Attached files

file filename
8-K - 8-K - DIGITAL REALTY TRUST, INC.d721090d8k.htm
EX-99.2 - EX-99.2 - DIGITAL REALTY TRUST, INC.d721090dex992.htm

Exhibit 99.1

 

LOGO   

4 Embarcadero Center, Suite 3200

San Francisco, CA 94111 USA

Tel: +1 415 738 6500 Fax: +1 415 738 6501

www.digitalrealty.com

 

A. William Stein    John J. Stewart
Interim Chief Executive Officer    Senior Vice President
and Chief Financial Officer    Investor Relations
Digital Realty Trust, Inc.    Digital Realty Trust, Inc.
+1 (415) 738-6500    +1 (415) 738-6500

DIGITAL REALTY REPORTS FIRST QUARTER 2014 RESULTS

San Francisco, Calif. (May 6, 2014) – Digital Realty Trust, Inc. (NYSE: DLR), the leading global provider of data center solutions, announced today financial results for the first quarter of 2014. All per share results are shown on a diluted share and unit basis.

Highlights

 

   

Reported FFO per share of $1.22 in 1Q14, up 5% from $1.16 in 1Q13;

 

   

Reported core FFO per share of $1.28 in 1Q14, up 8% from $1.18 in 1Q13;

 

   

Signed leases during 1Q14 expected to generate $47 million in annualized GAAP rental revenue (including a direct lease with a former sub-tenant representing approximately $12 million of annualized GAAP rental revenue);

 

   

Contributed a fully-leased, 108,000 square foot data center located in Somerset, NJ to the existing Digital Realty / Prudential Real Estate Investors joint venture at a valuation of approximately $40 million, representing a 7.1% cap rate (including debt prepayment penalty as well as closing costs);

 

   

Completed the sale of 14.6 million shares of 7.375% Series H Cumulative Redeemable Preferred Stock, including partial exercise of the underwriters’ over-allotment option, raising net proceeds of $353 million;

 

   

Closed a £300 million 9.5-year senior unsecured notes offering with a coupon of 4.75% per annum; and

 

   

Raised 2014 core FFO per share outlook to $4.80-$4.90 from the prior range of $4.75-$4.90.

Financial Results

Revenues were $391 million for the first quarter, a 3% increase over the previous quarter and a 9% increase over the same quarter last year.

Adjusted EBITDA was $234 million for the first quarter, a 3% increase over the previous quarter and a 9% increase over the same quarter last year.

Funds from operations (“FFO”) on a diluted basis was $168 million in the first quarter of 2014, or $1.22 per share, compared to $1.26 per share in the fourth quarter of 2013 and $1.16 per share in the first quarter of 2013.

First quarter 2014 results include a severance charge of approximately $12 million, or $0.09 per share, related to the departure of the company’s former Chief Executive Officer.

Excluding the severance charge and certain items that do not represent core expenses or revenue streams, first quarter 2014 core FFO was $1.28 per share compared to $1.26 per share in the fourth quarter of 2013 and $1.18 per share in the first quarter of 2013.

Net income for the first quarter of 2014 was $47 million, and net income available to common stockholders was $34 million, or $0.26 per diluted share, compared to $0.33 per diluted share in the fourth quarter of 2013 and $0.34 per diluted share in the first quarter of 2013.

 

1


LOGO

 

Leasing Activity

“We signed new leases totaling $47 million of annualized GAAP rental revenue, including a $12 million direct lease with a former sub-tenant, during what is typically a seasonally-slow leasing quarter,” commented Interim Chief Executive Officer Bill Stein. “Our mid-market initiative continues to gain traction, and we signed over $4 million of colocation revenue during the first quarter. Pricing is generally stable-to-slightly-improving across product types and regions. We are pleased by the strong underlying demand, consistent leasing execution and gradually improving data center fundamentals.”

The weighted-average lag between leases signed during the first quarter and the contractual commencement date was a little over six months.

In addition to the new leases signed, Digital Realty also signed renewal leases representing $15 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the first quarter of 2014 were flat on a cash basis and rolled up 13.5% on a GAAP basis.

New leases signed during the first quarter of 2014 by region and product type are summarized as follows:

 

     Annualized GAAP Rent
(in thousands)
     Square Feet      GAAP Rent / Sq. Ft.      MW      GAAP Rent /kW  

North America

              

Turn-Key Flex

   $ 12,376         76,017       $ 163         6.7       $ 154   

Powered Base Building

     12,040         160,632         75         —           —     

Colocation

     3,347         20,139         166         1.4         202   

Non-Technical

     375         30,962         12         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 28,138         287,750       $ 98         8.1       $ 162   

Europe(1)

              

Turn-Key Flex

   $ 3,560         17,821       $ 200         1.6       $ 183   

Colocation

     788         4,048         195         0.3         222   

Non-Technical

     106         2,515         42         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 4,454         24,384       $ 183         1.9       $ 189   

Asia Pac(1)

              

Turn-Key Flex

   $ 13,817         53,572       $ 258         6.2       $ 185   

Colocation

     —           —           —           —           —     

Non-Technical

     175         2,900         60         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,992         56,472       $ 248         6.2       $ 185   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Grand Total

   $ 46,584         368,606       $ 126         16.2       $ 174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Based on quarterly average exchange rates during the three months ended March 31, 2014.

Investment Activity

In March 2014, the company contributed a fully-leased, 108,000 square foot data center located in Somerset, NJ to the existing Digital Realty / Prudential Real Estate Investors joint venture at a valuation of approximately $40 million, generating a $1.9 million gain, and representing a 7.1% cap rate (including prepayment penalty as well as closing costs).

Subsequent to the end of the quarter, the company sold a single-tenant asset to the user for approximately $42 million, generating net proceeds of approximately $38 million. The company expects to recognize a gain on this sale of approximately $16 million in the second quarter of 2014.

 

2


LOGO

        

 

Balance Sheet

Digital Realty had $5 billion of total debt outstanding as of March 31, 2014, comprised of $4.5 billion of unsecured debt and approximately $550 million of secured debt. At the end of the first quarter, net debt-to-adjusted EBITDA was 5.3x, debt-plus-preferred-to-total-enterprise-value was 46.3% and fixed charge coverage was 3.5x.

In March and April 2014, Digital Realty completed the sale of 14.6 million shares of 7.375% Series H Cumulative Redeemable Preferred Stock, including partial exercise of the underwriter’s over-allotment option, raising net proceeds of $353 million. In April, the company also closed a £300 million 9.5-year senior unsecured notes offering, interest on which is payable semiannually in arrears at a rate of 4.75% per annum.

In mid-April, Digital Realty redeemed $5.2 million of its 5.50% exchangeable senior debentures due 2029 at a price equal to 100% of the principal amount plus accrued and unpaid interest. In connection with the redemption, the company issued 6.7 million shares of restricted common stock in exchange for the $261.2 million remaining principal amount of the 2029 debentures pursuant to the holders’ exercise of their exchange right.

Revised 2014 Outlook

Digital Realty raised its 2014 core FFO per share outlook to $4.80-$4.90 up from the prior range of $4.75-$4.90. The assumptions underlying this guidance are summarized as follows.

 

     As of January 6, 2014      As of February 24, 2014      As of May 6, 2014  

Internal Growth

        

Rental Rates on Renewal Leases

        

Cash Basis

     Roughly flat         Roughly flat         Roughly flat   

GAAP Basis

     Modestly positive         Modestly positive         Modestly positive   

Year-end portfolio occupancy

     N/A         N/A         92.0%-93.0%   

“Same-capital” cash NOI growth(1)

     N/A         N/A         4.0%-5.0%   

Operating Margin

     25-75 bps < historical run-rate         25-75 bps < historical run-rate         25-75 bps < historical run-rate   

Incremental Revenue

from Speculative Leasing(2)

     $20-$30 million         $20-$30 million         $10-$15 million   

Overhead Load(3)

     75-85 bps on total assets         75-85 bps on total assets         75-85 bps on total assets   

External Growth

        

Acquisitions

        

Dollar Volume

     $0-$400 million         $0-$400 million         $0-$400 million   

Cap Rate

     7.5%-8.5%         7.5%-8.5%         7.5%-8.5%   

Joint Ventures

        

Dollar Volume

     $0-$400 million         $0-$400 million         $40-$400 million   

Cap Rate

     6.75%-7.25%         6.75%-7.25%         6.75%-7.25%   

Development

        

CapEx

     $600-$800 million         $600-$800 million         $600-$800 million   

Average Stabilized Yields

     10%-12%         10%-12%         10%-12%   

 

3


LOGO

 

Enhancements and Other Non-recurring CapEx(4)

     $85-$90 million         $85-$90 million         $85-$90 million   

Recurring CapEx + Capitalized
Leasing Costs
(5)

     $75-$80 million         $75-$80 million         $75-$80 million   

Balance Sheet

        

Preferred Equity

        

Dollar Amount

     $100-$250 million         $100-$250 million         $365 million   

Pricing

     8.0%-8.5%         8.0%-8.5%         7.375%   

Timing

     Early 2014         Early 2014         Early 2014   

Long-Term Debt

        

Dollar Amount

     $700-$900 million         $700-$900 million         $700-$900 million   

Pricing

     4.75%-5.50%         4.75%-5.50%         4.75%-5.50%   

Timing

     Early 2014         Early 2014         Mid-2014   

Core Funds From Operations

        

$ / Share

     $4.75-$4.90         $4.75-$4.90         $4.80-$4.90   
(1) The “same-capital” pool includes properties owned as of December 31, 2012 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 2013-2014. NOI is defined as rental revenue and tenant reimbursement revenue less rental property operating and maintenance expenses, property taxes and insurance expenses (as reflected in the statement of operations), and cash NOI is NOI less straight-line rents and above- and below-market rent amortization.
(2) Incremental revenue from speculative leasing represents revenue expected to be recognized in the current year from leases that have not yet been signed.
(3) Overhead load is defined as General & Administrative expense divided by Total Assets.
(4) Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives, the build-out of an additional sub-station or installation of a new security system, in addition to major remediation costs on recently-acquired properties, whether or not contemplated in the original acquisition underwriting. Other non-recurring CapEx also includes infrequent and major component replacements.
(5) 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 and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a definition of FFO, a reconciliation from FFO to core FFO, and a definition of core FFO are included as an attachment to this press release. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA, a definition of debt plus preferred to total enterprise value, and a definition of fixed charge coverage ratio are included as an attachment to this press release.

Investor Conference Call

Prior to Digital Realty’s conference call today at 5:30 p.m. EDT / 2:30 p.m. PDT, Digital Realty will post a presentation to the Investors section of the company’s website at http://investor.digitalrealty.com. The presentation is designed to accompany the discussion of its first quarter 2014 financial results and operating performance. The conference call will feature: Interim Chief Executive Officer and Chief Financial Officer A. William Stein; Chief Investment Officer Scott Peterson; Senior Vice President of Sales & Marketing Matt Miszewski; and Vice President of Finance Matt Mercier.

To participate in the live call, investors are invited to dial +1 (877) 870-4263 (for domestic callers) or +1 (412) 317-0790 (for international callers) at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty’s website at http://investor.digitalrealty.com.

 

4


LOGO

 

Telephone and webcast replays will be available until 9:00 a.m. EDT on June 4, 2014. The telephone replay can be accessed one hour after the call by dialing +1 (877) 344-7529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 10043944. The webcast replay can be accessed on Digital Realty’s website immediately after the live call has concluded.

About Digital Realty

Digital Realty Trust, Inc. focuses on delivering customer-driven data center solutions by providing secure, reliable and cost-effective facilities that meet each customer’s unique data center needs. Digital Realty’s customers include domestic and international companies across multiple industry verticals ranging from financial services, cloud and information technology services, to manufacturing, energy, health care and consumer products. Digital Realty’s 131 properties, including 13 properties held as investments in unconsolidated joint ventures, comprise approximately 24.5 million square feet as of March 31, 2014, including 1.3 million square feet of space under active development and 1.4 million square feet of space held for future development. Digital Realty’s portfolio is located in 33 markets throughout North America, Europe, Asia and Australia. Additional information about Digital Realty is included in the Company Overview, which is available on the Investors page of Digital Realty’s website at http://www.digitalrealty.com.

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; leasing demand, volume and pipeline; data center fundamentals; 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; our contribution of the Somerset, NJ property to our unconsolidated joint venture; cap rates and yields; and the company’s revised 2014 FFO, 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 our geographic markets; 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 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; 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, as amended, for the year ended December 31, 2013. 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.

 

5


LOGO

 

Digital Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(in thousands, except share and per share data)

(unaudited)

 

     Three Months Ended  
     March 31, 2014     March 31, 2013  

Operating Revenues:

    

Rental

   $ 305,786      $ 281,399   

Tenant reimbursements

     83,621        75,917   

Fee income

     1,183        806   

Other

     —          248   
  

 

 

   

 

 

 

Total operating revenues

     390,590        358,370   
  

 

 

   

 

 

 

Operating Expenses:

    

Rental property operating and maintenance

     117,896        105,480   

Property taxes

     22,125        21,042   

Insurance

     2,422        2,205   

Construction management

     164        384   

Change in fair value of contingent consideration

     (3,403     1,300   

Depreciation and amortization

     130,620        111,623   

General and administrative

     30,678        15,951   

Transactions

     81        1,763   

Other

     —          36   
  

 

 

   

 

 

 

Total operating expenses

     300,583        259,784   
  

 

 

   

 

 

 

Operating income

     90,007        98,586   

Other Income (Expenses):

    

Equity in earnings of unconsolidated joint ventures

     2,581        2,335   

Gain on contribution of property to unconsolidated joint venture

     1,906        —     

Interest and other income

     1,727        41   

Interest expense

     (47,374     (48,078

Tax expense

     (1,838     (1,203

Loss from early extinguishment of debt

     (292     —     
  

 

 

   

 

 

 

Net Income

     46,717        51,681   

Net income attributable to noncontrolling interests

     (805     (970
  

 

 

   

 

 

 

Net Income Attributable to Digital Realty Trust, Inc.

     45,912        50,711   

Preferred stock dividends

     (11,726     (8,054
  

 

 

   

 

 

 

Net Income Available to Common Stockholders

   $ 34,186      $ 42,657   
  

 

 

   

 

 

 

Net income per share available to common stockholders:

    

Basic

   $ 0.27      $ 0.34   

Diluted

   $ 0.26      $ 0.34   

Weighted average shares outstanding:

    

Basic

     128,535,995        126,445,285   

Diluted

     129,136,961        126,738,339   

 

6


LOGO

 

Digital Realty Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

 

     March 31, 2014     December 31, 2013  
ASSETS    (unaudited)        

Investments in real estate

    

Properties:

    

Land

   $ 685,640      $ 693,791   

Acquired ground leases

     14,680        14,618   

Buildings and improvements

     8,834,693        8,680,677   

Tenant improvements

     490,697        490,492   
  

 

 

   

 

 

 

Total investments in properties

     10,025,710        9,879,578   

Accumulated depreciation and amortization

     (1,665,421     (1,565,996
  

 

 

   

 

 

 

Net investments in properties

     8,360,289        8,313,582   

Investment in unconsolidated joint ventures

     81,411        70,504   
  

 

 

   

 

 

 

Net investments in real estate

     8,441,700        8,384,086   

Cash and cash equivalents

     70,242        56,808   

Accounts and other receivables, net

     181,433        181,163   

Deferred rent

     415,515        393,504   

Acquired above market leases, net

     49,521        52,264   

Acquired in place lease value and deferred leasing costs, net

     479,940        489,456   

Deferred financing costs, net

     34,295        36,475   

Restricted cash

     42,842        40,362   

Assets held for sale

     25,070        —     

Other assets

     64,836        51,627   
  

 

 

   

 

 

 

Total Assets

   $ 9,805,394      $ 9,685,745   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Global revolving credit facility

   $ 790,500      $ 724,668   

Unsecured term loan

     1,026,891        1,020,984   

Unsecured senior notes, net of discount

     2,368,848        2,364,232   

Exchangeable senior debentures

     266,400        266,400   

Mortgage loans, net of premiums

     554,742        585,608   

Accounts payable and other accrued liabilities

     614,645        662,687   

Accrued dividends and distributions

     —          102,509   

Acquired below market leases, net

     123,152        130,269   

Security deposits and prepaid rents

     180,886        181,876   

Liabilities associated with assets held for sale

     3,610        —     
  

 

 

   

 

 

 

Total Liabilities

     5,929,674        6,039,233   
  

 

 

   

 

 

 

Equity:

    

Stockholders' equity

     3,831,233        3,610,516   

Noncontrolling interests

     44,487        35,996   
  

 

 

   

 

 

 

Total Equity

     3,875,720        3,646,512   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 9,805,394      $ 9,685,745   
  

 

 

   

 

 

 

 

7


LOGO

 

Digital Realty Trust, Inc. and Subsidiaries

Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO)

(in thousands, except per share and unit data)

(unaudited)

 

     Three Months Ended  
     March 31, 2014     December 31, 2013     March 31, 2013  

Net income available to common stockholders

   $ 34,186      $ 42,977      $ 42,657   

Adjustments:

      

Noncontrolling interests in operating partnership

     693        849        824   

Real estate related depreciation and amortization (1)

     129,496        125,671        110,690   

Real estate related depreciation and amortization related to investment in unconsolidated joint ventures

     1,628        1,387        833   

Gain on contribution of properties to unconsolidated joint venture

     (1,906     (555     —     
  

 

 

   

 

 

   

 

 

 

FFO available to common stockholders and unitholders (2)

   $ 164,097      $ 170,329      $ 155,004   
  

 

 

   

 

 

   

 

 

 

Basic FFO per share and unit

   $ 1.25      $ 1.30      $ 1.20   

Diluted FFO per share and unit (2)

   $ 1.22      $ 1.26      $ 1.16   

Weighted average common stock and units outstanding

      

Basic

     131,143        130,982        128,888   

Diluted (2)

     138,162        137,891        137,680   

(1) Real estate related depreciation and amortization was computed as follows:

      

Depreciation and amortization per income statement

     130,620        126,776        111,623   

Non-real estate depreciation

     (1,124     (1,105     (933
  

 

 

   

 

 

   

 

 

 
   $ 129,496      $ 125,671      $ 110,690   
  

 

 

   

 

 

   

 

 

 

 

(2) At March 31, 2013, we had 0 series D convertible preferred shares outstanding, as a result of the conversion of all remaining shares on February 26, 2013, which calculates into 1,909 common shares on a weighted average basis for the three months ended March 31, 2013. For the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, we have excluded the effect of dilutive series E, series F, series G and series H 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 and series H preferred stock, as applicable, which we consider highly improbable; if included, the dilutive effect for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013 would be 14,582, 15,372 and 7,161 shares, respectively. In addition, we had a balance of $266,400 of 5.50% exchangeable senior debentures due 2029 that were exchangeable for 6,806, 6,712 and 6,590 common shares on a weighted average basis for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, respectively. See below for calculations of diluted FFO available to common stockholders and unitholders and weighted average common stock and units outstanding.

 

     Three Months Ended  
     March 31, 2014      December 31, 2013      March 31, 2013  

FFO available to common stockholders and unitholders

   $ 164,097       $ 170,329       $ 155,004   

Add: Series D convertible preferred dividends

     —           —           —     

Add: 5.50% exchangeable senior debentures interest expense

     4,050         4,050         4,050   
  

 

 

    

 

 

    

 

 

 

FFO available to common stockholders and unitholders — diluted

   $ 168,147       $ 174,379       $ 159,054   
  

 

 

    

 

 

    

 

 

 

Weighted average common stock and units outstanding

     131,143         130,982         128,888   

Add: Effect of dilutive securities (excluding series D convertible preferred stock and 5.50% exchangeable senior debentures)

     213         197         293   

Add: Effect of dilutive series D convertible preferred stock

     —           —           1,909   

Add: Effect of dilutive 5.50% exchangeable senior debentures

     6,806         6,712         6,590   
  

 

 

    

 

 

    

 

 

 

Weighted average common stock and units outstanding — diluted

     138,162         137,891         137,680   
  

 

 

    

 

 

    

 

 

 

 

8


LOGO

 

Digital Realty Trust, Inc. and Subsidiaries

Reconciliation of Funds From Operations (FFO) to Core Funds From Operations (CFFO)

(in thousands, except per share and unit data)

(unaudited)

 

     Three Months Ended  
     March 31, 2014     December 31, 2013     March 31, 2013  

FFO available to common stockholders and unitholders — diluted

   $ 168,147      $ 174,379      $ 159,054   

Termination fees and other non-core revenues (3)

     (2,047     —          (248

Significant transaction expenses

     81        1,108        1,763   

Loss from early extinguishment of debt

     292        608        —     

Change in fair value of contingent consideration (4)

     (3,403     (1,749     1,300   

Equity in earnings adjustment for non-core items

     843        —          —     

Severance accrual and equity acceleration (5)

     12,430        —          —     

Other non-core expense adjustments (6)

     —          7        36   
  

 

 

   

 

 

   

 

 

 

CFFO available to common stockholders and unitholders — diluted

   $ 176,343      $ 174,353      $ 161,905   
  

 

 

   

 

 

   

 

 

 

Diluted CFFO per share and unit

   $ 1.28      $ 1.26      $ 1.18   
  

 

 

   

 

 

   

 

 

 

 

(3) Includes one-time fees, proceeds and certain other adjustments that are not core to our business.
(4) Relates to earn-out contingency in connection with Sentrum Portfolio acquisition.
(5) Relates to severance charge of approximately $12.4 million, or $0.09 per share and unit, related to the departure of the company’s former Chief Executive Officer.
(6) Includes reversal of accruals and certain other adjustments that are not core to our business.

 

9


LOGO

 

Digital Realty Trust, Inc. and Subsidiaries

Reconciliation of Net Income Available to Common Stockholders to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA

(in thousands)

(unaudited)

 

     Three Months Ended  
     March 31, 2014     December 31, 2013     March 31, 2013  

Net income available to common stockholders

   $ 34,186      $ 42,977      $ 42,657   

Interest

     47,374        45,996        48,078   

Loss from early extinguishment of debt

     292        608        —     

Taxes

     1,838        (473     1,203   

Depreciation and amortization

     130,620        126,776        111,623   
  

 

 

   

 

 

   

 

 

 

EBITDA

     214,310        215,884        203,561   

Change in fair value of contingent consideration

     (3,403     (1,749     1,300   

Severance accrual and equity acceleration

     12,430        —          —     

Gain on contribution of properties to unconsolidated joint venture

     (1,906     (555     —     

Noncontrolling interests

     805        964        970   

Preferred stock dividends

     11,726        11,726        8,054   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 233,962      $ 226,270      $ 213,885   
  

 

 

   

 

 

   

 

 

 

 

10


LOGO

 

A reconciliation of the range of 2014 projected net income to projected FFO and core FFO follows:

 

     Low—High  

Net income available to common stockholders per diluted share

   $ 1.05 - 1.15   

Add:

  

Real estate depreciation and amortization

   $ 3.69   

Less:

  

Dilutive impact of convertible stock

   ($ 0.04
  

 

 

 

Projected FFO per diluted share

   $ 4.70 – 4.80   

Adjustments for items that do not represent core expenses and revenue streams

   $ 0.10   
  

 

 

 

Projected core FFO per diluted share

   $ 4.80 – 4.90   

 

11


LOGO

 

Funds From Operations

Digital Realty calculates 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) available to common stockholders and unitholders (computed in accordance with U.S. GAAP), excluding gains (or losses) from sales of property, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. Digital Realty also believes 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 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 as a measure of our performance.

Core Funds from Operations

We present core funds from operations, or CFFO, 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 CFFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) significant transaction expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) significant property tax adjustments, net and (vi) 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 CFFO as a measure of our performance is limited. Other REITs may not calculate CFFO in a consistent manner. Accordingly, our CFFO may not be comparable to other REITs’ CFFO. CFFO 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 expense, income taxes, 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, straight-line rent expense adjustment attributable to prior periods, change in fair value of contingent consideration, severance accrual and equity acceleration, gain on contribution of properties to unconsolidated joint venture, non-controlling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding straight-line rent expense adjustment attributable to prior periods, change in fair value of contingent consideration, severance accrual and equity acceleration, gain on contribution of properties to unconsolidated joint venture, non-controlling interests, and preferred stock dividends. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited. Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs’ EBITDA and Adjusted EBITDA. Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.

 

12


LOGO

 

Additional Definitions

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

Net 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, scheduled debt principal payments and preferred dividends. For the quarter ended March 31, 2014, GAAP interest expense was $47.4 million and scheduled debt principal payments and preferred dividends was $15.1 million.

 

13