Digital Realty Reports Third Quarter 2017 Results
SAN FRANCISCO, Oct. 25, 2017 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2017. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net loss available to common stockholders of ($0.02) per share
in 3Q17, compared to $1.25 per share in 3Q16
-- Reported FFO per share of $1.23 in 3Q17, compared to $1.31 in 3Q16
-- Reported core FFO per share of $1.51 in 3Q17, compared to $1.44 in 3Q16
-- Signed total bookings during 3Q17 expected to generate $58 million of
annualized GAAP rental revenue, including an $8 million contribution
from interconnection
-- Raised 2017 core FFO per share outlook to $6.00 - $6.10 from $5.95 -
$6.10
Financial Results
Digital Realty reported third quarter of 2017 revenues of $610 million, an 8% increase from the previous quarter and a 12% increase from the same quarter last year.
The company delivered third quarter of 2017 net income of $12 million, and a net loss available to common stockholders of ($4) million, or ($0.02) per diluted share, compared to net income available to common stockholders of $0.36 per diluted share in the previous quarter and $1.25 per diluted share in the same quarter last year.
Digital Realty generated third quarter of 2017 adjusted EBITDA of $352 million, a 7% increase from the previous quarter and a 15% increase over the same quarter last year.
The company reported third quarter of 2017 funds from operations ("FFO") on a fully diluted basis of $215 million, or $1.23 per share, compared to $1.44 per share in the previous quarter and $1.31 per share in same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered third quarter of 2017 core FFO of $1.51 per share, a 2% decrease from $1.54 per share in the previous quarter, and a 5% increase from $1.44 per share in the same quarter last year.
Leasing Activity
"During the third quarter of 2017, we signed total bookings representing $58 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection," said Chief Executive Officer A. William Stein. "Our third-quarter activity showcased the strengths of our diversified business, particularly the strategic importance of our expanded footprint in Ashburn, the largest and fastest-growing data center market in the world. In addition, colocation and interconnection continue to provide stable and healthy revenue drivers. Heading into the end of the year, we continue to see healthy demand across all three lines of the business, and are focused on fully integrating DuPont Fabros while executing against our goals as a combined organization."
The weighted-average lag between leases signed during the third quarter of 2017 and the contractual commencement date was four months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $66 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the third quarter of 2017 rolled down 3.8% on a cash basis and up 1.5% on a GAAP basis.
New leases signed during the third quarter of 2017 by region and product type are summarized as follows:
Annualized GAAP
Base Rent GAAP Base Rent GAAP Base Rent
North America (in thousands) Square Feet per Square Foot Megawatts per Kilowatt
------------- ----------- --------------- ------------
Turn-Key Flex $42,431 315,300 $135 32 $112
Colocation 5,077 18,092 281 1 355
Non-Technical 2,058 102,203 20 - -
Total $49,566 435,595 $114 33 $121
Europe (1)
Turn-Key Flex - - - -
Powered Base Building - - - -
Colocation $839 1,538 $546 - $409
Non-Technical - - - -
Total $839 1,538 $546 - $409
Asia Pacific (1)
Turn-Key Flex $15 - - - $412
Total $15 - - - $412
Interconnection $7,678 N/A N/A N/A N/A
Grand Total $58,098 437,133 $115 33 $122
Note: Totals may not foot due to rounding
differences.
(1) Based on quarterly average exchange
rates during the three months ended
September 30, 2017.
Investment Activity
During the third quarter of 2017, Digital Realty completed the previously announced acquisition of DuPont Fabros in an all-stock transaction valued at $7.9 billion in enterprise value.
Digital Realty also acquired land parcels adjacent to the company's existing holdings in Osaka, Japan and Garland, TX during the third quarter of 2017 for a total purchase price of approximately $10 million. The two parcels total 20 acres, and are expected to support the development of up to 51 megawatts of critical power. Commencement of development will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the company's existing projects in Osaka and Richardson, TX.
Likewise during the third quarter of 2017, Digital Realty recognized impairment losses of approximately $29 million on assets held for sale to reduce the carrying value of three properties to their estimated fair market value at September 30, 2017.
Separately, Digital Realty closed on the sale of 8025 North Interstate 35, a 62,000 square foot Powered Base Building data center in Austin, TX for $20 million. The property was 100% leased and was expected to generate cash net operating income of approximately $1 million in 2017, representing an exit cap rate of 5%. The sale generated net proceeds of approximately $20 million, and Digital Realty recognized a gain on the sale of approximately $10 million in the third quarter of 2017.
Subsequent to the end of the quarter, Digital Realty closed on the sale of 44874 Moran Road, a 78,000 square foot data center in Sterling, VA for $34 million. The property was 100% leased and was expected to generate cash net operating income of approximately $3 million in 2017, representing an exit cap rate of 7%. The property was held in a consolidated joint venture, in which Digital Realty owned a 75% stake. The sale generated net proceeds of $34 million, and Digital Realty expects to recognize a gain on the sale of approximately $15 million during the fourth quarter, or roughly $12 million, net of non-controlling interests.
Likewise subsequent to the end of the quarter, Digital Realty entered into a 50/50 joint venture with Mitsubishi Corporation to provide data center solutions in Japan. Mitsubishi Corporation will contribute two existing data center facilities in the western Tokyo suburb of Mitaka, while Digital Realty will contribute its recently completed data center development project in Osaka. The three seed assets are collectively valued at approximately 40 billion Japanese Yen, or approximately $350 million.
Also subsequent to quarter-end, Digital Realty entered into an agreement to acquire a 250,000 square foot data center on a 19-acre site in Northlake, Illinois from a non-traded, publicly registered REIT for a purchase price of $315 million. The property is located approximately four miles from the company's Franklin Park campus. Roughly three-fourths of the building has been developed and is fully leased, with the remaining 65,000 square feet of shell space available for build-out of approximately eight megawatts of critical load from a dedicated on-site sub-station. The transaction remains subject to certain closing conditions, and Digital Realty cannot provide any assurances if, or when the transaction will close.
Balance Sheet
Digital Realty had approximately $8.5 billion of total debt outstanding as of September 30, 2017, substantially all of which was unsecured. At the end of the third quarter of 2017, net debt-to-adjusted EBITDA was 6.0x, debt-plus-preferred-to-total enterprise value was 27.8% and fixed charge coverage was 3.9x.
During the third quarter of 2017, Digital Realty completed the following financing transactions.
-- On July 21, 2017, Digital Realty issued £250 million of 2.75%
Sterling-denominated notes due 2024 and £350 million of 3.30%
Sterling-denominated notes due 2029, generating gross proceeds of
approximately $780 million.
-- On August 7, 2017, Digital Realty issued $350 million of 2.75% notes due
2023 and $1.0 billion of 3.70% notes due 2027.
-- Also on August 7, 2017, Digital Realty closed an offering of eight
million shares of 5.25% Series J Cumulative Redeemable Preferred Stock
at a price of $25.00 per share, generating gross proceeds of $200
million.
-- On September 14, 2017, Digital Realty closed the acquisition of DuPont
Fabros, and exchanged approximately 43 million shares of DLR Common
Stock and six million Operating Partnership Units for all of the
outstanding common shares and units of DuPont Fabros, representing total
consideration of approximately $6 billion.
-- Likewise in conjunction with the closing of the DuPont Fabros
acquisition on September 14, 2017, Digital Realty exchanged all the
outstanding shares of DuPont Fabros' Series C Preferred Stock for 8.05
million shares of Digital Realty Series C Preferred Stock, with a total
liquidation value of $201 million.
-- Digital Realty also purchased a portion of the DuPont Fabros 5.875%
notes due 2021 and redeemed the remainder in mid-September. The
aggregate principal amount totaled $600 million.
-- Subsequent to the end of the quarter, Digital Realty redeemed DuPont
Fabros' 5.625% notes due 2023. When Digital Realty assumed the bonds,
the fair market value of $266 million was recorded on the balance sheet.
The aggregate principal amount totaled $250 million and was redeemed in
October 2017.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, including FFO, core FFO, constant-currency core FFO, and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO and constant-currency core FFO, and definitions of FFO, core FFO and constant-currency core FFO are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this document.
Investor Conference Call
Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on October 25, 2017, a presentation will be posted to the Investors section of the company's website at http://investor.digitalrealty.com. The presentation is designed to accompany the discussion of the company's third quarter 2017 financial results and operating performance. The conference call will feature Chief Executive Officer A. William Stein and Chief Financial Officer Andrew P. Power.
To participate in the live call, investors are invited to dial (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 9681339 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.
Telephone and webcast replays will be available after the call until November 22, 2017. The telephone replay can be accessed by dialing (877) 344-7529 (for domestic callers) or (412) 317-0088 (for international callers) and providing the conference ID# 10111773. The webcast replay can be accessed on Digital Realty's website.
About Digital Realty
Digital Realty supports the data center, colocation and interconnection strategies of more than 2,300 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.
Additional information about Digital Realty is included in the Company Overview, available on the Investors page of Digital Realty's website at www.digitalrealty.com. The Company Overview is updated periodically, and may contain material information and updates. To receive e-mail alerts when the Company Overview is updated, please visit the Investors page of Digital Realty's website.
Contact Information
Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500
John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty
(415) 738-6500
2017 Outlook
Digital Realty raised its 2017 core FFO per share outlook from $5.95 - $6.10 to $6.00 - $6.10. The assumptions underlying this guidance are summarized in the following table.
As of As of As of As of As of
Top-Line and Cost
Structure Jan. 3, 2017 Feb. 16, 2017 Apr. 27, 2017 July 27, 2017 October 25, 2017
2017 total revenue $2.2 - $2.3 billion $2.2 - $2.3 billion $2.2 - $2.3 billion $2.2 - $2.3 billion $2.4 - $2.5 billion
2017 net non-cash
rent adjustments (1) ($5 - $10 million) ($5 - $10 million) ($5 - $10 million) ($5 - $10 million) ($5 - $10 million)
2017 Adjusted EBITDA
margin 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0%
2017 G&A margin 6.0% - 7.0% 6.0% - 7.0% 6.0% - 7.0% 6.0% - 7.0% 6.0% - 7.0%
Internal Growth
Rental rates on
renewal leases
Cash basis Slightly positive Slightly positive Slightly positive Slightly positive Slightly positive
GAAP basis Up high single-digits Up high single-digits Up high single-digits Up high single-digits Up high single-digits
Year-end portfolio
occupancy +/- 50 bps +/- 50 bps +/- 50 bps +/- 50 bps +/- 50 bps
"Same-capital" cash
NOI growth (2) 2.0% - 3.0% 2.0% - 3.0% 2.0% - 3.0% 2.0% - 3.0% 3.0% - 3.5%
Foreign Exchange Rates
U.S. Dollar /Pound
Sterling $1.20 - $1.24 $1.20 - $1.24 $1.20 - $1.28 $1.22 - $1.30 $1.26 - $1.30
U.S. Dollar /Euro $1.00 - $1.05 $1.00 - $1.05 $1.00 - $1.10 $1.05 - $1.15 $1.10 - $1.15
External Growth
Dispositions
Dollar volume $0 - $200 million $0 - $200 million $0 - $200 million $0 - $200 million $50 - $200 million
Cap rate 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0%
Development
CapEx $0.8 - $1.0 billion $0.8 - $1.0 billion $0.8 - $1.0 billion $0.8 - $1.0 billion $0.9 - $1.0 billion
Average stabilized
yields 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0%
Enhancements and other
non-recurring CapEx
(3) $20 - $25 million $20 - $25 million $20 - $25 million $20 - $25 million $20 - $25 million
Recurring CapEx +
capitalized leasing
costs (4) $125 - $135 million $125 - $135 million $125 - $135 million $125 - $135 million $125 - $135 million
Balance Sheet
Long-term debt
issuance
Dollar amount $400 - $600 million $400 - $600 million $400 - $600 million $770 million $2.3 billion
Pricing 3.50% - 4.25% 3.50% - 4.25% 3.50% - 4.25% 3.1% 3.1%
Timing Mid-to-late 2017 Mid-to-late 2017 Mid-to-late 2017 Mid-2017 Mid-2017
Net income per diluted
share $1.60 - $1.75 $1.60 - $1.75 $1.55 - $1.65 $1.55 - $1.65 $1.10 - $1.15
Real estate
depreciation and
(gain)/loss on sale $4.20 - $4.20 $4.20 - $4.20 $4.30 - $4.30 $4.30 - $4.30 $4.60 - $4.60
Funds From Operations
/share (NAREIT-
Defined) $5.80 - $5.95 $5.80 - $5.95 $5.85 - $5.95 $5.85 - $5.95 $5.70 - $5.75
Non-core expense and
revenue streams $0.10 - $0.15 $0.10 - $0.15 $0.10 - $0.15 $0.10 - $0.15 $0.30 - $0.35
Core Funds From
Operations /share $5.90 - $6.10 $5.90 - $6.10 $5.95 - $6.10 $5.95 - $6.10 $6.00 - $6.10
Foreign currency
translation
adjustments $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.10
Constant-Currency
Core FFO /share $5.95 - $6.25 $5.95 - $6.25 $6.00 - $6.25 $6.00 - $6.25 $6.05 - $6.20
(1) Net non-cash rent adjustments
represents the sum of straight-
line rental revenue, straight-
line rent expense as well as the
amortization of above- and below-
market leases (i.e., FAS 141
adjustments).
(2) The "same-capital" pool includes
properties owned as of December
31, 2015 with less than 5% of the
total rentable square feet under
development. It also excludes
properties that were undergoing,
or were expected to undergo,
development activities in 2016-
2017, properties classified as
held for sale, and properties sold
or contributed to joint ventures
for all periods presented.
(3) Other non-recurring CapEx
represents costs incurred to
enhance the capacity or
marketability of operating
properties, such as network fiber
initiatives and software
development costs.
(4) Recurring CapEx represents non-
incremental improvements required
to maintain current revenues,
including second-generation
tenant improvements and leasing
commissions. Capitalized leasing
costs include capitalized leasing
compensation as well as
capitalized internal leasing
commissions.
Safe Harbor Statement
This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to the merger with DuPont Fabros Technology, Inc.; supply and demand for data center and colocation space; the expected timing, benefits and development of recent land acquisitions; impairment losses; our joint venture in Japan; acquisition and disposition activity, including transactions which are under agreement but subject to closing conditions; market dynamics and data center fundamentals; our strategic priorities; rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods; rental rates on future leases; lag between signing and commencement; cap rates and yields; investment activity; expected capital markets activity; and the company's FFO, core FFO, constant-currency core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the metropolitan areas in which we operate; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; the impact of the United Kingdom's referendum on withdrawal from the European Union on global financial markets and our business; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2016, Quarterly Report on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017 and current report on Form 8-K filed July 10, 2017. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Consolidated Quarterly Statements of Operations
Unaudited and in thousands, except share and per share data
Three Months Ended Nine Months Ended
30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
--------- --------- --------- --------- --------- --------- ---------
Rental revenues $440,591 $412,576 $404,126 $399,062 $395,212 $1,257,293 $1,143,449
Tenant reimbursements -
Utilities 78,134 68,407 63,398 63,956 68,168 209,939 189,486
Tenant reimbursements -
Other 29,479 24,935 23,890 23,853 27,497 78,304 78,608
Interconnection & other 59,851 58,301 57,225 55,094 53,897 175,377 149,223
Fee income 1,662 1,429 1,895 1,718 1,517 4,986 4,567
Other 208 341 35 33,104 2 584 93
Total Operating Revenues $609,925 $565,989 $550,569 $576,787 $546,293 $1,726,483 $1,565,426
Utilities $95,619 $82,739 $77,198 $76,896 $85,052 $255,556 $229,365
Rental property
operating 94,442 91,977 92,141 92,372 92,140 278,560 261,544
Property taxes 32,586 28,161 26,919 27,097 20,620 87,666 75,400
Insurance 2,590 2,576 2,592 2,369 2,470 7,758 7,123
Depreciation &
amortization 199,914 178,111 176,466 176,581 178,133 554,491 522,743
General & administrative 41,477 37,144 33,778 40,481 43,555 112,399 106,044
Severance, equity
acceleration, and legal
expenses 2,288 365 869 672 2,580 3,522 5,536
Transaction and
integration expenses 42,809 14,235 3,323 8,961 6,015 60,367 11,530
Impairment of
investments in real
estate 28,992 - - - - 28,992 -
Other expenses 3,051 24 - 236 (22) 3,075 (23)
Total Operating Expenses $543,768 $435,332 $413,286 $425,665 $430,543 $1,392,386 $1,219,262
Operating Income $66,157 $130,657 $137,283 $151,122 $115,750 $334,097 $346,164
Equity in earnings of
unconsolidated joint
ventures $5,880 $8,388 $5,324 $4,742 $4,152 $19,592 $12,362
Gain (loss) on real
estate transactions 9,751 380 (522) (195) 169,000 9,609 170,097
Interest and other
income 2,813 367 151 (970) 355 3,331 (3,594)
Interest (expense) (71,621) (57,582) (55,450) (56,226) (63,084) (184,653) (180,254)
Tax (expense) (2,494) (2,639) (2,223) (2,304) (3,720) (7,356) (8,081)
Gain (loss) from early
extinguishment of debt 1,990 - - (29) (18) 1,990 (982)
Net Income $12,476 $79,571 $84,563 $96,140 $222,435 $176,610 $335,712
Net (income)
attributable to non-
controlling interests (40) (920) (1,025) (1,065) (3,247) (1,985) (4,600)
Net Income Attributable
to Digital Realty
Trust, Inc. $12,436 $78,651 $83,538 $95,075 $219,188 $174,625 $331,112
Preferred stock
dividends, including
undeclared dividends (16,575) (14,505) (17,393) (17,393) (21,530) (48,473) (66,378)
Issuance costs
associated with
redeemed preferred
stock - (6,309) - - (10,328) (6,309) (10,328)
Net (Loss) Income
Available to Common
Stockholders ($4,139) $57,837 $66,145 $77,682 $187,330 $119,843 $254,406
Weighted-average shares
outstanding - basic 170,194,254 160,832,889 159,297,027 158,956,606 147,397,853 163,481,306 146,930,939
Weighted-average shares
outstanding - diluted 170,194,254 161,781,868 160,421,655 159,699,411 149,384,871 164,371,096 147,655,184
Weighted-average fully
diluted shares and
units 174,169,511 164,026,578 162,599,529 162,059,914 151,764,542 166,937,862 150,076,482
Net (loss) income per
share -basic ($0.02) $0.36 $0.42 $0.49 $1.27 $0.73 $1.73
Net (loss) income per
share -diluted ($0.02) $0.36 $0.41 $0.49 $1.25 $0.73 $1.72
Funds From Operations and Core Funds From Operations
Unaudited and in thousands, except per share data
Reconciliation of Net
Income to Funds From
Operations (FFO) Three Months Ended Nine Months Ended
---------------------
30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
--------- --------- --------- --------- --------- --------- ---------
Net (Loss) Income
Available to Common
Stockholders ($4,139) $57,837 $66,145 $77,682 $187,330 $119,843 $254,406
Adjustments:
Non-controlling
interests in
operating partnership (79) 807 904 1,154 3,024 1,632 4,144
Real estate related
depreciation &
amortization (1) 196,871 175,010 173,447 173,523 175,332 545,328 509,287
Impairment charge
related to Telx trade
name - - - - - - 6,122
Unconsolidated JV real
estate related
depreciation &
amortization 2,732 2,754 2,757 2,823 2,810 8,243 8,424
(Gain) loss on real
estate transactions (9,751) (380) 522 195 (169,000) (9,609) (170,097)
Impairment of
investments in real
estate 28,992 - - - - 28,992 -
Funds From Operations $214,626 $236,028 $243,775 $255,377 $199,496 $694,429 $612,286
Funds From Operations
-diluted $214,626 $236,028 $243,775 $255,377 $199,496 $694,429 $612,286
Weighted-average
shares and units
outstanding - basic 173,461 163,078 161,475 161,317 149,778 166,048 149,352
Weighted-average
shares and units
outstanding -
diluted (2) 174,170 164,027 162,600 162,060 151,765 166,938 150,076
Funds From Operations
per share -basic $1.24 $1.45 $1.51 $1.58 $1.33 $4.18 $4.10
Funds From Operations
per share -diluted
(2) $1.23 $1.44 $1.50 $1.58 $1.31 $4.16 $4.08
Three Months Ended Nine Months Ended
Reconciliation of FFO
to Core FFO 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
--------------------- --------- --------- --------- --------- --------- --------- ---------
Funds From Operations
-diluted $214,626 $236,028 $243,775 $255,377 $199,496 $694,429 $612,286
Adjustments:
Termination fees and
other non-core
revenues (3) (208) (341) (35) (33,104) (2) (584) (93)
Transaction and
integration expenses 42,809 14,235 3,323 8,961 6,015 60,367 11,530
Gain (loss) from early
extinguishment of
debt (1,990) - - 29 18 (1,990) 982
Issuance costs
associated with
redeemed preferred
stock - 6,309 - - 10,328 6,309 10,328
Equity in earnings
adjustment for non-
core items - (3,285) - - - (3,285) -
Severance, equity
acceleration, and
legal expenses (4) 2,288 365 869 672 2,580 3,522 5,536
Bridge facility fees
(5) 3,182 - - - - 3,182 -
Loss on currency
forwards - - - - - - 3,082
Other non-core
expense adjustments 3,051 24 - 236 (22) 3,075 (23)
Core Funds From
Operations -diluted $263,758 $253,335 $247,932 $232,171 $218,413 $765,025 $643,628
Weighted-average
shares and units
outstanding -
diluted (2) 174,170 164,027 162,600 162,060 151,765 166,938 150,076
Core Funds From
Operations per share
-diluted (2) $1.51 $1.54 $1.52 $1.43 $1.44 $4.58 $4.29
(1) Real Estate
Related Depreciation
& Amortization: Three Months Ended Nine Months Ended
30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
--------- --------- --------- --------- --------- --------- ---------
Depreciation &
amortization per
income statement $199,914 $178,111 $176,466 $176,581 $178,133 $554,491 $522,743
Non-real estate
depreciation (3,043) (3,101) (3,019) (3,058) (2,801) (9,163) (7,334)
Impairment charge
related to Telx trade
name - - - - - - (6,122)
Real Estate Related
Depreciation &
Amortization $196,871 $175,010 $173,447 $173,523 $175,332 $545,328 $509,287
(2) For all periods presented, we have
excluded the effect of dilutive
series C, series E, series F,
series G, series H, series I and
series J preferred stock, as
applicable, that may be converted
upon the occurrence of specified
change in control transactions as
described in the articles
supplementary governing the series
C, the series E, series F, series
G, series H, series I, and series J
preferred stock, as applicable,
which we consider highly
improbable. See above for
calculations of diluted FFO
available to common stockholders
and unitholders and below for
calculations of weighted average
common stock and units outstanding.
(3) Includes lease termination fees and
certain other adjustments that are
not core to our business.
(4) Relates to severance and other
charges related to the departure of
company executives and integration
related severance.
(5) Bridge facility fees included in
interest expense.
Adjusted Funds From Operations (AFFO)
Unaudited and in Thousands, Except Per Share Data
Three Months Ended Nine Months Ended
Reconciliation of Core FFO
to AFFO 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
-------------------------- --------- --------- --------- --------- --------- --------- ---------
Core FFO available to
common stockholders and
unitholders $263,758 $253,335 $247,932 $232,171 $218,413 $765,025 $643,628
Adjustments:
Non-real estate
depreciation 3,043 3,101 3,019 3,058 2,801 9,163 7,334
Amortization of deferred
financing costs 2,611 2,518 2,443 2,455 2,550 7,572 7,454
Amortization of debt
discount/premium 816 713 697 693 693 2,226 2,029
Non-cash stock-based
compensation expense 4,636 5,637 3,704 3,774 4,041 13,977 12,091
Straight-line rental
revenue (1,692) (2,110) (4,058) (5,210) (6,032) (7,860) (19,043)
Straight-line rental
expense 4,212 4,343 4,187 5,096 6,402 12,742 17,990
Above- and below-market
rent amortization (873) (1,946) (1,973) (2,048) (2,002) (4,792) (6,265)
Deferred non-cash tax
expense 284 (1,443) (653) (1,279) (189) (1,812) 1,117
Capitalized leasing
compensation (1) (2,945) (2,740) (2,634) (3,644) (2,795) (8,319) (7,945)
Recurring capital
expenditures (2) (34,664) (26,740) (29,588) (21,246) (15,252) (90,992) (54,230)
Capitalized internal
leasing commissions (1,225) (1,355) (1,493) (1,835) (1,786) (4,073) (5,487)
AFFO available to common
stockholders and
unitholders (3) $237,961 $233,313 $221,583 $211,984 $206,844 $692,857 $598,673
Weighted-average shares
and units outstanding -
basic 173,461 163,078 161,475 161,317 149,778 166,048 149,352
Weighted-average shares
and units outstanding -
diluted (4) 174,170 164,027 162,600 162,060 151,765 166,938 150,076
AFFO per share -diluted
(4) $1.37 $1.42 $1.36 $1.31 $1.36 $4.15 $3.99
Dividends per share and
common unit $0.93 $0.93 $0.93 $0.88 $0.88 $2.79 $2.64
Diluted AFFO Payout Ratio 68.1% 65.4% 68.2% 67.3% 64.6% 67.2% 66.2%
Three Months Ended Nine Months Ended
Share Count Detail 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16 30-Sep-17 30-Sep-16
------------------ --------- --------- --------- --------- --------- --------- ---------
Weighted Average Common
Stock and Units
Outstanding 173,461 163,078 161,475 161,317 149,778 166,048 149,352
Add: Effect of dilutive
securities 709 949 1,125 743 1,987 890 724
Weighted Avg. Common Stock
and Units Outstanding -
diluted 174,170 164,027 162,600 162,060 151,765 166,938 150,076
(1) Includes only second generation
leasing costs.
(2) For a definition of recurring
capital expenditures, see our
supplemental operating and
financial data package.
(3) For a definition and discussion of
AFFO, see below. For a
reconciliation of net income
available to common stockholders to
FFO and core FFO, see above.
(4) For all periods presented, we have
excluded the effect of dilutive
series C, series E, series F,
series G, series H, series I and
series J preferred stock, as
applicable, that may be converted
upon the occurrence of specified
change in control transactions as
described in the articles
supplementary governing the series
C, series E, series F, series G,
series H, series I, and series J
preferred stock, as applicable,
which we consider highly
improbable. See above for
calculations of diluted FFO
available to common stockholders
and unitholders and above for
calculations of weighted average
common stock and units outstanding.
Consolidated Balance Sheets
Unaudited and in thousands, except share and per share data
30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16
--------- --------- --------- --------- ---------
Assets
Investments in real estate:
Real estate $14,693,479 $11,132,356 $10,858,628 $10,630,514 $10,607,440
Construction in
progress 1,405,740 787,315 780,966 732,430 681,189
Land held for future
development 330,101 262,139 229,411 195,525 223,236
Investments in Real
Estate $16,429,320 $12,181,810 $11,869,005 $11,558,469 $11,511,865
Accumulated
depreciation &
amortization (3,075,294) (2,929,095) (2,792,910) (2,668,509) (2,565,368)
Net Investments in
Properties $13,354,026 $9,252,715 $9,076,095 $8,889,960 $8,946,497
Investment in
unconsolidated joint
ventures 106,374 103,881 112,856 106,402 105,819
Net Investments in Real
Estate $13,460,400 $9,356,596 $9,188,951 $8,996,362 $9,052,316
Cash and cash
equivalents $192,578 $22,383 $14,950 $10,528 $36,445
Accounts and other
receivables (1) 258,490 229,450 195,406 203,938 208,097
Deferred rent 420,348 423,188 418,858 412,269 412,977
Acquired in-place
lease value, deferred
leasing costs and
other real estate
intangibles, net 3,052,277 1,494,083 1,501,843 1,522,378 1,526,563
Acquired above-market
leases, net 178,190 19,716 20,826 22,181 24,554
Goodwill 3,384,394 778,862 757,444 752,970 780,099
Restricted cash 17,753 18,931 10,447 11,508 11,685
Assets associated with
real estate held for
sale 132,818 87,882 56,154 56,097 55,915
Other assets 135,250 148,480 164,669 204,354 190,384
Total Assets $21,232,498 $12,579,571 $12,329,548 $12,192,585 $12,299,035
Liabilities and Equity
Global unsecured
revolving credit
facility $138,477 $563,063 $564,467 $199,209 $153,189
Unsecured term loan 1,432,659 1,520,482 1,505,667 1,482,361 1,521,613
Unsecured senior notes,
net of discount 6,806,333 4,351,148 4,128,110 4,153,797 4,238,435
Mortgage loans, net of
premiums 106,775 2,927 3,085 3,240 111,750
Accounts payable and
other accrued
liabilities 1,024,394 850,602 804,371 824,878 823,905
Accrued dividends and
distributions - - - 144,194 -
Acquired below-market
leases 257,732 76,099 78,641 81,899 86,888
Security deposits and
prepaid rent 223,536 181,007 171,692 168,111 163,787
Liabilities associated
with assets held for
sale 4,660 2,949 3,070 2,599 2,820
Total Liabilities $9,994,566 $7,548,277 $7,259,103 $7,060,288 $7,102,387
Redeemable
noncontrolling
interests - operating
partnership 64,509 - - - -
Equity
Preferred Stock: $0.01 par value per
share, 110,000,000 shares authorized:
Series C Cumulative
Redeemable Perpetual
Preferred Stock (2) $219,250 - - - -
Series F Cumulative
Redeemable Preferred
Stock (3) - - $176,191 $176,191 $176,191
Series G Cumulative
Redeemable Preferred
Stock (4) $241,468 241,468 241,468 241,468 241,468
Series H Cumulative
Redeemable Preferred
Stock (5) 353,290 353,290 353,290 353,290 353,290
Series I Cumulative
Redeemable Preferred
Stock (6) 242,012 242,012 242,012 242,012 242,012
Series J Cumulative
Redeemable Preferred
Stock (7) 193,667 - - - -
Common Stock: $0.01 par
value per share,
315,000,000 shares
authorized (8) 2,043 1,611 1,584 1,582 1,581
Additional paid-in
capital 11,250,322 5,991,753 5,769,091 5,764,497 5,759,338
Dividends in excess of
earnings (1,917,791) (1,722,610) (1,629,633) (1,547,420) (1,483,223)
Accumulated other
comprehensive (loss)
income, net (116,732) (110,709) (122,540) (135,605) (131,936)
Total Stockholders'
Equity $10,467,529 $4,996,815 $5,031,463 $5,096,015 $5,158,721
Non-controlling Interests
Non-controlling
interest in operating
partnership $699,308 $27,909 $32,409 $29,684 $31,088
Non-controlling
interest in
consolidated joint
ventures 6,586 6,570 6,573 6,598 6,839
Total Non-controlling
Interests $705,894 $34,479 $38,982 $36,282 $37,927
Total Equity $11,173,423 $5,031,294 $5,070,445 $5,132,297 $5,196,648
Total Liabilities and
Equity $21,232,498 $12,579,571 $12,329,548 $12,192,585 $12,299,035
(1) Net of allowance for doubtful
accounts of $6,187 and $7,446 as of
September 30, 2017 and December 31,
2016, respectively.
(2) Series C Cumulative Redeemable
Perpetual Preferred Stock, 6.625%,
$201,250 and $0 liquidation
preference, respectively ($25.00
per share), 8,050,000 and 0 shares
issued and outstanding as of
September 30, 2017 and December 31,
2016, respectively.
(3) Series F Cumulative Redeemable
Preferred Stock, 6.625%, $0 and
$182,500 liquidation preference,
respectively ($25.00 per share), 0
and 7,300,000 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively. All outstanding
shares of Series F Cumulative
Redeemable Preferred Stock were
redeemed on April 5, 2017.
(4) Series G Cumulative Redeemable
Preferred Stock, 5.875%, $250,000
and $250,000 liquidation
preference, respectively ($25.00
per share), 10,000,000 and
10,000,000 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively.
(5) Series H Cumulative Redeemable
Preferred Stock, 7.375%, $365,000
and $365,000 liquidation
preference, respectively ($25.00
per share), 14,600,000 and
14,600,000 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively.
(6) Series I Cumulative Redeemable
Preferred Stock, 6.350%, $250,000
and $250,000 liquidation
preference, respectively ($25.00
per share), 10,000,000 and
10,000,000 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively.
(7) Series J Cumulative Redeemable
Preferred Stock, 5.250%, $200,000
and $0 liquidation preference,
respectively ($25.00 per share),
8,000,000 and 0 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively.
(8) Common Stock: 205,433,495 and
146,384,247 shares issued and
outstanding as of September 30,
2017 and December 31, 2016,
respectively.
Reconciliation of
Earnings Before
Interest, Taxes, Three Months Ended
Depreciation &
Amortization (EBITDA)
(1)
30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 30-Sep-16
--------- --------- --------- --------- ---------
Net (Loss) Income
Available to Common
Stockholders ($4,139) $57,837 $66,145 $77,682 $187,330
Interest 71,621 57,582 55,450 56,226 63,084
(Gain) loss from early
extinguishment of
debt (1,990) - - 29 18
Tax expense 2,494 2,639 2,223 2,304 3,720
Depreciation &
amortization 199,914 178,111 176,466 176,581 178,133
Impairment of
investments in real
estate 28,992 - - - -
EBITDA $296,892 $296,169 $300,284 $312,822 $432,285
Severance-related
expense, equity
acceleration, and
legal expenses 2,288 365 869 672 2,580
Transaction and
integration expenses 42,809 14,235 3,323 8,961 6,015
(Gain) loss on real
estate transactions (9,751) (380) 522 195 (169,000)
Non-cash (gain) on
lease termination (2) - - - (29,205) -
Equity in earnings
adjustment for non-
core items - (3,285) - - -
Other non-core
expense adjustments 3,051 24 - 236 (22)
Non-controlling
interests 40 920 1,025 1,065 3,247
Preferred stock
dividends, including
undeclared dividends 16,575 14,505 17,393 17,393 21,530
Issuance costs
associated with
redeemed preferred
stock - 6,309 - - 10,328
--- ----- --- --- ------
Adjusted EBITDA $351,904 $328,862 $323,416 $312,139 $306,963
(1) For definition and
discussion of EBITDA and
Adjusted EBITDA, see
below.
(2) Q4 2016 amount included in
Other revenue on the
income statement.
Definitions
Funds from Operations (FFO):
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs), non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Core Funds from Operations:
We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) gain (loss) from early extinguishment of debt, (iv) issuance costs associated with redeemed preferred stock, (v) equity in earnings adjustment for non-core items (vi) severance, equity acceleration, and legal expenses, (vii) bridge facility fees, (viii) loss on currency forwards and (ix) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of core FFO as a measure of our performance is limited. Other REITs may not calculate core FFO in a consistent manner. Accordingly, our core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Constant-Currency Core Funds from Operations:
We calculate constant-currency core funds from operations by adjusting the core funds from operations for foreign currency translations.
Adjusted Funds from Operations (AFFO):
We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate AFFO by adding to or subtracting from core FFO (i) non-real estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rent revenue, (vi) straight-line rent expense, (vii) above- and below-market rent amortization, (viii) deferred non-cash tax expense, (ix) capitalized leasing compensation, (x) recurring capital expenditures and (xi) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent manner. Accordingly, our AFFO may not be comparable to other REITs' AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
EBITDA and Adjusted EBITDA:
We believe that earnings before interest, loss from early extinguishment of debt, income taxes and depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance-related expense, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, non-cash (gain) on lease termination, equity in earnings adjustment for non-core items, other non-core expense adjustments, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding severance-related expense, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, non-cash (gain) on lease termination, equity in earnings adjustment for non-core items, other non-core expense adjustments, non-controlling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs' EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.
Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.
Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.
Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.
Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended September 30, 2017, GAAP interest expense was $72 million, capitalized interest was $5 million and scheduled debt principal payments and preferred dividends was $17 million.
Three Months Ended Nine Months Ended
Reconciliation of Net
Operating Income
(NOI) (in thousands) 30-Sep-17 30-Jun-17 30-Sep-16 30-Sep-17 30-Sep-16
--------------------- --------- --------- --------- --------- ---------
Operating income $66,157 $130,657 $115,750 $334,097 $346,164
Fee income (1,662) (1,429) (1,517) (4,986) (4,567)
Other income (208) (341) (2) (584) (93)
Depreciation and
amortization 199,914 178,111 178,133 554,491 522,743
General and
administrative 41,477 37,144 43,555 112,399 106,044
Severance related
expense, equity
acceleration, and
legal expenses 2,288 365 2,580 3,522 5,536
Transaction expenses 42,809 14,235 6,015 60,367 11,530
Impairment in
investments in real
estate 28,992 - - 28,992 -
Other expenses 3,051 24 (22) 3,075 (23)
Net Operating Income $382,818 $358,766 $344,492 $1,091,373 $987,334
Cash Net Operating
Income (Cash NOI)
Net Operating Income $382,818 $358,766 $344,492 $1,091,373 $987,334
Straight-line rent,
net 2,436 2,206 205 4,842 (1,677)
Above- and below-
market rent
amortization (873) (1,946) (2,002) (4,920) (6,265)
Cash Net Operating
Income $384,381 $359,026 $342,695 $1,091,295 $979,392
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SOURCE Digital Realty
