Digital Realty Reports First Quarter 2020 Results
SAN FRANCISCO, May 7, 2020 /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 2020. All per-share results are presented on a fully-diluted share and unit basis.
Highlights
-- Reported net income available to common stockholders of $0.90 per share
in 1Q20, compared to $0.46 in 1Q19
-- Reported FFO per share of $0.91 in 1Q20, compared to $1.92 in 1Q19
-- Reported core FFO per share of $1.53 in 1Q20, compared to $1.73 in 1Q19
-- Signed total bookings during 1Q20 expected to generate $75 million of
annualized GAAP rental revenue, including a $9 million contribution from
interconnection (not including an additional $10 million signed by
Interxion)
-- Issued $652 million of equity under the company's ATM program, including
approximately $615 million subsequent to quarter-end
-- Introduced 2020 core FFO per share outlook of $5.90-$6.10
Financial Results
Digital Realty reported revenues for the first quarter of 2020 of $823 million, a 5% increase from the previous quarter and a 1% increase from the same quarter last year.
The company delivered first quarter of 2020 net income of $229 million, and net income available to common stockholders of $203 million, or $0.90 per diluted share, compared to $1.50 per diluted share in the previous quarter and $0.46 per diluted share in the same quarter last year.
Digital Realty generated first quarter of 2020 adjusted EBITDA of $482 million, a 1% increase from the previous quarter and a 1% decrease over the same quarter last year.
The company reported first quarter of 2020 funds from operations of $212 million, or $0.91 per share, compared to $1.62 per share in the previous quarter and $1.92 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 2020 core FFO per share of $1.53, a 6% decrease from $1.62 per share in the previous quarter, and a 12% decrease from $1.73 per share in the same quarter last year.
Leasing Activity
In the first quarter, Digital Realty signed total bookings expected to generate $75 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection. These figures do not include any contribution from the combination with Interxion, which was completed on March 12, 2020. Interxion signed total bookings in the first quarter expected to generate an additional $10 million of annualized GAAP rental revenue.
"Our hearts go out to all those impacted by the COVID-19 global pandemic, and our top priority is the health and safety of our employees, customers and partners," said Digital Realty Chief Executive Officer A. William Stein. "Despite the challenging environment, we continued to execute on our strategic plan, closing our highly strategic combination with Interxion as well as the acquisition of the Westin Building in Seattle while delivering another quarter of solid bookings. Our business is highly resilient, and we remain confident that our global platform will continue to deliver sustainable growth for all stakeholders."
The weighted-average lag between leases signed during the first quarter of 2020 and the contractual commencement date was five months.
In addition to new leases signed, Digital Realty also signed renewal leases representing $92 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the first quarter of 2020 rolled down 1.5% on a cash basis and up 0.7% on a GAAP basis.
New leases signed during the first quarter of 2020 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 $36,750 365,219 $101 34.1 $90
Powered Base Building 301 9,600 31
Colocation 6,146 22,661 271 1.8 286
Non-Technical 204 7,271 28
Total $43,401 404,751 $107 35.9 $100
Europe (1)
Turn-Key Flex $5,045 36,703 $137 2.7 $154
Colocation 1,334 4,706 283 0.4 305
Non-Technical 13 129 103
Total $6,393 41,538 $154 3.1 $172
Asia Pacific (1)
Turn-Key Flex $16,028 93,520 $171 10.6 $126
Powered Base Building 212 2,000 106
Colocation 40 158 251 367
Non-Technical 131 2,218 59
Total $16,411 97,896 $168 10.6 $126
Interconnection $8,638 N/A N/A N/A N/A
Grand Total $74,842 544,185 $122 49.6 $110
Note: Totals may not foot due to
rounding differences.
(1) Based on quarterly average
exchange rates during the
three months ended March
31, 2020.
Investment Activity
Digital Realty completed the previously announced combination with Interxion promptly following expiration of the related exchange offer on March 12, 2020, in which 70,862,736 shares of InterXion, representing approximately 92.3% of total shares outstanding, were tendered. Under the terms of the agreement announced in October 2019, Interxion shareholders received a fixed exchange ratio of 0.7067 Digital Realty shares per Interxion share, valuing Interxion at approximately $8.4 billion of total enterprise value, including assumed net debt. This powerful combination builds upon Digital Realty's established foundation of serving market demand for colocation, scale and hyper-scale requirements in the Americas, EMEA and Asia Pacific and leverages InterXion's European colocation and interconnection expertise, enhancing the combined company's capabilities to enable customers to solve for the full spectrum of data center requirements across a global platform. The combination of the two organizations establishes a global platform expected to significantly enhance the ability to create long-term value for the customers, stockholders and employees of both companies.
On February 25, 2020, Digital Realty closed on the previously announced acquisition of a 49% interest in the Westin Building Exchange in Seattle, WA for approximately $368 million, including the assumption of existing debt. The Westin Building is expected to generate 2020 cash net operating income of approximately $43 million, including management fee synergies, representing a 5.8% cap rate. The Westin Building Exchange serves as the primary interconnection hub for the Pacific Northwest, linking Canada, Alaska and Asia along the Pacific Rim. The building is the sixth most densely interconnected facility in North America, and is home to leading global cloud, content and interconnection providers, housing over 150 carriers and more than 10,000 cross-connects.
Balance Sheet
Digital Realty completed the following financing transactions during the first quarter of 2020.
-- In mid-January, Digital Realty closed an offering of EUR1.7 billion of
Euro-denominated notes with a weighted-average maturity of approximately
seven years and a weighted-average coupon of approximately 1.0%.
-- In mid-March, Digital Realty completed its combination with Interxion
and exchanged approximately 54 million shares of DLR common stock for
all of the outstanding common shares of Interxion, representing total
consideration of approximately $7 billion.
-- Likewise in mid-March, a portion of the net proceeds from the January
Euro bond offering was used to redeem all EUR1.2 billion of Interxion's
outstanding senior notes.
-- During the first quarter of 2020, Digital Realty issued 264,765 shares
of common stock under the company's at-the-market equity offering
program at a weighted average price of $139.49 per share, generating
gross proceeds of approximately $37 million.
-- Subsequent to quarter-end, Digital Realty issued an additional 4.3
million shares of common stock under the company's at-the-market equity
offering program at a weighted average price of $142.56 per share,
generating gross proceeds of approximately $615 million.
Digital Realty had approximately $12.3 billion of total debt outstanding as of March 31, 2020, comprised of $12.1 billion of unsecured debt and approximately $0.2 billion of secured debt. At the end of the first quarter of 2020, net debt-to-adjusted EBITDA was 6.6x, debt plus-preferred-to-total enterprise value was 26.6% and fixed charge coverage was 3.8x. Pro forma for settlement of the $1.1 billion forward equity offering and the $615 million of equity issued under the ATM subsequent to quarter-end as well a full-quarter contribution from Interxion and the acquisition of a 49% interest in the Westin Building, net debt-to-adjusted EBITDA was 5.1x and fixed charge coverage was 4.8x.
COVID-19
Throughout the COVID-19 global pandemic, Digital Realty's data centers around the world have remained fully operational in accordance with business continuity and pandemic response plans, prioritizing the health and safety of employees, customers and partners while ensuring service levels are maintained. Digital Realty data centers have been deemed essential operations, allowing for critical personnel to remain in place and continue to provide services and support for customers. Construction activity has been somewhat delayed in a few markets due to government restrictions in certain locations and/or limited availability of labor. In some instances, these delays are impacting scheduled delivery dates. We are monitoring the situation closely and remain in frequent communication with customers, contractors and suppliers. We have proactively managed our supply chain, and we believe we have acquired the vast majority of the equipment needed to complete our 2020 development activities. We believe we have ample liquidity to fund our business needs, given the $246 million of cash on the balance sheet as of March 31, 2020; the $615 million of equity issued under the company's at-the-market equity offering program subsequent to quarter-end; $1.1 billion available upon physical settlement of the forward equity offering; and $2.0 billion of availability under our global revolving credit facilities. While we have not experienced any significant business disruptions from the COVID-19 pandemic to date, we cannot predict what impact the COVID-19 pandemic may have on our future financial condition, results of operations or cash flows due to numerous uncertainties.
2020 Outlook
Digital Realty introduced its 2020 core FFO per share outlook of $5.90-$6.10. The assumptions underlying this guidance are summarized in the following table.
As of
Top-Line and
Cost Structure
May 7, 2020
Total revenue
$3.725 - $3.825 billion
Net non-cash
rent adjustments
(1)
($20 - $30 million)
Adjusted EBITDA
$2.075 - $2.125 billion
G&A
$320 - $330 million
Internal Growth
Rental rates on
renewal leases
Cash basis
Down low single-digits
GAAP basis
Unchanged
Year-end
portfolio
occupancy (2) 85.0% - 86.0%
"Same-capital"
cash NOI growth
(3)
(2.5%) - (3.5%)
Foreign Exchange
Rates
U.S. Dollar /
Pound Sterling
$1.20 - $1.25
U.S. Dollar /
Euro
$1.05 - $1.10
External Growth
Dispositions
Dollar volume
$0.6 - $1.0 billion
Cap rate 0.0% - 12.0%
Development
CapEx (4)
$1.9 - $2.2 billion
Average
stabilized
yields 9.0% - 15.0%
Enhancements and
other non-
recurring CapEx
(5)
$5 - $10 million
Recurring CapEx +
capitalized
leasing costs
(6)
$220 - $230 million
Balance Sheet
Long-term debt
issuance
Dollar amount
$1.9 billion
Pricing 1.00%
Timing
Early 2020
Net income per
diluted share
$1.60 - $1.75
Real estate
depreciation and
(gain) /loss on
sale
$3.50 - $3.50
Funds From
Operations /
share (NAREIT-
Defined)
$5.10 - $5.25
Non-core
expenses and
revenue streams
$0.80 - $0.85
Core Funds From
Operations /
share
$5.90 - $6.10
Foreign currency
translation
adjustments
$0.05 - $0.15
Constant-
Currency Core
FFO /share
$5.95 - $6.25
(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., ASC 805
adjustments).
(2) Reflects inclusion of the Interxion
portfolio, which was approximately
75% occupied as of March 31, 2020.
(3) The "same-capital" pool includes
properties owned as of December
31, 2018 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
2019?2020, properties classified
as held for sale, and properties
sold or contributed to joint
ventures for all periods
presented.
(4) Includes land acquisitions.
(5) 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.
(6) 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 May 7, 2020, a presentation will be posted to the Investors section of the company's website at https://investor.digitalrealty.com/. The presentation is designed to accompany the discussion of the company's first quarter 2020 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# 6715656 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 https://investor.digitalrealty.com/.
Telephone and webcast replays will be available after the call until June 8, 2020. 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# 10142172. 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 customers across the Americas, EMEA and APAC, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare and consumer products. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and Twitter.
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
Financial Supplement
Unaudited and in Thousands, Except Per Share Data
First Quarter 2020
---
Three Months Ended
---
31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
Rental revenues $579,774 $549,733 $564,975 $565,925 $585,425
Tenant reimbursements - Utilities 113,520 107,518 114,719 106,409 102,569
Tenant reimbursements - Other 56,943 59,641 57,466 62,820 55,868
Interconnection & other 69,835 65,576 65,312 64,232 68,168
Fee income 2,452 4,814 3,994 925 1,921
Other 813 181 486 564
Total Operating Revenues $823,337 $787,463 $806,466 $800,797 $814,515
Utilities $129,526 $125,127 $132,565 $123,398 $124,334
Rental property operating 136,182 129,034 126,866 128,634 130,620
Property taxes 42,123 42,541 38,255 41,482 37,315
Insurance 3,547 3,055 3,103 3,441 2,991
Depreciation & amortization 291,457 275,008 286,718 290,562 311,486
General & administration 62,266 53,540 49,862 52,318 51,976
Severance, equity acceleration, and legal expenses 1,272 1,130 123 665 1,483
Transaction and integration expenses 56,801 17,106 4,115 4,210 2,494
Impairment of investments in real estate 5,351
Other expenses 114 1,989 92 7,115 4,922
Total Operating Expenses $723,288 $648,530 $641,699 $651,825 $672,972
Operating Income $100,049 $138,933 $164,767 $148,972 $141,543
Equity in (loss) earnings of unconsolidated joint ventures ($78,996) $11,157 ($19,269) $6,962 $9,217
Gain on sale / deconsolidation 304,801 267,651 67,497
Interest and other income (expense), net (3,542) 10,734 16,842 16,980 21,444
Interest (expense) (85,800) (80,880) (84,574) (86,051) (101,552)
Income tax benefit (expense) (7,182) 1,731 (4,826) (4,634) (4,266)
Loss from early extinguishment of debt (632) (5,366) (20,905) (12,886)
Net Income $228,698 $349,326 $67,574 $61,324 $120,997
Net (income) attributable to noncontrolling interests (4,684) (13,042) (1,077) (1,156) (4,185)
Net Income Attributable to Digital Realty Trust, Inc. $224,014 $336,284 $66,497 $60,168 $116,812
Preferred stock dividends, including undeclared dividends (21,155) (20,707) (16,670) (16,670) (20,943)
Issuance costs associated with redeemed preferred stock (11,760)
Net Income Available to Common Stockholders $202,859 $315,577 $49,827 $31,738 $95,869
Weighted-average shares outstanding - basic 222,163,324 208,776,355 208,421,470 208,284,407 207,809,383
Weighted-average shares outstanding - diluted 224,474,295 210,286,278 209,801,771 209,435,572 208,526,249
Weighted-average fully diluted shares and units 232,753,630 218,901,078 218,755,597 218,497,318 217,756,161
Net income per share - basic $0.91 $1.51 $0.24 $0.15 $0.46
Net income per share - diluted $0.90 $1.50 $0.24 $0.15 $0.46
Funds From Operations and Core Funds From Operations
Financial Supplement
Unaudited and in Thousands, Except Per Share Data
First Quarter 2020
---
Three Months Ended
---
Reconciliation of Net Income to Funds From Operations (FFO) 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
---
Net Income Available to Common Stockholders $202,859 $315,577 $49,827 $31,738 $95,869
Adjustments:
Non-controlling interests in operating partnership 7,800 13,100 2,300 1,400 4,300
Real estate related depreciation & amortization (1) 286,517 271,371 283,090 286,915 307,864
Unconsolidated JV real estate related depreciation & amortization 19,923 21,631 13,612 13,623 3,851
(Gain) on real estate transactions (304,801) (267,651)
Impairment of investments in real estate 5,351
Funds From Operations $212,298 $354,028 $348,829 $333,676 $417,235
Funds From Operations - diluted $212,298 $354,028 $348,829 $333,676 $417,235
Weighted-average shares and units outstanding - basic 230,443 217,391 217,375 217,346 217,039
Weighted-average shares and units outstanding - diluted (2) 232,754 218,901 218,756 218,497 217,756
Funds From Operations per share - basic $0.92 $1.63 $1.60 $1.54 $1.92
Funds From Operations per share - diluted (2) $0.91 $1.62 $1.59 $1.53 $1.92
Three Months Ended
---
Reconciliation of FFO to Core FFO 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
---
Funds From Operations - diluted $212,298 $354,028 $348,829 $333,676 $417,235
Adjustments:
Termination fees and other non-core revenues (3) (2,425) (5,634) (16,792) (16,826) (14,445)
Transaction and integration expenses 56,801 17,106 4,115 4,210 2,494
Loss from early extinguishment of debt 632 5,366 20,905 12,886
Issuance costs associated with redeemed preferred stock 11,760
Severance, equity acceleration, and legal expenses (4) 1,272 1,130 123 665 1,483
(Gain) / Loss on FX revaluation 81,288 (10,422) 23,136 (4,251) 9,604
(Gain) on contribution to unconsolidated joint venture, net of related tax (58,497)
Other non-core expense adjustments 5,509 (1,511) 92 7,115 4,922
Core Funds From Operations - diluted $355,375 $354,697 $364,869 $357,254 $375,682
Weighted-average shares and units outstanding - diluted (2) 232,754 218,901 218,756 218,497 217,756
Core Funds From Operations per share - diluted (2) $1.53 $1.62 $1.67 $1.64 $1.73
(1) Real Estate Related Depreciation & Amortization:
Three Months Ended
---
31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
Depreciation & amortization per income statement $291,457 $275,008 $286,718 $290,562 $311,486
Non-real estate depreciation (4,940) (3,637) (3,628) (3,647) (3,622)
Real Estate Related Depreciation & Amortization $286,517 $271,371 $283,090 $286,915 $307,864
(2) For all periods presented, we have
excluded the effect of dilutive
series C, series G, series H,
series I, series J, series K and
series L 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,
series K and series L preferred
stock, as applicable, which we
consider highly improbable. See
above for calculations of diluted
FFO and the share count detail
section of the reconciliation of
core FFO to AFFO for calculations
of weighted average common stock
and units outstanding. For
definitions and discussion of FFO
and core FFO, see the definition
section.
(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)
Financial Supplement
Unaudited and in Thousands, Except Per Share Data
First Quarter 2020
---
Three Months Ended
---
Reconciliation of Core FFO to AFFO 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
---
Core FFO available to common stockholders and unitholders $355,375 $354,697 $364,869 $357,254 $375,682
Adjustments:
Non-real estate depreciation 4,940 3,637 3,628 3,647 3,622
Amortization of deferred financing costs 4,260 3,064 2,900 2,905 4,493
Amortization of debt discount/premium 943 612 466 515 760
Non-cash stock-based compensation expense 12,153 8,937 8,906 9,468 7,592
Straight-line rental revenue (15,404) (13,994) (12,764) (13,033) (15,979)
Straight-line rental expense 1,460 (342) (209) 318 1,235
Above- and below-market rent amortization 3,294 4,109 2,824 3,954 6,210
Deferred tax expense (792) (998) (1,418) (979) (15,397)
Leasing compensation & internal lease commissions (1) 2,793 3,646 3,254 4,025 3,581
Recurring capital expenditures (2) (34,677) (54,731) (48,408) (39,515) (38,059)
AFFO available to common stockholders and unitholders (3) $334,345 $308,637 $324,048 $328,559 $333,740
Weighted-average shares and units outstanding - basic 230,443 217,391 217,375 217,346 217,039
Weighted-average shares and units outstanding - diluted (4) 232,754 218,901 218,756 218,497 217,756
AFFO per share - diluted (4) $1.44 $1.41 $1.48 $1.50 $1.53
Dividends per share and common unit $1.12 $1.08 $1.08 $1.08 $1.08
Diluted AFFO Payout Ratio 78.0% 76.6% 72.9% 71.8% 70.5%
Three Months Ended
---
Share Count Detail 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
---
Weighted Average Common Stock and Units Outstanding 230,443 217,391 217,375 217,346 217,039
Add: Effect of dilutive securities 2,311 1,510 1,381 1,151 717
Weighted Avg. Common Stock and Units Outstanding - diluted 232,754 218,901 218,756 218,497 217,756
(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, series K and
series L 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,
series K and series L 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
Financial Supplement
Unaudited and in Thousands, Except Share and Per Share Data
First Quarter 2020
---
31-March-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
Assets
Investments in real estate:
Real estate $20,477,290 $16,886,592 $16,407,080 $17,324,416 $16,988,322
Construction in progress 2,204,869 1,732,555 1,647,130 1,685,056 1,584,327
Land held for future development 137,447 147,597 150,265 152,368 163,081
Investments in real estate $22,819,606 $18,766,744 $18,204,475 $19,161,840 $18,735,730
Accumulated depreciation and amortization (4,694,713) (4,536,169) (4,298,629) (4,312,357) (4,124,002)
Net Investments in Properties $18,124,893 $14,230,575 $13,905,846 $14,849,483 $14,611,728
Investment in unconsolidated joint ventures 1,064,009 1,287,109 1,035,861 979,350 930,326
Net Investments in Real Estate $19,188,902 $15,517,684 $14,941,707 $15,828,833 $15,542,054
Cash and cash equivalents $246,480 $89,817 $7,190 $33,536 $123,879
Accounts and other receivables (1) 527,699 305,501 304,712 320,938 328,009
Deferred rent 484,179 478,744 471,516 491,486 479,640
Customer relationship value, deferred leasing costs and other intangibles, net 3,500,588 2,195,324 2,245,017 2,499,564 2,580,624
Acquired above-market leases, net 66,033 74,815 84,315 94,474 106,044
Goodwill 7,466,046 3,363,070 3,338,168 3,353,538 3,358,463
Assets associated with real estate held for sale 229,934 967,527
Operating lease right-of-use assets (2) 1,364,621 628,681 634,085 648,952 660,586
Other assets 268,752 184,561 178,528 158,770 162,768
Total Assets $33,113,300 $23,068,131 $23,172,765 $23,430,091 $23,342,067
Liabilities and Equity
Global unsecured revolving credit facilities $603,101 $234,105 $1,833,512 $1,417,675 $842,975
Unsecured term loans 771,425 810,219 796,232 807,922 807,726
Unsecured senior notes, net of discount 10,637,006 8,973,190 8,189,138 8,511,656 8,523,462
Secured debt, net of premiums 239,800 104,934 105,153 105,325 105,493
Operating lease liabilities (2) 1,431,292 693,539 699,381 714,256 725,470
Accounts payable and other accrued liabilities 1,732,318 1,007,761 938,740 984,812 922,571
Accrued dividends and distributions 234,620
Acquired below-market leases 145,208 148,774 153,422 183,832 192,667
Security deposits and prepaid rent 336,583 208,724 203,708 213,549 221,526
Liabilities associated with assets held for sale 2,700 23,534
Total Liabilities $15,896,733 $12,418,566 $12,942,820 $12,939,027 $12,341,890
Redeemable non-controlling interests - operating partnership 40,027 41,465 19,090 17,344 17,678
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
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) 203,264 203,264 203,264 203,264 203,423
Series L Cumulative Redeemable Preferred Stock (9) 334,886 334,886
Common Stock: $0.01 par value per share, 392,000,000 shares authorized (10) 2,622 2,073 2,069 2,067 2,066
Additional paid-in capital 18,606,766 11,577,320 11,540,980 11,511,519 11,492,766
Dividends in excess of earnings (3,139,350) (3,046,579) (3,136,668) (2,961,307) (2,767,708)
Accumulated other comprehensive (loss), net (444,222) (87,922) (68,625) (89,588) (91,699)
Total Stockholders' Equity $16,460,236 $9,879,312 $9,437,290 $9,562,225 $10,088,408
Noncontrolling Interests
Noncontrolling interest in operating partnership $656,266 $708,163 $732,314 $756,050 $772,931
Noncontrolling interest in consolidated joint ventures 60,038 20,625 41,251 155,445 121,160
Total Noncontrolling Interests $716,304 $728,788 $773,565 $911,495 $894,091
Total Equity $17,176,540 $10,608,100 $10,210,855 $10,473,720 $10,982,499
Total Liabilities and Equity $33,113,300 $23,068,131 $23,172,765 $23,430,091 $23,342,067
(1) Net of allowance for doubtful
accounts of $16,301 and $13,753
as of March 31, 2020 and
December 31, 2019,
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 March 31, 2020 and
December 31, 2019,
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,
2020 and December 31, 2019,
respectively.
(5) Series H Cumulative Redeemable
Preferred Stock, 7.375%, $0 and
$0 liquidation preference,
respectively ($25.00 per
share), 0 and 0 shares issued
and outstanding as of March 31,
2020 and December 31, 2019,
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 March 31,
2020 and December 31, 2019,
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, 2020 and
December 31, 2019,
respectively.
(8) Series K Cumulative Redeemable
Preferred Stock, 5.850%,
$210,000 and $210,000
liquidation preference,
respectively ($25.00 per
share), 8,400,000 and 8,400,000
shares issued and outstanding
as of March 31, 2020 and
December 31, 2019,
respectively.
(9) Series L Cumulative Redeemable
Preferred Stock, 5.200%,
$345,000 and $345,000
liquidation preference,
respectively ($25.00 per
share), 13,800,000 and
13,800,000 shares issued and
outstanding as of March 31,
2020 and December 31, 2019,
respectively.
(10) Common Stock: 263,595,562 and
208,900,758 shares issued and
outstanding as of March 31,
2020 and December 31, 2019,
respectively.
Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization
Financial Supplement
Unaudited and in Thousands
First Quarter 2020
---
Three Months Ended
---
Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) (1) 31-Mar-20 31-Dec-19 30-Sep-19 30-Jun-19 31-Mar-19
Net Income Available to Common Stockholders $202,859 $315,577 $49,827 $31,738 $95,869
Interest 85,800 80,880 84,574 86,051 101,552
Loss from early extinguishment of debt 632 5,366 20,905 12,886
Income tax (benefit) expense 7,182 (1,731) 4,826 4,634 4,266
Depreciation & amortization 291,457 275,008 286,718 290,562 311,486
EBITDA $587,930 $669,734 $431,311 $433,890 $526,059
Unconsolidated JV real estate related depreciation & amortization 19,923 21,631 13,612 13,623 3,851
Unconsolidated JV interest expense and tax expense 9,944 13,553 10,816 10,277 2,191
Severance, equity acceleration, and legal expenses 1,272 1,130 123 665 1,483
Transaction and integration expenses 56,801 17,106 4,115 4,210 2,494
(Gain) on sale / deconsolidation (304,801) (267,651) (67,497)
Impairment of investments in real estate 5,351
Other non-core adjustments, net 85,185 (13,886) 6,436 (13,476) (13,806)
Non-controlling interests 4,684 13,042 1,077 1,156 4,185
Preferred stock dividends, including undeclared dividends 21,155 20,707 16,670 16,670 20,943
Issuance costs associated with redeemed preferred stock 11,760
Adjusted EBITDA $482,093 $475,366 $484,160 $478,775 $485,254
(1) For definitions and discussion of EBITDA and Adjusted EBITDA, see the
definitions section.
Management Statements on Non-GAAP Measures Financial Supplement
Unaudited First Quarter 2020
---
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, unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, 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. Adjusted EBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, 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 March 31, 2020, GAAP interest expense was $86 million, capitalized interest was $10 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-20 31-Dec-19 31-Mar-19
---
Operating income $100,049 $138,933 $141,543
Fee income (2,452) (4,814) (1,921)
Other income (813) (181) (564)
Depreciation and
amortization 291,457 275,008 311,486
General and
administrative 62,266 53,540 51,976
Severance, equity
acceleration, and legal
expenses 1,272 1,130 1,483
Transaction expenses 56,801 17,106 2,494
Impairment in
investments in real
estate 5,351
Other expenses 114 1,989 4,922
Net Operating Income $508,694 $482,711 $516,770
Cash Net Operating
Income (Cash NOI)
Net Operating Income $508,694 $482,711 $516,770
Straight-line rental
revenue (13,392) (6,385) (14,557)
Straight-line rental
expense 1,496 (307) 1,177
Above- and below-
market rent
amortization 3,294 4,109 6,210
Cash Net Operating
Income $500,092 $480,128 $509,600
Forward-Looking Statements Financial Supplement
First Quarter 2020
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, our joint ventures, 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, 2020 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, 2020 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;
-- increased competition or available supply of data center space;
-- decreased rental rates, increased operating costs or increased vacancy
rates;
-- 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;
-- our ability to attract and retain 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;
-- information security and data privacy breaches;
-- 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;
-- our inability to attract and retain talent;
-- impact on our operations and on the operations of our customers,
suppliers and business partners during a pandemic, such as COVID-19;
-- environmental liabilities, risks related to natural disasters and our
inability to achieve our sustainability goals;
-- 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;
-- 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; 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. Several additional material risks are discussed in our annual report on Form 10?K for the year ended December 31, 2019 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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SOURCE Digital Realty
