Digital Realty Reports Third Quarter 2023 Results

AUSTIN, Texas, Oct. 26, 2023 /PRNewswire/ — Digital Realty (NYSE: DLR), the largest global provider of cloud- and carrier-neutral data center, colocation and interconnection solutions, announced today financial results for the third quarter of 2023. All per share results are presented on a fully diluted basis. 

Highlights

Reported net income available to common stockholders of $2.33 per share in 3Q23, compared to $0.75 in 3Q22Reported FFO per share of $1.55 in 3Q23, compared to $1.55 in 3Q22Reported Core FFO per share of $1.62 in 3Q23, compared to $1.67 in 3Q22Reported Constant-Currency Core FFO per share of $1.60 in 3Q23 and $4.96 per share for the nine months ended September 30, 2023Reported “Same-Capital” cash NOI growth of 9.4% in 3Q23Reported rental rate increases on renewal leases of 7.4% on a cash basis in 3Q23Signed total bookings during 3Q23 that are expected to generate $152 million of annualized GAAP rental revenue, including a $42 million contribution from the 0–1 megawatt category and $12 million contribution from interconnectionNarrowed 3Q23 Core FFO per share outlook to $6.58 – $6.62

Financial Results

Digital Realty reported revenues of $1.4 billion in the third quarter of 2023, a 3% increase from the previous quarter and an 18% increase from the same quarter last year. 

The company delivered net income of $746 million in the third quarter of 2023, and net income available to common stockholders of $723 million, or $2.33 per diluted share, compared to $0.37 per diluted share in the previous quarter and $0.75 per diluted share in the same quarter last year. 

Digital Realty generated Adjusted EBITDA of $686 million in the third quarter of 2023, a 2% decrease from the previous quarter and 11% increase over the same quarter last year. 

The company reported Funds From Operations (FFO) of $482 million in the third quarter of 2023, or $1.55 per share, compared to $1.52 per share in the previous quarter and $1.55 per share in the same quarter last year. 

Excluding certain items that do not represent core expenses or revenue streams, Digital Realty delivered Core FFO per share of $1.62 in the third quarter of 2023, compared to $1.68 per share in the previous quarter and $1.67 per share in the same quarter last year.  Digital Realty delivered Constant-Currency Core FFO per share of $1.60 for the third quarter of 2023 and $4.96 per share for the nine-month period ended September 30, 2023.

“Digital Realty’s third quarter results demonstrate strong and broad-based demand across our product spectrum. We posted record leasing in the 0-1 megawatt plus interconnection category and robust leasing in the greater-than-a-megawatt category,” said Digital Realty President & Chief Executive Officer Andy Power. “Accelerating Same-Capital cash NOI growth combined with strong progress on our funding plan have enabled the company to de-lever while reinvesting to meet the needs of our customers.” 

Leasing Activity

In the third quarter, Digital Realty signed total bookings that are expected to generate $152 million of annualized GAAP rental revenue, including a $42 million contribution from the 0–1 megawatt category and a $12 million contribution from interconnection.

The weighted-average lag between new leases signed during the third quarter of 2023 and the contractual commencement date was 12 months. 

In addition to new leases signed, Digital Realty also signed renewal leases representing $157 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the third quarter of 2023 increased 7.4% on a cash basis and 9.5% on a GAAP basis. 

New leases signed during the third quarter of 2023 are summarized by region and product as follows:

Investment Activity

As previously disclosed, in July, Digital Realty formed a joint venture in which GI Partners purchased a 65% interest in two stabilized hyperscale data centers in the Chicago metro area. Digital Realty received approximately $743 million of gross proceeds from the sale and the associated financing and maintains a 35% interest in the joint venture. Based on annualized in‐place cash NOI at June 30, 2023 and the benefit of leases signed but not yet commenced, the transaction valued the two facilities at an approximate 6.5% cap rate. Digital Realty also granted GI Partners options to purchase an interest in the third facility on the same data center campus, along with the ability to increase its stake in the assets up to 80%. 

Also previously disclosed, in late July, Digital Realty formed a joint venture in which TPG Real Estate purchased an 80% interest in three stabilized hyperscale data centers in Northern Virginia. Digital Realty received approximately $1.4 billion of gross proceeds from the sale and the associated financing and maintains a 20% interest in the joint venture. Based on annualized in‐place cash NOI at June 30, 2023, net of signed leases and known move-outs, the transaction valued the facilities at an approximate 6.0% cap rate. 

In addition, Digital Realty previously announced plans to expand its joint venture in India with Brookfield Infrastructure through the addition of Jio, a Reliance Industries, Ltd. company. Upon closing, the new joint venture, ‘Digital Connexion: A Brookfield, Jio and Digital Realty Company’, will succeed BAM Digital Realty.

During the third quarter, Digital Realty signed a 50-year right of use agreement related to a 2.7-acre site (MRS5) in Marseille, France, which can support the development of data center capacity with approximately 22 megawatts of IT load, as an extension to its existing highly connected campus in the port of Marseille. The minimum total payments over the next 30 years for MRS5 will be €62 million or $65 million. Marseille is a key connectivity gateway in Europe.

Additionally, Digital Realty secured approximately 27 acres (MRS6) near Marseille for a purchase price of €47 million or $49 million. MRS6 can support the development of data center capacity of up to 50 megawatts of IT load to support the increasing demand from cloud service providers.

Further during the third quarter, Digital Realty sold a non-core data center in Watford, United Kingdom for approximately $146 million of net proceeds representing a 9.8% cap rate based on in-place NOI adjusted for known move-outs. Additionally, Digital Realty sold a non-core data center in Chantilly, Virginia for approximately $43 million, representing a 9.3% cap rate based on in-place NOI at September 30, 2023.

Balance Sheet

Digital Realty had approximately $16.9 billion of total debt outstanding as of September 30, 2023, comprised of $16.3 billion of unsecured debt and approximately $0.6 billion of secured debt and other.  At the end of the third quarter of 2023, net debt-to-Adjusted EBITDA was 6.3x, debt-plus-preferred-to-total enterprise value was 32.0% and fixed charge coverage was 4.1x.

During the quarter, Digital Realty settled its previously disclosed forward sales agreements under its ATM program, issuing 3.5 million shares at a weighted average price of $97.23 per share, realizing approximately $336 million of net proceeds. 

2023 Outlook

Digital Realty narrowed its 2023 Core FFO per share and constant-currency Core FFO per share outlook to $6.58 – $6.62. The assumptions underlying the outlook are summarized in the following table. 

Non-GAAP Financial Measures

This document contains non-GAAP financial measures, including FFO, Core FFO, Adjusted FFO, Net Operating Income (NOI), “Same-Capital” Cash NOI and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a reconciliation from FFO to Core FFO, a reconciliation from Core FFO to Adjusted FFO, reconciliation from NOI to Cash NOI, and definitions of FFO, Core FFO, Adjusted FFO, NOI and “Same-Capital” Cash NOI are included as an attachment to this document. 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 document.

The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and/or amount of various items that would impact net income attributable to common stockholders per diluted share, which is the most directly comparable forward-looking GAAP financial measure. This includes, for example, external growth factors, such as dispositions, and balance sheet items, that have not yet occurred, are out of the Company’s control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Investor Conference Call

Prior to Digital Realty’s investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on October 26, 2023, a presentation will be posted to the Investors section of the company’s website at https://investor.digitalrealty.com/. The presentation is designed to accompany the discussion of the company’s third quarter 2023 financial results and operating performance. The conference call will feature President & Chief Executive Officer Andy Power and Chief Financial Officer Matt Mercier.

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# 0455927 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 https://investor.digitalrealty.com/.

Telephone and webcast replays will be available after the call until November 26, 2023. 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# 5888857. The webcast replay can be accessed on Digital Realty’s website.

About Digital Realty

Digital Realty brings companies and data together by delivering the full spectrum of data center, colocation, and interconnection solutions. PlatformDIGITAL®, the company’s global data center platform, provides customers with a secure data “meeting place” and a proven Pervasive Datacenter Architecture (PDx®) solution methodology for powering innovation and efficiently managing Data Gravity challenges. Digital Realty gives its customers access to the connected communities that matter to them with a global data center footprint of 300+ facilities in 50+ metros across 25+ countries on six continents. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and X.

Contact Information

Matt Mercier
Chief Financial Officer
Digital Realty
(737) 281-0101

Jordan Sadler / Jim Huseby
Investor Relations
Digital Realty
(737) 281-0101

Definition

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, in the Nareit Funds From Operations White Paper – 2018 Restatement. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from real estate transactions, provision for impairment, real estate related depreciation and amortization (excluding amortization of deferred financing costs), unconsolidated JV real estate related depreciation & amortization, non-controlling interests in operating partnership, depreciation related to non-controlling interests 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 data centers 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 data centers, 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 other REITs’ FFO. 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 (Core FFO):
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) other non-core revenue adjustments, (ii) transaction and integration expenses, (iii) loss from early extinguishment of debt, (iv) gain on / issuance costs associated with redeemed preferred stock, (v) severance, equity acceleration, and legal expenses, (vi) gain/loss on FX revaluation, 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 calculate Core FFO differently than we do and 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.

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) straight-line rental revenue, (vi) straight-line rental expense, (vii) above- and below-market rent amortization, (viii) deferred tax expense / (benefit), (ix) leasing compensation and internal lease commissions, and (x) recurring capital expenditures. Other REITs may calculate AFFO differently than we do and, 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, unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, provision for impairment, other non-core adjustments, net, non-controlling interests, preferred stock dividends, and issuance costs associated with redeemed preferred stock. Adjusted EBITDA is EBITDA excluding unconsolidated joint venture real estate related depreciation & amortization, unconsolidated joint venture interest expense and tax, severance, equity acceleration, and legal expenses, transaction and integration expenses, gain on sale / deconsolidation, provision for impairment, other non-core adjustments, net, non-controlling interests, preferred stock dividends, and gain on / issuance costs associated with redeemed preferred stock. 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 and, accordingly, our EBITDA and Adjusted EBITDA may not be comparable to 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, tenant reimbursement revenue and interconnection revenue less utilities expense, rental property operating 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. Same-Capital Cash NOI represents buildings owned as of December 31, 2021 of the prior year with less than 5% of total rentable square feet under development and excludes buildings that were undergoing, or were expected to undergo, development activities in 2022-2023, buildings classified as held for sale, and buildings sold or contributed to joint ventures for all periods presented (prior period numbers adjusted to reflect current same-capital pool). However, because NOI and cash NOI exclude depreciation and amortization and capture neither the changes in the value of our data centers 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 data centers, 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 calculate NOI and cash NOI differently than we do and, accordingly, our NOI and cash NOI may not be comparable to other REITs’ NOI and cash NOI. 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 as total debt at balance sheet carrying value, plus capital lease obligations, plus Digital Realty’s pro rata share of unconsolidated joint venture debt, less cash, and cash equivalents (including Digital Realty’s pro rata share of unconsolidated joint venture cash) divided by the product of Adjusted EBITDA (including Digital Realty’s pro rata share of unconsolidated joint venture 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 stock dividends. For the quarter ended September 30, 2023, GAAP interest expense was $111 million, capitalized interest was $29 million and scheduled debt principal payments and preferred stock dividends was $10 million.

This document contains forward-looking statements within the meaning of the federal securities laws, which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Such forward-looking statements include statements relating to: our economic outlook, our expected investment and expansion activity, anticipated continued demand for our products and service, our liquidity, our joint ventures, supply and demand for data center and colocation space, our acquisition and disposition activity, pricing and net effective leasing economics, market dynamics and data center fundamentals, our strategic priorities, our product offerings, available inventory, 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, the company’s FFO, Core FFO, constant currency Core FFO, adjusted FFO, and net income, 2023 outlook and underlying assumptions, information related to trends, our strategy and plans, leasing expectations, weighted average lease terms, the exercise of lease extensions, lease expirations, debt maturities, annualized rent at expiration of leases, the effect new leases and increases in rental rates will have on our rental revenue, our credit ratings, construction and development activity and plans, projected construction costs, estimated yields on investment, expected occupancy, expected square footage and IT load capacity upon completion of development projects, backlog NOI, NAV components, and other forward-looking financial data. Such statements are based on management’s beliefs and assumptions made based on information currently available to management. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance and may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

reduced demand for data centers or decreases in information technology spending;increased competition or available supply of data center space;decreased rental rates, increased operating costs or increased vacancy rates;the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services;our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers;our ability to attract and retain customers;breaches of our obligations or restrictions under our contracts with our customers;our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties;the impact of current global and local economic, credit and market conditions;our inability to retain data center space that we lease or sublease from third parties;global supply chain or procurement disruptions, or increased supply chain costs;information security and data privacy breaches;difficulty managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas;our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent acquisitions;our failure to successfully integrate and operate acquired or developed properties or businesses;difficulties in identifying properties to acquire and completing acquisitions;risks related to joint venture investments, including as a result of our lack of control of such investments;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;our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital;financial market fluctuations and changes in foreign currency exchange rates;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 and goodwill and other intangible asset impairment charges;our inability to manage our growth effectively;losses in excess of our insurance coverage;our inability to attract and retain talent;impact on our operations and on the operations of our customers, suppliers and business partners during a pandemic, such as COVID-19;environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals;our inability to comply with rules and regulations applicable to our company;Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes;Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes;restrictions on our ability to engage in certain business activities;changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates; andthe impact of any financial, accounting, legal or regulatory issues or litigation that may affect us.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance.  Several additional material risks are discussed in our annual report on Form 10‑K for the year ended December 31, 2022, and other filings with the U.S. Securities and Exchange Commission. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a competitive and rapidly changing environment.  New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise. Digital Realty, Digital Realty Trust, the Digital Realty logo, Interxion, Turn-Key Flex, Powered Base Building, ServiceFabric, AnyScale Colo, Pervasive Data Center Architecture, PlatformDIGITAL, PDx, Data Gravity Index and Data Gravity Index DGx are registered trademarks and service marks of Digital Realty Trust, Inc. in the United States and/or other countries. All other names, trademarks and service marks are the property of their respective owners.  

View original content to download multimedia:https://www.prnewswire.com/news-releases/digital-realty-reports-third-quarter-2023-results-301969386.html

SOURCE Digital Realty