Digital Realty Reports Third Quarter 2021 Results

Cision

AUSTIN, Texas, Oct. 26, 2021 /PRNewswire/ -- Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2021. All per-share results are presented on a fully-diluted share and unit basis.

Highlights

• Reported net income available to common stockholders of $0.44 per share in 3Q21, compared to a net loss available to common stockholders of ($0.14) in 3Q20

• Reported FFO per share of $1.54 in 3Q21, compared to $1.19 in 3Q20

• Reported core FFO per share of $1.65 in 3Q21, compared to $1.54 in 3Q20

• Signed total bookings during 3Q21 expected to generate $113 million of annualized GAAP rental revenue, including a $12 million contribution from interconnection

• Raised core FFO per share outlook from $6.45-$6.50 to $6.50-$6.55

Financial Results

Digital Realty reported revenues for the third quarter of 2021 of $1.1 billion, a 4% increase from the previous quarter and an 11% increase from the same quarter last year.

The company delivered third quarter of 2021 net income of $137 million, and net income available to common stockholders of $124 million, or $0.44 per diluted share, compared to $0.45 per diluted share in the previous quarter and ($0.14) per diluted share in the same quarter last year.

Digital Realty generated third quarter of 2021 Adjusted EBITDA of $610 million, a 1% increase from the previous quarter and a 7% increase over the same quarter last year.

The company reported third quarter of 2021 funds from operations of $447 million, or $1.54 per share, compared to $1.78 per share in the previous quarter and $1.19 per share in the same quarter last year.

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered third quarter of 2021 core FFO per share of $1.65, a 7% increase from $1.54 per share in the previous quarter, and a 7% increase from $1.54 per share in the same quarter last year.

Leasing Activity

In the third quarter, Digital Realty signed total bookings expected to generate $113 million of annualized GAAP rental revenue, including a $12 million contribution from interconnection.

"Digital Realty's global platform, broad product spectrum, and significant scale underpinned our strong third quarter results," said Digital Realty Chief Executive Officer A. William Stein. "Record new logo growth and continued strong bookings in the quarter reflect the global adoption of PlatformDIGITAL®, while our robust internal processes enabled us to execute consistently for our growing list of customers."

The weighted-average lag between new leases signed during the third quarter of 2021 and the contractual commencement date was seven months.

In addition to new leases signed, Digital Realty also signed renewal leases representing $223 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the third quarter of 2021 rolled down 5.6% on a cash basis and down 3.3% on a GAAP basis.

New leases signed during the third quarter of 2021 are summarized by region as follows:

		Annualized GAAP
		Base Rent					GAAP Base Rent					GAAP Base Rent
The Americas		(in thousands)			Square Feet		per Square Foot			Megawatts		per Kilowatt
0-1 MW			$11,685		59,887			$195		4.3			$226
> 1 MW			37,923		397,759			95		39.5			80
Other (1)			276		5,991			46		—			—
Total			$49,883		463,637			$108		43.8			$94
EMEA (2)
0-1 MW			$15,225		68,285			$223		6.5			$196
> 1 MW			20,988		128,885			163		15.4			114
Other (1)			21		—			-		—			—
Total			$36,234		197,170			$184		21.9			$138
Asia Pacific (2)
0-1 MW			$5,119		10,739			$477		1.4			$296
> 1 MW			9,850		53,946			183		6.0			137
Other (1)			123		1,484			83		—			—
Total			$15,092		66,168			$228		7.4			$168
All Regions (2)
0-1 MW			$32,028		138,911			$231		12.2			$218
> 1 MW			68,761		580,589			118		60.9			94
Other (1)			420		7,475			56		—			—
Total			$101,209		726,975			$139		73.1			$115
Interconnection			$11,636		N/A			N/A		N/A			N/A
Grand Total			$112,845		726,975			$139		73.1			$115

Note: Totals may not foot due to rounding differences.
(1)	Other includes Powered Base Building® shell capacity as well as storage and office space within fully improved data center facilities.
(2)	Based on quarterly average exchange rates during the three months ended September 30, 2021.

Investment Activity

During the third quarter, the existing joint venture between Digital Realty and PGIM Real Estate, the real estate investment management and advisory business of Prudential Financial, completed the sale of a portfolio of 10 data centers in North America for $581 million, representing an exit cap rate of approximately 4.5% on the seven stabilized assets in the portfolio. PGIM Real Estate owned an 80% interest and Digital Realty owned a 20% interest in the joint venture. The transaction generated net proceeds of approximately $347 million, of which Digital Realty's share was approximately $85 million, including a $19 million promote fee.

Separately, Digital Realty closed on the sale of a 56-acre land parcel in Mesa, AZ during the third quarter for approximately $17 million.

Likewise during the third quarter, Digital Realty closed its previously announced joint venture with Brookfield Infrastructure Partners in India. The joint venture enables the expansion of PlatformDIGITAL®, Digital Realty's global data center platform, which supports the evolving data, control and networking demands of global service providers as well as global and local enterprises. Its expansion across India is expected to enable customers to rapidly scale digital transformation by deploying critical infrastructure with a leading global data center provider at the heart of a growing connected data community in India.

Subsequent to quarter-end, Digital Realty reached an agreement to make a strategic investment in AtlasEdge Data Centres, a leading European edge data center provider.

Also subsequent to quarter-end, Digital Realty and Pembani Remgro Infrastructure Fund created a new joint venture which acquired a controlling interest in Medallion Communications, Nigeria's leading colocation and interconnection provider, for approximately $29 million. In addition, Kenyan data center operator iColo, Digital Realty's existing joint venture with Pembani Remgro Infrastructure Fund, closed on the acquisition of a land parcel in Maputo, Mozambique during the third quarter for $3 million.

Balance Sheet

Digital Realty had approximately $14.1 billion of total debt outstanding as of September 30, 2021, comprised of $13.8 billion of unsecured debt and approximately $0.2 billion of secured debt. At the end of the third quarter of 2021, net debt-to-Adjusted EBITDA was 6.0x, debt plus-preferred-to-total enterprise value was 26.1% and fixed charge coverage was 5.8x. Pro forma for settlement of the $950 million forward equity offering completed in September, net debt-to-adjusted EBITDA was 5.6x and fixed charge coverage was 6.0x.

Digital Realty completed the following financing transactions during the third quarter.

• In early July, Digital Realty closed an offering of CHF545 million, or approximately $595 million, of Swiss green bonds with a weighted-average maturity of approximately 6.6 years and a weighted-average coupon of approximately 0.37%.

• In early July, Digital Realty liquidated its remaining stake in Megaport with the sale of 1.95 million shares at a price of A$17.55 per share, generating gross proceeds of A$34 million, or approximately $26 million.

• In late August, Digital Realty issued approximately 0.6 million shares of common stock under the company's at-the-market equity offering program at a weighted average price of $162.20 per share, generating gross proceeds of approximately $95 million.

• In early September, Digital Realty completed an offering of 6,250,000 shares of common stock at a price of $160.50 per share, subject to forward sale agreements. The company expects to receive net proceeds of approximately $950 million (net of fees and estimated expenses) upon full physical settlement of the forward sale agreements, expected to be no later than March 13, 2023.

2021 Outlook

Digital Realty raised its 2021 core FFO per share outlook from $6.45-$6.50 to $6.50-$6.55. The assumptions underlying the outlook are summarized in the following table.

		As of		As of		As of		As of
Top-Line and Cost Structure		February 11, 2021		April 29, 2021		July 29, 2021		October 26, 2021
Total revenue		$4.250 - $4.350 billion		$4.300 - $4.400 billion		$4.325 - $4.425 billion		$4.400 - $4.425 billion
Net non-cash rent adjustments (1)		($10) - ($15) million		($20) - ($25) million		($20) - ($25) million		($20) - ($25) million
Adjusted EBITDA		$2.300 - $2.350 billion		$2.330 - $2.380 billion		$2.350 - $2.400 billion		$2.400 - $2.425 billion
G&A		$365 - $375 million		$380 - $390 million		$380 - $390 million		$380 - $390 million
Internal Growth
Rental rates on renewal leases
Cash basis		Slightly negative		Slightly negative		Slightly negative		Slightly negative
GAAP basis		Slightly positive		Slightly positive		Slightly positive		Slightly positive
Year-end portfolio occupancy		84.0% - 85.0%		84.0% - 85.0%		84.0% - 85.0%		84.0% - 85.0%
"Same-capital" cash NOI growth (2)		(2.5%) - (3.5%)		(2.5%) - (3.5%)		(2.5%) - (3.5%)		(2.5%) - (3.5%)
Foreign Exchange Rates
U.S. Dollar / Pound Sterling		$1.25 - $1.30		$1.30 - $1.38		$1.30 - $1.38		$1.30 - $1.38
U.S. Dollar / Euro		$1.15 - $1.20		$1.15 - $1.20		$1.15 - $1.20		$1.15 - $1.20
External Growth
Dispositions
Dollar volume		$0.6 - $1.0 billion		$0.7 - $1.0 billion		$0.7 - $1.0 billion		$0.7 - $1.0 billion
Cap rate		0.0% - 12.0%		0.0% - 12.0%		0.0% - 12.0%		0.0% - 12.0%
Development
CapEx (3)		$2.0 - $2.3 billion		$2.0 - $2.3 billion		$2.0 - $2.3 billion		$2.0 - $2.3 billion
Average stabilized yields		9.0% - 15.0%		9.0% - 15.0%		9.0% - 15.0%		9.0% - 15.0%
Enhancements and other non-recurring CapEx (4)		$5 - $10 million		$5 - $10 million		$5 - $10 million		$5 - $10 million
Recurring CapEx + capitalized leasing costs (5)		$220 - $230 million		$220 - $230 million		$210 - $220 million		$190 - $200 million
Balance Sheet
Long-term debt issuance
Dollar amount		$1.0 - $1.5 billion		$1.0 - $1.5 billion		$1.8 - $2.0 billion		$1.8 - $2.0 billion
Pricing		1.00%		1.00%		1.00%		1.00%
Timing		Early-to-mid 2021		Early-to-mid 2021		Early-to-mid 2021		Early-to-mid 2021
Net income per diluted share		$1.40 - $1.45		$2.00 - $2.05		$2.20 - $2.25		$2.45 - $2.50
Real estate depreciation and (gain) / loss on sale		$4.90 - $4.90		$4.25 - $4.25		$4.15 - $4.15		$3.95 - $3.95
Funds From Operations / share (NAREIT-Defined)		$6.30 - $6.35		$6.25 - $6.30		$6.35 - $6.40		$6.40 - $6.45
Non-core expenses and revenue streams		$0.10 - $0.15		$0.25 - $0.25		$0.10 - $0.10		$0.10 - $0.10
Core Funds From Operations / share		$6.40 - $6.50		$6.50 - $6.55		$6.45 - $6.50		$6.50 - $6.55

(1)	Net non-cash rent adjustments represent the sum of straight-line rental revenue and straight-line rent expense, as well as the amortization of above- and below-market leases (i.e., ASC 805 adjustments).
(2)	The "same-capital" pool includes properties owned as of December 31, 2019 with less than 5% of total rentable square feet under development. It also excludes properties that were undergoing, or were expected to undergo, development activities in 2020-2021, properties classified as held for sale, and properties sold or contributed to joint ventures for all periods presented.
(3)	Includes land acquisitions.
(4)	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.
(5)	Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing commissions.

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 October 26, 2021, 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 third quarter 2021 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# 0133975 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 November 23, 2021. 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# 10160289. The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty supports the world's leading enterprises and service providers by delivering the full spectrum of data center, colocation and interconnection solutions. PlatformDIGITAL®, the company's global data center platform, provides customers a trusted foundation and proven Pervasive Datacenter Architecture (PDx™) solution methodology for scaling digital business and efficiently managing data gravity challenges. Digital Realty's global data center footprint gives customers access to the connected communities that matter to them with over 280 facilities in 49 metros across 25 countries on six continents. 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

Consolidated Quarterly Statements of Operations Unaudited and Dollars in Thousands, Except Per Share Data
			Three Months Ended															Nine Months Ended
			30-Sep-21			30-Jun-21			31-Mar-21			31-Dec-20			30-Sep-20				30-Sep-21			30-Sep-20
Rental revenues			$773,195			$768,826			$754,544			$754,422			$726,441				$2,296,565			$2,004,256
Tenant reimbursements - Utilities			189,060			169,743			184,973			154,937			155,111				543,776			410,207
Tenant reimbursements - Other			57,666			60,261			59,328			62,084			53,654				177,255			173,227
Interconnection & other			90,983			90,565			89,061			86,424			85,725				270,609			240,988
Fee income			3,255			3,628			2,426			4,722			3,687				9,309			10,492
Other			18,977			165			59			20			50				19,201			1,830
Total Operating Revenues			$1,133,136			$1,093,188			$1,090,391			$1,062,609			$1,024,668				$3,316,715			$2,841,000
Utilities			$209,585			$185,010			$176,046			$169,282			$177,925				$570,642			$467,623
Rental property operating			196,743			198,207			185,733			205,177			180,755				580,682			489,411
Property taxes			55,915			42,795			49,005			42,442			39,732				147,715			126,926
Insurance			4,718			5,703			3,498			3,410			2,926				13,919			9,843
Depreciation & amortization			369,035			368,981			369,733			359,915			365,842				1,107,749			1,006,464
General & administration			97,082			94,956			97,568			101,582			90,431				289,606			243,346
Severance, equity acceleration, and legal expenses			1,377			2,536			2,427			606			920				6,340			5,834
Transaction and integration expenses			13,804			7,075			14,120			19,290			14,953				34,999			87,372
Impairment of investments in real estate			—			—			—			—			6,482				—			6,482
Other expenses			510			2,298			(257)			641			297				2,551			433
Total Operating Expenses			$948,769			$907,561			$897,873			$902,345			$880,263				$2,754,203			$2,443,734
Operating Income			$184,367			$185,627			$192,518			$160,264			$144,405				$562,512			$397,266
Equity in (loss) earnings of unconsolidated joint ventures			40,884			52,143			(23,031)			31,055			(2,056)				...

69,996

(88,684)

Gain on sale / deconsolidation

(635)

499

333,921

1,684

10,410

333,785

315,211

Interest and other (expense) income, net

(2,947)

10,124

(7,186)

(2,747)

4,348

...