Digital Realty Reports First Quarter 2014 Results

              Digital Realty Reports First Quarter 2014 Results  PR Newswire  SAN FRANCISCO, May 6, 2014  SAN FRANCISCO, May 6, 2014 /PRNewswire/ --Digital Realty Trust, Inc. (NYSE: DLR), the leading global provider of data center solutions, announced today financial results for the first quarter of 2014. All per share results are shown on a diluted share and unit basis.  Highlights    oReported FFO per share of $1.22 in 1Q14, up 5% from $1.16 in 1Q13;   oReported core FFO per share of $1.28 in 1Q14, up 8% from $1.18 in 1Q13;   oSigned leases during 1Q14 expected to generate $47 million in annualized     GAAP rental revenue (including a direct lease with a former sub-tenant     representing approximately $12 million of annualized GAAP rental revenue);   oContributed a fully-leased, 108,000 square foot data center located in     Somerset, NJ to the existing Digital Realty / Prudential Real Estate     Investors joint venture at a valuation of approximately $40 million,     representing a 7.1% cap rate (including debt prepayment penalty as well as     closing costs);   oCompleted the sale of 14.6 million shares of 7.375% Series H Cumulative     Redeemable Preferred Stock, including partial exercise of the     underwriters' over-allotment option, raising net proceeds of $353 million;   oClosed a £300 million 9.5-year senior unsecured notes offering with a     coupon of 4.75% per annum; and   oRaised 2014 core FFO per share outlook to $4.80-$4.90 from the prior range     of $4.75-$4.90.  Financial Results  Revenues were $391 million for the first quarter, a 3% increase over the previous quarter and a 9% increase over the same quarter last year.  Adjusted EBITDA was $234 million for the first quarter, a 3% increase over the previous quarter and a 9% increase over the same quarter last year.  Funds from operations ("FFO") on a diluted basis was $168 million in the first quarter of 2014, or $1.22 per share, compared to $1.26 per share in the fourth quarter of 2013 and $1.16 per share in the first quarter of 2013.  First quarter 2014 results include a severance charge of approximately $12 million, or $0.09 per share, related to the departure of the company's former Chief Executive Officer.  Excluding the severance charge and certain items that do not represent core expenses or revenue streams, first quarter 2014 core FFO was $1.28 per share compared to $1.26 per share in the fourth quarter of 2013 and $1.18 per share in the first quarter of 2013.   Net income for the first quarter of 2014 was $47 million, and net income available to common stockholders was $34 million, or $0.26 per diluted share, compared to $0.33 per diluted share in the fourth quarter of 2013 and $0.34 per diluted share in the first quarter of 2013.  Leasing Activity  "We signed new leases totaling $47 million of annualized GAAP rental revenue, including a $12 million direct lease with a former sub-tenant, during what is typically a seasonally-slow leasing quarter," commented Interim Chief Executive Officer Bill Stein. "Our mid-market initiative continues to gain traction, and we signed over $4 million of colocation revenue during the first quarter. Pricing is generally stable-to-slightly-improving across product types and regions. We are pleased by the strong underlying demand, consistent leasing execution and gradually improving data center fundamentals."  The weighted-average lag between leases signed during the first quarter and the contractual commencement date was a little over six months.  In addition to the new leases signed, Digital Realty also signed renewal leases representing $15 million of annualized GAAP rental revenue during the quarter. Rental rates on renewal leases signed during the first quarter of 2014 were flat on a cash basis and rolled up 13.5% on a GAAP basis.  New leases signed during the first quarter of 2014 by region and product type are summarized as follows:  North America   Annualized GAAP Rent (in  Square Feet GAAP Rent MW   GAAP Rent                 thousands)                            / Sq. Ft.      / kW Turn-Key Flex   $12,376                   76,017      $163      6.7  $154 Powered Base    12,040                    160,632     75        -    - Building Colocation      3,347                     20,139      166       1.4  202 Non-Technical   375                       30,962      12        -    - Total           $28,138                   287,750     $98       8.1  $162 Europe^(1) Turn-Key Flex   $3,560                    17,821      $200      1.6  $183 Colocation      788                       4,048       195       0.3  222 Non-Technical   106                       2,515       42        -    - Total           $4,454                    24,384      $183      1.9  $189 Asia Pac^(1) Turn-Key Flex   $13,817                   53,572      $258      6.2  $185 Colocation      -                         -           -         -    - Non-Technical   175                       2,900       60        -    - Total           $13,992                   56,472      $248      6.2  $185 Grand Total     $46,584                   368,606     $126      16.2 $174 ^(1) Based on quarterly average exchange rates during the three months ended March 31, 2014.  Investment Activity  In March 2014, the company contributed a fully-leased, 108,000 square foot data center located in Somerset, NJ to the existing Digital Realty / Prudential Real Estate Investors joint venture at a valuation of approximately $40 million, generating a $1.9 million gain, and representing a 7.1% cap rate (including prepayment penalty as well as closing costs).  Subsequent to the end of the quarter, the company sold a single-tenant asset to the user for approximately $42 million, generating net proceeds of approximately $38 million. The company expects to recognize a gain on this sale of approximately $16 million in the second quarter of 2014.  Balance Sheet  Digital Realty had $5 billion of total debt outstanding as of March 31, 2014, comprised of $4.5 billion of unsecured debt and approximately $550 million of secured debt. At the end of the first quarter, net debt-to-adjusted EBITDA was 5.3x, debt-plus-preferred-to-total-enterprise-value was 46.3% and fixed charge coverage was 3.5x.  In March and April 2014, Digital Realty completed the sale of 14.6 million shares of 7.375% Series H Cumulative Redeemable Preferred Stock, including partial exercise of the underwriter's over-allotment option, raising net proceeds of $353 million. In April, the company also closed a £300 million 9.5-year senior unsecured notes offering, interest on which is payable semiannually in arrears at a rate of 4.75% per annum.  In mid-April, Digital Realty redeemed $5.2 million of its 5.50% exchangeable senior debentures due 2029 at a price equal to 100% of the principal amount plus accrued and unpaid interest. In connection with the redemption, the company issued 6.7 million shares of restricted common stock in exchange for the $261.2 million remaining principal amount of the 2029 debentures pursuant to the holders' exercise of their exchange right.  Revised 2014 Outlook  Digital Realty raised its 2014 core FFO per share outlook to $4.80-$4.90 up from the prior range of $4.75-$4.90. The assumptions underlying this guidance are summarized as follows.                          As of January 6,   As of February    As of May 6, 2014                         2014               24, 2014 Internal Growth Rental Rates on Renewal Leases Cash Basis              Roughly flat       Roughly flat      Roughly flat GAAP Basis              Modestly positive  Modestly positive Modestly positive Year-end portfolio      N/A                N/A               92.0%-93.0% occupancy "Same-capital" cash NOI N/A                N/A               4.0%-5.0% growth^(1)                         25-75 bps <        25-75 bps <       25-75 bps < Operating Margin        historical         historical        historical                         run-rate           run-rate          run-rate Incremental Revenue from Speculative        $20-$30 million    $20-$30 million   $10-$15 million Leasing^(2) Overhead Load^(3)       75-85 bps on total 75-85 bps on      75-85 bps on                         assets             total assets      total assets External Growth Acquisitions Dollar Volume           $0-$400 million    $0-$400 million   $0-$400 million Cap Rate                7.5%-8.5%          7.5%-8.5%         7.5%-8.5% Joint Ventures Dollar Volume           $0-$400 million    $0-$400 million   $40-$400 million Cap Rate                6.75%-7.25%        6.75%-7.25%       6.75%-7.25% Development CapEx                   $600-$800 million  $600-$800 million $600-$800 million Average Stabilized      10%-12%            10%-12%           10%-12% Yields Enhancements and Other  $85-$90 million    $85-$90 million   $85-$90 million Non-recurring CapEx^(4) Recurring CapEx + Capitalized Leasing     $75-$80 million    $75-$80 million   $75-$80 million Costs^(5) Balance Sheet Preferred Equity Dollar Amount           $100-$250 million  $100-$250 million $365 million Pricing                 8.0%-8.5%          8.0%-8.5%         7.375% Timing                  Early 2014         Early 2014        Early 2014 Long-Term Debt Dollar Amount           $700-$900 million  $700-$900 million $700-$900 million Pricing                 4.75%-5.50%        4.75%-5.50%       4.75%-5.50% Timing                  Early 2014         Early 2014        Mid-2014 Core Funds From Operations $ / Share               $4.75-$4.90        $4.75-$4.90       $4.80-$4.90        The "same-capital" pool includes properties owned as of December 31, 2012     with less than 5% of total rentable square feet under development. It     also excludes properties that were undergoing, or were expected to (1) undergo, development activities in 2013-2014. NOI is defined as rental     revenue and tenant reimbursement revenue less rental property operating     and maintenance expenses, property taxes and insurance expenses (as     reflected in the statement of operations), and cash NOI is NOI less     straight-line rents and above- and below-market rent amortization.     Incremental revenue from speculative leasing represents revenue expected (2) to be recognized in the current year from leases that have not yet been     signed. (3) Overhead load is defined as General & Administrative expense divided by     Total Assets.     Other non-recurring CapEx represents costs incurred to enhance the     capacity or marketability of operating properties, such as network fiber     initiatives, the build-out of an additional sub-station or installation of (4) a new security system, in addition to major remediation costs on     recently-acquired properties, whether or not contemplated in the original     acquisition underwriting. Other non-recurring CapEx also includes     infrequent and major component replacements.     Recurring CapEx represents non-incremental improvements required to (5) maintain current revenues, including second-generation tenant improvements     and leasing commissions. Capitalized leasing costs include capitalized     leasing compensation as well as capitalized internal leasing commissions.  Non-GAAP Financial Measures  This press release contains non-GAAP financial measures, including FFO, core FFO and Adjusted EBITDA. A reconciliation from U.S. GAAP net income available to common stockholders to FFO, a definition of FFO, a reconciliation from FFO to core FFO, and a definition of core FFO are included as an attachment to this press release. A reconciliation from U.S. GAAP net income available to common stockholders to Adjusted EBITDA, a definition of Adjusted EBITDA, a definition of debt plus preferred to total enterprise value, and a definition of fixed charge coverage ratio are included as an attachment to this press release.  Investor Conference Call  Prior to Digital Realty's conference call today at 5:30 p.m. EDT / 2:30 p.m. PDT, Digital Realty will post a presentation to the Investors section of the company's website at http://investor.digitalrealty.com. The presentation is designed to accompany the discussion of its first quarter 2014 financial results and operating performance. The conference call will feature: Interim Chief Executive Officer and Chief Financial Officer A. William Stein; Chief Investment Officer Scott Peterson; Senior Vice President of Sales & Marketing Matt Miszewski; and Vice President of Finance Matt Mercier.  To participate in the live call, investors are invited to dial +1 (877) 870-4263 (for domestic callers) or +1 (412) 317-0790 (for international callers) at least five minutes prior to start time. A live webcast of the call will be available via the Investors section of Digital Realty's website at http://investor.digitalrealty.com.  Telephone and webcast replays will be available until 9:00 a.m. EDT on June 4, 2014. The telephone replay can be accessed one hour after the call by dialing +1 (877) 344-7529 (for domestic callers) or +1 (412) 317-0088 (for international callers) and providing the conference ID# 10043944. The webcast replay can be accessed on Digital Realty's website immediately after the live call has concluded.  About Digital Realty  Digital Realty Trust, Inc. focuses on delivering customer-driven data center solutions by providing secure, reliable and cost-effective facilities that meet each customer's unique data center needs. Digital Realty's customers include domestic and international companies across multiple industry verticals ranging from financial services, cloud and information technology services, to manufacturing, energy, health care and consumer products. Digital Realty's 131 properties, including 13 properties held as investments in unconsolidated joint ventures, comprise approximately 24.5 million square feet as of March 31, 2014, including 1.3 million square feet of space under active development and 1.4 million square feet of space held for future development. Digital Realty's portfolio is located in 33 markets throughout North America, Europe, Asia and Australia. Additional information about Digital Realty is included in the Company Overview, which is available on the Investors page of Digital Realty's website at http://www.digitalrealty.com.  Safe Harbor Statement  This press release contains forward-looking statements which are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially, including statements related to supply and demand for data center and colocation space; leasing demand, volume and pipeline; data center fundamentals; rent from leases that have been signed but have not yet commenced and other contracted rent to be received in future periods; rental rates on future leases; our contribution of the Somerset, NJ property to our unconsolidated joint venture; cap rates and yields; and the company's revised 2014 FFO, core FFO and net income outlook and underlying assumptions. These risks and uncertainties include, among others, the following: the impact of current global economic, credit and market conditions; current local economic conditions in our geographic markets; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; our failure to successfully integrate and operate acquired or developed properties or businesses; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical infrastructure or services or availability of power; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and development space; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; our inability to comply with the rules and regulations applicable to reporting companies; our failure to maintain our status as a REIT; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates. For a further list and description of such risks and uncertainties, see the reports and other filings by the company with the U.S. Securities and Exchange Commission, including the company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2013. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A. William Stein                John J. Stewart Interim Chief ExecutiveOfficer Senior Vice President and Chief Financial Officer     Investor Relations Digital Realty Trust, Inc.      Digital Realty Trust, Inc. +1 (415) 738-6500               +1 (415) 738-6500    Digital Realty Trust, Inc. and Subsidiaries Condensed Consolidated Income Statements (in thousands, except share and per share data) (unaudited)                                  Three Months Ended                                  March 31, 2014         March 31, 2013 Operating Revenues:  Rental                          $            $                                             305,786               281,399  Tenant reimbursements           83,621                 75,917  Fee income                      1,183                  806  Other                           -                      248  Total operating revenues        390,590                358,370 Operating Expenses:  Rental property operating and   117,896                105,480  maintenance  Property taxes                  22,125                 21,042  Insurance                       2,422                  2,205  Construction management         164                    384  Change in fair value of         (3,403)                1,300  contingent consideration  Depreciation and amortization   130,620                111,623  General and administrative      30,678                 15,951  Transactions                    81                     1,763  Other                           -                      36  Total operating expenses        300,583                259,784  Operating income                90,007                 98,586 Other Income (Expenses):  Equity in earnings of           2,581                  2,335  unconsolidated joint ventures  Gain on contribution of  property to unconsolidated      1,906                  -  joint venture  Interest and other income       1,727                  41  Interest expense                (47,374)               (48,078)  Tax expense                     (1,838)                (1,203)  Loss from early extinguishment  (292)                  -  of debt Net Income                       46,717                 51,681  Net income attributable to      (805)                  (970)  noncontrolling interests Net Income Attributable to       45,912                 50,711 Digital Realty Trust, Inc.  Preferred stock dividends       (11,726)               (8,054) Net Income Available to Common   $            $           Stockholders                      34,186                42,657  Net income per share available  to common stockholders:  Basic                           $            $                                               0.27                0.34  Diluted                         $            $                                               0.26                0.34  Weighted average shares  outstanding:  Basic                           128,535,995            126,445,285  Diluted                         129,136,961            126,738,339    Digital Realty Trust, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands)                                     March 31, 2014         December 31, 2013 ASSETS                              (unaudited) Investments in real estate Properties: Land                                $            $                                                685,640           693,791 Acquired ground leases              14,680                 14,618 Buildings and improvements          8,834,693              8,680,677 Tenant improvements                 490,697                490,492 Total investments in properties     10,025,710             9,879,578 Accumulated depreciation and        (1,665,421)            (1,565,996) amortization Net investments in properties       8,360,289              8,313,582 Investment in unconsolidated joint  81,411                 70,504 ventures Net investments in real estate      8,441,700              8,384,086 Cash and cash equivalents           70,242                 56,808 Accounts and other receivables,     181,433                181,163 net Deferred rent                       415,515                393,504 Acquired above market leases, net  49,521                 52,264 Acquired in place lease value and   479,940                489,456 deferred leasing costs, net Deferred financing costs, net      34,295                 36,475 Restricted cash                     42,842                 40,362 Assets held for sale                25,070                 - Other assets                        64,836                 51,627 Total Assets                        $            $                                              9,805,394            9,685,745 LIABILITIES AND EQUITY Global revolving credit facility    $            $                                                790,500           724,668 Unsecured term loan                 1,026,891              1,020,984 Unsecured senior notes, net of      2,368,848              2,364,232 discount Exchangeable senior debentures      266,400                266,400 Mortgage loans, net of premiums     554,742                585,608 Accounts payable and other accrued  614,645                662,687 liabilities Accrued dividends and               -                      102,509 distributions Acquired below market leases, net   123,152                130,269 Security deposits and prepaid       180,886                181,876 rents Liabilities associated with assets  3,610                  - held for sale Total Liabilities                   5,929,674              6,039,233 Equity: Stockholders' equity                3,831,233              3,610,516 Noncontrolling interests            44,487                 35,996 Total Equity                        3,875,720              3,646,512 Total Liabilities and Equity        $            $                                              9,805,394            9,685,745        Digital Realty Trust, Inc. and Subsidiaries Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO) (in thousands, except per share and unit data) (unaudited)                           Three Months Ended                           March 31, 2014    December 31, 2013 March 31, 2013 Net income available to   $          $         $        common stockholders       34,186            42,977             42,657 Adjustments: Noncontrolling interests  693               849               824 in operating partnership Real estate related depreciation and          129,496           125,671           110,690 amortization (1) Real estate related depreciation and amortization related to   1,628             1,387             833 investment in  unconsolidated joint ventures Gain on contribution of properties to             (1,906)           (555)             - unconsolidated joint venture FFO available to common   $           $          $        stockholders and          164,097          170,329           155,004 unitholders (2) Basic FFO per share and   $         $         $        unit                       1.25             1.30              1.20 Diluted FFO per share and $         $         $        unit (2)                   1.22             1.26              1.16 Weighted average common stock and units outstanding Basic                     131,143           130,982           128,888 Diluted (2)               138,162           137,891           137,680 (1) Real estate related depreciation and amortization was computed as follows: Depreciation and amortization per income   130,620           126,776           111,623 statement Non-real estate           (1,124)           (1,105)           (933) depreciation                           $           $          $                                  129,496          125,671           110,690   (2) At March 31, 2013, we had 0 series D convertible preferred shares outstanding, as a result of the conversion of all remaining shares on February 26, 2013, which calculates into 1,909 common shares on a weighted average basis for the three months ended March 31, 2013. For the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, we have excluded the effect of dilutive series E, series F, series G and series H preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series E, series F, series G and series H preferred stock, as applicable, which we consider highly improbable; if included, the dilutive effect for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013 would be 14,582, 15,372 and 7,161 shares, respectively. In addition, we had a balance of $266,400 of 5.50% exchangeable senior debentures due 2029 that were exchangeable for 6,806, 6,712 and 6,590 common shares on a weighted average basis for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, respectively. See below for calculations of diluted FFO available to common stockholders and unitholders and weighted average common stock and units outstanding.                           Three Months Ended                           March 31, 2014    December 31, 2013 March 31, 2013 FFO available to common   $           $          $        stockholders and          164,097          170,329           155,004 unitholders Add: Series D convertible preferred     -                 -                 - dividends Add: 5.50% exchangeable senior debentures         4,050             4,050             4,050 interest expense FFO available to common   $           $          $        stockholders and          168,147          174,379           159,054 unitholders -- diluted Weighted average common stock and units           131,143           130,982           128,888 outstanding Add: Effect of dilutive securities (excluding series D convertible      213               197               293 preferred stock and 5.50% exchangeable senior debentures) Add: Effect of dilutive series D convertible      -                 -                 1,909 preferred stock Add: Effect of dilutive 5.50% exchangeable senior 6,806             6,712             6,590 debentures Weighted average common stock and units           138,162           137,891           137,680 outstanding -- diluted Digital Realty Trust, Inc. and Subsidiaries Reconciliation of Funds From Operations (FFO) to Core Funds From Operations (CFFO) (in thousands, except per share and unit data) (unaudited)                           Three Months Ended                           March 31, 2014    December 31, 2013 March 31, 2013 FFO available to common   $           $          $        stockholders and          168,147          174,379           159,054 unitholders -- diluted Termination fees and other non-core revenues   (2,047)           -                 (248) ^(3) Significant transaction   81                1,108             1,763 expenses Loss from early           292               608               - extinguishment of debt Change in fair value of contingent consideration  (3,403)           (1,749)           1,300 ^(4) Equity in earnings adjustment for non-core   843               -                 - items Severance accrual and     12,430            -                 - equity acceleration ^(5) Other non-core expense    -                 7                 36 adjustments ^(6) CFFO available to common  $           $          $        stockholders and          176,343          174,353           161,905 unitholders -- diluted Diluted CFFO per share    $         $         $        and unit                   1.28             1.26              1.18 (3) Includes one-time fees, proceeds and certain other adjustments that are not core to our business. (4) Relates to earn-out contingency in connection with Sentrum Portfolio acquisition. (5) Relates to a severance charge of approximately $12.4 million, or $0.09 per share and unit, related to the departure of the company's former Chief Executive Officer. (6) Includes reversal of accruals and certain other adjustments that are not core to our business. Digital Realty Trust, Inc. and Subsidiaries Reconciliation of Net Income Available to Common Stockholders to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA (in thousands) (unaudited)                           Three Months Ended                           March 31, 2014    December 31, 2013 March 31, 2013 Net income available to   $          $         $        common stockholders       34,186            42,977             42,657 Interest                  47,374            45,996            48,078 Loss from early           292               608               - extinguishment of debt Taxes                     1,838             (473)             1,203 Depreciation and          130,620           126,776           111,623 amortization EBITDA                    214,310           215,884           203,561 Change in fair value of   (3,403)           (1,749)           1,300 contingent consideration Severance accrual and     12,430            -                 - equity acceleration Gain on contribution of properties to             (1,906)           (555)             - unconsolidated joint venture Noncontrolling interests  805               964               970 Preferred stock dividends 11,726            11,726            8,054 Adjusted EBITDA           $           $          $                                  233,962          226,270           213,885    A reconciliation of the range of 2014 projected net income to projected FFO and core FFO follows:                                                               Low - High Net income available to common stockholders per diluted share $1.05 – 1.20  Add: Real estate depreciation and amortization                     $3.69 Less: Dilutive impact of convertible stock                          ($0.04)  Projected FFO per diluted share          $4.70– 4.85 Adjustments for items that do not represent core expenses and $0.05 revenue streams  Projected core FFO per diluted share     $4.75– 4.90  Funds From Operations  Digital Realty calculates Funds from Operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) available to common stockholders and unitholders (computed in accordance with U.S. GAAP), excluding gains (or losses) from sales of property, impairment charges, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. Digital Realty also believes that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other REITs' FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance.   Core Funds from Operations  We present core funds from operations, or CFFO, as a supplemental operating measure because, in excluding certain items that do not reflect core revenue or expense streams, it provides a performance measure that, when compared year over year, captures trends in our core business operating performance. We calculate CFFO by adding to or subtracting from FFO (i)termination fees and other non-core revenues, (ii) significant transaction expenses, (iii) loss from early extinguishment of debt, (iv) costs on redemption of preferred stock, (v) significant property tax adjustments, net and (vi) other non-core expense adjustments. Because certain of these adjustments have a real economic impact on our financial condition and results from operations, the utility of CFFO as a measure of our performance is limited. Other REITs may not calculate CFFO in a consistent manner. Accordingly, our CFFO may not be comparable to other REITs' CFFO. CFFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.   EBITDA and Adjusted EBITDA  We believe that earnings before interest expense, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA (as defined below), are useful supplemental performance measures because they allow investors to view our performance without the impact of non-cash depreciation and amortization or the cost of debt and, with respect to Adjusted EBITDA, straight-line rent expense adjustment attributable to prior periods, change in fair value of contingent consideration, severance accrual and equity acceleration, gain on contribution of properties to unconsolidated joint venture, non-controlling interests, and preferred stock dividends. Adjusted EBITDA is EBITDA excluding straight-line rent expense adjustment attributable to prior periods, change in fair value of contingent consideration, severance accrual and equity acceleration, gain on contribution of properties to unconsolidated joint venture, non-controlling interests, and preferred stock dividends.  Additional Definitions  Debt-to-Adjusted EBITDA ratio is calculated using total debt at balance sheet carrying value less unrestricted cash and cash equivalents divided by the product of Adjusted EBITDA multiplied by four.  Net debt plus preferred to total enterprise value is mortgage debt and other loans plus preferred stock divided by mortgage debt and other loans plus the liquidation value of preferred stock and the market value of outstanding Digital Realty Trust, Inc. common stock and Digital Realty Trust, L.P. units, assuming the redemption of Digital Realty Trust, L.P. units for shares of Digital Realty Trust, Inc. common stock.  Fixed charge coverage ratio is Adjusted EBITDA divided by the sum of GAAP interest expense, scheduled debt principal payments and preferred dividends. For the quarter ended March 31, 2014, GAAP interest expense was $47.4 million and scheduled debt principal payments and preferred dividends was $15.1 million.    SOURCE Digital Realty Trust, Inc.  Website: http://www.digitalrealtytrust.com