Digital Realty Trust, Inc. Reports Second Quarter FFO Of $1.22 Per Share, Up 11.9% Over Second Quarter 2012

SAN FRANCISCO, July 26, 2013 /PRNewswire/ — Digital Realty Trust, Inc. (NYSE:DLR, news, filings), a leading global provider of data center solutions, today announced financial results for the second quarter of 2013.  All per share results are on a diluted share and unit basis.

Highlights:

• Reported FFO of $1.22 per share for the second quarter of 2013, up 11.9% from $1.09 per share for the second quarter of 2012.  Excluding certain items that do not represent core expenses or revenue streams in each quarter, second quarter 2013 core FFO was $1.19 per share, up 11.2% from second quarter 2012 core FFO of $1.07 per share;
• Reported net income for the second quarter of 2013 of $59.6 million and net income available to common stockholders of $47.1 million, or $0.37 per share, compared to $0.38 per share for the second quarter of 2012;
• Acquired two properties totaling nearly 354,000 square feet and a three-acre land site for a total purchase price of approximately $39.4 million;
• Since the end of the first quarter, signed leases totaling $35.6 million in annualized GAAP rental revenue, which includes over $16.0 million in annualized GAAP rental revenue of new lease signings in the second quarter of 2013 and an additional $19.6 million in annualized GAAP rental revenue of new lease signings in July;
• Commenced leases during the second quarter of 2013 totaling approximately $24.6 million of annualized GAAP rental revenue;
• Completed the sale of 10.0 million shares of 5.875% Series G Cumulative Redeemable Preferred Stock, including the partial exercise of the underwriters’ over-allotment option, raising net proceeds of approximately $241.6 million; and
• Raised 2013 FFO guidance range to $4.73 to $4.82 per share and narrowed 2013 core FFO guidance to $4.74 to $4.83 per share.

Funds from operations (“FFO”), on a diluted basis, was $167.8 million in the second quarter of 2013, or $1.22 per share, up 5.2% from $1.16 per share in the first quarter of 2013, and up 11.9% from $1.09 per share in the second quarter of 2012.  Excluding certain items that do not represent core expenses or revenue streams, second quarter 2013 core FFO was $1.19 per share, up 0.8% from first quarter 2013 core FFO of $1.18 per share, and up 11.2% from second quarter 2012 core FFO of $1.07 per share.

FFO is a supplemental non-GAAP performance measure used by the real estate industry to measure the operating performance of real estate investment trusts.  FFO and core FFO should not be considered as substitutes for net income determined in accordance with U.S. GAAP as measures of financial performance.  A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a definition of FFO, a reconciliation from FFO to core FFO, and a definition of core FFO are included as an attachment to this press release.

Net income for the second quarter of 2013 was $59.6 million, compared to $51.7 million for the first quarter of 2013 and $54.0 million for the second quarter of 2012.  Net income available to common stockholders in the second quarter of 2013 was $47.1 million, or $0.37 per share, compared to $42.7 million, or $0.34 per share, in the first quarter of 2013, and $42.0 million, or $0.38 per share, in the second quarter of 2012.

The Company reported total operating revenues of $363.5 million in the second quarter of 2013, up 1.4% from $358.4 million in the first quarter of 2013, and up 19.7% from $303.7 million in the second quarter of 2012.

“We are very pleased with our operating performance and second quarter financial results,” said Michael F. Foust, Chief Executive Officer of Digital Realty.  “Our leasing volume and pipeline remain robust despite some lease agreements that we expected to sign in the second quarter ultimately being completed in July.  We are encouraged by the notably strong rental rates we are seeing across the portfolio for new Turn-Key Flex^SM leases and renewals.  We also continue to see strong demand for multi-megawatt, multi-site requirements from our larger enterprise clients, and are positioned to leverage our unique position in the market to capture those opportunities.  We remain confident that our operational expertise, scale, global footprint and financial resources continue to enable us to execute on our strategic plan and enhance shareholder value.”

Leasing Activity

Since the end of the first quarter, the Company signed leases totaling $35.6 million in annualized GAAP rental revenue, which includes over $16.0 million in annualized GAAP rental revenue of new lease signings in the second quarter of 2013 and an additional $19.5 million in annualized GAAP rental revenue of new lease signings in July.

Of the total leases signed during the second quarter of 2013, 111,000 square feet was for space located in the Company’s North American portfolio.  This includes 50,000 square feet of Turn-Key Flex^SM space leased at an average annual GAAP rental rate of $209.00 per square foot, nearly 39,000 square feet of Powered Base Building® space leased at an average annual GAAP rental rate of $23.00 per square foot, over 8,000 square feet of colocation space leased at an average annual GAAP rental rate of $223.00 per square foot, and nearly 14,000 square feet of non-technical space leased at an average annual GAAP rental rate of $24.00per square foot.

Leases signed during the second quarter of 2013 for space in the Company’s European portfolio totaled over 4,000 square feet of Turn-Key Flex space leased at an average annual GAAP rental rate of $188.00 per square foot.

Leases signed during the second quarter of 2013 for space in the Company’s Asia Pacific portfolio totaled over 7,000 square feet of Turn-Key Flex space leased at an average annual GAAP rental rate of $223.00 per square foot, and over 1,000 square feet of non-technical space leased at an average annual GAAP rental rate of$71.00 per square foot.

For the quarter ended June 30, 2013, the Company commenced leases totaling nearly $24.6 million of annualized GAAP rental revenue, including over $1.6 millionof colocation revenue.

Acquisitions Activity

In April 2013, the Company acquired a three-acre land site in London for a previously signed built-to-suit agreement for a purchase price of $3.6 million.  In May 2013, the Company also acquired a six-building portfolio consisting of operating data centers and flex office space totaling 337,000 square feet in Austin, Texas for a purchase price of $31.9 million.  Two of the six buildings, totaling approximately 100,000 net rentable square feet, are operating data centers that are 100% leased to three tenants. The remaining four properties consist of flex office space.

In June 2013, the Company completed a sale leaseback transaction with KPN, a leading Dutch provider of telecommunications and information and communication technologies, for a partially-built data center in Groningen, Netherlands for a purchase price of $3.9 million.  An additional $3.9 million will be paid upon completion of construction which is expected by October 2013.  This initial development will total approximately 16,800 square feet of space.   The entire site is capable of supporting additional development and has the potential capacity for a total of 2.5 megawatts of critical load.

As of June 30, 2013, the Company’s portfolio comprised 127 properties, including three properties held in unconsolidated joint ventures, consisting of 187 buildings totaling approximately 23.7 million net rentable square feet, including 2.8 million square feet of space held for development.  The portfolio is strategically located in 32 key data center markets throughout North America, Europe, Asia and Australia.

Balance Sheet Update

Total assets grew to approximately $9.2 billion at June 30, 2013 from $9.0 billion at March 31, 2013.  Total debt remained at $4.7 billion at June 30, 2013 as compared to March 31, 2013. Stockholders’ equity was approximately $3.5 billion at June 30, 2013, compared to $3.3 billion at March 31, 2013.

On April 9, 2013, the Company completed the sale of 10.0 million shares of its 5.875% Series G Cumulative Redeemable Preferred Stock, including the partial exercise of the underwriters’ over-allotment option, raising net proceeds of approximately $241.6 million.

“We continue to maintain a disciplined approach to managing our balance sheet, which includes a positive-spread-to-investment approach to our acquisitions and leasing and development programs,” said A. William Stein, CFO and Chief Investment Officer of Digital Realty.  “At the same time, we remain committed to our strategy of accessing capital from multiple sources to support the growth of our global platform.”

The Company is raising its 2013 FFO guidance range to $4.73 to $4.82 per share from $4.65 to $4.80 per share, and is narrowing 2013 core FFO guidance range to $4.74 to $4.83 per share from $4.70 to $4.85 per share. The 2013 guidance provided by Digital Realty in this press release is based on the following assumptions as of July 26, 2013:

• Data center space delivered representing approximately $986 million generating ROI of 10% – 12%;
• Digital Design Services revenue of $2 – $4 million;
• Acquisitions of income producing properties totaling $300 – $400 million at an average cap rate of 7.25% – 7.75%;
• Development and redevelopment capital expenditures of $850 – $950 million;
• Portfolio capital expenditures of $60 – $75 million;
• Total G&A expenses of $65 – $68 million;
• Transaction expenses of $6 – $9 million; and
• FX rates (USD per currency): Euro = 1.27; Pound = 1.48; SGD = 0.81; AUS = 0.90.

Investor Conference Call Details

Digital Realty will host a conference call on Friday, July 26, 2013 at 10:00 am PT / 1:00 pm ET to discuss its second quarter 2013 financial results and operating performance.  The conference call will feature Chief Executive Officer, Michael F. Foust, and Chief Financial Officer and Chief Investment Officer, A. William Stein. To participate in the live call, investors are invited to dial +1 (888) 701-6680 (for domestic callers) or +1 (706) 634-5758 (for international callers) and quote the conference ID # 12508897 at least five minutes prior to start time.  A live webcast of the call will be available via the Investors section of Digital Realty’s website atwww.digitalrealty.com.  Please go to the website at least 15 minutes early to register and download and install any necessary audio software.  If you are unable to listen to the live conference call, telephone and webcast replays will be available until 11:59 pm ET on Monday, August 26, 2013.  The telephone replay can be accessed two hours after the call by dialing +1 (855) 859-2056 (for domestic callers) or +1 (404) 537-3406 (for international callers) and using the conference ID # 12508897.  The webcast replay can be accessed on Digital Realty’s website immediately after the live call has concluded.

About Digital Realty

Digital Realty Trust, Inc. focuses on delivering customer driven data center solutions by providing secure, reliable and cost effective facilities that meet each customer’s unique data center needs. Digital Realty’s customers include domestic and international companies across multiple industry verticals ranging from information technology and Internet enterprises, to manufacturing and financial services. Digital Realty’s 127 properties, including three properties held as investments in unconsolidated joint ventures, comprise approximately 23.7 million square feet as of June 30, 2013, including 2.8 million square feet of space held for development. Digital Realty’s portfolio is located in 32 markets throughout North America, Europe, Asia and Australia. Additional information about Digital Realty is included in the Company Overview, which is available on the Investors page of Digital Realty’s website at http://www.digitalrealty.com.

Safe Harbor Statement

This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to supply and demand for data center space, leasing volume and pipeline, rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods, rental rates on future leases, managing our balance sheet, strategy of accessing capital, development plans and expected timing, size and IT capacity of development projects, expectations regarding the Company’s future growth, financial resources and success and the Company’s 2013 FFO, core FFO and net income guidance. These risks and uncertainties include, among others, the following: the impact of the recent deterioration in global economic, credit and market conditions, including the downgrade of the U.S. government’s credit rating; current local economic conditions in our geographic markets; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; increased interest rates and operating costs; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and space held for development; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates.  For a further list and description of such risks and uncertainties, see the reports and other filings by the Company with the U.S. Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.  The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Note Regarding Funds From Operations
Digital Realty calculates Funds from Operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT.  FFO represents net income (loss) available to common stockholders and unitholders (computed in accordance with U.S. GAAP), excluding gains (or losses) from sales of property, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.  Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.  Digital Realty also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.  However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited.  Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs’ FFO.  Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance.

Core Funds from Operations
We present core funds from operations, or CFFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate CFFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) significant transaction expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) significant property tax adjustments, net and (vi) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of CFFO as a measure of our performance is limited.  Other REITs may not calculate CFFO in a consistent manner. Accordingly, our CFFO may not be comparable to other REITs’ CFFO. CFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

SOURCE Digital Realty Trust, Inc