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Press Release -- April 29th, 2016
Source: Digital Realty Trust
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Digital Realty Reports First Quarter 2016 Results

SAN FRANCISCO, April 28, 2016 /PRNewswire/ -- Digital Realty Trust, Inc. (DLR), a leading global provider of data center, colocation and interconnection solutions, announced today financial results for the first quarter of 2016.  All per share results are presented on a fully-diluted share and unit basis.

Highlights

  • Reported FFO per share of $1.39 in 1Q16, compared to $1.56 in 1Q15
  • Reported core FFO per share of $1.42 in 1Q16, compared to $1.27 in 1Q15
  • Reported net income available to common stockholders per share of $0.27 in 1Q16, compared to $0.75 in 1Q15
  • Signed leases during 1Q16 expected to generate $39 million of annualized GAAP rental revenue
  • Raised 2016 core FFO per share outlook from $5.45 - $5.60 to $5.55 - $5.65 and "constant-currency" core FFO per share outlook from $5.50 - $5.70 to $5.60 - $5.75

Financial Results

Revenues were $504 million for the first quarter of 2016, a 1% increase from the previous quarter and a 24% increase over the same quarter last year.

Net income for the first quarter of 2016 was $62 million, and net income available to common stockholders was $39 million, or $0.27 per diluted share, compared to net loss available to common stockholders of $0.28 per diluted share in the fourth quarter of 2015 and net income available to common stockholders of $0.75 per diluted share in the first quarter of 2015.

Adjusted EBITDA was $294 million for the first quarter of 2016, a 2% increase from the previous quarter and a 23% increase over the same quarter last year.

Funds from operations ("FFO") on a fully diluted basis was $208 million in the first quarter of 2016, or $1.39 per share, compared to $0.79 per share in the fourth quarter of 2015 and $1.56 per share in the first quarter of 2015.

Excluding certain items that do not represent core expenses or revenue streams, first quarter of 2016 core FFO was $1.42 per share, a 3% increase from $1.38 per share in the fourth quarter of 2015, and a 12% increase from $1.27 per share in the first quarter of 2015.

Leasing Activity

"We signed new leases representing $39 million of annualized GAAP rental revenue including a $6 million contribution from Telx, during the first quarter of 2016, which is typically a seasonally slower quarter.  Leasing activity included a multi-megawatt lease with a hyper-scale cloud service provider in Osaka, fully leasing phase one of our first project in Japan.  We also announced that we entered Germany, with the acquisition of a six-acre land parcel," commented Chief Executive Officer A. William Stein.  "Data center demand remains robust, driven by a rapidly growing trend towards corporate IT outsourcing.  Our activity in Germany and Japan underscores the importance of scale and a global platform in providing data center solutions to meet customers' needs around the world."

In addition to space and power, Telx also contributed $8 million of annualized interconnection revenue bookings during the first quarter.

The weighted-average lag between leases signed during the first quarter of 2016 and the contractual commencement date was 8.1 months.

In addition to new leases signed, Digital Realty also signed renewal leases representing $51 million of annualized GAAP rental revenue during the quarter.  Rental rates on renewal leases signed during the first quarter of 2016 rolled up 2% on a cash basis and up 13% on a GAAP basis.

New leases signed during the first quarter of 2016 by region and product type are summarized as follows:

North America

Annualized GAAP
Base Rent
(in thousands)

Square Feet

GAAP Base Rent
per Square Foot

Megawatts

GAAP Base Rent
per Kilowatt

Turn-Key Flex (1)

$23,514

106,449

$221

12

$158

Powered Base Building

Colocation

6,071

22,904

265

2

278

Non-Technical

746

37,333

20

  Total

$30,331

166,686

$182

14

$173

Europe (2)

Turn-Key Flex

Colocation

Non-Technical

$110

2,425

$45

  Total

$110

2,425

$45

Asia Pacific (2)

Turn-Key Flex

$8,886

43,509

$204

4

$180

Colocation

Non-Technical

101

1,200

84

  Total

$8,987

44,709

$201

4

$180

  Grand Total

$39,428

213,820

$184

18

$175

Note:  Totals may not foot due to rounding differences.

(1)

Turn-Key Flex activity includes $7 million of power expansions not associated with any additional rentable square footage.

(2)

Based on quarterly average exchange rates during the three months ended March 31, 2016. 

Investment Activity

As previously announced, during the first quarter of 2016, Digital Realty closed on the sale of 47700 Kato Road and 1055 Page Avenue, two adjacent non-data center properties totaling 199,000 square feet in Fremont, CA for $37.5 million, or $188 per square foot.  The properties were 100% leased and generated cash net operating income of approximately $2.7 million in 2015, representing a cap rate of 7.2%.  The sale generated net proceeds of $35.8 million, and Digital Realty recognized a gain on the sale of $1.1 million in the first quarter of 2016.

Balance Sheet

Digital Realty had approximately $6.2 billion of total debt outstanding as of March 31, 2016, comprised of $5.9 billion of unsecured debt and approximately $0.3 billion of secured debt.  At the end of the first quarter of 2016, net debt-to-adjusted EBITDA was 5.3x, debt-plus-preferred-to-total enterprise value was 36.2% and fixed charge coverage was 3.4x.

Subsequent to the end of the quarter, the company closed an eight-year, €600 million bond offering at an all-in coupon of 2.625%.

2016 Outlook
Digital Realty raised its 2016 core FFO per share outlook from $5.45 - $5.60 to $5.55 - $5.65.  The assumptions underlying this guidance are summarized in the following table.

Jan. 4, 2016

Feb. 25, 2016

Apr. 28, 2016

Top-Line and Cost Structure

2016 total revenue

$2.0 - $2.2 billion

$2.0 - $2.2 billion

$2.0 - $2.2 billion

2016 net non-cash rent adjustments (1)

$10 - $20 million

$10 - $20 million

$10 - $20 million

2016 adjusted EBITDA margin

55.0% - 57.0%

55.0% - 57.0%

55.5% - 57.5%

2016 G&A margin

7.0% - 7.5%

7.0% - 7.5%

6.5% - 7.0%

Internal Growth

Rental rates on renewal leases

   Cash basis

N/A

Flat

Flat

   GAAP basis

N/A

Up high single-digits

Up high single-digits

Year-end portfolio occupancy

N/A

+/- 50 bps

+/- 50 bps

"Same-capital" cash NOI growth (2)

N/A

0.0% - 3.0%

1.0% - 4.0%

Foreign Exchange Rates

   U.S. Dollar / Pound Sterling

N/A

$1.40 - $1.48

$1.38 - $1.45

   U.S. Dollar / Euro

N/A

$1.02 - $1.07

$1.05 - $1.10

External Growth

Dispositions

Dollar volume

$0 - $200 million

$38 - $200 million

$38 - $200 million

Cap rate

0.0% - 10.0%

0.0% - 10.0%

0.0% - 10.0%

Development

CapEx

$750 - $900 million

$750 - $900 million

$750 - $900 million

Average stabilized yields

10.5% - 12.5%

10.5% - 12.5%

10.5% - 12.5%

Enhancements and other non-recurring CapEx (3)

$20 - $25 million

$20 - $25 million

$20 - $25 million

Recurring CapEx + capitalized leasing costs (4)

$145 - $155 million

$145 - $155 million

$145 - $155 million

Balance Sheet

 Long-term debt issuance

Dollar amount

$1.25 - $1.75 billion

$1.25 - $1.75 billion

$1.25 - $1.75 billion

Pricing

3.00% - 5.00%

3.00% - 5.00%

2.50% - 3.50%

Timing

Mid 2016

Mid 2016

Early-to-mid 2016

Funds From Operations / share (NAREIT-Defined)

$5.35 - $5.45

$5.35 - $5.45

$5.45 - $5.50

Adjustments for non-core expense and revenue streams

$0.10 - $0.15

$0.10 - $0.15

$0.10 - $0.15

Core Funds From Operations / share

$5.45 - $5.60

$5.45 - $5.60

$5.55 - $5.65

Foreign currency translation adjustments

$0.05 - $0.10

$0.05 - $0.10

$0.05 - $0.10

Constant-Currency Core FFO / share

$5.50 - $5.70

$5.50 - $5.70

$5.60 - $5.75

(1)

Net non-cash rent adjustments represents the sum of straight-line rental revenue, straight-line rent expense as well as the amortization of above- and below-market leases (i.e., FAS 141 adjustments).

(2)

The "same-capital" pool includes properties owned as of December 31, 2014 with less than 5% of the total rentable square feet under development.  It also excludes properties that were undergoing, or were expected to undergo, development activities in 2015-2016, properties classified as held for sale, and properties sold or contributed to joint ventures for all periods presented.

Note: In an effort to present 2016 same-capital results on a basis comparable to 2015, projected Net Operating Income (NOI) includes intercompany activity related to legacy Telx leases at properties owned as of December 31, 2014 that meet the same-capital definition.  The intercompany activity will be eliminated to arrive at consolidated financial results.

(3)

Other non-recurring CapEx represents costs incurred to enhance the capacity or marketability of operating properties, such as network fiber initiatives and software development costs. 

(4)

Recurring CapEx represents non-incremental improvements required to maintain current revenues, including second-generation tenant improvements and leasing commissions.  Capitalized leasing costs include capitalized leasing compensation as well as capitalized internal leasing commissions. 

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including FFO, core FFO, constant-currency core FFO, and adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to core FFO and constant-currency core FFO, and definitions of FFO, core FFO and constant-currency core FFO are included as an attachment to this press release.  A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA and definitions of net debt-to-Adjusted EBITDA, debt-plus-preferred-to-total enterprise value, Cash NOI, and fixed charge coverage ratio are included as an attachment to this press release.

Investor Conference Call

Prior to Digital Realty's conference call today at 5:30 p.m. EDT / 2:30 p.m. PDT, Digital Realty will post a presentation to the Investors section of the company's website athttp://investor.digitalrealty.com.  The presentation is designed to accompany the discussion of the company's first quarter 2016 financial results and operating performance.  The conference call will feature Chief Executive Officer A. William Stein and Chief Financial Officer Andrew P. Power.

To participate in the live call, investors are invited to dial +1 (888) 317-6003 (for domestic callers) or +1 (412) 317-6061 (for international callers) and reference the conference ID# 8994685 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 at http://investor.digitalrealty.com.

Telephone and webcast replays will be available one hour after the call until May 28, 2016.  The telephone replay can be accessed by dialing +1 (877) 344-7529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 10083613.  The webcast replay can be accessed on Digital Realty's website.

About Digital Realty

Digital Realty Trust, Inc. supports the data center and colocation strategies of more than 1,000 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.  Digital Realty's clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.

Additional information about Digital Realty is included in the Company Overview, available on the Investors page of Digital Realty's website at www.digitalrealty.com.  The Company Overview is updated periodically, and may disclose material information and updates.  To receive e-mail alerts when the Company Overview is updated, please visit the Investors page of Digital Realty's website.

Contact Information

Andrew P. Power
Chief Financial Officer
Digital Realty Trust, Inc.
+1 (415) 738-6500

John J. Stewart
Senior Vice President
Investor Relations
Digital Realty Trust, Inc.
+1 (415) 738-6500

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 and colocation space; the integration and financial contributions of Telx; leasing and development activity in Japan and Germany; market dynamics and data center fundamentals; our strategic priorities; 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; lag between signing and commencement; cap rates and yields; investment activity; and the company's FFO, core FFO, constant currency core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in the geographies in which we operate; 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; 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, including Telx; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical and information security 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, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; 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, 2015, as amended.  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.

Consolidated Quarterly Statements of Operations

Unaudited and in thousands, except share and per share data

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Rental revenues

$371,128

$365,827

$336,679

$329,213

$317,804

Tenant reimbursements - Utilities

58,955

60,800

70,148

62,305

59,764

Tenant reimbursements - Other

25,263

30,190

25,336

25,267

26,065

Interconnection & other

46,963

41,746

1,651

1,463

1,362

Fee income

1,799

1,880

1,595

1,549

1,614

Other

91

580

498

Total Operating Revenues

$504,199

$500,443

$435,989

$420,295

$406,609

Utilities

$69,917

$70,758

$73,887

$64,669

$62,970

Rental property operating

54,109

52,563

35,254

34,954

33,663

Repairs & maintenance

30,143

32,063

31,301

29,895

27,908

Property taxes

27,331

28,472

19,953

20,900

23,263

Insurance

2,412

2,360

2,140

2,154

2,155

Change in fair value of contingent consideration

(1,594)

352

(43,034)

Depreciation & amortization

169,016

172,956

136,974

131,524

129,073

General & administrative

29,808

29,862

26,431

24,312

19,798

Severance-related accrual, equity acceleration, and legal expenses

1,448

6,125

(3,676)

1,301

1,396

Transaction expenses

1,900

3,099

11,042

3,166

93

Other expenses

(1)

60,914

51

(6)

(16)

Total Operating Expenses

$386,083

$459,172

$331,763

$313,221

$257,269

Operating Income (Loss)

$118,116

$41,271

$104,226

$107,074

$149,340

Equity in earnings of unconsolidated joint ventures

$4,078

$3,321

$4,169

$3,383

$4,618

Gain (loss) on sale of property

1,097

322

(207)

76,669

17,820

Interest and other income

(624)

498

(358)

(231)

(2,290)

Interest (expense)

(57,261)

(61,717)

(48,138)

(46,114)

(45,466)

Tax (expense)

(2,109)

(268)

(1,850)

(2,636)

(1,697)

Loss from early extinguishment of debt

(964)

(148)

Net Income (Loss)

$62,333

($16,573)

$57,842

$137,997

$122,325

Net (income) loss attributable to noncontrolling interests

(784)

590

(864)

(2,486)

(2,142)

Net Income (Loss) Attributable to Digital Realty Trust, Inc.

$61,549

($15,983)

$56,978

$135,511

$120,183

Preferred stock dividends

(22,424)

(24,056)

(18,456)

(18,456)

(18,455)

Net Income (Loss) Available to Common Stockholders

$39,125

($40,039)

$38,522

$117,055

$101,728

Weighted-average shares outstanding - basic

146,565,564

145,561,559

135,832,503

135,810,060

135,704,525

Weighted-average shares outstanding - diluted

147,433,194

145,561,559

138,259,936

136,499,004

136,128,800

Weighted-average fully diluted shares and units

149,915,428

149,100,083

139,192,198

139,256,470

138,831,268

Net income (loss) per share - basic

$0.27

($0.28)

$0.28

$0.86

$0.75

Net income (loss) per share - diluted

$0.27

($0.28)

$0.28

$0.86

$0.75

Funds From Operations and Core Funds From Operations

Unaudited and in thousands, except per share data

Reconciliation of Net Income to Funds From Operations (FFO)

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Net Income (Loss) Available to Common Stockholders

$39,125

($40,039)

$38,522

$117,055

$101,728

Adjustments:

Noncontrolling interests in operating partnership

663

(708)

747

2,377

2,026

Real estate related depreciation & amortization (1)

166,912

170,095

135,613

130,198

127,823

Unconsolidated JV real estate related depreciation & amortization

2,803

2,867

2,761

3,187

2,603

(Gain) loss on sale of property

(1,097)

(322)

207

(76,669)

(17,820)

(Gain) on settlement of pre-existing relationship with Telx (2)

(14,355)

Funds From Operations

$208,406

$117,538

$177,850

$176,148

$216,360

Funds From Operations - diluted

$208,406

$117,538

$177,850

$176,148

$216,360

Weighted-average shares and units outstanding - basic

149,048

148,388

138,468

138,568

138,407

Weighted-average shares and units outstanding - diluted (3)

149,915

149,100

139,192

139,257

138,831

Funds From Operations per share - basic

$1.40

$0.79

$1.28

$1.27

$1.56

Funds From Operations per share - diluted (3)

$1.39

$0.79

$1.28

$1.26

$1.56

Reconciliation of FFO to Core FFO

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Funds From Operations - diluted

$208,406

$117,538

$177,850

$176,148

$216,360

Termination fees and other non-core revenues (4)

(91)

(580)

(313)

1,573

Transaction expenses

1,900

3,099

11,042

3,166

93

Loss from early extinguishment of debt

964

148

Change in fair value of contingent consideration (5)

(1,594)

352

(43,034)

Severance-related accrual, equity acceleration, and legal expenses (6)

1,448

6,125

(3,676)

1,301

1,396

Bridge facility fees (7)

3,903

Other non-core expense adjustments (8)

(1)

75,269

51

(29)

(30)

Core Funds From Operations - diluted

$212,626

$205,934

$183,093

$180,773

$176,358

Weighted-average shares and units outstanding - diluted (3)

149,915

149,100

139,192

139,257

138,831

Core Funds From Operations per share - diluted (3)

$1.42

$1.38

$1.32

$1.30

$1.27

(1)

Real Estate Related Depreciation & Amortization:

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Depreciation & amortization per income statement

$169,016

$172,956

$136,974

$131,524

$129,073

Non-real estate depreciation

(2,104)

(2,861)

(1,361)

(1,326)

(1,250)

Real Estate Related Depreciation & Amortization

$166,912

$170,095

$135,613

$130,198

$127,823

(2)

Included in Other expenses on the Income Statement, offset by the write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million.

(3)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and see below for calculation of weighted average common stock and units outstanding.

(4)

Includes lease termination fees and certain other adjustments that are not core to our business.

(5)

Relates to earn-out contingencies in connection with the Sentrum and Singapore (29A International Business Park) acquisitions.  The Sentrum earn-out contingency expired in July 2015 and the Singapore earn-out contingency will expire in November 2020 and will be reassessed on a quarterly basis. During the first quarter of 2015, we reduced the fair value of the earnout related to Sentrum by approximately $44.8 million.  The adjustment was the result of an evaluation by management that no additional leases would be executed for vacant space by the contingency expiration date. 

(6)

Relates to severance and other charges related to the departure of company executives. For the quarter ended December 31, 2015, includes integration-related severance of $6.1 million.

(7)

Bridge facility fees included in interest expense.

(8)

For the quarter ended December 31, 2015, includes write off of straight-line rent receivables related to the Telx Acquisition of $75.3 million. Includes reversal of accruals and certain other adjustments that are not core to our business. Construction management expenses are included in Other expenses on the income statement but are not added back to core FFO.

Adjusted Funds From Operations

Unaudited and in thousands, except per share data

Reconciliation of Core FFO to AFFO

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Core FFO available to common stockholders and unitholders

$212,626

$205,934

$183,093

$180,773

$176,358

Adjustments:

Non-real estate depreciation

2,104

2,861

1,361

1,326

1,250

Amortization of deferred financing costs

2,260

2,121

2,076

2,069

2,216

Amortization of debt discount/premium

647

611

557

546

582

Non-cash stock-based compensation expense

3,420

604

3,831

4,518

2,795

Straight-line rent revenue

(7,456)

(9,530)

(13,579)

(14,499)

(13,369)

Straight-line rent expense

5,655

5,698

80

92

74

Above- and below-market rent amortization

(2,266)

(2,479)

(2,174)

(2,359)

(2,324)

Non-cash tax expense

637

(757)

680

1,066

557

Capitalized leasing compensation (1)

(2,695)

(2,563)

(2,581)

(2,044)

(3,028)

Recurring capital expenditures (2)

(21,064)

(35,386)

(14,716)

(23,708)

(18,066)

Capitalized internal leasing commissions

(2,024)

(1,460)

(907)

(888)

(826)

AFFO available to common stockholders and unitholders - basic (3)

$191,844

$165,654

$157,721

$146,892

$146,220

Weighted-average shares and units outstanding - basic

149,048

148,388

138,468

138,568

138,407

Weighted-average shares and units outstanding - diluted (4)

149,915

149,100

139,192

139,257

138,831

AFFO available to common stockholders and unitholders - basic

$191,844

$165,654

$157,721

$146,892

$146,220

AFFO available to common stockholders and unitholders - diluted

$191,844

$165,654

$157,721

$146,892

$146,220

AFFO per share - diluted (4)

$1.28

$1.11

$1.13

$1.05

$1.05

Dividends per share and common unit

$0.88

$0.85

$0.85

$0.85

$0.85

Diluted AFFO Payout Ratio

68.8%

76.5%

75.0%

80.6%

80.7%

Three Months Ended

Share Count Detail

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Weighted Average Common Stock and Units Outstanding

149,048

148,388

138,468

138,568

138,407

Add: Effect of dilutive securities

867

712

724

689

424

Weighted Avg. Common Stock and Units Outstanding - diluted

149,915

149,100

139,192

139,257

138,831

(1)

Beginning in the first quarter of 2015, we changed the presentation of certain capital expenditures.  Infrequent expenditures for capitalized replacements and upgrades are now categorized as Recurring capital expenditures (categorized as Enhancements and Other Non-Recurring capital expenditures in 2014).  First-generation leasing costs are now classified as Development capital expenditures (categorized as recurring capital expenditures in 2014). Capitalized leasing compensation for 2015 includes only second generation leasing costs.

(2)

For a definition of recurring capital expenditures, see our supplemental operating and financial data package.

(3)

For a definition and discussion of AFFO, see below.  For a reconciliation of net income available to common stockholders to FFO, see above.

(4)

For all periods presented, we have excluded the effect of dilutive series E, series F, series G, series H and series I preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G, series H and series I preferred stock, as applicable, which we consider highly improbable. See above for calculations of diluted FFO available to common stockholders and unitholders and calculations of weighted average common stock and units outstanding.

Consolidated Balance Sheets
Unaudited and in thousands, except share and per share data

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Assets

Investments in real estate:

Real estate

$10,226,549

$10,066,936

$9,473,253

$9,353,820

$9,146,341

Construction in progress

720,363

664,992

570,598

646,012

735,544

Land held for future development

156,000

183,445

133,343

141,294

135,606

Investments in Real Estate

$11,102,912

$10,915,373

$10,177,194

$10,141,126

$10,017,491

Accumulated depreciation & amortization

(2,380,400)

(2,251,268)

(2,137,631)

(2,033,289)

(1,962,966)

Net Investments in Properties

$8,722,512

$8,664,105

$8,039,563

$8,107,837

$8,054,525

Investment in unconsolidated joint ventures

106,008

106,107

103,703

103,410

103,475

Net Investments in Real Estate

$8,828,520

$8,770,212

$8,143,266

$8,211,247

$8,158,000

Cash and cash equivalents

$31,134

$57,053

$22,998

$49,989

$30,969

Accounts and other receivables (1)

180,456

177,398

157,994

126,734

112,995

Deferred rent

412,579

403,327

475,796

467,262

455,834

Acquired in-place lease value, deferred leasing costs and other real estate intangibles, net

1,368,340

1,391,659

405,824

424,229

434,917

Acquired above-market leases, net

30,107

32,698

30,617

33,936

34,757

Goodwill

330,664

330,664

Restricted cash

19,599

18,009

12,500

18,557

18,294

Assets associated with real estate held for sale

145,087

180,139

173,461

171,990

81,667

Other assets

75,489

54,904

49,384

51,862

52,750

Total Assets

$11,421,975

$11,416,063

$9,471,840

$9,555,806

$9,380,183

Liabilities and Equity

Global unsecured revolving credit facility

$677,868

$960,271

$682,648

$770,481

$820,798

Unsecured term loan

1,566,185

923,267

937,198

959,982

940,962

Unsecured senior notes, net of discount

3,662,753

3,712,569

2,794,783

2,834,070

2,651,584

Mortgage loans, net of premiums

249,923

302,930

304,777

374,090

376,324

Accounts payable and other accrued liabilities

570,653

608,343

513,555

516,232

523,948

Accrued dividends and distributions

126,925

Acquired below-market leases

96,475

101,114

88,632

94,312

97,234

Security deposits and prepaid rent

147,934

138,347

107,704

109,005

108,244

Liabilities associated with assets held for sale

4,974

5,795

6,892

7,441

3,228

Total Liabilities

$6,976,765

$6,879,561

$5,436,189

$5,665,613

$5,522,322

Equity

Preferred Stock:  $0.01 par value per share, 70,000,000 shares authorized:

Series E Cumulative Redeemable Preferred Stock (2)

$277,172

$277,172

$277,172

$277,172

$277,172

Series F Cumulative Redeemable Preferred Stock (3)

176,191

176,191

176,191

176,191

176,191

Series G Cumulative Redeemable Preferred Stock (4)

241,468

241,468

241,468

241,468

241,468

Series H Cumulative Redeemable Preferred Stock (5)

353,290

353,290

353,290

353,290

353,290

Series I Cumulative Redeemable Preferred Stock (6)

242,014

242,014

241,683

Common Stock: $0.01 par value per share, 215,000,000 shares authorized (7)

1,459

1,456

1,351

1,351

1,350

Additional paid-in capital

4,659,484

4,655,220

3,977,945

3,974,398

3,967,846

Dividends in excess of earnings

(1,440,028)

(1,350,089)

(1,185,633)

(1,108,701)

(1,110,298)

Accumulated other comprehensive (loss) income, net

(104,252)

(96,590)

(87,988)

(67,324)

(91,562)

Total Stockholders' Equity

$4,406,798

$4,500,132

$3,995,479

$3,847,845

$3,815,457

Noncontrolling Interests

Noncontrolling interest in operating partnership

$31,648

$29,612

$33,411

$35,577

$35,596

Noncontrolling interest in consolidated joint ventures

6,764

6,758

6,761

6,771

6,808

Total Noncontrolling Interests

$38,412

$36,370

$40,172

$42,348

$42,404

Total Equity

$4,445,210

$4,536,502

$4,035,651

$3,890,193

$3,857,861

Total Liabilities and Equity

$11,421,975

$11,416,063

$9,471,840

$9,555,806

$9,380,183

(1)

Net of allowance for doubtful accounts of $3,913 and $5,844 as of March 31, 2016 and December 31, 2015, respectively.

(2)

Series E Cumulative Redeemable Preferred Stock, 7.000%, $287,500 and $287,500 liquidation preference, respectively ($25.00 per share), 11,500,000 and 11,500,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

(3)

Series F Cumulative Redeemable Preferred Stock, 6.625%, $182,500 and $182,500 liquidation preference, respectively ($25.00 per share), 7,300,000 and 7,300,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

(4)

Series G Cumulative Redeemable Preferred Stock, 5.875%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

(5)

Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $365,000 liquidation preference, respectively ($25.00 per share), 14,600,000 and 14,600,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

(6)

Series I Cumulative Redeemable Preferred Stock, 6.350%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

(7)

Common Stock: 146,797,648 and 146,384,247 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively.

Reconciliation of Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) (1)

Three Months Ended

31-Mar-16

31-Dec-15

30-Sep-15

30-Jun-15

31-Mar-15

Net Income (Loss) Available to Common Stockholders

$39,125

($40,039)

$38,522

$117,055

$101,728

Interest

57,261

61,717

48,138

46,114

45,466

Loss from early extinguishment of debt

964

148

Tax expense

2,109

268

1,850

2,636

1,697

Depreciation & amortization

169,016

172,956

136,974

131,524

129,073

EBITDA

$268,475

$194,902

$225,484

$297,477

$277,964

Change in fair value of contingent consideration

(1,594)

352

(43,034)

Severance-related accrual, equity acceleration, and legal expenses

1,448

6,125

(3,676)

1,301

1,396

Transaction expenses

1,900

3,099

11,042

3,166

93

(Gain) loss on sale of property

(1,097)

(322)

207

(76,669)

(17,820)

(Gain) on settlement of pre-existing relationship with Telx

(14,355)

Other non-core expense adjustments

(1)

75,269

51

(29)

(30)

Noncontrolling interests

784

(590)

864

2,486

2,142

Preferred stock dividends

22,424

24,056

18,456

18,456

18,455

Adjusted EBITDA

$293,933

$288,184

$250,834

$246,540

$239,166

(1)

 For definition and discussion of EBITDA and Adjusted EBITDA, see below.

Definitions

Funds from Operations (FFO):

We calculate 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) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, excluding a gain from a pre-existing relationship, 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 and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.  We also believe 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 capitalized 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 computed in accordance with GAAP as a measure of our performance.

Core Funds from Operations:

We present core funds from operations, or core FFO, 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 core FFO by adding to or subtracting from FFO (i) termination fees and other non-core revenues, (ii) transaction expenses, (iii) loss from early extinguishment of debt, (iv) change in fair value of contingent consideration, (v) severance-related accrual, equity acceleration, and legal expenses, (vi) bridge facility fees and (vii) 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 core FFO as a measure of our performance is limited. Other REITs may not calculate core FFO in a consistent manner. Accordingly, our core FFO may not be comparable to other REITs' core FFO. Core FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

Constant Currency Core Funds from Operations:

We calculate constant-currency core funds from operations by adjusting the core funds from operations for foreign currency translations.

Adjusted Funds from Operations (AFFO):

We present adjusted funds from operations, or AFFO, as a supplemental operating measure because, when compared year over year, it assesses our ability to fund dividend and distribution requirements from our operating activities. We also believe that, as a widely recognized measure of the operations of REITs, AFFO will be used by investors as a basis to assess our ability to fund dividend payments in comparison to other REITs, including on a per share and unit basis. We calculate AFFO by adding to or subtracting from core FFO (i) non-real estate depreciation, (ii) amortization of deferred financing costs, (iii) amortization of debt discount/premium, (iv) non-cash stock-based compensation expense, (v) non-cash stock-based compensation expense, (vi) straight-line rent revenue, (vii) straight-line rent expense, (viii) above- and below-market rent amortization, (ix) non-cash tax expense, (x) capitalized leasing compensation, (xi) recurring capital expenditures and (xii) capitalized internal leasing commissions. Other REITs may not calculate AFFO in a consistent manner. Accordingly, our AFFO may not be comparable to other REITs' AFFO. AFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

EBITDA and Adjusted EBITDA:

We believe that earnings before interest, loss from early extinguishment of debt, income taxes and depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, change in fair value of contingent consideration, severance related accrual, equity acceleration, and legal expenses, transaction expenses, (gain) loss on sale of property, (gain) loss on settlement of pre-existing relationship with Telx, other non-core expense adjustments, noncontrolling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding change in fair value of contingent consideration, severance related accrual, equity acceleration, and legal expenses, transaction expenses, gain (loss) on sale of property, gain on settlement of pre-existing relationship with Telx, other non-core expense adjustments, noncontrolling interests, and preferred stock dividends. In addition, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Because EBITDA and Adjusted EBITDA are calculated before recurring cash charges including interest expense and income taxes, exclude capitalized costs, such as leasing commissions, and are not adjusted for capital expenditures or other recurring cash requirements of our business, their utility as a measure of our performance is limited.  Other REITs may calculate EBITDA and Adjusted EBITDA differently than we do; accordingly, our EBITDA and Adjusted EBITDA may not be comparable to such other REITs' EBITDA and Adjusted EBITDA.  Accordingly, EBITDA and Adjusted EBITDA should be considered only as supplements to net income computed in accordance with GAAP as a measure of our financial performance.

Net Operating Income (NOI) and Cash NOI:

Net operating income, or NOI, represents rental revenue, interconnection revenue and tenant reimbursement revenue less utilities, rental property operating expenses, repair and maintenance expenses, property taxes and insurance expenses (as reflected in the statement of operations). NOI is commonly used by stockholders, company management and industry analysts as a measurement of operating performance of the company's rental portfolio. Cash NOI is NOI less straight-line rents and above and below market rent amortization. Cash NOI is commonly used by stockholders, company management and industry analysts as a measure of property operating performance on a cash basis. However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of NOI and cash NOI as measures of our performance is limited. Other REITs may not calculate NOI and cash NOI in the same manner we do and, accordingly, our NOI and cash NOI may not be comparable to such other REITs' NOI and cash NOI. Accordingly, NOI and cash NOI should be considered only as supplements to net income computed in accordance with GAAP as measures of our performance.

Additional Definitions

Net debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA multiplied by four.

Debt-plus-preferred-to-total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.

Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, capitalized interest, scheduled debt principal payments and preferred dividends. For the quarter ended March 31, 2016, GAAP interest expense was $57 million, capitalized interest was $4 million and scheduled debt principal payments and preferred dividends was $24 million.

Reconciliation of Range of 2016 Projected Net Income to Projected FFO (NAREIT-Defined), Core FFO and Constant-Currency Core FFO

Low

High

Net income available to common stockholders per diluted share

$0.45

$0.50

Add:  Real estate depreciation and amortization and (gain)/loss on sale

$5.00

$5.00

Projected Funds from Operations per diluted share (NAREIT-Defined)

$5.45

$5.50

Add:  Adjustments for items that do not represent core expenses and revenue streams

$0.10

$0.15

Projected Core Funds from Operations per diluted share

$5.55

$5.65

Add:  Foreign currency translation adjustments

$0.05

$0.10

Projected Constant - Currency Core Funds from Operations per diluted share

$5.60

$5.75

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