01—Abstract
Summary
Summary of the 8-K filed July 25, 2024. Cited figures are marked; the original filing is the authoritative source.
Digital Realty (DLR) reported Q2 2024 results on July 25, 2024, with GAAP net income available to common stockholders of $70 milliona, or $0.20 per diluted share, down from $0.34 in Q2 2023, largely reflecting a $168 million impairment charge.
Core FFO per share was $1.65b, slightly below $1.68 a year earlier but up from $1.67 in Q1 2024, and FFO per share rose to $1.57 from $1.52. Adjusted EBITDA was $727 million, up 4% year over year. Management reiterated its 2024 Core FFO guidance of $6.60 to $6.75 per share, while lowering its GAAP net income per diluted share outlook to $1.40 to $1.55 from $1.80 to $1.95, driven by the impairment and gains recognized in the period.
Leasing demand remained strong. Signed bookings were expected to generate $164 millionc of annualized GAAP rent, including a $40 million contribution from the 0-1 MW category and $14 million from interconnection. Renewal rental rates rose 4.0% on a cash basis and 7.5% on a GAAP basis.
Stabilized occupancy increased to 83.6% on a same-capital basis, and the company reported 148 record new logos. Management highlighted a 5.3x net debt to Adjusted EBITDA ratio at quarter end, below its target, after raising about $1.65 billiond in net proceeds from a May follow-on equity offering and additional ATM sales. Capital recycling continued during the quarter.
Digital Realty sold a 75% interest in a Chicago hyperscale data center to GI Partners for roughly $388 million in gross proceeds, sold an additional 24.9% stake in a Frankfurt facility for about $125 million, and liquidated its Colovore stake for roughly $35 million. After quarter end, the company acquired two Slough, UK data centers for $200 million, marking its entry into the west London submarket. Investors should weigh strong leasing and balance sheet improvement against the quarterly impairment, the cost of expanding development capital spending, and the sensitivity of earnings to asset sales and foreign exchange.
02—Key points
Key Highlights
- Q2 2024 Core FFO of $1.65 per diluted share versus $1.68 in Q2 2023, while FFO per share rose to $1.57 from $1.52.
- GAAP net income available to common stockholders of $0.20 per diluted share, down from $0.34 a year earlier, mainly due to a $168.3 million impairment provision.
- Full-year 2024 Core FFO per share outlook maintained at $6.60 to $6.75, while the GAAP net income per diluted share outlook was reduced to $1.40 to $1.55 from $1.80 to $1.95.
- Signed bookings expected to generate $164 million of annualized GAAP rent, including $40 million from 0-1 MW and $14 million from interconnection, with renewal rental rates up 4.0% cash and 7.5% GAAP.
- Net debt to Adjusted EBITDA improved to 5.3x from 6.8x a year earlier, supported by $1.65 billion in net proceeds from a May 2024 common stock offering and ATM issuance.
- Stabilized same-capital occupancy rose to 83.6% from 83.1% a year earlier, and the company reported a record 148 new logos.
- Capital recycling included the sale of a 75% interest in a Chicago hyperscale data center for about $388 million gross proceeds, and a 24.9% additional stake in Frankfurt for about $125 million; a $200 million acquisition of two Slough data centers followed after quarter end.
03—Questions
Frequently Asked Questions
Why did GAAP earnings per share decline so sharply compared with last year?
Q2 2024 GAAP net income available to common stockholders was $70 million, or $0.20 per diluted share, versus $0.34 in Q2 2023. The main driver was a $168.3 million provision for impairment recorded this quarter. Gains on sale of investments of $173.7 million partly offset this, but the net result was lower than the prior year. Management's Core FFO, which excludes these items, was $1.65 per share versus $1.68 a year earlier.
Is the 2024 Core FFO guidance still achievable?
Management maintained its 2024 Core FFO per share outlook of $6.60 to $6.75 and the constant-currency Core FFO outlook of the same range. Year-to-date Core FFO through the first half was $3.32 per diluted share. Reaching the guidance range depends on the second-half pace of leasing commencements, backlog conversion, and the timing of dispositions and capital raising.
How strong is the company's leasing demand and pricing power?
Leasing remained robust, with $150 million of new annualized GAAP base rent signed in the quarter across all regions, plus $14 million from interconnection. Renewal leases signed in the quarter increased 4.0% on a cash basis and 7.5% on a GAAP basis. The company also reported record Q2 commencements of $176 million and a weighted-average lag of 20 months between signing and commencement, which means revenue from these leases will be recognized over time.
How has the balance sheet changed, and what does it mean for risk?
Total debt was about $16.3 billion at June 30, 2024, down from about $17.7 billion a year earlier. Net debt to Adjusted EBITDA fell to 5.3x, debt-plus-preferred to total enterprise value was 25.3%, and fixed charge coverage was 4.1x. Unsecured debt represented roughly $15.6 billion of the total. Cash of $2.3 billion at quarter end and a May equity raise improved liquidity, and the company repaid €600 million of notes in April and £250 million in July, reducing near-term maturity exposure.
What is the company's capital recycling strategy and how does it affect growth?
Digital Realty is selling stabilized assets and partial interests, including the Chicago hyperscale stake and the Frankfurt interest, to fund development and reduce leverage. It is also acquiring selectively, such as Amsterdam land and the Slough data centers. The 2024 outlook assumes $1.0 billion to $1.5 billion of dispositions and joint venture capital at 6.0% to 8.0% cap rates, and development capital expenditures of $2.0 billion to $2.5 billion at average stabilized yields of 10% or more. Investors should monitor whether these yields are realized and whether asset sales continue to support funding needs.
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