8-KMaterial AgreementsCorporate ChangesRegulation FD+2

DIGITAL REALTY TRUST, INC. 8-K Report, Material Agreement (Jul 14, 2015)

Filed July 14, 2015For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) announced on July 14, 2015, its definitive agreement to acquire Telx Holdings, Inc. for approximately $1.886 billion in cash. This strategic acquisition is expected to significantly bolster DLR's position in the colocation and interconnection services market, diversifying its revenue streams and expanding its product offerings to cater to a broader customer base. The transaction is anticipated to be accretive to DLR's 2016 financial metrics. The company plans to finance the acquisition through a combination of forward sale agreements for its common stock, alongside permanent equity and debt financing. A committed bridge loan facility of $1.850 billion has been secured from Citigroup, Bank of America, and Morgan Stanley to ensure funding availability. While the merger agreement includes customary provisions, it notably does not include a financing condition for the acquisition itself, indicating confidence in securing necessary capital. DLR also disclosed a related party transaction involving leases to Avaya Inc., where a board member holds a senior executive position.

Key Highlights

  • 1Digital Realty Trust (DLR) to acquire Telx Holdings, Inc. for approximately $1.886 billion in cash.
  • 2The acquisition is expected to enhance DLR's colocation and interconnection services capabilities, diversifying its business model.
  • 3Telx operates 20 data center facilities across 13 North American MSAs, serving over 1,250 customers with a strong recurring revenue base (97% of total revenue).
  • 4Financing for the acquisition will be a mix of equity (forward sale agreements) and debt, supported by a $1.850 billion bridge loan facility.
  • 5The acquisition is expected to be accretive to DLR's 2016 financial results.
  • 6Telx has a strong track record of customer retention, low churn (0.6% average monthly recurring revenue churn), and increasing MRR per customer.
  • 7A related party transaction involving leases to Avaya Inc., where a DLR board member is CEO, was disclosed.

Frequently Asked Questions

The acquisition of Telx is aimed at transforming Digital Realty into a leading provider of colocation, interconnection, and cloud enablement services in the United States. It diversifies DLR's product mix, expands its customer base, and allows participation in the high-growth colocation and interconnection markets. The move is expected to enhance DLR's overall portfolio attractiveness and enables expansion of Telx's business model globally.

DLR plans to fund the acquisition using a combination of net proceeds from forward sale agreements for its common stock, and permanent equity and debt financing. To ensure funding is available, the company has secured a $1.850 billion senior unsecured bridge loan facility.

Telx demonstrates strong recurring revenue (approximately 97% of total revenues) primarily from colocation and interconnection services, with a low monthly churn rate of around 0.6%. It has a diverse customer base across various industries and a well-established interconnection platform with high cross-connect density. Telx has also shown a consistent growth trajectory in revenue and average monthly recurring revenue per customer.

Key risks include the possibility that the acquisition may not be completed, or could be delayed, leading to incurred costs without realizing benefits. If completed, there's a risk that the anticipated benefits and synergies may not be fully realized, or that the integration process could disrupt operations and divert management attention. Additionally, DLR may face unknown or contingent liabilities related to Telx for which recourse against sellers is limited.