Digital Realty Reports Fourth Quarter And Full-Year 2018 Results
SAN FRANCISCO, Feb. 5, 2019 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the fourth quarter and full-year 2018. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.15 per share
in 4Q18, compared to $0.26 in 4Q17
-- Reported net income available to common stockholders of $1.21 per
share for the full year of 2018, compared to $0.99 in 2017
-- Reported FFO per share of $1.54 in 4Q18, compared to $1.48 in 4Q17
-- Reported FFO per share of $6.37 for the full year of 2018, compared
to $5.65 in 2017
-- Reported core FFO per share of $1.68 in 4Q18, compared to $1.55 in 4Q17
-- Reported core FFO per share of $6.60 for the full year of 2018,
compared to $6.14 in 2017
-- Signed total bookings during 4Q18 expected to generate $44 million of
annualized GAAP rental revenue, including a $7 million contribution from
interconnection
-- Signed total bookings during the full year of 2018 expected to
generate $268 million of annualized GAAP rental revenue, compared to
$199 million in 2017
-- Reiterated 2019 core FFO per share outlook of $6.60 - $6.70
-- Excluding foreign currency translation and adoption of the new lease
accounting standard, which are expected to have a negative impact of
approximately 1%-2% and 3%, respectively, the 2019 outlook
represents year-over-year growth of over 5% at the mid-point
Financial Results
Digital Realty reported revenues for the fourth quarter of 2018 of $778 million, a 1% increase from the previous quarter and a 6% increase from the same quarter last year. For the full-year 2018, the company reported revenues of $3.0 billion, a 24% increase over 2017.
The company delivered fourth quarter of 2018 net income of $53 million, and net income available to common stockholders of $31 million, or $0.15 per diluted share, compared to $0.33 per diluted share in the previous quarter and $0.26 per diluted share in the same quarter last year. For the full-year 2018, Digital Realty delivered net income of $341 million and net income available to common stockholders of $250 million, or $1.21 per diluted share, compared to $0.99 per diluted share for 2017.
Digital Realty generated fourth quarter of 2018 adjusted EBITDA of $461 million, a 2% increase from the previous quarter and an 8% increase over the same quarter last year. For the full-year 2018, the company generated adjusted EBITDA of $1.8 billion, a 27% increase over 2017.
The company reported fourth quarter of 2018 funds from operations of $332 million, or $1.54 per share, compared to $1.57 per share in the previous quarter and $1.48 per share in the same quarter last year. For the full-year 2018, Digital Realty reported FFO per share of $6.37 compared to $5.65 in 2017.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered fourth quarter of 2018 core FFO per share of $1.68, a 3% increase from $1.63 per share in the previous quarter, and an 8% increase from $1.55 per share in the same quarter last year. For the full-year 2018, the company delivered core FFO per share of $6.60, a 7% increase from $6.14 per share in 2017.
Leasing Activity
"In the fourth quarter, we signed total bookings expected to generate $44 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection," said Chief Executive Officer A. William Stein. "We had an excellent year in 2018, with record bookings of $268 million, more than one-third higher than our previous record. We also made several strategic investments to expand our platform in both geographic breadth and portfolio depth, many of which have already become significant revenue and cash flow contributors. As we look ahead to 2019 and beyond, we are encouraged by the resiliency of the underlying demand for our business along with our operational and financial strength, and believe we are well positioned to continue to deliver sustainable growth for our customers, shareholders and employees."
The weighted-average lag between leases signed during the fourth quarter of 2018 and the contractual commencement date was three months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $138 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the fourth quarter of 2018 rolled down 2.6% on a cash basis and up 3.2% on a GAAP basis. For the full-year 2018, rental rates on renewal leases rolled up 0.3% on a cash basis and up 4.5% on a GAAP basis.
New leases signed during the fourth quarter of 2018 are summarized by region and product type 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 $6,914 44,362 $156 3.6 $162
Powered Base Building 4,641 91,886 51
Colocation 8,218 46,315 177 2.7 257
Non-Technical 460 23,973 19
Total $20,233 206,536 $98 6.2 $203
Europe (1)
Turn-Key Flex $2,077 15,465 $134 1.5 $119
Colocation 1,819 4,475 406 0.5 298
Total $3,896 19,940 $195 2.0 $165
Asia Pacific (1)
Turn-Key Flex $13,038 59,913 $218 8.3 $132
Non-Technical 36 350 103
Total $13,074 60,263 $217 8.3 $132
Interconnection $6,591 N/A N/A N/A N/A
Grand Total $43,794 286,739 $130 16.4 $163
Note: Totals may not foot due to rounding
differences.
(1) Based on quarterly average exchange
rates during the three months
ended December 31, 2018.
Investment Activity
During the fourth quarter of 2018, Digital Realty completed the previously announced acquisition of Ascenty, the leading data center provider in Brazil, 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 the equity investment, estimated at 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 agreement with Brookfield is subject to certain closing conditions and is expected to close in the first quarter of 2019.
Likewise during the fourth quarter of 2018, Digital Realty completed the previously announced acquisition of 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 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.
During the fourth quarter of 2018, Digital Realty also acquired the freehold interest to Sovereign House, a 96,000 square foot multi-story property adjacent to the company's Meridian Gate data center and Lawn House parking garage in London for a purchase price of £40 million, or approximately $51 million. Digital Realty previously acquired a leasehold interest in Sovereign House as part of the European portfolio acquisition in 2016. Sovereign House is expected to generate incremental annual cash net operating income of approximately $3 million, representing a cap rate of 4.9%.
Separately, Digital Realty acquired a seven-acre land parcel adjacent to the company's existing holdings in Osaka, Japan during the fourth quarter of 2018 for a purchase price of ¥500 million, or approximately $5 million. The parcel is expected to support the development of up to 25 megawatts of critical power. Commencement of development 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 connected campus in Osaka.
Subsequent to the end of the quarter, Digital Realty entered into a 30-year ground lease with Jurong Town Council for two adjacent land parcels in Singapore totaling three acres in Singapore for an upfront payment of S$8 million, or approximately $6 million. These parcels are located less than one block from the company's existing Loyang Way data center, and are expected to support the development of up to 40 megawatts of critical power. Commencement of development 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 Loyang Way data center.
Balance Sheet
Digital Realty had approximately $11.1 billion of total debt outstanding as of December 31, 2018, comprised of $10.4 billion of unsecured debt and approximately $0.7 billion of secured debt. At the end of the fourth quarter of 2018, net debt-to-adjusted EBITDA was 6.2x (reflecting a partial-period contribution from the Ascenty acquisition), debt-plus-preferred-to-total enterprise value was 34.8% and fixed charge coverage was 4.0x. Pro forma for a full-quarter contribution from Ascenty, Brookfield's expected equity contribution and settlement of the $1.1 billion forward equity offering, net debt-to-adjusted EBITDA was 5.0x.
During the fourth quarter of 2018, Digital Realty closed a £400 million (approximately $525 million) pound sterling-denominated bond offering of 12-year senior unsecured notes at 3.750%.
Likewise during the fourth quarter of 2018, 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, the maturity date was extended by three years, and total availability was expanded by $350 million.
Subsequent to the end of the quarter, Digital Realty closed an EUR850 million (approximately $970 million) Euro-denominated green bond offering of seven-year senior unsecured notes at 2.500%.
Likewise subsequent to quarter-end, Digital Realty launched a cash tender offer for the company's 5.875% senior notes due 2020 at a tender price of $1,022.81 per $1,000 principal amount. At expiration of the offer, 70% of the notes outstanding were validly tendered and accepted for purchase. A notice of redemption for the remaining $150 million outstanding was delivered in accordance with the terms of the indenture governing the notes, with a redemption date of February 19, 2019.
2019 Outlook
Digital Realty reiterated its 2019 core FFO per share outlook of $6.60 - $6.70. The assumptions underlying this guidance are summarized in the following table.
As of As of
Top-Line and Cost
Structure January 8, 2019 February 5, 2019
Total revenue
$3.2 - $3.3 billion
$3.2 - $3.3 billion
Net non-cash rent
adjustments (1) ($5 -$15 million) ($5 -$15 million)
Adjusted EBITDA margin 57.0% - 59.0% 57.0% - 59.0%
G&A margin 6.0% - 7.0% 6.0% - 7.0%
Internal Growth
Rental rates on
renewal leases
Cash basis Down high-single-
digits Down high-single-digits
GAAP basis Slightly positive Slightly positive
Year-end portfolio
occupancy
+/- 50 bps
+/- 50 bps
"Same-capital" cash
NOI growth (2) +/- 2.0% +/- 2.0%
Foreign Exchange Rates
U.S. Dollar /Pound
Sterling
$1.20 - $1.30
$1.20 - $1.30
U.S. Dollar /Euro
$1.10 - $1.20
$1.10 - $1.20
External Growth
Development
CapEx
$1.2 - $1.4 billion
$1.2 - $1.4 billion
Average stabilized
yields 9.0% - 12.0% 9.0% - 12.0%
Enhancements and other
non-recurring CapEx
(3)
$30 - $40 million
$30 - $40 million
Recurring CapEx +
capitalized leasing
costs (4)
$145 - $155 million
$145 - $155 million
Balance Sheet
Long-term debt
issuance
Dollar amount
$0.5 - $1.0 billion
$1.0 - $1.5 billion
Pricing 3.50% - 5.00% 2.50% - 5.00%
Timing Early-to-mid 2019 Early-to-mid 2019
Net income per diluted
share
$1.40 - $1.45
$1.40 - $1.45
Real estate
depreciation and
(gain) /loss on sale
$5.15 - $5.15
$5.15 - $5.15
Funds From Operations
/share (NAREIT-
Defined)
$6.55 - $6.60
$6.55 - $6.60
Non-core expenses and
revenue streams
$0.05 - $0.10
$0.05 - $0.10
Core Funds From
Operations /share
$6.60 - $6.70
$6.60 - $6.70
Foreign currency
translation
adjustments
$0.05 - $0.15
$0.05 - $0.15
Constant-Currency
Core FFO /share
$6.65 - $6.85
$6.65 - $6.85
(1) Net non-cash rent adjustments
represent the sum of straight-
line rental revenue and straight-
line rent expense, as well as the
amortization of above- and below-
market leases (i.e., FAS 141
adjustments).
(2) The "same-capital" pool includes
properties owned as of December
31, 2017 with less than 5% of
total rentable square feet under
development. It also excludes
properties that were undergoing,
or were expected to undergo,
development activities in 2018-
2019, properties classified as
held for sale, and properties sold
or contributed to joint ventures
for all periods presented.
(3) Other non-recurring CapEx
represents costs incurred to
enhance the capacity or
marketability of operating
properties, such as network fiber
initiatives and software
development costs.
(4) Recurring CapEx represents non-
incremental improvements required
to maintain current revenues,
including second-generation
tenant improvements and leasing
commissions.
(5) FASB Accounting Standard
Codification Topic 842, Leases
("ASC 842"), which was not in
effect during 2018, is expected to
result in an increase in General &
Administrative expense of $0.20
per share.
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. EST / 2:30 p.m. PST on February 5, 2019, 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 fourth quarter and full-year 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# 8682524 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 March 7, 2019. 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# 10127129. 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, Latin America, 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 Twelve Months Ended
31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
---
Rental revenues $555,816 $541,073 $534,556 $530,925 $517,356 $2,162,370 $1,774,649
Tenant reimbursements -
Utilities 102,641 105,822 100,084 98,576 97,657 407,123 307,596
Tenant reimbursements -
Other 53,090 57,282 55,639 51,503 54,324 217,514 132,628
Interconnection & other 63,803 62,760 61,770 61,373 60,275 249,706 235,652
Fee income 2,896 1,469 2,343 1,133 1,386 7,841 6,372
Other 21 518 527 858 447 1,924 1,031
Total Operating Revenues $778,267 $768,924 $754,919 $744,368 $731,445 $3,046,478 $2,457,928
Utilities $122,108 $127,239 $115,470 $112,230 $112,055 $477,047 $367,611
Rental property
operating 133,024 118,732 114,852 113,410 113,445 480,018 392,005
Property taxes 32,098 34,871 27,284 35,263 36,348 129,516 124,014
Insurance 2,412 2,653 2,606 3,731 3,223 11,402 10,981
Depreciation &
amortization 299,362 293,957 298,788 294,789 287,973 1,186,896 842,464
General & administration 38,801 40,997 44,277 36,289 44,311 160,364 156,710
Severance, equity
acceleration, and legal
expenses 602 645 1,822 234 1,209 3,303 4,731
Transaction and
integration expenses 25,917 9,626 5,606 4,178 15,681 45,327 76,048
Impairment of
investments in real
estate 28,992
Other expenses 1,096 1,139 152 431 2 2,818 3,077
Total Operating Expenses $655,420 $629,859 $610,857 $600,555 $614,247 $2,496,691 $2,006,633
Operating Income $122,847 $139,065 $144,062 $143,813 $117,198 $549,787 $451,295
Equity in earnings of
unconsolidated joint
venture $9,245 $8,886 $7,438 $7,410 $5,924 $32,979 $25,516
Gain on real estate
transactions 7 26,577 14,192 39,273 30,746 80,049 40,355
Interest and other
income 1,106 (981) 3,398 (42) 324 3,481 3,655
Interest (expense) (84,883) (80,851) (78,810) (76,985) (73,989) (321,529) (258,642)
Tax income (expense) 5,843 (2,432) (2,121) (3,374) (545) (2,084) (7,901)
Gain (loss) from early
extinguishment of debt (1,568) (1,568) 1,990
Net Income $52,597 $90,264 $88,159 $110,095 $79,658 $341,115 $256,268
Net (income)
attributable to
noncontrolling
interests (1,038) (2,667) (2,696) (3,468) (6,023) (9,869) (8,008)
Net Income Attributable
to Digital Realty
Trust, Inc. $51,559 $87,597 $85,463 $106,627 $73,635 $331,246 $248,260
Preferred stock
dividends, including
undeclared dividends (20,329) (20,329) (20,329) (20,329) (20,329) (81,316) (68,802)
Issuance costs
associated with
redeemed preferred
stock (6,309)
Net Income Available to
Common Stockholders $31,230 $67,268 $65,134 $86,298 $53,306 $249,930 $173,149
Weighted-average shares
outstanding - basic 206,345,138 206,118,472 205,956,005 205,714,173 205,448,689 206,035,408 174,059,386
Weighted-average shares
outstanding - diluted 207,113,100 206,766,256 206,563,079 206,507,476 206,185,084 206,673,471 174,895,098
Weighted-average fully
diluted shares and
units 215,417,085 214,937,168 214,895,273 214,802,763 214,424,363 214,950,934 178,891,648
Net income (loss) per
share -basic $0.15 $0.33 $0.32 $0.42 $0.26 $1.21 $0.99
Net income (loss) per
share -diluted $0.15 $0.33 $0.32 $0.42 $0.26 $1.21 $0.99
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 Twelve Months Ended
---
31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
--- ---
Net Income (Loss)
Available to Common
Stockholders $31,230 $67,268 $65,134 $86,298 $53,306 $249,930 $173,149
Adjustments:
Non-controlling
interests in operating
partnership 1,300 2,700 2,700 3,480 2,138 10,180 3,770
Real estate related
depreciation &
amortization (1) 295,724 290,757 295,750 291,686 284,924 1,173,917 830,252
Unconsolidated JV real
estate related
depreciation &
amortization 3,615 3,775 3,722 3,476 3,323 14,587 11,566
(Gain) on real estate
transactions (7) (26,577) (14,192) (39,273) (30,746) (80,049) (40,355)
Non-controlling
interests share of gain
on sale of property 3,900 3,900
Impairment of
investments in real
estate 28,992
Funds From Operations $331,862 $337,923 $353,114 $345,667 $316,845 $1,368,565 $1,011,274
Funds From Operations -
diluted $331,862 $337,923 $353,114 $345,667 $316,845 $1,368,565 $1,011,274
Weighted-average shares
and units outstanding -
basic 214,649 214,289 214,288 214,009 213,688 214,313 178,056
Weighted-average shares
and units outstanding -
diluted (2) 215,417 214,937 214,895 214,803 214,424 214,951 178,892
Funds From Operations
per share -basic $1.55 $1.58 $1.65 $1.62 $1.48 $6.39 $5.68
Funds From Operations
per share -diluted (2) $1.54 $1.57 $1.64 $1.61 $1.48 $6.37 $5.65
Three Months Ended Twelve Months Ended
Reconciliation of FFO to
Core FFO 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
--- ---
Funds From Operations -
diluted $331,862 $337,923 $353,114 $345,667 $316,845 $1,368,565 $1,011,274
Adjustments:
Termination fees and
other non-core
revenues (3) (21) (518) (3,663) (858) (447) (5,060) (1,031)
Transaction and
integration expenses 25,917 9,626 5,606 4,178 15,681 45,327 76,048
(Gain) loss from early
extinguishment of debt 1,568 1,568 (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) 602 645 1,822 234 1,209 3,303 4,731
Bridge facility fees (5) 3,182
Other non-core expense
adjustments 1,471 2,269 152 431 2 4,323 3,077
Core Funds From
Operations -diluted $361,399 $349,945 $357,031 $349,652 $333,290 $1,418,026 $1,098,315
Weighted-average shares
and units outstanding -
diluted (2) 215,417 214,937 214,895 214,803 214,424 214,951 178,892
Core Funds From
Operations per share -
diluted (2) $1.68 $1.63 $1.66 $1.63 $1.55 $6.60 $6.14
(1) Real Estate Related Depreciation & Amortization:
Three Months Ended Twelve Months Ended
31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
---
Depreciation &
amortization per income
statement $299,362 $293,957 $298,788 $294,789 $287,973 $1,186,896 $842,464
Non-real estate
depreciation (3,638) (3,200) (3,038) (3,103) (3,049) (12,979) (12,212)
Real Estate Related
Depreciation &
Amortization $295,724 $290,757 $295,750 $291,686 $284,924 $1,173,917 $830,252
(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 Twelve Months Ended
Reconciliation of Core FFO
to AFFO 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
--- ---
Core FFO available to
common stockholders and
unitholders $361,399 $349,945 $357,031 $349,652 $333,290 $1,418,026 $1,098,315
Adjustments:
Non-real estate
depreciation 3,638 3,200 3,038 3,103 3,049 12,979 12,212
Amortization of deferred
financing costs 3,128 3,066 2,953 3,060 3,092 12,207 10,664
Amortization of debt
discount/premium 971 902 882 875 858 3,630 3,084
Non-cash stock-based
compensation expense 5,609 5,823 8,419 5,497 3,923 25,349 17,900
Straight-line rental
revenue (11,157) (10,511) (8,489) (10,266) (8,705) (40,422) (16,565)
Straight-line rental
expense 2,052 2,482 2,669 2,547 (635) 9,750 12,107
Above- and below-market
rent amortization 6,521 6,552 6,794 6,666 6,562 26,533 1,770
Deferred non-cash tax
expense (8,835) (1,783) (1,137) (216) (1,100) (11,970) (2,912)
Capitalized leasing
compensation (1) (2,501) (2,606) (2,825) (2,998) (3,567) (10,930) (11,886)
Recurring capital
expenditures (2) (47,951) (22,500) (34,447) (27,328) (45,298) (132,226) (136,290)
Capitalized internal
leasing commissions (1) (2,659) (2,547) (2,822) (2,049) (1,217) (10,077) (5,290)
AFFO available to common
stockholders and
unitholders (3) $310,215 $332,023 $332,066 $328,543 $290,252 $1,302,849 $983,109
Weighted-average shares
and units outstanding -
basic 214,649 214,289 214,288 214,009 213,688 214,313 178,056
Weighted-average shares
and units outstanding -
diluted (4) 215,417 214,937 214,895 214,803 214,424 214,951 178,892
AFFO per share -diluted
(4) $1.44 $1.54 $1.55 $1.53 $1.35 $6.06 $5.50
Dividends per share and
common unit $1.01 $1.01 $1.01 $1.01 $0.93 $4.04 $3.72
Diluted AFFO Payout Ratio 70.1 65.4 65.4 66.0 68.7 66.7 67.7
% % % % % % %
Three Months Ended Twelve Months Ended
Share Count Detail 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17 31-Dec-18 31-Dec-17
--- ---
Weighted Average Common
Stock and Units
Outstanding 214,649 214,289 214,288 214,009 213,688 214,313 178,056
Add: Effect of dilutive
securities (excludes 5.50%
debentures) 768 648 607 794 736 638 836
Weighted Avg. Common Stock
and Units Outstanding -
diluted 215,417 214,937 214,895 214,803 214,424 214,951 178,892
(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
---
31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17
---
Assets
Investments in real estate:
Real estate $17,055,017 $16,062,402 $15,969,938 $15,654,932 $15,163,846
Construction in progress 1,621,927 1,464,010 1,323,998 1,470,065 1,399,684
Land held for future
development 162,941 284,962 261,368 236,415 352,406
Investments in real
estate $18,839,885 $17,811,374 $17,555,304 $17,361,412 $16,915,936
Accumulated depreciation
and amortization (3,935,267) (3,755,596) (3,588,124) (3,439,050) (3,238,227)
Net Investments in
Properties $14,904,618 $14,055,778 $13,967,180 $13,922,362 $13,677,709
Investment in
unconsolidated joint
ventures 175,108 169,919 167,306 167,564 163,477
Net Investments in Real
Estate $15,079,726 $14,225,697 $14,134,486 $14,089,926 $13,841,186
Cash and cash equivalents $126,700 $46,242 $17,589 $22,370 $51
Accounts and other
receivables (1) 299,621 308,709 282,287 309,328 276,347
Deferred rent 463,248 454,412 445,766 442,887 430,026
Acquired in-place lease
value, deferred leasing
costs and other real
estate intangibles, net 3,144,395 2,734,158 2,823,275 2,928,566 2,998,806
Acquired above-market
leases, net 119,759 135,127 150,084 165,568 184,375
Goodwill 4,348,007 3,373,342 3,378,325 3,405,110 3,389,595
Restricted cash 8,522 8,068 9,443 7,330 13,130
Assets associated with
real estate held for
sale 41,707 139,538
Other assets 176,717 176,355 170,168 169,125 131,291
Total Assets $23,766,695 $21,462,110 $21,411,423 $21,581,917 $21,404,345
Liabilities and Equity
Global unsecured
revolving credit
facility $1,647,735 $590,289 $466,971 $952,121 $550,946
Unsecured term loans 1,178,904 1,352,969 1,376,784 1,428,498 1,420,333
Unsecured senior notes,
net of discount 7,589,126 7,130,541 7,156,084 6,660,727 6,570,757
Secured debt, net of
premiums 685,714 106,072 106,245 106,366 106,582
Accounts payable and
other accrued
liabilities 1,164,509 1,059,355 1,031,794 1,012,490 980,218
Accrued dividends and
distributions 217,241 199,761
Acquired below-market
leases 200,113 208,202 216,520 225,674 249,465
Security deposits and
prepaid rent 209,311 233,667 207,292 207,859 217,898
Liabilities associated
with assets held for
sale 1,767 5,033
Total Liabilities $12,892,653 $10,681,095 $10,561,690 $10,595,502 $10,300,993
Redeemable non-
controlling interests -
operating partnership 16,628 17,553 52,805 49,871 53,902
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) 193,540 193,540 193,540 193,540 193,540
Common Stock: $0.01 par
value per share,
315,000,000 shares
authorized (7) 2,051 2,049 2,047 2,045 2,044
Additional paid-in
capital 11,355,751 11,333,035 11,310,132 11,285,611 11,261,462
Dividends in excess of
earnings (2,633,071) (2,455,189) (2,314,291) (2,177,269) (2,055,552)
Accumulated other
comprehensive (loss),
net (115,647) (103,201) (107,070) (106,096) (108,432)
Total Stockholders'
Equity $9,858,644 $10,026,254 $10,140,378 $10,253,851 $10,349,082
Noncontrolling Interests
Noncontrolling interest
in operating partnership $930,714 $671,269 $654,261 $680,400 $698,125
Noncontrolling interest
in consolidated joint
ventures 68,056 65,939 2,289 2,293 2,243
Total Noncontrolling
Interests $998,770 $737,208 $656,550 $682,693 $700,368
Total Equity $10,857,414 $10,763,462 $10,796,928 $10,936,544 $11,049,450
Total Liabilities and
Equity $23,766,695 $21,462,110 $21,411,423 $21,581,917 $21,404,345
(1) Net of allowance for doubtful
accounts of $11,554 and $6,737, as
of December 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 December 31,
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 December 31,
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 December 31,
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 December 31,
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 December 31,
2018 and December 31, 2017,
respectively.
(7) Common Stock: 206,425,656 and
205,470,300 shares issued and
outstanding as of December 31,
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
31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 31-Dec-17
---
Net Income Available to Common Stockholders $31,230 $67,268 $65,134 $86,298 $53,306
Interest 84,883 80,851 78,810 76,985 73,989
Loss from early extinguishment of debt 1,568
Tax (income) expense (5,843) 2,432 2,121 3,374 545
Depreciation & amortization 299,362 293,957 298,788 294,789 287,973
EBITDA $411,200 $444,508 $444,853 $461,446 $415,813
Severance, equity acceleration, and legal expenses 602 645 1,822 234 1,209
Transaction and integration expenses 25,917 9,626 5,606 4,178 15,681
(Gain) on real estate transactions (7) (26,577) (14,192) (39,273) (30,746)
Other non-core adjustments, net 1,471 2,269 (2,984) 431 2
Non-controlling interests 1,038 2,667 2,696 3,468 6,023
Preferred stock dividends, including undeclared dividends 20,329 20,329 20,329 20,329 20,329
Adjusted EBITDA $460,550 $453,467 $458,130 $450,813 $428,311
(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 December 31, 2018, GAAP interest expense was $85 million, capitalized interest was $9 million and scheduled debt principal payments and preferred dividends was $20 million.
Three Months Ended Twelve Months Ended
Reconciliation of Net
Operating Income
(NOI) (in thousands) 31-Dec-18 30-Sep-18 31-Dec-17 31-Dec-18 31-Dec-17
---
Operating income $122,847 $139,065 $117,198 $549,787 $451,295
Fee income (2,896) (1,469) (1,386) (7,841) (6,372)
Other income (21) (518) (447) (1,924) (1,031)
Depreciation and
amortization 299,362 293,957 287,973 1,186,896 842,464
General and
administrative 38,801 40,997 44,311 160,364 156,710
Severance, equity
acceleration, and
legal expenses 602 645 1,209 3,303 4,731
Transaction expenses 25,917 9,626 15,681 45,327 76,048
Impairment in
investments in real
estate 28,992
Other expenses 1,096 1,139 2 2,818 3,077
Net Operating Income $485,708 $483,442 $464,541 $1,938,730 $1,555,914
Cash Net Operating
Income (Cash NOI)
Net Operating Income $485,708 $483,442 $464,541 $1,938,730 $1,555,914
Straight-line rental
revenue (11,157) (10,511) (8,706) (40,422) (16,565)
Straight-line rental
expense 2,108 2,478 (626) 9,878 12,075
Above- and below-
market rent
amortization 6,521 6,552 6,633 26,533 1,841
Cash Net Operating
Income $483,180 $481,961 $461,842 $1,934,719 $1,553,265
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, the expected redemption of the company's 5.875% senior notes due 2020, 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 2019 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, 2019 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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