SAN FRANCISCO—Locally based Digital Realty Trust Inc.'s financial results for the fourth quarter and full-year 2013 closed on a positive note, with record leasing results “driven by strong sales execution and large customer requirements to deploy cloud infrastructure and applications.” So says Michael F. Foust, Digital Realty's CEO. “We are encouraged by the broader range of customers we are attracting as a result of our mid-market initiative as well as strong customer demand for our colocation offerings.”
Fourth quarter financial results were ahead of plan, adds Foust, “due to a combination of lower-than-expected financing costs from the delayed execution of anticipated long-term debt and preferred equity issuances, lower bonus accruals, and operating expense savings from efficient property-level technical operations. Our strong fourth quarter leasing and financial results set the stage for positive forward momentum in 2014."
Highlights from the Q4 report include: Reported FFO per share of $4.74 for full-year 2013, up 7% from $4.44 in 2012; Reported FFO per share of $1.26 in 4Q13, up 9% from $1.16 in 4Q12; Reported core FFO per share of $4.78 in full-year 2013, up 7% from $4.46 in 2012; Reported core FFO per share of $1.26 in 4Q13, up 6% from $1.19 in 4Q12; Signed leases during 4Q13 expected to generate $54 million in annualized GAAP rental revenue, bringing the full-year 2013 total to $161 million, the highest quarter and full-year signings volume in the company's history; and reiterated 2014 core FFO per share outlook of $4.75-$4.90.
Funds From Operations
Funds from operations on a diluted basis was $174.4 million in the fourth quarter of 2013, or $1.26 per share, compared to $1.10 per share in the third quarter of 2013 and $1.16 per share in the fourth quarter of 2012. Excluding certain items that do not represent core expenses or revenue streams, fourth quarter 2013 core FFO was $1.26 per share compared to $1.16 per share in the third quarter of 2013 and $1.19 per share in the fourth quarter of 2012. FFO per share for the full-year 2013 was $4.74 compared to $4.44 in 2012. Core FFO per share for the full-year 2013 was $4.78 compared to $4.46 in 2012.
Net income for the fourth quarter of 2013 was $55.7 million, and net income available to common stockholders in the fourth quarter of 2013 was $43.0 million, or $0.33 per share, compared to $1.06 per share in the third quarter of 2013 and $0.36 per share in the fourth quarter of 2012. For the year ended December 31, 2013, net income was $320.4 million, and net income available to common stockholders for the year ended December 31, 2013 was $271.6 million, or $2.12 per share, compared to $1.48 per share in 2012.
Leasing Activity
During the fourth quarter of 2013, Digital Realty signed new leases totaling $54 million of annualized GAAP rental revenue. For the full year, Digital Realty signed new leases totaling $161 million of annualized GAAP rental revenue. Both the fourth quarter and full-year lease signing volumes represent record highs.
In addition to the new leases signed, Digital Realty also signed renewal leases representing $22 million of annualized GAAP rental revenue during the fourth quarter, bringing the full-year 2013 total to approximately $98 million of annualized GAAP rental revenue. Rental rates on renewal leases signed during the fourth quarter of 2013 rolled up 3.2% on a cash basis and 17.8% on a GAAP basis.
During the fourth quarter of 2013, Digital Realty commenced leases totaling $36 million of annualized GAAP rental revenue with a weighted-average lag between signings and commencements of these leases of 5.1 months. For the full year, the Company commenced leases totaling $121 million of annualized GAAP rental revenue, representing the second best year on record.
Investment Activity
In December 2013, Digital Realty acquired a fully-leased 108,000-square-foot data center located in Somerset, NJ for $35.3 million, or approximately $327 per square foot. The property is 100% triple net leased to an AA-rated financial services tenant with over nine years of remaining lease term. Subsequent to year-end, Digital Realty reached agreement with PRISA, Prudential Real Estate Investors' core fund, to contribute the asset to the existing Digital/PRISA joint venture. In conjunction with the contribution, the joint venture will assume, but expects to pre-pay, the in-place debt and will incur a pre-payment penalty of approximately $4.2 million. The joint venture is 20% owned by a Digital Realty affiliate and 80% by a PRISA affiliate. The transaction is expected to close by the end of the first quarter, subject to customary closing conditions.
Balance Sheet
Digital Realty had $5 billion of total debt outstanding as of Dec. 31, 2013, comprised of $4.4 billion of unsecured debt and $0.6 billion of secured debt. As of Dec. 31, 2013, the company's net debt-to-adjusted EBITDA ratio was 5.4x, its debt-plus-preferred-to-total-enterprise-value ratio was 46.8% and fixed charge coverage was 3.3x.
The company increased its quarterly common stock dividend by 6% to $0.83 per share. This increase represents a compound annual growth rate of 14.3% since the company's first full quarter of operations following its IPO.
2014 Outlook
Digital Realty reiterated its 2014 core FFO per share outlook of $4.75-$4.90 in the report.
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Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
