Business Context and Reporting Period
Digital Realty Trust, Inc. (DLR) and its operating partnership, Digital Realty Trust, L.P., filed a Form 8-K on July 30, 2020, announcing preliminary unaudited financial results for the second quarter ended June 30, 2020. The company operates as a global data center provider. These results are preliminary and subject to final audit and review.
Key Financial Metrics
| Metric (in thousands) | Q2 2020 | Q2 2019 | YTD Q2 2020 | YTD Q2 2019 |
|---|---|---|---|---|
| Total Operating Revenues | $992,995 | $800,797 | $1,816,332 | $1,615,312 |
| Operating Income | $152,811 | $148,972 | $252,860 | $290,515 |
| Net Income | $75,978 | $61,324 | $304,676 | $182,321 |
| Net Income Available to Common Stockholders | $53,676 | $31,738 | $256,535 | $127,607 |
| Funds From Operations (FFO) to Common | $414,533 | $333,676 | $626,831 | $750,911 |
Balance Sheet Highlights (June 30, 2020 vs. Dec 31, 2019):
- Total Assets: Increased from $23.07 billion to $33.86 billion.
- Cash and Cash Equivalents: Increased from $89.8 million to $505.2 million.
- Total Liabilities: Increased from $12.42 billion to $16.14 billion.
- Debt: Unsecured senior notes increased to $11.27 billion; Global revolving credit facilities decreased to $64.5 million.
Material Changes vs. Prior Period
- Revenue Growth: Q2 2020 operating revenues increased 24% year-over-year to $993 million, driven by organic growth and acquisitions.
- Expense Increases: Operating expenses rose to $840 million in Q2 2020 from $652 million in Q2 2019. Notable increases include General and Administrative expenses ($94.3M vs $53.0M) and Transaction and integration costs ($15.6M vs $4.2M), largely due to the Interxion combination.
- Joint Venture Impact: Equity in earnings of unconsolidated joint ventures swung from a $7.0 million gain in Q2 2019 to a $7.6 million loss in Q2 2020.
- Asset Base Expansion: Net investments in real estate grew by approximately $4.1 billion year-over-year, reflecting significant capital deployment and acquisitions.
Outlook, Commentary, and Risks
Management Commentary and Activity:
- Leasing: In Q2 2020, the company signed new leases representing $144 million in annualized GAAP rental revenue and renewals representing $169 million. Renewal rental rates decreased 2.8% on a cash basis but increased 7.2% on a GAAP basis.
- Capital Markets: The company issued 4.53 million shares under its at-the-market (ATM) program, generating approximately $645 million in gross proceeds.
- Integration: Significant transaction and integration costs were incurred related to the combination with Interxion.
Risks and Contingencies:
- Forward-Looking Statements: The filing includes standard disclaimers regarding risks such as reduced demand for data centers, increased competition, and the impact of the COVID-19 pandemic.
- Financial Risks: Risks include refinancing needs, interest rate fluctuations, and the ability to maintain REIT status.
- Operational Risks: Potential disruptions in connectivity, power availability, and cybersecurity breaches are cited as material risks.
Investor Verification Checklist
- Verify the final audited Q2 2020 financial statements against these preliminary figures, specifically regarding the impact of the Interxion integration.
- Monitor the trajectory of transaction and integration costs to assess their impact on future operating margins.
- Review the specific details of the $144 million in new leasing activity to understand tenant concentration and lease terms.
- Assess the sustainability of the 2.8% cash basis rental rate decline on renewals in the context of market conditions.
- Confirm the status of the $11.27 billion in unsecured senior notes and upcoming maturity schedules.