10-QPeriod: Q1 FY2022

DIGITAL REALTY TRUST, INC. Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 6, 2022For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

Digital Realty Trust (DLR) reported its first quarter 2022 financial results, showcasing steady revenue growth driven by its non-stabilized portfolio and ongoing development pipeline. Total operating revenues increased by 3.4% year-over-year to $1.127 billion. While stabilized revenues saw a slight decrease, this was offset by significant growth in non-stabilized areas, highlighting the company's successful expansion and lease-up activities. The company maintained a strong liquidity position, with substantial cash and cash equivalents and significant borrowing capacity under its global revolving credit facilities. Despite a notable increase in loss from early debt extinguishment due to note redemptions, and higher operating expenses driven by utility costs and expansion, DLR's overall financial health remains robust. The company continues to invest heavily in its development pipeline, with substantial capital expenditures planned for the remainder of 2022, indicating confidence in future demand for data center space. DLR's strategic focus on global reach, prudent capital allocation, and diversification positions it well for continued growth in the digital infrastructure sector.

Financial Highlights

33 data points
Beta

Revenue

$1.13B

Net Income

$73.28M

6.5% Net Margin

EPS (Diluted)

$0.22

Total Assets

$36.68B

Cash & Equivalents

$157.96M

Free Cash Flow

$277.69M

Financial Statements
Beta
Revenue$1.13B
Operating Expenses$986.09M
Operating Income$141.24M
Interest Expense$66.72M
Net Income$73.28M
EPS (Basic)$0.22
EPS (Diluted)$0.22
Shares Outstanding (Basic)285K
Shares Outstanding (Diluted)285K

Key Highlights

  • 1Total operating revenues increased by 3.4% to $1.127 billion for the three months ended March 31, 2022, compared to the same period in 2021.
  • 2Net income available to common stockholders decreased significantly from $372.4 million in Q1 2021 to $63.1 million in Q1 2022, largely due to a substantial decrease in 'Gain on disposition of properties, net' (a gain of $333.9 million in Q1 2021 vs. $2.8 million in Q1 2022).
  • 3Loss from early extinguishment of debt increased to $51.1 million in Q1 2022 from $18.3 million in Q1 2021, primarily due to the redemption of 4.750% Notes due 2025.
  • 4The company made significant investments in its development pipeline, with total capital expenditures of $483.1 million for the three months ended March 31, 2022, an increase from $479.4 million in the prior year period.
  • 5Digital Realty continues to strengthen its liquidity, with $158.0 million in cash and cash equivalents as of March 31, 2022, and approximately $2.8 billion of borrowings available under its global revolving credit facilities.
  • 6The company's weighted-average remaining lease term was approximately five years as of March 31, 2022, indicating a stable recurring revenue base.
  • 7Funds From Operations (FFO) available to common stockholders and unitholders increased by 7.6% to $465.4 million for the three months ended March 31, 2022, compared to $432.4 million in the prior year period, showing operational strength.

Frequently Asked Questions

The substantial decrease in net income available to common stockholders from $372.4 million in Q1 2021 to $63.1 million in Q1 2022 was primarily due to a significant reduction in the 'Gain on disposition of properties, net'. In Q1 2021, the company recognized a gain of $333.9 million from the sale of 11 data centers in Europe, whereas in Q1 2022, this gain was only $2.8 million. This item is highly variable and does not reflect ongoing operational performance.

Digital Realty manages its debt by maintaining a mix of fixed and variable rate debt, with a significant portion (91.0% as of March 31, 2022) effectively fixed through fixed-rate notes or interest rate swaps. The company aims for a debt-to-Adjusted EBITDA ratio at or below 5.5x and a fixed charge coverage of greater than three times. The company also has a weighted average term to initial maturity of approximately 6.0 years for its debt.

Digital Realty's strategy focuses on maximizing sustainable long-term growth in earnings and FFO per share/unit, cash flow, and returns to stockholders. This is achieved through prudent capital allocation, diversification, accelerating global reach, and driving revenue growth and operating efficiencies. A key component of growth is internal development, with substantial capital expenditures planned for ongoing development projects. The company also actively pursues acquisition opportunities and has an at-the-market (ATM) equity program to raise capital for funding growth initiatives, debt repayment, and general corporate purposes.

Digital Realty accounts for its investments in unconsolidated entities using the equity method of accounting. This means the company recognizes its proportionate share of the net income or loss of these entities, rather than consolidating their full financial statements. For Digital Core REIT (DCRU), which is publicly traded, its fair value as of March 31, 2022, was $433 million, but it is still accounted for under the equity method due to significant influence. The company also earns fees for asset and property management services for some of these entities.