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Digital Realty Trust Inc$123.39($.49)(.40%)

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 Digital Realty Reports Fourth Quarter And Full-Year 2016 Results
   Thursday, February 16, 2017 4:01:00 PM ET

Digital Realty (DLR ), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the fourth quarter and full-year 2016. All per share results are presented on a fully-diluted share and unit basis.

Highlights

-- Reported net income available to common stockholders per share of $0.49 in 4Q16, compared to net loss available to common stockholders per share of ($0.28) in 4Q15

-- Reported net income available to common stockholders per share of $2.20 for the full year of 2016, compared to $1.56 in 2015

-- Reported FFO per share of $1.58 in 4Q16, compared to $0.79 in 4Q15

-- Reported FFO per share of $5.67 for the full year of 2016, compared to $4.85 in 2015

-- Reported core FFO per share of $1.43 in 4Q16, compared to $1.38 in 4Q15

-- Reported core FFO per share of $5.72 for the full year of 2016, compared to $5.26 in 2015

-- Signed total bookings during 4Q16 expected to generate $33 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection, bringing the full-year 2016 total bookings to $157 million

-- Reiterated 2017 core FFO per share outlook of $5.90 - $6.10 and "constant-currency" core FFO per share outlook of $5.95 - $6.25

Financial Results

Revenues were $577 million for the fourth quarter of 2016, a 6% increase from the previous quarter and a 15% increase over the same quarter last year. For the full-year 2016, revenues were $2.1 billion, a 21% increase over the prior year.

Net income for the fourth quarter of 2016 was $96 million, and net income available to common stockholders was $78 million, or $0.49 per diluted share, compared to $1.25 per diluted share in the third quarter of 2016 and net loss available to common stockholders per diluted share of ($0.28) in the fourth quarter of 2015. For the full-year 2016, net income was $432 million and net income available to common shareholders was $332 million, or $2.20 per share, compared to $1.56 per share for 2015.

Adjusted EBITDA was $312 million for the fourth quarter of 2016, a 2% increase from the previous quarter and an 8% increase over the same quarter last year. Adjusted EBITDA was $1.2 billion for the full-year 2016, an 18% increase over 2015.

Funds from operations ("FFO") on a fully diluted basis was $255 million in the fourth quarter of 2016, or $1.58 per share, compared to $1.31 per share in the third quarter of 2016 and $0.79 per share in the fourth quarter of 2015. FFO per share for the full-year 2016 was $5.67 compared to $4.85 in 2015, a 17% increase.

Excluding certain items that do not represent core expenses or revenue streams, fourth quarter of 2016 core FFO was $1.43 per share, a 1% decline from $1.44 per share in the third quarter of 2016, and a 4% increase from $1.38 per share in the fourth quarter of 2015. Core FFO per share for the full-year 2016 was $5.72 per share compared to $5.26 per share in 2015, a 9% increase.

Leasing Activity

"During the fourth quarter, we signed total bookings representing $33 million of annualized GAAP rental revenue, including a $7 million contribution from interconnection," said Chief Executive Officer A. William Stein. "We capped off a very successful year in 2016. Data center demand remains robust, driven by a diverse set of customers across the digital economy. We made substantial progress towards our strategic initiatives in 2016 and we look forward to building on this momentum in 2017, coming together as one team, oriented around our customers".

The weighted-average lag between leases signed during the fourth quarter of 2016 and the contractual commencement date was 3 months.

In addition to new leases signed, Digital Realty also signed renewal leases representing $47 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the fourth quarter of 2016 rolled up 3.5% on a cash basis and up 5.4% on a GAAP basis.

New leases signed during the fourth quarter of 2016 by region and product type are summarized as follows:

                  Annualized GAAP
                  Base Rent                     GAAP Base Rent             GAAP Base Rent
North America     (in thousands)   Square Feet  per Square Foot Megawatts  per Kilowatt
Turn-Key Flex     $13,770          88,148       $156            8          $144
Colocation        5,984            21,072       284             2          285
Non-Technical     90               2,745        33              --         --
Total             $19,844          111,965      $177            10         $170
Europe (1)
Turn-Key Flex     $1,337           7,919        $169            1          $175
Colocation        1,365            3,846        355             --         340
Non-Technical     249              5,752        43              --         --
Total             $2,951           17,517       $168            1          $232
Asia Pacific (1)
Turn-Key Flex     $2,431           10,934       $222            1          $170
Non-Technical     36               1,359        26              --         --
Total             $2,467           12,293       $201            1          $170
Interconnection   $7,467           N/A          N/A             N/A        N/A
Grand Total       $32,729          141,775      $178            12         $175
Note:  Totals may not foot due to rounding differences.
(1)                         Based on quarterly average exchange rates during the three months ended December 31, 2016.

Investment Activity

Digital Realty did not close any acquisitions, dispositions or joint venture contributions during the fourth quarter of 2016.

Earlier in the year, Digital Realty closed the previously announced acquisition of a portfolio of eight high-quality, carrier-neutral data centers in Europe in a transaction valued at $874 million (based on the exchange rate at the date of announcement). In addition, Digital Realty also acquired four land parcels in Ashburn, VA, Franklin Park, IL and Garland, TX for a total purchase price of $48 million in 2016.

Separately, Digital Realty also completed the sale of six assets in various markets during 2016 for total net proceeds of $360 million.

Balance Sheet

Digital Realty had approximately $5.8 billion of total debt outstanding as of December 31, 2016 substantially all of which was unsecured. At the end of the fourth quarter of 2016, net debt-to-Adjusted EBITDA was 4.8x, debt-plus-preferred-to-total enterprise value was 30.3% and fixed charge coverage was 3.9x.

During the fourth quarter of 2016, Digital Realty pre-paid $108 million of secured debt. Subsequent to year-end, Digital Realty retired the $50 million Series E Prudential Unsecured Senior Notes at maturity in January 2017.

As of year-end, 2.375 million shares remained subject to the forward sales agreement originally entered into during the second quarter of 2016. The remainder of the forward sales agreement is expected to settle no later than May 19, 2017.

2017 Outlook

Digital Realty reiterated its 2017 core FFO per share outlook of $5.90 - $6.10. The assumptions underlying this guidance are summarized in the following table.

                                                  As of                  As of
Top-Line and Cost Structure                       Jan. 3, 2017           Feb. 16, 2017
2017 total revenue                                $2.2 - $2.3 billion    $2.2 - $2.3 billion
2017 net non-cash rent adjustments (1)            ($5 - $10 million)     ($5 - $10 million)
2017 Adjusted EBITDA margin                       57.0% - 59.0%          57.0% - 59.0%
2017 G&A margin                                   6.0% - 7.0%            6.0% - 7.0%
Internal Growth
Rental rates on renewal leases
Cash basis                                        Slightly positive      Slightly positive
GAAP basis                                        Up high single-digits  Up high single-digits
Year-end portfolio occupancy                      +/- 50 bps             +/- 50 bps
"Same-capital" cash NOI growth (2)                2.0% - 3.0%            2.0% - 3.0%
Foreign Exchange Rates
U.S. Dollar / Pound Sterling                      $1.20 - $1.24          $1.20 - $1.24
U.S. Dollar / Euro                                $1.00 - $1.05          $1.00 - $1.05
External Growth
Dispositions
Dollar volume                                     $0 - $200 million      $0 - $200 million
Cap rate                                          0.0% - 10.0%           0.0% - 10.0%
Development
CapEx                                             $0.8 - $1.0 billion    $0.8 - $1.0 billion
Average stabilized yields                         10.0% - 12.0%          10.0% - 12.0%
Enhancements and other non-recurring CapEx (3)    $20 - $25 million      $20 - $25 million
Recurring CapEx + capitalized leasing costs (4)   $125 - $135 million    $125 - $135 million
Balance Sheet
Long-term debt issuance
Dollar amount                                     $400 - $600 million    $400 - $600 million
Pricing                                           3.50% - 4.25%          3.50% - 4.25%
Timing                                            Mid-to-late 2017       Mid-to-late 2017
Net income per diluted share                      $1.60 - $1.75          $1.60 - $1.75
Real estate depreciation and (gain)/loss on sale  $4.20 - $4.20          $4.20 - $4.20
Funds From Operations / share (NAREIT-Defined)    $5.80 - $5.95          $5.80 - $5.95
Non-core expense and revenue streams              $0.10 - $0.15          $0.10 - $0.15
Core Funds From Operations / share                $5.90 - $6.10          $5.90 - $6.10
Foreign currency translation adjustments          $0.05 - $0.15          $0.05 - $0.15
Constant-Currency Core FFO / share                $5.95 - $6.25          $5.95 - $6.25
(1) Net non-cash rent adjustments represents the sum of straight-line rental revenue, straight-line rent expense as well as the amortization of above- and below-market leases (i.e., FAS 141 adjustments).
(2) The "same-capital" pool includes properties owned as of December 31, 2015 with less than 5% of the total rentable square feet under development.  It also excludes properties that were undergoing, or were expected to undergo, development activities in 2016-2017, properties classified as held for sale, and properties sold or contributed to joint ventures for all periods presented.
(3) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software development costs.
(4) Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing commissions.  Capitalized leasing costs include capitalized leasing compensation as well as capitalized internal leasing commissions.

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 reconciliation from FFO to core FFO and constant-currency core FFO, and definitions of FFO, core FFO and constant-currency 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 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 press release.

Investor Conference Call

Prior to Digital Realty’s investor conference call at 5:30 p.m. EST / 2:30 p.m. PST on February 16, 2017, a presentation will be posted 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 fourth quarter 2016 financial results and operating performance. The conference call will feature Chief Executive Officer A. William Stein and Chief Financial Officer Andrew P. Power.

To participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and reference the conference ID# 4875948 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 March 16, 2017. 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# 10097947. 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 more than 2,200 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 contain 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

Andrew P. Power Chief Financial Officer Digital Realty Trust, Inc. +1 (415) 738-6500

John J. Stewart / Maria S. Lukens Investor Relations Digital Realty Trust, Inc. +1 (415) 738-6500

Safe Harbor Statement

This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to supply and demand for data center and colocation space; the settlement of our forward sales agreements; the contribution of interconnection; 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; and the company’s FFO, core FFO, constant-currency core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the geographies in which we operate; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; the impact of the United Kingdom’s referendum on withdrawal from the European Union on global financial markets and our business; our inability to comply with the rules and regulations applicable to reporting companies; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2015, as amended, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Consolidated Quarterly Statements of Operations
Unaudited and in thousands, except share and per share data
                                                             Three Months Ended                                                Twelve Months Ended
                                                             31-Dec-16    30-Sep-16    30-Jun-16    31-Mar-16    31-Dec-15     31-Dec-16    31-Dec-15
Rental revenues                                              $399,062     $395,212     $377,109     $371,128     $365,827      $1,542,511   $1,354,986
Tenant reimbursements - Utilities                            63,956       68,168       62,363       58,955       60,800        253,442      253,017
Tenant reimbursements - Other                                23,853       27,497       25,848       25,263       30,190        102,461      106,858
Interconnection & other                                      55,094       53,897       48,363       46,963       41,746        204,317      40,759
Fee income                                                   1,718        1,517        1,251        1,799        1,880         6,285        6,638
Other                                                        33,104       2            --           91           --            33,197       1,078
Total Operating Revenues                                     $576,787     $546,293     $514,934     $504,199     $500,443      $2,142,213   $1,763,336
Utilities                                                    $76,896      $85,052      $74,396      $69,917      $70,758       $306,261     $272,284
Rental property operating                                    57,269       58,685       54,731       54,109       52,563        224,794      160,511
Repairs & maintenance                                        35,103       33,455       30,421       30,143       32,063        129,122      117,090
Property taxes                                               27,097       20,620       27,449       27,331       28,472        102,497      92,588
Insurance                                                    2,369        2,470        2,241        2,412        2,360         9,492        8,809
Change in fair value of contingent consideration             --           --           --           --           --            --           (44,276)
Depreciation & amortization                                  176,581      178,133      175,594      169,016      172,956       699,324      570,527
General & administrative                                     40,481       43,555       32,681       29,808       29,862        146,525      100,403
Severance, equity acceleration, and legal expenses           672          2,580        1,508        1,448        6,125         6,208        5,146
Transaction and integration expenses                         8,961        6,015        3,615        1,900        3,099         20,491       17,400
Other expenses                                               236          (22)         --           (1)          60,914        213          60,943
Total Operating Expenses                                     $425,665     $430,543     $402,636     $386,083     $459,172      $1,644,927   $1,361,425
Operating Income                                             $151,122     $115,750     $112,298     $118,116     $41,271       $497,286     $401,911
Equity in earnings of unconsolidated joint ventures          $4,742       $4,152       $4,132       $4,078       $3,321        $17,104      $15,491
Gain (loss) on real estate transactions                      (195)        169,000      --           1,097        322           169,902      94,604
Interest and other income                                    (970)        355          (3,325)      (624)        498           (4,564)      (2,381)
Interest (expense)                                           (56,226)     (63,084)     (59,909)     (57,261)     (61,717)      (236,480)    (201,435)
Tax (expense)                                                (2,304)      (3,720)      (2,252)      (2,109)      (268)         (10,385)     (6,451)
Loss from early extinguishment of debt                       (29)         (18)         --           (964)        --            (1,011)      (148)
Net Income (Loss)                                            $96,140      $222,435     $50,944      $62,333      ($16,573)     $431,852     $301,591
Net (income) loss attributable to non-controlling interests  (1,065)      (3,247)      (569)        (784)        590           (5,665)      (4,902)
Net Income (Loss) Attributable to Digital Realty Trust, Inc. $95,075      $219,188     $50,375      $61,549      ($15,983)     $426,187     $296,689
Preferred stock dividends                                    (17,393)     (21,530)     (22,424)     (22,424)     (24,056)      (83,771)     (79,423)
Issuance costs associated with redeemed preferred stock      --           (10,328)     --           --           --            (10,328)     --
Net Income (Loss) Available to Common Stockholders           $77,682      $187,330     $27,951      $39,125      ($40,039)     $332,088     $217,266
Weighted-average shares outstanding - basic                  158,956,606  147,397,853  146,824,268  146,565,564  145,561,559   149,953,662  138,247,606
Weighted-average shares outstanding - diluted                159,699,411  149,384,871  147,808,268  147,433,194  145,561,559   150,679,688  138,865,421
Weighted-average fully diluted shares and units              162,059,914  151,764,542  150,210,714  149,915,428  149,100,083   153,085,706  141,726,268
Net income (loss) per share - basic                          $0.49        $1.27        $0.19        $0.27        ($0.28)       $2.21        $1.57
Net income (loss) per share - diluted                        $0.49        $1.25        $0.19        $0.27        ($0.28)       $2.20        $1.56
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-16 30-Sep-16  30-Jun-16 31-Mar-16 31-Dec-15   31-Dec-16  31-Dec-15
Net Income (Loss) Available to Common Stockholders                $77,682   $187,330   $27,951   $39,125   ($40,039)   $332,088   $217,266
Adjustments:
Non-controlling interests in operating partnership                1,154     3,024      457       663       (708)       5,298      4,442
Real estate related depreciation & amortization (1)               173,523   175,332    167,043   166,912   170,095     682,810    563,729
Impairment charge related to Telx trade name                      --        --         6,122     --        --          6,122      --
Unconsolidated JV real estate related depreciation & amortization 2,823     2,810      2,810     2,803     2,867       11,246     11,418
(Gain) loss on real estate transactions                           195       (169,000)  --        (1,097)   (322)       (169,902)  (94,604)
(Gain) on settlement of pre-existing relationship with Telx (2)   --        --         --        --        (14,355)    --         (14,355)
Funds From Operations                                             $255,377  $199,496   $204,383  $208,406  $117,538    $867,662   $687,896
Funds From Operations - diluted                                   $255,377  $199,496   $204,383  $208,406  $117,538    $867,662   $687,896
Weighted-average shares and units outstanding - basic             161,317   149,778    149,227   149,048   148,388     152,360    141,108
Weighted-average shares and units outstanding - diluted (3)       162,060   151,765    150,211   149,915   149,100     153,086    141,726
Funds From Operations per share - basic                           $1.58     $1.33      $1.37     $1.40     $0.79       $5.69      $4.88
Funds From Operations per share - diluted (3)                     $1.58     $1.31      $1.36     $1.39     $0.79       $5.67      $4.85
                                                                  Three Months Ended                                   Twelve Months Ended
Reconciliation of FFO to Core FFO                                 31-Dec-16 30-Sep-16  30-Jun-16 31-Mar-16 31-Dec-15   31-Dec-16  31-Dec-15
Funds From Operations - diluted                                   $255,377  $199,496   $204,383  $208,406  $117,538    $867,662   $687,896
Adjustments:
Termination fees and other non-core revenues (4)                  (33,104)  (2)        --        (91)      --          (33,197)   680
Transaction and integration expenses                              8,961     6,015      3,615     1,900     3,099       20,491     17,400
Loss from early extinguishment of debt                            29        18         --        964       --          1,011      148
Issuance costs associated with redeemed preferred stock           --        10,328     --        --        --          10,328     --
Change in fair value of contingent consideration (5)              --        --         --        --        --          --         (44,276)
Severance, equity acceleration, and legal expenses (6)            672       2,580      1,508     1,448     6,125       6,208      5,146
Bridge facility fees (7)                                          --        --         --        --        3,903       --         3,903
Loss on currency forwards                                         --        --         3,082     --        --          3,082      --
Other non-core expense adjustments (8)                            236       (22)       --        (1)       75,269      213        75,261
Core Funds From Operations - diluted                              $232,171  $218,413   $212,588  $212,626  $205,934    $875,798   $746,158
Weighted-average shares and units outstanding - diluted (3)       162,060   151,765    150,211   149,915   149,100     153,086    141,726
Core Funds From Operations per share - diluted (3)                $1.43     $1.44      $1.42     $1.42     $1.38       $5.72      $5.26
(1)   Real Estate Related Depreciation & Amortization:            Three Months Ended                                   Twelve Months Ended
                                                                  31-Dec-16 30-Sep-16  30-Jun-16 31-Mar-16 31-Dec-15   31-Dec-16  31-Dec-15
Depreciation & amortization per income statement                  $176,581  $178,133   $175,594  $169,016  $172,956    $699,324   $570,527
Non-real estate depreciation                                      (3,058)   (2,801)    (2,429)   (2,104)   (2,861)     (10,392)   (6,798)
Impairment charge related to Telx trade name                      --        --         (6,122)   --        --          (6,122)    --
Real Estate Related Depreciation & Amortization                   $173,523  $175,332   $167,043  $166,912  $170,095    $682,810   $563,729
(2) Included in Other expenses on the Income Statement, offset by the write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million.
(3) For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable.  See above for calculations of diluted FFO available to common stockholders and unitholders and page below for calculations of weighted average common stock and units outstanding.
(4) Includes lease termination fees and certain other adjustments that are not core to our business.
(5) Relates to earn-out contingencies in connection with the Sentrum and Singapore (29A International Business Park) acquisitions.  The Sentrum earn-out contingency expired in July 2015 and the Singapore earn-out contingency will expire in November 2020 and will be reassessed on a quarterly basis.  During 2015, we reduced the fair value of the earnout related to Sentrum by approximately $44.3 million.  The adjustment was the result of an evaluation by management that no additional leases would be executed for vacant space by the contingency expiration date.
(6) Relates to severance and other charges related to the departure of company executives and integration related severance.
(7) Bridge facility fees included in interest expense.
(8) For the quarter ended December 31, 2015, includes write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million.  Includes reversal of accruals and certain other adjustments that are not core to our business.  Construction management expenses are included in Other expenses on the income statement but are not added back to core FFO.
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-16     30-Sep-16     30-Jun-16     31-Mar-16     31-Dec-15      31-Dec-16     31-Dec-15
Core FFO available to common stockholders and unitholders   $232,171      $218,413      $212,588      $212,626      $205,934       $875,798      $746,158
Adjustments:
Non-real estate depreciation                                3,058         2,801         2,429         2,104         2,861          10,392        6,798
Amortization of deferred financing costs                    2,455         2,550         2,643         2,260         2,121          9,909         8,481
Amortization of debt discount/premium                       693           693           689           647           611            2,722         2,296
Non-cash stock-based compensation expense                   3,774         4,041         4,630         3,420         604            15,865        11,748
Straight-line rental revenue                                (5,210)       (6,032)       (5,554)       (7,456)       (9,530)        (24,253)      (50,977)
Straight-line rental expense                                5,096         6,402         5,933         5,655         5,698          23,086        5,944
Above- and below-market rent amortization                   (2,048)       (2,002)       (1,997)       (2,266)       (2,479)        (8,313)       (9,336)
Deferred non-cash tax expense                               (1,279)       (189)         669           637           (757)          (162)         1,546
Capitalized leasing compensation (1)                        (3,644)       (2,795)       (2,455)       (2,695)       (2,563)        (11,589)      (10,216)
Recurring capital expenditures (2)                          (21,246)      (15,252)      (17,914)      (21,064)      (35,386)       (75,476)      (91,876)
Capitalized internal leasing commissions                    (1,835)       (1,786)       (1,677)       (2,024)       (1,460)        (7,322)       (4,081)
AFFO available to common stockholders and unitholders (3)   $211,984      $206,843      $199,985      $191,844      $165,654       $810,656      $616,485
Weighted-average shares and units outstanding - basic       161,317       149,778       149,227       149,048       148,388        152,360       141,108
Weighted-average shares and units outstanding - diluted (4) 162,060       151,765       150,211       149,915       149,100        153,086       141,726
AFFO per share - diluted (4)                                $1.31         $1.36         $1.33         $1.28         $1.11          $5.30         $4.35
Dividends per share and common unit                         $0.88         $0.88         $0.88         $0.88         $0.85          $3.52         $3.40
Diluted AFFO Payout Ratio                                   67.3     %    64.6     %    66.1     %    68.8     %    76.5     %     66.5     %    78.2     %
                                                            Three Months Ended                                                     Twelve Months Ended
Share Count Detail                                          31-Dec-16     30-Sep-16     30-Jun-16     31-Mar-16     31-Dec-15      31-Dec-16     31-Dec-15
Weighted Average Common Stock and Units Outstanding         161,317       149,778       149,227       149,048       148,388        152,360       141,108
Add: Effect of dilutive securities                          743           1,987         984           867           712            726           618
Weighted Avg. Common Stock and Units Outstanding - diluted  162,060       151,765       150,211       149,915       149,100        153,086       141,726
(1) Beginning in the first quarter of 2015, we changed the presentation of certain capital expenditures.  Infrequent expenditures for capitalized replacements and upgrades are now categorized as Recurring capital expenditures (categorized as Enhancements and Other Non-Recurring capital expenditures in 2014).  First-generation leasing costs are now classified as Development capital expenditures (categorized as recurring capital expenditures in 2014). Capitalized leasing compensation for 2015 and 2016 includes only second generation leasing costs.
(2) For a definition of recurring capital expenditures, see our supplemental operating and financial data package.
(3) For a definition and discussion of AFFO, see below.  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 E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and above for calculations of weighted average common stock and units outstanding.
Consolidated Balance Sheets
Unaudited and in thousands, except share and per share data
                                                                                             31-Dec-16    30-Sep-16    30-Jun-16    31-Mar-16    31-Dec-15
Assets
Investments in real estate:
Real estate                                                                                  $10,630,514  $10,607,440  $10,223,946  $10,226,549  $10,066,936
Construction in progress                                                                     732,430      681,189      594,986      720,363      664,992
Land held for future development                                                             195,525      223,236      161,714      156,000      183,445
Investments in Real Estate                                                                   $11,558,469  $11,511,865  $10,980,646  $11,102,912  $10,915,373
Accumulated depreciation & amortization                                                      (2,668,509)  (2,565,368)  (2,441,150)  (2,380,400)  (2,251,268)
Net Investments in Properties                                                                $8,889,960   $8,946,497   $8,539,496   $8,722,512   $8,664,105
Investment in unconsolidated joint ventures                                                  106,402      105,819      105,673      106,008      106,107
Net Investments in Real Estate                                                               $8,996,362   $9,052,316   $8,645,169   $8,828,520   $8,770,212
Cash and cash equivalents                                                                    $10,528      $36,445      $33,241      $31,134      $57,053
Accounts and other receivables (1)                                                           203,938      208,097      165,867      180,456      177,398
Deferred rent                                                                                412,269      412,977      408,193      412,579      403,327
Acquired in-place lease value, deferred leasing costs and other real estate intangibles, net 1,522,378    1,526,563    1,331,275    1,368,340    1,391,659
Acquired above-market leases, net                                                            22,181       24,554       26,785       30,107       32,698
Goodwill                                                                                     752,970      780,099      330,664      330,664      330,664
Restricted cash                                                                              11,508       11,685       18,297       19,599       18,009
Assets associated with real estate held for sale                                             56,097       55,915       222,304      145,087      180,139
Other assets                                                                                 204,354      190,384      110,580      75,489       54,904
Total Assets                                                                                 $12,192,585  $12,299,036  $11,292,375  $11,421,975  $11,416,063
Liabilities and Equity
Global unsecured revolving credit facility                                                   $199,209     $153,189     $88,535      $677,868     $960,271
Unsecured term loan                                                                          1,482,361    1,521,613    1,545,590    1,566,185    923,267
Unsecured senior notes, net of discount                                                      4,153,797    4,238,435    4,252,570    3,662,753    3,712,569
Mortgage loans, net of premiums                                                              3,240        111,750      248,711      249,923      302,930
Accounts payable and other accrued liabilities                                               824,878      823,906      598,610      570,653      608,343
Accrued dividends and distributions                                                          144,194      --           --           --           126,925
Acquired below-market leases                                                                 81,899       86,888       90,823       96,475       101,114
Security deposits and prepaid rent                                                           168,111      163,787      128,802      147,934      138,347
Liabilities associated with assets held for sale                                             2,599        2,820        13,092       4,974        5,795
Total Liabilities                                                                            $7,060,288   $7,102,388   $6,966,733   $6,976,765   $6,879,561
Equity
Preferred Stock:  $0.01 par value per share, 110,000,000 shares authorized:
Series E Cumulative Redeemable Preferred Stock (2)                                           --           --           $277,172     $277,172     $277,172
Series F Cumulative Redeemable Preferred Stock (3)                                           $176,191     $176,191     176,191      176,191      176,191
Series G Cumulative Redeemable Preferred Stock (4)                                           241,468      241,468      241,468      241,468      241,468
Series H Cumulative Redeemable Preferred Stock (5)                                           353,290      353,290      353,290      353,290      353,290
Series I Cumulative Redeemable Preferred Stock (6)                                           242,012      242,012      242,012      242,014      242,014
Common Stock: $0.01 par value per share, 215,000,000 shares authorized (7)                   1,582        1,581        1,460        1,459        1,456
Additional paid-in capital                                                                   5,764,497    5,759,338    4,669,149    4,659,484    4,655,220
Dividends in excess of earnings                                                              (1,547,420)  (1,483,223)  (1,541,265)  (1,440,028)  (1,350,089)
Accumulated other comprehensive (loss) income, net                                           (135,608)    (131,936)    (129,657)    (104,252)    (96,590)
Total Stockholders’ Equity                                                                   $5,096,012   $5,158,721   $4,289,820   $4,406,798   $4,500,132
Non-controlling Interests
Non-controlling interest in operating partnership                                            $29,687      $31,088      $29,095      $31,648      $29,612
Non-controlling interest in consolidated joint ventures                                      6,598        6,839        6,727        6,764        6,758
Total Non-controlling Interests                                                              $36,285      $37,927      $35,822      $38,412      $36,370
Total Equity                                                                                 $5,132,297   $5,196,648   $4,325,642   $4,445,210   $4,536,502
Total Liabilities and Equity                                                                 $12,192,585  $12,299,036  $11,292,375  $11,421,975  $11,416,063
(1) Net of allowance for doubtful accounts of $7,446 and $5,844 as of December 31, 2016 and December 31, 2015, respectively.
(2) Series E Cumulative Redeemable Preferred Stock, 7.000%, $0 and $287,500 liquidation preference, respectively ($25.00 per share), 0 and 11,500,000 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively.
(3) Series F Cumulative Redeemable Preferred Stock, 6.625%, $182,500 and $182,500 liquidation preference, respectively ($25.00 per share), 7,300,000 and 7,300,000 shares issued and outstanding as of December 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015, respectively.
(5) Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $365,000 liquidation preference, respectively ($25.00 per share), 14,600,000 and 14,600,000 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively.
(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, 2016 and December 31, 2015, respectively.
(7) Common Stock: 159,019,118 and 146,384,247 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively.
Reconciliation of Earnings Before Interest, Taxes,                 Three Months Ended
Depreciation & Amortization (EBITDA) (1)
                                                                   31-Dec-16 30-Sep-16  30-Jun-16 31-Mar-16 31-Dec-15
Net Income (Loss) Available to Common Stockholders                 $77,682   $187,330   $27,951   $39,125   ($40,039)
Interest                                                           56,226    63,084     59,909    57,261    61,717
Loss from early extinguishment of debt                             29        18         --        964       --
Tax expense                                                        2,304     3,720      2,252     2,109     268
Depreciation & amortization                                        176,581   178,133    175,594   169,016   172,956
EBITDA                                                             $312,822  $432,285   $265,706  $268,475  $194,902
Severance-related expense, equity acceleration, and legal expenses 672       2,580      1,508     1,448     6,125
Transaction and integration expenses                               8,961     6,015      3,615     1,900     3,099
(Gain) loss on real estate transactions                            195       (169,000)  --        (1,097)   (322)
Non-cash (gain) on lease termination (2)                           (29,205)  --         --        --        --
(Gain) on settlement of pre-existing relationship with Telx        --        --         --        --        (14,355)
Loss on currency forwards                                          --        --         3,082     --        --
Other non-core expense adjustments                                 236       (22)       --        (1)       75,269
Non-controlling interests                                          1,065     3,247      569       784       (590)
Preferred stock dividends                                          17,393    21,530     22,424    22,424    24,056
Issuance costs associated with redeemed preferred stock            --        10,328     --        --        --
Adjusted EBITDA                                                    $312,139  $306,963   $296,904  $293,933  $288,184
(1) For definition and discussion of EBITDA and Adjusted EBITDA, see below.

Definitions

Funds from Operations (FFO):We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, excluding a gain from a pre-existing relationship, 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) transaction expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) change in fair value of contingent consideration, (vi) severance-related expense, equity acceleration, and legal expenses, (vii) bridge facility fees, (viii) loss on currency forwards and (ix) 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.

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) non-cash stock-based compensation expense, (vi) straight-line rent revenue, (vii) straight-line rent expense, (viii) above- and below-market rent amortization, (ix) deferred non-cash tax expense, (x) capitalized leasing compensation, (xi) recurring capital expenditures and (xii) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent manner. 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, change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance related expense, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, loss on currency forwards, other non-core expense adjustments, noncontrolling interests, preferred stock 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; 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, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating expenses, repair and maintenance expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company’s rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs’ NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.

Additional DefinitionsNet 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 September 30, 2016, GAAP interest expense was $63 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $22 million.

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/digital-realty-reports-fourth-quarter-and-full-year-2016-results-300409110.html

SOURCE Digital Realty

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