Release Details

SAN FRANCISCO, Oct. 27, 2016 /PRNewswire/ -- Digital Realty Trust, Inc. (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2016.  All per share results are presented on a fully-diluted share and unit basis. 

Highlights

• Reported net income available to common stockholders per share of $1.25 in 3Q16, compared to $0.28 in 3Q15
• Reported FFO per share of $1.31 in 3Q16, compared to $1.28 in 3Q15
• Reported core FFO per share of $1.44 in 3Q16, compared to $1.32 in 3Q15
• Signed total bookings during 3Q16 expected to generate $55 million of annualized revenue, including a $9 million contribution from interconnection
• Reiterated 2016 core FFO per share outlook of $5.65 - $5.75 and "constant-currency" core FFO per share outlook of $5.70 - $5.90

Financial Results

Revenues were $546 million for the third quarter of 2016, a 6% increase from the previous quarter and a 25% increase over the same quarter last year.

Net income for the third quarter of 2016 was $222 million, and net income available to common stockholders was $187 million, or $1.25 per diluted share, compared to $0.19 per diluted share in the second quarter of 2016 and $0.28 per diluted share in the third quarter of 2015.

Adjusted EBITDA was $307 million for the third quarter of 2016, a 3% increase from the previous quarter and a 22% increase over the same quarter last year.

Funds from operations ("FFO") on a fully diluted basis was $199 million in the third quarter of 2016, or $1.31 per share, compared to $1.36 per share in the second quarter of 2016 and $1.28 per share in the third quarter of 2015.

Excluding certain items that do not represent core expenses or revenue streams, third quarter of 2016 core FFO was $1.44 per share, a 1% increase from $1.42 per share in the second quarter of 2016, and a 9% increase from $1.32 per share in the third quarter of 2015.

Leasing Activity

"During the third quarter, we signed total bookings representing $55 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection," said Chief Executive Officer A. William Stein.

The weighted-average lag between leases signed during the third quarter of 2016 and the contractual commencement date was 4 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $44 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the third quarter of 2016 rolled up 2.5% on a cash basis and up 3.9% on a GAAP basis.

New leases signed during the third quarter of 2016 by region and product type are summarized as follows:

Investment Activity

During the third quarter of 2016, Digital Realty completed the previously announced acquisition of a portfolio of eight high-quality, carrier-neutral data centers in Europe from Equinix in a transaction valued at $874 million.

Digital Realty also closed on the sale of 114 rue Ambroise Croizat in Paris to Equinix for €190 million (or approximately $212 million).  The property was 96% leased and was expected to generate cash net operating income of €14.7 million (or approximately $16.2 million) in 2016, representing a cap rate of 7.7%.  The sale generated net proceeds of approximately $211 million, and Digital Realty recognized a gain on the sale of $144 million in the third quarter of 2016.

During the third quarter of 2016, Digital Realty also closed on the previously announced sale of a four-property data center portfolio totaling approximately 454,000 square feet for $115 million, or $252 per square foot.  The properties were expected to generate cash net operating income of approximately $9 million in 2016.  The sale generated net proceeds of $112 million, and Digital Realty recognized a gain on the sale of approximately $25 million in the third quarter of 2016.

During the third quarter of 2016, Digital Realty acquired two land parcels totaling approximately 30 acres of developable land adjacent to its existing campus in Ashburn, Virginia for a total purchase price of $19 million.  The combined 290-acre site is expected to support the development of an additional 3.2 million square feet and 270 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 existing campus in Ashburn.

Digital Realty also acquired a 48-acre land parcel in Garland, Texas during the third quarter of 2016 for a total purchase price of $17 million.  The site is expected to support the development of 960,000 square feet and the build-out of approximately 72 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 existing campus in Richardson.

Likewise, during the third quarter of 2016, Digital Realty acquired a 19-acre land parcel adjacent to its existing campus in Franklin Park, Illinois for a total purchase price of $13 million.  The site is expected to support the development of a 469,000 square foot building and the build-out of approximately 36 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 existing campus in Franklin Park.

Balance Sheet

Digital Realty had approximately $6.0 billion of total debt outstanding as of September 30, 2016, comprised of $5.9 billion of unsecured debt and approximately $0.1 billion of secured debt.  At the end of the third quarter of 2016, net debt-to-adjusted EBITDA was 5.1x, debt-plus-preferred-to-total enterprise value was 31.1% and fixed charge coverage was 3.4x. 

On September 15, 2016, Digital Realty redeemed all 11.5 million outstanding shares of its 7.000% Series E Cumulative Redeemable Preferred Stock, at a redemption price of $25 per share, plus accrued and unpaid dividends for a total payment of $25.35972 per share, or $291.6 million in aggregate.

On September 27, 2016, Digital Realty settled a portion of the forward sale agreements originally entered into in May 2016 with the issuance of 12 million shares of its common stock, generating net proceeds of $1.1 billion.  Following the settlement, 2.375 million shares remain subject to the forward sale agreements.

2016 Outlook

Digital Realty reiterated its 2016 core FFO per share outlook of $5.65 - $5.75.  The assumptions underlying this guidance are summarized in the following table. 

Non-GAAP Financial Measures

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

Investor Conference Call

Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on October 27, 2016, 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 2016 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 +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and reference the conference ID# 9116034 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 one hour after the call until November 24, 2016.  The telephone replay can be accessed by dialing +1 (877) 344-7529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 10093425.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty Trust, Inc. 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, 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 Trust, Inc.
+1 (415) 738-6500

John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty Trust, Inc.
+1 (415) 738-6500

Safe Harbor Statement

This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to supply and demand for data center and colocation space, the expected integration and financial contributions of the European portfolio acquisition, the expected financial impact of sale of a four-property data center portfolio and the acquisition and development of land parcels, the expected settlement of our forward sales agreements. 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 geographies 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; the impact of the United Kingdom's referendum on withdrawal from the European Union on global financial markets and our business; 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; 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, 2015, as amended, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016.  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.

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 sales of property, excluding a gain from a pre-existing relationship, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs) 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 expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) change in fair value of contingent consideration, (vi) severance-related expense, 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) non-cash stock-based compensation expense, (vi) straight-line rent revenue, (vii) straight-line rent expense, (viii) above- and below-market rent amortization, (ix) deferred non-cash tax expense, (x) capitalized leasing compensation, (xi) recurring capital expenditures and (xii) 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, change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, preferred stock dividends and issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited.  Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs' EBITDA and Adjusted EBITDA.  Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.

Net Operating Income (NOI) and Cash NOI:

Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, repair and maintenance 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, 2016, GAAP interest expense was $63 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $22 million.

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SOURCE Digital Realty Trust, Inc.