Digital Realty Reports Second Quarter 2017 Results

July 27, 2017

SAN FRANCISCO, July 27, 2017 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the second quarter of 2017.  All per-share results are presented on a fully-diluted share and unit basis. 

Highlights

  • Reported net income available to common stockholders of $0.36 per share in 2Q17, compared to $0.19 per share in 2Q16
  • Reported FFO per share of $1.44 in 2Q17, compared to $1.36 in 2Q16
  • Reported core FFO per share of $1.54 in 2Q17, compared to $1.42 in 2Q16
  • Signed total bookings during 2Q17 expected to generate $34 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection
  • Reiterated 2017 core FFO per share outlook of $5.95 - $6.10 and "constant-currency" core FFO per share outlook of $6.00 - $6.25

Financial Results

Digital Realty reported second quarter of 2017 revenues of $566 million, a 3% increase from the previous quarter and a 10% increase from the same quarter last year. 

The company delivered second quarter of 2017 net income of $80 million, and net income available to common stockholders of $58 million, or $0.36 per diluted share, compared to $0.41 per diluted share in the previous quarter and $0.19 per diluted share in the same quarter last year. 

Digital Realty generated second quarter of 2017 adjusted EBITDA of $329 million, a 2% increase from the previous quarter and an 11% increase over the same quarter last year. 

The company reported second quarter of 2017 funds from operations ("FFO") on a fully diluted basis of $236 million, or $1.44 per share, compared to $1.50 per share in the previous quarter and $1.36 per share in same quarter last year. 

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2017 core FFO of $1.54 per share, a 1% increase from $1.52 per share in the previous quarter, and an 8% increase from $1.42 per share in the same quarter last year. 

Leasing Activity

"During the second quarter of 2017, we signed total bookings representing $34 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection," said Chief Executive Officer A. William Stein.  "We further strengthened the balance sheet through opportunistic financings, and we reached an agreement to merge with DuPont Fabros, setting the stage for continued future value creation." 

The weighted-average lag between leases signed during the second quarter of 2017 and the contractual commencement date was six months, in line with the long-term historical average. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $65 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the second quarter of 2017 rolled up 6.5% on a cash basis and up 9.3% on a GAAP basis. 

New leases signed during the second quarter of 2017 by region and product type are summarized as follows:



Annualized GAAP












Base Rent




GAAP Base Rent





GAAP Base Rent

North America


(in thousands)


Square Feet


per Square Foot


Megawatts


per Kilowatt

Turn-Key Flex


$17,667



111,793



$158



11




$138


Colocation


6,612



30,057



220



2




289


Non-Technical


658



23,211



28







Total


$24,937



165,061



$151



13




$161














Europe (1)












Turn-Key Flex


$58



115



$501






$320


Powered Base Building


226











Colocation


1,051



2,880



365






435


Non-Technical


9



175



54







  Total


$1,344



3,170



$424






$427














Asia Pacific (1)












Turn-Key Flex


$521



1,864



$279






$143


  Total


$521



1,864



$279






$143














Interconnection


$7,589



N/A



N/A



N/A




N/A














Grand Total


$34,391



170,095



$158



13




$165



Note:  Totals may not foot due to rounding differences.


(1)

Based on quarterly average exchange rates during the three months ended June 30, 2017.

Investment Activity

In May 2017, Digital Realty acquired a 264,000 square foot industrial building on a 13-acre site adjacent to the company's existing campus in Franklin Park, Illinois for a purchase price of $14 million.  The building is fully leased with approximately two years of remaining lease term, and is targeted for redevelopment upon expiration of the in-place leases.  The site is expected to support the build-out of 36 megawatts of critical power.  Commencement of redevelopment will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing campus in Franklin Park.

In June 2017, the company acquired a five-acre land parcel adjacent to its existing development project in Amsterdam, the Netherlands for a purchase price of $6 million.  The site is expected to support the development of up to 14 megawatts of critical power.  Commencement of development will likewise be subject to market demand, and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing development project in Amsterdam.

In June 2017, the company entered into a definitive agreement to merge with DuPont Fabros in an all-stock transaction valued at approximately $7.6 billion in enterprise value.  The combination is expected to enhance Digital Realty's ability to support the growth of the leading hyper-scale cloud service providers in the top U.S. data center metro areas, and to significantly enhance DuPont Fabros' customer and geographic diversification.  The transaction is expected to close in the second half of 2017 and is subject to the approval of shareholders of both DuPont Fabros and Digital Realty in addition to other customary closing conditions.

In June 2017, Digital Realty invested $8 million to acquire a 4.9% stake in Megaport, a leading provider of software-defined networking interconnection solutions.

Balance Sheet

Digital Realty had approximately $6.4 billion of total debt outstanding as of June 30, 2017, substantially all of which was unsecured.  At the end of the second quarter of 2017, net debt-to-adjusted EBITDA was 5.1x, debt-plus-preferred-to-total enterprise value was 28.2% and fixed charge coverage was 4.3x. 

In April 2017, Digital Realty redeemed all 7.3 million outstanding shares of its 6.625% Series F preferred stock, at a redemption price of $25 per share, plus accrued and unpaid dividends for a total payment of $25.0184 per share, or a total of $182.6 million.  During the second quarter of 2017, Digital Realty recognized a $6 million non-cash charge related to the redemption of the Series F preferred stock.

In May 2017, Digital Realty settled the remaining 2.375 million shares subject to the forward sale agreements originally entered into during the second quarter of 2016, generating net proceeds of approximately $211 million.

Also in May 2017, Digital Realty issued €125 million of floating rate notes due 2019 to an institutional investor in a private placement.  The floating rate notes bear interest at three-month EURIBOR plus 0.50% and the initial interest rate is 0.169%.

In June 2017, an unconsolidated joint venture in which Digital Realty owns a 50% interest placed a $135 million 10-year mortgage on the Westin Building in Seattle, Washington.  The mortgage bears interest at a fixed rate of 3.29% and matures in July 2027.  The non-recourse mortgage loan will be interest-only during the 10-year term, and the entire principal amount will be due at maturity.  Digital Realty recognized a $3 million gain related to the refinancing of the Westin Building during the second quarter of 2017.

Subsequent to quarter end, Digital Realty issued £250 million of 2.75% sterling-denominated notes due 2024 and £350 million of 3.30% sterling-denominated notes due 2029.

2017 Outlook

Digital Realty reiterated its 2017 core FFO per share outlook of $5.95 - $6.10.  The assumptions underlying this guidance, which reflects standalone results for Digital Realty only and does not include any financial impact from the pending merger with DuPont Fabros, are summarized in the following table. 



As of


As of


As of


As of

Top-Line and Cost Structure


Jan. 3, 2017


Feb. 16, 2017


Apr. 27, 2017


July 27, 2017

   2017 total revenue


$2.2 - $2.3 billion


$2.2 - $2.3 billion


$2.2 - $2.3 billion


$2.2 - $2.3 billion

   2017 net non-cash rent adjustments (1)


($5 - $10 million)


($5 - $10 million)


($5 - $10 million)


($5 - $10 million)

   2017 Adjusted EBITDA margin


57.0% - 59.0%


57.0% - 59.0%


57.0% - 59.0%


57.0% - 59.0%

   2017 G&A margin


6.0% - 7.0%


6.0% - 7.0%


6.0% - 7.0%


6.0% - 7.0%










Internal Growth









   Rental rates on renewal leases









      Cash basis


Slightly positive


Slightly positive


Slightly positive


Slightly positive

      GAAP basis


Up high single-digits


Up high single-digits


Up high single-digits


Up high single-digits

   Year-end portfolio occupancy


+/- 50 bps


+/- 50 bps


+/- 50 bps


+/- 50 bps

   "Same-capital" cash NOI growth (2)


2.0% - 3.0%


2.0% - 3.0%


2.0% - 3.0%


2.0% - 3.0%










   Foreign Exchange Rates









      U.S. Dollar / Pound Sterling


$1.20 - $1.24


$1.20 - $1.24


$1.20 - $1.28


$1.22 - $1.30

      U.S. Dollar / Euro


$1.00 - $1.05


$1.00 - $1.05


$1.00 - $1.10


$1.05 - $1.15



















External Growth









   Dispositions









   Dollar volume


$0 - $200 million


$0 - $200 million


$0 - $200 million


$0 - $200 million

   Cap rate


0.0% - 10.0%


0.0% - 10.0%


0.0% - 10.0%


0.0% - 10.0%

   Development









   CapEx


$0.8 - $1.0 billion


$0.8 - $1.0 billion


$0.8 - $1.0 billion


$0.8 - $1.0 billion

   Average stabilized yields


10.0% - 12.0%


10.0% - 12.0%


10.0% - 12.0%


10.0% - 12.0%

   Enhancements and other non-recurring CapEx (3)


$20 - $25 million


$20 - $25 million


$20 - $25 million


$20 - $25 million

   Recurring CapEx + capitalized leasing costs (4)


$125 - $135 million


$125 - $135 million


$125 - $135 million


$125 - $135 million



















Balance Sheet









    Long-term debt issuance









   Dollar amount


$400 - $600 million


$400 - $600 million


$400 - $600 million


$770 million

   Pricing


3.50% - 4.25%


3.50% - 4.25%


3.50% - 4.25%


3.1%

   Timing


Mid-to-late 2017


Mid-to-late 2017


Mid-to-late 2017


Mid-2017



















Net income per diluted share


$1.60 - $1.75


$1.60 - $1.75


$1.55 - $1.65


$1.55 - $1.65

Real estate depreciation and (gain)/loss on sale


$4.20 - $4.20


$4.20 - $4.20


$4.30 - $4.30


$4.30 - $4.30

Funds From Operations / share (NAREIT-Defined)


$5.80 - $5.95


$5.80 - $5.95


$5.85 - $5.95


$5.85 - $5.95

Non-core expense and revenue streams


$0.10 - $0.15


$0.10 - $0.15


$0.10 - $0.15


$0.10 - $0.15

Core Funds From Operations / share


$5.90 - $6.10


$5.90 - $6.10


$5.95 - $6.10


$5.95 - $6.10

Foreign currency translation adjustments


$0.05 - $0.15


$0.05 - $0.15


$0.05 - $0.15


$0.05 - $0.15

Constant-Currency Core FFO / share


$5.95 - $6.25


$5.95 - $6.25


$6.00 - $6.25


$6.00 - $6.25



(1)

Net non-cash rent adjustments represents the sum of straight-line rental revenue, straight-line rent expense as well as the amortization of above- and below-market leases (i.e., FAS 141 adjustments). 



(2)

The "same-capital" pool includes properties owned as of December 31, 2015 with less than 5% of the total rentable square feet under development.  It also excludes properties that were undergoing, or were expected to undergo, development activities in 2016-2017, properties classified as held for sale, and properties sold or contributed to joint ventures for all periods presented. 



(3)

Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software development costs. 



(4)

Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing commissions.  Capitalized leasing costs include capitalized leasing compensation as well as capitalized internal leasing commissions. 

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including FFO, core FFO, constant-currency core FFO, and Adjusted EBITDA.  A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO and constant-currency core FFO, and definitions of FFO, core FFO and constant-currency core FFO are included as an attachment to this press release.  A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this press release.

Investor Conference Call

Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on July 27, 2017, a presentation will be posted to the Investors section of the company's website at http://investor.digitalrealty.com.  The presentation is designed to accompany the discussion of the company's second quarter 2017 financial results and operating performance.  The conference call will feature Chief Executive Officer A. William Stein and Chief Financial Officer Andrew P. Power

To participate in the live call, investors are invited to dial (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 0932270 at least five minutes prior to start time.  A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.

Telephone and webcast replays will be available after the call until August 31, 2017.  The telephone replay can be accessed by dialing (877) 344-7529 (for domestic callers) or (412) 317-0088 (for international callers) and providing the conference ID# 10109854.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty supports the data center, colocation and interconnection strategies of more than 2,300 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.  Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.

Additional information about Digital Realty is included in the Company Overview, available on the Investors page of Digital Realty's website at www.digitalrealty.com.  The Company Overview is updated periodically, and may contain material information and updates.  To receive e-mail alerts when the Company Overview is updated, please visit the Investors page of Digital Realty's website.

Contact Information

Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500

John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty
(415) 738-6500

Safe Harbor Statement

This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to the expected timing and benefits of the merger with DuPont Fabros Technology, Inc.; supply and demand for data center and colocation space; the settlement of our forward sales agreements; the expected development, demand and expansion in the Netherlands and Franklin Park, Illinois; market dynamics and data center fundamentals; our strategic priorities; rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods; rental rates on future leases; lag between signing and commencement; cap rates and yields; investment activity; expected capital markets activity; and the company's FFO, core FFO, constant-currency core FFO and net income outlook and underlying assumptions.  These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the metropolitan areas in which we operate; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; the impact of the United Kingdom's referendum on withdrawal from the European Union on global financial markets and our business; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2016, Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and current report on Form 8-K filed July 10, 2017.  The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Consolidated Quarterly Statements of Operations
Unaudited and in thousands, except share and per share data



Three Months Ended


Six Months Ended


30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16

Rental revenues

$412,576


$404,126


$399,062


$395,212


$377,109



$816,702


$748,237


Tenant reimbursements - Utilities

68,407


63,398


63,956


68,168


62,363



131,805


121,318


Tenant reimbursements - Other

24,935


23,890


23,853


27,497


25,848



48,825


51,111


Interconnection & other

58,301


57,225


55,094


53,897


48,363



115,526


95,326


Fee income

1,429


1,895


1,718


1,517


1,251



3,324


3,050


Other

341


35


33,104


2




376


91


Total Operating Revenues

$565,989


$550,569


$576,787


$546,293


$514,934



$1,116,558


$1,019,133











Utilities

$82,739


$77,198


$76,896


$85,052


$74,396



$159,937


$144,313


Rental property operating

91,977


92,141


92,372


92,140


85,152



184,118


169,404


Property taxes

28,161


26,919


27,097


20,620


27,449



55,080


54,780


Insurance

2,576


2,592


2,369


2,470


2,241



5,168


4,653


Depreciation & amortization

178,111


176,466


176,581


178,133


175,594



354,577


344,610


General & administrative

37,144


33,778


40,481


43,555


32,681



70,922


62,489


Severance, equity acceleration, and legal expenses

365


869


672


2,580


1,508



1,234


2,956


Transaction and integration expenses

14,235


3,323


8,961


6,015


3,615



17,558


5,515


Other expenses

24



236


(22)




24


(1)


Total Operating Expenses

$435,332


$413,286


$425,665


$430,543


$402,636



$848,618


$788,719











Operating Income

$130,657


$137,283


$151,122


$115,750


$112,298



$267,940


$230,414











Equity in earnings of unconsolidated joint ventures

$8,388


$5,324


$4,742


$4,152


$4,132



$13,712


$8,210


Gain (loss) on real estate transactions

380


(522)


(195)


169,000




(142)


1,097


Interest and other income

367


151


(970)


355


(3,325)



518


(3,949)


Interest (expense)

(57,582)


(55,450)


(56,226)


(63,084)


(59,909)



(113,032)


(117,170)


Tax (expense)

(2,639)


(2,223)


(2,304)


(3,720)


(2,252)



(4,862)


(4,361)


Loss from early extinguishment of debt



(29)


(18)





(964)


Net Income

$79,571


$84,563


$96,140


$222,435


$50,944



$164,134


$113,277











Net (income) attributable to non-controlling interests

(920)


(1,025)


(1,065)


(3,247)


(569)



(1,945)


(1,353)


Net Income Attributable to Digital Realty Trust, Inc.

$78,651


$83,538


$95,075


$219,188


$50,375



$162,189


$111,924











Preferred stock dividends

(14,505)


(17,393)


(17,393)


(21,530)


(22,424)



(31,898)


(44,848)


Issuance costs associated with redeemed preferred stock

(6,309)




(10,328)




(6,309)












Net Income Available to Common Stockholders

$57,837


$66,145


$77,682


$187,330


$27,951



$123,982


$67,076











Weighted-average shares outstanding - basic

160,832,889


159,297,027


158,956,606


147,397,853


146,824,268



160,069,201


146,694,916


Weighted-average shares outstanding - diluted

161,781,868


160,421,655


159,699,411


149,384,871


147,808,268



161,059,527


147,416,934


Weighted-average fully diluted shares and units

164,026,578


162,599,529


162,059,914


151,764,542


150,210,714



163,271,004


149,859,276











Net income per share - basic

$0.36


$0.42


$0.49


$1.27


$0.19



$0.77


$0.46


Net income per share - diluted

$0.36


$0.41


$0.49


$1.25


$0.19



$0.77


$0.46


 

Funds From Operations and Core Funds From Operations
Unaudited and in thousands, except per share data



Reconciliation of Net Income to Funds From Operations (FFO)

Three Months Ended


Six Months Ended

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16










Net Income Available to Common Stockholders

$57,837


$66,145


$77,682


$187,330


$27,951



$123,982


$67,076


Adjustments:









Non-controlling interests in operating partnership

807


904


1,154


3,024


457



1,711


1,120


Real estate related depreciation & amortization (1)

175,010


173,447


173,523


175,332


167,043



348,457


333,955


Impairment charge related to Telx trade name





6,122




6,122


Unconsolidated JV real estate related depreciation & amortization

2,754


2,757


2,823


2,810


2,810



5,510


5,613


(Gain) loss on real estate transactions

(380)


522


195


(169,000)




142


(1,097)


Funds From Operations

$236,028


$243,775


$255,377


$199,496


$204,383



$479,802


$412,789











Funds From Operations - diluted

$236,028


$243,775


$255,377


$199,496


$204,383



$479,802


$412,789











Weighted-average shares and units outstanding - basic

163,078


161,475


161,317


149,778


149,227



162,281


149,137


Weighted-average shares and units outstanding - diluted (2)

164,027


162,600


162,060


151,765


150,211



163,271


149,859











Funds From Operations per share - basic

$1.45


$1.51


$1.58


$1.33


$1.37



$2.96


$2.77











Funds From Operations per share - diluted (2)

$1.44


$1.50


$1.58


$1.31


$1.36



$2.94


$2.75




























Three Months Ended


Six Months Ended

Reconciliation of FFO to Core FFO

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16










Funds From Operations - diluted

$236,028


$243,775


$255,377


$199,496


$204,383



$479,802


$412,789


Adjustments:









Termination fees and other non-core revenues (3)

(341)


(35)


(33,104)


(2)




(376)


(91)


Transaction and integration expenses

14,235


3,323


8,961


6,015


3,615



17,558


5,515


Loss from early extinguishment of debt



29


18





964


Issuance costs associated with redeemed preferred stock

6,309




10,328




6,309



Equity in earnings adjustment for non-core items

(3,285)







(3,285)



Severance, equity acceleration, and legal expenses (4)

365


869


672


2,580


1,508



1,234


2,956


Loss on currency forwards





3,082




3,082


Other non-core expense adjustments

24



236


(22)




24


(1)


Core Funds From Operations - diluted

$253,335


$247,932


$232,171


$218,413


$212,587



$501,266


$425,214











Weighted-average shares and units outstanding - diluted (2)

164,027


162,600


162,060


151,765


150,211



163,271


149,859











Core Funds From Operations per share - diluted (2)

$1.54


$1.52


$1.43


$1.44


$1.42



$3.07


$2.84















(1)   Real Estate Related Depreciation & Amortization:

Three Months Ended


Six Months Ended


30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16










Depreciation & amortization per income statement

$178,111


$176,466


$176,581


$178,133


$175,594



$354,577


$344,610


Non-real estate depreciation

(3,101)


(3,019)


(3,058)


(2,801)


(2,429)



(6,120)


(4,533)


Impairment charge related to Telx trade name





(6,122)




(6,122)











Real Estate Related Depreciation & Amortization

$175,010


$173,447


$173,523


$175,332


$167,043



$348,457


$333,955




(2)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable.  See above for calculations of diluted FFO available to common stockholders and unitholders and below for calculations of weighted average common stock and units outstanding.



(3)

Includes lease termination fees and certain other adjustments that are not core to our business.



(4)

Relates to severance and other charges related to the departure of company executives and integration related severance.

 

Adjusted Funds From Operations (AFFO)
Unaudited and in Thousands, Except Per Share Data



Three Months Ended


Six Months Ended

Reconciliation of Core FFO to AFFO

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16










Core FFO available to common stockholders and unitholders

$253,335


$247,932


$232,171


$218,413


$212,587



$501,266


$425,214


Adjustments:









Non-real estate depreciation

3,101


3,019


3,058


2,801


2,429



6,120


4,533


Amortization of deferred financing costs

2,518


2,443


2,455


2,550


2,643



4,961


4,903


Amortization of debt discount/premium

713


697


693


693


689



1,410


1,336


Non-cash stock-based compensation expense

5,637


3,704


3,774


4,041


4,630



9,341


8,050


Straight-line rental revenue

(2,110)


(4,058)


(5,210)


(6,032)


(5,554)



(6,168)


(13,010)


Straight-line rental expense

4,343


4,187


5,096


6,402


5,933



8,530


11,588


Above- and below-market rent amortization

(1,946)


(1,973)


(2,048)


(2,002)


(1,997)



(3,919)


(4,263)


Deferred non-cash tax expense

(1,443)


(653)


(1,279)


(189)


669



(2,096)


1,306


Capitalized leasing compensation (1)

(2,740)


(2,634)


(3,644)


(2,795)


(2,455)



(5,374)


(5,150)


Recurring capital expenditures (2)

(26,740)


(29,588)


(21,246)


(15,252)


(17,914)



(56,328)


(38,978)


Capitalized internal leasing commissions

(1,355)


(1,493)


(1,835)


(1,786)


(1,677)



(2,848)


(3,701)











AFFO available to common stockholders and unitholders (3)

$233,313


$221,583


$211,984


$206,844


$199,984



$454,895


$391,828











Weighted-average shares and units outstanding - basic

163,078


161,475


161,317


149,778


149,227



162,281


149,137


Weighted-average shares and units outstanding - diluted (4)

164,027


162,600


162,060


151,765


150,211



163,271


149,859











AFFO per share - diluted (4)

$1.42


$1.36


$1.31


$1.36


$1.33



$2.79


$2.61











Dividends per share and common unit

$0.93


$0.93


$0.88


$0.88


$0.88



$1.86


$1.76











Diluted AFFO Payout Ratio

65.4

%

68.2

%

67.3

%

64.6

%

66.1

%


66.8

%

67.3

%



























Three Months Ended


Six Months Ended

Share Count Detail

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16


30-Jun-17

30-Jun-16










Weighted Average Common Stock and Units Outstanding

163,078


161,475


161,317


149,778


149,227



162,281


149,137


Add: Effect of dilutive securities

949


1,125


743


1,987


984



990


722











Weighted Avg. Common Stock and Units Outstanding - diluted

164,027


162,600


162,060


151,765


150,211



163,271


149,859




(1)

Includes only second generation leasing costs.



(2)

For a definition of recurring capital expenditures, see our supplemental operating and financial data package.



(3)

For a definition and discussion of AFFO, see below.  For a reconciliation of net income available to common stockholders to FFO and core FFO, see above.



(4)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and calculations of weighted average common stock and units outstanding.

 

Consolidated Balance Sheets
Unaudited and in thousands, except share and per share data



30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16

Assets






Investments in real estate:






Real estate

$11,132,356


$10,858,628


$10,630,514


$10,607,440


$10,223,946


Construction in progress

787,315


780,966


732,430


681,189


594,986


Land held for future development

262,139


229,411


195,525


223,236


161,714


Investments in Real Estate

$12,181,810


$11,869,005


$11,558,469


$11,511,865


$10,980,646


Accumulated depreciation & amortization

(2,929,095)


(2,792,910)


(2,668,509)


(2,565,368)


(2,441,150)


Net Investments in Properties

$9,252,715


$9,076,095


$8,889,960


$8,946,497


$8,539,496


Investment in unconsolidated joint ventures

103,881


112,856


106,402


105,819


105,673


Net Investments in Real Estate

$9,356,596


$9,188,951


$8,996,362


$9,052,316


$8,645,169








Cash and cash equivalents

$22,383


$14,950


$10,528


$36,445


$33,241


Accounts and other receivables (1)

229,450


195,406


203,938


208,097


165,867


Deferred rent

423,188


418,858


412,269


412,977


408,193


Acquired in-place lease value, deferred leasing costs and other real estate intangibles, net

1,494,083


1,501,843


1,522,378


1,526,563


1,331,275


Acquired above-market leases, net

19,716


20,826


22,181


24,554


26,785


Goodwill

778,862


757,444


752,970


780,099


330,664


Restricted cash

18,931


10,447


11,508


11,685


18,297


Assets associated with real estate held for sale

87,882


56,154


56,097


55,915


222,304


Other assets

148,480


164,669


204,354


190,384


110,580








Total Assets

$12,579,571


$12,329,548


$12,192,585


$12,299,035


$11,292,375








Liabilities and Equity






Global unsecured revolving credit facility

$563,063


$564,467


$199,209


$153,189


$88,535


Unsecured term loan

1,520,482


1,505,667


1,482,361


1,521,613


1,545,590


Unsecured senior notes, net of discount

4,351,148


4,128,110


4,153,797


4,238,435


4,252,570


Mortgage loans, net of premiums

2,927


3,085


3,240


111,750


248,711


Accounts payable and other accrued liabilities

850,602


804,371


824,878


823,905


598,610


Accrued dividends and distributions



144,194




Acquired below-market leases

76,099


78,641


81,899


86,888


90,823


Security deposits and prepaid rent

181,007


171,692


168,111


163,787


128,802


Liabilities associated with assets held for sale

2,949


3,070


2,599


2,820


13,092


Total Liabilities

$7,548,277


$7,259,103


$7,060,288


$7,102,387


$6,966,733








Equity






Preferred Stock:  $0.01 par value per share, 110,000,000 shares authorized:






Series E Cumulative Redeemable Preferred Stock (2)





$277,172


Series F Cumulative Redeemable Preferred Stock (3)


$176,191


$176,191


$176,191


176,191


Series G Cumulative Redeemable Preferred Stock (4)

$241,468


241,468


241,468


241,468


241,468


Series H Cumulative Redeemable Preferred Stock (5)

353,290


353,290


353,290


353,290


353,290


Series I Cumulative Redeemable Preferred Stock (6)

242,012


242,012


242,012


242,012


242,012


Common Stock: $0.01 par value per share, 265,000,000 shares authorized (7)

1,611


1,584


1,582


1,581


1,460


Additional paid-in capital

5,991,753


5,769,091


5,764,497


5,759,338


4,669,149


Dividends in excess of earnings

(1,722,610)


(1,629,633)


(1,547,420)


(1,483,223)


(1,541,265)


Accumulated other comprehensive (loss) income, net

(110,709)


(122,540)


(135,608)


(131,936)


(129,657)


Total Stockholders' Equity

$4,996,815


$5,031,463


$5,096,012


$5,158,721


$4,289,820








Non-controlling Interests






Non-controlling interest in operating partnership

$27,909


$32,409


$29,687


$31,088


$29,095


Non-controlling interest in consolidated joint ventures

6,570


6,573


6,598


6,839


6,727








Total Non-controlling Interests

$34,479


$38,982


$36,285


$37,927


$35,822








Total Equity

$5,031,294


$5,070,445


$5,132,297


$5,196,648


$4,325,642








Total Liabilities and Equity

$12,579,571


$12,329,548


$12,192,585


$12,299,035


$11,292,375




(1)

Net of allowance for doubtful accounts of $4,930 and $7,446 as of June 30, 2017 and December 31, 2016, respectively.



(2)

Series E Cumulative Redeemable Preferred Stock, 7.000%, all 11,500,000 shares of which were redeemed on September 15, 2016.



(3)

Series F Cumulative Redeemable Preferred Stock, 6.625%, $0 and $182,500 liquidation preference, respectively ($25.00 per share), 0 and 7,300,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.  All outstanding shares of Series F Cumulative Redeemable Preferred Stock were redeemed on April 5, 2017.



(4)

Series G Cumulative Redeemable Preferred Stock, 5.875%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.



(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $365,000 liquidation preference, respectively ($25.00 per share), 14,600,000 and 14,600,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.



(6)

Series I Cumulative Redeemable Preferred Stock, 6.350%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.



(7)

Common Stock: 162,183,489 and 146,384,247 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.

 

Reconciliation of Earnings Before Interest, Taxes,

Depreciation & Amortization (EBITDA) (1)

Three Months Ended

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

30-Jun-16







Net Income Available to Common Stockholders

$57,837


$66,145


$77,682


$187,330


$27,951


Interest

57,582


55,450


56,226


63,084


59,909


Loss from early extinguishment of debt



29


18



Tax expense

2,639


2,223


2,304


3,720


2,252


Depreciation & amortization

178,111


176,466


176,581


178,133


175,594


EBITDA

$296,169


$300,284


$312,822


$432,285


$265,706


Severance-related expense, equity acceleration, and legal expenses

365


869


672


2,580


1,508


Transaction and integration expenses

14,235


3,323


8,961


6,015


3,615


(Gain) loss on real estate transactions

(380)


522


195


(169,000)



Non-cash (gain) on lease termination (2)



(29,205)




Equity in earnings adjustment for non-core items

(3,285)






Loss on currency forwards





3,082


Other non-core expense adjustments

24



236


(22)



Non-controlling interests

920


1,025


1,065


3,247


569


Preferred stock dividends

14,505


17,393


17,393


21,530


22,424


Issuance costs associated with redeemed preferred stock

6,309




10,328



Adjusted EBITDA

$328,862


$323,416


$312,139


$306,963


$296,904




(1)

For definition and discussion of EBITDA and Adjusted EBITDA, see below.



(2)

Q4 2016 amount included in Other revenue on the income statement.

Definitions

Funds from Operations (FFO):
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT.  FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, 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.  Management 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.  We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.  However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our 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 our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited.  Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our 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 our performance.

Core Funds from Operations:
We present core funds from operations, or 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 our core business operating performance. We calculate core FFO by adding to or subtracting from 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) equity in earnings adjustment for non-core items (vi) severance, equity acceleration, and legal expenses, (vii) loss on currency forwards and (viii) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of core FFO as a measure of our performance is limited. Other REITs may not calculate core FFO in a consistent manner. Accordingly, our 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 our performance.

Constant-Currency Core Funds from Operations:
We calculate constant-currency core funds from operations by adjusting the core funds from operations for foreign currency translations.

Adjusted Funds from Operations (AFFO):
We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate 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, our 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 our performance.

EBITDA and Adjusted EBITDA:
We believe 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 our performance without the 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. Adjusted EBITDA is 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, equity in earnings adjustment for non-core items, loss on currency forwards, other non-core expense adjustments, non- controlling interests, preferred stock dividends and issuance costs associated with redeemed preferred stock. In addition, we believe 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 our business, their utility as a measure of our performance is limited.  Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our 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 our financial performance.

Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our 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 our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.

Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.

Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.

Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended June 30, 2017, GAAP interest expense was $58 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $15 million.


Three Months Ended

Six Months Ended

Reconciliation of Net Operating Income (NOI) (in thousands)

30-Jun-17

31-Mar-17

30-Jun-17

30-Jun-16






Operating income

$130,657


$137,283


$267,940


$230,414







Fee income

(1,429)


(1,895)


(3,324)


(3,050)


Other income

(341)


(35)


(376)


(91)


Depreciation and amortization

178,111


176,466


354,577


344,610


General and administrative

37,144


33,778


70,922


62,489


Severance related expense, equity acceleration, and legal expenses

365


869


1,234


2,956


Transaction expenses

14,235


3,323


17,558


5,515


Other expenses

24



24


(1)







Net Operating Income

$358,766


$349,789


$708,555


$642,842












Cash Net Operating Income (Cash NOI)










Net Operating Income

$358,766


$349,789


$708,555


$642,842


Straight-line rent, net

2,206


200


2,406


(1,881)


Above- and below-market rent amortization

(1,946)


(1,973)


(3,919)


(4,263)







Cash Net Operating Income

$359,026


$348,016


$707,042


$636,698


 

View original content:http://www.prnewswire.com/news-releases/digital-realty-reports-second-quarter-2017-results-300495612.html

SOURCE Digital Realty

Contact IR

John Stewart
Senior Vice President, Investor Relations
(415) 848-9311
jstewart@digitalrealty.com

Maria S. Lukens
Vice President, Investor Relations
(415) 508-2807
mlukens@digitalrealty.com

Nina Bari
Analyst, Investor Relations
(415) 848-9415
nbari@digitalrealty.com

American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
www.amstock.com

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