10-QPeriod: Q2 FY2019

DIGITAL REALTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 7, 2019For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) reported its financial results for the quarter ending June 29, 2019. The company continues its strategic focus on expanding its global data center portfolio, with significant ongoing development and acquisition activities. While total operating revenues saw an increase year-over-year, driven by stabilized properties and new leasing, the company also experienced higher operating expenses and interest expenses, impacting net income. Key to DLR's strategy is its commitment to a diversified and growing global footprint, evidenced by its portfolio of 220 data centers. The company is actively managing its capital structure with a target debt-to-Adjusted EBITDA ratio below 5.5x and is navigating global economic uncertainties and foreign currency risks. Investors should note the company's substantial investments in development projects, which are crucial for future growth but also represent ongoing capital deployment. The company's ability to lease this development space at favorable rates will be a key driver of future performance.

Financial Highlights

32 data points
Beta

Revenue

$800.80M

Net Income

$60.17M

7.5% Net Margin

EPS (Diluted)

$0.15

Total Assets

$23.43B

Cash & Equivalents

$33.54M

Free Cash Flow

$476.61M

Financial Statements
Beta
Revenue$800.80M
Operating Expenses$651.83M
Operating Income$148.97M
Interest Expense$86.05M
Net Income$60.17M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)208.28M
Shares Outstanding (Diluted)209.44M

Key Highlights

  • 1Total operating revenues increased to $800.8 million for Q2 2019, up from $754.9 million in Q2 2018, driven by rental and other services.
  • 2The company's portfolio expanded to 220 data centers, including 36 in unconsolidated joint ventures, totaling 35.2 million rentable square feet.
  • 3Significant ongoing development activity with 3.3 million square feet under active development and 2.0 million square feet held for development.
  • 4Interest expense increased substantially to $86.1 million in Q2 2019 from $78.8 million in Q2 2018, largely due to new debt issuances to fund growth and acquisitions.
  • 5The company incurred a $67.5 million gain on the deconsolidation of Ascenty in the six months ended June 30, 2019, related to the formation of a joint venture.
  • 6Capital expenditures for development projects increased significantly to $657.6 million in the first six months of 2019 from $492.0 million in the prior year period.
  • 7The portfolio occupancy rate was approximately 87.8% as of June 30, 2019, excluding space under development.

Frequently Asked Questions

As of June 30, 2019, Digital Realty operated a global portfolio of 220 data centers, including 36 held in unconsolidated joint ventures, encompassing approximately 35.2 million rentable square feet. The portfolio is geographically diverse, with a significant presence in North America (135 data centers), Europe (40 data centers), Asia Pacific (9 data centers), and Latin America (18 data centers).

The company is committed to maintaining a conservative capital structure, targeting a debt-to-Adjusted EBITDA ratio at or below 5.5x and a fixed charge coverage ratio greater than three times. As of June 30, 2019, Digital Realty had approximately $10.9 billion in outstanding consolidated debt, with about 85.7% being fixed-rate debt (including interest rate swaps). They have also been active in issuing new debt and managing maturities to optimize their capital stack.

Revenue growth is primarily driven by leasing new space, renewing existing leases, and organic growth within the stabilized portfolio. The company is actively developing new space, which represents a significant growth opportunity. However, risks include potential decreases in demand for data center space, increased competition, rising operating costs (especially utilities), foreign currency fluctuations, and economic downturns that could impact customer ability to pay or renew leases.

Digital Realty's growth strategy centers on investing in and developing high-quality, strategically located data centers globally. They are actively developing new space and acquiring land for future development. The company aims to achieve superior risk-adjusted returns, prudently allocate capital, and drive revenue growth through operational efficiencies and expanding their global reach.