10-QPeriod: Q2 FY2016

DIGITAL REALTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 9, 2016For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) reported its financial results for the period ending June 29, 2016. The company demonstrated revenue growth, driven primarily by its "pre-stabilized and other" properties, largely due to the recent Telx acquisition. This segment saw significant increases in rental and interconnection revenues. However, operating expenses also rose, particularly in rental property operating and maintenance, property taxes, and depreciation and amortization, again heavily influenced by the Telx integration and ongoing development projects. The company continues its strategy of investing in and developing data centers, with a substantial portfolio of 140 properties encompassing approximately 25.8 million rentable square feet, including space under active and future development. DLR maintains a conservative leverage ratio, with debt representing approximately 26% of its total enterprise value as of June 30, 2016. The company also highlighted recent property sales and strategic dispositions, including the sale of a Paris facility and a four-property data center portfolio, aimed at optimizing its real estate assets.

Financial Highlights

31 data points
Beta

Revenue

$514.93M

Net Income

$50.38M

9.8% Net Margin

EPS (Diluted)

$0.19

Total Assets

$11.29B

Cash & Equivalents

$33.24M

Free Cash Flow

$216.02M

Financial Statements
Beta
Revenue$514.93M
Operating Expenses$402.64M
Operating Income$112.30M
Interest Expense$59.91M
Net Income$50.38M
EPS (Basic)$0.19
EPS (Diluted)$0.19
Shares Outstanding (Basic)146.82M
Shares Outstanding (Diluted)147.81M

Key Highlights

  • 1Total operating revenues increased by approximately $94.6 million to $514.9 million for the three months ended June 30, 2016, compared to $420.3 million in the prior year period. For the six months ended June 30, 2016, revenues grew by $192.2 million to $1.02 billion.
  • 2The "Pre-Stabilized and Other" segment revenue surged due to the Telx acquisition, with rental and interconnection revenues contributing significantly, showing an increase of $48.5 million and $46.6 million respectively for the quarter, and $90.5 million and $91.7 million for the six-month period.
  • 3Operating expenses increased by $89.4 million (3 months) and $218.2 million (6 months) primarily due to higher rental property operating and maintenance, property taxes, and depreciation and amortization, largely driven by the Telx acquisition and development projects.
  • 4As of June 30, 2016, DLR owned 140 properties with approximately 25.8 million rentable square feet, including 1.5 million square feet under active development and 1.2 million square feet held for future development.
  • 5The company's debt to total enterprise value ratio was approximately 26% as of June 30, 2016, indicating a conservative leverage position.
  • 6DLR completed several strategic property sales, including a facility in Paris and a four-property portfolio, aiming to optimize its asset base and generate proceeds.
  • 7The company's primary currency exposures are to the British pound sterling, Euro, and Singapore dollar, and it notes the potential impact of the UK's referendum on withdrawal from the European Union on foreign currency exchange rates and global markets.

Frequently Asked Questions

The Telx acquisition significantly boosted revenues in the "Pre-Stabilized and Other" segment. Rental and interconnection revenues saw substantial increases, contributing positively to overall revenue growth. However, this also led to a corresponding rise in operating expenses, including property operating and maintenance, property taxes, and depreciation.

Digital Realty's strategy centers on investing in and developing data centers. As of June 30, 2016, the company owned 140 properties and had significant space under active development (1.5 million sq ft) and held for future development (1.2 million sq ft). They aim to acquire strategically located properties and aggressively manage and lease their assets to increase cash flow.

The company maintains a conservative approach to leverage. As of June 30, 2016, their debt to total enterprise value ratio was approximately 26%. DLR also refinanced its credit facilities in January 2016, securing a $2.0 billion senior unsecured revolving credit facility and a $1.55 billion senior unsecured term loan, indicating a focus on maintaining access to capital while managing its debt profile.

Key risks include global economic and market conditions, particularly the uncertainty following the UK's referendum on leaving the European Union, which could impact financial markets and currency exchange rates. Other risks include tenant defaults, dependence on significant tenants, interest rate fluctuations, increased competition for data center space, and operational risks associated with managing a global portfolio.