Digital Realty Reports Third Quarter 2018 Results
SAN FRANCISCO, Oct. 25, 2018 /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 2018. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.33 per share
in 3Q18, compared to ($0.02) in 3Q17
-- Reported FFO per share of $1.57 in 3Q18, compared to $1.23 in 3Q17
-- Reported core FFO per share of $1.63 in 3Q18, compared to $1.51 in 3Q17
-- Signed total bookings during 3Q18 expected to generate $69 million of
annualized GAAP rental revenue, including an $8 million contribution
from interconnection
-- Reiterated 2018 core FFO per share outlook of $6.55 - $6.65
Financial Results
Digital Realty reported revenues for the third quarter of 2018 of $769 million, a 2% increase from the previous quarter and a 26% increase from the same quarter last year.
The company delivered third quarter of 2018 net income of $90 million, and net income available to common stockholders of $67 million, or $0.33 per diluted share, compared to $0.32 per diluted share in the previous quarter and ($0.02) per diluted share in the same quarter last year.
Digital Realty generated third quarter of 2018 adjusted EBITDA of $453 million, a 1% decrease from the previous quarter and a 29% increase over the same quarter last year.
The company reported third quarter of 2018 funds from operations of $338 million, or $1.57 per share, compared to $1.64 per share in the previous quarter and $1.23 per share in the same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered third quarter of 2018 core FFO of $1.63 per share, a 2% decrease from $1.66 per share in the previous quarter, and an 8% increase from $1.51 per share in the same quarter last year.
Leasing Activity
"In the third quarter, we signed total bookings expected to generate $69 million of annualized GAAP rental revenue, including an $8 million contribution from interconnection," said Chief Executive Officer A. William Stein. "This represents the second-highest bookings in the company's history, close on the heels of our record in the prior quarter. We also announced our entry into the rapidly growing Brazilian market, and we took proactive steps to secure our supply chain and further strengthen our balance sheet. We look forward to building on this momentum in the months ahead, setting the stage for sustainable growth into 2019 and beyond."
The weighted-average lag between leases signed during the third quarter of 2018 and the contractual commencement date was five months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $61 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the third quarter of 2018 rolled up 0.2% on a cash basis and up 1.6% on a GAAP basis.
New leases signed during the third 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 $40,958 330,137 $124 33.3 $103
Colocation 8,527 45,081 189 2.4 294
Non-Technical 978 53,916 18
Total $50,463 429,134 $118 35.7 $116
Europe (1)
Turn-Key Flex $5,076 32,431 $157 3.3 $130
Colocation 1,800 1,869 963 0.4 353
Non-Technical 51 1,715 30
Total $6,927 36,015 $192 3.7 $155
Asia Pacific (1)
Turn-Key Flex $4,163 23,300 $179 2.4 $146
Total $4,163 23,300 $179 2.4 $146
Interconnection $7,610 N/A N/A N/A N/A
Grand Total $69,163 488,449 $126 41.7 $121
Note: Totals may not foot due to rounding
differences.
(1) Based on quarterly average exchange
rates during the three months ended
September 30, 2018.
Investment Activity
During the third quarter of 2018, Digital Realty closed on the sale of 360 Spear Street, a 155,000 square foot data center in San Francisco, California, for $92 million. The facility was 39% leased and was expected to generate cash net operating income of approximately $2 million in 2018, representing a nominal exit cap rate of 1.9%. The sale generated net proceeds of $91 million, and Digital Realty recognized a gain on the sale of approximately $27 million in the third quarter of 2018.
Likewise during the third quarter of 2018, Digital Realty acquired three separate sites in Manassas, Virginia, Sterling, Virginia and Sydney, Australia, totaling 51.5 acres for a combined investment of $40 million, or approximately $773,000 per acre. The three sites are expected to support the development of approximately 138 megawatts of critical power. Digital Realty also entered into an agreement to acquire 424 acres of undeveloped land in Loudoun County, Virginia for a purchase price of $236.5 million, or approximately $558,000 per acre. The site is adjacent to Washington Dulles International Airport and located near bulk transmission lines as well as a major fiber path. The site is also located less than four miles from Digital Realty's existing data center campuses in Ashburn, Virginia. Commencement of development on these various land parcels will be subject to market demand, and delivery will be phased to meet future growth requirements upon build-out and lease-up of the company's existing campuses in Northern Virginia and Sydney, Australia.
Likewise during the third quarter of 2018, Digital Realty entered into a definitive agreement to acquire Ascenty, the leading data center provider in Brazil, from private equity firm Great Hill Partners in a transaction valued at approximately $1.8 billion. Digital Realty separately entered into an independent bilateral equity commitment letter with Brookfield Infrastructure, an affiliate of Brookfield Asset Management, one of the largest owners and operators of infrastructure assets globally, under which Brookfield has committed to fund half of the required initial equity investment, currently estimated to be approximately $613 million, excluding Brookfield's share of the transaction costs, in exchange for 49% of the total equity interests in a joint venture entity expected to ultimately own Ascenty. The transaction is subject to customary closing conditions and is expected to close in the fourth quarter of 2018.
Balance Sheet
Digital Realty had approximately $9.2 billion of total debt outstanding as of September 30, 2018, comprised of $9.1 billion of unsecured debt and approximately $0.1 billion of secured debt. At the end of the third quarter of 2018, net debt-to-adjusted EBITDA was 5.2x, debt-plus-preferred-to-total enterprise value was 30.2% and fixed charge coverage was 4.1x.
During the third quarter, Digital Realty executed an offering of 9,775,000 shares of common stock (including 1,275,000 shares from the exercise in full of the underwriters' over-allotment option) at a price of $113.00 per share, subject to forward sale agreements. The company expects to receive net proceeds of approximately $1.1 billion (net of fees and estimated expenses) upon full physical settlement of the forward sale agreements, expected to be no later than September 27, 2019.
Subsequent to quarter-end, Digital Realty closed a £400 million pound sterling-denominated bond offering of 12-year senior unsecured notes at 3.750% per annum.
Likewise subsequent to quarter-end, Digital Realty completed the refinancing of its global credit facilities. The combined facilities total $3.3 billion, comprised of a $2.35 billion global revolving credit facility and approximately $916 million of multi-currency term loans. The company also completed a five-year, ¥33.3 billion (approximately $300 million) Japanese yen-denominated revolving credit facility. In conjunction with the refinancing, pricing for the global revolving credit facility was tightened by 10 basis points at the company's BBB / Baa2 senior unsecured debt rating, the maturity date was extended by three years and total availability was expanded by $350 million. The refinancing provides funds for acquisitions, development, debt repayment, working capital and general corporate purposes.
2018 Outlook
Digital Realty reiterated its 2018 core FFO per share outlook of $6.55 - $6.65. 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 January 8,
2018
February 15, 2018
April 26, 2018
July 26, 2018
October 25, 2018
2018 total revenue
$3.0 - $3.2 billion
$3.0 - $3.2 billion
$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)
($5 - $15 million)
($5 - $15 million)
2018 Adjusted EBITDA
margin 58.0% - 60.0% 58.0% - 60.0% 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% 5.5% - 6.5% 5.5% - 6.5%
Internal Growth
Rental rates on
renewal leases
Cash basis
Slightly negative
Slightly negative
Slightly negative
Slightly negative
Slightly negative
GAAP basis
Up mid-single-digits
Up mid-single-digits
Up mid-single-digits
Up mid-single-digits
Up mid-single-digits
Year-end portfolio
occupancy
+/- 50 bps
+/- 50 bps
+/- 50 bps
+/- 50 bps
+/- 50 bps
"Same-capital" cash
NOI growth (2) 0% - 3.0% 0% - 3.0% 1.0% - 3.0% 1.0% - 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
$1.30 - $1.35
$1.30 - $1.35
U.S. Dollar /Euro
$1.10 - $1.20
$1.10 - $1.20
$1.18 - $1.22
$1.15 - $1.20
$1.15 - $1.20
External Growth
Dispositions
Dollar volume
$0 - $200 million
$88 - $200 million
$187 - $300 million
$199 - $300 million
$292 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
$0.9 - $1.1 billion
$0.9 - $1.1 billion
$0.9 - $1.1 billion
$1.0 - $1.2 billion
$1.2 - $1.4 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)
$25 - $30 million
$25 - $30 million
$25 - $30 million
$25 - $30 million
$25 - $30 million
Recurring CapEx +
capitalized leasing
costs (4)
$160 - $170 million
$160 - $170 million
$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
$650 million - $1 billion
$1.2 - $1.8 billion
Pricing 3.25% - 4.25% 3.25% - 4.25% 3.25% - 4.25% 3.25% - 4.50% 3.25% - 4.50%
Timing
Mid-to-late 2018
Mid-to-late 2018
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
$1.55 - $1.60
$1.55 - $1.60
Real estate
depreciation and
(gain)/loss on sale
$4.90 - $4.95
$4.90 - $4.95
$4.90 - $4.95
$4.95 - $4.95
$4.95 - $4.95
Funds From Operations
/share (NAREIT-
Defined)
$6.40 - $6.50
$6.40 - $6.50
$6.45 - $6.50
$6.50 - $6.55
$6.50 - $6.55
Non-core expenses and
revenue streams
$0.05 - $0.10
$0.05 - $0.10
$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
$6.55 - $6.65
$6.55 - $6.65
(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.
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 October 25, 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 third 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# 0813657 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 27, 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# 10124567. 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
Consolidated Quarterly Statements of Operations
Unaudited and in Thousands, Except Share and Per Share Data
---
Three Months Ended Nine Months Ended
30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
---
Rental revenues $541,073 $534,556 $530,925 $517,356 $440,591 $1,606,554 $1,257,293
Tenant reimbursements -
Utilities 105,822 100,084 98,576 97,657 78,134 304,482 209,939
Tenant reimbursements -
Other 57,282 55,639 51,503 54,324 29,479 164,424 78,304
Interconnection & other 62,760 61,770 61,373 60,275 59,851 185,903 175,377
Fee income 1,469 2,343 1,133 1,386 1,662 4,945 4,986
Other 518 527 858 447 208 1,903 584
Total Operating Revenues $768,924 $754,919 $744,368 $731,445 $609,925 $2,268,211 $1,726,483
Utilities $127,239 $115,470 $112,230 $112,055 $95,619 $354,939 $255,556
Rental property
operating 118,732 114,852 113,410 113,445 94,442 346,994 278,560
Property taxes 34,871 27,284 35,263 36,348 32,586 97,418 87,666
Insurance 2,653 2,606 3,731 3,223 2,590 8,990 7,758
Depreciation &
amortization 293,957 298,788 294,789 287,973 199,914 887,534 554,491
General & administration 40,997 44,277 36,289 44,311 41,477 121,563 112,399
Severance, equity
acceleration, and legal
expenses 645 1,822 234 1,209 2,288 2,701 3,522
Transaction and
integration expenses 9,626 5,606 4,178 15,681 42,809 19,410 60,367
Impairment of
investments in real
estate 28,992 28,992
Other expenses 1,139 152 431 2 3,051 1,722 3,075
Total Operating Expenses $629,859 $610,857 $600,555 $614,247 $543,768 $1,841,271 $1,392,386
Operating Income $139,065 $144,062 $143,813 $117,198 $66,157 $426,940 $334,097
Equity in earnings of
unconsolidated joint
venture $8,886 $7,438 $7,410 $5,924 $5,880 $23,734 $19,592
Gain on real estate
transactions 26,577 14,192 39,273 30,746 9,751 80,042 9,609
Interest and other
income (981) 3,398 (42) 324 2,813 2,375 3,331
Interest (expense) (80,851) (78,810) (76,985) (73,989) (71,621) (236,646) (184,653)
Tax (expense) (2,432) (2,121) (3,374) (545) (2,494) (7,927) (7,356)
Gain from early
extinguishment of debt 1,990 1,990
Net Income $90,264 $88,159 $110,095 $79,658 $12,476 $288,518 $176,610
Net (income)
attributable to
noncontrolling
interests (2,667) (2,696) (3,468) (6,023) (40) (8,831) (1,985)
Net Income Attributable
to Digital Realty
Trust, Inc. $87,597 $85,463 $106,627 $73,635 $12,436 $279,687 $174,625
Preferred stock
dividends, including
undeclared dividends (20,329) (20,329) (20,329) (20,329) (16,575) (60,987) (48,473)
Issuance costs
associated with
redeemed preferred
stock (6,309)
Net Income (Loss)
Available to Common
Stockholders $67,268 $65,134 $86,298 $53,306 ($4,139) $218,700 $119,843
Weighted-average shares
outstanding - basic 206,118,472 205,956,005 205,714,173 205,448,689 170,194,254 205,931,031 163,481,306
Weighted-average shares
outstanding - diluted 206,766,256 206,563,079 206,507,476 206,185,084 170,194,254 206,555,627 164,371,096
Weighted-average fully
diluted shares and
units 214,937,168 214,895,273 214,802,763 214,424,363 174,169,511 214,824,010 166,937,862
Net income (loss) per
share -basic $0.33 $0.32 $0.42 $0.26 ($0.02) $1.06 $0.73
Net income (loss) per
share -diluted $0.33 $0.32 $0.42 $0.26 ($0.02) $1.06 $0.73
Funds From Operations and Core Funds From Operations
Unaudited and in Thousands, Except Per Share Data
---
Reconciliation of Net
Income to Funds From
Operations (FFO)
Three Months Ended Nine Months Ended
---
30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
--- ---
Net Income (Loss)
Available to Common
Stockholders $67,268 $65,134 $86,298 $53,306 ($4,139) $218,700 $119,843
Adjustments:
Non-controlling
interests in operating
partnership 2,700 2,700 3,480 2,138 (79) 8,880 1,632
Real estate related
depreciation &
amortization (1) 290,757 295,750 291,686 284,924 196,871 878,193 545,328
Unconsolidated JV real
estate related
depreciation &
amortization 3,775 3,722 3,476 3,323 2,732 10,973 8,243
(Gain) on real estate
transactions (26,577) (14,192) (39,273) (30,746) (9,751) (80,042) (9,609)
Non-controlling
interests share of
gain on sale of
property 3,900
Impairment of
investments in real
estate 28,992 28,992
Funds From Operations $337,923 $353,114 $345,667 $316,845 $214,626 $1,036,704 $694,429
Funds From Operations -
diluted $337,923 $353,114 $345,667 $316,845 $214,626 $1,036,704 $694,429
Weighted-average
shares and units
outstanding - basic 214,289 214,288 214,009 213,688 173,461 214,199 166,048
Weighted-average
shares and units
outstanding - diluted
(2) 214,937 214,895 214,803 214,424 174,170 214,824 166,938
Funds From Operations
per share -basic $1.58 $1.65 $1.62 $1.48 $1.24 $4.84 $4.18
Funds From Operations
per share -diluted
(2) $1.57 $1.64 $1.61 $1.48 $1.23 $4.83 $4.16
Three Months Ended Nine Months Ended
Reconciliation of FFO
to Core FFO 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
--- ---
Funds From Operations -
diluted $337,923 $353,114 $345,667 $316,845 $214,626 $1,036,704 $694,429
Adjustments:
Termination fees and
other non-core
revenues (3) (518) (3,663) (858) (447) (208) (5,039) (584)
Transaction and
integration expenses 9,626 5,606 4,178 15,681 42,809 19,410 60,367
Gain from early
extinguishment of debt (1,990) (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) 645 1,822 234 1,209 2,288 2,701 3,522
Bridge facility fees
(5) 3,182 3,182
Other non-core expense
adjustments 2,269 152 431 2 3,051 2,852 3,075
Core Funds From
Operations -diluted $349,945 $357,031 $349,652 $333,290 $263,758 $1,056,628 $765,025
Weighted-average
shares and units
outstanding - diluted
(2) 214,937 214,895 214,803 214,424 174,170 214,824 166,938
Core Funds From
Operations per share -
diluted (2) $1.63 $1.66 $1.63 $1.55 $1.51 $4.92 $4.58
(1) Real Estate
Related Depreciation &
Amortization:
Three Months Ended Nine Months Ended
30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
---
Depreciation &
amortization per
income statement $293,957 $298,788 $294,789 $287,973 $199,914 $887,534 $554,491
Non-real estate
depreciation (3,200) (3,038) (3,103) (3,049) (3,043) (9,341) (9,163)
Real Estate Related
Depreciation &
Amortization $290,757 $295,750 $291,686 $284,924 $196,871 $878,193 $545,328
(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 the
share count detail section of the
reconciliation of core FFO to AFFO
for calculations of weighted average
common stock and units outstanding.
(3) Includes lease termination fees and
certain other adjustments that are
not core to our business.
(4) Relates to severance and other
charges related to the departure of
company executives and integration-
related severance.
(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 Nine Months Ended
Reconciliation of Core FFO
to AFFO 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
--- ---
Core FFO available to
common stockholders and
unitholders $349,945 $357,031 $349,652 $333,290 $263,758 $1,056,628 $765,025
Adjustments:
Non-real estate
depreciation 3,200 3,038 3,103 3,049 3,043 9,341 9,163
Amortization of deferred
financing costs 3,066 2,953 3,060 3,092 2,611 9,079 7,572
Amortization of debt
discount/premium 902 882 875 858 816 2,659 2,226
Non-cash stock-based
compensation expense 5,823 8,419 5,497 3,923 4,636 19,741 13,977
Straight-line rental
revenue (10,511) (8,489) (10,266) (8,705) (1,692) (29,266) (7,860)
Straight-line rental
expense 2,482 2,669 2,547 (635) 4,212 7,698 12,742
Above- and below-market
rent amortization 6,552 6,794 6,666 6,562 (873) 20,012 (4,792)
Deferred non-cash tax
expense (1,783) (1,137) (216) (1,100) 284 (3,135) (1,812)
Capitalized leasing
compensation (1) (2,606) (2,825) (2,998) (3,567) (2,945) (8,429) (8,319)
Recurring capital
expenditures (2) (22,500) (34,447) (27,328) (45,298) (34,664) (84,275) (90,992)
Capitalized internal
leasing commissions (1) (2,547) (2,822) (2,049) (1,217) (1,225) (7,418) (4,073)
AFFO available to common
stockholders and
unitholders (3) $332,023 $332,066 $328,543 $290,252 $237,961 $992,635 $692,857
Weighted-average shares
and units outstanding -
basic 214,289 214,288 214,009 213,688 173,461 214,199 166,048
Weighted-average shares
and units outstanding -
diluted (4) 214,937 214,895 214,803 214,424 174,170 214,824 166,938
AFFO per share -diluted
(4) $1.54 $1.55 $1.53 $1.35 $1.37 $4.62 $4.15
Dividends per share and
common unit $1.01 $1.01 $1.01 $0.93 $0.93 $3.03 $2.79
Diluted AFFO Payout Ratio 65.4 65.4 66.0 68.7 68.1 65.6 67.2
% % % % % % %
Three Months Ended Nine Months Ended
Share Count Detail 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17 30-Sep-18 30-Sep-17
--- ---
Weighted Average Common
Stock and Units
Outstanding 214,289 214,288 214,009 213,688 173,461 214,199 166,048
Add: Effect of dilutive
securities (excludes 5.50%
debentures) 648 607 794 736 709 625 890
Weighted Avg. Common Stock
and Units Outstanding -
diluted 214,937 214,895 214,803 214,424 174,170 214,824 166,938
(1) Includes only second-generation
leasing costs.
(2) Recurring capital expenditures
represent non-incremental building
improvements required to maintain
current revenues, including second-
generation tenant improvements and
external leasing commissions.
Recurring capital expenditures do
not include acquisition costs
contemplated when underwriting the
purchase of a building, costs which
are incurred to bring a building up
to Digital Realty's operating
standards, or internal leasing
commissions.
(3) For a definition and discussion of
AFFO, see the definitions section.
For a reconciliation of net income
available to common stockholders to
FFO and core FFO, see above.
(4) For all periods presented, we have
excluded the effect of dilutive
series C, series 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 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-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17
---
Assets
Investments in real estate:
Real estate $16,062,402 $15,969,938 $15,654,932 $15,163,846 $14,693,479
Construction in progress 1,464,010 1,323,998 1,470,065 1,399,684 1,405,740
Land held for future
development 284,962 261,368 236,415 352,406 330,101
Investments in real
estate $17,811,374 $17,555,304 $17,361,412 $16,915,936 $16,429,320
Accumulated depreciation
and amortization (3,755,596) (3,588,124) (3,439,050) (3,238,227) (3,075,294)
Net Investments in
Properties $14,055,778 $13,967,180 $13,922,362 $13,677,709 $13,354,026
Investment in
unconsolidated joint
ventures 169,919 167,306 167,564 163,477 106,374
Net Investments in Real
Estate $14,225,697 $14,134,486 $14,089,926 $13,841,186 $13,460,400
Cash and cash equivalents $46,242 $17,589 $22,370 $51 $192,578
Accounts and other
receivables (1) 308,709 282,287 309,328 276,347 258,490
Deferred rent 454,412 445,766 442,887 430,026 420,348
Acquired in-place lease
value, deferred leasing
costs and other real
estate intangibles, net 2,734,158 2,823,275 2,928,566 2,998,806 3,052,277
Acquired above-market
leases, net 135,127 150,084 165,568 184,375 178,190
Goodwill 3,373,342 3,378,325 3,405,110 3,389,595 3,384,394
Restricted cash 8,068 9,443 7,330 13,130 17,753
Assets associated with
real estate held for
sale 41,707 139,538 132,818
Other assets 176,355 170,168 169,125 131,291 135,250
Total Assets $21,462,110 $21,411,423 $21,581,917 $21,404,345 $21,232,498
Liabilities and Equity
Global unsecured
revolving credit
facility $590,289 $466,971 $952,121 $550,946 $138,477
Unsecured term loans 1,352,969 1,376,784 1,428,498 1,420,333 1,432,659
Unsecured senior notes,
net of discount 7,130,541 7,156,084 6,660,727 6,570,757 6,806,333
Mortgage loans, net of
premiums 106,072 106,245 106,366 106,582 106,775
Accounts payable and
other accrued
liabilities 1,059,355 1,031,794 1,012,490 980,218 1,024,394
Accrued dividends and
distributions 199,761
Acquired below-market
leases 208,202 216,520 225,674 249,465 257,732
Security deposits and
prepaid rent 233,667 207,292 207,859 217,898 223,536
Liabilities associated
with assets held for
sale 1,767 5,033 4,660
Total Liabilities $10,681,095 $10,561,690 $10,595,502 $10,300,993 $9,994,566
Redeemable non-
controlling interests -
operating partnership 17,553 52,805 49,871 53,902 64,509
Equity
Preferred Stock: $0.01 par value per
share, 110,000,000 shares authorized:
Series C Cumulative
Redeemable Preferred
Stock (2) $219,250 $219,250 $219,250 $219,250 $219,250
Series G Cumulative
Redeemable Preferred
Stock (3) 241,468 241,468 241,468 241,468 241,468
Series H Cumulative
Redeemable Preferred
Stock (4) 353,290 353,290 353,290 353,290 353,290
Series I Cumulative
Redeemable Preferred
Stock (5) 242,012 242,012 242,012 242,012 242,012
Series J Cumulative
Redeemable Preferred
Stock (6) 193,540 193,540 193,540 193,540 193,667
Common Stock: $0.01 par
value per share,
315,000,000 shares
authorized (7) 2,049 2,047 2,045 2,044 2,043
Additional paid-in
capital 11,333,035 11,310,132 11,285,611 11,261,462 11,250,322
Dividends in excess of
earnings (2,455,189) (2,314,291) (2,177,269) (2,055,552) (1,917,791)
Accumulated other
comprehensive (loss),
net (103,201) (107,070) (106,096) (108,432) (116,732)
Total Stockholders'
Equity $10,026,254 $10,140,378 $10,253,851 $10,349,082 $10,467,529
Noncontrolling Interests
Noncontrolling interest
in operating partnership $671,269 $654,261 $680,400 $698,125 $699,308
Noncontrolling interest
in consolidated joint
ventures 65,939 2,289 2,293 2,243 6,586
Total Noncontrolling
Interests $737,208 $656,550 $682,693 $700,368 $705,894
Total Equity $10,763,462 $10,796,928 $10,936,544 $11,049,450 $11,173,423
Total Liabilities and
Equity $21,462,110 $21,411,423 $21,581,917 $21,404,345 $21,232,498
(1) Net of allowance for doubtful
accounts of $9,060 and $6,737, as of
September 30, 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
September 30, 2018 and December 31,
2017, respectively.
(3) 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, 2018 and December 31,
2017, respectively.
(4) 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, 2018 and December 31,
2017, respectively.
(5) 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, 2018 and December 31,
2017, respectively.
(6) 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
September 30, 2018 and December 31,
2017, respectively.
(7) Common Stock: 206,267,055 and
205,470,300 shares issued and
outstanding as of September 30, 2018
and December 31, 2017, respectively.
Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization and Financial Ratios
Unaudited and in Thousands
---
Reconciliation of
Earnings Before
Interest, Taxes,
Depreciation &
Amortization (EBITDA)
(1)
Three Months Ended
30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 30-Sep-17
--- ---
Net Income (Loss)
Available to Common
Stockholders $67,268 $65,134 $86,298 $53,306 ($4,139)
Interest 80,851 78,810 76,985 73,989 71,621
(Gain) from early
extinguishment of
debt (1,990)
Tax expense 2,432 2,121 3,374 545 2,494
Depreciation &
amortization 293,957 298,788 294,789 287,973 199,914
Impairment of
investments in real
estate 28,992
EBITDA $444,508 $444,853 $461,446 $415,813 $296,892
Severance, equity
acceleration, and
legal expenses 645 1,822 234 1,209 2,288
Transaction and
integration expenses 9,626 5,606 4,178 15,681 42,809
(Gain) on real estate
transactions (26,577) (14,192) (39,273) (30,746) (9,751)
Other non-core
adjustments, net 2,269 (2,984) 431 2 3,051
Non-controlling
interests 2,667 2,696 3,468 6,023 40
Preferred stock
dividends, including
undeclared dividends 20,329 20,329 20,329 20,329 16,575
Adjusted EBITDA $453,467 $458,130 $450,813 $428,311 $351,904
(1) For definitions and
discussion of EBITDA and
Adjusted EBITDA, see the
definitions section.
Definitions
Funds From Operations (FFO):
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. 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 of investment in real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to other REITs' FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
Core Funds from Operations (Core FFO):
We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) gain 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 rental revenue, (vi) straight-line rental 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 adjustments, net, 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) on real estate transactions, other non-core adjustments, net, non-controlling interests, and preferred stock dividends, including undeclared dividends. 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 September 30, 2018, GAAP interest expense was $81 million, capitalized interest was $10 million and scheduled debt principal payments and preferred dividends was $20 million.
Three Months Ended Nine Months Ended
Reconciliation of Net Operating Income (NOI) (in thousands) 30-Sep-18 30-Jun-18 30-Sep-17 30-Sep-18 30-Sep-17
---
Operating income $139,065 $144,062 $66,157 $426,940 $334,097
Fee income (1,469) (2,343) (1,662) (4,945) (4,986)
Other income (518) (527) (208) (1,903) (584)
Depreciation and amortization 293,957 298,788 199,914 887,534 554,491
General and administrative 40,997 44,277 41,477 121,563 112,399
Severance, equity acceleration, and legal expenses 645 1,822 2,288 2,701 3,522
Transaction expenses 9,626 5,606 42,809 19,410 60,367
Impairment in investments in real estate 28,992 28,992
Other expenses 1,139 152 3,051 1,722 3,075
Net Operating Income $483,442 $491,837 $382,818 $1,453,022 $1,091,373
Cash Net Operating Income (Cash NOI)
Net Operating Income $483,442 $491,837 $382,818 $1,453,022 $1,091,373
Straight-line rental revenue (10,511) (8,489) (1,692) (29,266) (7,859)
Straight-line rental expense 2,479 2,691 4,128 7,770 12,701
Above- and below-market rent amortization 6,552 6,794 (873) 20,012 (4,792)
Cash Net Operating Income $481,962 $492,833 $384,381 $1,451,538 $1,091,423
Forward-Looking Statements
This document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: the Ascenty acquisition and related financings, the proposed joint venture with Brookfield, expected physical settlement of the forward sale agreements and use of proceeds from any such settlement, our expected investment and expansion activity, supply and demand for data center and colocation space, our acquisition and disposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, lag between signing and commencement, cap rates and yields, investment activity, the company's FFO, core FFO and net income 2018 outlook and underlying assumptions, information related to trends, our strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect new leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on investment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, 2018 backlog NOI, NAV components, and other forward-looking financial data. Such statements are based on management's beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
-- reduced demand for data centers or decreases in information technology
spending;
-- 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, including Ascenty;
-- difficulties in identifying properties to acquire and completing
acquisitions;
-- risks related to joint venture investments (including the proposed joint
venture with Brookfield), including as a result of our lack of control
of such investments;
-- risks associated with using debt to fund our business activities,
including re-financing and interest rate risks, our failure to repay
debt when due, adverse changes in our credit ratings or our breach of
covenants or other terms contained in our loan facilities and
agreements;
-- our failure to obtain necessary debt and equity financing, and our
dependence on external sources of capital;
-- financial market fluctuations and changes in foreign currency exchange
rates;
-- adverse economic or real estate developments in our industry or the
industry sectors that we sell to, including risks relating to decreasing
real estate valuations and impairment charges and goodwill and other
intangible asset impairment charges;
-- our inability to manage our growth effectively;
-- losses in excess of our insurance coverage;
-- environmental liabilities and risks related to natural disasters;
-- our inability to comply with rules and regulations applicable to our
company;
-- Digital Realty Trust, Inc.'s failure to maintain its status as a REIT
for federal income tax purposes;
-- Digital Realty Trust, L.P.'s failure to qualify as a partnership for
federal income tax purposes;
-- restrictions on our ability to engage in certain business activities;
and
-- changes in local, state, federal and international laws and regulations,
including related to taxation, real estate and zoning laws, and
increases in real property tax rates.
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance. We discussed a number of additional material risks in our annual report on Form 10-K for the year ended December 31, 2017, our current report on Form 8-K filed on September 24, 2018 and other filings with the Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Digital Realty, Digital Realty Trust, the Digital Realty logo, Turn-Key Flex and Powered Base Building are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries.
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