Digital Realty Reports Third Quarter 2016 Results

News provided by

Digital Realty Trust, Inc.

Oct 27, 2016, 04:01 ET

SAN FRANCISCO, Oct. 27, 2016 /PRNewswire/ -- Digital Realty Trust, Inc. (NYSE: DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2016.  All per share results are presented on a fully-diluted share and unit basis. 

Highlights

  • Reported net income available to common stockholders per share of $1.25 in 3Q16, compared to $0.28 in 3Q15
  • Reported FFO per share of $1.31 in 3Q16, compared to $1.28 in 3Q15
  • Reported core FFO per share of $1.44 in 3Q16, compared to $1.32 in 3Q15
  • Signed total bookings during 3Q16 expected to generate $55 million of annualized revenue, including a $9 million contribution from interconnection
  • Reiterated 2016 core FFO per share outlook of $5.65 - $5.75 and "constant-currency" core FFO per share outlook of $5.70 - $5.90

Financial Results

Revenues were $546 million for the third quarter of 2016, a 6% increase from the previous quarter and a 25% increase over the same quarter last year.

Net income for the third quarter of 2016 was $222 million, and net income available to common stockholders was $187 million, or $1.25 per diluted share, compared to $0.19 per diluted share in the second quarter of 2016 and $0.28 per diluted share in the third quarter of 2015.

Adjusted EBITDA was $307 million for the third quarter of 2016, a 3% increase from the previous quarter and a 22% increase over the same quarter last year.

Funds from operations ("FFO") on a fully diluted basis was $199 million in the third quarter of 2016, or $1.31 per share, compared to $1.36 per share in the second quarter of 2016 and $1.28 per share in the third quarter of 2015.

Excluding certain items that do not represent core expenses or revenue streams, third quarter of 2016 core FFO was $1.44 per share, a 1% increase from $1.42 per share in the second quarter of 2016, and a 9% increase from $1.32 per share in the third quarter of 2015.

Leasing Activity

"During the third quarter, we signed total bookings representing $55 million of annualized GAAP rental revenue, including a $9 million contribution from interconnection," said Chief Executive Officer A. William Stein.

The weighted-average lag between leases signed during the third quarter of 2016 and the contractual commencement date was 4 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $44 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the third quarter of 2016 rolled up 2.5% on a cash basis and up 3.9% on a GAAP basis.

New leases signed during the third quarter of 2016 by region and product type are summarized as follows:

Annualized GAAP

Base Rent

(in thousands)












GAAP Base Rent

per Square Foot


GAAP Base Rent

North America

Square Feet

Megawatts

per Kilowatt

Turn-Key Flex

$28,777

205,121

$140

20

$120

Powered Base Building

445

10,230

44

—

—

Colocation

6,933

22,808

304

2

295

Non-Technical

999

56,312

18

—

—

Total

$37,154

294,471

$126

22

$135











Europe (1)









Turn-Key Flex

$6,601

43,116

$153

4

$145

Colocation

755

2,829

267

—

419

Non-Technical

17

398

42

—

—

  Total

$7,373

46,343

$159

4

$155











Asia Pacific (1)









Turn-Key Flex (2)

$1,839

2,167

$849

—

$578

Colocation

—

—

—

—

—

Non-Technical

—

—

—

—

—

  Total

$1,839

2,167

$849

—

$578











Interconnection

$9,086

—

—

—

—











Grand Total

$55,452

342,981

$135

26

$143

Note:  Totals may not foot due to rounding differences.

(1)   Based on quarterly average exchange rates during the three months ended September 30, 2016.

(2)   Includes one transaction representing incremental revenue only with no additional footprint or kW.

Investment Activity

During the third quarter of 2016, Digital Realty completed the previously announced acquisition of a portfolio of eight high-quality, carrier-neutral data centers in Europe from Equinix in a transaction valued at $874 million.

Digital Realty also closed on the sale of 114 rue Ambroise Croizat in Paris to Equinix for €190 million (or approximately $212 million).  The property was 96% leased and was expected to generate cash net operating income of €14.7 million (or approximately $16.2 million) in 2016, representing a cap rate of 7.7%.  The sale generated net proceeds of approximately $211 million, and Digital Realty recognized a gain on the sale of $144 million in the third quarter of 2016.

During the third quarter of 2016, Digital Realty also closed on the previously announced sale of a four-property data center portfolio totaling approximately 454,000 square feet for $115 million, or $252 per square foot.  The properties were expected to generate cash net operating income of approximately $9 million in 2016.  The sale generated net proceeds of $112 million, and Digital Realty recognized a gain on the sale of approximately $25 million in the third quarter of 2016.

During the third quarter of 2016, Digital Realty acquired two land parcels totaling approximately 30 acres of developable land adjacent to its existing campus in Ashburn, Virginia for a total purchase price of $19 million.  The combined 290-acre site is expected to support the development of an additional 3.2 million square feet and 270 megawatts of critical power.  Commencement of development will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the existing campus in Ashburn.

Digital Realty also acquired a 48-acre land parcel in Garland, Texas during the third quarter of 2016 for a total purchase price of $17 million.  The site is expected to support the development of 960,000 square feet and the build-out of approximately 72 megawatts of critical power.  Commencement of development will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the existing campus in Richardson.

Likewise, during the third quarter of 2016, Digital Realty acquired a 19-acre land parcel adjacent to its existing campus in Franklin Park, Illinois for a total purchase price of $13 million.  The site is expected to support the development of a 469,000 square foot building and the build-out of approximately 36 megawatts of critical power.  Commencement of development will be subject to market demand and delivery will be phased to facilitate customer expansion requirements upon completion of the existing campus in Franklin Park.

Balance Sheet

Digital Realty had approximately $6.0 billion of total debt outstanding as of September 30, 2016, comprised of $5.9 billion of unsecured debt and approximately $0.1 billion of secured debt.  At the end of the third quarter of 2016, net debt-to-adjusted EBITDA was 5.1x, debt-plus-preferred-to-total enterprise value was 31.1% and fixed charge coverage was 3.4x. 

On September 15, 2016, Digital Realty redeemed all 11.5 million outstanding shares of its 7.000% Series E Cumulative Redeemable Preferred Stock, at a redemption price of $25 per share, plus accrued and unpaid dividends for a total payment of $25.35972 per share, or $291.6 million in aggregate.

On September 27, 2016, Digital Realty settled a portion of the forward sale agreements originally entered into in May 2016 with the issuance of 12 million shares of its common stock, generating net proceeds of $1.1 billion.  Following the settlement, 2.375 million shares remain subject to the forward sale agreements.

2016 Outlook

Digital Realty reiterated its 2016 core FFO per share outlook of $5.65 - $5.75.  The assumptions underlying this guidance are summarized in the following table. 



Jan. 4, 2016

Feb. 25, 2016

Apr. 28, 2016

Jul. 28, 2016

Oct. 27, 2016

Top-Line and Cost Structure









2016 total revenue

$2.0 - $2.2 billion

$2.0 - $2.2 billion

$2.0 - $2.2 billion

$2.0 - $2.2 billion

$2.0 - $2.2 billion

2016 net non-cash rent adjustments (1)

$10 - $20 million

$10 - $20 million

$10 - $20 million

$10 - $20 million

$10 - $15 million

2016 adjusted EBITDA margin

55.0% - 57.0%

55.0% - 57.0%

55.5% - 57.5%

56.0% - 58.0%

56.5% - 58.0%

2016 G&A margin

7.0% - 7.5%

7.0% - 7.5%

6.5% - 7.0%

6.5% - 7.0%

6.8% - 7.0%











Internal Growth









Rental rates on renewal leases









   Cash basis

N/A

Flat

Flat

Slightly positive

Slightly positive

   GAAP basis

N/A

Up high single-digits

Up high single-digits

Up high single-digits

Up high single-digits

Year-end portfolio occupancy

N/A

+/- 50 bps

+/- 50 bps

+/- 50 bps

Down 150-200 bps

"Same-capital" cash NOI growth (2)

N/A

0.0% - 3.0%

1.0% - 4.0%

2.5% - 4.0%

2.5% - 4.0%











Foreign Exchange Rates









   U.S. Dollar / Pound Sterling

N/A

$1.40 - $1.48

$1.38 - $1.45

$1.27 - $1.32

$1.18 - $1.22

   U.S. Dollar / Euro

N/A

$1.02 - $1.07

$1.05 - $1.10

$1.05 - $1.10

$1.05 - $1.10






















External Growth









Dispositions









Dollar volume

$0 - $200 million

$38 - $200 million

$38 - $200 million

$150 - $360 million

$326.5 million

Cap rate

0.0% - 10.0%

0.0% - 10.0%

0.0% - 10.0%

7.0% - 8.0%

7.1%

Development









CapEx

$750 - $900 million

$750 - $900 million

$750 - $900 million

$750 - $900 million

$750 - $900 million

Average stabilized yields

10.5% - 12.5%

10.5% - 12.5%

10.5% - 12.5%

10.5% - 12.5%

10.5% - 12.5%

Enhancements and other non-recurring CapEx (3)

$20 - $25 million

$20 - $25 million

$20 - $25 million

$5 - $10 million

$5 - $10 million

Recurring CapEx + capitalized leasing costs (4)

$145 - $155 million

$145 - $155 million

$145 - $155 million

$120 - $130 million

$95 - $105 million






















Balance Sheet









 Long-term debt issuance









Dollar amount

$1.25 - $1.75 billion

$1.25 - $1.75 billion

$1.25 - $1.75 billion

$1.25 - $1.75 billion

$1.25 - $1.75 billion

Pricing

3.00% - 5.00%

3.00% - 5.00%

2.50% - 3.50%

2.50% - 3.50%

2.50% - 3.50%

Timing

Mid 2016

Mid 2016

Early-to-mid 2016

Early-to-mid 2016

Early-to-mid 2016






















Net income per diluted share

$0.35 - $0.45

$0.35 - $0.45

$0.45 - $0.50

$1.95 - $2.00

$1.95 - $2.00

Real estate depreciation and (gain)/loss on sale

$5.00 - $5.00

$5.00 - $5.00

$5.00 - $5.00

$3.55 - $3.55

$3.55 - $3.55

Funds From Operations / share (NAREIT-Defined)

$5.35 - $5.45

$5.35 - $5.45

$5.45 - $5.50

$5.50 - $5.55

$5.45 - $5.50

Non-core expense and revenue streams

$0.10 - $0.15

$0.10 - $0.15

$0.10 - $0.15

$0.15 - $0.20

$0.20 - $0.25

Core Funds From Operations / share

$5.45 - $5.60

$5.45 - $5.60

$5.55 - $5.65

$5.65 - $5.75

$5.65 - $5.75

Foreign currency translation adjustments

$0.05 - $0.10

$0.05 - $0.10

$0.05 - $0.10

$0.05 - $0.15

$0.05 - $0.15

Constant-Currency Core FFO / share

$5.50 - $5.70

$5.50 - $5.70

$5.60 - $5.75

$5.70 - $5.90

$5.70 - $5.90


(1)

Net non-cash rent adjustments represents the sum of straight-line rental revenue, 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, 2014 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 2015-2016, properties classified as held for sale, and properties sold or contributed to joint ventures for all periods presented.


Note:  In an effort to present 2016 same-capital results on a basis comparable to 2015, projected Net Operating Income (NOI) is shown prior to Telx-related eliminations at properties owned as of December 31, 2014 that meet the same-capital definition.

(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.  Capitalized leasing costs include capitalized leasing compensation as well as capitalized internal leasing commissions.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including FFO, core FFO, constant-currency 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 constant-currency core FFO, and definitions of FFO, core FFO and constant-currency core FFO are included as an attachment to this press release.  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 press release.

Investor Conference Call

Prior to Digital Realty's investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on October 27, 2016, 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 third quarter 2016 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 +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and reference the conference ID# 9116034 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 one hour after the call until November 24, 2016.  The telephone replay can be accessed by dialing +1 (877) 344-7529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 10093425.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty Trust, Inc. 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, Asia and Australia.  Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.

Additional information about Digital Realty is included in the Company Overview, available on the Investors page of Digital Realty's website at www.digitalrealty.com.  The Company Overview is updated periodically, and may contain material information and updates.  To receive e-mail alerts when the Company Overview is updated, please visit the Investors page of Digital Realty's website.

Contact Information

Andrew P. Power
Chief Financial Officer
Digital Realty Trust, Inc.
+1 (415) 738-6500

John J. Stewart / Maria S. Lukens
Investor Relations
Digital Realty Trust, Inc.
+1 (415) 738-6500

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 supply and demand for data center and colocation space, the expected integration and financial contributions of the European portfolio acquisition, the expected financial impact of sale of a four-property data center portfolio and the acquisition and development of land parcels, the expected settlement of our forward sales agreements. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the geographies in which we operate; decreases in information technology spending, including as a result of economic slowdowns or recession; 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); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; 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; financial market fluctuations; changes in foreign currency exchange rates; the impact of the United Kingdom's referendum on withdrawal from the European Union on global financial markets and our business; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in 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, 2015, as amended, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016.  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.

Consolidated Quarterly Statements of Operations

Unaudited and in thousands, except share and per share data


Three Months Ended

Nine Months Ended

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15

Rental revenues

$395,212

$377,109

$371,128

$365,827

$336,679

$1,143,449

$988,172

Tenant reimbursements - Utilities

68,168

62,363

58,955

60,800

70,148

189,486

192,217

Tenant reimbursements - Other

27,497

25,848

25,263

30,190

25,336

78,608

76,668

Interconnection & other

53,897

48,363

46,963

41,746

1,651

149,223

—

Fee income

1,517

1,251

1,799

1,880

1,595

4,567

4,758

Other

2

—

91

—

580

93

1,078

Total Operating Revenues

$546,293

$514,934

$504,199

$500,443

$435,989

$1,565,426

$1,262,893









Utilities

$85,052

$74,396

$69,917

$70,758

$73,887

$229,365

$201,526

Rental property operating

58,685

54,731

54,109

52,563

35,254

167,525

107,087

Repairs & maintenance

33,455

30,421

30,143

32,063

31,301

94,019

86,027

Property taxes

20,620

27,449

27,331

28,472

19,953

75,400

64,116

Insurance

2,470

2,241

2,412

2,360

2,140

7,123

6,449

Change in fair value of contingent consideration

—

—

—

—

(1,594)

—

(44,276)

Depreciation & amortization

178,133

175,594

169,016

172,956

136,974

522,743

397,571

General & administrative

43,555

32,681

29,808

29,862

26,431

106,044

70,541

Severance, equity acceleration, and legal expenses

2,580

1,508

1,448

6,125

(3,676)

5,536

(979)

Transaction expenses

6,015

3,615

1,900

3,099

11,042

11,530

14,301

Other expenses

(22)

—

(1)

60,914

51

(23)

29

Total Operating Expenses

$430,543

$402,636

$386,083

$459,172

$331,763

$1,219,262

$902,392









Operating Income

$115,750

$112,298

$118,116

$41,271

$104,226

$346,164

$360,501









Equity in earnings of unconsolidated joint ventures

$4,152

$4,132

$4,078

$3,321

$4,169

$12,362

$12,170

Gain (loss) on sale of property

169,000

—

1,097

322

(207)

170,097

94,282

Interest and other income

355

(3,325)

(624)

498

(358)

(3,594)

(2,879)

Interest (expense)

(63,084)

(59,909)

(57,261)

(61,717)

(48,138)

(180,254)

(139,718)

Tax (expense)

(3,720)

(2,252)

(2,109)

(268)

(1,850)

(8,081)

(6,044)

Loss from early extinguishment of debt

(18)

—

(964)

—

—

(982)

(148)

Net Income (Loss)

$222,435

$50,944

$62,333

($16,573)

$57,842

$335,712

$318,164









Net (income) loss attributable to non-controlling interests

(3,247)

(569)

(784)

590

(864)

(4,600)

(5,492)

Net Income (Loss) Attributable to Digital Realty Trust, Inc.

$219,188

$50,375

$61,549

($15,983)

$56,978

$331,112

$312,672









Preferred stock dividends

(21,530)

(22,424)

(22,424)

(24,056)

(18,456)

(66,378)

(55,367)

Issuance costs associated with redeemed preferred stock

(10,328)

—

—

—

—

(10,328)

—









Net Income (Loss) Available to Common Stockholders

$187,330

$27,951

$39,125

($40,039)

$38,522

$254,406

$257,305









Weighted-average shares outstanding - basic

147,397,853

146,824,268

146,565,564

145,561,559

135,832,503

146,930,939

135,782,831

Weighted-average shares outstanding - diluted

149,384,871

147,808,268

147,433,194

145,561,559

138,259,936

147,655,184

136,920,477

Weighted-average fully diluted shares and units

151,764,542

150,210,714

149,915,428

149,100,083

139,192,198

150,076,482

139,050,965









Net income (loss) per share - basic

$1.27

$0.19

$0.27

($0.28)

$0.28

$1.73

$1.89

Net income (loss) per share - diluted

$1.25

$0.19

$0.27

($0.28)

$0.28

$1.72

$1.88

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

Nine Months Ended

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15









Net Income (Loss) Available to Common Stockholders

$187,330

$27,951

$39,125

($40,039)

$38,522

$254,406

$257,305

Adjustments:







Non-controlling interests in operating partnership

3,024

457

663

(708)

747

4,144

5,150

Real estate related depreciation & amortization (1)

175,332

167,043

166,912

170,095

135,613

509,287

393,634

Impairment charge related to Telx trade name

—

6,122

—

—

—

6,122

—

Unconsolidated JV real estate related depreciation & amortization

2,810

2,810

2,803

2,867

2,761

8,424

8,551

(Gain) loss on sale of property

(169,000)

—

(1,097)

(322)

207

(170,097)

(94,282)

(Gain) on settlement of pre-existing relationship with Telx (2)

—

—

—

(14,355)

—

—

—

Funds From Operations

$199,496

$204,383

$208,406

$117,538

$177,850

$612,286

$570,358









Funds From Operations - diluted

$199,496

$204,383

$208,406

$117,538

$177,850

$612,286

$570,358









Weighted-average shares and units outstanding - basic

149,778

149,227

149,048

148,388

138,468

149,352

138,481

Weighted-average shares and units outstanding - diluted (3)

151,765

150,211

149,915

149,100

139,192

150,076

139,051









Funds From Operations per share - basic

$1.33

$1.37

$1.40

$0.79

$1.28

$4.10

$4.12









Funds From Operations per share - diluted (3)

$1.31

$1.36

$1.39

$0.79

$1.28

$4.08

$4.10










Three Months Ended

Nine Months Ended

Reconciliation of FFO to Core FFO

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15









Funds From Operations - diluted

$199,496

$204,383

$208,406

$117,538

$177,850

$612,286

$570,358

Adjustments:







Termination fees and other non-core revenues (4)

(2)

—

(91)

—

(580)

(93)

680

Transaction expenses

6,015

3,615

1,900

3,099

11,042

11,530

14,301

Loss from early extinguishment of debt

18

—

964

—

—

982

148

Issuance costs associated with redeemed preferred stock

10,328

—

—

—

—

10,328

—

Change in fair value of contingent consideration (5)

—

—

—

—

(1,594)

—

(44,276)

Severance, equity acceleration, and legal expenses (6)

2,580

1,508

1,448

6,125

(3,676)

5,536

(979)

Bridge facility fees (7)

—

—

—

3,903

—

—

—

Loss on currency forwards

—

3,082

—

—

—

3,082

—

Other non-core expense adjustments (8)

(22)

—

(1)

75,269

51

(23)

(8)

Core Funds From Operations - diluted

$218,413

$212,587

$212,626

$205,934

$183,093

$643,627

$540,224









Weighted-average shares and units outstanding - diluted (3)

151,765

150,211

149,915

149,100

139,192

150,076

139,051









Core Funds From Operations per share - diluted (3)

$1.44

$1.42

$1.42

$1.38

$1.32

$4.29

$3.89









(1)   Real Estate Related Depreciation & Amortization:

Three Months Ended

Nine Months Ended

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15









Depreciation & amortization per income statement

$178,133

$175,594

$169,016

$172,956

$136,974

$522,743

$397,571

Non-real estate depreciation

(2,801)

(2,429)

(2,104)

(2,861)

(1,361)

(7,334)

(3,937)

Impairment charge related to Telx trade name

—

(6,122)

—

—

—

(6,122)

—









Real Estate Related Depreciation & Amortization

$175,332

$167,043

$166,912

$170,095

$135,613

$509,287

$393,634


(2)

Included in Other expenses on the Income Statement, offset by the write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million.

(3)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable.  See above for calculations of diluted FFO available to common stockholders and unitholders and below for calculations of weighted average common stock and units outstanding.

(4)

Includes lease termination fees and certain other adjustments that are not core to our business.

(5)

Relates to earn-out contingencies in connection with the Sentrum and Singapore (29A International Business Park) acquisitions.  The Sentrum earn-out contingency expired in July 2015 and the Singapore earn-out contingency will expire in November 2020 and will be reassessed on a quarterly basis.  During the first quarter of 2015, we reduced the fair value of the earnout related to Sentrum by approximately $44.8 million.  The adjustment was the result of an evaluation by management that no additional leases would be executed for vacant space by the contingency expiration date. 

(6)

Relates to severance and other charges related to the departure of company executives and integration related severance.

(7)

Bridge facility fees included in interest expense.

(8)

For the quarter ended December 31, 2015, includes write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million.  Includes reversal of accruals and certain other adjustments that are not core to our business.  Construction management expenses are included in Other expenses on the income statement but are not added back to core FFO.

Adjusted Funds From Operations (AFFO)

Unaudited and in Thousands, Except Per Share Data


Three Months Ended

Nine Months Ended

Reconciliation of Core FFO to AFFO

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15









Core FFO available to common stockholders and unitholders

$218,413

$212,587

$212,626

$205,934

$183,093

$643,627

$540,224

Adjustments:







Non-real estate depreciation

2,801

2,429

2,104

2,861

1,361

7,334

3,936

Amortization of deferred financing costs

2,550

2,643

2,260

2,121

2,076

7,454

6,360

Amortization of debt discount/premium

693

689

647

611

557

2,029

1,685

Non-cash stock-based compensation expense

4,041

4,630

3,420

604

3,831

12,091

11,144

Straight-line rental revenue

(6,032)

(5,554)

(7,456)

(9,530)

(13,579)

(19,043)

(41,447)

Straight-line rental expense

6,402

5,933

5,655

5,698

80

17,990

247

Above- and below-market rent amortization

(2,002)

(1,997)

(2,266)

(2,479)

(2,174)

(6,265)

(6,856)

Deferred non-cash tax expense

(189)

669

637

(757)

680

1,117

2,303

Capitalized leasing compensation (1)

(2,795)

(2,455)

(2,695)

(2,563)

(2,581)

(7,945)

(7,653)

Recurring capital expenditures (2)

(15,252)

(17,914)

(21,064)

(35,386)

(14,716)

(54,230)

(56,490)

Capitalized internal leasing commissions

(1,786)

(1,677)

(2,024)

(1,460)

(907)

(5,487)

(2,621)









AFFO available to common stockholders and unitholders (3)

$206,843

$199,984

$191,844

$165,654

$157,721

$598,672

$450,832









Weighted-average shares and units outstanding - basic

149,778

149,227

149,048

148,388

138,468

149,352

138,481

Weighted-average shares and units outstanding - diluted (4)

151,765

150,211

149,915

149,100

139,192

150,076

139,051









AFFO per share - diluted (4)

$1.36

$1.33

$1.28

$1.11

$1.13

$3.99

$3.24









Dividends per share and common unit

$0.88

$0.88

$0.88

$0.85

$0.85

$2.64

$2.55









Diluted AFFO Payout Ratio

64.6

%

66.1

%

68.8

%

76.5

%

75.0

%

66.2

%

78.7

%










Three Months Ended

Nine Months Ended

Share Count Detail

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

30-Sep-16

30-Sep-15









Weighted Average Common Stock and Units Outstanding

149,778

149,227

149,048

148,388

138,468

149,352

138,481

Add: Effect of dilutive securities

1,987

984

867

712

724

724

570









Weighted Avg. Common Stock and Units Outstanding - diluted

151,765

150,211

149,915

149,100

139,192

150,076

139,051


(1)

Beginning in the first quarter of 2015, we changed the presentation of certain capital expenditures.  Infrequent expenditures for capitalized replacements and upgrades are now categorized as Recurring capital expenditures (categorized as Enhancements and Other Non-Recurring capital expenditures in 2014).  First-generation leasing costs are now classified as Development capital expenditures (categorized as recurring capital expenditures in 2014). Capitalized leasing compensation for 2015 and 2016 includes only second generation leasing costs.

(2)

For a definition of recurring capital expenditures, see our supplemental operating and financial data package.

(3)

For a definition and discussion of AFFO, see below.  For a reconciliation of net income available to common stockholders to FFO, see above.

(4)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and above for calculations of weighted average common stock and units outstanding.

Consolidated Balance Sheets

Unaudited and in thousands, except share and per share data


30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15

Assets




Investments in real estate:




Real estate

$10,607,440

$10,223,946

$10,226,549

$10,066,936

$9,473,253

Construction in progress

681,189

594,986

720,363

664,992

570,598

Land held for future development

223,236

161,714

156,000

183,445

133,343

Investments in Real Estate

$11,511,865

$10,980,646

$11,102,912

$10,915,373

$10,177,194

Accumulated depreciation & amortization

(2,565,368)

(2,441,150)

(2,380,400)

(2,251,268)

(2,137,631)

Net Investments in Properties

$8,946,497

$8,539,496

$8,722,512

$8,664,105

$8,039,563

Investment in unconsolidated joint ventures

105,819

105,673

106,008

106,107

103,703

Net Investments in Real Estate

$9,052,316

$8,645,169

$8,828,520

$8,770,212

$8,143,266






Cash and cash equivalents

$36,445

$33,241

$31,134

$57,053

$22,998

Accounts and other receivables (1)

208,097

165,867

180,456

177,398

157,994

Deferred rent

412,977

408,193

412,579

403,327

475,796

Acquired in-place lease value, deferred leasing costs and other real estate intangibles, net

1,526,563

1,331,275

1,368,340

1,391,659

405,824

Acquired above-market leases, net

24,554

26,785

30,107

32,698

30,617

Goodwill

780,099

330,664

330,664

330,664

—

Restricted cash

11,685

18,297

19,599

18,009

12,500

Assets associated with real estate held for sale

55,915

222,304

145,087

180,139

173,461

Other assets

190,384

110,580

75,489

54,904

49,384






Total Assets

$12,299,036

$11,292,375

$11,421,975

$11,416,063

$9,471,840






Liabilities and Equity




Global unsecured revolving credit facility

$153,189

$88,535

$677,868

$960,271

$682,648

Unsecured term loan

1,521,613

1,545,590

1,566,185

923,267

937,198

Unsecured senior notes, net of discount

4,238,435

4,252,570

3,662,753

3,712,569

2,794,783

Mortgage loans, net of premiums

111,750

248,711

249,923

302,930

304,777

Accounts payable and other accrued liabilities

823,906

598,610

570,653

608,343

513,555

Accrued dividends and distributions

—

—

—

126,925

—

Acquired below-market leases

86,888

90,823

96,475

101,114

88,632

Security deposits and prepaid rent

163,787

128,802

147,934

138,347

107,704

Liabilities associated with assets held for sale

2,820

13,092

4,974

5,795

6,892

Total Liabilities

$7,102,388

$6,966,733

$6,976,765

$6,879,561

$5,436,189






Equity




Preferred Stock:  $0.01 par value per share, 110,000,000 shares authorized:




Series E Cumulative Redeemable Preferred Stock (2)

—

$277,172

$277,172

$277,172

$277,172

Series F Cumulative Redeemable Preferred Stock (3)

$176,191

176,191

176,191

176,191

176,191

Series G Cumulative Redeemable Preferred Stock (4)

241,468

241,468

241,468

241,468

241,468

Series H Cumulative Redeemable Preferred Stock (5)

353,290

353,290

353,290

353,290

353,290

Series I Cumulative Redeemable Preferred Stock (6)

242,012

242,012

242,014

242,014

241,683

Common Stock: $0.01 par value per share, 265,000,000 shares authorized (7)

1,581

1,460

1,459

1,456

1,351

Additional paid-in capital

5,759,338

4,669,149

4,659,484

4,655,220

3,977,945

Dividends in excess of earnings

(1,483,223)

(1,541,265)

(1,440,028)

(1,350,089)

(1,185,633)

Accumulated other comprehensive (loss) income, net

(131,936)

(129,657)

(104,252)

(96,590)

(87,988)

Total Stockholders' Equity

$5,158,721

$4,289,820

$4,406,798

$4,500,132

$3,995,479






Non-controlling Interests




Non-controlling interest in operating partnership

$31,088

$29,095

$31,648

$29,612

$33,411

Non-controlling interest in consolidated joint ventures

6,839

6,727

6,764

6,758

6,761






Total Non-controlling Interests

$37,927

$35,822

$38,412

$36,370

$40,172






Total Equity

$5,196,648

$4,325,642

$4,445,210

$4,536,502

$4,035,651






Total Liabilities and Equity

$12,299,036

$11,292,375

$11,421,975

$11,416,063

$9,471,840


(1)

Net of allowance for doubtful accounts of $10,052 and $5,844 as of September 30, 2016 and December 31, 2015, respectively.

(2)

Series E Cumulative Redeemable Preferred Stock, 7.000%, $0 and $287,500 liquidation preference, respectively ($25.00 per share), 0 and 11,500,000 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

(3)

Series F Cumulative Redeemable Preferred Stock, 6.625%, $182,500 and $182,500 liquidation preference, respectively ($25.00 per share), 7,300,000 and 7,300,000 shares issued and outstanding as of September 30, 2016 and December 31, 2015, 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 September 30, 2016 and December 31, 2015, respectively.

(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $365,000 liquidation preference, respectively ($25.00 per share), 14,600,000 and 14,600,000 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

(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 September 30, 2016 and December 31, 2015, respectively.

(7)

Common Stock: 158,926,811 and 146,384,247 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively.

Reconciliation of Earnings Before Interest, Taxes,

Depreciation & Amortization (EBITDA) (1)

Three Months Ended

30-Sep-16

30-Jun-16

31-Mar-16

31-Dec-15

30-Sep-15






Net Income (Loss) Available to Common Stockholders

$187,330

$27,951

$39,125

($40,039)

$38,522

Interest

63,084

59,909

57,261

61,717

48,138

Loss from early extinguishment of debt

18

—

964

—

—

Tax expense

3,720

2,252

2,109

268

1,850

Depreciation & amortization

178,133

175,594

169,016

172,956

136,974

EBITDA

$432,285

$265,706

$268,475

$194,902

$225,484

Change in fair value of contingent consideration

—

—

—

—

(1,594)

Severance-related expense, equity acceleration, and legal expenses

2,580

1,508

1,448

6,125

(3,676)

Transaction expenses

6,015

3,615

1,900

3,099

11,042

(Gain) loss on sale of property

(169,000)

—

(1,097)

(322)

207

(Gain) on settlement of pre-existing relationship with Telx

—

—

—

(14,355)

—

Loss on currency forwards

—

3,082

—

—

—

Other non-core expense adjustments

(22)

—

(1)

75,269

51

Non-controlling interests

3,247

569

784

(590)

864

Preferred stock dividends

21,530

22,424

22,424

24,056

18,456

Issuance costs associated with redeemed preferred stock

10,328

—

—

—

—

Adjusted EBITDA

$306,963

$296,904

$293,933

$288,184

$250,834


(1)

For definition and discussion of EBITDA and Adjusted EBITDA, see below.

Definitions

Funds from Operations (FFO):

We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT.  FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, excluding a gain from a pre-existing relationship, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs) 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 properties 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 properties, 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 expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) change in fair value of contingent consideration, (vi) severance-related expense, equity acceleration, and legal expenses, (vii) bridge facility fees, (viii) loss on currency forwards and (ix) 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.

Constant-Currency Core Funds from Operations:

We calculate constant-currency core funds from operations by adjusting the core funds from operations for foreign currency translations.

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) non-cash stock-based compensation expense, (vi) straight-line rent revenue, (vii) straight-line rent expense, (viii) above- and below-market rent amortization, (ix) deferred non-cash tax expense, (x) capitalized leasing compensation, (xi) recurring capital expenditures and (xii) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent manner. 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, change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, preferred stock 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; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such 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, repair and maintenance 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 properties 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 properties, 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 not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, 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 September 30, 2016, GAAP interest expense was $63 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $22 million.

SOURCE Digital Realty Trust, Inc.

Related Links

http://www.digitalrealtytrust.com

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