Press Release Details

Digital Realty Reports Second Quarter 2019 Results

July 30, 2019

SAN FRANCISCO, July 30, 2019 /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 2019.  All per-share results are presented on a fully-diluted share and unit basis.

Highlights

  • Reported net income available to common stockholders of $0.15 per share in 2Q19, compared to $0.32 in 2Q18
  • Reported FFO per share of $1.53 in 2Q19, compared to $1.64 in 2Q18
  • Reported core FFO per share of $1.64 in 2Q19, compared to $1.66 in 2Q18
  • Signed total bookings during 2Q19 expected to generate $62 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection
  • Reiterated 2019 core FFO per share outlook of $6.60 - $6.70

Financial Results

Digital Realty reported revenues for the second quarter of 2019 of $801 million, a 2% decrease from the previous quarter and a 6% increase from the same quarter last year.

The company delivered second quarter of 2019 net income of $61 million, and net income available to common stockholders of $32 million, or $0.15 per diluted share, compared to $0.46 per diluted share in the previous quarter and $0.32 per diluted share in the same quarter last year.

Digital Realty generated second quarter of 2019 adjusted EBITDA of $468 million, a 3% decrease from the previous quarter and a 1% increase over the same quarter last year (reflecting the January 1, 2019 adoption of FASB Accounting Standard Codification Topic 842, Leases).

The company reported second quarter of 2019 funds from operations of $334 million, or $1.53 per share, compared to $1.92 per share in the previous quarter and $1.64 per share in the same quarter last year.

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2019 core FFO per share of $1.64, a 5% decrease from $1.73 per share in the previous quarter, and a 1% decrease from $1.66 per share in the same quarter last year.

Leasing Activity

"In the second quarter, we signed total bookings expected to generate $62 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection," said Chief Executive Officer A. William Stein.  "This positive momentum is a direct reflection of the durability of our diversified global platform and customer base, with strong demand across regions and verticals.  Looking ahead, we remain confident in the resiliency of our business, and we will continue to prudently invest in the expansion of our global platform to support our customers' growth."

The weighted-average lag between leases signed during the second quarter of 2019 and the contractual commencement date was eight months.

In addition to new leases signed, Digital Realty also signed renewal leases representing $125 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the second quarter of 2019 rolled down 5.8% on a cash basis and down 3.7% on a GAAP basis.

New leases signed during the second quarter of 2019 are summarized by region and product type as follows:



Annualized GAAP












Base Rent




GAAP Base Rent





GAAP Base Rent

The Americas


(in thousands)


Square Feet


per Square Foot


Megawatts


per Kilowatt

Turn-Key Flex


$16,133



86,943



$186



9.7




$139


Powered Base Building


4,036



116,998



34







Colocation


6,540



23,365



280



1.9




289


Non-Technical


257



12,239



21







Total


$26,966



239,545



$113



11.6




$163














Europe (1)












Turn-Key Flex


$19,987



187,907



$106



16.8




$99


Colocation


1,142



2,256



506



0.2




387


Non-Technical


146



4,497



33







  Total


$21,275



194,660



$109



17.0




$103














Asia Pacific (1)












Turn-Key Flex


$4,351



18,686



$233



2.1




$172


Colocation


164



60



2,737






547


Non-Technical


73



1,249



58







  Total


$4,588



19,995



$229



2.1




$177














Interconnection


$8,937



N/A



N/A



N/A




N/A














Grand Total


$61,766



454,200



$116



30.7




$131




Note:  Totals may not foot due to rounding differences.

(1)

Based on quarterly average exchange rates during the three months ended June 30, 2019.

Investment Activity

During the second quarter of 2019, Digital Realty closed on the acquisition of 22.5 acres of land in the Tokyo, Paris and Northern Virginia metro areas for approximately $49 million.  Commencement of development on these parcels will be subject to market demand, and delivery will be phased to meet future customer growth requirements.

Balance Sheet

Digital Realty had approximately $10.8 billion of total debt outstanding as of June 30, 2019, comprised of $10.7 billion of unsecured debt and approximately $0.1 billion of secured debt.  At the end of the second quarter of 2019, net debt-to-adjusted EBITDA was 6.1x, debt-plus-preferred-to-total enterprise value was 31.8% and fixed charge coverage was 4.2x.  Pro forma for settlement of the $1.1 billion forward equity offering, net debt-to-adjusted EBITDA was 5.5x and fixed charge coverage was 4.4x.

Early in the second quarter of 2019, Digital Realty also completed the previously announced redemption of all 14.6 million shares of its 7.375% Series H Cumulative Redeemable Preferred Stock.

During the second quarter of 2019, Digital Realty closed a $900 million bond offering of 10-year senior unsecured notes at 3.600% and concurrently commenced an any-and-all cash tender offer for its outstanding 3.400% Notes due 2020 and 5.25% Notes due 2021.  Approximately 81% of the Notes were validly tendered and purchased through the tender offer during the second quarter.  Subsequent to quarter-end, Digital Realty settled the redemption of the remaining balance, in accordance with the terms of the indentures governing the Notes.

2019 Outlook

Digital Realty reiterated its 2019 core FFO per share outlook of $6.60 - $6.70.  The assumptions underlying this guidance are summarized in the following table. 


As of

As of

As of

As of

Top-Line and Cost Structure

January 8, 2019

February 5, 2019

April 25, 2019

July 30, 2019

   Total revenue

$3.2 - $3.3 billion

$3.2 - $3.3 billion

$3.2 - $3.3 billion

$3.2 - $3.3 billion

   Net non-cash rent adjustments (1)

($5 - $15 million)

($5 - $15 million)

($5 - $15 million)

($5 - $15 million)

   Adjusted EBITDA margin

57.0% - 59.0%

57.0% - 59.0%

57.0% - 59.0%

57.0% - 59.0%

   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

Down high-single-digits

Down high-single-digits

Down high-single-digits

Down mid-single-digits

      GAAP basis

Slightly positive

Slightly positive

Slightly positive

Slightly positive

   Year-end portfolio occupancy

+/- 50 bps

+/- 50 bps

+/- 50 bps

+/- 50 bps

   "Same-capital" cash NOI growth (2)

+/- 2.0%

+/- 2.0%

-2.0% to -4.0%

-2.0% to -4.0%






   Foreign Exchange Rates





      U.S. Dollar / Pound Sterling

$1.20 - $1.30

$1.20 - $1.30

$1.20 - $1.30

$1.20 - $1.30

      U.S. Dollar / Euro

$1.10 - $1.20

$1.10 - $1.20

$1.10 - $1.20

$1.10 - $1.20






External Growth





   Development





   CapEx

$1.2 - $1.4 billion

$1.2 - $1.4 billion

$1.2 - $1.4 billion

$1.2 - $1.4 billion

   Average stabilized yields

9.0% - 12.0%

9.0% - 12.0%

9.0% - 12.0%

9.0% - 12.0%

   Enhancements and other non-recurring CapEx (3)

$30 - $40 million

$30 - $40 million

$30 - $40 million

$30 - $40 million

   Recurring CapEx + capitalized leasing costs (4)

$145 - $155 million

$145 - $155 million

$145 - $155 million

$160 - $170 million






Balance Sheet





    Long-term debt issuance





    Dollar amount

$0.5 - $1.0 billion

$1.0 - $1.5 billion

$1.5 - $2.0 billion

$2.3 billion

    Pricing

3.50% - 5.00%

2.50% - 5.00%

2.75% - 3.75%

3.03%

    Timing

Early-to-mid 2019

Early-to-mid 2019

Early-to-mid 2019

Early-to-mid 2019











Net income per diluted share

$1.40 - $1.45

$1.40 - $1.45

$1.65 - $1.70

$1.50 - $1.55

Real estate depreciation and (gain) / loss on sale

$5.15 - $5.15

$5.15 - $5.15

$5.00 - $5.10

$5.10 - $5.10

Funds From Operations / share (NAREIT-Defined)

$6.55 - $6.60

$6.55 - $6.60

$6.65 - $6.80

$6.60 - $6.65

Non-core expenses and revenue streams

$0.05 - $0.10

$0.05 - $0.10

($0.05 - $0.10)

$0.00 - $0.05

Core Funds From Operations / share

$6.60 - $6.70

$6.60 - $6.70

$6.60 - $6.70

$6.60 - $6.70

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

$6.65 - $6.85

$6.65 - $6.85

$6.65 - $6.85

$6.65 - $6.85



(1)

Net non-cash rent adjustments represent the sum of straight-line rental revenue and 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, 2017 with less than 5% of total rentable square feet under development.  It also excludes properties that were undergoing, or were expected to undergo, development activities in 2018-2019, 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. 

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including FFO, 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 definitions of FFO, and 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 July 30, 2019, 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 2019 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# 7733535 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 30, 2019.  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# 10132534.  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 2,000 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Latin America, Asia and Australia.  Digital Realty's clients include domestic and international companies of all sizes, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare, and consumer products.

Contact Information

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

John J. Stewart
Investor Relations
Digital Realty
(415) 738-6500

 

Consolidated Quarterly Statements of Operations

Unaudited and in Thousands, Except Share and Per Share Data



Three Months Ended


Six Months Ended


30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18

Rental revenues

$565,925


$585,425


$555,816


$541,073


$534,556



$1,151,349


$1,065,481


Tenant reimbursements - Utilities

106,409


102,569


102,641


105,822


100,084



208,978


198,660


Tenant reimbursements - Other

62,820


55,868


53,090


57,282


55,639



118,688


107,142


Interconnection & other

64,232


68,168


63,803


62,760


61,770



132,400


123,143


Fee income

925


1,921


2,896


1,469


2,343



2,845


3,476


Other

486


564


21


518


527



1,051


1,385


Total Operating Revenues

$800,797


$814,515


$778,267


$768,924


$754,919



$1,615,311


$1,499,287











Utilities

$123,398


$124,334


$122,108


$127,239


$115,470



$247,732


$227,700


Rental property operating

128,634


130,620


133,024


118,732


114,852



259,254


228,262


Property taxes

41,482


37,315


32,098


34,871


27,284



78,797


62,547


Insurance

3,441


2,991


2,412


2,653


2,606



6,432


6,337


Depreciation & amortization

290,562


311,486


299,362


293,957


298,788



602,048


593,577


General & administration

52,318


51,976


38,801


40,997


44,277



104,294


80,566


Severance, equity acceleration, and legal expenses

665


1,483


602


645


1,822



2,148


2,056


Transaction and integration expenses

4,210


2,494


25,917


9,626


5,606



6,704


9,784


Impairment of investments in real estate


5,351






5,351



Other expenses

7,115


4,922


1,096


1,139


152



12,037


583


Total Operating Expenses

$651,825


$672,972


$655,420


$629,859


$610,857



$1,324,797


$1,211,412











Operating Income

$148,972


$141,543


$122,847


$139,065


$144,062



$290,514


$287,875











Equity in earnings of unconsolidated joint ventures

$6,962


$9,217


$9,245


$8,886


$7,438



$16,180


$14,848


Gain on sale / deconsolidation


67,497


7


26,577


14,192



67,497


53,465


Interest and other income

16,980


21,444


1,106


(981)


3,398



38,424


3,356


Interest (expense)

(86,051)


(101,552)


(84,883)


(80,851)


(78,810)



(187,603)


(155,795)


Tax benefit (expense)

(4,634)


(4,266)


5,843


(2,432)


(2,121)



(8,900)


(5,495)


Loss from early extinguishment of debt

(20,905)


(12,886)


(1,568)





(33,791)



Net Income

$61,324


$120,997


$52,597


$90,264


$88,159



$182,321


$198,254











Net income attributable to noncontrolling interests

(1,156)


(4,185)


(1,038)


(2,667)


(2,696)



(5,341)


(6,164)


Net Income Attributable to Digital Realty Trust, Inc.

$60,168


$116,812


$51,559


$87,597


$85,463



$176,980


$192,090











Preferred stock dividends, including undeclared dividends

(16,670)


(20,943)


(20,329)


(20,329)


(20,329)



(37,613)


(40,658)


Issuance costs associated with redeemed preferred stock

(11,760)







(11,760)












Net Income Available to Common Stockholders

$31,738


$95,869


$31,230


$67,268


$65,134



$127,607


$151,432











Weighted-average shares outstanding - basic

208,284,407


207,809,383


206,345,138


206,118,472


205,956,005



208,048,207


205,835,757


Weighted-average shares outstanding - diluted

209,435,572


208,526,249


207,113,100


206,766,256


206,563,079



208,894,294


206,460,170


Weighted-average fully diluted shares and units

218,497,318


217,756,161


215,417,085


214,937,168


214,895,273



218,039,658


214,773,601











Net income per share - basic

$0.15

$0.46

$0.15

$0.33

$0.32


$0.61

$0.74

Net income per share - diluted

$0.15

$0.46

$0.15

$0.33

$0.32


$0.61

$0.73

 

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-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18










Net Income Available to Common Stockholders

$31,738


$95,869


$31,230


$67,268


$65,134



$127,607


$151,432


Adjustments:









Non-controlling interests in operating partnership

1,400


4,300


1,300


2,700


2,700



5,700


6,180


Real estate related depreciation & amortization (1)

286,915


307,864


295,724


290,757


295,750



594,779


587,436


Unconsolidated JV real estate related depreciation & amortization

13,623


3,851


3,615


3,775


3,722



17,474


7,198


(Gain) on real estate transactions



(7)


(26,577)


(14,192)




(53,465)


Impairment of investments in real estate


5,351






5,351



Funds From Operations

$333,676


$417,235


$331,862


$337,923


$353,114



$750,911


$698,781











Funds From Operations - diluted

$333,676


$417,235


$331,862


$337,923


$353,114



$750,911


$698,781











Weighted-average shares and units outstanding - basic

217,346


217,039


214,649


214,289


214,288



217,194


214,149


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

218,497


217,756


215,417


214,937


214,895



218,040


214,774











Funds From Operations per share - basic

$1.54


$1.92


$1.55


$1.58


$1.65



$3.46


$3.26











Funds From Operations per share - diluted (2)

$1.53


$1.92


$1.54


$1.57


$1.64



$3.44


$3.25












Three Months Ended


Six Months Ended

Reconciliation of FFO to Core FFO

30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18










Funds From Operations - diluted

$333,676


$417,235


$331,862


$337,923


$353,114



$750,911


$698,781


Adjustments:









Termination fees and other non-core revenues (3)

(16,826)


(14,445)


(21)


(518)


(3,663)



(31,271)


(4,521)


Transaction and integration expenses

4,210


2,494


25,917


9,626


5,606



6,704


9,784


Loss from early extinguishment of debt

20,905


12,886


1,568





33,791



Issuance costs associated with redeemed preferred stock

11,760







11,760



Severance, equity acceleration, and legal expenses (4)

665


1,483


602


645


1,822



2,148


2,056


(Gain) / Loss on FX revaluation

(4,251)


9,604






5,353



(Gain) on contribution to unconsolidated joint venture, net of related tax


(58,497)






(58,497)



Other non-core expense adjustments

7,115


4,922


1,471


2,269


152



12,037


583


Core Funds From Operations - diluted

$357,254


$375,682


$361,399


$349,945


$357,031



$732,936


$706,683











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

218,497


217,756


215,417


214,937


214,895



218,040


214,774











Core Funds From Operations per share - diluted (2)

$1.64


$1.73


$1.68


$1.63


$1.66



$3.36


$3.29












(1)   Real Estate Related Depreciation & Amortization:

Three Months Ended


Six Months Ended


30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18










Depreciation & amortization per income statement

$290,562


$311,486


$299,362


$293,957


$298,788



$602,048


$593,577


Non-real estate depreciation

(3,647)


(3,622)


(3,638)


(3,200)


(3,038)



(7,269)


(6,141)











Real Estate Related Depreciation & Amortization

$286,915


$307,864


$295,724


$290,757


$295,750



$594,779


$587,436




(2)

For all periods presented, we have excluded the effect of dilutive series C, series G, series H, series I, series J, and series K preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series G, series H, series I, series J, and series K preferred stock, as applicable, which we consider highly improbable.  See above for calculations of diluted FFO available to common stockholders and unitholders and the share count detail section of the reconciliation of core FFO to AFFO 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-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18










Core FFO available to common stockholders and unitholders

$357,254


$375,682


$361,399


$349,945


$357,031



$732,936


$706,683


Adjustments:









Non-real estate depreciation

3,647


3,622


3,638


3,200


3,038



7,269


6,141


Amortization of deferred financing costs

2,905


4,493


3,128


3,066


2,953



7,398


6,013


Amortization of debt discount/premium

515


760


971


902


882



1,275


1,757


Non-cash stock-based compensation expense

9,468


7,592


5,609


5,823


8,419



17,060


13,916


Straight-line rental revenue

(13,033)


(15,979)


(11,157)


(10,511)


(8,489)



(29,013)


(18,755)


Straight-line rental expense

318


1,235


2,052


2,482


2,669



1,552


5,216


Above- and below-market rent amortization

3,954


6,210


6,521


6,552


6,794



10,163


13,460


Deferred tax expense

(979)


(15,397)


(8,835)


(1,783)


(1,137)



(16,376)


(1,353)


Leasing compensation & internal lease commissions (1)

4,025


3,581


(5,160)


(5,153)


(5,647)



7,606


(10,694)


Recurring capital expenditures (2)

(39,515)


(38,059)


(47,951)


(22,500)


(34,447)



(77,574)


(61,775)











AFFO available to common stockholders and unitholders (3)

$328,559


$333,740


$310,215


$332,023


$332,066



$662,296


$660,609











Weighted-average shares and units outstanding - basic

217,346


217,039


214,649


214,289


214,288



217,194


214,149


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

218,497


217,756


215,417


214,937


214,895



218,040


214,774











AFFO per share - diluted (4)

$1.50


$1.53


$1.44


$1.54


$1.55



$3.04


$3.08











Dividends per share and common unit

$1.08


$1.08


$1.01


$1.01


$1.01



$2.16


$2.02











Diluted AFFO Payout Ratio

71.8

%

70.5

%

70.1

%

65.4

%

65.4

%


71.1

%

65.7

%




Three Months Ended


Six Months Ended

Share Count Detail

30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18


30-Jun-19

30-Jun-18










Weighted Average Common Stock and Units Outstanding

217,346


217,039


214,649


214,289


214,288



217,194


214,149


Add: Effect of dilutive securities

1,151


717


768


648


607



846


625











Weighted Avg. Common Stock and Units Outstanding - diluted

218,497


217,756


215,417


214,937


214,895



218,040


214,774




(1)

The company adopted ASC 842 in the first quarter of 2019.

(2)

Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external leasing commissions.  Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building up to Digital Realty's operating standards, or internal leasing commissions.

(3)

For a definition and discussion of AFFO, see the definitions section.  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 G, series H, series I, series J, and series K preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series G, series H, series I, series J, and series K preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and for calculations of weighted average common stock and units outstanding.

 

Consolidated Balance Sheets

Unaudited and in Thousands, Except Share and Per Share Data


Assets

30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18

Investments in real estate:






Real estate

$17,324,416


$16,988,322


$17,055,017


$16,062,402


$15,969,938


Construction in progress

1,685,056


1,584,327


1,621,927


1,464,010


1,323,998


Land held for future development

152,368


163,081


162,941


284,962


261,368


Investments in real estate

$19,161,840


$18,735,730


$18,839,885


$17,811,374


$17,555,304


Accumulated depreciation and amortization

(4,312,357)


(4,124,002)


(3,935,267)


(3,755,596)


(3,588,124)


Net Investments in Properties

$14,849,483


$14,611,728


$14,904,618


$14,055,778


$13,967,180


Investment in unconsolidated joint ventures

979,350


930,326


175,108


169,919


167,306


Net Investments in Real Estate

$15,828,833


$15,542,054


$15,079,726


$14,225,697


$14,134,486








Cash and cash equivalents

$33,536


$123,879


$126,700


$46,242


$17,589


Accounts and other receivables (1)

320,938


328,009


299,621


308,709


282,287


Deferred rent

491,486


479,640


463,248


454,412


445,766


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

2,499,564


2,580,624


3,144,395


2,734,158


2,823,275


Acquired above-market leases, net

94,474


106,044


119,759


135,127


150,084


Goodwill

3,353,538


3,358,463


4,348,007


3,373,342


3,378,325


Operating lease right-of-use assets (2)

648,952


660,586





Other assets

158,770


162,768


185,239


184,423


179,611


Total Assets

$23,430,091


$23,342,067


$23,766,695


$21,462,110


$21,411,423








Liabilities and Equity






Global unsecured revolving credit facility

$1,417,675


$842,975


$1,647,735


$590,289


$466,971


Unsecured term loans

807,922


807,726


1,178,904


1,352,969


1,376,784


Unsecured senior notes, net of discount

8,511,656


8,523,462


7,589,126


7,130,541


7,156,084


Secured debt, net of premiums

105,325


105,493


685,714


106,072


106,245


Operating lease liabilities (2)

714,256


725,470





Accounts payable and other accrued liabilities

984,812


922,571


1,164,509


1,059,355


1,031,794


Accrued dividends and distributions



217,241




Acquired below-market leases

183,832


192,667


200,113


208,202


216,520


Security deposits and prepaid rent

213,549


221,526


209,311


233,667


207,292


Total Liabilities

$12,939,027


$12,341,890


$12,892,653


$10,681,095


$10,561,690








Redeemable non-controlling interests - operating partnership

17,344


17,678


15,832


17,553


52,805








Equity






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






Series C Cumulative Redeemable Perpetual Preferred Stock (3)

$219,250


$219,250


$219,250


$219,250


$219,250


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


Series I Cumulative Redeemable Preferred Stock (6)

242,012


242,012


242,012


242,012


242,012


Series J Cumulative Redeemable Preferred Stock (7)

193,540


193,540


193,540


193,540


193,540


Series K Cumulative Redeemable Preferred Stock (8)

203,264


203,423





Common Stock: $0.01 par value per share, 315,000,000 shares authorized (9)

2,067


2,066


2,051


2,049


2,047


Additional paid-in capital

11,511,519


11,492,766


11,355,751


11,333,035


11,310,132


Dividends in excess of earnings

(2,961,307)


(2,767,708)


(2,633,071)


(2,455,189)


(2,314,291)


Accumulated other comprehensive (loss), net

(89,588)


(91,699)


(115,647)


(103,201)


(107,070)


Total Stockholders' Equity

$9,562,225


$10,088,408


$9,858,644


$10,026,254


$10,140,378








Noncontrolling Interests






Noncontrolling interest in operating partnership

$756,050


$772,931


$906,510


$671,269


$654,261


Noncontrolling interest in consolidated joint ventures

155,445


121,160


93,056


65,939


2,289








Total Noncontrolling Interests

$911,495


$894,091


$999,566


$737,208


$656,550








Total Equity

$10,473,720


$10,982,499


$10,858,210


$10,763,462


$10,796,928








Total Liabilities and Equity

$23,430,091


$23,342,067


$23,766,695


$21,462,110


$21,411,423




(1)

Net of allowance for doubtful accounts of $16,500 and $11,554, as of June 30, 2019 and December 31, 2018, respectively.

(2)

Adoption of the new lease accounting standard required that we adjust the consolidated balance sheet to include the recognition of additional right-of-use assets and lease liabilities for operating leases.  See our quarterly report on Form 10-Q filed on May 10, 2019 for additional information.

(3)

Series C Cumulative Redeemable Perpetual Preferred Stock, 6.625%, $201,250 and $201,250 liquidation preference, respectively ($25.00 per share), 8,050,000 and 8,050,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.

(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, 2019 and December 31, 2018, respectively.

(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $0 and $365,000 liquidation preference, respectively ($25.00 per share), 0 and 14,600,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.  Redeemed on April 1, 2019.

(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, 2019 and December 31, 2018, respectively.

(7)

Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.

(8)

Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $0 liquidation preference, respectively ($25.00 per share), 8,400,000 and 0 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.

(9)

Common Stock: 208,324,538 and 206,425,656 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.


 

Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization and Financial Ratios


Unaudited and in Thousands


Reconciliation of Earnings Before Interest, Taxes,
Depreciation & Amortization (EBITDA) (1)

Three Months Ended

30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18







Net Income Available to Common Stockholders

$31,738

$95,869


$31,230


$67,268


$65,134


Interest

86,051


101,552


84,883


80,851


78,810


Loss from early extinguishment of debt

20,905


12,886


1,568




Tax (benefit) expense

4,634


4,266


(5,843)


2,432


2,121


Depreciation & amortization

290,562


311,486


299,362


293,957


298,788


EBITDA

$433,890


$526,059


$411,200


$444,508


$444,853


Unconsolidated JV real estate related depreciation & amortization

13,623


3,851


3,615


3,775


3,722


Severance, equity acceleration, and legal expenses

665


1,483


602


645


1,822


Transaction and integration expenses

4,210


2,494


25,917


9,626


5,606


(Gain) on sale / deconsolidation


(67,497)


(7)


(26,577)


(14,192)


Impairment of investments in real estate


5,351





Other non-core adjustments, net

(13,476)


(13,806)


1,471


2,269


(2,984)


Non-controlling interests

1,156


4,185


1,038


2,667


2,696


Preferred stock dividends, including undeclared dividends

16,670


20,943


20,329


20,329


20,329


Issuance costs associated with redeemed preferred stock

11,760






Adjusted EBITDA

$468,498


$483,063


$464,165


$457,242


$461,852




(1)

For definitions and discussion of EBITDA and Adjusted EBITDA, see the definitions section. 


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, in the Nareit Funds From Operations White Paper - 2018 Restatement.  FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, impairment of investment in real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, 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 data centers 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 data centers, 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 other REITs' FFO. 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 (Core FFO) :
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) severance, equity acceleration, and legal expenses, (vi) gain/loss on FX revaluation, (vii) gain on contribution to unconsolidated joint venture, net of related tax, 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 calculate core FFO differently than we do and 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.

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 rental revenue, (vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense, (ix) leasing compensation and internal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and 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, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, equity in earnings adjustment for non-core items, other non-core adjustments, net, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, impairment of investments in real estate, other non-core adjustments, net, 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 and accordingly, our EBITDA and Adjusted EBITDA may not be comparable to 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 data centers 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 data centers, 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 calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs' NOI and cash NOI. 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, 2019, GAAP interest expense was $86 million, capitalized interest was $9 million and scheduled debt principal payments and preferred dividends was $17 million.


Three Months Ended


Six Months Ended

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

30-Jun-19

31-Mar-19

30-Jun-18


30-Jun-19

30-Jun-18








Operating income

$148,972


$141,543


$144,062



$290,514


$287,875









Fee income

(925)


(1,921)


(2,343)



(2,845)


(3,476)


Other income

(486)


(564)


(527)



(1,051)


(1,385)


Depreciation and amortization

290,562


311,486


298,788



602,048


593,577


General and administrative

52,318


51,976


44,277



104,294


80,566


Severance, equity acceleration, and legal expenses

665


1,483


1,822



2,148


2,056


Transaction expenses

4,210


2,494


5,606



6,704


9,784


Impairment in investments in real estate


5,351




5,351



Other expenses

7,115


4,922


152



12,037


583









Net Operating Income

$502,431


$516,770


$491,837



$1,019,200


$969,580
















Cash Net Operating Income (Cash NOI)














Net Operating Income

$502,431


$516,770


$491,837



$1,019,200


$969,580









Straight-line rental revenue

(13,033)


(15,979)


(8,489)



(29,013)


(18,755)


Straight-line rental expense

397


1,176


2,692



1,573


5,291


Above- and below-market rent amortization

3,954


6,210


6,794



10,163


13,460









Cash Net Operating Income

$493,749


$508,177


$492,834



$1,001,923


$969,576


This document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: expected physical settlement of the forward sale agreements and use of proceeds from any such settlement, our expected investment and expansion activity, supply and demand for data center and colocation space, our acquisition and disposition activity, pricing and net effective leasing economics, 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, the company's FFO, core FFO and net income, 2019 outlook and underlying assumptions, information related to trends, our strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect new leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on investment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, 2019 backlog NOI, NAV components, and other forward-looking financial data.  Such statements are based on management's beliefs and assumptions made based on information currently available to management.  Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.  Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

  • reduced demand for data centers or decreases in information technology spending;
  • the competitive environment in which we operate;
  • decreased rental rates, increased operating costs or increased vacancy rates;
  • increased competition or available supply of data center space;
  • the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services;
  • our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers;
  • breaches of our obligations or restrictions under our contracts with our customers;
  • our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;
  • the impact of current global and local economic, credit and market conditions;
  • our inability to retain data center space that we lease or sublease from third parties;
  • difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;
  • our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;
  • our failure to successfully integrate and operate acquired or developed properties or businesses;
  • difficulties in identifying properties to acquire and completing acquisitions;
  • risks related to joint venture investments, including as a result of our lack of control of such investments;
  • 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;
  • our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;
  • financial market fluctuations and changes in foreign currency exchange rates;
  • 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 and goodwill and other intangible asset impairment charges;
  • our inability to manage our growth effectively;
  • losses in excess of our insurance coverage;
  • environmental liabilities and risks related to natural disasters;
  • our inability to comply with rules and regulations applicable to our company;
  • Digital Realty Trust, Inc.'s failure to maintain its status as a REIT for federal income tax purposes;
  • Digital Realty Trust, L.P.'s failure to qualify as a partnership for federal income tax purposes;
  • restrictions on our ability to engage in certain business activities; and
  • changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates;
  • our ability to attract and retain qualified personnel and to attract and retain customers; and
  • the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance.  We discussed a number of additional material risks in our annual report on Form 10-K for the year ended December 31, 2018 and other filings with the Securities and Exchange Commission.  Those risks continue to be relevant to our performance and financial condition.  Moreover, we operate in a very competitive and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.  Digital Realty, Digital Realty Trust, the Digital Realty logo, Turn-Key Flex and Powered Base Building are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries.

Cision View original content:http://www.prnewswire.com/news-releases/digital-realty-reports-second-quarter-2019-results-300893561.html

SOURCE Digital Realty

Categories: Press Releases