Digital Realty Reports Second Quarter 2020 Results

SAN FRANCISCO, July 30, 2020 /PRNewswire/ -- Digital Realty DLR, a leading global provider of cloud- and carrier-neutral data center, colocation and interconnection solutions, announced today financial results for the second quarter of 2020.  All per-share results are presented on a fully-diluted share and unit basis. 

Highlights

• Reported net income available to common stockholders of $0.20 per share in 2Q20, compared to $0.15 in 2Q19
• Reported FFO per share of $1.49 in 2Q20, compared to $1.53 in 2Q19
• Reported core FFO per share of $1.54 in 2Q20, compared to $1.64 in 2Q19
• Signed total bookings during 2Q20 expected to generate $144 million of annualized GAAP rental revenue, including a $12 million contribution from interconnection
• Raised 2020 core FFO per share outlook from $5.90-$6.10 to $6.00-$6.10

Financial Results

Digital Realty reported revenues for the second quarter of 2020 of $993 million, a 21% increase from the previous quarter and a 24% increase from the same quarter last year. 

The company delivered second quarter of 2020 net income of $76 million, and net income available to common stockholders of $54 million, or $0.20 per diluted share, compared to $0.90 per diluted share in the previous quarter and $0.15 per diluted share in the same quarter last year. 

Digital Realty generated second quarter of 2020 adjusted EBITDA of $559 million, a 16% increase from the previous quarter and a 17% increase over the same quarter last year. 

The company reported second quarter of 2020 funds from operations of $415 million, or $1.49 per share, compared to $0.91 per share in the previous quarter and $1.53 per share in the same quarter last year. 

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered second quarter of 2020 core FFO per share of $1.54, a 1% increase from $1.53 per share in the previous quarter, and a 6% decrease from $1.64 per share in the same quarter last year. 

Leasing Activity

In the second quarter, Digital Realty signed total bookings expected to generate $144 million of annualized GAAP rental revenue, including a $12 million contribution from interconnection and an $18 million contribution from the combination with Interxion, which was completed on March 12, 2020. 

"I'm incredibly proud of the way the Digital Realty team has come together during the difficult circumstances of the past several months to maintain steadfast support for our customers around the world, prioritizing health and safety while maintaining service levels," said Digital Realty Chief Executive Officer A. William Stein.  "We continued to seed investments to support our customers' future growth across the Americas, APAC and EMEA, while delivering record current-period bookings, demonstrating the power of our global platform as well as the resiliency of our business.  Looking ahead, we are well positioned to continue to deliver sustainable growth for customers, shareholders and employees, into the second half of 2020 and beyond." 

The weighted-average lag between leases signed during the second quarter of 2020 and the contractual commencement date was seven months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $169 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the second quarter of 2020 rolled down 2.8% on a cash basis and up 7.2% on a GAAP basis. 

New leases signed during the second quarter of 2020 are summarized by region as follows:

Investment Activity

During the second quarter of 2020, Interxion, a leading European provider of carrier- and cloud-neutral colocation data center solutions and a Digital Realty company, acquired a 3.6-acre land parcel in Madrid, Spain for approximately €33 million, or $37 million.  The land parcel is less than one kilometer from Interxion's existing campus in Madrid.  Upon completion, the new facility is expected to support up to 34 megawatts of critical IT capacity and will encompass more than 375,000 square feet.  Commencement of development will be subject to market demand, and delivery will be phased to meet future customer growth requirements. 

Subsequent to quarter-end, Interxion acquired the freehold to the land under its Hanauer Landstraße campus in Frankfurt for €185 million, or approximately $209 million.  The site includes nine Interxion data centers previously subject to leasehold agreements with approximately nine years of remaining lease term, along with Interxion's German headquarters office as well as several buildings currently leased to other customers.  Interxion now owns the freehold to all 15 data centers on its Frankfurt campus. 

Separately, Interxion reached an agreement to acquire an expansion parcel within approximately one kilometre of the Hanauer Landstraße campus for €177 million, or approximately $200 million.  The expansion parcel totals 107,000 square metres that will support the development of up to 180 megawatts of additional IT capacity and will be fully connected to the existing campus.  The purchase is expected to close in two stages, with final transfer of ownership in early 2021.

Subsequent to quarter-end, Digital Realty closed on the sale of a property in Gronigen, the Netherlands for €20 million, or $22 million.  The property is expected to generate 2020 cash net operating income of approximately €1.3 million, or $1.5 million, representing a 6.7% cap rate. 

Balance Sheet

Digital Realty completed the following financing transactions during the second quarter of 2020. 

• In mid-June, Digital Realty closed an offering of €500 million, or approximately $565 million, of 1.250% Euro-denominated notes due 2031.
• Likewise in mid-June, Digital Realty liquidated a portion of its stake in Megaport with the sale of 7.7 million shares at a weighted average price of A$13.36 generating gross proceeds of A$103 million, or approximately $70 million.
• During the second quarter of 2020, Digital Realty issued 4.5 million shares of common stock under the company's at-the-market equity offering program at a weighted average price of $142.43 per share, generating gross proceeds of approximately $645 million.
• Subsequent to quarter-end, Digital Realty announced its intent to redeem all $300 million of its outstanding 3.625% notes due 2022 as well as all $500 million of its outstanding 3.950% notes due 2022.

Digital Realty had approximately $12.4 billion of total debt outstanding as of June 30, 2020, comprised of $12.1 billion of unsecured debt and approximately $0.2 billion of secured debt.  At the end of the second quarter of 2020, net debt-to-adjusted EBITDA was 5.7x, debt plus-preferred-to-total enterprise value was 26.0% and fixed charge coverage was 4.6x.  Pro forma for settlement of the $1 billion forward equity offering, net debt-to-adjusted EBITDA was 5.2x and fixed charge coverage was 4.9x. 

COVID-19

Throughout the COVID-19 global pandemic, Digital Realty's data centers around the world have remained fully operational in accordance with business continuity and pandemic response plans, prioritizing the health and safety of employees, customers and partners while ensuring service levels are maintained.  Digital Realty data centers have been deemed essential operations, allowing for critical personnel to remain in place and continue to provide services and support for customers.  Construction activity has been somewhat delayed in a few markets due to government restrictions in certain locations and/or limited availability of labor.  In some instances, these delays have impacted scheduled delivery dates.  We are monitoring the situation closely and remain in frequent communication with customers, contractors and suppliers.  We have proactively managed our supply chain, and we believe we have acquired the vast majority of the equipment needed to complete our 2020 development activities.  We believe we have ample liquidity to fund our business needs, given the $1 billion available upon physical settlement of the forward equity offering as well as the $505 million of cash on the balance sheet and $2.5 billion of availability under our global revolving credit facilities as of June 30, 2020.  While we have not experienced any significant business disruptions from the COVID-19 pandemic to date, we cannot predict what impact the COVID-19 pandemic may have on our future financial condition, results of operations or cash flows due to numerous uncertainties. 

2020 Outlook

Digital Realty raised its 2020 core FFO per share outlook from $5.90-$6.10 to $6.00-$6.10.  The assumptions underlying the outlook are summarized in the following table. 

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 investor conference call at 5:30 p.m. EDT / 2:30 p.m. PDT on July 30, 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 second quarter 2020 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 (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 0396071 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 https://investor.digitalrealty.com/. 

Telephone and webcast replays will be available after the call until August 30, 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# 10145667.  The webcast replay can be accessed on Digital Realty's website. 

About Digital Realty

Digital Realty 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, please visit digitalrealty.com or follow us on LinkedIn and Twitter. 

Contact Information

Andrew P. Power

Chief Financial Officer

Digital Realty

(415) 738–6500

John J. Stewart / Jim Huseby

Investor Relations

Digital Realty

(415) 738–6500

 

 

 

 

 

 

 

 

 

 

 

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, unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, other non-core adjustments, net, non-controlling 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, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, 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. 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 June 30, 2020, GAAP interest expense was $80 million, capitalized interest was $13 million and scheduled debt principal payments and preferred dividends was $21 million.

 

 

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, 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, 2020 outlook 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;
• increased competition or available supply of data center space;
• decreased rental rates, increased operating costs or increased vacancy rates;
• 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;
• our ability to attract and retain 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;
• information security and data privacy breaches;
• difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;
• 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;
• our inability to attract and retain talent;
• impact on our operations and on the operations of our customers, suppliers and business partners during a pandemic, such as COVID-19;
• environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;
• our inability to comply with rules and regulations applicable to our company;
• Digital Realty Trust, Inc.'s 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;
• 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; 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.  Several additional material risks are discussed in our annual report on Form 10–K for the year ended December 31, 2019, our quarterly report on Form 10-Q for the quarter ended March 31, 2020 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, Digital Realty Trust, the Digital Realty logo, Turn-Key Flex and Powered Base Building are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. 

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