Digital Realty Provides Initial 2019 Outlook
SAN FRANCISCO, Jan. 9, 2019 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today it expects to deliver 2019 core FFO per share within a range of $6.60-$6.70. Excluding foreign currency translation and adoption of the new lease accounting standard, which are expected to have a negative impact of approximately 1%-2% and 2%-3%, respectively, the initial 2019 outlook represents year-over-year growth of over 5% from the midpoint of 2018 core FFO per share guidance of $6.55-$6.65. The remaining assumptions underlying the 2019 outlook are summarized in the table below.
"The strength of our global, connected, sustainable platform - supported by durable secular demand drivers - provides the framework for our expectation of continued growth in earnings, cash flow and dividends per share in 2019 and beyond," said Chief Executive Officer A. William Stein.
"In 2018, we significantly expanded our global platform with our entry into Latin America, secured our supply chain with major strategic land purchases in key metro areas, and further strengthened our investment grade balance sheet with a $1.1 billion forward equity offering, pre-funding our capital spending needs into 2020," added Chief Financial Officer Andrew P. Power. "These initiatives enhance our long-term ability to power our customers' digital ambitions around the world, while bolstering our commitment to delivering long-term sustainable growth for our customers, shareholders and employees."
2018 Guidance
2019 Guidance
As of
Adjusted for
As of
Top-Line and Cost
Structure
October 25, 2018
ASC 842 (5)
January 8, 2019
Total revenue
$3.0 - $3.2 billion
$3.0 - $3.2 billion
$3.2 - $3.3 billion
Net non-cash rent
adjustments (1)
($5 - $15 million)
($5 - $15 million)
($5 - $15 million)
Adjusted EBITDA margin 58.0% - 60.0% 57.0% - 59.0% 57.0% - 59.0%
G&A margin 5.5% - 6.5% 6.5% - 7.5% 6.0% - 7.0%
Internal Growth
Rental rates on
renewal leases
Cash basis
Slightly negative
Slightly negative
Down high-single-digits
GAAP basis
Up mid-single-digits
Up mid-single-digits
Slightly positive
Year-end portfolio
occupancy
+/- 50 bps
+/- 50 bps
+/- 50 bps
"Same-capital" cash
NOI growth (2) 1.0% - 3.0% 1.0% - 3.0% +/- 2.0%
Foreign Exchange Rates
U.S. Dollar /Pound
Sterling
$1.30 - $1.35
$1.30 - $1.35
$1.20 - $1.30
U.S. Dollar /Euro
$1.15 - $1.20
$1.15 - $1.20
$1.10 - $1.20
External Growth
Development
CapEx
$1.2 - $1.4 billion
$1.2 - $1.4 billion
$1.2 - $1.4 billion
Average stabilized
yields 10.0% - 12.0% 10.0% - 12.0% 9.0% - 12.0%
Enhancements and other
non-recurring CapEx
(3)
$25 - $30 million
$25 - $30 million
$30 - $40 million
Recurring CapEx +
capitalized leasing
costs (4)
$160 - $170 million
$145 - $155 million
$145 - $155 million
Balance Sheet
Long-term debt
issuance
Dollar amount
$1.2 - $1.8 billion
$1.2 - $1.8 billion
$0.5 - $1.0 billion
Pricing 3.25% - 4.50% 3.25% - 4.50% 3.50% - 5.00%
Timing
Mid-to-late 2018
Mid-to-late 2018
Early-to-mid 2019
Net income per diluted
share
$1.55 - $1.60
$1.35 - $1.40
$1.40 - $1.45
Real estate
depreciation and
(gain)/loss on sale
$4.95 - $4.95
$4.95 - $4.95
$5.15 - $5.15
Funds From Operations
/share (NAREIT-
Defined)
$6.50 - $6.55
$6.30 - $6.35
$6.55 - $6.60
Non-core expense and
revenue streams
$0.05 - $0.10
$0.05 - $0.10
$0.05 - $0.10
Core Funds From
Operations /share
$6.55 - $6.65
$6.35 - $6.45
$6.60 - $6.70
Foreign currency
translation
adjustments N/A N/A
$0.05 - $0.15
Constant-Currency
Core FFO /share
$6.55 - $6.65
$6.35 - $6.45
$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 the total
rentable square feet under
development. It also excludes
properties that were undergoing, or
were expected to undergo,
development activities in 2018-
2019, properties classified as held
for sale, and properties sold or
contributed to joint ventures for
all periods presented.
(3) Other non-recurring CapEx
represents costs incurred to
enhance the capacity or
marketability of operating
properties, such as network fiber
initiatives and software
development costs.
(4) Recurring CapEx represents non-
incremental improvements required
to maintain current revenues,
including second-generation tenant
improvements and leasing
commissions.
(5) SC 842 refers to FASB Accounting
Standard Codification Topic 842,
Leases, which sets out the
principles for the recognition,
measurement, presentation and
disclosure of leases for both
parties to a contract (i.e.,
lessees and lessors). The guidance
shown under this heading includes
adjustments to our 2018 outlook,
giving effect to ASC 842. These
adjusted figures have not been
prepared in accordance with GAAP.
Reflects an estimated increase in
General & Administrative expense of
approximately $0.20 per share due
to the application of ASC 842.
For Additional Information
Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500
Investor Relations
John J. Stewart / Maria S. Lukens
Digital Realty
(415) 738-6500
investorrelations@digitalrealty.com
About Digital Realty
Digital Realty supports the data center, colocation and interconnection strategies of more than 2,300 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Latin America, Asia and Australia. Digital Realty's clients include domestic and international companies of all sizes, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare and consumer products.
Safe Harbor Statement
This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to our future growth, financial resources and success, expected demand drivers, foreign currency translation and the company's 2019 revenue, net income, core FFO, FFO and underlying assumptions. These risks and uncertainties include, among others, the following: reduced demand for data centers or decreases in information technology spending; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services; our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers; breaches of our obligations or restrictions under our contracts with our customers; our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties; the impact of current global and local economic, credit and market conditions; our inability to retain data center space that we lease or sublease from third parties; difficulty acquiring or operating properties in foreign jurisdictions; our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions; our failure to successfully integrate and operate acquired or developed properties or businesses; 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; our failure to maintain our status as a REIT for federal income tax purposes; our operating partnership'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. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2017, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Funds From Operations (FFO)
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, non-controlling interests share of gain on sale of property, impairment of investment in real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs), , unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs' FFO. Accordingly, 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
We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) gain (loss) from early extinguishment of debt, (iv) issuance costs associated with redeemed preferred stock, (v) equity in earnings adjustment for non-core items, (vi) severance, equity acceleration, and legal expenses, (vii) bridge facility fees, and (viii) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of core FFO as a measure of our performance is limited. Other REITs may not calculate core FFO in a consistent manner. 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.
EBITDA and Adjusted EBITDA
We believe that earnings before interest, loss from early extinguishment of debt, income taxes, depreciation and amortization, and impairment of investments in real estate, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, equity in earnings adjustment for non-core items, other non-core adjustments, net, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding severance, equity acceleration, and legal expenses, transaction and integration expenses, (gain) on real estate transactions, other non-core adjustments, net, non-controlling interests, and preferred stock dividends, including undeclared dividends. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do and accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs' EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.
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