Digital Realty Trust, Inc. — Q1 2021 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Digital Realty owns, develops and operates data centers globally; its operating business is conducted through Digital Realty Trust, L.P. The quarter reflects the expanded portfolio following the March 2020 Interxion combination.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Operating revenue | $1,090.4 million | $823.3 million | Up 32.4%; Interxion contributed $236.2 million in Q1 2021 versus $47.4 million in Q1 2020. |
| Operating income | $192.5 million | $100.0 million | Operating margin was 17.7%, versus 12.1%. |
| Net income | $394.7 million | $228.7 million | Includes property-sale gains of $333.9 million and $304.8 million, respectively. |
| Net income available to common stockholders | $372.4 million | $202.9 million | Diluted EPS was $1.32 versus $0.90. |
| Diluted FFO per share and unit | $1.49 | $0.91 | Company-defined supplemental REIT measure; not a substitute for GAAP earnings. |
| Cash from operating activities | $327.9 million | $226.7 million | Increase primarily reflected Interxion. |
| Cash capital expenditures | $479.4 million | $354.8 million | Primarily development spending. |
Balance sheet and liquidity. At March 31, 2021, total assets were $35.5 billion, total liabilities $17.2 billion, and equity $18.3 billion. Cash and cash equivalents were $221.1 million, with $9.6 million of restricted cash. Consolidated debt principal was $13.37 billion, at a 2.30% weighted-average interest rate; 93.9% was fixed-rate or hedged. Debt-to-enterprise value was approximately 24%. The company reported compliance with its senior-note financial covenants. As of May 4, approximately $2.2 billion was available under its global revolving credit facilities.
Portfolio and distributions. The portfolio included 290 data centers, including 44 held through unconsolidated entities, and approximately 45.3 million rentable square feet, including development space. Occupancy was approximately 85.3%, excluding space under active development and space held for development. The common dividend was $4.64 annualized per share.
Material changes versus the prior period
- Revenue growth reflected Interxion and other portfolio changes; stabilized-property rental revenue increased 2.6% year over year.
- Operating expenses rose $174.6 million, including higher property costs, depreciation and G&A associated largely with the expanded portfolio. Transaction and integration expenses declined $42.7 million as Interxion-related costs eased.
- Interest expense fell $10.1 million, while the company recorded an $18.3 million loss on early debt extinguishment, primarily from redeeming 2.75% notes due 2023.
- In March, the company sold 11 European data centers for approximately $680 million, recording an approximately $333 million gain. Q1 2020 included a $304.8 million gain on a different property sale.
- Foreign-currency translation reduced other comprehensive income by $219.0 million in Q1 2021.
Outlook, commentary and risks
- No specific earnings or revenue guidance is provided in the supplied filing text. Management expected $1.6–$1.9 billion of development-program capital expenditures during the nine months ending December 31, 2021; the amount could change materially with demand, leasing and financing conditions. Construction-contract commitments were approximately $1.4 billion at quarter-end.
- Management said facilities remained operational and Q1 had no significant COVID-19 disruption. April 2021 rent collections were reported at levels consistent with the comparable prior period. Rent-relief requests involved customers representing about 3% of annualized recurring rent; future effects remain uncertain.
- Management cited strong demand in most key markets and expected 2021 renewals, on average, to be generally consistent with current rents. It cautioned that lease-up, occupancy, rental rates and development returns depend on local supply, demand and competition.
- Key risks include construction delays and cost increases, customer credit and lease renewals, access to debt and equity capital, refinancing and interest-rate exposure, foreign-exchange movements, energy costs and climate regulation, cybersecurity, and potential impacts from COVID-19. Foreign properties generated 36.6% of Q1 revenue.
- The company targets debt-to-Adjusted EBITDA of no more than 5.5x, fixed-charge coverage above 3x, and floating-rate debt below 20% of total debt; these are stated targets, not reported actual ratios.
- No legal proceedings were identified that management believed would materially adversely affect operations or financial position. Subsequent to quarter-end, the company announced redemption of its Series C preferred stock on May 17, 2021.
Most important facts for investors to verify
- How much of reported earnings growth and EPS reflects recurring operations versus gains on property sales and other nonrecurring items.
- Interxion’s contribution to comparable growth, integration costs and future operating performance.
- Development spending, delivery schedules, preleasing and the ability to lease the 7.7 million square feet under active development.
- Actual leverage and fixed-charge coverage against management’s stated targets, as well as debt maturities and revolver availability.
- Whether COVID-related rent-relief requests, customer collections, construction delays or foreign-exchange movements materially change in subsequent quarters.