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10-Q
DIGITAL REALTY TRUST, INC. filed this Form 10-Q on 11/08/06
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From                      to                     .

Commission file number 001-32336

DIGITAL REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)

 

Maryland   26-0081711

(State or other jurisdiction of

incorporation or organization)

  

(IRS employer

identification number)

560 Mission Street, Suite 2900  
San Francisco, CA   94105
(Address of principal executive offices)   (Zip Code)

(415) 738-6500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨    Accelerated filer   x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

   

Outstanding at October 31, 2006

Common Stock, $.01 par value per share    45,458,937

 

Table of Contents

DIGITAL REALTY TRUST, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2006

TABLE OF CONTENTS

 

           Page
number

PART I.

    FINANCIAL INFORMATION   

ITEM 1.

   

Consolidated Condensed Financial Statements:

   
  

Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005

    1
  

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005 (unaudited)

    2
  

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2006 and 2005 (unaudited)

    3
  

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)

    4
  

Notes to Condensed Consolidated Financial Statements

    6

ITEM 2.

   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    23

ITEM 3.

   

Quantitative and Qualitative Disclosures About Market Risk

    39

ITEM 4.

   

Controls and Procedures

    41

PART II.

   

OTHER INFORMATION

   

ITEM 1.

   

Legal Proceedings

    41

ITEM 1A.

   

Risk factors

    41

ITEM 2.

   

Unregistered Sales of Equity Securities and Use of Proceeds

    41

ITEM 3.

   

Defaults Upon Senior Securities

    41

ITEM 4.

   

Submission of Matters to a Vote of Security Holders

    41

ITEM 5.

   

Other Information

    41

ITEM 6.

   

Exhibits

    42
  

Signatures

    43

Table of Contents

DIGITAL REALTY TRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

 

    

September 30,
2006

(unaudited)

     December 31,
2005		  

ASSETS

     

Investments in real estate:

     

Land

    $ 210,897     $ 191,961  

Acquired ground leases

      2,969       1,477  

Buildings and improvements

      1,259,769       941,115  

Tenant improvements

      153,344       123,957  
                

Investments in real estate

      1,626,979       1,258,510  

Accumulated depreciation and amortization

      (94,412 )     (64,404 )
                

Net investments in real estate

      1,532,567       1,194,106  

Cash and cash equivalents

      27,650       10,930  

Accounts and other receivables, net of allowance for doubtful accounts of $1,917 and $763 as of September 30, 2006 and December 31, 2005, respectively

      17,586       7,587  

Deferred rent

      34,385       25,094  

Acquired above market leases, net

      43,052       48,237  

Acquired in place lease value and deferred leasing costs, net

      219,675       201,141  

Deferred financing costs, net

      15,276       7,659  

Restricted cash

      24,477       22,123  

Other assets

      57,094       12,293  
                

Total Assets

    $ 1,971,762     $ 1,529,170  
                

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Notes payable under line of credit

    $ 233,767     $ 181,000  

Mortgage loans

      668,490       568,067  

Exchangeable senior debentures

      172,500       —    

Accounts payable and other accrued liabilities

      54,209       36,869  

Accrued dividends and distributions

      20,052       15,639  

Acquired below market leases, net

      83,633       67,177  

Security deposits and prepaid rents

      14,700       11,476  
                

Total liabilities

      1,247,351       880,228  

Commitments and contingencies

     

Minority interests in consolidated joint venture

      —         206  

Minority interests in operating partnership

      241,152       262,239  

Stockholders’ equity:

     

Preferred Stock: $0.01 par value, 20,000,000 authorized:

     

Series A Cumulative Redeemable Preferred Stock, 8.50%, $103,500,000 liquidation preference ($25.00 per share), 4,140,000 issued and outstanding

      99,297       99,297  

Series B Cumulative Redeemable Preferred Stock, 7.875%, $63,250,000 liquidation preference ($25.00 per share), 2,530,000 issued and outstanding

      60,502       60,502  

Common Stock; $0.01 par value: 100,000,000 authorized, 36,155,367 and 27,363,408 shares issued and outstanding as of September 30, 2006 and December 31, 2005

      362       274  

Additional paid-in capital

      359,966       252,562  

Dividends in excess of earnings

      (39,540 )     (27,782 )

Accumulated other comprehensive income, net

      2,672       1,644  
                

Total stockholders’ equity

      483,259       386,497  
                

Total liabilities and stockholders’ equity

    $ 1,971,762     $ 1,529,170  
                

See accompanying notes to the condensed consolidated financial statements.

 

1

Table of Contents

DIGITAL REALTY TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited in thousands except share data)

 

     Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
     2006     2005     2006     2005  

Operating Revenues:

         

Rental

    $ 59,552     $ 43,587     $ 159,409     $ 110,924  

Tenant reimbursements

      13,637       10,970       37,812       25,527  

Other

      —         265       168       4,397  
                                

Total operating revenues

      73,189       54,822       197,389       140,848  
                                

Operating Expenses:

         

Rental property operating and maintenance

      15,474       11,854       40,802       27,664  

Property taxes

      7,238       6,052       21,173       14,255  

Insurance

      953       751       2,911       1,842  

Depreciation and amortization

      24,739       16,309       61,763       41,576  

General and administrative

      4,986       3,324       13,906       8,190  

Other

      607       106       938       1,588  
                                

Total operating expenses

      53,997       38,396       141,493       95,115  
                                

Operating income

      19,192       16,426       55,896       45,733  

Other Income (Expenses):

         

Interest and other income

      365       165       856       404  

Interest expense

      (14,486 )     (10,373 )     (37,355 )     (27,081 )

Loss from early extinguishment of debt

      (39 )     —         (521 )     (125 )
                                

Income from continuing operations before minority interests

      5,032       6,218       18,876       18,931  

Minority interests in continuing operations of operating partnership

      (678 )     (1,719 )     (4,113 )     (7,226 )
                                

Income from continuing operations

      4,354       4,499       14,763       11,705  

Income (loss) from discontinued operations before gain on sale of assets and minority interests

      203       (169 )     (288 )     (513 )

Gain on sale of assets

      18,016       —         18,016       —    

Minority interests attributable to discontinued operations

      (7,786 )     95       (7,522 )     307  
                                

Income (loss) from discontinued operations

      10,433       (74 )     10,206       (206 )

Net income

      14,787       4,425       24,969       11,499  

Preferred stock dividends

      (3,445 )     (3,099 )     (10,335 )     (6,569 )
                                

Net income available to common stockholders

    $ 11,342     $ 1,326     $ 14,634     $ 4,930  
                                

Income per share from continuing operations available to common stockholders:

         

Basic

    $ 0.02     $ 0.05     $ 0.14     $ 0.23  

Diluted

    $ 0.02     $ 0.05     $ 0.13     $ 0.22  
                                

Income (loss) per share from discontinued operations:

         

Basic

    $ 0.29     $ —       $ 0.31     $ (0.01 )

Diluted

    $ 0.28     $ —       $ 0.30     $ (0.01 )
                                

Net income per share available to common stockholders:

         

Basic

    $ 0.31     $ 0.05     $ 0.45     $ 0.22  

Diluted

    $ 0.30     $ 0.05     $ 0.43     $ 0.21  
                                

Weighted average common shares outstanding:

         

Basic

      36,114,253       25,704,721       32,361,456       22,864,797  

Diluted

      37,446,894       26,004,324       33,684,081       23,037,992  

See accompanying notes to the condensed consolidated financial statements.

 

2

Table of Contents

DIGITAL REALTY TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited in thousands)

 

     Three months ended
September 30,		     Nine months ended
September 30,		  
     2006     2005     2006     2005  

Net income

    $ 14,787     $ 4,425     $ 24,969     $ 11,499  

Other comprehensive income: