10-QPeriod: Q3 FY2019

DIGITAL REALTY TRUST, INC. Quarterly Report for Q3 Ended Sep 30, 2019

Filed November 8, 2019For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust, Inc. (DLR) reported its third-quarter 2019 results, demonstrating continued portfolio growth and strategic development. The company's operational focus remains on maximizing sustainable long-term growth in earnings and funds from operations per share, while prudently allocating capital across its global data center portfolio. Significant development activity is underway, with a substantial amount of space under active construction and held for future development, positioning the company to capitalize on increasing demand for data center services. The company also highlights its ongoing commitment to a conservative capital structure, targeting specific debt-to-Adjusted EBITDA and fixed charge coverage ratios. Despite a slight decrease in stabilized revenue due to currency fluctuations and expiring leases, DLR saw substantial growth in pre-stabilized and other revenues, driven by new leasing and acquisitions. The company's strategic approach includes managing lease expirations effectively, with recent renewal and new lease activity showing positive trends in rental rate changes, particularly for Powered Base Building products. The report also details the company's capital resources, including debt management and plans for future investment, underscoring a focus on maintaining REIT status and funding ongoing operations and growth initiatives.

Financial Highlights

32 data points
Beta

Revenue

$806.47M

Net Income

$66.50M

8.2% Net Margin

EPS (Diluted)

$0.24

Total Assets

$23.17B

Cash & Equivalents

$7.19M

Free Cash Flow

$284.63M

Financial Statements
Beta
Revenue$806.47M
Operating Expenses$641.70M
Operating Income$164.77M
Interest Expense$84.57M
Net Income$66.50M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)208.42M
Shares Outstanding (Diluted)209.80M

Key Highlights

  • 1Total operating revenues increased by $37.5 million to $806.5 million for the three months ended September 30, 2019, compared to the same period in 2018.
  • 2Rental and other services revenue for stabilized properties increased by 25.9% ($128.5 million) for the three months ended September 30, 2019, year-over-year.
  • 3The company's portfolio expanded to 223 data centers (including 38 in joint ventures) with 36.0 million rentable square feet as of September 30, 2019.
  • 4Significant development activity continues with 3.6 million sq ft under active development and 2.3 million sq ft held for development.
  • 5Average remaining lease term across the portfolio is approximately five years as of September 30, 2019.
  • 6The company's debt to total enterprise value was approximately 27% as of September 30, 2019, indicating a managed leverage profile.
  • 7Digital Realty announced an agreement to combine with InterXion Holding N.V., indicating a significant strategic move towards expansion and enhanced global reach.

Frequently Asked Questions

For the three months ended September 30, 2019, Digital Realty Trust reported total operating revenues of $806.5 million, an increase from $768.9 million in the prior year's comparable period. While stabilized revenue saw a slight decrease due to currency impacts and expiring leases, pre-stabilized and other revenues grew significantly, driven by new leasing and acquisitions. The company also noted an increase in operating expenses, largely due to higher property operating and maintenance costs and general and administrative expenses related to accounting standard adoption.

Digital Realty continues to invest heavily in its development pipeline. As of September 30, 2019, the company had approximately 3.6 million square feet of space under active development and 2.3 million square feet held for development. This includes significant construction in both base building and data center fit-out across North America, Europe, Asia Pacific, and Australia, indicating a strong focus on meeting future demand for data center space.

Digital Realty aims to maintain a conservative capital structure, targeting a debt-to-Adjusted EBITDA ratio at or below 5.5x and fixed charge coverage greater than three times. As of September 30, 2019, the company had approximately $11.0 billion in outstanding consolidated long-term debt, with about 82.1% being fixed-rate debt. The company actively manages its debt maturities and utilizes interest rate swaps to mitigate interest rate exposure. The company also has access to a global revolving credit facility to support its liquidity needs.

Key risks highlighted include general market and economic conditions, foreign currency exchange rate fluctuations, increased competition, dependence on significant customers, potential disruptions in connectivity or power, and the impact of climate change legislation on energy costs. Additionally, the filing extensively discusses the risks associated with the then-pending acquisition of InterXion Holding N.V., including potential dilution to existing shareholders, integration challenges, and financing risks.