Digital Realty Reports First Quarter 2019 Results
SAN FRANCISCO, April 25, 2019 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the first quarter of 2019. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.46 per share in 1Q19, compared to $0.42 in 1Q18 -- Reported FFO per share of $1.92 in 1Q19, compared to $1.61 in 1Q18 -- Reported core FFO per share of $1.73 in 1Q19, compared to $1.63 in 1Q18 -- Signed total bookings during 1Q19 expected to generate $50 million of annualized GAAP rental revenue, including $9 million from Ascenty (at 100% share) and a $7 million contribution from interconnection -- Reiterated 2019 core FFO per share outlook of $6.60 - $6.70
Financial Results
Digital Realty reported revenues for the first quarter of 2019 of $815 million, a 5% increase from the previous quarter and a 9% increase from the same quarter last year.
The company delivered first quarter of 2019 net income of $121 million, and net income available to common stockholders of $96 million, or $0.46 per diluted share, compared to $0.15 per diluted share in the previous quarter and $0.42 per diluted share in the same quarter last year.
Digital Realty generated first quarter of 2019 adjusted EBITDA of $483 million, a 4% increase from the previous quarter and a 6% increase over the same quarter last year.
The company reported first quarter of 2019 funds from operations of $417 million, or $1.92 per share, compared to $1.54 per share in the previous quarter and $1.61 per share in the same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered first quarter of 2019 core FFO per share of $1.73, a 3% increase from $1.68 per share in the previous quarter, and a 6% increase from $1.63 per share in the same quarter last year.
Leasing Activity
"In the first quarter, we signed total bookings expected to generate $50 million of annualized GAAP rental revenue, including $9 million from Ascenty along with a $7 million contribution from interconnection," said Chief Executive Officer A. William Stein. "We delivered solid execution against our strategic plan, extending our global platform, strengthening our balance sheet and capitalizing on our competitive advantages to capture robust and diverse enterprise demand across geographic regions. Given the resiliency of our business and our balance sheet, we believe we are well positioned to continue to deliver sustainable growth for customers, shareholders and employees, into the second half of 2019 and beyond."
The weighted-average lag between leases signed during the first quarter of 2019 and the contractual commencement date was two months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $116 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the first quarter of 2019 rolled down 6.9% on a cash basis and up 7.1% on a GAAP basis.
New leases signed during the first quarter of 2019 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 $13,578 109,551 $124 11.3 $100 Powered Base Building 4,854 51,615 94 Colocation 5,322 22,743 234 1.7 261 Non-Technical 206 69,486 3 Total $23,960 253,395 $95 13.0 $121 Europe (1) Turn-Key Flex $5,168 34,461 $150 3.2 $136 Colocation 1,264 2,261 559 0.3 314 Non-Technical 32 369 86 Total $6,464 37,091 $174 3.5 $153 Asia Pacific (1) Turn-Key Flex $3,196 15,716 $203 1.5 $178 Non-Technical 83 1,646 50 Total $3,279 17,362 $189 1.5 $178 South America (1) $8,622 N/A N/A N/A N/A Interconnection $7,460 N/A N/A N/A N/A Grand Total $49,785 307,848 $109 18.0 $132
Note: Totals may not foot due to rounding differences. (1) Based on quarterly average exchange rates during the three months ended March 31, 2019.
Investment Activity
During the first quarter of 2019, Digital Realty closed the previously announced joint venture with Brookfield Infrastructure, an affiliate of Brookfield Asset Management, one of the largest owners and operators of infrastructure assets globally. Brookfield invested approximately $700 million in exchange for approximately 49% of the total equity interests in the joint venture which owns and operates Ascenty, the leading data center provider in Brazil.
During the first quarter of 2019, Digital Realty closed the previously announced 30-year ground lease with Jurong Town Council for two adjacent land parcels in Singapore totaling three acres for an upfront payment of 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.
As previously disclosed, MC Digital Realty, a 50/50 joint venture between Mitsubishi Corporation and Digital Realty, reached an agreement during the first quarter of 2019 to acquire a five-acre land parcel in Tokyo. The site is located at the center of the Inzai data center cluster, one of the highest-density areas in Japan with a well-established utility and connectivity infrastructure, and home to leading global cloud providers and financial institutions. Demolition of the existing structure on the site will begin immediately after closing and data center development is expected to commence in 2020, subject to planning approvals. The initial facility is expected to deliver up to 35.6 megawatts of total IT capacity. The Tokyo land parcel acquisition is expected to close later this year and is subject to customary closing conditions.
Digital Realty participated in Megaport's March 2019 equity offering, investing approximately $2.6 million to maintain a 7.3% ownership stake.
Balance Sheet
Digital Realty had approximately $10.3 billion of total debt outstanding as of March 31, 2019, comprised of $10.2 billion of unsecured debt and approximately $0.1 billion of secured debt. At the end of the first quarter of 2019, net debt-to-adjusted EBITDA was 5.5x, debt-plus-preferred-to-total enterprise value was 31.2% and fixed charge coverage was 3.6x. Pro forma for de-consolidation of the Ascenty joint venture with Brookfield and settlement of the $1.1 billion forward equity offering, net debt-to-adjusted EBITDA was 5.1x and fixed charge coverage was 4.1x.
During the first quarter of 2019, Digital Realty closed an EUR850 million (approximately $970 million) Euro-denominated green bond offering of seven-year senior unsecured notes at 2.500%. In February 2019, Digital Realty raised an additional EUR225 million (approximately $256 million) of Euro-denominated green bonds due 2026.
During the first quarter of 2019, Digital Realty redeemed all of its outstanding 5.875% senior notes due 2020. Approximately 70% of the notes were purchased through a tender offer at a tender price of $1,022.81 per $1,000 principal amount, while the remaining 30% were redeemed through a call notice delivered in accordance with the terms of the indenture governing the notes.
During the first quarter of 2019, Digital Realty also issued £150 million (approximately $200 million) of pounds sterling-denominated 3.750% guaranteed notes due 2030 as additional notes under the indenture dated October 17, 2018, under which Digital Realty previously issued £400,000,000 (approximately $530 million) of its 3.750% guaranteed notes due 2030.
Separately, Digital Realty closed an offering of 8,400,000 shares of 5.850% Series K Cumulative Redeemable Preferred Stock (including 400,000 shares from the partial exercise of the underwriters' over-allotment option) at a price of $25.00 per share, generating gross proceeds of approximately $210 million.
Subsequent to quarter-end, Digital Realty redeemed all 14.6 million shares of its 7.375% Series H Cumulative Redeemable Preferred Stock.
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 As of Top-Line and Cost Structure January 8, 2019 February 5, 2019 April 25, 2019 Total revenue $3.2 - $3.3 billion $3.2 - $3.3 billion $3.2 - $3.3 billion Net non-cash rent adjustments (1) ($5 - $15 million) ($5 - $15 million) ($5 - $15 million) Adjusted EBITDA margin 57.0% - 59.0% 57.0% - 59.0% 57.0% - 59.0% G&A margin 6.0% - 7.0% 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 Down high-single-digits GAAP basis Slightly positive Slightly positive Slightly positive Year-end portfolio occupancy +/- 50 bps +/- 50 bps +/- 50 bps "Same-capital" cash NOI growth (2) +/- 2.0% +/- 2.0% -2.0% to -4.0% Foreign Exchange Rates U.S. Dollar /Pound Sterling $1.20 - $1.30 $1.20 - $1.30 $1.20 - $1.30 U.S. Dollar /Euro $1.10 - $1.20 $1.10 - $1.20 $1.10 - $1.20 External Growth Development CapEx $1.2 - $1.4 billion $1.2 - $1.4 billion $1.2 - $1.4 billion Average stabilized yields 9.0% - 12.0% 9.0% - 12.0% 9.0% - 12.0% Enhancements and other non-recurring CapEx (3) $30 - $40 million $30 - $40 million $30 - $40 million Recurring CapEx + capitalized leasing costs (4) $145 - $155 million $145 - $155 million $145 - $155 million Balance Sheet Long-term debt issuance Dollar amount $0.5 - $1.0 billion $1.0 - $1.5 billion $1.5 - $2.0 billion Pricing 3.50% - 5.00% 2.50% - 5.00% 2.75% - 3.75% Timing Early-to-mid 2019 Early-to-mid 2019 Early-to-mid 2019 Net income per diluted share $1.40 - $1.45 $1.40 - $1.45 $1.65 - $1.70 Real estate depreciation and (gain) /loss on sale $5.15 - $5.15 $5.15 - $5.15 $5.00 - $5.10 Funds From Operations /share (NAREIT- Defined) $6.55 - $6.60 $6.55 - $6.60 $6.65 - $6.80 Non-core expenses and revenue streams $0.05 - $0.10 $0.05 - $0.10 ($0.05 - $0.10) Core Funds From Operations /share $6.60 - $6.70 $6.60 - $6.70 $6.60 - $6.70 Foreign currency translation adjustments $0.05 - $0.15 $0.05 - $0.15 $0.05 - $0.15 Constant-Currency Core FFO /share $6.65 - $6.85 $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.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures, including FFO, core FFO, and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO, and definitions of FFO, and core FFO are included as an attachment to this document. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this document.
Investor Conference Call
Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on April 25, 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 first quarter of 2019 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# 3463240 at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.
Telephone and webcast replays will be available after the call until May 31, 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# 10129308. 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 / Nina Bari
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 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- Rental revenues $585,425 $555,816 $541,073 $534,556 $530,925 Tenant reimbursements - Utilities 102,569 102,641 105,822 100,084 98,576 Tenant reimbursements - Other 55,868 53,090 57,282 55,639 51,503 Interconnection & other 68,168 63,803 62,760 61,770 61,373 Fee income 1,921 2,896 1,469 2,343 1,133 Other 564 21 518 527 858 Total Operating Revenues $814,515 $778,267 $768,924 $754,919 $744,368 Utilities $124,334 $122,108 $127,239 $115,470 $112,230 Rental property operating 130,620 133,024 118,732 114,852 113,410 Property taxes 37,315 32,098 34,871 27,284 35,263 Insurance 2,991 2,412 2,653 2,606 3,731 Depreciation & amortization 311,486 299,362 293,957 298,788 294,789 General & administration 51,976 38,801 40,997 44,277 36,289 Severance, equity acceleration, and legal expenses 1,483 602 645 1,822 234 Transaction and integration expenses 2,494 25,917 9,626 5,606 4,178 Impairment of investments in real estate 5,351 Other expenses 4,922 1,096 1,139 152 431 Total Operating Expenses $672,972 $655,420 $629,859 $610,857 $600,555 Operating Income $141,543 $122,847 $139,065 $144,062 $143,813 Equity in earnings of unconsolidated joint venture $9,217 $9,245 $8,886 $7,438 $7,410 Gain on sale / deconsolidation 67,497 7 26,577 14,192 39,273 Interest and other income 21,444 1,106 (981) 3,398 (42) Interest (expense) (101,552) (84,883) (80,851) (78,810) (76,985) Tax benefit (expense) (4,266) 5,843 (2,432) (2,121) (3,374) Loss from early extinguishment of debt (12,886) (1,568) Net Income $120,997 $52,597 $90,264 $88,159 $110,095 Net income attributable to noncontrolling interests (4,185) (1,038) (2,667) (2,696) (3,468) Net Income Attributable to Digital Realty Trust, Inc. $116,812 $51,559 $87,597 $85,463 $106,627 Preferred stock dividends, including undeclared dividends (20,943) (20,329) (20,329) (20,329) (20,329) Net Income Available to Common Stockholders $95,869 $31,230 $67,268 $65,134 $86,298 Weighted-average shares outstanding - basic 207,809,383 206,345,138 206,118,472 205,956,005 205,714,173 Weighted-average shares outstanding - diluted 208,526,249 207,113,100 206,766,256 206,563,079 206,507,476 Weighted-average fully diluted shares and units 217,756,161 215,417,085 214,937,168 214,895,273 214,802,763 Net income per share - basic $0.46 $0.15 $0.33 $0.32 $0.42 Net income per share - diluted $0.46 $0.15 $0.33 $0.32 $0.42
Funds From Operations and Core Funds From Operations Unaudited and in Thousands, Except Per Share Data --- Three Months Ended Reconciliation of Net Income to Funds From Operations (FFO) 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- --- Net Income Available to Common Stockholders $95,869 $31,230 $67,268 $65,134 $86,298 Adjustments: Non-controlling interests in operating partnership 4,300 1,300 2,700 2,700 3,480 Real estate related depreciation & amortization (1) 307,864 295,724 290,757 295,750 291,686 Unconsolidated JV real estate related depreciation & amortization 3,851 3,615 3,775 3,722 3,476 (Gain) on real estate transactions (7) (26,577) (14,192) (39,273) Impairment of investments in real estate 5,351 Funds From Operations $417,235 $331,862 $337,923 $353,114 $345,667 Funds From Operations -diluted $417,235 $331,862 $337,923 $353,114 $345,667 Weighted-average shares and units outstanding - basic 217,039 214,649 214,289 214,288 214,009 Weighted-average shares and units outstanding - diluted (2) 217,756 215,417 214,937 214,895 214,803 Funds From Operations per share -basic $1.92 $1.55 $1.58 $1.65 $1.62 Funds From Operations per share -diluted (2) $1.92 $1.54 $1.57 $1.64 $1.61 Three Months Ended Reconciliation of FFO to Core FFO 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- --- Funds From Operations -diluted $417,235 $331,862 $337,923 $353,114 $345,667 Adjustments: Termination fees and other non-core revenues (3) (14,445) (21) (518) (3,663) (858) Transaction and integration expenses 2,494 25,917 9,626 5,606 4,178 Loss from early extinguishment of debt 12,886 1,568 Severance, equity acceleration, and legal expenses (4) 1,483 602 645 1,822 234 Loss on FX revaluation 9,604 Gain on contribution to unconsolidated joint venture, net of related tax (58,497) Other non-core expense adjustments 4,922 1,471 2,269 152 431 Core Funds From Operations -diluted $375,682 $361,399 $349,945 $357,031 $349,652 Weighted-average shares and units outstanding - diluted (2) 217,756 215,417 214,937 214,895 214,803 Core Funds From Operations per share -diluted (2) $1.73 $1.68 $1.63 $1.66 $1.63 (1) Real Estate Related Depreciation & Amortization: Three Months Ended 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- Depreciation & amortization per income statement $311,486 $299,362 $293,957 $298,788 $294,789 Non-real estate depreciation (3,622) (3,638) (3,200) (3,038) (3,103) Real Estate Related Depreciation & Amortization $307,864 $295,724 $290,757 $295,750 $291,686
(2) For all periods presented, we have excluded the effect of dilutive series C, series G, series H, series I, series J, and series K 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 G, series H, series I, series J, and series K 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.
Adjusted Funds From Operations (AFFO) Unaudited and in Thousands, Except Per Share Data --- Three Months Ended Reconciliation of Core FFO to AFFO 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- --- Core FFO available to common stockholders and unitholders $375,682 $361,399 $349,945 $357,031 $349,652 Adjustments: Non-real estate depreciation 3,622 3,638 3,200 3,038 3,103 Amortization of deferred financing costs 4,493 3,128 3,066 2,953 3,060 Amortization of debt discount/premium 760 971 902 882 875 Non-cash stock-based compensation expense 7,592 5,609 5,823 8,419 5,497 Straight-line rental revenue (15,979) (11,157) (10,511) (8,489) (10,266) Straight-line rental expense 1,235 2,052 2,482 2,669 2,547 Above- and below-market rent amortization 6,210 6,521 6,552 6,794 6,666 Deferred tax expense (15,397) (8,835) (1,783) (1,137) (216) Leasing compensation & internal lease commissions (1) 3,581 (5,160) (5,153) (5,647) (5,047) Recurring capital expenditures (2) (38,059) (47,951) (22,500) (34,447) (27,328) AFFO available to common stockholders and unitholders (3) $333,740 $310,215 $332,023 $332,066 $328,543 Weighted-average shares and units outstanding - basic 217,039 214,649 214,289 214,288 214,009 Weighted-average shares and units outstanding - diluted (4) 217,756 215,417 214,937 214,895 214,803 AFFO per share -diluted (4) $1.53 $1.44 $1.54 $1.55 $1.53 Dividends per share and common unit $1.08 $1.01 $1.01 $1.01 $1.01 Diluted AFFO Payout Ratio 70.5 70.1 65.4 65.4 66.0 % % % % % Three Months Ended Share Count Detail 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- --- Weighted Average Common Stock and Units Outstanding 217,039 214,649 214,289 214,288 214,009 Add: Effect of dilutive securities 717 768 648 607 794 Weighted Avg. Common Stock and Units Outstanding - diluted 217,756 215,417 214,937 214,895 214,803
(1) The company adopted ASC 842 in the first quarter of 2019. (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 G, series H, series I, series J, and series K 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 G, series H, series I, series J, and series K 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-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- Assets Investments in real estate: Real estate $16,988,322 $17,055,017 $16,062,402 $15,969,938 $15,654,932 Construction in progress 1,584,327 1,621,927 1,464,010 1,323,998 1,470,065 Land held for future development 163,081 162,941 284,962 261,368 236,415 Investments in real estate $18,735,730 $18,839,885 $17,811,374 $17,555,304 $17,361,412 Accumulated depreciation and amortization (4,124,002) (3,935,267) (3,755,596) (3,588,124) (3,439,050) Net Investments in Properties $14,611,728 $14,904,618 $14,055,778 $13,967,180 $13,922,362 Investment in unconsolidated joint ventures 930,326 175,108 169,919 167,306 167,564 Net Investments in Real Estate $15,542,054 $15,079,726 $14,225,697 $14,134,486 $14,089,926 Cash and cash equivalents $123,879 $126,700 $46,242 $17,589 $22,370 Accounts and other receivables (1) 328,009 299,621 308,709 282,287 309,328 Deferred rent 479,640 463,248 454,412 445,766 442,887 Acquired in-place lease value, deferred leasing costs and other real estate intangibles, net 2,580,624 3,144,395 2,734,158 2,823,275 2,928,566 Acquired above-market leases, net 106,044 119,759 135,127 150,084 165,568 Goodwill 3,358,463 4,348,007 3,373,342 3,378,325 3,405,110 Restricted cash 10,130 8,522 8,068 9,443 7,330 Assets associated with real estate held for sale 41,707 Operating lease right- of-use assets (2) 660,586 Other assets 152,638 176,717 176,355 170,168 169,125 Total Assets $23,342,067 $23,766,695 $21,462,110 $21,411,423 $21,581,917 Liabilities and Equity Global unsecured revolving credit facility $842,975 $1,647,735 $590,289 $466,971 $952,121 Unsecured term loans 807,726 1,178,904 1,352,969 1,376,784 1,428,498 Unsecured senior notes, net of discount 8,523,462 7,589,126 7,130,541 7,156,084 6,660,727 Secured debt, net of premiums 105,493 685,714 106,072 106,245 106,366 Operating lease liabilities (2) 725,470 Accounts payable and other accrued liabilities 922,571 1,164,509 1,059,355 1,031,794 1,012,490 Accrued dividends and distributions 217,241 Acquired below-market leases 192,667 200,113 208,202 216,520 225,674 Security deposits and prepaid rent 221,526 209,311 233,667 207,292 207,859 Liabilities associated with assets held for sale 1,767 Total Liabilities $12,341,890 $12,892,653 $10,681,095 $10,561,690 $10,595,502 Redeemable non- controlling interests - operating partnership 17,678 15,832 17,553 52,805 49,871 Equity Preferred Stock: $0.01 par value per share, 110,000,000 shares authorized: Series C Cumulative Redeemable Preferred Stock (3) $219,250 $219,250 $219,250 $219,250 $219,250 Series G Cumulative Redeemable Preferred Stock (4) 241,468 241,468 241,468 241,468 241,468 Series H Cumulative Redeemable Preferred Stock (5) 353,290 353,290 353,290 353,290 353,290 Series I Cumulative Redeemable Preferred Stock (6) 242,012 242,012 242,012 242,012 242,012 Series J Cumulative Redeemable Preferred Stock (7) 193,540 193,540 193,540 193,540 193,540 Series K Cumulative Redeemable Preferred Stock (8) 203,423 Common Stock: $0.01 par value per share, 310,000,000 shares authorized (9) 2,066 2,051 2,049 2,047 2,045 Additional paid-in capital 11,492,766 11,355,751 11,333,035 11,310,132 11,285,611 Dividends in excess of earnings (2,767,708) (2,633,071) (2,455,189) (2,314,291) (2,177,269) Accumulated other comprehensive (loss), net (91,699) (115,647) (103,201) (107,070) (106,096) Total Stockholders' Equity $10,088,408 $9,858,644 $10,026,254 $10,140,378 $10,253,851 Noncontrolling Interests Noncontrolling interest in operating partnership $772,931 $906,510 $671,269 $654,261 $680,400 Noncontrolling interest in consolidated joint ventures 121,160 93,056 65,939 2,289 2,293 Total Noncontrolling Interests $894,091 $999,566 $737,208 $656,550 $682,693 Total Equity $10,982,499 $10,858,210 $10,763,462 $10,796,928 $10,936,544 Total Liabilities and Equity $23,342,067 $23,766,695 $21,462,110 $21,411,423 $21,581,917
(1) Net of allowance for doubtful accounts of $16,910 and $11,554, as of March 31, 2019 and December 31, 2018, respectively. (2) Adoption of the new lease accounting standard required that we adjust the consolidated balance sheet as of March 31, 2019, to include the recognition of additional right-of-use assets and lease liabilities for operating leases. See the filed Form 10-Q for additional information. (3) Series C Cumulative Redeemable Perpetual Preferred Stock, 6.625%, $201,250 and $201,250 liquidation preference, respectively ($25.00 per share), 8,050,000 and 8,050,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. (4) Series G Cumulative Redeemable Preferred Stock, 5.875%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. (5) Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $365,000 liquidation preference, respectively ($25.00 per share), 14,600,000 and 14,600,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. Redeemed April 1, 2019. (6) Series I Cumulative Redeemable Preferred Stock, 6.350%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. (7) Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. (8) Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $0 liquidation preference, respectively ($25.00 per share), 8,400,000 and 0 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. (9) Common Stock: 208,214,139 and 206,425,656 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively.
Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization and Financial Ratios Unaudited and in Thousands --- Three Months Ended Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) (1) 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 --- Net Income Available to Common Stockholders $95,869 $31,230 $67,268 $65,134 $86,298 Interest 101,552 84,883 80,851 78,810 76,985 Loss from early extinguishment of debt 12,886 1,568 Tax (benefit) expense 4,266 (5,843) 2,432 2,121 3,374 Depreciation & amortization 311,486 299,362 293,957 298,788 294,789 EBITDA $526,059 $411,200 $444,508 $444,853 $461,446 Unconsolidated JV real estate related depreciation & amortization 3,851 3,615 3,775 3,722 3,476 Severance, equity acceleration, and legal expenses 1,483 602 645 1,822 234 Transaction and integration expenses 2,494 25,917 9,626 5,606 4,178 (Gain) on sale / deconsolidation (67,497) (7) (26,577) (14,192) (39,273) Impairment of investments in real estate 5,351 Other non-core adjustments, net (13,806) 1,471 2,269 (2,984) 431 Non-controlling interests 4,185 1,038 2,667 2,696 3,468 Preferred stock dividends, including undeclared dividends 20,943 20,329 20,329 20,329 20,329 Adjusted EBITDA $483,063 $464,165 $457,242 $461,852 $454,289
(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, in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, 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) loss from early extinguishment of debt, (iv) severance, equity acceleration, and legal expenses, (v) loss on FX revaluation, (vi) gain on contribution to unconsolidated joint venture, net of related tax, and (vii) 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 tax expense, (ix) leasing compensation and internal lease commissions, and (x) recurring capital expenditures. 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, and depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance, 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 unconsolidated joint venture real estate related depreciation & amortization, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, impairment of investments in real estate, 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 March 31, 2019, GAAP interest expense was $102 million, capitalized interest was $11 million and scheduled debt principal payments and preferred dividends was $21 million.
Three Months Ended Reconciliation of Net Operating Income (NOI) (in thousands) 31-Mar-19 31-Dec-18 31-Mar-18 --- Operating income $141,543 $122,847 $143,813 Fee income (1,921) (2,896) (1,133) Other income (564) (21) (858) Depreciation and amortization 311,486 299,362 294,789 General and administrative 51,976 38,801 36,289 Severance, equity acceleration, and legal expenses 1,483 602 234 Transaction expenses 2,494 25,917 4,178 Impairment in investments in real estate 5,351 Other expenses 4,922 1,096 431 Net Operating Income $516,770 $485,708 $477,743 Cash Net Operating Income (Cash NOI) Net Operating Income $516,770 $485,708 $477,743 Straight-line rental revenue (15,979) (11,157) (10,266) Straight-line rental expense 1,177 2,107 2,600 Above- and below-market rent amortization 6,210 6,521 6,666 Cash Net Operating Income $508,178 $483,179 $476,743
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 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, 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 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, 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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