Digital Realty Reports Third Quarter 2015 Results

Oct 29, 2015, 16:05 ET from Digital Realty Trust, Inc.

SAN FRANCISCO, Oct. 29, 2015 /PRNewswire/ -- Digital Realty Trust, Inc. (NYSE: DLR), a leading global provider of data center and colocation solutions, announced today financial results for the third quarter of 2015.  All per share results are presented on a fully-diluted share and unit basis. 

Highlights

  • Reported FFO per share of $1.28 in 3Q15, compared to $1.22 in 3Q14;
  • Reported core FFO per share of $1.32 in 3Q15, compared to $1.22 in 3Q14;
  • Signed leases during 3Q15 expected to generate $33 million in annualized GAAP rental revenue;
  • Revised 2015 core FFO per share outlook to $5.12 - $5.18 from the prior range of $5.05 - $5.15; and
  • Revised 2015 "constant-currency" core FFO per share outlook to $5.27 - $5.33 from the prior range of $5.20 - $5.30

Financial Results

Revenues were $436 million for the third quarter of 2015, a 4% increase from the previous quarter and a 6% increase over the same quarter last year. 

Adjusted EBITDA was $251 million for the third quarter of 2015, a 2% increase from the previous quarter and a 7% increase over the same quarter last year. 

Funds from operations ("FFO") on a diluted basis was $178 million in the third quarter of 2015, or $1.28 per share, compared to $1.26 per share in the second quarter of 2015 and $1.22 per share in the third quarter of 2014.

Excluding certain items that do not represent core expenses or revenue streams, core FFO was $1.32 per share for the third quarter of 2015 compared to $1.30 per share in the second quarter of 2015, and $1.22 per share in the third quarter of 2014. 

Net income for the third quarter of 2015 was $58 million, and net income available to common stockholders was $39 million, or $0.28 per diluted share, compared to $0.86 per diluted share in the second quarter of 2015 and $0.80 per diluted share in the third quarter of 2014. 

Leasing Activity

"The Digital Realty team kept its collective eye on the ball during a very busy few months and delivered another quarter of solid results, with new leases signed representing $33 million in annualized GAAP rental revenue," said Chief Executive Officer A. William Stein

"We continue to capitalize on our core competencies and execute well with our target customer verticals, including social media, cloud service providers, content delivery networks, financial and IT services, which collectively accounted for the lion's share of our leasing activity again in the third quarter.  We recently welcomed Telx to the Digital Realty team, and together we are focused on successfully integrating our operations to ensure that we maximize revenue synergy opportunities while simultaneously maintaining our current momentum."

The weighted-average lag between leases signed during the third quarter of 2015 and the contractual commencement date was 5.4 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $21 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the third quarter of 2015 rolled up 4% on a cash basis and up 11% on a GAAP basis. 

New leases signed during the third quarter of 2015 by region and product type are summarized as follows:

North America


($ in thousands)Annualized GAAP
Base Rent


Square
Feet


GAAP Base Rent per Square Foot


Megawatts


GAAP Base Rent per Kilowatt



Turn-Key Flex


$28,144



153,582



$183



16



$145



Colocation


1,941



8,855



219



1



229



Non-Technical


225



8,348



27







  Total


$30,310



170,785



$177



17



$148















Europe (1)












Turn-Key Flex


$1,438



5,626



$256



1



$222



Powered Base Building


3











Colocation


854



2,856



299





293



Non-Technical


10



185



52







  Total


$2,305



8,667



$266



1



$244















Asia Pacific (1)












Turn-Key Flex


$—





$—





$—



Colocation


25



73



341





259



Non-Technical












  Total


$25



73



$341





$259















  Grand Total


$32,640



179,525



$182



18



$153





Note: 

Totals may not foot due to rounding differences.



(1)

Based on quarterly average exchange rates during the three months ended September 30, 2015. 

Investment Activity

Subsequent to the end of the quarter, Digital Realty completed the previously announced acquisition of Telx Holdings, Inc. from private equity firms ABRY Partners and Berkshire Partners in a transaction valued at $1.886 billion.  The combination approximately doubles Digital Realty's footprint in the rapidly growing colocation business and provides the company's customers access to a leading interconnection platform.

Balance Sheet

Digital Realty had approximately $4.7 billion of total debt outstanding as of September 30, 2015, comprised of $4.4 billion of unsecured debt and approximately $0.3 billion of secured debt.  At the end of the third quarter of 2015, net debt-to-adjusted EBITDA was 4.7x, debt-plus-preferred-to-total-enterprise-value was 40.2% and fixed charge coverage was 3.5x. 

Subsequent to quarter-end, Digital Realty completed the financing for the Telx acquisition raising total gross proceeds of approximately $1.9 billion of debt and equity capital.

  • On October 8, 2015, Digital Realty settled its forward equity sale transaction with each of the forward counterparties, delivering 10.5 million shares and receiving gross proceeds of $714 million
  • On October 1, 2015, Digital Delta Holdings, LLC, a wholly owned subsidiary of Digital Realty Trust, Inc., issued $500 million of 3.400% Notes due 2020 and $450 million of 4.750% Notes due 2025. 
  • On August 24, 2015, Digital Realty closed an offering of 10 million shares of 6.350% Series I Cumulative Redeemable Preferred Stock at a price of $25.00 per share, generating gross proceeds of $250 million

2015 Outlook

Digital Realty revised its 2015 core FFO per share outlook to $5.12 - $5.18 from the prior range of $5.05 - $5.15.  The revised core FFO per share outlook includes the expected financial impact from the Telx acquisition, but the underlying assumptions summarized in the following table reflect standalone results for Digital Realty only. 


As of Jan. 5, 2015


As of Feb. 12, 2015


As of May 5, 2015


As of July 30, 2015


As of Oct. 29, 2015

Internal Growth










Rental rates on renewal leases










Cash basis

Slightly positive


Slightly positive


Slightly negative


Slightly positive


Slightly positive

GAAP basis

Up double digits


Up double digits


Up high single digits


Up high single digits


Up low double digits

Year-end portfolio occupancy

93.0% - 94.0%


93.0% - 94.0%


93.0% - 94.0%


93.0% - 94.0%


93.0% - 94.0%

"Same-capital" cash NOI growth (1)

2.0% - 4.0%


2.0% - 4.0%


2.0% - 4.0%


2.0% - 4.0%


2.0% - 4.0%

Operating margin

72.5% - 73.5%


72.5% - 73.5%


72.5% - 73.5%


72.5% - 73.5%


74.0% - 75.0%

Incremental revenue from speculative leasing (2)










Full year forecast

$25 - $30 million


$25 - $30 million


$30 - $35 million


$30 - $35 million


$33 - $35 million

Speculative leasing completed to date

($0 million)


($5 million)


($20 million)


($30 million)


($33 million)

Speculative leasing embedded in 2015 guidance

$25 - $30 million


$20 - $25 million


$10 - $15 million


$0 - $5 million


$0 - $2 million

Overhead load (3)

80 - 90 bps on total assets


80 - 90 bps on total assets


80 - 90 bps on total assets


90 - 100 bps on total assets


90 - 100 bps on total assets

Foreign Exchange Rates










U.S. Dollar / Pound Sterling

N/A


N/A


1.45 - 1.55


1.45 - 1.55


1.50 - 1.55

U.S. Dollar / Euro

N/A


N/A


1.05 - 1.10


1.05 - 1.10


1.05 - 1.10





















External Growth










Acquisitions










Dollar volume

$0 - $200 million


$0 - $200 million


$0 - $200 million


$0 - $200 million


$0 - $200 million

Cap rate

7.5% - 8.5%


7.5% - 8.5%


7.5% - 8.5%


7.5% - 8.5%


7.5% - 8.5%

Dispositions










Dollar volume

$175 - $400 million


$175 - $400 million


$175 - $400 million


$205 - $400 million


$205 - $400 million

Cap rate

0.0% - 10.0%


0.0% - 10.0%


0.0% - 10.0%


0.0% - 10.0%


0.0% - 10.0%

Joint ventures










Dollar volume

$0 - $150 million


$0 - $150 million


$0 - $150 million


$0 - $150 million


$0 - $150 million

Cap rate

6.75% - 7.25%


6.75% - 7.25%


6.75% - 7.25%


6.75% - 7.25%


6.75% - 7.25%

Development










Capex

$750 - $850 million


$750 - $850 million


$750 - $850 million


$750 - $850 million


$600 - $700 million

Average stabilized yields

10.0% - 12.0%


10.0% - 12.0%


10.0% - 12.0%


10.0% - 12.0%


10.0% - 12.0%

Enhancements and other non-recurring capex (4)

$20 - $25 million


$20 - $25 million


$20 - $25 million


$20 - $25 million


$15 - $20 million

Recurring capex + capitalized leasing costs (5)

$100 - $110 million


$100 - $110 million


$100 - $110 million


$100 - $110 million


$100 - $110 million





















Balance Sheet










Long-term debt issuance










Dollar amount

$300 - $700 million


$300 - $700 million


$300 - $700 million


$0.5 - $1.0 billion


$0.5 - $1.0 billion

Pricing

4.50% - 5.50%


4.50% - 5.50%


4.50% - 5.50%


4.00% - 5.50%


4.00% - 5.50%

Timing

Early-to-mid 2015


Early-to-mid 2015


Early-to-mid 2015


Mid-to-late 2015


Mid-to-late 2015





















Funds From Operations / share (NAREIT-Defined)

$4.95 - $5.05


$4.95 - $5.05


$5.28 - $5.38


$5.33 - $5.43


$5.24 - $5.30

Adjustments for non-core items (6)

$0.05


$0.05


($0.25)


($0.28)


($0.12)

Core Funds From Operations / share

$5.00 - $5.10


$5.00 - $5.10


$5.03 - $5.13


$5.05 - $5.15


$5.12 - $5.18

Foreign currency translation adjustments

N/A


N/A


$0.15


$0.15


$0.15

Constant-Currency Core FFO / share

N/A


N/A


$5.18 - $5.28


$5.20 - $5.30


$5.27 - $5.33



(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 net income available to common stockholders to funds from operations (FFO), which is NAREIT-Defined, and core funds from operations (core FFO).

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 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 net-debt-to-Adjusted EBITDA, 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. EDT / 2:30 p.m. PDT, 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 third quarter 2015 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# 8772359 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 30, 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# 10073885.  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 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

John J. Stewart
Senior Vice President
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 the acquisition of Telx Holdings, Inc.; 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; cap rates and yields; and the company's FFO, core FFO, "constant currency" core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in our metropolitan areas; 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; 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, including Telx; 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, 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, 2014 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2015 and June 30, 2015.  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-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14

30-Sep-15

30-Sep-14

Rental revenues


$338,330


$330,676


$319,166


$319,816


$317,064


$988,172


$936,270


Tenant reimbursements - Utilities


70,148


62,305


59,764


59,830


65,604


192,217


186,850


Tenant reimbursements - Other


25,336


25,267


26,065


28,887


26,605


76,668


74,667


Fee income


1,595


1,549


1,614


1,871


2,748


4,758


5,397


Other


580


498



1,812


165


1,078


1,038


Total Operating Revenues


$435,989


$420,295


$406,609


$412,216


$412,186


$1,262,893


$1,204,222











Utilities


$73,887


$64,669


$62,970


$62,560


$69,388


$201,526


$196,907


Rental property operating


36,401


36,035


34,650


33,211


32,017


107,087


95,988


Repairs & maintenance


30,250


28,835


26,943


31,783


29,489


86,027


82,691


Property taxes


19,953


20,900


23,263


23,053


25,765


64,116


68,485


Insurance


2,140


2,154


2,155


2,180


2,145


6,449


6,463


Change in fair value of contingent consideration


(1,594)


352


(43,034)


(3,991)


(1,465)


(44,276)


(4,102)


Depreciation & amortization


136,974


131,524


129,073


133,327


137,474


397,571


405,186


General & administrative


26,431


24,312


19,798


21,480


20,709


70,541


59,018


Severance related accrual, equity acceleration, and legal expenses


(3,676)


1,301


1,396




(979)


12,690


Transactions


11,042


3,166


93


323


144


14,301


980


Impairment of investments in real estate





113,970


12,500



12,500


Other expenses


51


(6)


(16)


486


1,648


29


2,584


Total Operating Expenses


$331,859


$313,242


$257,291


$418,382


$329,814


$902,392


$939,390











Operating Income (Loss)


$104,130


$107,053


$149,318


($6,166)


$82,372


$360,501


$264,832











Equity in earnings of unconsolidated joint ventures


$4,169


$3,383


$4,618


$3,776


$3,455


$12,170


$9,513


Gain (loss) on sale of property


(207)


76,669


17,820




94,282


15,945


Gain on contribution of properties to unconsolidated JV






93,498



95,404


Gain on sale of investment





14,551





Interest and other income


(358)


(231)


(2,290)


641


378


(2,879)


2,022


Interest expense


(48,138)


(46,114)


(45,466)


(46,396)


(48,169)


(139,718)


(144,689)


Tax (expense)


(1,754)


(2,615)


(1,675)


(1,201)


(1,178)


(6,044)


(4,037)


Loss from early extinguishment of debt



(148)




(195)


(148)


(780)


Net Income (Loss)


$57,842


$137,997


$122,325


($34,795)


$130,161


$318,164


$238,210











Net (income) loss attributable to noncontrolling interests


(864)


(2,486)


(2,142)


961


(2,392)


(5,492)


(4,190)


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


$56,978


$135,511


$120,183


($33,834)


$127,769


$312,672


$234,020











Preferred stock dividends


(18,456)


(18,456)


(18,455)


(18,455)


(18,455)


(55,367)


(49,010)


Net Income (Loss) Available to Common Stockholders


$38,522


$117,055


$101,728


($52,289)


$109,314


$257,305


$185,010











Weighted-average shares outstanding - basic


135,832,503


135,810,060


135,704,525


135,544,597


135,492,618


135,782,831


132,635,894


Weighted-average shares outstanding - diluted


138,259,936


136,499,004


136,128,800


135,544,597


135,946,533


136,920,477


132,852,966


Weighted-average fully diluted shares and units


139,192,198


139,256,470


138,831,268


138,757,650


138,762,045


139,050,965


138,216,486











Net income (loss) per share - basic


$0.28


$0.86


$0.75


($0.39)


$0.81


$1.89


$1.39


Net income (loss) per share - diluted


$0.28


$0.86


$0.75


($0.39)


$0.80


$1.88


$1.39


 

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-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14

30-Sep-15

30-Sep-14









Net Income (Loss) Available to Common Stockholders

$38,522


$117,055


$101,728


($52,289)


$109,314


$257,305


$185,010


Adjustments:








Noncontrolling interests in operating partnership

747


2,377


2,026


(1,074)


2,272


5,150


3,838


Real estate related depreciation & amortization (1)

135,613


130,198


127,823


132,100


136,289


393,634


401,723


Unconsolidated JV real estate related depreciation & amortization

2,761


3,187


2,603


2,173


1,934


8,551


5,364


(Gain) loss on sale of property

207


(76,669)


(17,820)




(94,282)


(15,945)


Gain on contribution of properties to unconsolidated JV





(93,498)



(95,404)


Impairment of investments in real estate




113,970


12,500



12,500


Funds From Operations

$177,850


$176,148


$216,360


$194,880


$168,811


$570,358


$497,086










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







4,725










Funds From Operations - diluted

$177,850


$176,148


$216,360


$194,880


$168,811


$570,358


$501,811










Weighted-average shares and units outstanding - basic

138,468


138,568


138,407


138,327


138,308


138,481


135,382


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

139,192


139,257


138,831


138,757


138,762


139,051


138,217










Funds From Operations per share - basic

$1.28


$1.27


$1.56


$1.41


$1.22


$4.12


$3.67










Funds From Operations per share - diluted (2)

$1.28


$1.26


$1.56


$1.40


$1.22


$4.10


$3.63

















Reconciliation of FFO to Core FFO

Three Months Ended

Nine Months Ended

30-Sep-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14

30-Sep-15

30-Sep-14









Funds From Operations - diluted

$177,850


$176,148


$216,360


$194,880


$168,811


$570,358


$501,811


Termination fees and other non-core revenues (3)

(580)


(313)


1,573


(2,584)


(165)


680


(3,085)


Gain on sale of investment




(14,551)





Significant transaction expenses

11,042


3,166


93


323


144


14,301


980


Loss from early extinguishment of debt


148




195


148


780


Change in fair value of contingent consideration (4)

(1,594)


352


(43,034)


(3,991)


(1,465)


(44,276)


(4,102)


Equity in earnings adjustment for non-core items







843


Severance related accrual, equity acceleration, and legal expenses (5)

(3,676)


1,301


1,396




(979)


12,690


Other non-core expense adjustments (6)

51


(29)


(30)


453


1,588


(8)


2,239


Core Funds From Operations - diluted

$183,093


$180,773


$176,358


$174,530


$169,108


$540,224


$512,156










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

139,192


139,257


138,831


138,757


138,762


139,051


138,217










Core Funds From Operations per share - diluted (2)

$1.32


$1.30


$1.27


$1.26


$1.22


$3.89


$3.71
































(1)   Real Estate Related Depreciation & Amortization:































Three Months Ended

Nine Months Ended


30-Sep-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14

30-Sep-15

30-Sep-14

Depreciation & amortization per income statement

$136,974


$131,524


$129,073


$133,327


$137,474


$397,571


$405,186


Non-real estate depreciation

(1,361)


(1,326)


(1,250)


(1,227)


(1,185)


(3,937)


(3,463)


Real Estate Related Depreciation & Amortization

$135,613


$130,198


$127,823


$132,100


$136,289


$393,634


$401,723




(2)

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.  In addition, the 5.50% exchangeable senior debentures due 2029 were exchangeable for 0 and 2,618 common shares on a weighted average basis for the three and nine months ended September 30, 2014, respectively.  See above for calculations of diluted FFO available to common stockholders and unitholders and weighted average common stock and units outstanding.



(3)

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



(4)

Relates to 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. 



(5)

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



(6)

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.

 

Consolidated Balance Sheets

Unaudited and in thousands, except share and per share data








30-Sep-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14

Assets






Investments in real estate:






Real estate

$9,473,253


$9,353,820


$9,146,341


$9,027,600


$9,213,833


Construction in progress

570,598


646,012


735,544


809,406


876,494


Land held for future development

133,343


141,294


135,606


145,607


146,390


Investments in Real Estate

$10,177,194


$10,141,126


$10,017,491


$9,982,613


$10,236,717


Accumulated depreciation & amortization

(2,137,631)


(2,033,289)


(1,962,966)


(1,874,054)


(1,840,379)


Net Investments in Properties

$8,039,563


$8,107,837


$8,054,525


$8,108,559


$8,396,338


Investment in unconsolidated joint ventures

103,703


103,410


103,475


94,729


94,497


Net Investments in Real Estate

$8,143,266


$8,211,247


$8,158,000


$8,203,288


$8,490,835


Cash and cash equivalents

22,998


49,989


30,969


34,814


30,927


Accounts and other receivables (1)

157,994


126,734


112,995


135,931


140,463


Deferred rent

475,796


467,262


455,834


447,643


442,358


Acquired above-market leases, net

30,617


33,936


34,757


38,605


42,477


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

405,824


424,229


434,917


456,962


461,243


Deferred financing costs, net

29,173


30,203


28,243


30,821


33,761


Restricted cash

12,500


18,557


18,294


18,062


19,587


Assets associated with real estate held for sale

173,461


171,990


81,667


120,471



Other assets

49,384


51,862


52,750


40,188


60,356


Total Assets

$9,501,013


$9,586,009


$9,408,426


$9,526,784


$9,722,007








Liabilities and Equity






Global unsecured revolving credit facility

$688,957


$777,013


$826,906


$525,951


$485,023


Unsecured term loan

938,276


961,098


942,006


976,600


1,002,186


Unsecured senior notes, net of discount

2,816,359


2,856,408


2,672,472


2,791,758


2,835,478


Mortgage loans, net of premiums

304,987


374,307


376,527


378,818


417,042


Accounts payable and other accrued liabilities

513,555


516,232


523,948


605,923


648,314


Accrued dividends and distributions




115,019



Acquired below-market leases

88,632


94,312


97,234


104,235


110,708


Security deposits and prepaid rent

107,704


109,005


108,244


108,478


119,696


Liabilities associated with assets held for sale

6,892


7,441


3,228


5,764



Total Liabilities

$5,465,362


$5,695,816


$5,550,565


$5,612,546


$5,618,447








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


353,290


353,290


353,290


353,300


Series I Cumulative Redeemable Preferred Stock (6)

241,683






Common Stock: $0.01 par value per share, 215,000,000 shares authorized (7)

1,351


1,351


1,350


1,349


1,348


Additional paid-in capital

3,977,945


3,974,398


3,967,846


3,970,438


3,964,876


Dividends in excess of earnings

(1,185,633)


(1,108,701)


(1,110,298)


(1,096,603)


(931,777)


Accumulated other comprehensive (loss) income, net

(87,988)


(67,324)


(91,562)


(45,046)


(20,470)


Total Stockholders' Equity

$3,995,479


$3,847,845


$3,815,457


$3,878,259


$4,062,108








Noncontrolling Interests






Noncontrolling interest in operating partnership

$33,411


$35,577


$35,596


$29,188


$34,632


Noncontrolling interest in consolidated joint ventures

6,761


6,771


6,808


6,791


6,820


Total Noncontrolling Interests

$40,172


$42,348


$42,404


$35,979


$41,452








Total Equity

$4,035,651


$3,890,193


$3,857,861


$3,914,238


$4,103,560








Total Liabilities and Equity

$9,501,013


$9,586,009


$9,408,426


$9,526,784


$9,722,007




(1)

Net of allowance for doubtful accounts of $7.041 and $6,302 as of September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, 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, 2015 and December 31, 2014, respectively.



(6)

Series I Cumulative Redeemable Preferred Stock, 6.350%, $250,000 and $0 liquidation preference, respectively ($25.00 per share), 10,000,000 and 0 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.



(7)

Common Stock: 135,843,684 and 135,626,255 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively.

 

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

Unaudited and in thousands



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

Three Months Ended

30-Sep-15

30-Jun-15

31-Mar-15

31-Dec-14

30-Sep-14







Net Income (Loss) Available to Common Stockholders

$38,522


$117,055


$101,728


($52,289)


$109,314


Interest

48,138


46,114


45,466


46,396


48,169


Loss from early extinguishment of debt


148




195


Tax expense

1,754


2,615


1,675


1,201


1,178


Depreciation & amortization

136,974


131,524


129,073


133,327


137,474


Impairment of investments in real estate




113,970


12,500


EBITDA

$225,388


$297,456


$277,942


$242,605


$308,830


Change in fair value of contingent consideration

(1,594)


352


(43,034)


(3,991)


(1,465)


Severance related accrual, equity acceleration, and legal expenses

(3,676)


1,301


1,396




Transactions

11,042


3,166


93


323


144


(Gain) loss on sale of property

207


(76,669)


(17,820)




Gain on contribution of properties to unconsolidated joint venture





(93,498)


Gain on sale of investment




(14,551)



Noncontrolling interests

864


2,486


2,142


(961)


2,392


Preferred stock dividends

18,456


18,456


18,455


18,455


18,455


Adjusted EBITDA

$250,687


$246,548


$239,174


$241,880


$234,858




(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 sale of investment, (iii) significant transaction expenses, (iv) loss from early extinguishment of debt, (v) change in fair value of contingent consideration, (vi) equity in earnings adjustment for non-core items, (vii) severance accrual, equity acceleration, and legal expenses 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.

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.

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 related accrual, equity acceleration, and legal expenses, gain on sale of property, gain on contribution of properties to unconsolidated joint ventures, 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 related accrual, equity acceleration, and legal expenses, transactions, gain on sale of property, gain on contribution of properties to unconsolidated joint ventures, gain on sale of 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 utilities, 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 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 September 30, 2015, GAAP interest expense was $48 million, capitalized interest was $2 million and scheduled debt principal payments and preferred dividends was $21 million.

Reconciliation of Range of 2015 Projected Net Income to Projected FFO (NAREIT-Defined) and Core FFO


Low

High

Net income available to common stockholders per diluted share

$2.08

$2.14

Add:



Real estate depreciation and amortization and (gain)/loss on sale

$3.16

$3.16

Projected FFO per diluted share (NAREIT-Defined)

$5.24

$5.30

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

($0.12)

($0.12)

Projected core FFO per diluted share

$5.12

$5.18

Foreign currency translation adjustments

$0.15

$0.15

Projected constant - currency core FFO per diluted share

$5.27

$5.33

 

SOURCE Digital Realty Trust, Inc.



RELATED LINKS

http://www.digitalrealty.com