10-QPeriod: Q3 FY2018

DIGITAL REALTY TRUST, INC. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 2, 2018For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) reported solid revenue growth for the nine months ended September 30, 2018, with total operating revenues increasing to $2.27 billion from $1.73 billion in the prior year period. This growth was largely driven by the acquisition of DuPont Fabros Technology, Inc. (DFT) in September 2017, which significantly expanded the company's data center footprint. The company continues to focus on its core strategy of investing in, developing, and operating data centers, with a growing portfolio of 198 data centers. Despite overall revenue increases, stabilized rental revenue saw a slight decrease in the third quarter due to lease expirations, though it grew year-over-year for the nine-month period. Significant capital expenditures were noted for development projects, reflecting ongoing investment in future growth. Financially, DLR managed its debt effectively, issuing new notes and refinancing credit facilities. The company maintained a strong focus on liquidity, with substantial availability under its revolving credit facilities. The planned acquisition of Ascenty in Brazil for approximately $1.8 billion, with a joint venture partner Brookfield Infrastructure, was a major strategic initiative highlighted in the report, poised to expand DLR's international presence. Investors should note the company's commitment to maintaining its REIT status, which necessitates distributing a significant portion of its taxable income.

Financial Highlights

32 data points
Beta

Revenue

$768.92M

Net Income

$87.60M

11.4% Net Margin

EPS (Diluted)

$0.33

Total Assets

$21.46B

Cash & Equivalents

$46.24M

Free Cash Flow

$360.76M

Financial Statements
Beta
Revenue$768.92M
Operating Expenses$629.86M
Operating Income$139.06M
Interest Expense$80.85M
Net Income$87.60M
EPS (Basic)$0.33
EPS (Diluted)$0.33
Shares Outstanding (Basic)206.12M
Shares Outstanding (Diluted)206.77M

Key Highlights

  • 1Total operating revenues increased by approximately 31.4% to $2.27 billion for the nine months ended September 30, 2018, compared to $1.73 billion for the same period in 2017, largely due to the acquisition of DuPont Fabros Technology (DFT).
  • 2The company's portfolio grew to 198 data centers, encompassing approximately 33.4 million rentable square feet, including space under development, as of September 30, 2018.
  • 3DLR is pursuing a significant strategic expansion into Latin America with the planned acquisition of Ascenty in Brazil for approximately $1.8 billion, involving a joint venture with Brookfield Infrastructure.
  • 4Interest expense increased by approximately 28.2% to $236.6 million for the nine months ended September 30, 2018, compared to $184.7 million in the prior year, primarily due to new debt issuances to fund growth and acquisitions.
  • 5Capital expenditures for development projects were substantial, totaling $771.3 million for the nine months ended September 30, 2018, reflecting ongoing investment in expanding its data center capacity.
  • 6As of September 30, 2018, DLR had $9.24 billion in outstanding consolidated debt, with 87.1% of it being fixed-rate debt, indicating a strategy to mitigate interest rate risk.
  • 7The company maintained strong liquidity, with approximately $1.4 billion available under its global revolving credit facility as of September 30, 2018.

Frequently Asked Questions

The primary driver of revenue growth was the acquisition of DuPont Fabros Technology, Inc. (DFT) in September 2017, which significantly expanded the company's data center portfolio and operational scale. This acquisition contributed substantially to the increase in total operating revenues from $1.73 billion in the first nine months of 2017 to $2.27 billion in the same period of 2018.

Digital Realty Trust's key strategic initiatives include continued investment in and development of its existing data center portfolio, strategic acquisitions to expand its global footprint, and entering into joint ventures. A major planned initiative highlighted is the acquisition of Ascenty in Brazil, valued at approximately $1.8 billion, which is expected to be a significant step in its international expansion, particularly into Latin America. The company also focuses on leasing development space at favorable rates and maintaining operational efficiencies.

Digital Realty Trust manages its debt by maintaining a significant portion of fixed-rate debt (87.1% as of September 30, 2018) and utilizing interest rate swaps to mitigate exposure to variable interest rates. The company also maintains substantial liquidity, with approximately $1.4 billion available under its global revolving credit facility as of September 30, 2018. Additionally, it has access to capital through debt issuances and equity offerings, supported by a shelf registration statement.

The planned acquisition of Ascenty is a significant strategic move to expand Digital Realty's presence into the growing Brazilian and broader Latin American data center market. The joint venture with Brookfield Infrastructure, where Brookfield will fund 49% of the initial equity investment, helps to share the significant capital required for this acquisition, mitigating risk and leveraging Brookfield's infrastructure expertise while accelerating DLR's global expansion strategy.