10-QPeriod: Q2 FY2018

DIGITAL REALTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 7, 2018For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) reported its second-quarter 2018 financial results, showcasing continued growth and strategic execution. The company's portfolio expanded to 198 data centers, encompassing approximately 32.6 million rentable square feet, including significant space under active development and held for future development. This expansion, notably bolstered by the September 2017 acquisition of DuPont Fabros Technology, Inc. (DFT), positions DLR to meet the escalating demand for data center solutions. Financially, DLR demonstrated strong revenue growth, with total operating revenues increasing by 32.7% for the six months ended June 30, 2018, compared to the prior year, driven by both stabilized and developing properties, particularly those acquired through the DFT merger. While operating expenses and interest expenses also rose, largely due to expansion and the DFT acquisition, the company's overall financial health remains robust, supported by a diversified customer base and strategic capital allocation. DLR's focus on long-term growth in earnings per share, cash flow, and return on invested capital remains central to its strategy.

Financial Highlights

32 data points
Beta

Revenue

$754.92M

Net Income

$85.46M

11.3% Net Margin

EPS (Diluted)

$0.32

Total Assets

$21.41B

Cash & Equivalents

$17.59M

Free Cash Flow

$436.10M

Financial Statements
Beta
Revenue$754.92M
Operating Expenses$610.86M
Operating Income$144.06M
Interest Expense$78.81M
Net Income$85.46M
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)205.96M
Shares Outstanding (Diluted)206.56M

Key Highlights

  • 1Total operating revenues increased significantly by 32.7% to $1.499 billion for the six months ended June 30, 2018, compared to $1.117 billion in the same period of 2017, driven by portfolio growth and the DFT merger.
  • 2The company's data center portfolio grew to 198 properties with approximately 32.6 million rentable square feet as of June 30, 2018, up from 187 properties and 26.4 million rentable square feet in the prior year.
  • 3Depreciation and amortization expenses rose substantially by 65.7% year-over-year for the six-month period, largely attributable to the DFT acquisition and new development projects placed into service.
  • 4Interest expense increased by 37.9% for the six months ended June 30, 2018, reflecting increased debt levels from new note issuances to fund growth and acquisitions.
  • 5DLR generated $673.1 million in net cash from operating activities for the first six months of 2018, a 29.6% increase from the prior year, primarily due to the DFT merger's contribution.
  • 6The company maintained a strong liquidity position with approximately $1.5 billion available under its global revolving credit facility as of June 30, 2018.
  • 7Leasing activity for the first six months of 2018 showed positive trends, with renewal leases for Turn-Key Flex® space increasing by 12.5% on a GAAP basis compared to expiring rents.

Frequently Asked Questions

The primary driver for the substantial increase in revenue and expenses was the acquisition of DuPont Fabros Technology, Inc. (DFT) in September 2017. This acquisition significantly expanded Digital Realty's portfolio and scale, leading to higher rental income, tenant reimbursements, and associated operating expenses, depreciation, and interest expenses.

Digital Realty actively manages its debt by maintaining a mix of fixed and variable rate debt. As of June 30, 2018, approximately 88.1% of its consolidated debt was fixed-rate or subject to interest rate swaps. The company utilizes interest rate swap agreements to mitigate exposure to interest rate fluctuations. Furthermore, they aim for a conservative capital structure with target debt-to-Adjusted EBITDA ratios and fixed charge coverage.

Digital Realty's growth strategy focuses on maximizing long-term earnings and funds from operations per share, cash flow, and return on invested capital. This is achieved through investing in and developing data center properties. Future growth is expected to be funded through a combination of operating cash flow, available credit facilities, debt issuance, and equity issuances by the Parent Company, as well as strategic acquisitions.

As of June 30, 2018, Digital Realty's portfolio was approximately 89.4% leased, excluding space under active development and space held for development. Leases representing approximately 5.2% of the net rentable square footage were scheduled to expire in the second half of 2018. The company reported positive rental rate increases on renewed space, particularly for Turn-Key Flex® and Powered Base Building® products, indicating strong demand and pricing power in key markets.