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Digital Realty Reports Fourth Quarter 2019 Results

Cision

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

Highlights

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

Financial Results

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

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

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

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

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

Leasing Activity

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

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

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

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



Annualized GAAP












Base Rent




GAAP Base Rent





GAAP Base Rent

The Americas


(in thousands)


Square Feet


per Square Foot


Megawatts


per Kilowatt

Turn-Key Flex


$34,353



282,393



$122



28.6




$100


Powered Base Building


582



27,460



21







Colocation


5,957



20,768



287



2.0




251


Non-Technical


455



14,694



31







Total


$41,347



345,315



$120



30.6




$110














Europe (1)












Turn-Key Flex


$4,607



19,687



$234



2.2




$174


Colocation


2,020



5,021



402



0.6




303


Non-Technical


61



1,846



33







  Total


$6,688



26,554



$252



2.8




$200














Asia Pacific (1)












Turn-Key Flex


$13,679



91,326



$150



7.9




$145


Colocation


32



92



347






266


Non-Technical


466



8,930



52







  Total


$14,177



100,348



$141



7.9




$145














Interconnection


$6,942



N/A


N/A


N/A



N/A













Grand Total


$69,154



472,217



$132



41.2




$123



Note:  Totals may not foot due to rounding differences.



(1)

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

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

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

Balance Sheet

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

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

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

Non-GAAP Financial Measures

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

Investor Conference Call

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

To participate in the live call, investors are invited to dial (888) 317-6003 (for domestic callers) or (412) 317-6061 (for international callers) and reference the conference ID# 8863535 at least five minutes prior to start time.  A live webcast of the call will be available via the Investors section of Digital Realty's website at https://investor.digitalrealty.com .

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

Contact Information

Andrew P. Power
Chief Financial Officer
Digital Realty
(415) 738-6500

John J. Stewart
Investor Relations
Digital Realty
(415) 738-6500


Consolidated Quarterly Statements of Operations


Unaudited and in Thousands, Except Share and Per Share Data



Three Months Ended


Twelve Months Ended


31-Dec-19

30-Sep-19

30-Jun-19

31-Mar-19

31-Dec-18


31-Dec-19

31-Dec-18

Rental revenues

$549,733


$564,975


$565,925


$585,425


$555,816



$2,266,058


$2,162,370


Tenant reimbursements - Utilities

107,518


114,719


106,409


102,569


102,641



431,215


407,123


Tenant reimbursements - Other

59,641


57,466


62,820


55,868


53,090



235,795


217,514


Interconnection & other

65,576


65,312


64,232


68,168


63,803



263,288


249,706


Fee income

4,814


3,994


925


1,921


2,896



11,654


7,841


Other

181



486


564


21



1,231


1,924


Total Operating Revenues

$787,463


$806,466


$800,797


$814,515


$778,267



$3,209,241


$3,046,478











Utilities

$125,127


$132,565


$123,398


$124,334


$122,108



$505,424


$477,047


Rental property operating

129,034


126,866


128,634


130,620


133,024



515,154


480,018


Property taxes

42,541


38,255


41,482


37,315


32,098



159,593


129,516


Insurance

3,055


3,103


3,441


2,991


2,412



12,590


11,402


Depreciation & amortization

275,008


286,718


290,562


311,486


299,362



1,163,774


1,186,896


General & administration

53,540


49,862


52,318


51,976


38,801



207,696


160,364


Severance, equity acceleration, and legal expenses

1,130


123


665


1,483


602



3,401


3,303


Transaction and integration expenses

17,106


4,115


4,210


2,494


25,917



27,925


45,327


Impairment of investments in real estate




5,351




5,351



Other expenses

1,989


92


7,115


4,922


1,096



14,118


2,818


Total Operating Expenses

$648,530


$641,699


$651,825


$672,972


$655,420



$2,615,026


$2,496,691











Operating Income

$138,933


$164,767


$148,972


$141,543


$122,847



$594,215


$549,787











Equity in earnings of unconsolidated joint ventures

$11,157


($19,269)


$6,962


$9,217


$9,245



$8,067


$32,979


Gain on sale / deconsolidation

267,651




67,497


7



335,148


80,049


Interest and other income

10,734


16,842


16,980


21,444


1,106



66,000


3,481


Interest (expense)

(80,880)


(84,574)


(86,051)


(101,552)


(84,883)



(353,057)


(321,529)


Tax benefit (expense)

1,731


(4,826)


(4,634)


(4,266)


5,843



(11,995)


(2,084)


Loss from early extinguishment of debt


(5,366)


(20,905)


(12,886)


(1,568)



(39,157)


...