Business Context and Reporting Period
Company: Digital Realty Trust, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 31, 2013
Context: This filing discloses revised financial guidance for the quarter and full year ended December 31, 2012, and provides initial earnings guidance for the year ending December 31, 2013. The information was presented at the company's 2013 Analyst Day.
Key Financial Metrics and Guidance
The filing provides preliminary, unaudited guidance for 2012 (FY 2012E) and Q4 2012 (Q4 2012E). Actual historical results for 2012 are not finalized in this document.
Funds from Operations (FFO) and Core FFO (Per Diluted Share)
| Metric | FY 2012E Guidance | Q4 2012E Guidance |
|---|---|---|
| Net Income Available to Common Stockholders | $1.46 – $1.48 | $0.35 – $0.37 |
| Real Estate Depreciation & Amortization | $3.29 | $0.84 |
| Dilutive Impact of Converts | ($0.33) | ($0.05) |
| Projected FFO | $4.42 – $4.44 | $1.14 – $1.16 |
| Adjustments for Non-Core Items | $0.02 | $0.03 |
| Projected Core FFO | $4.44 – $4.46 | $1.17 – $1.19 |
EBITDA and Adjusted EBITDA (in millions)
| Metric | FY 2012E Guidance | Q4 2012E Guidance |
|---|---|---|
| Net Income Available to Common Stockholders | $171 – $173 | $44.0 – $46.0 |
| Interest, Taxes, Depreciation & Amortization | $543 | $148.5 |
| Projected EBITDA | $714 – $716 | $192.5 – $194.5 |
| Noncontrolling Interests & Preferred Dividends | $44 | $11.1 |
| Less: Gain on Sale of Assets | ($2) | N/A |
| Projected Adjusted EBITDA | $756 – $758 | $203.6 – $205.6 |
| Less: Straight-line Rent & Non-cash Adjustments | ($87) | N/A |
| Projected Cash Adjusted EBITDA | $669 – $671 | N/A |
Other Operational Metrics
- NOI Growth (2012 vs 2011): Expected to be in the range of $130 million – $140 million.
- Development/Redevelopment Spending (2012): Expected to be $747 million.
- Historical NOI (FY 2011): $666.63 million (derived from reconciliation table).
Material Changes and Outlook
This filing represents a revision to previously issued guidance for the fiscal year and fourth quarter of 2012. The company also issued initial earnings guidance for the fiscal year ending December 31, 2013, though specific numerical targets for 2013 were not detailed in the text of this 8-K (referenced as attached in Exhibit 99.1).
Management utilizes non-GAAP measures (FFO, Core FFO, EBITDA, Adjusted EBITDA, NOI) to supplement GAAP net income, arguing these metrics better capture trends in occupancy, rental rates, and operating costs by excluding depreciation, amortization, and non-core items.
Risks and Contingencies
The filing includes a Safe Harbor statement regarding forward-looking statements. Key risks identified include:
- Economic Conditions: Deterioration in global economic, credit, and market conditions, including the downgrade of the U.S. government's credit rating.
- Tenant Risks: Dependence on significant tenants, potential bankruptcy or insolvency of major tenants, and lease defaults or non-renewals.
- Financing: Failure to obtain necessary debt/equity financing, increased interest rates, refinancing risks, and potential breaches of loan covenants.
- Operational: Delays or unexpected costs in development/redevelopment, inability to lease new space, and increased competition in data center space.
- Regulatory/Tax: Changes in tax laws, failure to maintain REIT status, and changes in foreign laws regarding real estate ownership.
Investor Verification Checklist
- Guidance Revision: Verify the specific reasons for the revision of FY 2012 and Q4 2012 guidance compared to prior estimates.
- 2013 Targets: Review the attached Press Release (Exhibit 99.1) for specific numerical guidance for the 2013 fiscal year, which is not detailed in the 8-K text.
- Non-GAAP Reconciliations: Confirm the calculation methodologies for FFO, Core FFO, and Adjusted EBITDA in the upcoming 10-K to ensure comparability with other REITs.
- Capital Expenditures: Monitor the execution of the $747 million development/redevelopment spending plan for 2012.
- Audit Status: Note that the FY 2012E figures are preliminary and unaudited; wait for the final audited 10-K for confirmed results.