Digital Realty Reports Second Quarter 2017 Results
SAN FRANCISCO, July 27, 2017 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the second quarter of 2017. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.36 per share
in 2Q17, compared to $0.19 per share in 2Q16
-- Reported FFO per share of $1.44 in 2Q17, compared to $1.36 in 2Q16
-- Reported core FFO per share of $1.54 in 2Q17, compared to $1.42 in 2Q16
-- Signed total bookings during 2Q17 expected to generate $34 million of
annualized GAAP rental revenue, including an $8 million contribution
from interconnection
-- Reiterated 2017 core FFO per share outlook of $5.95 - $6.10 and
"constant-currency" core FFO per share outlook of $6.00 - $6.25
Financial Results
Digital Realty reported second quarter of 2017 revenues of $566 million, a 3% increase from the previous quarter and a 10% increase from the same quarter last year.
The company delivered second quarter of 2017 net income of $80 million, and net income available to common stockholders of $58 million, or $0.36 per diluted share, compared to $0.41 per diluted share in the previous quarter and $0.19 per diluted share in the same quarter last year.
Digital Realty generated second quarter of 2017 adjusted EBITDA of $329 million, a 2% increase from the previous quarter and an 11% increase over the same quarter last year.
The company reported second quarter of 2017 funds from operations ("FFO") on a fully diluted basis of $236 million, or $1.44 per share, compared to $1.50 per share in the previous quarter and $1.36 per share in same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2017 core FFO of $1.54 per share, a 1% increase from $1.52 per share in the previous quarter, and an 8% increase from $1.42 per share in the same quarter last year.
Leasing Activity
"During the second quarter of 2017, we signed total bookings representing $34 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection," said Chief Executive Officer A. William Stein. "We further strengthened the balance sheet through opportunistic financings, and we reached an agreement to merge with DuPont Fabros, setting the stage for continued future value creation."
The weighted-average lag between leases signed during the second quarter of 2017 and the contractual commencement date was six months, in line with the long-term historical average.
In addition to new leases signed, Digital Realty also signed renewal leases representing $65 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the second quarter of 2017 rolled up 6.5% on a cash basis and up 9.3% on a GAAP basis.
New leases signed during the second quarter of 2017 by region and product type are summarized as follows:
Annualized GAAP
Base Rent GAAP Base Rent GAAP Base Rent
North America (in thousands) Square Feet per Square Foot Megawatts per Kilowatt
------------- ----------- --------------- ------------
Turn-Key Flex $17,667 111,793 $158 11 $138
Colocation 6,612 30,057 220 2 289
Non-Technical 658 23,211 28 - -
Total $24,937 165,061 $151 13 $161
Europe (1)
Turn-Key Flex $58 115 $501 - $320
Powered Base Building 226 - - - -
Colocation 1,051 2,880 365 - 435
Non-Technical 9 175 54 - -
Total $1,344 3,170 $424 - $427
Asia Pacific (1)
Turn-Key Flex $521 1,864 $279 - $143
Total $521 1,864 $279 - $143
Interconnection $7,589 N/A N/A N/A N/A
Grand Total $34,391 170,095 $158 13 $165
Note: Totals may not foot due to
rounding differences.
(1) Based on quarterly
average exchange rates
during the three months
ended June 30, 2017.
Investment Activity
In May 2017, Digital Realty acquired a 264,000 square foot industrial building on a 13-acre site adjacent to the company's existing campus in Franklin Park, Illinois for a purchase price of $14 million. The building is fully leased with approximately two years of remaining lease term, and is targeted for redevelopment upon expiration of the in-place leases. The site is expected to support the build-out of 36 megawatts of critical power. Commencement of redevelopment will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing campus in Franklin Park.
In June 2017, the company acquired a five-acre land parcel adjacent to its existing development project in Amsterdam, the Netherlands for a purchase price of $6 million. The site is expected to support the development of up to 14 megawatts of critical power. Commencement of development will likewise be subject to market demand, and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing development project in Amsterdam.
In June 2017, the company entered into a definitive agreement to merge with DuPont Fabros in an all-stock transaction valued at approximately $7.6 billion in enterprise value. The combination is expected to enhance Digital Realty's ability to support the growth of the leading hyper-scale cloud service providers in the top U.S. data center metro areas, and to significantly enhance DuPont Fabros' customer and geographic diversification. The transaction is expected to close in the second half of 2017 and is subject to the approval of shareholders of both DuPont Fabros and Digital Realty in addition to other customary closing conditions.
In June 2017, Digital Realty invested $8 million to acquire a 4.9% stake in Megaport, a leading provider of software-defined networking interconnection solutions.
Balance Sheet
Digital Realty had approximately $6.4 billion of total debt outstanding as of June 30, 2017, substantially all of which was unsecured. At the end of the second quarter of 2017, net debt-to-adjusted EBITDA was 5.1x, debt-plus-preferred-to-total enterprise value was 28.2% and fixed charge coverage was 4.3x.
In April 2017, Digital Realty redeemed all 7.3 million outstanding shares of its 6.625% Series F preferred stock, at a redemption price of $25 per share, plus accrued and unpaid dividends for a total payment of $25.0184 per share, or a total of $182.6 million. During the second quarter of 2017, Digital Realty recognized a $6 million non-cash charge related to the redemption of the Series F preferred stock.
In May 2017, Digital Realty settled the remaining 2.375 million shares subject to the forward sale agreements originally entered into during the second quarter of 2016, generating net proceeds of approximately $211 million.
Also in May 2017, Digital Realty issued EUR125 million of floating rate notes due 2019 to an institutional investor in a private placement. The floating rate notes bear interest at three-month EURIBOR plus 0.50% and the initial interest rate is 0.169%.
In June 2017, an unconsolidated joint venture in which Digital Realty owns a 50% interest placed a $135 million 10-year mortgage on the Westin Building in Seattle, Washington. The mortgage bears interest at a fixed rate of 3.29% and matures in July 2027. The non-recourse mortgage loan will be interest-only during the 10-year term, and the entire principal amount will be due at maturity. Digital Realty recognized a $3 million gain related to the refinancing of the Westin Building during the second quarter of 2017.
Subsequent to quarter end, Digital Realty issued £250 million of 2.75% sterling-denominated notes due 2024 and £350 million of 3.30% sterling-denominated notes due 2029.
2017 Outlook
Digital Realty reiterated its 2017 core FFO per share outlook of $5.95 - $6.10. The assumptions underlying this guidance, which reflects standalone results for Digital Realty only and does not include any financial impact from the pending merger with DuPont Fabros, are summarized in the following table.
As of As of As of As of
Top-Line and Cost Structure Jan. 3, 2017 Feb. 16, 2017 Apr. 27, 2017 July 27, 2017
2017 total revenue $2.2 - $2.3 billion $2.2 - $2.3 billion $2.2 - $2.3 billion $2.2 - $2.3 billion
2017 net non-cash rent adjustments (1) ($5 - $10 million) ($5 - $10 million) ($5 - $10 million) ($5 - $10 million)
2017 Adjusted EBITDA margin 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0%
2017 G&A margin 6.0% - 7.0% 6.0% - 7.0% 6.0% - 7.0% 6.0% - 7.0%
Internal Growth
Rental rates on renewal leases
Cash basis Slightly positive Slightly positive Slightly positive Slightly positive
GAAP basis Up high single-digits Up high single-digits Up high single-digits Up high single-digits
Year-end portfolio occupancy +/- 50 bps +/- 50 bps +/- 50 bps +/- 50 bps
"Same-capital" cash NOI growth (2) 2.0% - 3.0% 2.0% - 3.0% 2.0% - 3.0% 2.0% - 3.0%
Foreign Exchange Rates
U.S. Dollar / Pound Sterling $1.20 - $1.24 $1.20 - $1.24 $1.20 - $1.28 $1.22 - $1.30
U.S. Dollar / Euro $1.00 - $1.05 $1.00 - $1.05 $1.00 - $1.10 $1.05 - $1.15
External Growth
Dispositions
Dollar volume $0 - $200 million $0 - $200 million $0 - $200 million $0 - $200 million
Cap rate 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0%
Development
CapEx $0.8 - $1.0 billion $0.8 - $1.0 billion $0.8 - $1.0 billion $0.8 - $1.0 billion
Average stabilized yields 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0%
Enhancements and other non-recurring CapEx (3) $20 - $25 million $20 - $25 million $20 - $25 million $20 - $25 million
Recurring CapEx + capitalized leasing costs (4) $125 - $135 million $125 - $135 million $125 - $135 million $125 - $135 million
Balance Sheet
Long-term debt issuance
Dollar amount $400 - $600 million $400 - $600 million $400 - $600 million $770 million
Pricing 3.50% - 4.25% 3.50% - 4.25% 3.50% - 4.25% 3.1%
Timing Mid-to-late 2017 Mid-to-late 2017 Mid-to-late 2017 Mid-2017
Net income per diluted share $1.60 - $1.75 $1.60 - $1.75 $1.55 - $1.65 $1.55 - $1.65
Real estate depreciation and (gain)/loss on sale $4.20 - $4.20 $4.20 - $4.20 $4.30 - $4.30 $4.30 - $4.30
Funds From Operations / share (NAREIT-Defined) $5.80 - $5.95 $5.80 - $5.95 $5.85 - $5.95 $5.85 - $5.95
Non-core expense and revenue streams $0.10 - $0.15 $0.10 - $0.15 $0.10 - $0.15 $0.10 - $0.15
Core Funds From Operations / share $5.90 - $6.10 $5.90 - $6.10 $5.95 - $6.10 $5.95 - $6.10
Foreign currency translation adjustments $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.15
Constant-Currency Core FFO / share $5.95 - $6.25 $5.95 - $6.25 $6.00 - $6.25 $6.00 - $6.25
(1) Net non-cash rent adjustments
represents the sum of straight-
line rental revenue, straight-
line rent expense as well as the
amortization of above- and
below-market leases (i.e., FAS
141 adjustments).
(2) The "same-capital" pool includes
properties owned as of December
31, 2015 with less than 5% of
the total rentable square feet
under development. It also
excludes properties that were
undergoing, or were expected to
undergo, development activities
in 2016-2017, properties
classified as held for sale, and
properties sold or contributed
to joint ventures for all
periods presented.
(3) Other non-recurring CapEx
represents costs incurred to
enhance the capacity or
marketability of operating
properties, such as network
fiber initiatives and software
development costs.
(4) Recurring CapEx represents non-
incremental improvements
required to maintain current
revenues, including second-
generation tenant improvements
and leasing commissions.
Capitalized leasing costs
include capitalized leasing
compensation as well as
capitalized internal leasing
commissions.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, including FFO, core FFO, constant-currency core FFO, and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO and constant-currency core FFO, and definitions of FFO, core FFO and constant-currency core FFO are included as an attachment to this press release. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this press release.
Investor Conference Call
Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on July 27, 2017, a presentation will be posted to the Investors section of the company's website at http://investor.digitalrealty.com. The presentation is designed to accompany the discussion of the company's second quarter 2017 financial results and operating performance. The conference call will feature Chief Executive Officer A. William Stein and Chief Financial Officer Andrew P. Power.
To participate in the live call, investors are invited to dial (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 0932270 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.
Telephone and webcast replays will be available after the call until August 31, 2017. The telephone replay can be accessed by dialing (877) 344-7529 (for domestic callers) or (412) 317-0088 (for international callers) and providing the conference ID# 10109854. The webcast replay can be accessed on Digital Realty's website.
About Digital Realty
Digital Realty supports the data center, colocation and interconnection strategies of more than 2,300 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.
Additional information about Digital Realty is included in the Company Overview, available on the Investors page of Digital Realty's website at www.digitalrealty.com. The Company Overview is updated periodically, and may contain material information and updates. To receive e-mail alerts when the Company Overview is updated, please visit the Investors page of Digital Realty's website.
Contact Information
Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500
John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty
(415) 738-6500
Safe Harbor Statement
This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to the expected timing and benefits of the merger with DuPont Fabros Technology, Inc.; supply and demand for data center and colocation space; the settlement of our forward sales agreements; the expected development, demand and expansion in the Netherlands and Franklin Park, Illinois; market dynamics and data center fundamentals; our strategic priorities; rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods; rental rates on future leases; lag between signing and commencement; cap rates and yields; investment activity; expected capital markets activity; and the company's FFO, core FFO, constant-currency core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the metropolitan areas in which we operate; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; the impact of the United Kingdom's referendum on withdrawal from the European Union on global financial markets and our business; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2016, Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and current report on Form 8-K filed July 10, 2017. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Consolidated Quarterly Statements of Operations
Unaudited and in thousands, except share and per share data
Three Months Ended Six Months Ended
30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
--------- --------- --------- --------- --------- --------- ---------
Rental revenues $412,576 $404,126 $399,062 $395,212 $377,109 $816,702 $748,237
Tenant reimbursements
-Utilities 68,407 63,398 63,956 68,168 62,363 131,805 121,318
Tenant reimbursements
-Other 24,935 23,890 23,853 27,497 25,848 48,825 51,111
Interconnection &
other 58,301 57,225 55,094 53,897 48,363 115,526 95,326
Fee income 1,429 1,895 1,718 1,517 1,251 3,324 3,050
Other 341 35 33,104 2 - 376 91
Total Operating
Revenues $565,989 $550,569 $576,787 $546,293 $514,934 $1,116,558 $1,019,133
Utilities $82,739 $77,198 $76,896 $85,052 $74,396 $159,937 $144,313
Rental property
operating 91,977 92,141 92,372 92,140 85,152 184,118 169,404
Property taxes 28,161 26,919 27,097 20,620 27,449 55,080 54,780
Insurance 2,576 2,592 2,369 2,470 2,241 5,168 4,653
Depreciation &
amortization 178,111 176,466 176,581 178,133 175,594 354,577 344,610
General &
administrative 37,144 33,778 40,481 43,555 32,681 70,922 62,489
Severance, equity
acceleration, and
legal expenses 365 869 672 2,580 1,508 1,234 2,956
Transaction and
integration expenses 14,235 3,323 8,961 6,015 3,615 17,558 5,515
Other expenses 24 - 236 (22) - 24 (1)
Total Operating
Expenses $435,332 $413,286 $425,665 $430,543 $402,636 $848,618 $788,719
Operating Income $130,657 $137,283 $151,122 $115,750 $112,298 $267,940 $230,414
Equity in earnings of
unconsolidated joint
ventures $8,388 $5,324 $4,742 $4,152 $4,132 $13,712 $8,210
Gain (loss) on real
estate transactions 380 (522) (195) 169,000 - (142) 1,097
Interest and other
income 367 151 (970) 355 (3,325) 518 (3,949)
Interest (expense) (57,582) (55,450) (56,226) (63,084) (59,909) (113,032) (117,170)
Tax (expense) (2,639) (2,223) (2,304) (3,720) (2,252) (4,862) (4,361)
Loss from early
extinguishment of
debt - - (29) (18) - - (964)
Net Income $79,571 $84,563 $96,140 $222,435 $50,944 $164,134 $113,277
Net (income)
attributable to non-
controlling interests (920) (1,025) (1,065) (3,247) (569) (1,945) (1,353)
Net Income
Attributable to
Digital Realty Trust,
Inc. $78,651 $83,538 $95,075 $219,188 $50,375 $162,189 $111,924
Preferred stock
dividends (14,505) (17,393) (17,393) (21,530) (22,424) (31,898) (44,848)
Issuance costs
associated with
redeemed preferred
stock (6,309) - - (10,328) - (6,309) -
Net Income Available
to Common
Stockholders $57,837 $66,145 $77,682 $187,330 $27,951 $123,982 $67,076
Weighted-average
shares outstanding -
basic 160,832,889 159,297,027 158,956,606 147,397,853 146,824,268 160,069,201 146,694,916
Weighted-average
shares outstanding -
diluted 161,781,868 160,421,655 159,699,411 149,384,871 147,808,268 161,059,527 147,416,934
Weighted-average
fully diluted shares
and units 164,026,578 162,599,529 162,059,914 151,764,542 150,210,714 163,271,004 149,859,276
Net income per share -
basic $0.36 $0.42 $0.49 $1.27 $0.19 $0.77 $0.46
Net income per share -
diluted $0.36 $0.41 $0.49 $1.25 $0.19 $0.77 $0.46
Funds From Operations and Core Funds From Operations
Unaudited and in thousands, except per share data
Reconciliation of Net
Income to Funds From
Operations (FFO) Three Months Ended Six Months Ended
---------------------
30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
--------- --------- --------- --------- --------- --------- ---------
Net Income Available
to Common
Stockholders $57,837 $66,145 $77,682 $187,330 $27,951 $123,982 $67,076
Adjustments:
Non-controlling
interests in
operating
partnership 807 904 1,154 3,024 457 1,711 1,120
Real estate related
depreciation &
amortization (1) 175,010 173,447 173,523 175,332 167,043 348,457 333,955
Impairment charge
related to Telx
trade name - - - - 6,122 - 6,122
Unconsolidated JV
real estate related
depreciation &
amortization 2,754 2,757 2,823 2,810 2,810 5,510 5,613
(Gain) loss on real
estate transactions (380) 522 195 (169,000) - 142 (1,097)
Funds From Operations $236,028 $243,775 $255,377 $199,496 $204,383 $479,802 $412,789
Funds From Operations
-diluted $236,028 $243,775 $255,377 $199,496 $204,383 $479,802 $412,789
Weighted-average
shares and units
outstanding - basic 163,078 161,475 161,317 149,778 149,227 162,281 149,137
Weighted-average
shares and units
outstanding -
diluted (2) 164,027 162,600 162,060 151,765 150,211 163,271 149,859
Funds From Operations
per share -basic $1.45 $1.51 $1.58 $1.33 $1.37 $2.96 $2.77
Funds From Operations
per share -diluted
(2) $1.44 $1.50 $1.58 $1.31 $1.36 $2.94 $2.75
Three Months Ended Six Months Ended
Reconciliation of FFO
to Core FFO 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
--------------------- --------- --------- --------- --------- --------- --------- ---------
Funds From Operations
-diluted $236,028 $243,775 $255,377 $199,496 $204,383 $479,802 $412,789
Adjustments:
Termination fees and
other non-core
revenues (3) (341) (35) (33,104) (2) - (376) (91)
Transaction and
integration expenses 14,235 3,323 8,961 6,015 3,615 17,558 5,515
Loss from early
extinguishment of
debt - - 29 18 - - 964
Issuance costs
associated with
redeemed preferred
stock 6,309 - - 10,328 - 6,309 -
Equity in earnings
adjustment for non-
core items (3,285) - - - - (3,285) -
Severance, equity
acceleration, and
legal expenses (4) 365 869 672 2,580 1,508 1,234 2,956
Loss on currency
forwards - - - - 3,082 - 3,082
Other non-core
expense adjustments 24 - 236 (22) - 24 (1)
Core Funds From
Operations -diluted $253,335 $247,932 $232,171 $218,413 $212,587 $501,266 $425,214
Weighted-average
shares and units
outstanding -
diluted (2) 164,027 162,600 162,060 151,765 150,211 163,271 149,859
Core Funds From
Operations per share
-diluted (2) $1.54 $1.52 $1.43 $1.44 $1.42 $3.07 $2.84
(1) Real Estate
Related Depreciation
& Amortization: Three Months Ended Six Months Ended
30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
--------- --------- --------- --------- --------- --------- ---------
Depreciation &
amortization per
income statement $178,111 $176,466 $176,581 $178,133 $175,594 $354,577 $344,610
Non-real estate
depreciation (3,101) (3,019) (3,058) (2,801) (2,429) (6,120) (4,533)
Impairment charge
related to Telx
trade name - - - - (6,122) - (6,122)
Real Estate Related
Depreciation &
Amortization $175,010 $173,447 $173,523 $175,332 $167,043 $348,457 $333,955
(2) For all periods presented, we have
excluded the effect of dilutive
series E, series F, series G,
series H and series I preferred
stock, as applicable, that may be
converted upon the occurrence of
specified change in control
transactions as described in the
articles supplementary governing
the series E, series F, series G,
series H and series I preferred
stock, as applicable, which we
consider highly improbable. See
above for calculations of diluted
FFO available to common
stockholders and unitholders and
below for calculations of weighted
average common stock and units
outstanding.
(3) Includes lease termination fees and
certain other adjustments that are
not core to our business.
(4) Relates to severance and other
charges related to the departure
of company executives and
integration related severance.
Adjusted Funds From Operations (AFFO)
Unaudited and in Thousands, Except Per Share Data
Three Months Ended Six Months Ended
Reconciliation of Core
FFO to AFFO 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
---------------------- --------- --------- --------- --------- --------- --------- ---------
Core FFO available to
common stockholders and
unitholders $253,335 $247,932 $232,171 $218,413 $212,587 $501,266 $425,214
Adjustments:
Non-real estate
depreciation 3,101 3,019 3,058 2,801 2,429 6,120 4,533
Amortization of deferred
financing costs 2,518 2,443 2,455 2,550 2,643 4,961 4,903
Amortization of debt
discount/premium 713 697 693 693 689 1,410 1,336
Non-cash stock-based
compensation expense 5,637 3,704 3,774 4,041 4,630 9,341 8,050
Straight-line rental
revenue (2,110) (4,058) (5,210) (6,032) (5,554) (6,168) (13,010)
Straight-line rental
expense 4,343 4,187 5,096 6,402 5,933 8,530 11,588
Above- and below-
market rent
amortization (1,946) (1,973) (2,048) (2,002) (1,997) (3,919) (4,263)
Deferred non-cash tax
expense (1,443) (653) (1,279) (189) 669 (2,096) 1,306
Capitalized leasing
compensation (1) (2,740) (2,634) (3,644) (2,795) (2,455) (5,374) (5,150)
Recurring capital
expenditures (2) (26,740) (29,588) (21,246) (15,252) (17,914) (56,328) (38,978)
Capitalized internal
leasing commissions (1,355) (1,493) (1,835) (1,786) (1,677) (2,848) (3,701)
AFFO available to common
stockholders and
unitholders (3) $233,313 $221,583 $211,984 $206,844 $199,984 $454,895 $391,828
Weighted-average shares
and units outstanding -
basic 163,078 161,475 161,317 149,778 149,227 162,281 149,137
Weighted-average shares
and units outstanding -
diluted (4) 164,027 162,600 162,060 151,765 150,211 163,271 149,859
AFFO per share -diluted
(4) $1.42 $1.36 $1.31 $1.36 $1.33 $2.79 $2.61
Dividends per share and
common unit $0.93 $0.93 $0.88 $0.88 $0.88 $1.86 $1.76
Diluted AFFO Payout
Ratio 65.4% 68.2% 67.3% 64.6% 66.1% 66.8% 67.3%
Three Months Ended Six Months Ended
Share Count Detail 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16 30-Jun-17 30-Jun-16
------------------ --------- --------- --------- --------- --------- --------- ---------
Weighted Average Common
Stock and Units
Outstanding 163,078 161,475 161,317 149,778 149,227 162,281 149,137
Add: Effect of dilutive
securities 949 1,125 743 1,987 984 990 722
Weighted Avg. Common
Stock and Units
Outstanding -diluted 164,027 162,600 162,060 151,765 150,211 163,271 149,859
(1) Includes only second generation leasing
costs.
(2) For a definition of recurring capital
expenditures, see our supplemental
operating and financial data package.
(3) For a definition and discussion of AFFO,
see below. For a reconciliation of net
income available to common stockholders
to FFO and core FFO, see above.
(4) For all periods presented, we have
excluded the effect of dilutive series
E, series F, series G, series H and
series I preferred stock, as applicable,
that may be converted upon the
occurrence of specified change in
control transactions as described in the
articles supplementary governing the
series E, series F, series G, series H
and series I preferred stock, as
applicable, which we consider highly
improbable. See above for calculations
of diluted FFO available to common
stockholders and unitholders and
calculations of weighted average common
stock and units outstanding.
Consolidated Balance Sheets
Unaudited and in thousands, except share and per share data
30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16
--------- --------- --------- --------- ---------
Assets
Investments in real
estate:
Real estate $11,132,356 $10,858,628 $10,630,514 $10,607,440 $10,223,946
Construction in
progress 787,315 780,966 732,430 681,189 594,986
Land held for future
development 262,139 229,411 195,525 223,236 161,714
Investments in Real
Estate $12,181,810 $11,869,005 $11,558,469 $11,511,865 $10,980,646
Accumulated
depreciation &
amortization (2,929,095) (2,792,910) (2,668,509) (2,565,368) (2,441,150)
Net Investments in
Properties $9,252,715 $9,076,095 $8,889,960 $8,946,497 $8,539,496
Investment in
unconsolidated joint
ventures 103,881 112,856 106,402 105,819 105,673
Net Investments in Real
Estate $9,356,596 $9,188,951 $8,996,362 $9,052,316 $8,645,169
Cash and cash
equivalents $22,383 $14,950 $10,528 $36,445 $33,241
Accounts and other
receivables (1) 229,450 195,406 203,938 208,097 165,867
Deferred rent 423,188 418,858 412,269 412,977 408,193
Acquired in-place
lease value, deferred
leasing costs and
other real estate
intangibles, net 1,494,083 1,501,843 1,522,378 1,526,563 1,331,275
Acquired above-market
leases, net 19,716 20,826 22,181 24,554 26,785
Goodwill 778,862 757,444 752,970 780,099 330,664
Restricted cash 18,931 10,447 11,508 11,685 18,297
Assets associated with
real estate held for
sale 87,882 56,154 56,097 55,915 222,304
Other assets 148,480 164,669 204,354 190,384 110,580
Total Assets $12,579,571 $12,329,548 $12,192,585 $12,299,035 $11,292,375
Liabilities and Equity
Global unsecured
revolving credit
facility $563,063 $564,467 $199,209 $153,189 $88,535
Unsecured term loan 1,520,482 1,505,667 1,482,361 1,521,613 1,545,590
Unsecured senior notes,
net of discount 4,351,148 4,128,110 4,153,797 4,238,435 4,252,570
Mortgage loans, net of
premiums 2,927 3,085 3,240 111,750 248,711
Accounts payable and
other accrued
liabilities 850,602 804,371 824,878 823,905 598,610
Accrued dividends and
distributions - - 144,194 - -
Acquired below-market
leases 76,099 78,641 81,899 86,888 90,823
Security deposits and
prepaid rent 181,007 171,692 168,111 163,787 128,802
Liabilities associated
with assets held for
sale 2,949 3,070 2,599 2,820 13,092
Total Liabilities $7,548,277 $7,259,103 $7,060,288 $7,102,387 $6,966,733
Equity
Preferred Stock: $0.01
par value per share,
110,000,000 shares
authorized:
Series E Cumulative
Redeemable Preferred
Stock (2) - - - - $277,172
Series F Cumulative
Redeemable Preferred
Stock (3) - $176,191 $176,191 $176,191 176,191
Series G Cumulative
Redeemable Preferred
Stock (4) $241,468 241,468 241,468 241,468 241,468
Series H Cumulative
Redeemable Preferred
Stock (5) 353,290 353,290 353,290 353,290 353,290
Series I Cumulative
Redeemable Preferred
Stock (6) 242,012 242,012 242,012 242,012 242,012
Common Stock: $0.01 par
value per share,
265,000,000 shares
authorized (7) 1,611 1,584 1,582 1,581 1,460
Additional paid-in
capital 5,991,753 5,769,091 5,764,497 5,759,338 4,669,149
Dividends in excess of
earnings (1,722,610) (1,629,633) (1,547,420) (1,483,223) (1,541,265)
Accumulated other
comprehensive (loss)
income, net (110,709) (122,540) (135,608) (131,936) (129,657)
Total Stockholders'
Equity $4,996,815 $5,031,463 $5,096,012 $5,158,721 $4,289,820
Non-controlling
Interests
Non-controlling
interest in operating
partnership $27,909 $32,409 $29,687 $31,088 $29,095
Non-controlling
interest in
consolidated joint
ventures 6,570 6,573 6,598 6,839 6,727
Total Non-controlling
Interests $34,479 $38,982 $36,285 $37,927 $35,822
Total Equity $5,031,294 $5,070,445 $5,132,297 $5,196,648 $4,325,642
Total Liabilities and
Equity $12,579,571 $12,329,548 $12,192,585 $12,299,035 $11,292,375
(1) Net of allowance for doubtful
accounts of $4,930 and $7,446 as
of June 30, 2017 and December
31, 2016, respectively.
(2) Series E Cumulative Redeemable
Preferred Stock, 7.000%, all
11,500,000 shares of which were
redeemed on September 15, 2016.
(3) Series F Cumulative Redeemable
Preferred Stock, 6.625%, $0 and
$182,500 liquidation preference,
respectively ($25.00 per share),
0 and 7,300,000 shares issued
and outstanding as of June 30,
2017 and December 31, 2016,
respectively. All outstanding
shares of Series F Cumulative
Redeemable Preferred Stock were
redeemed on April 5, 2017.
(4) Series G Cumulative Redeemable
Preferred Stock, 5.875%,
$250,000 and $250,000
liquidation preference,
respectively ($25.00 per share),
10,000,000 and 10,000,000 shares
issued and outstanding as of
June 30, 2017 and December 31,
2016, respectively.
(5) Series H Cumulative Redeemable
Preferred Stock, 7.375%,
$365,000 and $365,000
liquidation preference,
respectively ($25.00 per share),
14,600,000 and 14,600,000 shares
issued and outstanding as of
June 30, 2017 and December 31,
2016, respectively.
(6) Series I Cumulative Redeemable
Preferred Stock, 6.350%,
$250,000 and $250,000
liquidation preference,
respectively ($25.00 per share),
10,000,000 and 10,000,000 shares
issued and outstanding as of
June 30, 2017 and December 31,
2016, respectively.
(7) Common Stock: 162,183,489 and
146,384,247 shares issued and
outstanding as of June 30, 2017
and December 31, 2016,
respectively.
Reconciliation of
Earnings Before
Interest, Taxes, Three Months Ended
Depreciation &
Amortization (EBITDA)
(1)
30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Jun-16
--------- --------- --------- --------- ---------
Net Income Available
to Common
Stockholders $57,837 $66,145 $77,682 $187,330 $27,951
Interest 57,582 55,450 56,226 63,084 59,909
Loss from early
extinguishment of
debt - - 29 18 -
Tax expense 2,639 2,223 2,304 3,720 2,252
Depreciation &
amortization 178,111 176,466 176,581 178,133 175,594
EBITDA $296,169 $300,284 $312,822 $432,285 $265,706
Severance-related
expense, equity
acceleration, and
legal expenses 365 869 672 2,580 1,508
Transaction and
integration expenses 14,235 3,323 8,961 6,015 3,615
(Gain) loss on real
estate transactions (380) 522 195 (169,000) -
Non-cash (gain) on
lease termination (2) - - (29,205) - -
Equity in earnings
adjustment for non-
core items (3,285) - - - -
Loss on currency
forwards - - - - 3,082
Other non-core
expense adjustments 24 - 236 (22) -
Non-controlling
interests 920 1,025 1,065 3,247 569
Preferred stock
dividends 14,505 17,393 17,393 21,530 22,424
Issuance costs
associated with
redeemed preferred
stock 6,309 - - 10,328 -
----- --- --- ------ ---
Adjusted EBITDA $328,862 $323,416 $312,139 $306,963 $296,904
(1) For definition and
discussion of EBITDA and
Adjusted EBITDA, see
below.
(2) Q4 2016 amount included in
Other revenue on the
income statement.
Definitions
Funds from Operations (FFO):
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs), non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Core Funds from Operations:
We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) loss from early extinguishment of debt, (iv) issuance costs associated with redeemed preferred stock, (v) equity in earnings adjustment for non-core items (vi) severance, equity acceleration, and legal expenses, (vii) loss on currency forwards and (viii) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of core FFO as a measure of our performance is limited. Other REITs may not calculate core FFO in a consistent manner. Accordingly, our core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Constant-Currency Core Funds from Operations:
We calculate constant-currency core funds from operations by adjusting the core funds from operations for foreign currency translations.
Adjusted Funds from Operations (AFFO):
We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate AFFO by adding to or subtracting from core FFO (i) non-real estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rent revenue, (vi) straight-line rent expense, (vii) above- and below-market rent amortization, (viii) deferred non-cash tax expense, (ix) capitalized leasing compensation, (x) recurring capital expenditures and (xi) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent manner. Accordingly, our AFFO may not be comparable to other REITs' AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
EBITDA and Adjusted EBITDA:
We believe that earnings before interest, loss from early extinguishment of debt, income taxes and depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance-related expense, equity acceleration, and legal expenses, transaction and integration expenses, (gain) on real estate transactions, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, preferred stock dividends and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding severance-related expense, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, non-cash (gain) on lease termination, equity in earnings adjustment for non-core items, loss on currency forwards, other non-core expense adjustments, non- controlling interests, preferred stock dividends and issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs' EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.
Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.
Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.
Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.
Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended June 30, 2017, GAAP interest expense was $58 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $15 million.
Three Months Ended Six Months Ended
Reconciliation
of
Net
Operating
Income
(NOI)
(in
thousands) 30-Jun-17 31-Mar-17 30-Jun-17 30-Jun-16
-------------- --------- --------- --------- ---------
Operating
income $130,657 $137,283 $267,940 $230,414
Fee
income (1,429) (1,895) (3,324) (3,050)
Other
income (341) (35) (376) (91)
Depreciation
and
amortization 178,111 176,466 354,577 344,610
General
and
administrative 37,144 33,778 70,922 62,489
Severance
related
expense,
equity
acceleration,
and
legal
expenses 365 869 1,234 2,956
Transaction
expenses 14,235 3,323 17,558 5,515
Other
expenses 24 - 24 (1)
Net
Operating
Income $358,766 $349,789 $708,555 $642,842
Cash
Net
Operating
Income
(Cash
NOI)
Net
Operating
Income $358,766 $349,789 $708,555 $642,842
Straight-
line
rent,
net 2,206 200 2,406 (1,881)
Above-
and
below-
market
rent
amortization (1,946) (1,973) (3,919) (4,263)
Cash
Net
Operating
Income $359,026 $348,016 $707,042 $636,698
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SOURCE Digital Realty
