Digital Realty Reports Fourth Quarter 2019 Results

SAN FRANCISCO, Feb. 13, 2020 /PRNewswire/ -- Digital Realty (DLR) , a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the fourth quarter of 2019.  All per-share results are presented on a fully-diluted share and unit basis.

Highlights

  • Reported net income available to common stockholders of $1.50 per share in 4Q19, compared to $0.15 in 4Q18
  • Reported FFO per share of $1.62 in 4Q19, compared to $1.54 in 4Q18
  • Reported core FFO per share of $1.62 in 4Q19, compared to $1.68 in 4Q18
  • Signed total bookings during 4Q19 expected to generate $69 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection

Financial Results

Digital Realty (DLR) reported revenues for the fourth quarter of 2019 of $787 million, a 2% decrease from the previous quarter and a 1% increase from the same quarter last year.

The company delivered fourth quarter of 2019 net income of $349 million, and net income available to common stockholders of $316 million, or $1.50 per share, compared to $0.24 per share in the previous quarter and $0.15 per share in the same quarter last year.

Digital Realty (DLR) generated fourth quarter of 2019 adjusted EBITDA of $462 million, a 2% decrease from the previous quarter and a 1% decrease from the same quarter last year (reflecting the January 1, 2019 adoption of FASB Accounting Standard Codification Topic 842, Leases).

The company reported fourth quarter of 2019 funds from operations of $354 million, or $1.62 per share, compared to $1.59 per share in the previous quarter and $1.54 per share in the same quarter last year.

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty (DLR) delivered fourth quarter of 2019 core FFO per share of $1.62, a 3% decrease from $1.67 per share in the previous quarter, and a 4% decrease from $1.68 per share in the same quarter last year.

Leasing Activity

"In the fourth quarter, we signed total bookings expected to generate $69 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection," said Chief Executive Officer A. William Stein.  "We made significant progress towards a number of key strategic priorities.  We continued to enhance our customer offerings with the launch of PlatformDIGITALTM, a first-of-its-kind global data center platform, and we continued to extend our global footprint with an agreement to combine with Interxion.  We also executed on our private capital initiative with the closing of our joint venture with Mapletree, and we further strengthened the balance sheet with the issuance of low-cost debt and preferred equity capital.  Looking ahead to 2020 and beyond, we are confident that Digital Realty's (DLR) global, full-product platform will continue to deliver sustainable growth for all stakeholders."

The weighted-average lag between leases signed during the fourth quarter of 2019 and the contractual commencement date was four months.

In addition to new leases signed, Digital Realty (DLR) also signed renewal leases representing $117 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the fourth quarter of 2019 rolled down 0.6% on a cash basis and up 4.2% on a GAAP basis.

New leases signed during the fourth quarter of 2019 are summarized by region and product type as follows:



Annualized GAAP












Base Rent




GAAP Base Rent





GAAP Base Rent

The Americas


(in thousands)


Square Feet


per Square Foot


Megawatts


per Kilowatt

Turn-Key Flex


$34,353



282,393



$122



28.6




$100


Powered Base Building


582



27,460



21







Colocation


5,957



20,768



287



2.0




251


Non-Technical


455



14,694



31







Total


$41,347



345,315



$120



30.6




$110














Europe (1)












Turn-Key Flex


$4,607



19,687



$234



2.2




$174


Colocation


2,020



5,021



402



0.6




303


Non-Technical


61



1,846



33







  Total


$6,688



26,554



$252



2.8




$200














Asia Pacific (1)












Turn-Key Flex


$13,679



91,326



$150



7.9




$145


Colocation


32



92



347






266


Non-Technical


466



8,930



52







  Total


$14,177



100,348



$141



7.9




$145














Interconnection


$6,942



N/A


N/A


N/A



N/A













Grand Total


$69,154



472,217



$132



41.2




$123



Note:  Totals may not foot due to rounding differences.



(1)

Based on quarterly average exchange rates during the three months ended December 31, 2019.

Investment Activity
In November, Digital Realty (DLR) closed on a joint venture with Mapletree Investments and Mapletree Industrial Trust on three existing Turn-Key Flex® data centers located in Ashburn, Virginia.  The transaction valued the three fully stabilized hyper-scale facilities at approximately $1.0 billion.  The three facilities are fully leased and are expected to generate 2020 cash net operating income of approximately $61 million, representing a 6.0% cap rate.  Digital Realty (DLR) is retaining a 20% ownership interest in the joint venture, and Mapletree has closed on the acquisition of the remaining 80% stake for approximately $811 million.  Digital Realty (DLR) will continue to operate and manage these facilities, and the joint venture transaction will be completely seamless from a customer perspective.

Subsequent to quarter-end, Digital Realty (DLR) closed on the sale of a portfolio of 10 Powered Base Building® properties to Mapletree Investments and Mapletree Industrial Trust for approximately $557 million, subject to customary closing costs and transaction fees.  These 10 properties are fully leased and are expected to generate 2020 cash net operating income of approximately $37 million, representing a 6.6% cap rate.  Digital Realty (DLR) will provide transitional property management services for the Powered Base Building® portfolio for one year from the closing date at a customary market rate.

Balance Sheet

Digital Realty (DLR) had approximately $10.1 billion of total debt outstanding as of December 31, 2019, comprised of $10.0 billion of unsecured debt and approximately $0.1 billion of secured debt.  At the end of the fourth quarter of 2019, net debt-to-adjusted EBITDA was 5.7x, debt-plus-preferred-to-total enterprise value was 30.8% and fixed charge coverage was 4.1x.  Pro forma for settlement of the $1.1 billion forward equity offering and the $557 million of proceeds from the Mapletree portfolio sale, net debt-to-adjusted EBITDA was 5.0x and fixed charge coverage was 4.6x.

In early October, Digital Realty (DLR) closed an offering of 13,800,000 shares of 5.20% Series L Cumulative Redeemable Preferred Stock (including 1,800,000 shares from the exercise of the underwriters' over-allotment option in full) at a price of $25.00 per share, generating gross proceeds of approximately $345 million.  Likewise in early October, Digital Realty (DLR) closed a €500 million (approximately $550 million) Euro-denominated offering of 8.5-year senior unsecured notes due 2028 at 1.125%.

Subsequent to quarter-end, Digital Realty (DLR) closed an offering of €1.7 billion of Euro-denominated notes with a weighted-average maturity of approximately seven years and a weighted-average coupon of approximately 1.0%.  The company intends to use a portion of the net proceeds from these notes for refinancing the outstanding debt of InterXion Holding N.V. or its subsidiaries and the payment of certain transaction fees and expenses incurred in connection with its combination with InterXion.  If the InterXion combination is not consummated on or prior to January 27, 2021, Digital Realty (DLR) will be required to redeem €1.4 billion of the notes at a redemption price equal to 101% of the principal amount of such notes, plus accrued and unpaid interest, if any, up to, but not including, the redemption date.

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 reconciliation from FFO to core FFO, and definitions of FFO, and core FFO are included as an attachment to this document.  A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, cash NOI, and fixed charge coverage ratio are included as an attachment to this document.

Investor Conference Call

Prior to Digital Realty's (DLR) investor conference call at 5:30 p.m. EST / 2:30 p.m. PST on February 13, 2020, a presentation will be posted to the Investors section of the company's website at https://investor.digitalrealty.com.  The presentation is designed to accompany the discussion of the company's fourth quarter 2019 financial results and operating performance.  The conference call will feature Chief Executive Officer A. William Stein and Senior Vice President of Finance, Matt Mercier.

To participate in the live call, investors are invited to dial (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 8863535 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 (DLR) website at https://investor.digitalrealty.com.

Telephone and webcast replays will be available after the call until March 13, 2020.  The telephone replay can be accessed by dialing (877) 344-7529 (for domestic callers) or (412) 317-0088 (for international callers) and providing the conference ID# 10138356.  The webcast replay can be accessed on Digital Realty's (DLR) website.

About Digital Realty (DLR)

Digital Realty (DLR) supports the data center, colocation and interconnection strategies of customers across the Americas, EMEA and APAC, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare and consumer products.  To learn more about Digital Realty (DLR), please visit digitalrealty.com or follow us on LinkedIn, Twitter, Facebook, Instagram and YouTube.

Contact Information

Andrew P. Power
Chief Financial Officer
Digital Realty (DLR)
738-6500

John J. Stewart
Investor Relations
Digital Realty (DLR)
738-6500


Consolidated Quarterly Statements of Operations


Unaudited and in Thousands, Except Share and Per Share Data



Three Months Ended


Twelve Months Ended


31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18

Rental revenues

$549,733


$564,975


$565,925


$585,425


$555,816



$2,266,058


$2,162,370


Tenant reimbursements - Utilities

107,518


114,719


106,409


102,569


102,641



431,215


407,123


Tenant reimbursements - Other

59,641


57,466


62,820


55,868


53,090



235,795


217,514


Interconnection & other

65,576


65,312


64,232


68,168


63,803



263,288


249,706


Fee income

4,814


3,994


925


1,921


2,896



11,654


7,841


Other

181



486


564


21



1,231


1,924


Total Operating Revenues

$787,463


$806,466


$800,797


$814,515


$778,267



$3,209,241


$3,046,478











Utilities

$125,127


$132,565


$123,398


$124,334


$122,108



$505,424


$477,047


Rental property operating

129,034


126,866


128,634


130,620


133,024



515,154


480,018


Property taxes

42,541


38,255


41,482


37,315


32,098



159,593


129,516


Insurance

3,055


3,103


3,441


2,991


2,412



12,590


11,402


Depreciation & amortization

275,008


286,718


290,562


311,486


299,362



1,163,774


1,186,896


General & administration

53,540


49,862


52,318


51,976


38,801



207,696


160,364


Severance, equity acceleration, and legal expenses

1,130


123


665


1,483


602



3,401


3,303


Transaction and integration expenses

17,106


4,115


4,210


2,494


25,917



27,925


45,327


Impairment of investments in real estate




5,351




5,351



Other expenses

1,989


92


7,115


4,922


1,096



14,118


2,818


Total Operating Expenses

$648,530


$641,699


$651,825


$672,972


$655,420



$2,615,026


$2,496,691











Operating Income

$138,933


$164,767


$148,972


$141,543


$122,847



$594,215


$549,787











Equity in earnings of unconsolidated joint ventures

$11,157


($19,269)


$6,962


$9,217


$9,245



$8,067


$32,979


Gain on sale / deconsolidation

267,651




67,497


7



335,148


80,049


Interest and other income

10,734


16,842


16,980


21,444


1,106



66,000


3,481


Interest (expense)

(80,880)


(84,574)


(86,051)


(101,552)


(84,883)



(353,057)


(321,529)


Tax benefit (expense)

1,731


(4,826)


(4,634)


(4,266)


5,843



(11,995)


(2,084)


Loss from early extinguishment of debt


(5,366)


(20,905)


(12,886)


(1,568)



(39,157)


(1,568)


Net Income

$349,326


$67,574


$61,324


$120,997


$52,597



$599,221

$341,115











Net (income) attributable to noncontrolling interests

(13,042)


(1,077)


(1,156)


(4,185)


(1,038)



(19,460)


(9,869)


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

$336,284


$66,497


$60,168


$116,812


$51,559



$579,761


$331,246











Preferred stock dividends, including undeclared dividends

(20,707)


(16,670)


(16,670)


(20,943)


(20,329)



(74,990)


(81,316)


Issuance costs associated with redeemed preferred stock



(11,760)





(11,760)












Net Income Available to Common Stockholders

$315,577


$49,827


$31,738


$95,869


$31,230



$493,011


$249,930











Weighted-average shares outstanding - basic

208,776,355


208,421,470


208,284,407


207,809,383


206,345,138



208,325,823


206,035,408


Weighted-average shares outstanding - diluted

210,286,278


209,801,771


209,435,572


208,526,249


207,113,100



209,481,231


206,673,471


Weighted-average fully diluted shares and units

218,901,078


218,755,597


218,497,318


217,756,161


215,417,085



218,440,163


214,950,934











Net income per share - basic

$1.51


$0.24


$0.15


$0.46


$0.15



$2.37


$1.21


Net income per share - diluted

$1.50


$0.24


$0.15


$0.46


$0.15



$2.35


$1.21


 

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-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18










Net Income Available to Common Stockholders

$315,577


$49,827


$31,738


$95,869


$31,230



$493,011


$249,930


Adjustments:









Non-controlling interests in operating partnership

13,100


2,300


1,400


4,300


1,300



21,100


10,180


Real estate related depreciation & amortization (1)

271,371


283,090


286,915


307,864


295,724



1,149,240


1,173,917


Unconsolidated JV real estate related depreciation & amortization

21,631


13,612


13,623


3,851


3,615



52,716


14,587


(Gain) on real estate transactions

(267,651)





(7)



(267,651)


(80,049)


Impairment of investments in real estate




5,351




5,351



Funds From Operations

$354,028


$348,829


$333,676


$417,235


$331,862



$1,453,767


$1,368,565











Funds From Operations - diluted

$354,028


$348,829


$333,676


$417,235


$331,862



$1,453,767


$1,368,565











Weighted-average shares and units outstanding - basic

217,391


217,375


217,346


217,039


214,649



217,285


214,313


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

218,901


218,756


218,497


217,756


215,417



218,440


214,951











Funds From Operations per share - basic

$1.63


$1.60


$1.54


$1.92


$1.55



$6.69


$6.39











Funds From Operations per share - diluted (2)

$1.62


$1.59


$1.53


$1.92

$1.54



$6.66


$6.37













Three Months Ended


Twelve Months Ended

Reconciliation of FFO to Core FFO

31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18










Funds From Operations - diluted

$354,028


$348,829


$333,676


$417,235


$331,862



$1,453,767


$1,368,565


Adjustments:









Termination fees and other non-core revenues (3)

(5,634)


(16,792)


(16,826)


(14,445)


(21)



(53,697)


(5,060)


Transaction and integration expenses

17,106


4,115


4,210


2,494


25,917



27,925


45,327


Loss from early extinguishment of debt


5,366


20,905


12,886


1,568



39,157


1,568


Issuance costs associated with redeemed preferred stock



11,760





11,760



Severance, equity acceleration, and legal expenses (4)

1,130


123


665


1,483


602



3,401


3,303


(Gain) / Loss on FX revaluation

(10,422)


23,136


(4,251)


9,604




18,067



(Gain) on contribution to unconsolidated joint venture, net of related tax




(58,497)




(58,497)



Other non-core expense adjustments

(1,511)


92


7,115


4,922


1,471



10,618


4,323


Core Funds From Operations - diluted

$354,697


$364,869


$357,254


$375,682


$361,399



$1,452,501


$1,418,026











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

218,901


218,756


218,497


217,756


215,417



218,440


214,951











Core Funds From Operations per share - diluted (2)

$1.62


$1.67


$1.64


$1.73


$1.68



$6.65


$6.60











(1)   Real Estate Related Depreciation & Amortization:

Three Months Ended


Twelve Months Ended


31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18










Depreciation & amortization per income statement

$275,008


$286,718


$290,562


$311,486


$299,362



$1,163,774


$1,186,896


Non-real estate depreciation

(3,637)


(3,628)


(3,647)


(3,622)


(3,638)



(14,534)


(12,979)











Real Estate Related Depreciation & Amortization

$271,371


$283,090


$286,915


$307,864


$295,724



$1,149,240


$1,173,917




(2)

For all periods presented, we have excluded the effect of dilutive series C, series G, series H, series I, series J, series K, and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series G, series H, series I, series J, series K, and series L preferred stock, as applicable, which we consider highly improbable.  See above for calculations of diluted FFO and the share count detail section of the reconciliation of core FFO to AFFO for calculations of 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 severance and other charges related to the departure of company executives and integration-related severance.

 


Adjusted Funds From Operations (AFFO)

Unaudited and in Thousands, Except Per Share Data






Three Months Ended


Twelve Months Ended

Reconciliation of Core FFO to AFFO

31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18










Core FFO available to common stockholders and unitholders

$354,697


$364,869


$357,254


$375,682


$361,399



$1,452,501


$1,418,026


Adjustments:









Non-real estate depreciation

3,637


3,628


3,647


3,622


3,638



14,534


12,979


Amortization of deferred financing costs

3,064


2,900


2,905


4,493


3,128



13,362


12,207


Amortization of debt discount/premium

612


466


515


760


971



2,353


3,630


Non-cash stock-based compensation expense

8,937


8,906


9,468


7,592


5,609



34,903


25,349


Straight-line rental revenue

(13,994)


(12,764)


(13,033)


(15,979)


(11,157)



(55,770)


(40,422)


Straight-line rental expense

(342)


(209)


318


1,235


2,052



1,002


9,750


Above- and below-market rent amortization

4,109


2,824


3,954


6,210


6,521



17,097


26,533


Deferred tax expense

(998)


(1,418)


(979)


(15,397)


(8,835)



(18,792)


(11,970)


Leasing compensation & internal leasing commissions (1)

3,646


3,254


4,025


3,581


(5,160)



14,506


(21,007)


Recurring capital expenditures (2)

(54,731)


(48,408)


(39,515)


(38,059)


(47,951)



(180,713)


(132,226)











AFFO available to common stockholders and unitholders (3)

$308,637


$324,048


$328,559


$333,740


$310,215



$1,294,983


$1,302,849











Weighted-average shares and units outstanding - basic

217,391


217,375


217,346


217,039


214,649



217,285


214,313


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

218,901


218,756


218,497


217,756


215,417



218,440


214,951











AFFO per share - diluted (4)

$1.41


$1.48


$1.50


$1.53


$1.44



$5.93


$6.06











Dividends per share and common unit

$1.08


$1.08


$1.08


$1.08


$1.01



$4.32


$4.04











Diluted AFFO Payout Ratio

76.6

%

72.9

%

71.8

%

70.5

%

70.1

%


72.9

%

66.7

%











Three Months Ended


Twelve Months Ended

Share Count Detail

31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18










Weighted Average Common Stock and Units Outstanding

217,391


217,375


217,346


217,039


214,649



217,285


214,313


Add: Effect of dilutive securities

1,510


1,381


1,151


717


768



1,155


638











Weighted Avg. Common Stock and Units Outstanding - diluted

218,901


218,756


218,497


217,756


215,417



218,440


214,951




(1)

The company adopted ASC 842 in the first quarter of 2019.



(2)

Recurring capital expenditures represent non-incremental building improvements required to maintain current revenues, including second-generation tenant improvements and external leasing commissions.  Recurring capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building, costs which are incurred to bring a building up to Digital Realty's (DLR) operating standards, or internal leasing commissions.



(3)

For a definition and discussion of AFFO, see the definitions section.  For a reconciliation of net income available to common stockholders to FFO and core FFO, see above.



(4)

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

 


Consolidated Balance Sheets

Unaudited and in Thousands, Except Share and Per Share Data



30-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18

Assets






Investments in real estate:






Real estate

$16,886,592


$16,407,080


$17,324,416


$16,988,322


$17,055,017


Construction in progress

1,732,555


1,647,130


1,685,056


1,584,327


1,621,927


Land held for future development

147,597


150,265


152,368


163,081


162,941


Investments in real estate

$18,766,744


$18,204,475


$19,161,840


$18,735,730


$18,839,885


Accumulated depreciation and amortization

(4,536,169)


(4,298,629)


(4,312,357)


(4,124,002)


(3,935,267)


Net Investments in Properties

$14,230,575


$13,905,846


$14,849,483


$14,611,728


$14,904,618


Investment in unconsolidated joint ventures

1,287,109


1,035,861


979,350


930,326


175,108


Net Investments in Real Estate

$15,517,684


$14,941,707


$15,828,833


$15,542,054


$15,079,726








Cash and cash equivalents

$89,817


$7,190


$33,536


$123,879


$126,700


Accounts and other receivables (1)

305,501


304,712


320,938


328,009


299,621


Deferred rent

478,744


471,516


491,486


479,640


463,248


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

2,195,324


2,245,017


2,499,564


2,580,624


3,144,395


Acquired above-market leases, net

74,815


84,315


94,474


106,044


119,759


Goodwill

3,363,070


3,338,168


3,353,538


3,358,463


4,348,007


Assets associated with real estate held for sale

229,934


967,527





Operating lease right-of-use assets (2)

628,681


634,085


648,952


660,586



Other assets

184,561


178,528


158,770


162,768


185,239


Total Assets

$23,068,131


$23,172,765


$23,430,091


$23,342,067


$23,766,695








Liabilities and Equity






Global unsecured revolving credit facilities

$234,105


$1,833,512


$1,417,675


$842,975


$1,647,735


Unsecured term loans

810,219


796,232


807,922


807,726


1,178,904


Unsecured senior notes, net of discount

8,973,190


8,189,138


8,511,656


8,523,462


7,589,126


Secured debt, net of premiums

104,934


105,153


105,325


105,493


685,714


Operating lease liabilities (2)

693,539


699,381


714,256


725,470



Accounts payable and other accrued liabilities

1,007,761


938,740


984,812


922,571


1,164,509


Accrued dividends and distributions

234,620





217,241


Acquired below-market leases

148,774


153,422


183,832


192,667


200,113


Security deposits and prepaid rent

208,724


203,708


213,549


221,526


209,311


Liabilities associated with assets held for sale

2,700


23,534





Total Liabilities

$12,418,566


$12,942,820


$12,939,027


$12,341,890


$12,892,653








Redeemable non-controlling interests - operating partnership

41,465


19,090


17,344


17,678


15,832








Equity






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






Series C Cumulative Redeemable Perpetual Preferred Stock (3)

$219,250


$219,250


$219,250


$219,250


$219,250


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


Series I Cumulative Redeemable Preferred Stock (6)

242,012


242,012


242,012


242,012


242,012


Series J Cumulative Redeemable Preferred Stock (7)

193,540


193,540


193,540


193,540


193,540


Series K Cumulative Redeemable Preferred Stock (8)

203,264


203,264


203,264


203,423



Series L Cumulative Redeemable Preferred Stock (9)

334,886






Common Stock: $0.01 par value per share, 315,000,000 shares authorized (10)

2,073


2,069


2,067


2,066


2,051


Additional paid-in capital

11,577,320


11,540,980


11,511,519


11,492,766


11,355,751


Dividends in excess of earnings

(3,046,579)


(3,136,668)


(2,961,307)


(2,767,708)


(2,633,071)


Accumulated other comprehensive (loss), net

(87,922)


(68,625)


(89,588)


(91,699)


(115,647)


Total Stockholders' Equity

$9,879,312


$9,437,290


$9,562,225


$10,088,408


$9,858,644








Noncontrolling Interests






Noncontrolling interest in operating partnership

$708,163


$732,314


$756,050


$772,931


$906,510


Noncontrolling interest in consolidated joint ventures

20,625


41,251


155,445


121,160


93,056








Total Noncontrolling Interests

$728,788


$773,565


$911,495


$894,091


$999,566








Total Equity

$10,608,100


$10,210,855


$10,473,720


$10,982,499


$10,858,210








Total Liabilities and Equity

$23,068,131


$23,172,765


$23,430,091


$23,342,067


$23,766,695




(1)

Net of allowance for doubtful accounts of $13,753 and $11,554, as of December 31, 2019 and December 31, 2018, respectively.



(2)

Adoption of the new lease accounting standard required that we adjust the consolidated balance sheet to include the recognition of additional right-of-use assets and lease liabilities for operating leases.  See our quarterly report on Form 10-Q filed on May 10, 2019 for additional information.



(3)

Series C Cumulative Redeemable Perpetual Preferred Stock, 6.625%, $201,250 and $201,250 liquidation preference, respectively ($25.00 per share), 8,050,000 and 8,050,000 shares issued and outstanding as of December 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018, respectively.



(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $0 and $365,000 liquidation preference, respectively ($25.00 per share), 0 and 14,600,000 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.  Redeemed on April 1, 2019.



(6)

Series I Cumulative Redeemable Preferred Stock, 6.350%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.



(7)

Series J Cumulative Redeemable Preferred Stock, 5.250%, $200,000 and $200,000 liquidation preference, respectively ($25.00 per share), 8,000,000 and 8,000,000 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.



(8)

Series K Cumulative Redeemable Preferred Stock, 5.850%, $210,000 and $0 liquidation preference, respectively ($25.00 per share), 8,400,000 and 0 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.



(9)

Series L Cumulative Redeemable Preferred Stock, 5.200%, $345,000 and $0 liquidation preference, respectively ($25.00 per share), 13,800,000 and 0 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.



(10)

Common Stock: 208,900,758 and 206,425,656 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively.

 


Reconciliation of Earnings Before Interest, Taxes,

Depreciation & Amortization and Financial Ratios Unaudited and in Thousands


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

Three Months Ended

31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18








Net Income Available to Common Stockholders

$315,577

$49,827


$31,738


$95,869


$31,230

Interest

80,880


84,574


86,051


101,552


84,883


Loss from early extinguishment of debt


5,366


20,905


12,886


1,568


Tax (benefit) expense

(1,731)


4,826


4,634


4,266


(5,843)


Depreciation & amortization

275,008


286,718


290,562


311,486


299,362


EBITDA

$669,734


$431,311


$433,890


$526,059


$411,200


Unconsolidated JV real estate related depreciation & amortization

21,631


13,612


13,623


3,851


3,615


Severance, equity acceleration, and legal expenses

1,130


123


665


1,483


602


Transaction and integration expenses

17,106


4,115


4,210


2,494


25,917


(Gain) on sale / deconsolidation

(267,651)




(67,497)


(7)


Impairment of investments in real estate




5,351



Other non-core adjustments, net

(13,886)


6,436


(13,476)


(13,806)


1,471


Non-controlling interests

13,042


1,077


1,156


4,185


1,038


Preferred stock dividends, including undeclared dividends

20,707


16,670


16,670


20,943


20,329


Issuance costs associated with redeemed preferred stock



11,760




Adjusted EBITDA

$461,813


$473,344


$468,498


$483,063


$464,165


(1)

For definitions and discussion of EBITDA and Adjusted EBITDA, see the definitions section.

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, in the Nareit Funds From Operations White Paper - 2018 Restatement.  FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, impairment of investment in real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating partnership and after adjustments for unconsolidated partnerships and joint ventures.  Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.  We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.  However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited.  Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to other REITs' FFO. 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 (Core FFO):

We present core funds from operations, or core FFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction and integration expenses, (iii) loss from early extinguishment of debt, (iv) issuance costs associated with redeemed preferred stock, (v) severance, equity acceleration, and legal expenses, (vi) gain/loss on FX revaluation, (vii) gain on contribution to unconsolidated joint venture, net of related tax, 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 calculate core FFO differently than we do and 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.

Adjusted Funds from Operations (AFFO):

We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate AFFO by adding to or subtracting from core FFO (i) non-real estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) straight-line rental revenue, (vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense, (ix) leasing compensation and internal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and accordingly, our AFFO may not be comparable to other REITs' AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

EBITDA and Adjusted EBITDA:

We believe that earnings before interest, loss from early extinguishment of debt, income taxes, and depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, severance, equity acceleration, and legal expenses, transaction and integration expenses, (gain) loss on real estate transactions, equity in earnings adjustment for non-core items, other non-core adjustments, net, noncontrolling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, impairment of investments in real estate, other non-core adjustments, net, non-controlling interests, preferred stock dividends, including undeclared dividends, and issuance costs associated with redeemed preferred stock. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited.  Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do and accordingly, our EBITDA and Adjusted EBITDA may not be comparable to other REITs' EBITDA and Adjusted EBITDA.  Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.

Net Operating Income (NOI) and Cash NOI:

Net operating income, or NOI, represents rental revenue, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, 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 data centers that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our data centers, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs' NOI and cash NOI. NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.

Additional Definitions

Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value, plus capital lease obligations, plus our share of JV debt, less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA (inclusive of our share of JV EBITDA) multiplied by four.

Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. (DLR) 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. (DLR) 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, 2019, GAAP interest expense was $81 million, capitalized interest was $10 million and scheduled debt principal payments and preferred dividends was $21 million.


Three Months Ended


Twelve Months Ended

Reconciliation of Net Operating Income (NOI) (in thousands)

31-Dec-19

30-Sep-19

31-Dec-18


31-Dec-19

31-Dec-18








Operating income

$138,933


$164,767


$122,847



$594,215


$549,787









Fee income

(4,814)


(3,994)


(2,896)



(11,654)


(7,841)


Other income

(181)



(21)



(1,231)


(1,924)


Depreciation and amortization

275,008


286,718


299,362



1,163,774


1,186,896


General and administrative

53,540


49,862


38,801



207,696


160,364


Severance, equity acceleration, and legal expenses

1,130


123


602



3,401


3,303


Transaction expenses

17,106


4,115


25,917



27,925


45,327


Impairment in investments in real estate





5,351



Other expenses

1,989


92


1,096



14,118


2,818









Net Operating Income

$482,711


$501,683


$485,708



$2,003,595


$1,938,730
















Cash Net Operating Income (Cash NOI)














Net Operating Income

$482,711


$501,683


$485,708



$2,003,595


$1,938,730









Straight-line rental revenue

(8,495)


(12,764)


(11,157)



(50,273)


(40,422)


Straight-line rental expense

(306)


(193)


2,108



1,075


9,878


Above- and below-market rent amortization

4,109


2,824


6,521



17,097


26,533









Cash Net Operating Income

$478,019


$491,550


$483,180



$1,971,494


$1,934,719


This document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: expected physical settlement of the forward sale agreements and use of proceeds from any such settlement, our expected investment and expansion activity, our joint ventures, the expected benefits and timing of PlatformDIGITALTM, the Mapletree transactions, the InterXion combination, our capital markets activity and the use of proceeds from any such activity, supply and demand for data center and colocation space, our acquisition and disposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, 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, investment activity, the company's FFO, core FFO and net income, and underlying assumptions, information related to trends, our strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect new leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on investment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, 2020 backlog NOI, NAV components, and other forward-looking financial data.  Such statements are based on management's beliefs and assumptions made based on information currently available to management.  Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.  Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

  • reduced demand for data centers or decreases in information technology spending;
  • the competitive environment in which we operate;
  • decreased rental rates, increased operating costs or increased vacancy rates;
  • increased competition or available supply of data center space;
  • the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services;
  • our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers;
  • breaches of our obligations or restrictions under our contracts with our customers;
  • our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;
  • the impact of current global and local economic, credit and market conditions;
  • our inability to retain data center space that we lease or sublease from third parties;
  • difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;
  • our inability to achieve expected revenue synergies or cost savings as a result of our combination with InterXion;
  • each of our and InterXion's ability to consummate the transactions contemplated by the purchase agreement, the timing of the closing of those transactions and unexpected costs or unexpected liabilities that may arise from the transactions, whether or not consummated;
  • our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;
  • our failure to successfully integrate and operate acquired or developed properties or businesses;
  • difficulties in identifying properties to acquire and completing acquisitions;
  • risks related to joint venture investments, including as a result of our lack of control of such investments;
  • risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements;
  • our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;
  • financial market fluctuations and changes in foreign currency exchange rates;
  • adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment charges and goodwill and other intangible asset impairment charges;
  • our inability to manage our growth effectively;
  • losses in excess of our insurance coverage;
  • environmental liabilities and risks related to natural disasters;
  • our inability to comply with rules and regulations applicable to our company;
  • Digital Realty Trust, Inc.'s (DLR) failure to maintain its status as a REIT for federal income tax purposes;
  • Digital Realty Trust, L.P.'s failure to qualify as a partnership for federal income tax purposes;
  • restrictions on our ability to engage in certain business activities; and
  • changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates;
  • our ability to attract and retain qualified personnel and to attract and retain customers; and
  • the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance.  We discussed a number of additional material risks in our annual report on Form 10-K for the year ended December 31, 2018, quarterly report on Form 10-Q for the quarter ended September 30, 2019 and other filings with the Securities and Exchange Commission.  Those risks continue to be relevant to our performance and financial condition.  Moreover, we operate in a very competitive and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise.  Digital Realty (DLR), Digital Realty Trust (DLR), the Digital Realty (DLR) logo, Turn-Key Flex and Powered Base Building are registered trademarks and service marks of Digital Realty Trust, Inc. (DLR) in the United States and/or other countries.

Cision View original content:http://www.prnewswire.com/news-releases/digital-realty-reports-fourth-quarter-2019-results-301004944.html

SOURCE Digital Realty (DLR)

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