Digital Realty Trust(DLR) - 2024 Q3 - Quarterly Results

Overview This section provides a comprehensive overview of Digital Realty Trust, Inc., including corporate information, key quarterly financial data, earnings release highlights, 2024 outlook, and consolidated quarterly statements of operations Corporate Information Digital Realty Trust, Inc. is a global provider of data center, colocation, and interconnection solutions, with a portfolio of 312 data centers and investment-grade credit ratings - As of Q3 2024, Digital Realty's portfolio includes 312 data centers (including 73 in unconsolidated JVs) with approximately 41.1 million square feet, 9.1 million under active development, and 4.9 million held for future development[3] - The company holds stable outlook investment-grade credit ratings, with a BBB from Standard & Poor's and Fitch, and a Baa2 from Moody's[8][11] Common Stock Performance (DLR) - Q3 2024 | Metric | Value | | :--- | :--- | | High Price | $165.17 | | Low Price | $141.00 | | Closing Price (Sep 30, 2024) | $161.83 | | Closing Annual Dividend Yield | 3.0% | | Closing Market Value | $54.66B | Key Quarterly Financial Data This section provides a snapshot of Digital Realty's key financial and operational metrics over the last five quarters, showing Q3 2024 total operating revenues of $1.43 billion and net income of $40.1 million Selected Quarterly Financial Data (Q3 2023 - Q3 2024) | Metric | 30-Sep-24 | 30-Jun-24 | 31-Mar-24 | 31-Dec-23 | 30-Sep-23 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues ($M) | $1,431.2 | $1,356.7 | $1,331.1 | $1,369.6 | $1,402.4 | | Net Income ($M) | $40.1 | $74.7 | $287.8 | $19.9 | $745.9 | | Adjusted EBITDA ($M) | $758.3 | $726.9 | $710.6 | $699.5 | $685.9 | | Net Debt-to-Adjusted EBITDA | 5.4x | 5.3x | 6.1x | 6.2x | 6.3x | | Core FFO / share | $1.67 | $1.65 | $1.67 | $1.63 | $1.62 | | AFFO / share | $1.52 | $1.56 | $1.68 | $1.30 | $1.40 | | Occupancy at end of quarter | 83.9% | 82.9% | 82.1% | 81.7% | 82.8% | Earnings Release Digital Realty announced strong Q3 2024 results with record leasing activity, Core FFO per share of $1.67, and raised full-year 2024 Core FFO outlook - The company achieved record leasing of over $520 million in new bookings, driving the backlog up nearly 60% to a new record of $859 million in annualized GAAP base rent[16][17] - Renewal leases signed in Q3 2024 saw significant rental rate increases of 15.2% on a cash basis and 27.5% on a GAAP basis[16][17] - Key financing activities in Q3 included issuing €850 million of 3.875% notes due 2033, repaying other debt, upsizing credit facilities to $4.2 billion and ¥42.5 billion, and raising approximately $806 million through its ATM equity program[22] Q3 2024 Financial Highlights vs. Q3 2023 | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Revenues | $1.4 billion | $1.4 billion | | Net Income / Diluted Share | $0.09 | $2.31 | | FFO / Share | $1.55 | $1.55 | | Core FFO / Share | $1.67 | $1.62 | | Adjusted EBITDA | $758 million | $686 million | 2024 Outlook Digital Realty updated its full-year 2024 guidance, raising Adjusted EBITDA and Core FFO per share outlooks, and significantly increasing rental rate increase forecasts for renewals Updated 2024 Full-Year Outlook (as of Oct 24, 2024) | Metric | Previous Guidance (Jul 25, 2024) | Current Guidance (Oct 24, 2024) | | :--- | :--- | :--- | | Total Revenue | $5.550 - $5.650 billion | $5.550 - $5.600 billion | | Adjusted EBITDA | $2.800 - $2.900 billion | $2.925 - $2.975 billion | | Rental Rates on Renewals (Cash) | 5.0% - 7.0% | 8.0% - 10.0% | | FFO / Share | $6.15 - $6.30 | $6.15 - $6.25 | | Core FFO / Share | $6.60 - $6.75 | $6.65 - $6.75 | Consolidated Quarterly Statements of Operations The Consolidated Quarterly Statements of Operations detail the company's financial performance, showing Q3 2024 total operating revenues of $1.43 billion and net income of $40.1 million Q3 2024 Statement of Operations Summary (in thousands) | Line Item | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Total Operating Revenues | $1,431,214 | $1,402,437 | | Total Operating Expenses | $1,262,928 | $1,344,206 | | Operating Income | $168,286 | $58,231 | | Net Income | $40,134 | $745,941 | | Net Income Available to Common Stockholders | $41,012 | $723,440 | Funds From Operations This section details the reconciliation and calculation of Funds From Operations (FFO), Core FFO, and Adjusted Funds From Operations (AFFO), providing key metrics for assessing the company's operational performance and dividend capacity Funds From Operations and Core Funds From Operations This section reconciles Net Income to FFO and Core FFO, reporting Q3 2024 FFO of $520.4 million and Core FFO of $557.7 million, or $1.67 per diluted share Reconciliation to FFO and Core FFO - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Net Income Available to Common Stockholders | $41,012 | | Adjustments (Depreciation, Amortization, etc.) | $479,370 | | Funds From Operations (FFO) | $520,382 | | Non-core adjustments (Transaction expenses, etc.) | $37,362 | | Core Funds From Operations (Core FFO) | $557,744 | FFO and Core FFO Per Share - Q3 2024 | Metric | Per Share Value | | :--- | :--- | | FFO per diluted share | $1.55 | | Core FFO per diluted share | $1.67 | Adjusted Funds From Operations This section details the reconciliation from Core FFO to AFFO, reporting Q3 2024 AFFO of $507.5 million, or $1.52 per diluted share, with an 80.4% diluted AFFO payout ratio Reconciliation to AFFO - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Core FFO | $557,744 | | Non-cash adjustments (stock comp, straight-line rent, etc.) | $17,045 | | Recurring capital expenditures & leasing costs | ($67,308) | | Adjusted Funds From Operations (AFFO) | $507,474 | AFFO Per Share and Payout Ratio - Q3 2024 | Metric | Value | | :--- | :--- | | AFFO per diluted share | $1.52 | | Dividends per share | $1.22 | | Diluted AFFO Payout Ratio | 80.4% | Balance Sheet Information This section provides a detailed overview of Digital Realty's financial position, including consolidated balance sheets, components of net asset value, debt maturity schedules, and compliance with debt covenants Consolidated Balance Sheets As of September 30, 2024, Digital Realty's consolidated balance sheet shows total assets of $45.3 billion, total liabilities of $22.1 billion, and total debt of approximately $17.0 billion Balance Sheet Summary (as of Sep 30, 2024, in thousands) | Category | Amount | | :--- | :--- | | Assets | | | Cash and cash equivalents | $2,175,605 | | Net Investments in Real Estate | $27,686,662 | | Total Assets | $45,295,392 | | Liabilities & Equity | | | Total Debt (net) | $16,986,546 | | Total Liabilities | $22,118,781 | | Total Equity | $21,710,975 | | Total Liabilities and Equity | $45,295,392 | Components of Net Asset Value This section breaks down the components used to estimate the company's Net Asset Value (NAV), starting with an annualized consolidated cash NOI of $2.92 billion Key NAV Components (in thousands) | Component | Value | | :--- | :--- | | Total Consolidated Cash NOI, Annualized | $2,916,238 | | Digital Realty's Pro Rata Share of Unconsolidated JV Cash NOI | $240,100 | | Development CIP | $5,175,054 | | Cash and cash equivalents | $2,175,605 | | Total Liabilities (including preferred stock and JV debt) | $22,735,637 | Debt Maturities The company's debt maturity schedule as of September 30, 2024, shows a well-staggered profile with no significant near-term maturities in 2024 and a weighted average term to initial maturity of 4.3 years - The weighted average term to initial maturity for the company's debt is 4.3 years, extending to 4.5 years assuming extension options are exercised[42] Total Debt Maturities by Year (as of Sep 30, 2024, in thousands) | Year | Amount Due | | :--- | :--- | | 2024 | $140 | | 2025 | $1,259,628 | | 2026 | $2,149,339 | | 2027 | $1,837,315 | | 2028 | $2,484,854 | | Thereafter | $9,377,769 | | Total Debt | $17,109,044 | Debt Analysis and Covenant Compliance Digital Realty remains in compliance with all debt covenants as of September 30, 2024, with key ratios like Total outstanding debt / total assets at 35% and Fixed charge coverage at 4.0x Debt Covenant Compliance (as of Sep 30, 2024) | Covenant Ratio | Requirement | Actual | | :--- | :--- | :--- | | Total outstanding debt / total assets | < 60% | 35% | | Secured debt / total assets | < 40% | 3% | | Fixed charge coverage | > 1.50x | 4.0x | Internal Growth This section analyzes Digital Realty's internal growth drivers, including same-capital operating trends, leasing activity, lease expirations, customer diversification, and occupancy rates across its portfolio Same-Capital Operating Trend Summary The same-capital portfolio demonstrated positive internal growth, with Cash Net Operating Income (NOI) increasing by 0.8% year-over-year in Q3 2024 and occupancy at 83.3% Same-Capital Portfolio Performance (Q3 2024) | Metric | YoY Change (vs Q3 2023) | QoQ Change (vs Q2 2024) | | :--- | :--- | :--- | | Total Revenue | (3.2%) | 1.6% | | Net Operating Income (NOI) | 1.7% | (0.6%) | | Cash Net Operating Income (Cash NOI) | 0.8% | (3.1%) | Summary of Leasing Activity Q3 2024 leasing activity was exceptionally strong, with $505 million in new leases and renewal rental rates increasing by 15.2% cash basis and 27.5% GAAP basis New Leases Signed - Q3 2024 | Category | Annualized GAAP Rent | Kilowatts Leased | | :--- | :--- | :--- | | 0-1 MW | $50.4 million | 16,642 kW | | > 1 MW | $449.7 million | 172,139 kW | | Total | $505.2 million | 188,781 kW | Lease Renewals - Q3 2024 | Metric | Total | | :--- | :--- | | Kilowatts Renewed | 87,344 kW | | % Change Cash Rent | +15.2% | | % Change GAAP Rent | +27.5% | | Retention Ratio (by sq. ft.) | 83.0% | Lease Expirations - By Size The company's lease expiration schedule is staggered, with 6.2% of total annualized rent expiring in the remainder of 2024 and 23.4% in 2025, offering potential for rent roll-ups Lease Expirations by Annualized Rent | Expiration Year | Annualized Rent ($ thousands) | % of Total Annualized Rent | | :--- | :--- | :--- | | 2024 (remainder) | $233,403 | 6.2% | | 2025 | $889,196 | 23.4% | | 2026 | $481,340 | 12.7% | | 2027 | $386,851 | 10.2% | | 2028 | $231,527 | 6.1% | | Thereafter | $1,581,635 | 41.7% | Top 20 Customers by Annualized Rent Digital Realty's customer base is diversified, with the top 20 customers accounting for 49.8% of annualized recurring revenue and a weighted average remaining lease term of 6.0 years - The top 20 customers contribute 49.8% of the company's annualized recurring revenue, with a weighted average remaining lease term of 6.0 years[54] Top 5 Customers by Annualized Recurring Revenue | Rank | Customer | % of Annualized Recurring Revenue | | :--- | :--- | :--- | | 1 | Fortune 50 Software Company | 11.2% | | 2 | Oracle Corporation | 5.7% | | 3 | Social Content Platform | 5.4% | | 4 | Global Cloud Provider | 4.6% | | 5 | IBM | 3.1% | Occupancy Analysis As of Q3 2024, total portfolio occupancy was 83.9%, an increase from the prior quarter, with North America at 85.5% and managed unconsolidated joint ventures at 93.4% Portfolio Occupancy by Region (as of Sep 30, 2024) | Region/Portfolio | Occupancy | | :--- | :--- | | North America | 85.5% | | EMEA | 77.6% | | Asia Pacific | 81.8% | | Consolidated Portfolio Total | 82.7% | | Managed Unconsolidated Portfolio | 93.4% | | Total Portfolio | 83.9% | External Growth This section examines Digital Realty's external growth strategies, including its development pipeline, construction projects, historical capital expenditures, and activities related to acquisitions, dispositions, and unconsolidated joint ventures Development Lifecycle The company has a substantial development pipeline with 644 MW of IT capacity under construction, 74% pre-leased, and an estimated total investment of $7.67 billion at a 12.0% yield Development Projects Under Construction (100% Share) | Region | IT Capacity (MW) | % Leased | Total Investment ($B) | Estimated Yield | | :--- | :--- | :--- | :--- | :--- | | Americas | 344 | 97% | $3.74 | 13.6% | | EMEA | 257 | 42% | $3.44 | 10.6% | | APAC | 43 | 71% | $0.49 | 10.4% | | Total | 644 | 74% | $7.67 | 12.0% | Construction Projects in Progress As of Q3 2024, the total projected investment in land held and development CIP is $12.5 billion (100% share), with Digital Realty's share at $10.4 billion Construction in Progress Summary (DLR Share, in thousands) | Category | Current Investment | Future Investment | Total Investment | | :--- | :--- | :--- | :--- | | Future Development Capacity | $2,528,053 | $1,212,408 | $3,740,461 | | Data Center Construction | $2,715,479 | $3,304,705 | $6,020,184 | | Total Land Held and Development CIP | $5,744,930 | $4,674,103 | $10,419,033 | Historical Capital Expenditures and Investments in Real Estate In Q3 2024, Digital Realty invested $781.5 million in real estate improvements, primarily $650.9 million in development capital expenditures, with recurring capital expenditures of $67.3 million Capital Expenditures - Q3 2024 (in thousands) | Category | Amount | | :--- | :--- | | Development | $650,912 | | Enhancements and Other Non-Recurring | $7,070 | | Total Non-Recurring Capital Expenditures | $657,981 | | Recurring Capital Expenditures | $67,308 | | Total Direct Capital Expenditures | $725,289 | Acquisitions / Dispositions / Joint Ventures In Q3 2024, Digital Realty acquired two properties in the UK and Amsterdam for $247.9 million and disposed of a non-core property in Eagan, MN for $6.25 million - Acquired two properties in Q3 2024: a leasehold in Slough, UK for $200 million and buildings in Amsterdam for $47.9 million[67] - Disposed of one building in Eagan, MN for $6.25 million during the quarter[66] Unconsolidated Joint Ventures The company's unconsolidated joint ventures hold $11.7 billion in assets and $4.0 billion in debt, generating $171.7 million in total NOI for Q3 2024 Digital Realty's Pro Rata Share of Unconsolidated JVs - Q3 2024 (in thousands) | Metric | Amount | | :--- | :--- | | Debt | $1,479,468 | | Net Operating Income (NOI) | $61,616 | | Cash Net Operating Income (Cash NOI) | $60,025 | | Core FFO | $21,316 | Additional Information This section provides supplementary financial details, including the reconciliation of EBITDA and key financial ratios, management's statements on non-GAAP measures, and important forward-looking statements Reconciliation of EBITDA and Financial Ratios This section reconciles Net Income to EBITDA and Adjusted EBITDA, reporting Q3 2024 Adjusted EBITDA of $758.3 million and key ratios like Net Debt-to-Adjusted EBITDA at 5.4x Reconciliation to Adjusted EBITDA - Q3 2024 (in thousands) | Line Item | Amount | | :--- | :--- | | Net Income Available to Common Stockholders | $41,012 | | Interest, Taxes, Depreciation & Amortization | $598,863 | | EBITDA | $639,875 | | JV adjustments, transaction costs, impairments, etc. | $118,421 | | Adjusted EBITDA | $758,296 | Key Financial Ratios - Q3 2024 | Ratio | Value | | :--- | :--- | | Interest coverage ratio | 4.3x | | Fixed charge coverage ratio | 4.1x | | Debt to total enterprise value | 23.5% | | Net Debt-to-Adjusted EBITDA | 5.4x | Management Statements on Non-GAAP Measures This section defines non-GAAP financial measures like FFO, Core FFO, AFFO, EBITDA, Adjusted EBITDA, NOI, and Cash NOI, used by management for supplemental performance insight - FFO (Funds From Operations): Calculated per Nareit standards, it excludes real estate depreciation and gains/losses from property sales to show trends in occupancy, rental rates, and operating costs[74] - Core FFO: Adjusts FFO for non-core items like transaction expenses and currency revaluation to capture trends in the core business operating performance[75] - AFFO (Adjusted Funds from Operations): Adjusts Core FFO for recurring capital expenditures, straight-line rent, and other non-cash items to assess the ability to fund dividend requirements from operations[76] Forward-Looking Statements This section provides a standard safe harbor statement, cautioning that forward-looking statements involve risks and uncertainties, and directs readers to SEC filings for a complete discussion