NEW YORK–(COMPANY WIRE)– Fitch Ratings has actually assigned a score of BBB to the senior unsecured
issuance by Digital Euro Finco, LLC, a wholly-owned subsidiary of
Digital Realty Trust, Inc. (NYSE: DLR). The notes will be completely and
unconditionally ensured by Digital Real estate Trust, Inc. and Digital
Realty Trust, LP The company expects to utilize to the net proceeds to
pay back loanings under its international revolving credit facility. A complete list
of Fitchs current scores for DLR follows at the end of this release.
KEY SCORE DRIVERS
The score shows that while the acquisition of Telx moderately
increases take advantage of in the near term, Fitch expects the companys metrics
to enhance in-line with longer-term historical trends, and constant
with a BBB Issuer Default Rating (IDR) for a diversified data center
genuine estate financial investment trust (REIT). While the Telx transaction includes
more operational intensity and reduces margins, the transaction has
several advantages, consisting of increased occupant and income variety and
complementary company lines.
As the largest information center REIT, Digital Realty exhibits credit
staminas including an international platform, granular occupant base, strong
access to several sources of capital, appropriate liquidity, and a deep
management bench. The score considers the specific niche possession class in
which the company operates, leading to a less liquid financial investment market
than other commercial property possession classes and likewiseas well as low unencumbered
possession protection for the score.
Secret Metrics Remain Appropriate For Rating
Fitch approximates run-rate take advantage of at 5.2 x for the year ended Dec. 31,.
2015. Fitch just recently modified the treatment of REIT advancing continuous.
preferred stock to 50 % equity credit from 100 %. DLRs run rate take advantage of.
based upon net debt including 50 % of favored stock was 5.8 x for the year.
ended Dec. 31, 2015, compared with 5.5 x and 6.0 x in 2014 and 2013, still.
proper for the BBB rating. Fitch projections that take advantage of will.
remain between 5.5 x and 6.0 x over the next 12 – 24 months.
Fixed-charge coverage is good for the score at 3.0 x for the year ended.
Dec. 31, 2015 versus 2.9 x for both full year 2014 and 2013. Fitch.
expects DLRs fixed-charge protection will be between 2.7 x and 3.0 x over.
the next 12 – 24 months, driven by same-store net operating income (NOI).
growth offset by higher fixed charges. Fitch specifies repaired charge.
coverage as repeating operating EBITDA less straight-line rents divided.
by total interest sustained and preferred stock dividends.
Method Focused on Improving Unlevered Revenue Flow.
The lease-up of existing inventory is one of the business top.
top priorities. Tenants across the social networks, movement, analytics, and.
cloud sections are driving the majority of brand-new need for Digital.
Realtys homes. Portfolio occupancy decreased 180 basis points.
(bps) year over year to 91.4 % at Dec. 31, 2015 as an outcome of.
consolidating newly obtained Telx buildings running at tenancy.
levels well listed below the rest of DLRs portfolio. Quarterly stabilized exact same.
shop year-over-year money NOI growth averaged 2.3 % in 2015 due primarily.
to a renewal leasing spread of 11.5 % for the year ended Dec. 31, 2015.
Throughout 2015, renewal activity represented 64.6 % of lease finalizings based.
on square video.
Comparisons for renewals were challenging for a time due to the rolldown.
of peak rental rates signed prior to the financial crisis; however, the.
company has actually recently been effectiveworked in renting up its existing.
properties and preserving its tenant base. Over the next numerous years,.
Fitch projects 2.5 % to 4.7 % same-store NOI growth, driven primarily by.
developments coming on line and efficient management of the aggregate.
portfolio inclusive of Telx.
Same-store NOI growth, revenue flowcapital from the lease-up of developments, and.
enhanced cash flowcapital from joint endeavors, offset by a reduction of EBITDA.
from the sale of non-core assets, need to drive fixed-charge protection in.
the high 2.0 x range over the next 2 years, appropriate for a BBB.
rating offered Digital Realtys niche building focus.
Digital Real estate provides Turn-Key Flex, Powered Base Building, colocation.
and interconnection space by means of its 139 operating properties, including.
110 throughout North America, 23 in Europe, 3 in Australia and three.
in Asia. Top markets as of Dec. 31, 2015 were New York (13.2 % of.
consolidated annualized base lease), London (10.8 %), Northern Virginia.
(10.4 %), Dallas (10.4 %), and Silicon Valley (8.8 %).
The company also benefits from a granular tenant lineup, which includesthat includes.
IBM (Rated A+/ Stable Outlook) at 7.5 % of rent, CenturyLink, Inc.
(BB+ IDR/Stable Outlook) at 6.1 %, Equinix, Inc. (BB IDR/Stable.
Outlook) at 4.0 %, Facebook, Inc. at 2.3 % and ATamp; T (A- IDR/Stable.
Outlook) at 2.1 %.
Excellent Access to Capital but Minimal Secured Debt Market for Data Centers.
Because 2006, the company has actually released $3.4 billion of common equity, $1.9.
billion of favored equity consisting of most current issuance, $3.5 billion.
of dollar-denominated unsecured bonds, and GBP700 million of.
sterling-denominated unsecured bonds not consisting of the April 2016.
issuance. The companys sterling-denominated bonds function as a natural.
hedge given the companys exposure to the United Kingdom.
Additionally, the company holds a $2 billion worldwide revolving credit.
facility, refinanced in January 2016, which provides for borrowings in.
Australian dollars, British pounds sterling, Canadian dollars, Euros,.
Hong Kong dollars, Japanese yen, Singapore dollars, and United States dollars.
with the capability to include extra currencies in the future topic to.
Despite the business strong access to capital, the accessibility of.
mortgage capital for data centers is not as deep compared with other.
industrial genuinerealty property types, limiting the sources of.
Deep Management Bench.
The company has a strong management team in locations such as realproperty.
proficiency as well as technical acumen, and it continues to work.
collaboratively with its company partners such as VMware and Compunext.
to provide accommodative information center options (eg, direct connections.
to VMware vCloud Air, production of the International Cloud Market with.
various cloud service companiescompany). Fitch anticipates that most of Telxs.
staff members will sign up with DLR to handle the colocation and interconnection.
Less Contingent Liquidity for Data Centers.
Data centers are specialized buildings and technological obsolescence.
over the long term is possible. However, there are considerable obstacles.
to entry and medium-term IT patterns are desirable. Compared to other.
genuineproperty assets, information centers have a less liquid investment market.
with fewer potential buyers, making these assets possibly more.
difficult to divest or obtain versus in a depressed market. These.
market characteristics can reduce the ability of data centers to serve.
as a source of contingent liquidity. Digital Realtys monetary metrics.
are fundamentally strong for the BBB rating category; however, the.
ratings are constricted by the information center buildings being a.
less-than-mature asset class and the less liquid market for trading and.
funding these possessions.
Digital Realty is dedicated to an unsecured financing profile. Nevertheless,.
the companys unsecured financial obligation incurrence has actually outmatched the growth of the.
unencumbered swimming pool. Unencumbered assets (unencumbered NOI divided by a.
stressed capitalization rate of 10 %) covered net unsecured financial obligation by 2.1 x.
since Dec. 31, 2015, which is low for a BBB score.
Greater Operational Intensity from Telx Transaction.
Fitch estimates that EBITDA margins will decrease to 54 % from.
around 57 % due to lower Telx margins, which Telxs colocation.
and affiliation business will represent roughly 11 % of DLRs.
overall EBITDA. Telx owns only 2 possessions, with the continuing to be seven.
locations leased from third-party property owners. As an outcome, DLR has.
become a tenant at these areas, which increases lease renewal danger.
and includes a degree of running threat into the companys company. Fitchs.
unfavorable score level of sensitivities for leverage might decline if the business.
further increases its exposure to business sectors with greater.
Adequate Liquidity Protection Ratio.
Liquidity coverage (defined as liquidity sources divided by usages) is.
sufficient at 1.5 x for the period from Jan. 1, 2016 to Dec. 31, 2017.
Sources of liquidity consist of unlimited revenue less working capital.
requirements, availability under the companys global unsecured.
revolving credit center, and predicted maintained revenue circulationscapital from.
running activities after dividends and distributions. Utilizes of.
liquidity consist of debt maturities in addition to projected recurring capital.
expenditures and cost-to-complete future development.
The companys adjusted funds from operations (AFFO) pay-out ratio was.
81.4 % in 2015 compared with 87.6 % in 2014 and 83.9 % in 2013, all of.
which are indicative of the business capability to produce and keep.
moderate natural liquidity. Based upon the present AFFO pay-out ratio, the.
business retains roughly $110 million annually.
The Steady Outlook shows Fitchs expectation that metrics will remain.
proper for the score over the next one to two years.
Fitchs crucial presumptions within the rating case for DLR consist of:.
–$850 million of yearly advancement begins;.
–$750 million of yearly advancement deliveries.
RATING LEVEL OF SENSITIVITIES.
The following factors may lead to positive momentum in the rating.
— Increased home loan loaning activity in the information center sector;.
— Fitchs expectation of fixed-charge protection sustaining above 3x (year.
end 2015 repaired charge coverage was 3.0 x and 4Q15 run rate coverage is.
— Fitchs expectation of leverage (consisting of 50 % equity.
credit-to-preferred stock) sustaining listed below 4.5 x (4Q15 run rate take advantage of.
is 5.8 x and year end 2015 take advantage of is 6.4 x).
The list below factors may result in unfavorable momentum in the score.
— Sustained decreases in rental rates and same-property NOI;.
— Fitchs expectation of fixed-charge coverage sustaining listed below 2.5 x;.
— Fitchs expectation of leverage sustaining above 6x;.
— Base case liquidity protection sustaining listed below 1x.
COMPLETE LIST OF RATING ACTIONS.
Fitch presently rates Digital as follows:.
Digital Real estate Trust, Inc.
— IDR BBB;.
— Preferred stock BB+.
Digital Real estate Trust, LP.
— IDR BBB;.
— Unsecured revolving credit facility BBB;.
— Senior unsecured term loan center BBB;.
— Senior unsecured notes BBB.
Digital Stout Holding, LLC.
— Unsecured guaranteed notes BBB.
Digital Euro Finco, LLC.
— Unsecured guaranteed notes BBB.
The Score Outlook is Stable.
Date of Relevant Rating Committee: July 10, 2015.
Extra info is offered on www.fitchratings.com.
Corporate Score Approach – Including Short-Term Ratings and Parent.
and Subsidiary Linkage (club. 17 Aug 2015).
Treatment and Notching of Hybrids in Non-Financial Corporate and REIT.
Credit Analysis (club. 29 Feb 2016).
Dodd-Frank Score Information Disclosure Type.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO SPECIFIC RESTRICTIONS AND.
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING.
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE REGARDS TO USAGE OF SUCH RATINGS ARE.
AVAILABLE ON THE AGENCYS PUBLIC SITE WWW.FITCHRATINGS.COM.
RELEASED RATINGS, CRITERIA AND METHODS ARE AVAILABLE FROM THIS.
WEBSITE WHATSOEVER TIMES. FITCHS STANDARD PROCEDURE, CONFIDENTIALITY, CONFLICTS.
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES.
AND PROCEDURES ARE LIKEWISE READILY AVAILABLE FROM THE CODE OF CONDUCT SECTION OF.
THIS SITE. FITCH MAY HAVE OFFERED ANOTHER PERMISSIBLE SERVICE TO THE.
RANKED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR.
SCORES FOR WHICH THE LEAD EXPERT IS BASED IN AN EU-REGISTERED ENTITY.
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH.