Digital Realty Reports Third Quarter 2015 Results

29 Oct, 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