Digital Realty Reports First Quarter 2018 Results
Digital Realty Reports First Quarter 2018 Results
SAN FRANCISCO, April 26, 2018 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the first quarter of 2018. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.42 per share
in 1Q18, compared to $0.41 in 1Q17
-- Reported FFO per share of $1.61 in 1Q18, compared to $1.50 in 1Q17
-- Reported core FFO per share of $1.63 in 1Q18, compared to $1.52 in 1Q17
-- Signed total bookings during 1Q18 expected to generate $61 million of
annualized GAAP rental revenue, including a $7 million contribution from
interconnection
-- Raised 2018 core FFO per share outlook from $6.45 - $6.60 to $6.50 -
$6.60
Financial Results
Digital Realty reported revenues for the first quarter of 2018 of $744 million, a 2% increase from the previous quarter and a 35% increase from the same quarter last year.
The company delivered first quarter 2018 net income of $110 million, and net income available to common stockholders of $86 million, or $0.42 per diluted share, compared to $0.26 per diluted share in the previous quarter and $0.41 per diluted share in the same quarter last year.
Digital Realty generated first quarter 2018 adjusted EBITDA of $451 million, a 5% increase from the previous quarter and a 39% increase over the same quarter last year.
The company reported first quarter 2018 funds from operations of $346 million, or $1.61 per share, compared to $1.48 per share in the previous quarter and $1.50 per share in the same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered first quarter of 2018 core FFO of $1.63 per share, a 5% increase from $1.55 per share in the previous quarter, and a 7% increase from $1.52 per share in the same quarter last year.
Leasing Activity
"In the first quarter, we signed total bookings expected to generate $61 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection," said Chief Executive Officer A. William Stein. "As we look toward the remainder of 2018, we are confident in our ability to deliver sustainable growth for stakeholders, driven by broad-based demand across regions, verticals and product lines, along with growing local origination in key growth metros around the world."
The weighted-average lag between leases signed during the first quarter of 2018 and the contractual commencement date was six months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $57 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the first quarter of 2018 rolled up 3.9% on a cash basis and up 9.7% on a GAAP basis.
New leases signed during the first quarter of 2018 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 $31,832 195,399 $163 25 $107
Powered Base Building 4,822 198,569 24 - -
Colocation 5,491 20,468 268 1 335
Non-Technical 81 2,400 34 - -
Total $42,226 416,836 $101 26 $119
Europe (1)
Turn-Key Flex $23 - - - $381
Colocation 783 901 $870 - 484
Non-Technical 5 158 31 - -
Total $811 1,059 $766 - $480
Asia Pacific (1)
Turn-Key Flex $10,554 54,265 $194 7 $125
Non-Technical 60 1,424 42 - -
Total $10,614 55,689 $191 7 $125
Interconnection $7,099 N/A N/A N/A N/A
Grand Total $60,750 473,584 $113 33 $122
Note: Totals may not foot due to
rounding differences.
(1) Based on quarterly average
exchange rates during the
three months ended March
31, 2018.
Partnerships
In April 2018, Digital Realty launched support for Google Cloud's Partner Interconnect, a new service from Google Cloud that allows customers to connect to Google Cloud Platform from anywhere. Partner Interconnect provides customers with the ability to extend private, on-premise networks from Digital Realty data centers to the Google Cloud Platform, reaching a broad set of public and private cloud-based service offerings. The new offering will enable Digital Realty's Service Exchange customers to reach Google Cloud Platform services in Frankfurt, London, Hong Kong, Singapore, Sydney, Toronto, Los Angeles, New York and Washington, D.C. We expect that additional markets will be brought online later this year.
Investment Activity
During the first quarter of 2018, Digital Realty closed on the sale of 34551 Ardenwood Boulevard, a 323,000 square foot technology manufacturing property in Fremont, CA for $73 million. The property was 86% leased and was expected to generate cash net operating income of approximately $5 million in 2018, representing an exit cap rate of 7%. The sale generated net proceeds of $72 million, and Digital Realty recognized a gain on the sale of approximately $25 million in the first quarter of 2018.
Digital Realty also closed on the sale of 200 Quannapowitt Parkway, a substantially vacant 211,000 square foot data center redevelopment project in Wakefield, MA for $15 million. The sale generated net proceeds of $15 million, and Digital Realty recognized a loss on the sale of approximately $0.4 million in the first quarter of 2018.
Likewise during the first quarter of 2018, Digital Realty closed on the sale of 3065 Gold Camp Drive and 11085 Sun Center Drive, two data centers totaling 109,000 square feet in Rancho Cordova, CA for $51 million. The properties were 100% leased and were expected to generate cash net operating income of approximately $4 million in 2018, representing an exit cap rate of 8.6%. The sale generated net proceeds of $50 million, and Digital Realty recognized a gain on the sale of approximately $14 million in the first quarter of 2018.
Subsequent to the end of the quarter, Digital Realty closed on the sale of a portfolio of three mixed-use properties in Austin, TX totaling over 378,000 square feet for $48 million. The properties were expected to generate cash net operating income of approximately $3 million in 2018, representing an exit cap rate of 6.3%. The sale generated net proceeds of $46 million, and Digital Realty recognized a gain on the sale of approximately $12 million in the second quarter of 2018.
Digital Realty participated in Megaport's March 2018 follow-on offering, investing an additional $5 million and bringing its total stake in Megaport to 7.6%.
Balance Sheet
Digital Realty had approximately $9.1 billion of total debt outstanding as of March 31, 2018, comprised of $9.0 billion of unsecured debt and approximately $0.1 billion of secured debt. At the end of the first quarter of 2018, net debt-to-adjusted EBITDA was 5.3x, debt-plus-preferred-to-total enterprise value was 31.5% and fixed charge coverage was 4.3x.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, including FFO, core FFO, and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO, and definitions of FFO, and core FFO are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this document.
Investor Conference Call
Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on April 26, 2018, 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 first quarter 2018 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# 4448213 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 May 26, 2018. 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# 10117784. 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 cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare, and consumer products.
Contact Information
Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500
John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty
(415) 738-6500
2018 Outlook
Digital Realty raised its 2018 core FFO per share outlook from $6.45 - $6.60 to $6.50 - $6.60. The assumptions underlying this guidance are summarized in the following table.
As of As of As of
Top-
Line
and
Cost
Structure January 8, 2018 February 15, 2018 April 26, 2018
2018
total
revenue $3.0 - $3.2 billion $3.0 - $3.2 billion $3.0 - $3.2 billion
2018
net
non-
cash
rent
adjustments
(1) ($5 - $15 million) ($5 - $15 million) ($5 - $15 million)
2018
Adjusted
EBITDA
margin 58.0% - 60.0% 58.0% - 60.0% 58.0% - 60.0%
2018
G&A
margin 5.5% - 6.5% 5.5% - 6.5% 5.5% - 6.5%
Internal
Growth
Rental
rates
on
renewal
leases
Cash
basis Slightly negative Slightly negative Slightly negative
GAAP
basis Up mid-single-digits Up mid-single-digits Up mid-single-digits
Year-
end
portfolio
occupancy +/- 50 bps +/- 50 bps +/- 50 bps
"Same-
capital"
cash
NOI
growth
(2) 0% - 3.0% 0% - 3.0% 1.0% - 3.0%
Foreign
Exchange
Rates
U.S.
Dollar
/
Pound
Sterling $1.28 - $1.32 $1.28 - $1.32 $1.35 - $1.40
U.S.
Dollar
/
Euro $1.10 - $1.20 $1.10 - $1.20 $1.18 - $1.22
External
Growth
Dispositions
Dollar
volume $0 - $200 million $88 - $200 million $187 - $300 million
Cap
rate 0.0% - 10.0% 0.0% - 10.0% 0.0% - 10.0%
Development
CapEx $0.9 - $1.1 billion $0.9 - $1.1 billion $0.9 - $1.1 billion
Average
stabilized
yields 10.0% - 12.0% 10.0% - 12.0% 10.0% - 12.0%
Enhancements
and
other
non-
recurring
CapEx
(3) $25 - $30 million $25 - $30 million $25 - $30 million
Recurring
CapEx
+
capitalized
leasing
costs
(4) $160 - $170 million $160 - $170 million $160 - $170 million
Balance
Sheet
Long-
term
debt
issuance
Dollar
amount $0 - $500 million $0 - $500 million $0 - $500 million
Pricing 3.25% - 4.25% 3.25% - 4.25% 3.25% - 4.25%
Timing Mid-to-late 2018 Mid-to-late 2018 Mid-to-late 2018
Net
income
per
diluted
share $1.50 - $1.55 $1.50 - $1.55 $1.55 - $1.55
Real
estate
depreciation
and
(gain)/loss
on
sale $4.90 - $4.95 $4.90 - $4.95 $4.90 - $4.95
Funds
From
Operations
/
share
(NAREIT-
Defined) $6.40 - $6.50 $6.40 - $6.50 $6.45 - $6.50
Non-
core
expenses
and
revenue
streams $0.05 - $0.10 $0.05 - $0.10 $0.05 - $0.10
Core
Funds
From
Operations
/
share $6.45 - $6.60 $6.45 - $6.60 $6.50 - $6.60
(1) Net non-cash rent adjustments
represent 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
buildings owned as of December 31,
2016 with less than 5% of the
total rentable square feet under
development. It also excludes
buildings that were undergoing, or
were expected to undergo,
development activities in 2017-
2018, buildings classified as held
for sale, and buildings 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 data
centers, 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 expansion of our Google Cloud Partner Interconnect offering; supply and demand for data center and colocation space; our investment in Megaport; impairment losses; our global platform; 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 and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: reduced demand for data centers or decreases in information technology spending; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services; our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers; breaches of our obligations or restrictions under our contracts with our customers; our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties; the impact of current global and local economic, credit and market conditions; our inability to retain data center space that we lease or sublease from third parties; difficulty acquiring or operating properties in foreign jurisdictions; our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions; our failure to successfully integrate and operate acquired or developed properties or businesses; difficulties in identifying properties to acquire and completing acquisitions; risks related to joint venture investments, including as a result of our lack of control of such investments; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital; financial market fluctuations and changes in foreign currency exchange rates; adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment charges and goodwill and other intangible asset impairment charges; our inability to manage our growth effectively; losses in excess of our insurance coverage; environmental liabilities and risks related to natural disasters; our inability to comply with rules and regulations applicable to our company; our failure to maintain our status as a REIT for federal income tax purposes; our operating partnership's failure to qualify as a partnership for federal income tax purposes; restrictions on our ability to engage in certain business activities; and changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates. 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, 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
31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
--------- --------- --------- --------- ---------
Rental revenues $530,925 $517,356 $440,591 $412,576 $404,126
Tenant reimbursements -
Utilities 98,576 97,657 78,134 68,407 63,398
Tenant reimbursements -
Other 51,503 54,324 29,479 24,935 23,890
Interconnection & other 61,373 60,275 59,851 58,301 57,225
Fee income 1,133 1,386 1,662 1,429 1,895
Other 858 447 208 341 35
Total Operating Revenues $744,368 $731,445 $609,925 $565,989 $550,569
Utilities $112,230 $112,055 $95,619 $82,739 $77,198
Rental property
operating 113,410 113,445 94,442 91,977 92,141
Property taxes 35,263 36,348 32,586 28,161 26,919
Insurance 3,731 3,223 2,590 2,576 2,592
Depreciation &
amortization 294,789 287,973 199,914 178,111 176,466
General & administrative 36,289 44,311 41,477 37,144 33,778
Severance, equity
acceleration, and legal
expenses 234 1,209 2,288 365 869
Transaction and
integration expenses 4,178 15,681 42,809 14,235 3,323
Impairment of
investments in real
estate - - 28,992 - -
Other expenses 431 2 3,051 24 -
Total Operating Expenses $600,555 $614,247 $543,768 $435,332 $413,286
Operating Income $143,813 $117,198 $66,157 $130,657 $137,283
Equity in earnings of
unconsolidated joint
ventures $7,410 $5,924 $5,880 $8,388 $5,324
Gain (loss) on real
estate transactions 39,273 30,746 9,751 380 (522)
Interest and other
income (42) 324 2,813 367 151
Interest (expense) (76,985) (73,989) (71,621) (57,582) (55,450)
Tax (expense) (3,374) (545) (2,494) (2,639) (2,223)
Gain from early
extinguishment of debt - - 1,990 - -
Net Income $110,095 $79,658 $12,476 $79,571 $84,563
Net (income)
attributable to non-
controlling interests (3,468) (6,023) (40) (920) (1,025)
Net Income Attributable
to Digital Realty
Trust, Inc. $106,627 $73,635 $12,436 $78,651 $83,538
Preferred stock
dividends, including
undeclared dividends (20,329) (20,329) (16,575) (14,505) (17,393)
Issuance costs
associated with
redeemed preferred
stock - - - (6,309) -
Net Income (Loss)
Available to Common
Stockholders $86,298 $53,306 ($4,139) $57,837 $66,145
Weighted-average shares
outstanding - basic 205,714,173 205,448,689 170,194,254 160,832,889 159,297,027
Weighted-average shares
outstanding - diluted 206,507,476 206,185,084 170,194,254 161,781,868 160,421,655
Weighted-average fully
diluted shares and
units 214,802,763 214,424,363 174,169,511 164,026,578 162,599,529
Net income (loss) per
share -basic $0.42 $0.26 ($0.02) $0.36 $0.42
Net income (loss) per
share -diluted $0.42 $0.26 ($0.02) $0.36 $0.41
Funds From Operations and Core Funds From Operations
Unaudited and in thousands, except per share data
Three Months Ended
Reconciliation of Net
Income to Funds From
Operations (FFO) 31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
--------------------- --------- --------- --------- --------- ---------
Net (Loss) Income
Available to Common
Stockholders $86,298 $53,306 ($4,139) $57,837 $66,145
Adjustments:
Non-controlling
interests in operating
partnership 3,480 2,138 (79) 807 904
Real estate related
depreciation &
amortization (1) 291,686 284,924 196,871 175,010 173,447
Unconsolidated JV real
estate related
depreciation &
amortization 3,476 3,323 2,732 2,754 2,757
(Gain) loss on real
estate transactions (39,273) (30,746) (9,751) (380) 522
Non-controlling
interests share of
gain on sale of
property - 3,900 - - -
Impairment of
investments in real
estate - - 28,992 - -
Funds From Operations $345,667 $316,845 $214,626 $236,028 $243,775
Funds From Operations -
diluted $345,667 $316,845 $214,626 $236,028 $243,775
Weighted-average
shares and units
outstanding - basic 214,009 213,688 173,461 163,078 161,475
Weighted-average
shares and units
outstanding - diluted
(2) 214,803 214,424 174,170 164,027 162,600
Funds From Operations
per share -basic $1.62 $1.48 $1.24 $1.45 $1.51
Funds From Operations
per share -diluted
(2) $1.61 $1.48 $1.23 $1.44 $1.50
Three Months Ended
Reconciliation of FFO
to Core FFO 31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
--------------------- --------- --------- --------- --------- ---------
Funds From Operations -
diluted $345,667 $316,845 $214,626 $236,028 $243,775
Adjustments:
Termination fees and
other non-core
revenues (3) (858) (447) (208) (341) (35)
Transaction and
integration expenses 4,178 15,681 42,809 14,235 3,323
Gain from early
extinguishment of debt - - (1,990) - -
Issuance costs
associated with
redeemed preferred
stock - - - 6,309 -
Equity in earnings
adjustment for non-
core items - - - (3,285) -
Severance, equity
acceleration, and
legal expenses (4) 234 1,209 2,288 365 869
Bridge facility fees
(5) - - 3,182 - -
Other non-core expense
adjustments 431 2 3,051 24 -
Core Funds From
Operations -diluted $349,652 $333,290 $263,758 $253,335 $247,932
Weighted-average
shares and units
outstanding - diluted
(2) 214,803 214,424 174,170 164,027 162,600
Core Funds From
Operations per share -
diluted (2) $1.63 $1.55 $1.51 $1.54 $1.52
(1) Real Estate
Related Depreciation &
Amortization: Three Months Ended
31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
--------- --------- --------- --------- ---------
Depreciation &
amortization per
income statement $294,789 $287,973 $199,914 $178,111 $176,466
Non-real estate
depreciation (3,103) (3,049) (3,043) (3,101) (3,019)
Real Estate Related
Depreciation &
Amortization $291,686 $284,924 $196,871 $175,010 $173,447
(2) For all periods presented, we have
excluded the effect of dilutive
series C, series F, series G, series
H, series I and series J preferred
stock, as applicable, that may be
converted into common stock upon the
occurrence of specified change in
control transactions as described in
the articles supplementary governing
the series C, series 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 are included in
interest expense.
Adjusted Funds From Operations (AFFO)
Unaudited and in Thousands, Except Per Share Data
Three Months Ended
Reconciliation of Core FFO
to AFFO 31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
-------------------------- --------- --------- --------- --------- ---------
Core FFO available to
common stockholders and
unitholders $349,652 $333,290 $263,758 $253,335 $247,932
Adjustments:
Non-real estate
depreciation 3,103 3,049 3,043 3,101 3,019
Amortization of deferred
financing costs 3,060 3,092 2,611 2,518 2,443
Amortization of debt
discount/premium 875 858 816 713 697
Non-cash stock-based
compensation expense 5,497 3,923 4,636 5,637 3,704
Straight-line rental
revenue (10,266) (8,705) (1,692) (2,110) (4,058)
Straight-line rental
expense 2,547 (635) 4,212 4,343 4,187
Above- and below-market
rent amortization 6,666 6,562 (873) (1,946) (1,973)
Deferred non-cash tax
expense (216) (1,100) 284 (1,443) (653)
Capitalized leasing
compensation (1) (2,998) (3,567) (2,945) (2,740) (2,634)
Recurring capital
expenditures (2) (27,328) (45,298) (34,664) (26,740) (29,588)
Capitalized internal
leasing commissions (1) (2,049) (1,217) (1,225) (1,355) (1,493)
AFFO available to common
stockholders and
unitholders (3) $328,543 $290,252 $237,961 $233,313 $221,583
Weighted-average shares
and units outstanding -
basic 214,009 213,688 173,461 163,078 161,475
Weighted-average shares
and units outstanding -
diluted (4) 214,803 214,424 174,170 164,027 162,600
AFFO per share -diluted
(4) $1.53 $1.35 $1.37 $1.42 $1.36
Dividends per share and
common unit $1.01 $0.93 $0.93 $0.93 $0.93
Diluted AFFO Payout Ratio 66.0% 68.7% 68.1% 65.4% 68.2%
Three Months Ended
Share Count Detail 31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
------------------ --------- --------- --------- --------- ---------
Weighted Average Common
Stock and Units
Outstanding 214,009 213,688 173,461 163,078 161,475
Add: Effect of dilutive
securities 794 736 709 949 1,125
Weighted Avg. Common Stock
and Units Outstanding -
diluted 214,803 214,424 174,170 164,027 162,600
(1) Includes only second-generation
leasing costs.
(2) For a definition of recurring capital
expenditures, see our earnings press
release and supplemental information
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 F, series G, series
H, series I and series J preferred
stock, as applicable, that may be
converted into common stock upon the
occurrence of specified change in
control transactions as described in
the articles supplementary governing
the series C, series 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
31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
--------- --------- --------- --------- ---------
Assets
Investments in real
estate:
Real estate $15,654,932 $15,163,846 $14,693,479 $11,132,356 $10,858,628
Construction in
progress 1,470,065 1,399,684 1,405,740 787,315 780,966
Land held for future
development 236,415 352,406 330,101 262,139 229,411
Investments in Real
Estate $17,361,412 $16,915,936 $16,429,320 $12,181,810 $11,869,005
Accumulated
depreciation &
amortization (3,439,050) (3,238,227) (3,075,294) (2,929,095) (2,792,910)
Net Investments in
Properties $13,922,362 $13,677,709 $13,354,026 $9,252,715 $9,076,095
Investment in
unconsolidated joint
ventures 167,564 163,477 106,374 103,881 112,856
Net Investments in Real
Estate $14,089,926 $13,841,186 $13,460,400 $9,356,596 $9,188,951
Cash and cash
equivalents $22,370 $51 $192,578 $22,383 $14,950
Accounts and other
receivables (1) 309,328 276,347 258,490 229,450 195,406
Deferred rent 442,887 430,026 420,348 423,188 418,858
Acquired in-place
lease value, deferred
leasing costs and
other real estate
intangibles, net 2,928,566 2,998,806 3,052,277 1,494,083 1,501,843
Acquired above-market
leases, net 165,568 184,375 178,190 19,716 20,826
Goodwill 3,405,110 3,389,595 3,384,394 778,862 757,444
Restricted cash 7,330 13,130 17,753 18,931 10,447
Assets associated with
real estate held for
sale 41,707 139,538 132,818 87,882 56,154
Other assets 169,125 131,291 135,250 148,480 164,669
Total Assets $21,581,917 $21,404,345 $21,232,498 $12,579,571 $12,329,548
Liabilities and Equity
Global unsecured
revolving credit
facility $952,121 $550,946 $138,477 $563,063 $564,467
Unsecured term loan 1,428,498 1,420,333 1,432,659 1,520,482 1,505,667
Unsecured senior notes,
net of discount 6,660,727 6,570,757 6,806,333 4,351,148 4,128,110
Mortgage loans, net of
premiums 106,366 106,582 106,775 2,927 3,085
Accounts payable and
other accrued
liabilities 1,012,490 980,218 1,024,394 850,602 804,371
Accrued dividends and
distributions - 199,761 - - -
Acquired below-market
leases 225,674 249,465 257,732 76,099 78,641
Security deposits and
prepaid rent 207,859 217,898 223,536 181,007 171,692
Liabilities associated
with assets held for
sale 1,767 5,033 4,660 2,949 3,070
Total Liabilities $10,595,502 $10,300,993 $9,994,566 $7,548,277 $7,259,103
Redeemable
noncontrolling
interests - operating
partnership 49,871 53,902 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 $219,250 $219,250 - -
Series F Cumulative
Redeemable Preferred
Stock (3) - - - - $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) 193,540 193,540 193,667 - -
Common Stock: $0.01 par
value per share,
315,000,000 shares
authorized (8) 2,045 2,044 2,043 1,611 1,584
Additional paid-in
capital 11,285,611 11,261,462 11,250,322 5,991,753 5,769,091
Dividends in excess of
earnings (2,177,269) (2,055,552) (1,917,791) (1,722,610) (1,629,633)
Accumulated other
comprehensive (loss)
income, net (106,096) (108,432) (116,732) (110,709) (122,540)
Total Stockholders'
Equity $10,253,851 $10,349,082 $10,467,529 $4,996,815 $5,031,463
Non-controlling
Interests
Non-controlling
interest in operating
partnership $680,400 $698,125 $699,308 $27,909 $32,409
Non-controlling
interest in
consolidated joint
ventures 2,293 2,243 6,586 6,570 6,573
Total Non-controlling
Interests $682,693 $700,368 $705,894 $34,479 $38,982
Total Equity $10,936,544 $11,049,450 $11,173,423 $5,031,294 $5,070,445
Total Liabilities and
Equity $21,581,917 $21,404,345 $21,232,498 $12,579,571 $12,329,548
(1) Net of allowance for doubtful
accounts of $6,906 and $6,737, as
of March 31, 2018 and December 31,
2017, respectively.
(2) Series C Cumulative Redeemable
Perpetual Preferred Stock, 6.625%,
$201,250 and $201,250 liquidation
preference, respectively ($25.00
per share), 8,050,000 and
8,050,000 shares issued and
outstanding as of March 31, 2018
and December 31, 2017,
respectively.
(3) Series F Cumulative Redeemable
Preferred Stock, 6.625%, $0 and $0
liquidation preference,
respectively ($25.00 per share), 0
and 0 shares issued and
outstanding as of March 31, 2018
and December 31, 2017,
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 March 31, 2018
and December 31, 2017,
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 March 31, 2018
and December 31, 2017,
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 March 31, 2018
and December 31, 2017,
respectively.
(7) Series J Cumulative Redeemable
Preferred Stock, 5.250%, $200,000
and $200,000 liquidation
preference, respectively ($25.00
per share), 8,000,000 and
8,000,000 shares issued and
outstanding as of March 31, 2018
and December 31, 2017,
respectively.
(8) Common Stock: 205,874,914 and
205,470,300 shares issued and
outstanding as of March 31, 2018
and December 31, 2017,
respectively.
Three Months Ended
Reconciliation of
Earnings Before
Interest, Taxes, 31-Mar-18 31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17
Depreciation &
Amortization (EBITDA)
(1)
Net Income (Loss)
Available to Common
Stockholders $86,298 $53,306 ($4,139) $57,837 $66,145
Interest 76,985 73,989 71,621 57,582 55,450
(Gain) from early
extinguishment of
debt - - (1,990) - -
Tax expense 3,374 545 2,494 2,639 2,223
Depreciation &
amortization 294,789 287,973 199,914 178,111 176,466
Impairment of
investments in real
estate - - 28,992 - -
EBITDA $461,446 $415,813 $296,892 $296,169 $300,284
Severance, equity
acceleration, and
legal expenses 234 1,209 2,288 365 869
Transaction and
integration expenses 4,178 15,681 42,809 14,235 3,323
(Gain) loss on real
estate transactions (39,273) (30,746) (9,751) (380) 522
Equity in earnings
adjustment for non-
core items - - - (3,285) -
Other non-core
expense adjustments 431 2 3,051 24 -
Non-controlling
interests 3,468 6,023 40 920 1,025
Preferred stock
dividends, including
undeclared dividends 20,329 20,329 16,575 14,505 17,393
Issuance costs
associated with
redeemed preferred
stock - - - 6,309 -
--- --- --- ----- ---
Adjusted EBITDA $450,813 $428,311 $351,904 $328,862 $323,416
(1) For definitions and discussion
of EBITDA and Adjusted EBITDA,
see below.
(2) Cash interest expense is
interest expense less
amortization of debt discount
and deferred financing fees
and includes interest that we
capitalized. We consider cash
interest expense to be a
useful measure of interest as
it excludes non-cash based
interest expense.
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, non-controlling interests share of gain on sale of property, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to other REITs' FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Core Funds from Operations (Core FFO):
We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) 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 and (viii) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of core FFO as a measure of our performance is limited. Other REITs may calculate core FFO differently than we do and accordingly, our core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Adjusted Funds from Operations (AFFO):
We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate AFFO by adding to or subtracting from core FFO (i) non-real estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line 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 calculate AFFO differently than we do and accordingly, our AFFO may not be comparable to other REITs' AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
EBITDA and Adjusted EBITDA:
We believe that earnings before interest, loss from early extinguishment of debt, income taxes, depreciation and amortization, and impairment of investments in real estate, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, equity in earnings adjustment for non-core items, other non-core expense adjustments, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding severance, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, equity in earnings adjustment for non-core items, other non-core 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 and accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs' EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.
Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above- and below-market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs' NOI and cash NOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.
Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.
Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.
Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended March 31, 2018, GAAP interest expense was $77 million, capitalized interest was $7 million and scheduled debt principal payments and preferred dividends was $20 million.
Three Months Ended
Reconciliation of Net Operating Income (NOI) (in thousands) 31-Mar-18 31-Dec-17 31-Mar-17
---------------------------------------------------------- --------- --------- ---------
Operating income $143,813 $117,198 $137,283
Fee income (1,133) (1,386) (1,895)
Other income (858) (447) (35)
Depreciation and amortization 294,789 287,973 176,466
General and administrative 36,289 44,311 33,778
Severance, equity acceleration, and legal expenses 234 1,209 869
Transaction expenses 4,178 15,681 3,323
Other expenses 431 2 -
Net Operating Income $477,743 $464,541 $349,789
Cash Net Operating Income (Cash NOI)
Net Operating Income $477,743 $464,541 $349,789
Straight-line rental revenue (10,266) (8,705) (4,058)
Straight-line rental expense 2,599 (626) 4,258
Above- and below-market rent amortization 6,666 6,633 (1,973)
Cash Net Operating Income $476,742 $461,843 $348,016
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SOURCE Digital Realty
