Digital Realty Reports Second Quarter 2019 Results
SAN FRANCISCO, July 30, 2019 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the second 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 $0.15 per share
in 2Q19, compared to $0.32 in 2Q18
-- Reported FFO per share of $1.53 in 2Q19, compared to $1.64 in 2Q18
-- Reported core FFO per share of $1.64 in 2Q19, compared to $1.66 in 2Q18
-- Signed total bookings during 2Q19 expected to generate $62 million of
annualized GAAP rental revenue, including a $9 million contribution from
interconnection
-- Reiterated 2019 core FFO per share outlook of $6.60 - $6.70
Financial Results
Digital Realty reported revenues for the second quarter of 2019 of $801 million, a 2% decrease from the previous quarter and a 6% increase from the same quarter last year.
The company delivered second quarter of 2019 net income of $61 million, and net income available to common stockholders of $32 million, or $0.15 per diluted share, compared to $0.46 per diluted share in the previous quarter and $0.32 per diluted share in the same quarter last year.
Digital Realty generated second quarter of 2019 adjusted EBITDA of $468 million, a 3% decrease from the previous quarter and a 1% increase over the same quarter last year (reflecting the January 1, 2019 adoption of FASB Accounting Standard Codification Topic 842, Leases).
The company reported second quarter of 2019 funds from operations of $334 million, or $1.53 per share, compared to $1.92 per share in the previous quarter and $1.64 per share in the same quarter last year.
Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2019 core FFO per share of $1.64, a 5% decrease from $1.73 per share in the previous quarter, and a 1% decrease from $1.66 per share in the same quarter last year.
Leasing Activity
"In the second quarter, we signed total bookings expected to generate $62 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection," said Chief Executive Officer A. William Stein. "This positive momentum is a direct reflection of the durability of our diversified global platform and customer base, with strong demand across regions and verticals. Looking ahead, we remain confident in the resiliency of our business, and we will continue to prudently invest in the expansion of our global platform to support our customers' growth."
The weighted-average lag between leases signed during the second quarter of 2019 and the contractual commencement date was eight months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $125 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the second quarter of 2019 rolled down 5.8% on a cash basis and down 3.7% on a GAAP basis.
New leases signed during the second quarter of 2019 are summarized by region and product type as follows:
Annualized GAAP
Base Rent GAAP Base Rent GAAP Base Rent
The Americas (in thousands) Square Feet per Square Foot Megawatts per Kilowatt
Turn-Key Flex $16,133 86,943 $186 9.7 $139
Powered Base Building 4,036 116,998 34
Colocation 6,540 23,365 280 1.9 289
Non-Technical 257 12,239 21
Total $26,966 239,545 $113 11.6 $163
Europe (1)
Turn-Key Flex $19,987 187,907 $106 16.8 $99
Colocation 1,142 2,256 506 0.2 387
Non-Technical 146 4,497 33
Total $21,275 194,660 $109 17.0 $103
Asia Pacific (1)
Turn-Key Flex $4,351 18,686 $233 2.1 $172
Colocation 164 60 2,737 547
Non-Technical 73 1,249 58
Total $4,588 19,995 $229 2.1 $177
Interconnection $8,937 N/A N/A N/A N/A
Grand Total $61,766 454,200 $116 30.7 $131
Note: Totals may not foot due to
rounding differences.
(1) Based on quarterly average
exchange rates during the
three months ended June
30, 2019.
Investment Activity
During the second quarter of 2019, Digital Realty closed on the acquisition of 22.5 acres of land in the Tokyo, Paris and Northern Virginia metro areas for approximately $49 million. Commencement of development on these parcels will be subject to market demand, and delivery will be phased to meet future customer growth requirements.
Balance Sheet
Digital Realty had approximately $10.8 billion of total debt outstanding as of June 30, 2019, comprised of $10.7 billion of unsecured debt and approximately $0.1 billion of secured debt. At the end of the second quarter of 2019, net debt-to-adjusted EBITDA was 6.1x, debt-plus-preferred-to-total enterprise value was 31.8% and fixed charge coverage was 4.2x. Pro forma for settlement of the $1.1 billion forward equity offering, net debt-to-adjusted EBITDA was 5.5x and fixed charge coverage was 4.4x.
Early in the second quarter of 2019, Digital Realty also completed the previously announced redemption of all 14.6 million shares of its 7.375% Series H Cumulative Redeemable Preferred Stock.
During the second quarter of 2019, Digital Realty closed a $900 million bond offering of 10-year senior unsecured notes at 3.600% and concurrently commenced an any-and-all cash tender offer for its outstanding 3.400% Notes due 2020 and 5.25% Notes due 2021. Approximately 81% of the Notes were validly tendered and purchased through the tender offer during the second quarter. Subsequent to quarter-end, Digital Realty settled the redemption of the remaining balance, in accordance with the terms of the indentures governing the Notes.
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
As of
Top-Line and Cost
Structure
January 8, 2019
February 5, 2019 April 25, 2019 July 30, 2019
Total revenue
$3.2 - $3.3 billion
$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)
($5 - $15 million)
Adjusted EBITDA margin 57.0% - 59.0% 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% 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
Down mid-single-digits
GAAP basis
Slightly positive
Slightly positive
Slightly positive
Slightly positive
Year-end portfolio
occupancy
+/- 50 bps
+/- 50 bps
+/- 50 bps
+/- 50 bps
"Same-capital" cash
NOI growth (2) +/- 2.0% +/- 2.0% -2.0% to -4.0% -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
$1.20 - $1.30
U.S. Dollar /Euro
$1.10 - $1.20
$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
$1.2 - $1.4 billion
Average stabilized
yields 9.0% - 12.0% 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
$30 - $40 million
Recurring CapEx +
capitalized leasing
costs (4)
$145 - $155 million
$145 - $155 million
$145 - $155 million
$160 - $170 million
Balance Sheet
Long-term debt
issuance
Dollar amount
$0.5 - $1.0 billion
$1.0 - $1.5 billion
$1.5 - $2.0 billion
$2.3 billion
Pricing 3.50% - 5.00% 2.50% - 5.00% 2.75% - 3.75% 3.03%
Timing
Early-to-mid 2019
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
$1.50 - $1.55
Real estate
depreciation and
(gain) /loss on sale
$5.15 - $5.15
$5.15 - $5.15
$5.00 - $5.10
$5.10 - $5.10
Funds From Operations
/share (NAREIT-
Defined)
$6.55 - $6.60
$6.55 - $6.60
$6.65 - $6.80
$6.60 - $6.65
Non-core expenses and
revenue streams
$0.05 - $0.10
$0.05 - $0.10
($0.05 - $0.10)
$0.00 - $0.05
Core Funds From
Operations /share
$6.60 - $6.70
$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
$0.05 - $0.15
Constant-Currency
Core FFO /share
$6.65 - $6.85
$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 July 30, 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 second quarter 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# 7733535 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 August 30, 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# 10132534. 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 2,000 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
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 Six Months Ended
30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
---
Rental revenues $565,925 $585,425 $555,816 $541,073 $534,556 $1,151,349 $1,065,481
Tenant reimbursements -
Utilities 106,409 102,569 102,641 105,822 100,084 208,978 198,660
Tenant reimbursements -
Other 62,820 55,868 53,090 57,282 55,639 118,688 107,142
Interconnection & other 64,232 68,168 63,803 62,760 61,770 132,400 123,143
Fee income 925 1,921 2,896 1,469 2,343 2,845 3,476
Other 486 564 21 518 527 1,051 1,385
Total Operating Revenues $800,797 $814,515 $778,267 $768,924 $754,919 $1,615,311 $1,499,287
Utilities $123,398 $124,334 $122,108 $127,239 $115,470 $247,732 $227,700
Rental property
operating 128,634 130,620 133,024 118,732 114,852 259,254 228,262
Property taxes 41,482 37,315 32,098 34,871 27,284 78,797 62,547
Insurance 3,441 2,991 2,412 2,653 2,606 6,432 6,337
Depreciation &
amortization 290,562 311,486 299,362 293,957 298,788 602,048 593,577
General & administration 52,318 51,976 38,801 40,997 44,277 104,294 80,566
Severance, equity
acceleration, and legal
expenses 665 1,483 602 645 1,822 2,148 2,056
Transaction and
integration expenses 4,210 2,494 25,917 9,626 5,606 6,704 9,784
Impairment of
investments in real
estate 5,351 5,351
Other expenses 7,115 4,922 1,096 1,139 152 12,037 583
Total Operating Expenses $651,825 $672,972 $655,420 $629,859 $610,857 $1,324,797 $1,211,412
Operating Income $148,972 $141,543 $122,847 $139,065 $144,062 $290,514 $287,875
Equity in earnings of
unconsolidated joint
ventures $6,962 $9,217 $9,245 $8,886 $7,438 $16,180 $14,848
Gain on sale /
deconsolidation 67,497 7 26,577 14,192 67,497 53,465
Interest and other
income 16,980 21,444 1,106 (981) 3,398 38,424 3,356
Interest (expense) (86,051) (101,552) (84,883) (80,851) (78,810) (187,603) (155,795)
Tax benefit (expense) (4,634) (4,266) 5,843 (2,432) (2,121) (8,900) (5,495)
Loss from early
extinguishment of debt (20,905) (12,886) (1,568) (33,791)
Net Income $61,324 $120,997 $52,597 $90,264 $88,159 $182,321 $198,254
Net income attributable
to noncontrolling
interests (1,156) (4,185) (1,038) (2,667) (2,696) (5,341) (6,164)
Net Income Attributable
to Digital Realty
Trust, Inc. $60,168 $116,812 $51,559 $87,597 $85,463 $176,980 $192,090
Preferred stock
dividends, including
undeclared dividends (16,670) (20,943) (20,329) (20,329) (20,329) (37,613) (40,658)
Issuance costs
associated with
redeemed preferred
stock (11,760) (11,760)
Net Income Available to
Common Stockholders $31,738 $95,869 $31,230 $67,268 $65,134 $127,607 $151,432
Weighted-average shares
outstanding - basic 208,284,407 207,809,383 206,345,138 206,118,472 205,956,005 208,048,207 205,835,757
Weighted-average shares
outstanding - diluted 209,435,572 208,526,249 207,113,100 206,766,256 206,563,079 208,894,294 206,460,170
Weighted-average fully
diluted shares and
units 218,497,318 217,756,161 215,417,085 214,937,168 214,895,273 218,039,658 214,773,601
Net income per share -
basic $0.15 $0.46 $0.15 $0.33 $0.32 $0.61 $0.74
Net income per share -
diluted $0.15 $0.46 $0.15 $0.33 $0.32 $0.61 $0.73
Funds From Operations and Core Funds From Operations
Unaudited and in Thousands, Except Per Share Data
---
Reconciliation of Net
Income to Funds From
Operations (FFO)
Three Months Ended Six Months Ended
---
30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
--- ---
Net Income Available to
Common Stockholders $31,738 $95,869 $31,230 $67,268 $65,134 $127,607 $151,432
Adjustments:
Non-controlling
interests in operating
partnership 1,400 4,300 1,300 2,700 2,700 5,700 6,180
Real estate related
depreciation &
amortization (1) 286,915 307,864 295,724 290,757 295,750 594,779 587,436
Unconsolidated JV real
estate related
depreciation &
amortization 13,623 3,851 3,615 3,775 3,722 17,474 7,198
(Gain) on real estate
transactions (7) (26,577) (14,192) (53,465)
Impairment of
investments in real
estate 5,351 5,351
Funds From Operations $333,676 $417,235 $331,862 $337,923 $353,114 $750,911 $698,781
Funds From Operations -
diluted $333,676 $417,235 $331,862 $337,923 $353,114 $750,911 $698,781
Weighted-average
shares and units
outstanding - basic 217,346 217,039 214,649 214,289 214,288 217,194 214,149
Weighted-average
shares and units
outstanding - diluted
(2) 218,497 217,756 215,417 214,937 214,895 218,040 214,774
Funds From Operations
per share -basic $1.54 $1.92 $1.55 $1.58 $1.65 $3.46 $3.26
Funds From Operations
per share -diluted
(2) $1.53 $1.92 $1.54 $1.57 $1.64 $3.44 $3.25
Three Months Ended Six Months Ended
Reconciliation of FFO
to Core FFO 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
--- ---
Funds From Operations -
diluted $333,676 $417,235 $331,862 $337,923 $353,114 $750,911 $698,781
Adjustments:
Termination fees and
other non-core
revenues (3) (16,826) (14,445) (21) (518) (3,663) (31,271) (4,521)
Transaction and
integration expenses 4,210 2,494 25,917 9,626 5,606 6,704 9,784
Loss from early
extinguishment of debt 20,905 12,886 1,568 33,791
Issuance costs
associated with
redeemed preferred
stock 11,760 11,760
Severance, equity
acceleration, and
legal expenses (4) 665 1,483 602 645 1,822 2,148 2,056
(Gain) /Loss on FX
revaluation (4,251) 9,604 5,353
(Gain) on contribution
to unconsolidated
joint venture, net of
related tax (58,497) (58,497)
Other non-core expense
adjustments 7,115 4,922 1,471 2,269 152 12,037 583
Core Funds From
Operations -diluted $357,254 $375,682 $361,399 $349,945 $357,031 $732,936 $706,683
Weighted-average
shares and units
outstanding - diluted
(2) 218,497 217,756 215,417 214,937 214,895 218,040 214,774
Core Funds From
Operations per share -
diluted (2) $1.64 $1.73 $1.68 $1.63 $1.66 $3.36 $3.29
(1) Real Estate
Related Depreciation &
Amortization:
Three Months Ended Six Months Ended
30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
---
Depreciation &
amortization per
income statement $290,562 $311,486 $299,362 $293,957 $298,788 $602,048 $593,577
Non-real estate
depreciation (3,647) (3,622) (3,638) (3,200) (3,038) (7,269) (6,141)
Real Estate Related
Depreciation &
Amortization $286,915 $307,864 $295,724 $290,757 $295,750 $594,779 $587,436
(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 Six Months Ended
Reconciliation of Core FFO
to AFFO 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
--- ---
Core FFO available to
common stockholders and
unitholders $357,254 $375,682 $361,399 $349,945 $357,031 $732,936 $706,683
Adjustments:
Non-real estate
depreciation 3,647 3,622 3,638 3,200 3,038 7,269 6,141
Amortization of deferred
financing costs 2,905 4,493 3,128 3,066 2,953 7,398 6,013
Amortization of debt
discount/premium 515 760 971 902 882 1,275 1,757
Non-cash stock-based
compensation expense 9,468 7,592 5,609 5,823 8,419 17,060 13,916
Straight-line rental
revenue (13,033) (15,979) (11,157) (10,511) (8,489) (29,013) (18,755)
Straight-line rental
expense 318 1,235 2,052 2,482 2,669 1,552 5,216
Above- and below-market
rent amortization 3,954 6,210 6,521 6,552 6,794 10,163 13,460
Deferred tax expense (979) (15,397) (8,835) (1,783) (1,137) (16,376) (1,353)
Leasing compensation &
internal lease commissions
(1) 4,025 3,581 (5,160) (5,153) (5,647) 7,606 (10,694)
Recurring capital
expenditures (2) (39,515) (38,059) (47,951) (22,500) (34,447) (77,574) (61,775)
AFFO available to common
stockholders and
unitholders (3) $328,559 $333,740 $310,215 $332,023 $332,066 $662,296 $660,609
Weighted-average shares
and units outstanding -
basic 217,346 217,039 214,649 214,289 214,288 217,194 214,149
Weighted-average shares
and units outstanding -
diluted (4) 218,497 217,756 215,417 214,937 214,895 218,040 214,774
AFFO per share -diluted
(4) $1.50 $1.53 $1.44 $1.54 $1.55 $3.04 $3.08
Dividends per share and
common unit $1.08 $1.08 $1.01 $1.01 $1.01 $2.16 $2.02
Diluted AFFO Payout Ratio 71.8 70.5 70.1 65.4 65.4 71.1 65.7
% % % % % % %
Three Months Ended Six Months Ended
Share Count Detail 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 30-Jun-19 30-Jun-18
--- ---
Weighted Average Common
Stock and Units
Outstanding 217,346 217,039 214,649 214,289 214,288 217,194 214,149
Add: Effect of dilutive
securities 1,151 717 768 648 607 846 625
Weighted Avg. Common Stock
and Units Outstanding -
diluted 218,497 217,756 215,417 214,937 214,895 218,040 214,774
(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
---
Assets 30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18
---
Investments in real estate:
Real estate $17,324,416 $16,988,322 $17,055,017 $16,062,402 $15,969,938
Construction in progress 1,685,056 1,584,327 1,621,927 1,464,010 1,323,998
Land held for future
development 152,368 163,081 162,941 284,962 261,368
Investments in real
estate $19,161,840 $18,735,730 $18,839,885 $17,811,374 $17,555,304
Accumulated depreciation
and amortization (4,312,357) (4,124,002) (3,935,267) (3,755,596) (3,588,124)
Net Investments in
Properties $14,849,483 $14,611,728 $14,904,618 $14,055,778 $13,967,180
Investment in
unconsolidated joint
ventures 979,350 930,326 175,108 169,919 167,306
Net Investments in Real
Estate $15,828,833 $15,542,054 $15,079,726 $14,225,697 $14,134,486
Cash and cash equivalents $33,536 $123,879 $126,700 $46,242 $17,589
Accounts and other
receivables (1) 320,938 328,009 299,621 308,709 282,287
Deferred rent 491,486 479,640 463,248 454,412 445,766
Acquired in-place lease
value, deferred leasing
costs and other real
estate intangibles, net 2,499,564 2,580,624 3,144,395 2,734,158 2,823,275
Acquired above-market
leases, net 94,474 106,044 119,759 135,127 150,084
Goodwill 3,353,538 3,358,463 4,348,007 3,373,342 3,378,325
Operating lease right-
of-use assets (2) 648,952 660,586
Other assets 158,770 162,768 185,239 184,423 179,611
Total Assets $23,430,091 $23,342,067 $23,766,695 $21,462,110 $21,411,423
Liabilities and Equity
Global unsecured
revolving credit
facility $1,417,675 $842,975 $1,647,735 $590,289 $466,971
Unsecured term loans 807,922 807,726 1,178,904 1,352,969 1,376,784
Unsecured senior notes,
net of discount 8,511,656 8,523,462 7,589,126 7,130,541 7,156,084
Secured debt, net of
premiums 105,325 105,493 685,714 106,072 106,245
Operating lease
liabilities (2) 714,256 725,470
Accounts payable and
other accrued
liabilities 984,812 922,571 1,164,509 1,059,355 1,031,794
Accrued dividends and
distributions 217,241
Acquired below-market
leases 183,832 192,667 200,113 208,202 216,520
Security deposits and
prepaid rent 213,549 221,526 209,311 233,667 207,292
Total Liabilities $12,939,027 $12,341,890 $12,892,653 $10,681,095 $10,561,690
Redeemable non-
controlling interests -
operating partnership 17,344 17,678 15,832 17,553 52,805
Equity
Preferred Stock: $0.01 par value per
share, 110,000,000 shares authorized:
Series C Cumulative
Redeemable Perpetual
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
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) 203,264 203,423
Common Stock: $0.01 par
value per share,
315,000,000 shares
authorized (9) 2,067 2,066 2,051 2,049 2,047
Additional paid-in
capital 11,511,519 11,492,766 11,355,751 11,333,035 11,310,132
Dividends in excess of
earnings (2,961,307) (2,767,708) (2,633,071) (2,455,189) (2,314,291)
Accumulated other
comprehensive (loss),
net (89,588) (91,699) (115,647) (103,201) (107,070)
Total Stockholders'
Equity $9,562,225 $10,088,408 $9,858,644 $10,026,254 $10,140,378
Noncontrolling Interests
Noncontrolling interest
in operating partnership $756,050 $772,931 $906,510 $671,269 $654,261
Noncontrolling interest
in consolidated joint
ventures 155,445 121,160 93,056 65,939 2,289
Total Noncontrolling
Interests $911,495 $894,091 $999,566 $737,208 $656,550
Total Equity $10,473,720 $10,982,499 $10,858,210 $10,763,462 $10,796,928
Total Liabilities and
Equity $23,430,091 $23,342,067 $23,766,695 $21,462,110 $21,411,423
(1) Net of allowance for doubtful
accounts of $16,500 and $11,554,
as of June 30, 2019 and December
31, 2018, respectively.
(2) Adoption of the new lease
accounting standard required that
we adjust the consolidated balance
sheet to include the recognition
of additional right-of-use
assets and lease liabilities for
operating leases. See our
quarterly report on Form 10-Q
filed on May 10, 2019 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 June 30, 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 June 30, 2019
and December 31, 2018,
respectively.
(5) Series H Cumulative Redeemable
Preferred Stock, 7.375%, $0 and
$365,000 liquidation preference,
respectively ($25.00 per share), 0
and 14,600,000 shares issued and
outstanding as of June 30, 2019
and December 31, 2018,
respectively. Redeemed on 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 June 30, 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 June 30, 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 June 30, 2019
and December 31, 2018,
respectively.
(9) Common Stock: 208,324,538 and
206,425,656 shares issued and
outstanding as of June 30, 2019
and December 31, 2018,
respectively.
Reconciliation of Earnings Before Interest, Taxes, Depreciation
& Amortization and Financial Ratios
Unaudited and in Thousands
---
Reconciliation of
Earnings Before
Interest, Taxes,
Three Months Ended
Depreciation & Amortization (EBITDA) (1)
30-Jun-19 31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18
--- ---
Net Income Available to
Common Stockholders $31,738 $95,869 $31,230 $67,268 $65,134
Interest 86,051 101,552 84,883 80,851 78,810
Loss from early
extinguishment of debt 20,905 12,886 1,568
Tax (benefit) expense 4,634 4,266 (5,843) 2,432 2,121
Depreciation &
amortization 290,562 311,486 299,362 293,957 298,788
EBITDA $433,890 $526,059 $411,200 $444,508 $444,853
Unconsolidated JV real
estate related
depreciation &
amortization 13,623 3,851 3,615 3,775 3,722
Severance, equity
acceleration, and
legal expenses 665 1,483 602 645 1,822
Transaction and
integration expenses 4,210 2,494 25,917 9,626 5,606
(Gain) on sale /
deconsolidation (67,497) (7) (26,577) (14,192)
Impairment of
investments in real
estate 5,351
Other non-core
adjustments, net (13,476) (13,806) 1,471 2,269 (2,984)
Non-controlling
interests 1,156 4,185 1,038 2,667 2,696
Preferred stock
dividends, including
undeclared dividends 16,670 20,943 20,329 20,329 20,329
Issuance costs
associated with
redeemed preferred
stock 11,760
Adjusted EBITDA $468,498 $483,063 $464,165 $457,242 $461,852
(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) issuance costs associated with redeemed preferred stock, (v) severance, equity acceleration, and legal expenses, (vi) gain/loss on FX revaluation, (vii) gain on contribution to unconsolidated joint venture, net of related tax, 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 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, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do and accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs' EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.
Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above- and below-market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs' NOI and cash NOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.
Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.
Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.
Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended June 30, 2019, GAAP interest expense was $86 million, capitalized interest was $9 million and scheduled debt principal payments and preferred dividends was $17 million.
Three Months Ended Six Months Ended
Reconciliation of Net
Operating Income
(NOI) (in thousands) 30-Jun-19 31-Mar-19 30-Jun-18 30-Jun-19 30-Jun-18
---
Operating income $148,972 $141,543 $144,062 $290,514 $287,875
Fee income (925) (1,921) (2,343) (2,845) (3,476)
Other income (486) (564) (527) (1,051) (1,385)
Depreciation and
amortization 290,562 311,486 298,788 602,048 593,577
General and
administrative 52,318 51,976 44,277 104,294 80,566
Severance, equity
acceleration, and
legal expenses 665 1,483 1,822 2,148 2,056
Transaction expenses 4,210 2,494 5,606 6,704 9,784
Impairment in
investments in real
estate 5,351 5,351
Other expenses 7,115 4,922 152 12,037 583
Net Operating Income $502,431 $516,770 $491,837 $1,019,200 $969,580
Cash Net Operating
Income (Cash NOI)
Net Operating Income $502,431 $516,770 $491,837 $1,019,200 $969,580
Straight-line rental
revenue (13,033) (15,979) (8,489) (29,013) (18,755)
Straight-line rental
expense 397 1,176 2,692 1,573 5,291
Above- and below-
market rent
amortization 3,954 6,210 6,794 10,163 13,460
Cash Net Operating
Income $493,749 $508,177 $492,834 $1,001,923 $969,576
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: 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;
-- the competitive environment in which we operate;
-- 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 managing an international business and acquiring or operating
properties in foreign jurisdictions and unfamiliar metropolitan areas;
-- our failure to realize the intended benefits from, or disruptions to our
plans and operations or unknown or contingent liabilities related to,
our recent acquisitions;
-- our failure to successfully integrate and operate acquired or developed
properties or businesses;
-- difficulties in identifying properties to acquire and completing
acquisitions;
-- risks related to joint venture investments, including as a result of our
lack of control of such investments;
-- risks associated with using debt to fund our business activities,
including re-financing and interest rate risks, our failure to repay
debt when due, adverse changes in our credit ratings or our breach of
covenants or other terms contained in our loan facilities and
agreements;
-- our failure to obtain necessary debt and equity financing, and our
dependence on external sources of capital;
-- financial market fluctuations and changes in foreign currency exchange
rates;
-- adverse economic or real estate developments in our industry or the
industry sectors that we sell to, including risks relating to decreasing
real estate valuations and impairment charges and goodwill and other
intangible asset impairment charges;
-- our inability to manage our growth effectively;
-- losses in excess of our insurance coverage;
-- environmental liabilities and risks related to natural disasters;
-- our inability to comply with rules and regulations applicable to our
company;
-- 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;
-- our ability to attract and retain qualified personnel and to attract and
retain customers; and
-- the impact of any financial, accounting, legal or regulatory issues or
litigation that may affect us.
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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