Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
On August 15, 2017, DuPont Fabros Technology, Inc. (
DFT
) and Digital
Realty Trust, Inc. (
DLR
) each filed with the Securities and Exchange Commission (the
SEC
) a joint proxy statement/prospectus (the
Definitive Proxy Statement
) with respect to (A) the
special meeting of DFT stockholders scheduled to be held on September 13, 2017 (the
DFT Special Meeting
) to, among other things, vote on a proposal to approve the previously announced proposed merger (the
Merger
) of DFT and DLR pursuant to the Agreement and Plan of Merger (the
Merger Agreement
), dated as of June 8, 2017, by and among DFT, DLR and the other entities party thereto, and (B) the special
meeting of DLR stockholders scheduled to be held on September 13, 2017 (the
DLR Special Meeting
and, together with the DFT Special Meeting, the
Special Meetings
) to, among other things, vote on a proposal
to approve the issuance of common stock of DLR, $0.01 par value per share, pursuant to the Merger Agreement.
As previously disclosed in
the Definitive Proxy Statement, four putative class actions (the
Lawsuits
) have been filed on behalf of alleged DFT stockholders in the United States District Court for the District of Columbia (the
Court
) under
the captions:
Scarantino v. DuPont Fabros Technology, Inc., et al.
, Case
1:17-cv-01428,
filed July 18, 2017,
Canchola v. DuPont Fabros Technology, Inc.,
et al.
, Case
1:17-cv-01481,
filed July 24, 2017,
Lawrence v. DuPont Fabros Technology, Inc., et al.
, Case
1:17-cv-01465
filed July 24, 2017; and
McCullough v. DuPont Fabros Technology, Inc.
, et al., Case
1:17-cv-01563,
filed August 2, 2017. All four complaints name as defendants DFT and the members of the board of directors of DFT. The Scarantino complaint also names as defendants DuPont Fabros Technology, L.P., DLR, Digital Realty Trust, L.P., Penguins REIT
Sub, LLC, Penguins OP Sub, LLC and Penguins OP Sub 2, LLC.
The Lawsuits allege that the defendants violated Section 14(a) of the
Securities Exchange Act of 1934, as amended (the
Exchange Act
), and Rule
14a-9
promulgated thereunder by issuing allegedly materially incomplete and misleading disclosures in the Form
S-4
Registration Statement filed with the SEC on July 10, 2017, containing a joint proxy statement/prospectus. The Lawsuits further allege that the defendants violated Section 20(a) of the Exchange Act by
failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act. The Lawsuits seek injunctive relief, including enjoining or rescinding the mergers, and an award of other unspecified attorneys and
other fees and costs, in addition to other relief.
On August 25, 2017, the plaintiff in the Lawrence complaint moved for entry of a
preliminary injunction to enjoin the Merger and the plaintiffs in the other three actions joined in that request. On August 28, 2017, the Court ordered the consolidation of the Lawsuits and a hearing on the motion for the preliminary injunction
was scheduled for September 5, 2017. On August 31, 2017, the plaintiff voluntarily withdrew his motion for preliminary injunction as a result of discussions among the parties regarding the supplemental disclosures contained in this filing.
DFT and DLR continue to believe that the claims asserted in the Lawsuits are without merit, and further believe that no supplemental
disclosure is required under applicable laws. However, DFT and DLR wish to make certain supplemental disclosures related to the Merger
Agreement solely for the purpose of mooting the allegations contained in the Lawsuits and avoiding the expense and burden of litigation. Nothing in the supplemental disclosures shall be deemed an
admission of the legal necessity or materiality under applicable law of any of the supplemental disclosures.
Important information
concerning the Merger is set forth in the Definitive Proxy Statement. The Definitive Proxy Statement is amended and supplemented by, and should be read in conjunction with, the information set forth in this Current Report on Form
8-K.
SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS
DFT and DLR have agreed to make the following amended and supplemental disclosures to the Definitive Proxy Statement. This
supplemental information should be read in conjunction with the Definitive Proxy Statement, which should be read in its entirety. Page references in the below disclosures are to the Definitive Proxy Statement, and certain terms used but not defined
herein have the meanings set forth in the Definitive Proxy Statement. Without admitting in any way that the disclosures below are material or otherwise required by law, DFT and DLR make the following amended and supplemental disclosures:
The section of the Definitive Proxy Statement entitled The MergersBackground of the Mergers is amended and supplemented as follows:
The third full paragraph on page 72 of the Definitive Proxy Statement is replaced, in its entirety, with the following:
On June 5, 2017, Hogan Lovells received from Latham & Watkins a further revised version of the proposed merger
agreement. The draft accepted substantially all of the changes included in the June 2, 2017 draft of the proposed merger agreement circulated by Hogan Lovells, including removal of the requirement for substantially all DFT unitholders to agree
to new tax protection arrangements as a condition of closing. Later on June 5, 2017, DFT revoked the return or destroy letter it had previously delivered, once again granted DLR and its representatives access to the virtual data site and DFT
and DLR executed an amendment to the Exclusivity Agreement to extend exclusivity through June 8, 2017.
The section of the Definitive Proxy
Statement entitled The MergersOpinion of DFTs Financial AdvisorOpinion of Goldman Sachs is amended and supplemented as follows:
The second, third and fourth full paragraphs under the subheading Illustrative Levered Discounted Cash Flow Analyses on pages 100 and 101
of the Definitive Proxy Statement are replaced, in their entirety, with the following:
Using discount rates ranging
from 7.0% to 8.2%, reflecting estimates of the cost of equity for DFT on a standalone basis, derived by application to DFT on a stand-alone basis of the Capital Asset Pricing Model, which incorporates certain company-specific inputs, including a
beta for the company, as well as certain financial metrics for the United States markets generally, Goldman Sachs derived a range of illustrative present values per share of DFT common stock on a standalone basis, by discounting to present value as
of March 31, 2017, estimates of the dividends per share of DFT common stock for the period from March 31, 2017 through the end of 2021, as reflected in the Forecasts (which reflect completion of a DFT equity capital raise of
$300 million in 2017), and illustrative terminal values per share of DFT common stock as of December 31, 2021 derived by applying a terminal EBITDA multiple range of 14.0x to 17.0x to estimated terminal year EBITDA for DFT on a stand-alone
basis as reflected in the Forecasts, subtracting an estimate of DFTs
4
net debt and preferred stock as of December 31, 2021, as reflected in the Forecasts, and dividing the result by the number of fully diluted shares of DFT common stock estimated to be then
outstanding, as reflected in the Forecasts. This analysis resulted in a range of illustrative implied equity values of $52.45 to $69.14 per share of DFT common stock on a standalone basis. The terminal EBITDA multiple range for DFT on a stand-alone
basis reflected above was estimated by Goldman Sachs utilizing its professional judgment and experience taking into account the average
one-year
forward EBITDA multiples implied by DFTs trading prices
(and IBES Estimates of DFTs
one-year
forward EBITDA) over prior periods.
Using discount rates ranging from 4.8% to 6.0%, reflecting estimates of the cost of equity for the pro forma combined company,
derived by application to DLR on a stand-alone basis of the Capital Asset Pricing Model, which incorporates certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States markets
generally, Goldman Sachs derived a range of illustrative present values per share of the pro forma combined company common stock by discounting to present value as of March 31, 2017, estimates of the pro forma combined companys dividends
per share for the period from March 31, 2017 through the end of 2021, as reflected in the Forecasts, and illustrative terminal values per share as of December 31, 2021, derived by applying a terminal EBITDA multiple range of 15.5x to 18.5x
to estimated terminal year EBITDA for the pro forma combined company, as reflected in the Forecasts, subtracting an estimate of the pro forma combined companys net debt and preferred stock as of December 31, 2021, as reflected in the
Forecasts, and dividing the result by the number of fully diluted shares of the pro forma combined company estimated to be then outstanding, as reflected in the Forecasts. This analysis resulted in a range of illustrative implied equity values of
$119.66 to $154.87 per share of the pro forma combined company. Goldman Sachs multiplied this range of illustrative implied equity values by the exchange ratio of 0.545 to derive implied equity values of $65.22 to $84.41 for the 0.545 shares of DLR
to be paid for each share of DFT common stock pursuant to the merger agreement. The terminal EBITDA multiple range for the pro forma combined company reflected above was estimated by Goldman Sachs utilizing its professional judgment and experience
and by blending (based on DLR and DFTs respective estimated 2018 EBITDA on a stand-alone basis as reflected in the Forecasts) the EBITDA multiple range (referenced below) derived for DLR on a stand-alone basis taking into account the average
one-year
forward EBITDA multiples implied by DLRs trading prices (and IBES Estimates of DLRs
one-year
forward EBITDA) over prior periods and the EBITDA multiple
range (referenced above) derived by Goldman Sachs for DFT on a stand-alone basis taking into account the average
one-year
forward EBITDA multiples implied by DFTs trading prices (and IBES Estimates of
DFTs
one-year
forward EBITDA) over prior periods.
Using discount rates
ranging from 4.8% to 6.0%, reflecting estimates of the cost of equity for DLR on a standalone basis, derived by application to DLR on a stand-alone basis of the Capital Asset Pricing Model, which incorporates certain company-specific inputs,
including a beta for the company, as well as certain financial metrics for the United States markets generally, Goldman Sachs derived a range of illustrative present values per share of
5
DLR common stock on a standalone basis, by discounting to present value as of March 31, 2017, estimates of the dividends per share of DLR common stock for the period from March 31, 2017
through the end of 2021, as reflected in the Forecasts, and illustrative terminal values per share of DLR common stock as of December 31, 2021 derived by applying a terminal EBITDA multiple range of 16.0x to 19.0x to estimated terminal year
EBITDA for DLR, as reflected in the Forecasts, subtracting an estimate of DLRs net debt and preferred stock as of December 31, 2021, as reflected in the Forecasts, and dividing the result by the number of fully diluted shares of DLR
common stock estimated to be then outstanding, as reflected in the Forecasts. This analysis resulted in a range of illustrative implied equity values of $125.03 to $160.49 per share of DLR common stock on a standalone basis. The terminal EBITDA
multiple range for DLR on a stand-alone basis reflected above was estimated by Goldman Sachs utilizing its professional judgment and experience taking into account the average
one-year
forward EBITDA multiples
implied by DLRs trading prices (and IBES Estimates of DLRs
one-year
forward EBITDA) over prior periods.
The second and third full paragraphs under the subheading Illustrative Present Value of Future Stock Price Analyses on page 101 of the
Definitive Proxy Statement is replaced, in its entirety, with the following:
Goldman Sachs calculated illustrative
implied future equity values per share of DFT common stock on a standalone basis as of December 31, 2018, 2019 and 2020 by applying
one-year
forward EBITDA multiples ranging from 14.0x to 17.0x, estimated
by Goldman Sachs utilizing its professional judgment and experience taking into account the average
one-year
forward EBITDA multiples implied by DFTs trading prices (and IBES Estimates of DFTs
one-year
forward EBITDA) over prior periods, to estimated EBITDA for DFT for 2019, 2020 and 2021, respectively, as reflected in the Forecasts (which reflect completion of a DFT equity capital raise of
$300 million in 2017), subtracting an estimate of DFTs net debt and preferred stock as of December 31, 2018, 2019 and 2020, respectively, as reflected in the Forecasts, and dividing the result by the number of fully diluted shares of
DFT common stock estimated to be outstanding as of each such date, as reflected in the Forecasts. By applying a discount rate of 7.6%, reflecting a
mid-point
estimate of DFTs cost of equity on a
standalone basis, derived by application to DFT on stand-alone basis of the Capital Asset Pricing Model, which incorporates certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States
markets generally, Goldman Sachs discounted to present value as of March 31, 2017, both the theoretical future values per share it derived and the estimated dividends to be paid per share of DFT common stock from March 31, 2017 through the
end of the applicable year, as reflected in the Forecasts, to yield illustrative present values per share of DFT common stock on a stand-alone basis ranging from $45.72 to $64.55.
Goldman Sachs also performed an analysis of the illustrative implied future equity values per share of the pro forma combined
company as of December 31, 2018, 2019 and 2020 by applying
one-year
forward EBITDA multiples ranging from 15.5x to 18.5x, estimated by Goldman Sachs utilizing its professional judgment and experience and
by blending (based on DLR and DFTs respective estimated 2018 EBITDA on a stand-alone
6
basis as reflected in the Forecasts) the EBITDA multiple range (referenced above) derived for DLR on a stand-alone basis taking into account the average
one-year
forward EBITDA multiples implied by DLRs trading prices (and IBES Estimates of DLRs
one-year
forward EBITDA) over prior periods and the EBITDA
multiple range (referenced above) derived by Goldman Sachs for DFT on a stand-alone basis taking into account the average
one-year
forward EBITDA multiples implied by DFTs trading prices (and IBES
Estimates of DFTs
one-year
forward EBITDA) over prior periods, to estimated EBITDA for the pro forma combined company for 2019, 2020 and 2021, respectively, as reflected in the Forecasts, subtracting an
estimate of the pro forma combined company net debt and preferred stock as of December 31, 2018, 2019 and 2020, respectively, as reflected in the Forecasts, and dividing the result by the number of fully diluted shares of the pro forma combined
company estimated to be outstanding as of each such date, as reflected in the Forecasts. By applying a discount rate of 5.4%, reflecting a midpoint estimate of the pro forma combined companys cost of equity, derived by application to DLR on a
stand-alone basis of the Capital Asset Pricing Model, which incorporates certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States markets generally, Goldman Sachs discounted to
present value as of March 31, 2017, both the theoretical future values per share it derived and the estimated dividends to be paid per share of the pro forma combined company from March 31, 2017 through the end of the applicable year as
reflected in the Forecasts to yield illustrative present values per share of the pro forma combined company ranging from $95.98 to $141.39. Goldman Sachs multiplied this range of illustrative present values per share by the exchange ratio of 0.545
to derive illustrative implied equity values of $52.31 to $77.06 for the 0.545 shares of DLR to be paid for each share of DFT common stock pursuant to the merger agreement.
The second full paragraph and the table that immediately follows under the subheading Selected Transaction Analysis on page 102 of the
Definitive Proxy Statement is replaced, in its entirety, with the following:
The transactions considered, the month
and year each transaction was announced, and the Implied Forward EBITDA Multiple at announcement for each were as follows:
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Target
|
|
Acquiror
|
|
Announcement
|
|
Implied Forward EBITDA
Multiple
|
|
Sentinel Data Centers
|
|
CyrusOne, Inc.
|
|
February 2017
|
|
|
14.4x
|
|
Verizon Communications Inc. Data Center Portfolio
|
|
Equinix, Inc.
|
|
December 2016
|
|
|
13.3x
|
|
Equinix, Inc. European Portfolio
|
|
Digital Realty Trust, Inc.
|
|
May 2016
|
|
|
13.0x
|
|
Windstream Holdings, Inc.s Data Center Business
|
|
TierPoint, LLC
|
|
October 2015
|
|
|
14.1x
|
|
Telx Group Inc.
|
|
Digital Realty Trust, Inc.
|
|
July 2015
|
|
|
15.5x
|
|
Telecity Group, PLC
|
|
Equinix, Inc.
|
|
May 2015
|
|
|
13.1x
|
|
Cervalis Holdings LLC
|
|
CyrusOne, Inc.
|
|
April 2015
|
|
|
10.5x
|
|
Latisys Holdings, LLC
|
|
Zayo Group, LLC
|
|
January 2015
|
|
|
13.4x
|
|
Viawest, Inc.
|
|
Shaw Communications Inc.
|
|
July 2014
|
|
|
13.0x
|
|
7
The first full paragraph on page 104 of the Definitive Proxy Statement under the subheading
General is replaced, in its entirety, with the following:
The DFT Board selected Goldman Sachs as
its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction contemplated by the merger agreement. Pursuant to a letter agreement dated
May 7, 2017, DFT engaged Goldman Sachs to act as its financial advisor in connection with the transaction contemplated by the merger agreement. The engagement letter between DFT and Goldman Sachs provides for a transaction fee that is
estimated, based on the information available as of the date of announcement, at approximately $32 million, of which a $2 million fee was payable upon the presentation by Goldman Sachs to the DFT Board of the results of financial analysis
undertaken to enable Goldman Sachs to render its fairness opinion and the remaining balance of which is contingent upon consummation of the proposed transaction contemplated by the merger agreement. At the request of the DFT Board, in connection
with the transaction contemplated by the merger agreement, an affiliate of Goldman Sachs has entered into a commitment to provide DFT OP with a
364-day
bridge facility providing for bridge loans of up to
$200 million, in the aggregate, subject to the terms of such commitment. The affiliate of Goldman Sachs will be entitled to receive fees in connection with the bridge facility in the event that bridge loans are actually made by the lenders
under the bridge facility. The amount of any such fees will depend upon, among other things, the aggregate amount of the bridge loans actually made by the lenders under the bridge facility and the period of time during which such bridge loans remain
outstanding. Under the terms of the commitment, no bridge loans will be made after closing of the proposed transaction. Based on the expected closing date of the proposed transaction, DFT does not expect DFT OP to make any borrowings under the
bridge facility. As such, DFT estimates that no fees will become payable to Goldman Sachs or its affiliate in connection with the bridge facility. In addition, DFT has agreed to reimburse Goldman Sachs for certain of its expenses, including
attorneys fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
The section of the Definitive Proxy Statement entitled Certain DLR Unaudited Prospective Financial Information is amended and supplemented as
follows:
The table that begins on the bottom of page 106 of the Definitive Proxy Statement is replaced, in its entirety, with the following:
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Year Ending December 31,
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2017E
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2018E
|
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2019E
|
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|
2020E
|
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|
2021E
|
|
|
|
($ in millions, except per share values)
|
|
Adjusted EBITDA
(1)(2)
|
|
$
|
1,303
|
|
|
$
|
1,396
|
|
|
$
|
1,529
|
|
|
$
|
1,685
|
|
|
$
|
1,844
|
|
Core FFO per Share
(2)(3)(4)
|
|
$
|
6.06
|
|
|
$
|
6.50
|
|
|
$
|
7.12
|
|
|
$
|
7.91
|
|
|
$
|
8.66
|
|
AFFO per Share
(2)(4)(5)
|
|
$
|
5.54
|
|
|
$
|
5.91
|
|
|
$
|
6.43
|
|
|
$
|
7.18
|
|
|
$
|
7.96
|
|
Unlevered Free Cash
Flows
(2)(6)
|
|
$
|
464
|
|
|
$
|
434
|
|
|
$
|
540
|
|
|
$
|
681
|
|
|
$
|
840
|
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(1)
|
DLR believes that earnings before interest, loss from early extinguishment of debt, income taxes and depreciation
and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view DLRs performance without the
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8
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impact of
non-cash
depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance-related expense, equity acceleration,
and legal expenses, transaction and integration expenses, (gain) on real estate transactions, loss on currency forwards, other
non-core
expense adjustments, noncontrolling interests, preferred stock dividends
and issuance costs associated with redeemed preferred stock. DLR calculates Adjusted EBITDA as EBITDA, excluding severance-related expense, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate
transactions,
non-cash
(gain) on lease termination, loss on currency forwards, other
non-core
expense adjustments, noncontrolling interests, preferred stock dividends
and issuance costs associated with redeemed preferred stock. In addition, DLR believes EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and
Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of
DLRs business, their utility as a measure of DLRs performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than DLR does; accordingly, DLRs EBITDA and Adjusted EBITDA may not be comparable to such
other REITs EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of DLRs financial performance.
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(2)
|
DLR has not provided reconciliations for forward-looking measures including unlevered free cash flows, Adjusted EBITDA, core funds from operations, or core FFO, and adjusted funds from operations, or AFFO, because,
among other things, economic variables make it increasingly difficult to estimate accurately the reconciling items for future years without unreasonable efforts.
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(3)
|
DLR presents core FFO as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year,
captures trends in DLRs core business operating performance. DLR calculates core FFO by adding to or subtracting from funds from operations, or FFO, (i) termination fees and other
non-core
revenues,
(ii) transaction and integration expenses, (iii) loss from early extinguishment of debt, (iv) issuance costs associated with redeemed preferred stock, (v) severance, equity acceleration, and legal expenses, (vi) loss on
currency forwards and (vii) other
non-core
expense adjustments. Because certain of these adjustments have a real economic impact on DLRs financial condition and results from operations, the utility
of core FFO as a measure of DLRs performance is limited. Other REITs may not calculate core FFO in a consistent manner. Accordingly, DLRs core FFO may not be comparable to other REITs core FFO. Core FFO should be considered only as
a supplement to net income computed in accordance with GAAP as a measure of DLRs performance.
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DLR calculates FFO in
accordance with the standards established by the National Association of Real Estate Investment Trusts (NAREIT). FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate
transactions, excluding a gain from a
pre-existing
relationship, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs),
non-controlling
interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. DLR uses FFO as a supplemental performance measure because, in excluding real estate
related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in
occupancy rates, rental rates and operating costs. DLR also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare DLRs operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of DLRs properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions
necessary to maintain the operating performance of DLRs properties, all of which have real economic effect and could materially impact DLRs financial condition and results from operations, the utility of FFO as a measure of DLRs
performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, DLRs FFO may not be comparable to such other REITs FFO. Accordingly, FFO should be considered only as a supplement to
net income computed in accordance with GAAP as a measure of DLRs performance.
(4)
|
Per share values based on the weighted average common stock and units outstanding and the effect of dilutive securities. Per share values exclude the effect of dilutive series G, series H and series I preferred stock,
that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series G, series H and series I preferred stock, as applicable, which DLR considers highly improbable.
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9
(5)
|
DLR presents AFFO as a supplemental operating measure because, when compared year over year, it assesses DLRs ability to fund dividend and distribution requirements from DLRs operating activities. DLR also
believes that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess DLRs ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. DLR
calculates AFFO by adding to or subtracting from core FFO
(i) non-real
estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium,
(iv) non-cash
stock-based compensation expense, (v) straight-line rent revenue, (vi) straight-line rent expense, (vii) above- and below-market rent amortization, (viii) deferred
non-cash
tax expense, (ix) capitalized leasing compensation, (x) recurring capital expenditures and (xi) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent
manner. Accordingly, DLRs AFFO may not be comparable to other REITs AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of DLRs performance.
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(6)
|
DLR calculates unlevered free cash flows by adding to or subtracting from AFFO (i) preferred stock dividends, (ii) cash interest expense,
(iii) non-cash
stock-based
compensation expense, (iv) development capital expenditures, (v) net proceeds from real estate transactions, (vi) severance, equity acceleration, and legal expenses, (vii) transaction and integration expenses and
(viii) changes in working capital. Other REITs may not calculate unlevered free cash flows in a consistent manner. Accordingly, DLRs unlevered free cash flows may not be comparable to other REITs unlevered free cash flows. Unlevered
free cash flows should be considered only as a supplement to net income computed in accordance with GAAP as a measure of DLRs performance.
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The section of the Definitive Proxy Statement entitled Certain DFT Unaudited Prospective Financial Information is amended and supplemented as
follows:
The table that begins on the bottom of page 109 of the Definitive Proxy Statement is replaced, in its entirety, with the following:
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Year Ending December 31,
|
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2017E
|
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2018E
|
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2019E
|
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2020E
|
|
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2021E
|
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($ in millions, except per share values)
|
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EBITDA
(1)(2)
|
|
$
|
356
|
|
|
$
|
428
|
|
|
$
|
482
|
|
|
$
|
523
|
|
|
$
|
579
|
|
FFO per Share
(2)(3)
|
|
$
|
3.07
|
|
|
$
|
3.42
|
|
|
$
|
3.70
|
|
|
$
|
4.04
|
|
|
$
|
4.46
|
|
AFFO per Share
(2)(4)
|
|
$
|
3.16
|
|
|
$
|
3.47
|
|
|
$
|
3.74
|
|
|
$
|
4.10
|
|
|
$
|
4.56
|
|
Unlevered Free Cash
Flows
(2)(5)
|
|
$
|
361
|
|
|
$
|
426
|
|
|
$
|
480
|
|
|
$
|
522
|
|
|
$
|
581
|
|
(1)
|
DFT calculates EBITDA as earnings before interest, taxes, depreciation and amortization.
|
(2)
|
DFT has not provided reconciliations for forward-looking measures including unlevered free cash flows, EBITDA, Funds From Operations, or FFO, and adjusted funds from operations, or AFFO, because, among other things,
economic variables make it increasingly difficult to estimate accurately the reconciling items for future years without unreasonable efforts.
|
(3)
|
DFT calculates FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT), which defines FFO as net income or loss (calculated in accordance with
GAAP), excluding extraordinary items as defined under GAAP, impairment charges on depreciable real estate assets and gains or losses from sales of previously depreciated operating real estate assets, plus specified
non-cash
items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. DFT presents FFO attributable to common shares and OP units,
which is FFO excluding preferred stock dividends. FFO attributable to common shares and OP units per share is calculated on a basis consistent with net income attributable to common shares and OP units and reflects adjustments to net income for
preferred stock dividends.
|
10
(4)
|
AFFO is FFO excluding severance expense and equity accelerations, gain or loss on early extinguishment of debt, gain or loss on derivative instruments and write-offs of original issuance costs for redeemed preferred
shares, straight-line revenue, compensation paid with DFT common shares, below market lease amortization and write-offs net of above market lease amortization and write-offs,
non-real
estate depreciation and
amortization, amortization of deferred financing costs, improvements to real estate and capitalized leasing commissions.
|
(5)
|
DFT calculates Unlevered Free Cash Flow as AFFO before interest expense and preferred stock dividends. For the avoidance of doubt, it excludes a charge for development capital expenditures.
|
The following supplemental disclosure is hereby added to the Definitive Proxy Statement immediately following the table on page 110 of the Definitive Proxy
Statement under the new subheading Certain Additional Forecast Information:
Certain Additional Forecast
Information
The following unaudited prospective financial information for (i) DFT on a stand-alone basis was
prepared by its management, and for DLR on a stand-alone basis was prepared by its management, and (ii) DLR on a pro forma basis for the transaction contemplated by the merger agreement was prepared by the management of DFT with respect to the
quarter ending June 30, 2017 and was prepared by the management of DLR with respect to periods thereafter; in each case, such unaudited prospective financial information as approved and provided to Goldman Sachs by DFT for use by Goldman Sachs
in its various financial analyses as described above under the section entitled Opinion of DFTs Financial Advisor (the Additional Forecast Information) and was included as part of the Forecasts information
referred to therein.
DFT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017E
(Q2-Q4)
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
|
($ in millions, except per share)
|
|
Projected Dividends per share
|
|
$
|
1.48
|
|
|
$
|
2.04
|
|
|
$
|
2.18
|
|
|
$
|
2.40
|
|
|
$
|
2.64
|
|
Net Debt plus Preferred Stock (as of December 31)
|
|
$
|
1,900
|
|
|
$
|
2,107
|
|
|
$
|
2,436
|
|
|
$
|
2,525
|
|
|
$
|
2,633
|
|
DLR
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017E
(Q2-Q4)
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
|
($ in millions, except per share)
|
|
Projected Dividends per share
|
|
$
|
2.81
|
|
|
$
|
4.00
|
|
|
$
|
4.39
|
|
|
$
|
4.93
|
|
|
$
|
5.51
|
|
Net Debt plus Preferred Stock (as of December 31)
|
|
$
|
7,037
|
|
|
$
|
7,535
|
|
|
$
|
8,015
|
|
|
$
|
8,464
|
|
|
$
|
8,876
|
|
*
|
For purposes of its analyses, Goldman Sachs utilized these figures, with the approval of DFT, certain of which may differ from the prospective information prepared by the management of DLR.
|
11
Pro Forma Combined Company
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017E
(Q2-Q4)
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
|
($ in millions, except per share)
|
|
Projected Dividends per share
|
|
$
|
2.75
|
|
|
$
|
3.99
|
|
|
$
|
4.39
|
|
|
$
|
4.92
|
|
|
$
|
5.36
|
|
Net Debt plus Preferred Stock (as of December 31)
|
|
$
|
9,325
|
|
|
$
|
10,014
|
|
|
$
|
10,811
|
|
|
$
|
11,339
|
|
|
$
|
11,823
|
|
*
|
For purposes of its analyses, Goldman Sachs utilized these figures, with the approval of DFT, certain of which may differ from the prospective information prepared by the management of DLR.
|
The Additional Forecast Information is included for the purpose of providing DFT stockholders and DLR stockholders access to
certain nonpublic information that was furnished to Goldman Sachs in connection with its levered discounted cash flow analysis, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of
any DFT stockholder or DLR stockholder.
The Additional Forecast Information was not prepared with a view toward public
disclosure, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections.
The inclusion of the Additional Forecast Information should not be regarded as an indication that such information is predictive of actual future events or results and such information should not be relied upon as such, and readers of this joint
proxy statement/prospectus are cautioned not to place undue reliance on such Additional Forecast Information.
While
presented with numeric specificity, the Additional Forecast Information was based on numerous variables and assumptions (including assumptions related to industry performance and general business, economic, market and financial conditions and
additional matters specific to DFTs, DLRs or the pro forma combined companys business) that are inherently subjective and uncertain and are beyond the control of DFTs and DLRs management. Important factors that may
affect actual results and cause this Additional Forecast Information not to be achieved include, but are not limited to, risks and uncertainties relating to DFTs, DLRs or the pro forma combined companys business (including their
ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, general business and economic conditions and other factors described in the sections entitled Cautionary Statement Regarding
Forward-Looking Statements and Risk Factors. This Additional Forecast Information also reflects numerous variables, expectations and assumptions available at the time they were prepared as to certain business decisions that are
subject to change. As a result, actual results may differ materially from those contained in the Additional Forecast Information. Accordingly, there can be no assurance that the projected results summarized above will be realized.
12
None of DFT, DLR or their respective officers, trustees, directors, affiliates,
advisors or other representatives can give you any assurance that actual results will not differ materially from the Additional Forecast Information.
NEITHER DFT NOR DLR UNDERTAKES ANY OBLIGATION TO UPDATE OR OTHERWISE REVISE OR RECONCILE THE ADDITONAL FORECAST INFORMATION
ABOVE TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE THE ADDITIONAL FORECAST INFORMATION WAS GENERATED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH INFORMATION ARE SHOWN TO BE
IN ERROR. SINCE THE ADDITIONAL FORECAST INFORMATION COVERS MULTIPLE YEARS, SUCH INFORMATION BY ITS NATURE BECOMES LESS PREDICTIVE WITH EACH SUCCESSIVE YEAR.
Neither DFT nor DLR has made or makes any representation to the other or any DFT stockholder or DLR stockholder, in the merger
agreement or otherwise, concerning the Additional Forecast Information or regarding DFTs, DLRs or the pro forma combined companys ultimate performance compared to the Additional Forecast Information or that the projected results
will be achieved. In light of the foregoing factors and the uncertainties inherent in the Additional Forecast Information, DFT and DLR urge all DFT stockholders and DLR stockholders not to place undue reliance on such information and to review
DFTs and DLRs most recent SEC filings for a description of DFTs and DLRs reported financial results.
Neither Ernst & Young LLP nor any other independent accountants have compiled, examined or performed any audit or
other procedures with respect to the Additional Forecast Information, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of Ernst & Young LLP contained in DFTs Form
10-K
for the year ended December 31, 2016, which is incorporated by reference into this joint proxy statement/prospectus, relates to the historical financial information of DFT. It does not extend to the
Additional Forecast Information and should not be read to do so. Neither KPMG LLP nor any other independent accountants have compiled, examined or performed any audit or other procedures with respect to the Additional Forecast Information, nor have
they expressed any opinion or any other form of assurance on such information or its achievability. The report of KPMG LLP contained in DLRs Form
10-K
for the year ended December 31, 2016, which is
incorporated by reference into this joint proxy statement/prospectus, relates to the historical financial information of DLR. It does not extend to the Additional Forecast Information and should not be read to do so. Furthermore, the Additional
Forecast Information does not take into account any circumstances or events occurring after the dates on which it was prepared.
13
The section of the Definitive Proxy Statement entitled Directors and Management of the Combined Company
after the Mergers is amended and supplemented as follows:
The second full paragraph on page 158 of the Definitive Proxy Statement is
replaced, in its entirety, with the following:
The executive officers of DLR immediately prior to the effective time
of the company merger will continue to serve as the executive officers of the Combined Company, with A. William Stein continuing to serve as the Chief Executive Officer of the Combined Company. Except for certain of the named executive officers of
DFT remaining with the Combined Company for a transitional period, none of the named executive officers of DFT are currently expected to continue as an executive officer of the Combined Company following the effective time of the mergers. See
The Merger AgreementBoard of Directors, Partners and Officers of the Surviving Entities on page 126 for more information.
*****
Additional Information
and Where to Find It
This communication does not constitute an offer to sell or a solicitation of an offer to buy any securities or a
solicitation of any vote or approval. This communication is being made in respect of the proposed transaction involving DFT and DLR. The proposed transaction will be submitted to the stockholders of DFT and DLR for their consideration. In connection
with the proposed transaction, DFT and DLR have filed with the SEC a definitive joint proxy statement/prospectus, which was first mailed to security holders of DFT and DLR on or about August 15, 2017. DFT and DLR also plan to file with the SEC
other documents regarding the proposed transaction. STOCKHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. You may obtain copies of all documents filed with the SEC concerning the proposed transaction, free of charge, at the SECs website at www.sec.gov. In addition,
stockholders may obtain free copies of the documents filed with the SEC by DFT by going to DFTs corporate website at www.dft.com or by directing a written request to: DuPont Fabros Technology, Inc., 401 9th St. NW, Suite 600, Washington, DC
20004, Attention: Investor Relations.
Interests of Participants
DFT and DLR and each of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from
the stockholders of DFT in connection with the proposed transaction. Information regarding DFTs directors and executive officers is set forth in DFTs proxy statement for its 2017 annual meeting of stockholders and its Annual Report on
Form
10-K
for the fiscal year ended December 31, 2016, which were filed with the SEC on April 13, 2017 and February 23, 2017, respectively. Information regarding DLRs directors and
executive officers is set forth in DLRs proxy statement for its 2017 annual meeting of shareholders and its Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, which were filed
with the SEC on March 29, 2017 and March 1, 2017, respectively. Additional information regarding the interests of persons who may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction is
contained in the Definitive Proxy Statement filed by DLR and DFT with the SEC.
14
Cautionary Statement Regarding Forward-Looking Statements
This communication contains certain forward-looking statements as that term is defined by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are predictive in nature, that depend on or relate to future events or conditions, or that include words such as believes,
anticipates, expects, may, will, would, should, estimates, could, intends, plans or other similar expressions are forward-looking
statements. Forward-looking statements involve significant known and unknown risks and uncertainties that may cause DFTs or DLRs actual results in future periods to differ materially from those projected or contemplated in the
forward-looking statements as a result of, but not limited to, the following factors: the failure to receive, on a timely basis or otherwise, the required approvals by DFTs or DLRs stockholders; the risk that a condition to closing of
the proposed transaction may not be satisfied; DFTs or DLRs ability to consummate the Merger; the outcome of pending litigation regarding the proposed transaction; the possibility that the anticipated benefits and synergies from the
proposed transaction cannot be fully realized or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of DFTs and DLRs operations will be greater than expected; operating costs
and business disruption may be greater than expected; the ability of DLR or the combined company to retain and hire key personnel and maintain relationships with providers or other business partners pending the consummation of the transaction; and
the impact of legislative, regulatory and competitive changes and other risk factors relating to the industries in which DFT and DLR operate, as detailed from time to time in each of DFTs and DLRs reports filed with the SEC. There can be
no assurance that the proposed transaction will in fact be consummated.
Additional information about these factors and about the material
factors or assumptions underlying such forward-looking statements may be found under Item 1.A in each of DFTs and DLRs Annual Report on Form
10-K
for the fiscal year ended December 31,
2016. DFT and DLR caution that the foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions with respect to the proposed transaction, stockholders and others
should carefully consider the foregoing factors and other uncertainties and potential events. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to DFT and DLR or any other
person acting on their behalf are expressly qualified in their entirety by the cautionary statements referenced above. The forward-looking statements contained herein speak only as of the date of this communication. Neither DFT nor DLR undertakes
any obligation to update or revise any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as may be required by law.
15