Digital Realty Reports Third Quarter 2017 Results

October 25, 2017

SAN FRANCISCO, Oct. 25, 2017 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2017.  All per-share results are presented on a fully-diluted share and unit basis. 

Highlights

  • Reported net loss available to common stockholders of ($0.02) per share in 3Q17, compared to $1.25 per share in 3Q16
  • Reported FFO per share of $1.23 in 3Q17, compared to $1.31 in 3Q16
  • Reported core FFO per share of $1.51 in 3Q17, compared to $1.44 in 3Q16
  • Signed total bookings during 3Q17 expected to generate $58 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection
  • Raised 2017 core FFO per share outlook to $6.00 - $6.10 from $5.95 - $6.10

Financial Results

Digital Realty reported third quarter of 2017 revenues of $610 million, an 8% increase from the previous quarter and a 12% increase from the same quarter last year. 

The company delivered third quarter of 2017 net income of $12 million, and a net loss available to common stockholders of ($4) million, or ($0.02) per diluted share, compared to net income available to common stockholders of $0.36 per diluted share in the previous quarter and $1.25 per diluted share in the same quarter last year. 

Digital Realty generated third quarter of 2017 adjusted EBITDA of $352 million, a 7% increase from the previous quarter and a 15% increase over the same quarter last year. 

The company reported third quarter of 2017 funds from operations ("FFO") on a fully diluted basis of $215 million, or $1.23 per share, compared to $1.44 per share in the previous quarter and $1.31 per share in same quarter last year. 

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered third quarter of 2017 core FFO of $1.51 per share, a 2% decrease from $1.54 per share in the previous quarter, and a 5% increase from $1.44 per share in the same quarter last year. 

Leasing Activity

"During the third quarter of 2017, we signed total bookings representing $58 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection," said Chief Executive Officer A. William Stein.  "Our third-quarter activity showcased the strengths of our diversified business, particularly the strategic importance of our expanded footprint in Ashburn, the largest and fastest-growing data center market in the world.  In addition, colocation and interconnection continue to provide stable and healthy revenue drivers.  Heading into the end of the year, we continue to see healthy demand across all three lines of the business, and are focused on fully integrating DuPont Fabros while executing against our goals as a combined organization." 

The weighted-average lag between leases signed during the third quarter of 2017 and the contractual commencement date was four months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $66 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the third quarter of 2017 rolled down 3.8% on a cash basis and up 1.5% on a GAAP basis. 

New leases signed during the third 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


$42,431



315,300



$135



32




$112


Colocation


5,077



18,092



281



1




355


Non-Technical


2,058



102,203



20







Total


$49,566



435,595



$114



33




$121














Europe (1)












Turn-Key Flex












Powered Base Building












Colocation


$839



1,538



$546






$409


Non-Technical












  Total


$839



1,538



$546






$409














Asia Pacific (1)












Turn-Key Flex


$15










$412


  Total


$15










$412














 Interconnection


$7,678



N/A



N/A



N/A




N/A














Grand Total


$58,098



437,133



$115



33




$122



Note:  Totals may not foot due to rounding differences.


(1)

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

Investment Activity

During the third quarter of 2017, Digital Realty completed the previously announced acquisition of DuPont Fabros in an all-stock transaction valued at $7.9 billion in enterprise value.

Digital Realty also acquired land parcels adjacent to the company's existing holdings in Osaka, Japan and Garland, TX during the third quarter of 2017 for a total purchase price of approximately $10 million.  The two parcels total 20 acres, and are expected to support the development of up to 51 megawatts of critical power.  Commencement of development will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing projects in Osaka and Richardson, TX.

Likewise during the third quarter of 2017, Digital Realty recognized impairment losses of approximately $29 million on assets held for sale to reduce the carrying value of three properties to their estimated fair market value at September 30, 2017.

Separately, Digital Realty closed on the sale of 8025 North Interstate 35, a 62,000 square foot Powered Base Building data center in Austin, TX for $20 million.  The property was 100% leased and was expected to generate cash net operating income of approximately $1 million in 2017, representing an exit cap rate of 5%.  The sale generated net proceeds of approximately $20 million, and Digital Realty recognized a gain on the sale of approximately $10 million in the third quarter of 2017.

Subsequent to the end of the quarter, Digital Realty closed on the sale of 44874 Moran Road, a 78,000 square foot data center in Sterling, VA for $34 million.  The property was 100% leased and was expected to generate cash net operating income of approximately $3 million in 2017, representing an exit cap rate of 7%.  The property was held in a consolidated joint venture, in which Digital Realty owned a 75% stake.  The sale generated net proceeds of $34 million, and Digital Realty expects to recognize a gain on the sale of approximately $15 million during the fourth quarter, or roughly $12 million, net of non-controlling interests.

Likewise subsequent to the end of the quarter, Digital Realty entered into a 50/50 joint venture with Mitsubishi Corporation to provide data center solutions in Japan.  Mitsubishi Corporation will contribute two existing data center facilities in the western Tokyo suburb of Mitaka, while Digital Realty will contribute its recently completed data center development project in Osaka.  The three seed assets are collectively valued at approximately 40 billion Japanese Yen, or approximately $350 million.

Also subsequent to quarter-end, Digital Realty entered into an agreement to acquire a 250,000 square foot data center on a 19-acre site in Northlake, Illinois from a non-traded, publicly registered REIT for a purchase price of $315 million.  The property is located approximately four miles from the company's Franklin Park campus.  Roughly three-fourths of the building has been developed and is fully leased, with the remaining 65,000 square feet of shell space available for build-out of approximately eight megawatts of critical load from a dedicated on-site sub-station.  The transaction remains subject to certain closing conditions, and Digital Realty cannot provide any assurances if, or when the transaction will close.

Balance Sheet

Digital Realty had approximately $8.5 billion of total debt outstanding as of September 30, 2017, substantially all of which was unsecured.  At the end of the third quarter of 2017, net debt-to-adjusted EBITDA was 6.0x, debt-plus-preferred-to-total enterprise value was 27.8% and fixed charge coverage was 3.9x. 

During the third quarter of 2017, Digital Realty completed the following financing transactions.

  • On July 21, 2017, Digital Realty issued £250 million of 2.75% Sterling-denominated notes due 2024 and £350 million of 3.30% Sterling-denominated notes due 2029, generating gross proceeds of approximately $780 million.
  • On August 7, 2017, Digital Realty issued $350 million of 2.75% notes due 2023 and $1.0 billion of 3.70% notes due 2027.
  • Also on August 7, 2017, Digital Realty closed an offering of eight million shares of 5.25% Series J Cumulative Redeemable Preferred Stock at a price of $25.00 per share, generating gross proceeds of $200 million.
  • On September 14, 2017, Digital Realty closed the acquisition of DuPont Fabros, and exchanged approximately 43 million shares of DLR Common Stock and six million Operating Partnership Units for all of the outstanding common shares and units of DuPont Fabros, representing total consideration of approximately $6 billion.
  • Likewise in conjunction with the closing of the DuPont Fabros acquisition on September 14, 2017, Digital Realty exchanged all the outstanding shares of DuPont Fabros' Series C Preferred Stock for 8.05 million shares of Digital Realty Series C Preferred Stock, with a total liquidation value of $201 million.
  • Digital Realty also purchased a portion of the DuPont Fabros 5.875% notes due 2021 and redeemed the remainder in mid-September. The aggregate principal amount totaled $600 million.
  • Subsequent to the end of the quarter, Digital Realty redeemed DuPont Fabros' 5.625% notes due 2023. When Digital Realty assumed the bonds, the fair market value of $266 million was recorded on the balance sheet. The aggregate principal amount totaled $250 million and was redeemed in October 2017.

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 document.  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 document.

Investor Conference Call

Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on October 25, 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 third 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# 9681339 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 November 22, 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# 10111773.  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

2017 Outlook

Digital Realty raised its 2017 core FFO per share outlook from $5.95 - $6.10 to $6.00 - $6.10.  The assumptions underlying this guidance are summarized in the following table. 


As of

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

October 25, 2017

   2017 total revenue

$2.2 - $2.3 billion

$2.2 - $2.3 billion

$2.2 - $2.3 billion

$2.2 - $2.3 billion

$2.4 - $2.5 billion

   2017 net non-cash rent adjustments (1)

($5 - $10 million)

($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%

57.0% - 59.0%

   2017 G&A margin

6.0% - 7.0%

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

Slightly positive

      GAAP basis

Up high single-digits

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

+/- 50 bps

   "Same-capital" cash NOI growth (2)

2.0% - 3.0%

2.0% - 3.0%

2.0% - 3.0%

2.0% - 3.0%

3.0% - 3.5%







   Foreign Exchange Rates






      U.S. Dollar / Pound Sterling

$1.20 - $1.24

$1.20 - $1.24

$1.20 - $1.28

$1.22 - $1.30

$1.26 - $1.30

      U.S. Dollar / Euro

$1.00 - $1.05

$1.00 - $1.05

$1.00 - $1.10

$1.05 - $1.15

$1.10 - $1.15













External Growth






   Dispositions






   Dollar volume

$0 - $200 million

$0 - $200 million

$0 - $200 million

$0 - $200 million

$50 - $200 million

   Cap rate

0.0% - 10.0%

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

$0.9 - $1.0 billion

   Average stabilized yields

10.0% - 12.0%

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

$20 - $25 million

   Recurring CapEx + capitalized leasing costs (4)

$125 - $135 million

$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

$2.3 billion

    Pricing

3.50% - 4.25%

3.50% - 4.25%

3.50% - 4.25%

3.1%

3.1%

    Timing

Mid-to-late 2017

Mid-to-late 2017

Mid-to-late 2017

Mid-2017

Mid-2017













Net income per diluted share

$1.60 - $1.75

$1.60 - $1.75

$1.55 - $1.65

$1.55 - $1.65

$1.10 - $1.15

Real estate depreciation and (gain)/loss on sale

$4.20 - $4.20

$4.20 - $4.20

$4.30 - $4.30

$4.30 - $4.30

$4.60 - $4.60

Funds From Operations / share (NAREIT-Defined)

$5.80 - $5.95

$5.80 - $5.95

$5.85 - $5.95

$5.85 - $5.95

$5.70 - $5.75

Non-core expense and revenue streams

$0.10 - $0.15

$0.10 - $0.15

$0.10 - $0.15

$0.10 - $0.15

$0.30 - $0.35

Core Funds From Operations / share

$5.90 - $6.10

$5.90 - $6.10

$5.95 - $6.10

$5.95 - $6.10

$6.00 - $6.10

Foreign currency translation adjustments

$0.05 - $0.15

$0.05 - $0.15

$0.05 - $0.15

$0.05 - $0.15

$0.05 - $0.10

Constant-Currency Core FFO / share

$5.95 - $6.25

$5.95 - $6.25

$6.00 - $6.25

$6.00 - $6.25

$6.05 - $6.20



(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. 

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 merger with DuPont Fabros Technology, Inc.; supply and demand for data center and colocation space; the expected timing, benefits and development of recent land acquisitions; impairment losses; our joint venture in Japan; acquisition and disposition activity, including transactions which are under agreement but subject to closing conditions; 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 quarters ended March 31, 2017 and June 30, 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


Nine Months Ended


30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16

Rental revenues

$440,591


$412,576


$404,126


$399,062


$395,212



$1,257,293


$1,143,449


Tenant reimbursements - Utilities

78,134


68,407


63,398


63,956


68,168



209,939


189,486


Tenant reimbursements - Other

29,479


24,935


23,890


23,853


27,497



78,304


78,608


Interconnection & other

59,851


58,301


57,225


55,094


53,897



175,377


149,223


Fee income

1,662


1,429


1,895


1,718


1,517



4,986


4,567


Other

208


341


35


33,104


2



584


93


Total Operating Revenues

$609,925


$565,989


$550,569


$576,787


$546,293



$1,726,483


$1,565,426











Utilities

$95,619


$82,739


$77,198


$76,896


$85,052



$255,556


$229,365


Rental property operating

94,442


91,977


92,141


92,372


92,140



278,560


261,544


Property taxes

32,586


28,161


26,919


27,097


20,620



87,666


75,400


Insurance

2,590


2,576


2,592


2,369


2,470



7,758


7,123


Depreciation & amortization

199,914


178,111


176,466


176,581


178,133



554,491


522,743


General & administrative

41,477


37,144


33,778


40,481


43,555



112,399


106,044


Severance, equity acceleration, and legal expenses

2,288


365


869


672


2,580



3,522


5,536


Transaction and integration expenses

42,809


14,235


3,323


8,961


6,015



60,367


11,530


Impairment of investments in real estate

28,992







28,992



Other expenses

3,051


24



236


(22)



3,075


(23)


Total Operating Expenses

$543,768


$435,332


$413,286


$425,665


$430,543



$1,392,386


$1,219,262











Operating Income

$66,157


$130,657


$137,283


$151,122


$115,750



$334,097


$346,164











Equity in earnings of unconsolidated joint ventures

$5,880


$8,388


$5,324


$4,742


$4,152



$19,592


$12,362


Gain (loss) on real estate transactions

9,751


380


(522)


(195)


169,000



9,609


170,097


Interest and other income

2,813


367


151


(970)


355



3,331


(3,594)


Interest (expense)

(71,621)


(57,582)


(55,450)


(56,226)


(63,084)



(184,653)


(180,254)


Tax (expense)

(2,494)


(2,639)


(2,223)


(2,304)


(3,720)



(7,356)


(8,081)


Gain (loss) from early extinguishment of debt

1,990




(29)


(18)



1,990


(982)


Net Income

$12,476


$79,571


$84,563


$96,140


$222,435



$176,610


$335,712











Net (income) attributable to non-controlling interests

(40)


(920)


(1,025)


(1,065)


(3,247)



(1,985)


(4,600)


Net Income Attributable to Digital Realty Trust, Inc.

$12,436


$78,651


$83,538


$95,075


$219,188



$174,625


$331,112











Preferred stock dividends, including undeclared dividends

(16,575)


(14,505)


(17,393)


(17,393)


(21,530)



(48,473)


(66,378)


Issuance costs associated with redeemed preferred stock


(6,309)




(10,328)



(6,309)


(10,328)











Net (Loss) Income Available to Common Stockholders

($4,139)


$57,837


$66,145


$77,682


$187,330



$119,843


$254,406











Weighted-average shares outstanding - basic

170,194,254


160,832,889


159,297,027


158,956,606


147,397,853



163,481,306


146,930,939


Weighted-average shares outstanding - diluted

170,194,254


161,781,868


160,421,655


159,699,411


149,384,871



164,371,096


147,655,184


Weighted-average fully diluted shares and units

174,169,511


164,026,578


162,599,529


162,059,914


151,764,542



166,937,862


150,076,482











Net (loss) income per share - basic

($0.02)


$0.36


$0.42


$0.49


$1.27



$0.73


$1.73


Net (loss) income per share - diluted

($0.02)


$0.36


$0.41


$0.49


$1.25



$0.73


$1.72


 

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


Nine Months Ended

30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16










Net (Loss) Income Available to Common Stockholders

($4,139)


$57,837


$66,145


$77,682


$187,330



$119,843


$254,406


Adjustments:









Non-controlling interests in operating partnership

(79)


807


904


1,154


3,024



1,632


4,144


Real estate related depreciation & amortization (1)

196,871


175,010


173,447


173,523


175,332



545,328


509,287


Impairment charge related to Telx trade name








6,122


Unconsolidated JV real estate related depreciation & amortization

2,732


2,754


2,757


2,823


2,810



8,243


8,424


(Gain) loss on real estate transactions

(9,751)


(380)


522


195


(169,000)



(9,609)


(170,097)


Impairment of investments in real estate

28,992







28,992



Funds From Operations

$214,626


$236,028


$243,775


$255,377


$199,496



$694,429


$612,286











Funds From Operations - diluted

$214,626


$236,028


$243,775


$255,377


$199,496



$694,429


$612,286











Weighted-average shares and units outstanding - basic

173,461


163,078


161,475


161,317


149,778



166,048


149,352


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

174,170


164,027


162,600


162,060


151,765



166,938


150,076











Funds From Operations per share - basic

$1.24


$1.45


$1.51


$1.58


$1.33



$4.18


$4.10











Funds From Operations per share - diluted (2)

$1.23


$1.44


$1.50


$1.58


$1.31



$4.16


$4.08













Three Months Ended


Nine Months Ended

Reconciliation of FFO to Core FFO

30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16










Funds From Operations - diluted

$214,626


$236,028


$243,775


$255,377


$199,496



$694,429


$612,286


Adjustments:









Termination fees and other non-core revenues (3)

(208)


(341)


(35)


(33,104)


(2)



(584)


(93)


Transaction and integration expenses

42,809


14,235


3,323


8,961


6,015



60,367


11,530


Gain (loss) from early extinguishment of debt

(1,990)




29


18



(1,990)


982


Issuance costs associated with redeemed preferred stock


6,309




10,328



6,309


10,328


Equity in earnings adjustment for non-core items


(3,285)






(3,285)



Severance, equity acceleration, and legal expenses (4)

2,288


365


869


672


2,580



3,522


5,536


Bridge facility fees (5)

3,182







3,182



Loss on currency forwards








3,082


Other non-core expense adjustments

3,051


24



236


(22)



3,075


(23)


Core Funds From Operations - diluted

$263,758


$253,335


$247,932


$232,171


$218,413



$765,025


$643,628











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

174,170


164,027


162,600


162,060


151,765



166,938


150,076











Core Funds From Operations per share - diluted (2)

$1.51


$1.54


$1.52


$1.43


$1.44



$4.58


$4.29














(1)   Real Estate Related Depreciation & Amortization:

Three Months Ended


Nine Months Ended


30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16










Depreciation & amortization per income statement

$199,914


$178,111


$176,466


$176,581


$178,133



$554,491


$522,743


Non-real estate depreciation

(3,043)


(3,101)


(3,019)


(3,058)


(2,801)



(9,163)


(7,334)


Impairment charge related to Telx trade name








(6,122)











Real Estate Related Depreciation & Amortization

$196,871


$175,010


$173,447


$173,523


$175,332



$545,328


$509,287




(2)

For all periods presented, we have excluded the effect of dilutive series C, series E, series F, series G, series H, series I and series J 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 C, the series E, series F, series G, series H, series I, and series J 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.

(5)

Bridge facility fees included in interest expense.

 

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



Three Months Ended


Nine Months Ended

Reconciliation of Core FFO to AFFO

30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16










Core FFO available to common stockholders and unitholders

$263,758


$253,335


$247,932


$232,171


$218,413



$765,025


$643,628


Adjustments:









Non-real estate depreciation

3,043


3,101


3,019


3,058


2,801



9,163


7,334


Amortization of deferred financing costs

2,611


2,518


2,443


2,455


2,550



7,572


7,454


Amortization of debt discount/premium

816


713


697


693


693



2,226


2,029


Non-cash stock-based compensation expense

4,636


5,637


3,704


3,774


4,041



13,977


12,091


Straight-line rental revenue

(1,692)


(2,110)


(4,058)


(5,210)


(6,032)



(7,860)


(19,043)


Straight-line rental expense

4,212


4,343


4,187


5,096


6,402



12,742


17,990


Above- and below-market rent amortization

(873)


(1,946)


(1,973)


(2,048)


(2,002)



(4,792)


(6,265)


Deferred non-cash tax expense

284


(1,443)


(653)


(1,279)


(189)



(1,812)


1,117


Capitalized leasing compensation (1)

(2,945)


(2,740)


(2,634)


(3,644)


(2,795)



(8,319)


(7,945)


Recurring capital expenditures (2)

(34,664)


(26,740)


(29,588)


(21,246)


(15,252)



(90,992)


(54,230)


Capitalized internal leasing commissions

(1,225)


(1,355)


(1,493)


(1,835)


(1,786)



(4,073)


(5,487)











AFFO available to common stockholders and unitholders (3)

$237,961


$233,313


$221,583


$211,984


$206,844



$692,857


$598,673











Weighted-average shares and units outstanding - basic

173,461


163,078


161,475


161,317


149,778



166,048


149,352


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

174,170


164,027


162,600


162,060


151,765



166,938


150,076











AFFO per share - diluted (4)

$1.37


$1.42


$1.36


$1.31


$1.36



$4.15


$3.99











Dividends per share and common unit

$0.93


$0.93


$0.93


$0.88


$0.88



$2.79


$2.64











Diluted AFFO Payout Ratio

68.1

%

65.4

%

68.2

%

67.3

%

64.6

%


67.2

%

66.2

%



























Three Months Ended


Nine Months Ended

Share Count Detail

30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16


30-Sep-17

30-Sep-16










Weighted Average Common Stock and Units Outstanding

173,461


163,078


161,475


161,317


149,778



166,048


149,352


Add: Effect of dilutive securities

709


949


1,125


743


1,987



890


724











Weighted Avg. Common Stock and Units Outstanding - diluted

174,170


164,027


162,600


162,060


151,765



166,938


150,076




(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 C, series E, series F, series G, series H, series I and series J 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 C, series E, series F, series G, series H, series I, and series J preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and above for calculations of weighted average common stock and units outstanding.

 

Consolidated Balance Sheets

Unaudited and in thousands, except share and per share data





30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16

Assets






Investments in real estate:






Real estate

$14,693,479


$11,132,356


$10,858,628


$10,630,514


$10,607,440


Construction in progress

1,405,740


787,315


780,966


732,430


681,189


Land held for future development

330,101


262,139


229,411


195,525


223,236


Investments in Real Estate

$16,429,320


$12,181,810


$11,869,005


$11,558,469


$11,511,865


Accumulated depreciation & amortization

(3,075,294)


(2,929,095)


(2,792,910)


(2,668,509)


(2,565,368)


Net Investments in Properties

$13,354,026


$9,252,715


$9,076,095


$8,889,960


$8,946,497


Investment in unconsolidated joint ventures

106,374


103,881


112,856


106,402


105,819


Net Investments in Real Estate

$13,460,400


$9,356,596


$9,188,951


$8,996,362


$9,052,316








Cash and cash equivalents

$192,578


$22,383


$14,950


$10,528


$36,445


Accounts and other receivables (1)

258,490


229,450


195,406


203,938


208,097


Deferred rent

420,348


423,188


418,858


412,269


412,977


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

3,052,277


1,494,083


1,501,843


1,522,378


1,526,563


Acquired above-market leases, net

178,190


19,716


20,826


22,181


24,554


Goodwill

3,384,394


778,862


757,444


752,970


780,099


Restricted cash

17,753


18,931


10,447


11,508


11,685


Assets associated with real estate held for sale

132,818


87,882


56,154


56,097


55,915


Other assets

135,250


148,480


164,669


204,354


190,384








Total Assets

$21,232,498


$12,579,571


$12,329,548


$12,192,585


$12,299,035








Liabilities and Equity






Global unsecured revolving credit facility

$138,477


$563,063


$564,467


$199,209


$153,189


Unsecured term loan

1,432,659


1,520,482


1,505,667


1,482,361


1,521,613


Unsecured senior notes, net of discount

6,806,333


4,351,148


4,128,110


4,153,797


4,238,435


Mortgage loans, net of premiums

106,775


2,927


3,085


3,240


111,750


Accounts payable and other accrued liabilities

1,024,394


850,602


804,371


824,878


823,905


Accrued dividends and distributions




144,194



Acquired below-market leases

257,732


76,099


78,641


81,899


86,888


Security deposits and prepaid rent

223,536


181,007


171,692


168,111


163,787


Liabilities associated with assets held for sale

4,660


2,949


3,070


2,599


2,820


Total Liabilities

$9,994,566


$7,548,277


$7,259,103


$7,060,288


$7,102,387


Redeemable noncontrolling interests – operating partnership

64,509












Equity






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






Series C Cumulative Redeemable Perpetual Preferred Stock (2)

$219,250






Series F Cumulative Redeemable Preferred Stock (3)



$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


Series J Cumulative Redeemable Preferred Stock (7)

193,667






Common Stock: $0.01 par value per share, 315,000,000 shares authorized (8)

2,043


1,611


1,584


1,582


1,581


Additional paid-in capital

11,250,322


5,991,753


5,769,091


5,764,497


5,759,338


Dividends in excess of earnings

(1,917,791)


(1,722,610)


(1,629,633)


(1,547,420)


(1,483,223)


Accumulated other comprehensive (loss) income, net

(116,732)


(110,709)


(122,540)


(135,605)


(131,936)


Total Stockholders' Equity

$10,467,529


$4,996,815


$5,031,463


$5,096,015


$5,158,721








Non-controlling Interests






Non-controlling interest in operating partnership

$699,308


$27,909


$32,409


$29,684


$31,088


Non-controlling interest in consolidated joint ventures

6,586


6,570


6,573


6,598


6,839








Total Non-controlling Interests

$705,894


$34,479


$38,982


$36,282


$37,927








Total Equity

$11,173,423


$5,031,294


$5,070,445


$5,132,297


$5,196,648








Total Liabilities and Equity

$21,232,498


$12,579,571


$12,329,548


$12,192,585


$12,299,035




(1)

Net of allowance for doubtful accounts of $6,187 and $7,446 as of September 30, 2017 and December 31, 2016, respectively.

(2)

Series C Cumulative Redeemable Perpetual Preferred Stock, 6.625%, $201,250 and $0 liquidation preference, respectively ($25.00 per share), 8,050,000 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

(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 September 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 September 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 September 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 September 30, 2017 and December 31, 2016, respectively.

(7)

Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $0 liquidation preference, respectively ($25.00 per share), 8,000,000 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

(8)

Common Stock: 205,433,495 and 146,384,247 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively.

 

Reconciliation of Earnings Before Interest, Taxes,

Depreciation & Amortization (EBITDA) (1)

Three Months Ended

30-Sep-17

30-Jun-17

31-Mar-17

31-Dec-16

30-Sep-16







Net (Loss) Income Available to Common Stockholders

($4,139)


$57,837


$66,145


$77,682


$187,330


Interest

71,621


57,582


55,450


56,226


63,084


(Gain) loss from early extinguishment of debt

(1,990)




29


18


Tax expense

2,494


2,639


2,223


2,304


3,720


Depreciation & amortization

199,914


178,111


176,466


176,581


178,133


Impairment of investments in real estate

28,992






EBITDA

$296,892


$296,169


$300,284


$312,822


$432,285


Severance-related expense, equity acceleration, and legal expenses

2,288


365


869


672


2,580


Transaction and integration expenses

42,809


14,235


3,323


8,961


6,015


(Gain) loss on real estate transactions

(9,751)


(380)


522


195


(169,000)


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




(29,205)



Equity in earnings adjustment for non-core items


(3,285)





Other non-core expense adjustments

3,051


24



236


(22)


Non-controlling interests

40


920


1,025


1,065


3,247


Preferred stock dividends, including undeclared dividends

16,575


14,505


17,393


17,393


21,530


Issuance costs associated with redeemed preferred stock


6,309




10,328


Adjusted EBITDA

$351,904


$328,862


$323,416


$312,139


$306,963




(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) gain (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) bridge facility fees, (viii) loss on currency forwards and (ix) 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) loss on real estate transactions, non-cash (gain) on lease termination, equity in earnings adjustment for non-core items, other non-core expense adjustments, noncontrolling interests, preferred stock dividends, including undeclared 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, other non-core expense adjustments, non-controlling interests, preferred stock dividends, including undeclared 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 September 30, 2017, GAAP interest expense was $72 million, capitalized interest was $5 million and scheduled debt principal payments and preferred dividends was $17 million.


Three Months Ended

Nine Months Ended

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

30-Sep-17

30-Jun-17

30-Sep-16

30-Sep-17

30-Sep-16







Operating income

$66,157


$130,657


$115,750


$334,097


$346,164








Fee income

(1,662)


(1,429)


(1,517)


(4,986)


(4,567)


Other income

(208)


(341)


(2)


(584)


(93)


Depreciation and amortization

199,914


178,111


178,133


554,491


522,743


General and administrative

41,477


37,144


43,555


112,399


106,044


Severance related expense, equity acceleration, and legal expenses

2,288


365


2,580


3,522


5,536


Transaction expenses

42,809


14,235


6,015


60,367


11,530


Impairment in investments in real estate

28,992




28,992



Other expenses

3,051


24


(22)


3,075


(23)








Net Operating Income

$382,818


$358,766


$344,492


$1,091,373


$987,334














Cash Net Operating Income (Cash NOI)












Net Operating Income

$382,818


$358,766


$344,492


$1,091,373


$987,334


Straight-line rent, net

2,436


2,206


205


4,842


(1,677)


Above- and below-market rent amortization

(873)


(1,946)


(2,002)


(4,920)


(6,265)








Cash Net Operating Income

$384,381


$359,026


$342,695


$1,091,295


$979,392


 

View original content:http://www.prnewswire.com/news-releases/digital-realty-reports-third-quarter-2017-results-300543396.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

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