Digital Realty Reports Fourth Quarter And Full-Year 2014 Results

Feb 12, 2015, 16:05 ET from Digital Realty Trust, Inc.

SAN FRANCISCO, Feb. 12, 2015 /PRNewswire/ -- Digital Realty Trust, Inc. (NYSE: DLR), a leading global provider of data center and colocation solutions, announced today financial results for the fourth quarter and full-year 2014.  All per share results are presented on a fully-diluted share and unit basis. 

Highlights

  • Reported FFO per share of $1.40 in 4Q14, compared to $1.26 in 4Q13.  Reported FFO of $5.04 for the full year of 2014, compared to $4.74 in 2013. 
  • Reported core FFO per share of $1.26 in 4Q14, compared to $1.26 in 4Q13.  Reported core FFO of $4.96 for the full year of 2014, compared to $4.78 in 2013;
  • Signed leases during 4Q14 expected to generate $46 million in annualized GAAP rental revenue, bringing the full-year 2014 total to $159 million;
  • Improved portfolio occupancy 20 basis points sequentially to 93.2% in 4Q14, compared to 93.0% in 3Q14; and
  • Reiterated 2015 core FFO per share outlook of $5.00 - $5.10.

Financial Results

Revenues were $412 million for the fourth quarter of 2014, consistent with the previous quarter and an 8% increase over the same quarter last year.

Revenues were $1.6 billion for the full-year 2014, a 9% increase over 2013.

Adjusted EBITDA was $242 million for the fourth quarter of 2014, a 3% increase over the previous quarter and a 7% increase over the same quarter last year.  Adjusted EBITDA was $944 million for the full-year 2014, a 7% increase over 2013.

Funds from operations ("FFO") on a diluted basis was $195 million in the fourth quarter of 2014, or $1.40 per share, compared to $1.22 per share in the third quarter of 2014 and $1.26 per share in the fourth quarter of 2013.

FFO per share for the full-year 2014 was $5.04 compared to $4.74 in 2013, a 6% increase.

Excluding certain items that do not represent core expenses or revenue streams, fourth quarter of 2014 core FFO was $1.26 per share compared to $1.22 per share in the third quarter of 2014, and $1.26 per share in the fourth quarter of 2013.  Core FFO per share for the full-year 2014 was $4.96 per share compared to $4.78 per share in 2013, a 4% increase.

Net loss for the fourth quarter of 2014 was $35 million, and net loss available to common stockholders was $52 million, or $0.39 per diluted share, compared to net income available to common shareholders of $0.80 per diluted share in the third quarter of 2014 and $0.33 per diluted share in the fourth quarter of 2013.  The net loss during the fourth quarter of 2014 was primarily attributable to a $114 million impairment charge, discussed in further detail under the Investment Activity section below.  For the full-year 2014, net income was $203 million, and net income available to common shareholders was $133 million, or $1.00 per share, compared to $2.12 per share for 2013. 

Leasing Activity

"Demand for our data center solutions remains robust, as evidenced by new lease signings of $46 million in annualized GAAP rental revenue," commented Chief Executive Officer and Chief Financial Officer Bill Stein

"We made significant progress leasing up finished inventory during the fourth quarter, contributing to further improvement in our return on invested capital.  The data center supply environment has largely rationalized, leading to a gradual recovery in landlord leasing economics."

The weighted-average lag between leases signed during the fourth quarter of 2014 and the contractual commencement date was 5.5 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $23 million of annualized GAAP rental revenue during the quarter, bringing the full-year 2014 total to $105 million of annualized GAAP rental revenue.  Rental rates on renewal leases signed during the fourth quarter of 2014 increased 6% on a cash basis and 21% on a GAAP basis. 

New leases signed during the fourth quarter of 2014 by region and product type are summarized as follows:


North America


($ in thousands)
Annualized GAAP Rent


Square Feet


GAAP Rent
per Square Foot


Megawatts


GAAP Rent
per Kilowatt



Turn-Key Flex


$10,395



80,361



$129



6



$150



Powered Base Building


95











Custom Solutions


13,977



104,514



134



8



155



Colocation


3,249



13,261



245



1



224



Non-Technical


4,736



274,895



17







  Total


$32,452



473,031



$69



15



$159




















Europe (1)

















Turn-Key Flex


$2,196



15,771



$139



1



$155



Colocation


596



3,357



177





143



Non-Technical












  Total


$2,792



19,128



$146



2



$152




















Asia Pacific (1)

















Turn-Key Flex


$9,555



36,729



$260



3



$233



Colocation


1,036



4,710



220





266



Non-Technical


55



851



64







  Total


$10,647



42,290



$252



4



$236




















  Grand Total


$45,891



534,449



$86



20



$173





Note: 

Totals may not foot due to rounding differences.

(1)

Based on quarterly average exchange rates during the three months ended December 31, 2014. 

Investment Activity

Digital Realty closed on the sale of its $17 million investment in a developer of data centers in the Southwestern U.S. and Mexico in October of 2014, generating net proceeds of approximately $32 million.  Digital Realty recognized a gain on this sale of approximately $15 million in the fourth quarter of 2014.

Subsequent to year-end, the company completed the sale of 100 Quannapowitt Parkway, a 169,000 square foot office building in suburban Boston, for $31 million, or $184 per square foot.  The property was expected to generate cash net operating income of approximately $1.6 million in 2015, representing a cap rate of 5.0%.  The sale generated net proceeds of $29 million, and Digital Realty expects to recognize a gain on the sale of approximately $9 million in the first quarter of 2015.

During the fourth quarter of 2014, the company recognized an impairment loss of approximately $114 million to reduce carrying value of three properties to their estimated fair market value at December 31, 2014, as shown in the table below.





($ in thousands)

Property


Market


Net Book Value (pre-impairment)


Impairment


Net Book Value (post-impairment)













210 Tucker


St. Louis


$104,008



$64,040



$39,968


200 Quannapowitt Pkwy


Boston


68,487



40,070



28,417


3065 Gold Camp Drive


Sacramento


21,861



9,860



12,001


Total




$194,356



$113,970



$80,386


Balance Sheet

Digital Realty had approximately $4.7 billion of total debt outstanding as of December 31, 2014, comprised of $4.3 billion of unsecured debt and approximately $0.4 billion of secured debt.  At the end of the fourth quarter of 2014, net debt-to-adjusted EBITDA was 4.8x, debt-plus-preferred-to-total-enterprise-value was 38.5% and fixed charge coverage was 3.4x. 

2015 Outlook

Digital Realty reiterated its 2015 core FFO per share outlook of $5.00 - $5.10.  The assumptions underlying this guidance are summarized in the following table. 



As of Jan. 5, 2015


As of Feb. 12, 2015

Internal Growth





Rental rates on renewal leases





Cash basis


Slightly positive


Slightly positive

GAAP basis


Up double digits


Up double digits

Year-end portfolio occupancy


93.0% - 94.0%


93.0% - 94.0%

"Same-capital" cash NOI growth (1)


2.0% - 4.0%


2.0% - 4.0%

Operating margin


72.5% - 73.5%


72.5% - 73.5%

Incremental revenue from speculative leasing (2)


$25 - $30 million


$20 - $25 million

Overhead load (3)


80 - 90 bps on total assets


80 - 90 bps on total assets











External Growth





Acquisitions





Dollar volume


$0 - $200 million


$0 - $200 million

Cap rate


7.5% - 8.5%


7.5% - 8.5%

Dispositions





Dollar volume


$175 - $400 million


$175 - $400 million

Cap rate


0.0% - 10.0%


0.0% - 10.0%

Joint ventures





Dollar volume


$0 - $150 million


$0 - $150 million

Cap rate


6.75% - 7.25%


6.75% - 7.25%

Development





Capex


$750 - $850 million


$750 - $850 million

Average stabilized yields


10.0% - 12.0%


10.0% - 12.0%

Enhancements and other non-recurring capex (4)


$20 - $25 million


$20 - $25 million

Recurring capex + capitalized leasing costs (5)


$100 - $110 million


$100 - $110 million











Balance Sheet





Long-term debt issuance





Dollar amount size


$300 - $700 million


$300 - $700 million

Pricing


4.50% - 5.50%


4.50% - 5.50%

Timing


Early-to-mid 2015


Early-to-mid 2015











Funds From Operations / share (NAREIT-Defined)


$4.95 - $5.05


$4.95 - $5.05

    Adjustments for non-core expenses and revenue streams (6)


$0.05


$0.05

Core Funds From Operations / Share


$5.00 - $5.10


$5.00 - $5.10



(1)

The "same-capital" pool includes properties owned as of December 31, 2013 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 2014-2015.  NOI represents rental revenue and tenant reimbursement revenue less rental property operating and maintenance expenses, property taxes and insurance expenses (as reflected in the statement of operations), and cash NOI is NOI less straight-line rents and above and below market rent amortization.

(2)

Incremental revenue from speculative leasing represents revenue expected to be recognized in the current year from leases that have not yet been signed.

(3)

Overhead load is defined as General & Administrative expense divided by Total Assets. 

(4)

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.  

(5)

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.

(6)

See "Funds From Operations and Core Funds From Operations" table below for historical reconciliations of Funds From Operations (NAREIT-Defined) to Core Funds From Operations.

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 definition of FFO, a reconciliation from FFO to core FFO, and a definition of 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, a definition of debt-plus-preferred-to-total-enterprise-value, and a definition of fixed charge coverage ratio are included as an attachment to this press release.

Investor Conference Call

Prior to Digital Realty's conference call today at 5:30 p.m. EST / 2:30 p.m. PST, Digital Realty will post a presentation 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 fourth quarter and full-year 2014 financial results and operating performance.  The conference call will feature: Chief Executive Officer and Chief Financial Officer A. William Stein; Chief Investment Officer Scott Peterson; Senior Vice President of Sales & Marketing Matt Miszewski; and Vice President of Finance Matt Mercier.

To participate in the live call, investors are invited to dial +1 (866) 737-5498 (for domestic callers) or +1 (412) 902-6526 (for international callers) 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 March 12, 2015.  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# 10057687.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty Trust, Inc. supports the data center and colocation strategies of more than 600 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 disclose 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




A. William Stein 

John J. Stewart

Chief Executive Officer 

Senior Vice President

and Chief Financial Officer 

Investor Relations

Digital Realty Trust, Inc.

Digital Realty Trust, Inc.

+1 (415) 738-6500  

+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 results to differ materially, including statements related to supply and demand for data center and colocation space; pricing and net effective leasing economics; market dynamics and data center fundamentals; our strategic priorities, including improving ROIC and our disposition program; 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; our joint venture with the GCEAR fund, our expected fees and proceeds from the joint venture, future cash NOI and remaining lease terms related to the joint venture property; cap rates and yields; and the company's FFO, core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the impact of current global economic, credit and market conditions; decreases in information technology spending; adverse economic or real estate developments in our industry or the industry sectors that we sell to; risks related to our tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities; financial market fluctuations; 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 infrastructure or services or availability of power; risks related to joint venture 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 comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; 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; and changes in laws and regulations, including those related to taxation and real estate ownership and operation. 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, as amended, for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014.  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


Twelve Months Ended


31-Dec-14

30-Sep-14

30-Jun-14

31-Mar-14

31-Dec-13


31-Dec-14

31-Dec-13

Rental revenues

$319,816


$317,064


$313,420


$305,786


$296,987



$1,256,086


$1,155,052


Tenant reimbursements - Utilities

59,830


65,604


62,063


59,177


55,319



246,675


220,963


Tenant reimbursements - Other

28,887


26,605


23,625


24,444


27,310



103,559


102,322


Fee income

1,871


2,748


1,466


1,183


1,315



7,268


3,520


Other

1,812


165


873





2,850


399


Total Operating Revenues

$412,216


$412,186


$401,447


$390,590


$380,931



$1,616,438


$1,482,256


















Utilities

$62,560


$69,388


$65,432


$62,087


$58,773



$259,466


$234,941


Rental property operating

33,211


32,017


33,314


30,659


29,294



129,200


113,859


Repairs & maintenance

31,783


29,489


28,052


25,151


27,109



114,474


97,809


Non-cash straight-line rent expense adjustment








9,988


Property taxes

23,053


25,765


20,595


22,125


23,831



91,538


90,321


Insurance

2,180


2,145


1,896


2,422


2,156



8,643


8,743


Construction management

33


60


121


164


35



378


764


Change in fair value of contingent consideration

(3,991)


(1,465)


766


(3,403)


(1,749)



(8,093)


(1,762)


Depreciation & amortization

133,327


137,474


137,092


130,620


126,776



538,513


475,464


General & administrative

21,480


20,709


20,061


18,248


15,536



80,498


65,653


Severance accrual and equity acceleration



260


12,430




12,690



Transactions

323


144


755


81


1,108



1,303


4,605


Impairment of investments in real estate

113,970


12,500






126,470



Other

453


1,588


651



7



2,692


60


Total Operating Expenses

$418,382


$329,814


$308,995


$300,584


$282,876



$1,357,772


$1,100,445


















Operating Income (Loss)

($6,166)

$82,372


$92,452


$90,006


$98,055



$258,666


$381,811


















Equity in earnings of unconsolidated joint venture

$3,776


$3,455


$3,477


$2,581


$2,957



$13,289


$9,795


Gain on insurance settlement








5,597


Gain on sale of property



15,945





15,945



Gain on contribution of properties to unconsolidated JV


93,498



1,906


555



95,404


115,609


Gain on sale of investment

14,551







14,551



Interest and other income

641


378


(83)


1,727


231



2,663


139


Interest expense

(46,396)


(48,169)


(49,146)


(47,374)


(45,996)



(191,085)


(189,399)


Tax (expense) benefit

(1,201)


(1,178)


(1,021)


(1,838)


473



(5,238)


(1,293)


Loss from early extinguishment of debt


(195)


(293)


(292)


(608)



(780)


(1,812)


Net Income (Loss)

($34,795)


$130,161


$61,331


$46,716


$55,667



$203,415


$320,447


















Net income attributable to noncontrolling interests

961


(2,392)


(993)


(805)


(964)



(3,229)


(5,961)


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

($33,834)


$127,769


$60,338


$45,911


$54,703



$200,186


$314,486


















Preferred stock dividends

(18,455)


(18,455)


(18,829)


(11,726)


(11,726)



(67,465)


(42,905)


Net Income (Loss) Available to Common Stockholders

($52,289)


$109,314


$41,509


$34,185


$42,977



$132,721


$271,581


















Weighted-average shares outstanding - basic

135,544,597


135,492,618


133,802,622


128,535,995


128,444,744



132,635,894


127,941,134


Weighted-average shares outstanding - diluted

135,544,597


135,946,533


133,977,885


129,136,961


128,641,470



132,852,966


128,127,641


Weighted-average fully diluted shares and units

138,757,650


138,762,045


137,912,511


138,161,544


137,890,892



138,216,486


137,769,299


















Net income per share - basic

($0.39)

$0.81

$0.31

$0.27

$0.33


$1.00


$2.12

Net income per share - diluted

($0.39)

$0.80

$0.31

$0.26

$0.33


$1.00


$2.12

 

 

Consolidated Balance Sheets

Unaudited and in thousands, except share and per share data











31-Dec-14


30-Sep-14


30-Jun-14


31-Mar-14


31-Dec-13

Assets















Investments in real estate:















Real estate

$9,027,599


$9,213,833



$9,246,540



$9,085,558



$8,896,448


Construction in progress

809,406



876,494



895,811



826,609



876,803


Land held for future development

145,607



146,390



117,878



113,543



106,327


Investments in Real Estate

$9,982,612



$10,236,717



$10,260,229



$10,025,710



$9,879,578


Accumulated depreciation & amortization

(1,874,054)



(1,840,379)



(1,778,768)



(1,665,421)



(1,565,996)


Net Investments in Properties

$8,108,558



$8,396,338



$8,481,461



$8,360,289



$8,313,582


Investment in unconsolidated joint ventures

94,729



94,497



92,619



81,411



70,504


Net Investments in Real Estate

$8,203,287



$8,490,835



$8,574,080



$8,441,700



$8,384,086


Cash and cash equivalents

41,321



36,528



80,926



70,242



56,808


Accounts and other receivables (1)

135,931



140,463



115,888



117,492



122,248


Deferred rent

447,643



442,358



436,443



415,515



393,504


Acquired above-market leases, net

38,605



42,477



47,181



49,521



52,264


Acquired in-place lease value and deferred leasing costs, net

456,962



461,243



470,620



479,940



489,456


Deferred financing costs, net

30,821



33,761



36,914



34,295



36,475


Restricted cash

11,555



13,986



39,778



42,842



40,362


Assets associated with real estate held for sale

120,471







25,070




Other assets

40,188



60,356



62,794



64,836



51,627


Total Assets

$9,526,784



$9,722,007



$9,864,624



$9,741,453



$9,626,830

















Liabilities and Equity















Global revolving credit facility

$525,951



$485,023



$374,641



$790,500



$724,668


Unsecured term loan

976,600



1,002,186



1,034,830



1,026,891



1,020,984


Unsecured senior notes, net of discount

2,791,758



2,835,478



2,897,068



2,368,848



2,364,232


Exchangeable senior debentures







266,400



266,400


Mortgage loans, net of premiums

378,818



417,042



552,696



554,742



585,608


Accounts payable and other accrued liabilities

605,923



648,314



636,783



614,645



662,687


Accrued dividends and distributions

115,019









102,509


Acquired below-market leases

104,235



110,708



118,432



123,152



130,269


Security deposits and prepaid rent

108,478



119,696



115,893



116,945



122,961


Liabilities associated with assets held for sale

5,764







3,610




Total Liabilities

$5,612,546



$5,618,447



$5,730,343



$5,865,733



$5,980,318

















Equity















Preferred Stock:  $0.01 par value per share, 70,000,000 shares authorized:















Series E Cumulative Redeemable Preferred Stock (2)

$277,172



$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



353,300



353,378



289,857




Common Stock: $0.01 par value per share, 215,000,000 shares authorized (6)

1,349



1,348



1,347



1,279



1,279


Additional paid-in capital

3,970,438



3,964,876



3,955,830



3,689,098



3,688,937


Dividends in excess of earnings

(1,096,603)



(931,777)



(928,626)



(857,779)



(785,222)


Accumulated other comprehensive (loss) income, net

(45,046)



(20,470)



14,962



13,947



10,691


Total Stockholders' Equity

$3,878,259



$4,062,108



$4,091,722



$3,831,233



$3,610,516

















Noncontrolling Interests















Noncontrolling interest in operating partnership

$29,188



$34,632



$35,632



$37,406



$29,027


Noncontrolling interest in consolidated joint ventures

6,791



6,820



6,927



7,081



6,969


Total Noncontrolling Interests

$35,979



$41,452



$42,559



$44,487



$35,996

















Total Equity

$3,914,238



$4,103,560



$4,134,281



$3,875,720



$3,646,512

















Total Liabilities and Equity

$9,526,784



$9,722,007



$9,864,624



$9,741,453



$9,626,830




(1)

Net of allowance for doubtful accounts of $6,302 and $5,576 as of December 31, 2014 and December 31, 2013, respectively.

(2)

Series E Cumulative Redeemable Preferred Stock, 7.000%, $287,500 and $287,500 liquidation preference, respectively ($25.00 per share), 11,500,000 and 11,500,000 shares issued and outstanding as of December 31, 2014 and December 31, 2013, 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 December 31, 2014 and December 31, 2013, 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 December 31, 2014 and December 31, 2013, respectively.

(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $0 liquidation preference, respectively ($25.00 per share), 14,600,000 and 0 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively.

(6)

Common Stock: 135,626,255 and 128,455,350 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively.

 

 




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


Twelve Months Ended

31-Dec-14

30-Sep-14

30-Jun-14

31-Mar-14

31-Dec-13


31-Dec-14

31-Dec-13

















Net Income (Loss) Available to Common Stockholders

($52,289)


$109,314


$41,510


$34,186


$42,977



$132,721


$271,583


Adjustments:
















Noncontrolling interests in operating partnership

(1,074)


2,272


873


693


849



2,764


5,366


Real estate related depreciation & amortization (1)

132,100


136,289


135,938


129,496


125,671



533,823


471,281


Unconsolidated JV real estate related depreciation & amortization

2,173


1,934


1,802


1,628


1,387



7,537


3,805


Gain on sale of property



(15,945)





(15,945)



Gain on contribution of properties to unconsolidated joint venture


(93,498)



(1,906)


(555)



(95,404)


(115,609)


Impairment of investments in real estate

113,970


12,500






126,470



Funds From Operations

$194,880


$168,811


$164,178


$164,097


$170,329



$691,966


$636,426


















Add: Interest and amortization of debt issuance costs on 2029 Debentures



675


4,050


4,050



4,725


16,200


















Funds From Operations - diluted

$194,880


$168,811


$164,853


$168,147


$174,379



$696,691


$652,626


















Weighted-average shares and units outstanding - basic

138,327


138,308


136,615


131,143


130,982



136,124


130,463


Weighted-average shares and units outstanding - diluted (2)

138,757


138,762


137,912


138,162


137,891



138,364


137,771


















Funds From Operations per share - basic

$1.41


$1.22


$1.20


$1.25


$1.30



$5.08


$4.88


















Funds From Operations per share - diluted (2)

$1.40


$1.22


$1.20


$1.22


$1.26



$5.04


$4.74


































Reconciliation of FFO to Core FFO

Three Months Ended


Twelve Months Ended

 

31-Dec-14

30-Sep-14

30-Jun-14

31-Mar-14

31-Dec-13


31-Dec-14

31-Dec-13

















Funds From Operations - diluted

$194,880


$168,811


$164,853


$168,147


$174,379



$696,691


$652,626


Termination fees and other non-core revenues (3)

(2,584)


(165)


(873)


(2,047)




(5,668)


(402)


Gain on insurance settlement








(5,597)


Gain on sale of investment

(14,551)







(14,551)



Significant transaction expenses

323


144


755


81


1,108



1,303


4,605


Loss from early extinguishment of debt


195


293


292


608



780


1,813


Straight-line rent expense adjustment attributable to prior periods








7,489


Change in fair value of contingent consideration (4)

(3,991)


(1,465)


766


(3,403)


(1,749)



(8,093)


(1,762)


Equity in earnings adjustment for non-core items




843




843



Severance accrual and equity acceleration (5)



260


12,430




12,690



Other non-core expense adjustments (6)

453


1,588


651



7



2,692


63


Core Funds From Operations - diluted

$174,530


$169,108


$166,705


$176,343


$174,353



$686,687


$658,835


















Weighted-average shares and units outstanding - diluted (2)

138,757


138,762


137,912


138,162


137,891



138,364


137,771


















Core Funds From Operations per share - diluted (2)

$1.26


$1.22


$1.21


$1.28


$1.26



$4.96


$4.78











(1)    Real Estate Related Depreciation & Amortization





















Three Months Ended


Twelve Months Ended


31-Dec-14

30-Sep-14

30-Jun-14

31-Mar-14

31-Dec-13


31-Dec-14

31-Dec-13

Depreciation & amortization per income statement

$133,327


$137,474


$137,092


$130,620


$126,776



$538,513


$475,464


Non-real estate depreciation

(1,227)


(1,185)


(1,154)


(1,124)


(1,105)



(4,690)


(4,183)


Real Estate Related Depreciation & Amortization

$132,100


$136,289


$135,938


$129,496


$125,671



$533,823


$471,281


 



(2)

At December 31, 2013, we had no series D convertible preferred shares outstanding, as a result of the conversion of all remaining shares on February 26, 2013, which calculates into 471 common shares on a weighted average basis for the year ended December 31, 2013.  For all periods presented, we have excluded the effect of dilutive series E, series F, series G and series H 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 and series H preferred stock, as applicable, which we consider highly improbable.  In addition, we had a balance of $0, $0 and $266,400 of 5.50% exchangeable senior debentures due 2029 that were exchangeable for 0, 0 and 6,712 common shares on a weighted average basis for the three months ended December 31, 2014, September 30, 2014 and December 31, 2013, respectively, and were exchangeable for 1,958 and 6,650 common shares on a weighted average basis for the years ended December 31, 2014 and 2013, respectively.  See below for calculations of diluted FFO available to common stockholders and unitholders and weighted average common stock and units outstanding.

(3)

Includes one-time fees, proceeds and certain other adjustments that are not core to our business.

(4)

Relates to earn-out contingency in connection with the Sentrum and Singapore acquisitions.  The earn-out contingency expires in July 2015 and November 2020, respectively, and are reassessed on a quarterly basis.

(5)

Relates to severance charge of approximately $12,700, or $0.09 per share and unit, related to the departure of the company's former Chief Executive Officer.

(6)

Includes reversal of accruals and certain other adjustments that are not core to our business.

 

Reconciliation of Earnings Before Interest, Taxes, Depreciation, and Amortization and Financial Ratios

Unaudited and in thousands


Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) (1)

Three Months Ended

 

31-Dec-14

30-Sep-14

30-Jun-14

31-Mar-14

31-Dec-13












Net Income (Loss) Available to Common Stockholders

($52,289)


$109,314


$41,509


$34,185


$42,977


Interest

46,396


48,169


49,146


47,374


45,996


Loss from early extinguishment of debt


195


293


292


608


Tax expense (benefit)

1,201


1,178


1,021


1,838


(473)


Depreciation & amortization

133,327


137,474


137,092


130,620


126,776


Impairment of investments in real estate

113,970


12,500





EBITDA

$242,605


$308,830


$229,061


$214,309


$215,884


Change in fair value of contingent consideration

(3,991)


(1,465)


766


(3,403)


(1,749)


Severance accrual and equity acceleration



260


12,430



Gain on sale of property



(15,945)




Gain on contribution of properties to unconsolidated joint venture


(93,498)



(1,906)


(555)


Gain on sale of investment

(14,551)






Noncontrolling interests

(961)


2,392


993


805


964


Preferred stock dividends

18,455


18,455


18,829


11,726


11,726


Adjusted EBITDA

$241,557


$234,714


$233,964


$233,961


$226,270




(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, 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) gain on insurance settlement, (iii) gain on sale of investment, (iv) significant transaction expenses, (v) loss from early extinguishment of debt, (vi) straight-line rent expense adjustment attributable to prior periods, (vii) change in fair value of contingent consideration, (viii) equity in earnings adjustment for non-core items, (ix) severance accrual and equity acceleration and (x) 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 expense, 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, change in fair value of contingent consideration, severance accrual and equity acceleration, gain on sale of property, gain on contribution of properties to unconsolidated joint venture, gain on sale of equity investment, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance accrual and equity acceleration, impairment of investments in real estate, gain on sale of property, gain on contribution of properties to unconsolidated joint venture, gain on sale of equity investment, noncontrolling interests, and preferred stock 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; 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 and tenant reimbursement revenue less rental property operating 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 less unrestricted cash and cash equivalents divided by the product of Adjusted 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 December 31, 2014, GAAP interest expense was $46 million, capitalized interest was $5 million and scheduled debt principal payments and preferred dividends was $21 million.

Reconciliation of Range of 2015 Projected Net Income to Projected FFO and Core FFO


Low

High

Net income available to common stockholders per diluted share

$0.90

$1.00

Add:



Real estate depreciation and amortization

$4.05

$4.05

Projected FFO per diluted share

$4.95

$5.05

Adjustments for items that do not represent core expenses and revenue streams

$0.05

$0.05

Projected core FFO per diluted share

$5.00

$5.10

 

SOURCE Digital Realty Trust, Inc.



RELATED LINKS

http://www.digitalrealty.com