Digital Realty Reports First Quarter 2015 Results

SAN FRANCISCO, May 5, 2015 /PRNewswire/ -- Digital Realty Trust, Inc. DLR, a leading global provider of data center and colocation solutions, announced today financial results for the first quarter of 2015.  All per share results are presented on a fully-diluted share and unit basis. 

Highlights

• Reported FFO per share of $1.56 in 1Q15, compared to $1.22 in 1Q14;
• Reported core FFO per share of $1.27 in 1Q15, compared to $1.28 in 1Q14;
• Signed leases during 1Q15 expected to generate $21 million in annualized GAAP rental revenue;
• Revised 2015 core FFO per share outlook to $5.03 - $5.13 from the prior range of $5.00 - $5.10; and
• Introduced 2015 "constant-currency" core FFO per share outlook of $5.18 - $5.28.

Financial Results

Revenues were $407 million for the first quarter of 2015, a 1% decline from the previous quarter and a 4% increase over the same quarter last year. 

Adjusted EBITDA was $239 million for the first quarter of 2015, a 1% decline from the previous quarter and a 2% increase over the same quarter last year. 

Funds from operations ("FFO") on a diluted basis was $216 million in the first quarter of 2015, or $1.56 per share, compared to $1.40 per share in the fourth quarter of 2014 and $1.22 per share in the first quarter of 2014.

Excluding certain items that do not represent core expenses or revenue streams, first quarter of 2015 core FFO was $1.27 per share compared to $1.26 per share in the fourth quarter of 2014, and $1.28 per share in the first quarter of 2014.

Net income for the first quarter of 2015 was $122 million, and net income available to common stockholders was $102 million, or $0.75 per diluted share, compared to net loss available to common shareholders of $0.39 per diluted share in the fourth quarter of 2014 and net income available to common shareholders of $0.26 per diluted share in the first quarter of 2014.

Leasing Activity

"We had a strong start to 2015, signing new leases representing $21 million in annualized GAAP rental revenue during the first quarter," commented Chief Executive Officer A. William Stein.  "Landlord leasing economics continue to improve, reflecting both robust demand for our data center solutions and a steadily shrinking supply of available inventory.  As a result, we were able to achieve significant improvements in the lag between lease signing and commencement, straight-line rents, and the returns realized on first quarter leasing transactions.  We expect to sustain this momentum throughout the year, enabling us to raise our expectations for 2015. 

"Along with our financial results, we also made several key additions to an already talented senior management team with the appointment of Andrew Power as Chief Financial Officer, Jarrett Appleby as Chief Operating Officer and Michael Henry as Chief Information Officer.  With improving data center fundamentals and a fully built-out team now in place, I am extremely excited about the opportunities ahead for Digital Realty and our ability to execute on our strategic plan, provide flexible solutions for our customers, and create value for our shareholders."

The weighted-average lag between leases signed during the first quarter of 2015 and the contractual commencement date was 3.7 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $14 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the first quarter of 2015 rolled down 3% on a cash basis but rolled up 10% on a GAAP basis. 

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

Investment Activity

During the first quarter of 2015, Digital Realty completed the previously announced sale of 100 Quannapowitt Parkway, a 169,000 square foot office building in suburban Boston, for $31 million, or $184 per square foot.  The property was expected to generate cash net operating income of approximately $1.6 million in 2015, representing a cap rate of 5.0%.  The sale generated net proceeds of $29 million, and Digital Realty recognized a gain on the sale of approximately $10 million in the first quarter of 2015.

Digital Realty also completed the sale of 3300 East Birch Street, a vacant 69,000 square foot former data center in Southern California for $14 million, or $206 per square foot.  The sale generated net proceeds of $14 million, and Digital Realty recognized a gain on the sale of $8 million in the first quarter of 2015.

Subsequent to the end of the quarter, Digital Realty closed on the sale of 833 Chestnut Street, a 705,000 square foot mixed-use building in downtown Philadelphia, for $161 million, or $228 per square foot.  The property was expected to generate cash net operating income of approximately $9.3 million in 2015, representing a cap rate of 5.8%.  The sale is expected to generate net proceeds of $150 million, and Digital Realty expects to recognize a gain on the sale of approximately $77 million in the second quarter of 2015.

Balance Sheet

Digital Realty had approximately $4.8 billion of total debt outstanding as of March 31, 2015, comprised of $4.4 billion of unsecured debt and approximately $0.4 billion of secured debt.  At the end of the first quarter of 2015, net debt-to-adjusted EBITDA was 5.0x, debt-plus-preferred-to-total-enterprise-value was 39.2% and fixed charge coverage was 3.4x. 

2015 Outlook

Digital Realty revised its 2015 core FFO per share outlook to $5.03 - $5.13 from the prior range of $5.00 - $5.10.  The assumptions underlying the revised core FFO per share outlook are summarized in the following table.

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 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 first quarter 2015 financial results and operating performance.  The conference call will feature: Chief Executive Officer A. William Stein; Chief Investment Officer Scott Peterson; Senior Vice President of Sales & Marketing Matt Miszewski; and Senior Vice President of Finance Matt Mercier.

To participate in the live call, investors are invited to dial +1 (866) 737-5498 (for domestic callers) or +1 (412) 902-6526 (for international callers) at least five minutes prior to start time.  A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.

Telephone and webcast replays will be available one hour after the call until June 5, 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# 10062842.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty Trust, Inc. supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.  Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.

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

Contact Information

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 results to differ materially, including statements related to supply and demand for data center and colocation space; pricing and net effective leasing economics; market dynamics and data center fundamentals; our strategic priorities, including improving ROIC and our disposition program; rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods; rental rates on future leases; lag between signing and commencement; our joint venture with the GCEAR fund, our expected fees and proceeds from the joint venture, future cash NOI and remaining lease terms related to the joint venture property; cap rates and yields; and the company's FFO, core FFO, "constant currency" core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the impact of current global economic, credit and market conditions; decreases in information technology spending; adverse economic or real estate developments in our industry or the industry sectors that we sell to; risks related to our tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities; financial market fluctuations; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical infrastructure or services or availability of power; risks related to joint venture investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; and changes in laws and regulations, including those related to taxation and real estate ownership and operation. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2014.  The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

 

 

 

 

 

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 and equity acceleration 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 accrual and equity acceleration, gain on sale of property, gain on contribution of properties to unconsolidated joint venture, gain on sale of equity investment, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance accrual and equity acceleration, impairment of investments in real estate, gain on sale of property, gain on contribution of properties to unconsolidated joint venture, gain on sale of equity investment, noncontrolling interests, and preferred stock dividends. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited.  Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs' EBITDA and Adjusted EBITDA.  Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.

Net Operating Income (NOI) and Cash NOI:
Net operating income, or NOI, represents rental revenue and tenant reimbursement revenue less rental property operating and maintenance expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.

Additional Definitions
Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA multiplied by four.

Debt-plus-preferred-to-total-enterprise-value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.

Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended March 31, 2015, GAAP interest expense was $45 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $21 million.

 

 

 

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SOURCE Digital Realty Trust, Inc.