gain of $115.6 million on the Prudential JV contribution also flattered net income. Investors should note that net income available to common stockholders rose on a one-time gain, and that the company remains a major developer, with about $1.8 million square feet under active development and guidance of $600-800 million in 2014 development capex.
Balance sheet leverage remains significant: total consolidated debt was about $5.0 billionc, roughly 41% of total enterprise value (with a 60% policy ceiling), and about 76% of debt was fixed or swapped. Liquidity relied on a $2.0 billion global revolver with about $1.3 billion available at year end, and the company issued $630 million of 4.25% notes due 2025 and $250 million of 5.875% Series G preferred stock during the year. Cash flow from operations of $656.4 million covered common and preferred dividends, which were raised to $0.78 quarterly in 2013 and declared at $0.83 for Q1 2014.
Key risks highlighted include customer concentration (CenturyLink about 7.8% of annualized rent, the top 20 tenants about 46%), Silicon Valley oversupply risk flagged by management, FX exposure to GBP and EUR (London about 12% of rent), and the expected lease expirations of 14.3% of square footage through 2015. The 10-K also notes that the common stock fell sharply during 2013, from about $72.92d to a year-end close near $49, which reduced total stockholder return to 185.2 versus 242.1 the prior year on a $100 base.
02—Key points
Key Highlights
- Revenue growth: total operating revenues rose 15.9% to $1.48 billion in 2013, with same-store rental revenue up about 8.4%.
- Net income increased to $320.4 million (EPS $2.12) from $216.0 million, helped by a $115.6 million gain on the PREI joint venture contribution.
- Portfolio: 131 properties, 24.5 million sq ft, about 92.6% leased (excluding development space), 655 tenants, across 33 metro areas.
- Development pipeline: about 1.8 million sq ft under active development and 1.3 million sq ft held for future development; 2014 development capex guided at $600-800 million.
- Leverage: about $5.0 billion of consolidated debt, roughly 41% of total enterprise value versus a 60% policy ceiling; about 76% fixed or swapped.
- Liquidity: $1.3 billion available on a $2.0 billion global revolver; $630 million 4.25% notes due 2025 issued and $250 million Series G preferred issued in 2013.
- Risks: customer concentration (CenturyLink about 7.8% of annualized rent, top 20 tenants about 46%), FX exposure to GBP/EUR, and stock price decline (total return index 185.2 vs 242.1 prior year).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed March 3, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.48B$1.28B | +15.9% |
| Operating Expenses | $1.10B$912.99M | +20.5% |
| Operating Income | $381.81M$366.08M | +4.3% |
| Interest Expense | $189.40M$157.11M | +20.6% |
| Net Income | $314.49M$210.33M | +49.5% |
| EPS (Basic) | $2.12$1.48 | +43.2% |
| EPS (Diluted) | $2.12$1.48 | +43.2% |
| Shares Outstanding (Basic) | 127.94M115.72M | +10.6% |
| Shares Outstanding (Diluted) | 128.13M116.01M | +10.4% |
05—Questions
Frequently Asked Questions
How did Digital Realty's core operating performance change in 2013?
Total operating revenues grew 15.9% to $1.48 billion, driven by new leasing at same-store properties, completed development space and acquisitions. Operating expenses rose 20.5%, mainly from utilities, property taxes and higher depreciation, so operating income grew more slowly, to $381.8 million from $366.1 million.
Is the 2013 earnings increase sustainable?
Part of the increase is non-recurring. Net income includes a $115.6 million gain from contributing nine data centers to a joint venture with Prudential Real Estate Investors, plus a $5.6 million insurance settlement gain. Excluding these items, earnings growth would be considerably smaller, so investors should focus on funds from operations, which the filing reports at $4.74 per diluted share and unit, up from $4.44.
How leveraged is the company and how is its debt structured?
Consolidated debt was about $5.0 billion at year end, roughly 41% of total enterprise value, below the 60% policy limit. About 76% of debt was fixed-rate or swapped, the weighted average effective rate was about 3.9%, and average maturity was roughly 4.9 years. Mortgage debt has been reduced while unsecured notes and the term loan have grown.
What are the main concentration and tenant risks?
CenturyLink (including Savvis and Qwest) represents about 7.8% of annualized rent, IBM about 5.5% and telx about 4.3%. The 20 largest tenants account for roughly 46% of annualized rent. Silicon Valley is flagged as possibly oversupplied, and London represents about 12% of rent, creating currency and market concentration.
What should investors expect for dividends and capital allocation?
The common dividend was raised to $0.78 per quarter during 2013 and $0.83 was declared for Q1 2014, an annualized $3.32. The company must distribute at least 90% of REIT taxable income. Capital is directed mainly to development (about $926 million of development capex in 2013), with acquisitions of about $188 million and a $500 million buyback authorization that was not used in 2013.
06—Continue