UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2022
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From to .
Commission file number 001-32336 (Digital Realty Trust, Inc.)
000-54023 (Digital Realty Trust, L.P.)
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Digital Realty Trust, Inc.) |
| 26-0081711 | |
Maryland (Digital Realty Trust, L.P.) | 20-2402955 | ||
(State or other jurisdiction of | (IRS employer | ||
incorporation or organization) | identification number) | ||
5707 Southwest Parkway, Building 1, Suite 275 | |||
Austin, Texas 78735 | |||
(Address of principal executive offices) | |||
(737) 281-0101
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading symbol(s) |
| Name of each exchange on which registered | |
Common Stock | DLR | New York Stock Exchange | |||
Series J Cumulative Redeemable Preferred Stock | DLR Pr J | New York Stock Exchange | |||
Series K Cumulative Redeemable Preferred Stock | DLR Pr K | New York Stock Exchange | |||
Series L Cumulative Redeemable Preferred Stock | DLR Pr L | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Digital Realty Trust, Inc. |
| Yes ⌧ No ◻ |
Digital Realty Trust, L.P. | Yes ⌧ No ◻ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Digital Realty Trust, Inc. |
| Yes ⌧ No ◻ |
Digital Realty Trust, L.P. | Yes ⌧ No ◻ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Digital Realty Trust, Inc.:
Large accelerated filer ⌧ |
| Accelerated filer ◻ |
Non-accelerated filer ◻ | Smaller reporting company ☐ | |
Emerging growth company ☐ |
Digital Realty Trust, L.P.:
Large accelerated filer ◻ |
| Accelerated filer ◻ |
Non-accelerated filer ⌧ | Smaller reporting company ☐ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Digital Realty Trust, Inc. |
| ◻ |
Digital Realty Trust, L.P. | ◻ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Digital Realty Trust, Inc. |
| Yes ☐ No ⌧ |
Digital Realty Trust, L.P. | Yes ☐ No ⌧ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Digital Realty Trust, Inc.:
|
| |
Class |
| Outstanding at August 3, 2022 |
Common Stock, $.01 par value per share | 287,407,842 |
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2022 of Digital Realty Trust, Inc., a Maryland corporation, and Digital Realty Trust, L.P., a Maryland limited partnership, of which Digital Realty Trust, Inc. is the sole general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our Company”, or “the Company” refer to Digital Realty Trust, Inc. together with its consolidated subsidiaries, including Digital Realty Trust, L.P. Unless otherwise, all references to the “Parent” refer to Digital Realty Trust, Inc., and all references to “our Operating Partnership,” “the Operating Partnership” or “the OP” refer to Digital Realty Trust, L.P. together with its consolidated subsidiaries.
The Parent is a real estate investment trust, or REIT, and the sole general partner of the OP. In statements regarding qualification as a REIT, such terms refer solely to Digital Realty Trust, Inc. As of June 30, 2022, the Parent owned an approximate 97.8% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 2.2% of the common limited partnership interests of Digital Realty Trust, L.P. are owned by non-affiliated third parties and certain directors and officers of the Parent. As of June 30, 2022, the Parent owned all of the preferred limited partnership interests of Digital Realty Trust, L.P. As the sole general partner of Digital Realty Trust, L.P., the Parent has the full, exclusive and complete responsibility for the OP’s day-to-day management and control.
We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:
| ● | enhancing investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
| ● | eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Parent and the OP; and |
| ● | creating time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time and guaranteeing certain unsecured debt of the OP and certain of its subsidiaries and affiliates. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are generally contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.
The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.
To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of the Company.
As general partner with control of the OP, the Parent consolidates the OP for financial reporting purposes, and it does not have significant assets other than its investment in the OP. Therefore, the assets and liabilities of the Parent and the OP are the same on their respective condensed consolidated financial statements. The separate discussions of the Parent and the OP in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
2
DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
Page | ||
PART I. | FINANCIAL INFORMATION | |
ITEM 1. | Condensed Consolidated Financial Statements of Digital Realty Trust, Inc.: | |
4 | ||
5 | ||
6 | ||
7 | ||
11 | ||
Condensed Consolidated Financial Statements of Digital Realty Trust, L.P.: | ||
12 | ||
13 | ||
14 | ||
15 | ||
19 | ||
20 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | |
58 | ||
59 | ||
60 | ||
61 | ||
61 | ||
61 | ||
62 | ||
62 | ||
62 | ||
62 | ||
63 | ||
65 |
3
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS | ||||||
Investments in real estate: | ||||||
Investments in properties, net | $ | 20,800,389 | $ | 20,762,241 | ||
Investments in unconsolidated entities |
| 1,942,549 |
| 1,807,689 | ||
Net investments in real estate |
| 22,742,938 |
| 22,569,930 | ||
Operating lease right-of-use assets, net | 1,310,970 | 1,405,441 | ||||
Cash and cash equivalents |
| 99,226 |
| 142,698 | ||
Accounts and other receivables, net |
| 797,208 |
| 671,721 | ||
Deferred rent, net |
| 554,016 |
| 547,385 | ||
Goodwill |
| 7,545,107 |
| 7,937,440 | ||
Customer relationship value, deferred leasing costs and intangibles, net |
| 2,521,390 | 2,735,486 | |||
Other assets |
| 385,202 |
| 359,459 | ||
Total assets | $ | 35,956,057 | $ | 36,369,560 | ||
LIABILITIES AND EQUITY | ||||||
Global revolving credit facilities, net | $ | 1,440,040 | $ | 398,172 | ||
Unsecured senior notes, net of discount |
| 12,695,568 |
| 12,903,370 | ||
Secured and other debt, including premiums |
| 158,699 |
| 146,668 | ||
Operating lease liabilities | 1,418,540 | 1,512,187 | ||||
Accounts payable and other accrued liabilities |
| 1,619,222 |
| 1,543,623 | ||
Deferred tax liabilities, net | 611,582 | 666,451 | ||||
Accrued dividends and distributions |
| — |
| 338,729 | ||
Security deposits and prepaid rents |
| 341,140 |
| 336,578 | ||
Total liabilities |
| 18,284,791 |
| 17,845,778 | ||
Redeemable noncontrolling interests |
| 41,047 |
| 46,995 | ||
Commitments and contingencies | ||||||
Equity: | ||||||
Stockholders’ Equity: | ||||||
Preferred Stock: $0.01 par value per share, 110,000 shares authorized; $755,000 liquidation preference ($25.00 per share), 30,200 shares issued and outstanding as of June 30, 2022 and December 31, 2021 |
| 731,690 |
| 731,690 | ||
Common Stock: $0.01 par value per share, 392,000 shares authorized; 284,734 and 284,415 shares and as of June 30, 2022 and December 31, 2021, respectively |
| 2,824 |
| 2,824 | ||
Additional paid-in capital |
| 21,091,364 |
| 21,075,863 | ||
Accumulated dividends in excess of earnings |
| (4,211,685) |
| (3,631,929) | ||
Accumulated other comprehensive loss, net |
| (475,561) |
| (173,880) | ||
Total stockholders’ equity |
| 17,138,632 |
| 18,004,568 | ||
Noncontrolling interests |
| 491,587 |
| 472,219 | ||
Total equity |
| 17,630,219 |
| 18,476,787 | ||
Total liabilities and equity | $ | 35,956,057 | $ | 36,369,560 | ||
See accompanying notes to the condensed consolidated financial statements.
4
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Revenues: | ||||||||||||
Rental and other services | $ | 1,131,537 | $ | 1,089,395 | $ | 2,253,087 | $ | 2,177,301 | ||||
Fee income and other |
| 7,785 |
| 3,793 |
| 13,557 |
| 6,278 | ||||
Total operating revenues |
| 1,139,322 |
| 1,093,188 |
| 2,266,644 |
| 2,183,579 | ||||
Operating Expenses: | ||||||||||||
Rental property operating and maintenance |
| 421,502 |
| 383,216 | 857,095 |
| 744,995 | |||||
Property taxes and insurance |
| 51,049 |
| 48,498 |
| 101,273 |
| 101,001 | ||||
Depreciation and amortization |
| 376,967 |
| 368,981 |
| 759,099 |
| 738,714 | ||||
General and administrative |
| 105,776 |
| 97,492 |
| 204,289 |
| 197,486 | ||||
Transactions and integration |
| 13,586 |
| 7,075 |
| 25,554 |
| 21,195 | ||||
Other |
| 70 |
| 2,298 |
| 7,727 |
| 2,041 | ||||
Total operating expenses |
| 968,950 |
| 907,560 |
| 1,955,037 |
| 1,805,432 | ||||
Operating income |
| 170,372 |
| 185,628 |
| 311,607 |
| 378,147 | ||||
Other Income (Expenses): | ||||||||||||
Equity in (loss) earnings of unconsolidated entities |
| (34,088) |
| 52,143 |
| 26,870 |
| 29,112 | ||||
Gain on disposition of properties, net | — | 499 | 2,770 | 334,420 | ||||||||
Other income, net |
| 13,008 |
| 10,124 |
| 16,059 |
| 2,938 | ||||
Interest expense |
| (69,023) |
| (75,014) |
| (135,748) |
| (150,667) | ||||
Loss from early extinguishment of debt |
| — |
| — |
| (51,135) |
| (18,347) | ||||
Income tax expense |
| (16,406) |
| (47,582) |
| (29,650) |
| (55,129) | ||||
Net income |
| 63,863 |
| 125,798 |
| 140,773 |
| 520,474 | ||||
Net income attributable to noncontrolling interests |
| (436) |
| (4,544) |
| (4,065) |
| (13,300) | ||||
Net income attributable to Digital Realty Trust, Inc. |
| 63,427 |
| 121,254 |
| 136,708 |
| 507,174 | ||||
Preferred stock dividends |
| (10,181) |
| (11,885) |
| (20,362) |
| (25,399) | ||||
Gain on redemption of preferred stock |
| — |
| 18,000 |
| — |
| 18,000 | ||||
Net income available to common stockholders | $ | 53,246 | $ | 127,369 | $ | 116,346 | $ | 499,775 | ||||
Net income per share available to common stockholders: | ||||||||||||
Basic | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.78 | ||||
Diluted | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.77 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic |
| 284,694 |
| 281,792 |
| 284,610 |
| 281,445 | ||||
Diluted |
| 285,110 |
| 282,434 |
| 284,980 |
| 282,076 | ||||
See accompanying notes to the condensed consolidated financial statements.
5
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | 63,863 | $ | 125,798 | $ | 140,773 | $ | 520,474 | ||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments |
| (293,913) |
| 111,678 |
| (307,790) |
| (107,324) | ||||
Increase in fair value of interest rate swaps |
| 356 |
| 226 |
| (988) |
| 563 | ||||
Reclassification to interest expense from interest rate swaps |
| 41 |
| 353 |
| (62) |
| 712 | ||||
Other comprehensive (loss) income | (293,516) | 112,257 | (308,840) | (106,049) | ||||||||
Comprehensive (loss) income |
| (229,653) |
| 238,055 |
| (168,067) |
| 414,425 | ||||
Comprehensive loss (income) attributable to noncontrolling interests |
| 6,362 |
| (7,285) |
| 3,093 |
| (10,528) | ||||
Comprehensive (loss) income attributable to Digital Realty Trust, Inc. | $ | (223,291) | $ | 230,770 | $ | (164,974) | $ | 403,897 | ||||
See accompanying notes to the condensed consolidated financial statements.
6
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands, except share data)
Accumulated | Accumulated | |||||||||||||||||||||||||
Redeemable | Number of | Additional | Dividends in | Other | ||||||||||||||||||||||
Noncontrolling | Preferred | Common | Common | Paid-in | Excess of | Comprehensive | Noncontrolling | |||||||||||||||||||
Three Months Ended June 30, 2022 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of March 31, 2022 |
| $ | 42,734 | $ | 731,690 | 284,666,082 | 2,824 | $ | 21,069,391 | $ | (3,916,854) | $ | (188,844) | $ | 510,499 | $ | 18,208,706 | |||||||||
Conversion of common units to common stock | — | — | 2,436 | — | 201 | — | — | (201) | — | |||||||||||||||||
Vesting of restricted stock, net | — | — | 65,404 | — | — | — | — | — | — | |||||||||||||||||
Issuance of common stock, net of costs |
| — | — | — | — | 211 | — | — | — | 211 | ||||||||||||||||
Net share settlement to satisfy tax withholding upon vesting |
| — | — | — | — | (981) | — | — | — | (981) | ||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | — | 22,420 | — | — | — | 22,420 | |||||||||||||||||
Reclassification of vested share based awards | — | — | — | — | (1,746) | — | — | 1,746 | — | |||||||||||||||||
Adjustment to redeemable noncontrolling interests |
| (1,868) | — | — | — | 1,868 | — | — | — | 1,868 | ||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | (10,181) | — | — | (10,181) | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units | (190) | — | — | — | — | (348,077) | — | (8,027) | (356,104) | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests |
| 336 | — | — | — | — | — | — | (6,032) | (6,032) | ||||||||||||||||
Net income |
| 35 | — | — | — | — | 63,427 | — | 401 | 63,828 | ||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — | — | — | — | — | — | (287,105) | (6,808) | (293,913) | ||||||||||||||||
Other comprehensive income—fair value of interest rate swaps |
| — | — | — | — | — | — | 347 | 9 | 356 | ||||||||||||||||
Other comprehensive income—reclassification of accumulated other comprehensive income to interest expense | — | — | — | — | — | — | 41 | — | 41 | |||||||||||||||||
Balance as of June 30, 2022 |
| $ | 41,047 | $ | 731,690 | 284,733,922 | $ | 2,824 | $ | 21,091,364 | $ | (4,211,685) | $ | (475,561) | $ | 491,587 | $ | 17,630,219 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
7
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands, except share data)
Accumulated | Accumulated | |||||||||||||||||||||||||
Redeemable | Number of | Additional | Dividends in | Other | ||||||||||||||||||||||
Noncontrolling | Preferred | Common | Common | Paid-in | Excess of | Comprehensive | Noncontrolling | |||||||||||||||||||
Six Months Ended June 30, 2022 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of December 31, 2021 |
| $ | 46,995 | $ | 731,690 |
| 284,415,013 | $ | 2,824 | $ | 21,075,863 | $ | (3,631,929) | $ | (173,880) | $ | 472,219 | $ | 18,476,787 | |||||||
Conversion of common units to common stock | — | — | 17,297 | — | 1,459 | — | — | (1,459) | — | |||||||||||||||||
Vesting of restricted stock, net |
| — | — | 259,424 | — | — | — | — | — | — | ||||||||||||||||
Issuance of common stock, net of costs |
| — | — | — | — | (3,813) | — | — | — | (3,813) | ||||||||||||||||
Shares issued under employee stock purchase plan |
| — | — | 42,188 | — | 4,969 | — | — | — | 4,969 | ||||||||||||||||
Net share settlement to satisfy tax withholding upon vesting |
| — | — | — | — | (7,143) | — | — | — | (7,143) | ||||||||||||||||
Amortization of unearned compensation regarding share based awards |
| — | — | — | — | 40,965 | — | — | — | 40,965 | ||||||||||||||||
Reclassification of vested share based awards |
| — | — | — | — | (28,277) | — | — | 28,277 | — | ||||||||||||||||
Adjustment to redeemable noncontrolling interests |
| (7,341) | — | — | — | 7,341 | — | — | — | 7,341 | ||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | (20,362) | — | — | (20,362) | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units | (380) | — | — | — | — | (696,102) | — | (15,813) | (711,915) | |||||||||||||||||
Contributions from noncontrolling interests |
| 1,703 | — | — | — | — | — | — | 11,527 | 11,527 | ||||||||||||||||
Net income |
| 70 | — | — | — | — | 136,708 | — | 3,995 | 140,703 | ||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — | — | — | — | — | — | (300,656) | (7,134) | (307,790) | ||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps |
| — | — | — | — | — | — | (965) | (23) | (988) | ||||||||||||||||
Other comprehensive income—reclassification of accumulated other comprehensive income to interest expense |
| — | — | — | — | — | — | (60) | (2) | (62) | ||||||||||||||||
Balance as of June 30, 2022 |
| $ | 41,047 | $ | 731,690 |
| 284,733,922 | $ | 2,824 | $ | 21,091,364 | $ | (4,211,685) | $ | (475,561) | $ | 491,587 | $ | 17,630,219 | |||||||
See accompanying notes to the condensed consolidated financial statements.
8
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands, except share data)
Accumulated | Accumulated | |||||||||||||||||||||||||
Redeemable | Number of | Additional | Dividends in | Other | ||||||||||||||||||||||
Noncontrolling | Preferred | Common | Common | Paid-in | Excess of | Comprehensive | Noncontrolling | |||||||||||||||||||
Three Months Ended June 30, 2021 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Income (Loss), Net |
| Interests |
| Total Equity | ||||||||
Balance as of March 31, 2021 |
| $ | 40,097 | $ | 950,940 | 281,372,310 | $ | 2,795 | $ | 20,700,282 | $ | (3,952,497) | $ | (77,783) | $ | 721,587 | $ | 18,345,324 | ||||||||
Conversion of common units to common stock |
| — |
| — | 698,485 |
| 7 |
| 57,777 |
| — |
| — | (57,784) |
| — | ||||||||||
Issuance of common stock, net of costs | — | — | 477,762 | 5 | 75,665 | — | — | — | 75,670 | |||||||||||||||||
Amortization of share-based compensation |
| — |
| — | — |
| — |
| 21,063 |
| — |
| — |
| — |
| 21,063 | |||||||||
Vesting of restricted stock, net |
| — |
| — | 54,595 |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||
Shares repurchased and retired to satisfy tax withholding upon vesting |
| — | — | — | (1) | (6,130) | — | — |
| — |
| (6,131) | ||||||||||||||
Reclassification of vested share-based awards | — |
| — | — |
| — |
| (2,322) |
| — |
| — | 2,322 |
| — | |||||||||||
Redemption of series C preferred stock | — | (219,250) | — | — | — | 18,000 | — | — | (201,250) | |||||||||||||||||
Adjustment to redeemable noncontrolling interests |
| 1,501 |
| — | — |
| — |
| (1,501) |
| — |
| — |
| — |
| (1,501) | |||||||||
Dividends declared on preferred stock | — | — | — | — | — | (11,885) | — | — | (11,885) | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units | (181) | — | — | — | — | (328,279) | — | (7,801) | (336,080) | |||||||||||||||||
Contributions from noncontrolling interests |
| — |
| — | — |
| — |
| — |
| — |
| — |
| 41,055 |
| 41,055 | |||||||||
Net income |
| 73 |
| — | — |
| — |
| — |
| 121,254 |
| — |
| 4,471 |
| 125,725 | |||||||||
Other comprehensive income—foreign currency translation adjustments |
| — |
| — | — |
| — |
| — |
| — |
| 108,951 |
| 2,727 |
| 111,678 | |||||||||
Other comprehensive income—fair value of interest rate swaps |
| — |
| — | — |
| — |
| — |
| — |
| 221 |
| 5 |
| 226 | |||||||||
Other comprehensive income— reclassification of accumulated other comprehensive loss to interest expense | — |
| — | — |
| — |
| — |
| — |
| 344 | 9 | 353 | ||||||||||||
Balance as of June 30, 2021 |
| $ | 41,490 | $ | 731,690 | 282,603,152 | $ | 2,806 | $ | 20,844,834 | $ | (4,153,407) | $ | 31,733 | $ | 706,591 | $ | 18,164,247 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
9
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands, except share data)
Accumulated | Accumulated | |||||||||||||||||||||||||
Redeemable | Number of | Additional | Dividends in | Other | ||||||||||||||||||||||
Noncontrolling | Preferred | Common | Common | Paid-in | Excess of | Comprehensive | Noncontrolling | |||||||||||||||||||
Six Months Ended June 30, 2021 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Income, Net |
| Interests |
| Total Equity | ||||||||
Balance as of December 31, 2020 |
| $ | 42,011 | $ | 950,940 |
| 280,289,726 | $ | 2,788 | $ | 20,626,897 | $ | (3,997,938) | $ | 135,010 | $ | 728,639 | $ | 18,446,336 | |||||||
Conversion of common units to common stock |
| — |
| — |
| 1,340,675 |
| 13 | 111,384 |
| — |
| — |
| (111,397) |
| — | |||||||||
Common stock issued in connection with acquisition |
| — |
| — |
| 125,395 |
| 1 | 18,269 |
| — |
| — |
| — |
| 18,270 | |||||||||
Issuance of common stock, net of costs |
| — |
| — |
| 477,762 |
| 5 | 75,433 |
| — |
| — |
| — |
| 75,438 | |||||||||
Shares issued under employee stock purchase plan |
| — |
| — |
| 29,475 |
| — | 3,427 |
| — |
| — |
| — |
| 3,427 | |||||||||
Amortization of share-based compensation |
| — |
| — |
| — |
| — | 49,851 |
| — |
| — |
| — |
| 49,851 | |||||||||
Vesting of restricted stock, net | — |
| — |
| 340,119 |
| — | — |
| — |
| — |
| — |
| — | ||||||||||
Shares repurchased and retired to satisfy tax withholding upon vesting | — |
| — |
| — |
| (1) | (15,848) |
| — |
| — |
| — |
| (15,849) | ||||||||||
Reclassification of vested share-based awards |
| — |
| — |
| — |
| — | (22,870) |
| — |
| — |
| 22,870 |
| — | |||||||||
Redemption of series C preferred stock | — | (219,250) | — | — | — | 18,000 | — | — | (201,250) | |||||||||||||||||
Adjustment to redeemable noncontrolling interests | 1,709 | — | — | — | (1,709) | — | — | — | (1,709) | |||||||||||||||||
Dividends declared on preferred stock |
| — |
| — |
| — |
| — | — |
| (25,399) |
| — |
| — |
| (25,399) | |||||||||
Dividends and distributions on common stock and common and incentive units |
| (362) |
| — |
| — |
| — | — |
| (655,244) |
| — |
| (16,502) |
| (671,746) | |||||||||
Contributions from (distributions to) noncontrolling interests |
| (2,150) |
| — |
| — |
| — | — |
| — |
| — |
| 72,735 |
| 72,735 | |||||||||
Net income |
| 282 |
| — |
| — |
| — | — |
| 507,174 |
| — |
| 13,018 |
| 520,192 | |||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — |
| — |
| — |
| — | — |
| — |
| (104,520) |
| (2,804) |
| (107,324) | |||||||||
Other comprehensive income—fair value of interest rate swaps |
| — |
| — |
| — |
| — | — |
| — |
| 549 |
| 14 |
| 563 | |||||||||
Other comprehensive income— reclassification of accumulated other comprehensive loss to interest expense | — | — | — | — | — | — | 694 | 18 | 712 | |||||||||||||||||
Balance as of June 30, 2021 |
| $ | 41,490 | $ | 731,690 |
| 282,603,152 | $ | 2,806 | $ | 20,844,834 | $ | (4,153,407) | $ | 31,733 | $ | 706,591 | $ | 18,164,247 | |||||||
See accompanying notes to the condensed consolidated financial statements.
10
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: |
|
| ||||
Net income | $ | 140,773 | $ | 520,474 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Gain on disposition of properties, net |
| (2,770) |
| (334,420) | ||
Equity in (earnings) of unconsolidated entities |
| (26,870) |
| (29,112) | ||
Distributions from unconsolidated entities |
| 22,972 |
| 57,631 | ||
Depreciation and amortization | 759,099 | 738,714 | ||||
Amortization of share-based compensation |
| 40,965 |
| 47,668 | ||
Loss from early extinguishment of debt |
| 51,135 |
| 18,347 | ||
Straight-lined rents and amortization of above and below market leases |
| (16,885) |
| (14,908) | ||
Amortization of deferred financing costs and debt discount / premium | 9,359 | 9,571 | ||||
Other items, net | 17,024 | 30,586 | ||||
Changes in assets and liabilities: | ||||||
Increase in accounts receivable and other assets | (248,310) | (126,688) | ||||
Increase (decrease) in accounts payable and other liabilities | 37,086 | (67,372) | ||||
Net cash provided by operating activities |
| 783,578 | 850,491 | |||
Cash flows from investing activities: | ||||||
Improvements to investments in real estate |
| (1,067,027) |
| (1,081,446) | ||
Cash paid for assets acquired | (97,205) | (168,439) | ||||
(Investment in) proceeds from unconsolidated entities, net | (199,945) | 6,131 | ||||
Proceeds from sale of real estate | — | 703,936 | ||||
Other investing activities, net | (63,655) | (18,827) | ||||
Net cash (used in) investing activities |
| (1,427,832) |
| (558,645) | ||
Cash flows from financing activities: | ||||||
Net proceeds from credit facilities | $ | 1,077,719 | $ | 508,169 | ||
Borrowings on secured / unsecured debt | 1,125,451 | 1,218,650 | ||||
Repayments on secured / unsecured debt | (450,737) | (886,963) | ||||
Premium paid for early extinguishment of debt | (49,662) | (16,482) | ||||
Capital contributions from noncontrolling interests, net |
| 17,977 |
| 70,585 | ||
Proceeds from issuance of common stock, net | — | 75,438 | ||||
Redemption of preferred stock |
| — |
| (201,250) | ||
Payments of dividends and distributions | (1,071,386) | (1,021,893) | ||||
Other financing activities, net | (16,271) | (21,602) | ||||
Net cash provided by (used in) financing activities |
| 633,091 |
| (275,348) | ||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (11,163) |
| 16,498 | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| (31,101) |
| (11,637) | ||
Cash, cash equivalents and restricted cash at beginning of period |
| 151,485 |
| 123,652 | ||
Cash, cash equivalents and restricted cash at end of period | $ | 109,221 | $ | 128,513 | ||
See accompanying notes to the condensed consolidated financial statements.
11
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per unit data)
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS |
|
| ||||
Investments in real estate: |
|
|
|
| ||
Investments in properties, net | $ | 20,800,389 | $ | 20,762,241 | ||
Investments in unconsolidated entities |
| 1,942,549 |
| 1,807,689 | ||
Net investments in real estate |
| 22,742,938 |
| 22,569,930 | ||
Operating lease right-of-use assets, net | 1,310,970 | 1,405,441 | ||||
Cash and cash equivalents |
| 99,226 |
| 142,698 | ||
Accounts and other receivables, net |
| 797,208 |
| 671,721 | ||
Deferred rent, net |
| 554,016 |
| 547,385 | ||
Goodwill |
| 7,545,107 |
| 7,937,440 | ||
Customer relationship value, deferred leasing costs and intangibles, net |
| 2,521,390 |
| 2,735,486 | ||
Other assets |
| 385,202 |
| 359,459 | ||
Total assets | $ | 35,956,057 | $ | 36,369,560 | ||
LIABILITIES AND CAPITAL |
|
|
|
| ||
Global revolving credit facilities, net | $ | 1,440,040 | $ | 398,172 | ||
Unsecured senior notes, net |
| 12,695,568 |
| 12,903,370 | ||
Secured and other debt, including premiums | 158,699 | 146,668 | ||||
Operating lease liabilities | 1,418,540 | 1,512,187 | ||||
Accounts payable and other accrued liabilities |
| 1,619,222 |
| 1,543,623 | ||
Deferred tax liabilities, net | 611,582 | 666,451 | ||||
Accrued dividends and distributions |
| — |
| 338,729 | ||
Security deposits and prepaid rents |
| 341,140 |
| 336,578 | ||
Total liabilities |
| 18,284,791 |
| 17,845,778 | ||
Redeemable noncontrolling interests | 41,047 | 46,995 | ||||
Commitments and contingencies |
|
| ||||
Capital: |
|
|
|
| ||
Partners’ capital: |
|
|
|
| ||
General Partner: |
|
|
|
| ||
Preferred units, $755,000 liquidation preference ($25.00 per unit), and 30,200 units issued and outstanding as of June 30, 2022 and December 31, 2021 |
| 731,690 |
| 731,690 | ||
Common units, 284,734 and 284,415 units and as of June 30, 2022 and December 31, 2021, respectively |
| 16,882,503 |
| 17,446,758 | ||
Limited Partners, 6,299 and 5,932 units and as of June 30, 2022 and December 31, 2021, respectively |
| 446,937 |
| 432,902 | ||
Accumulated other comprehensive loss |
| (490,285) |
| (181,445) | ||
Total partners’ capital |
| 17,570,845 |
| 18,429,905 | ||
Noncontrolling interests in consolidated entities |
| 59,374 |
| 46,882 | ||
Total capital |
| 17,630,219 |
| 18,476,787 | ||
Total liabilities and capital | $ | 35,956,057 | $ | 36,369,560 | ||
See accompanying notes to the condensed consolidated financial statements.
12
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per unit data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Revenues: |
|
|
|
|
|
|
| |||||
Rental and other services | $ | 1,131,537 | $ | 1,089,395 | $ | 2,253,087 | $ | 2,177,301 | ||||
Fee income and other |
| 7,785 |
| 3,793 |
| 13,557 |
| 6,278 | ||||
Total operating revenues |
| 1,139,322 |
| 1,093,188 |
| 2,266,644 |
| 2,183,579 | ||||
Operating Expenses: |
|
|
|
|
|
|
|
| ||||
Rental property operating and maintenance |
| 421,502 |
| 383,216 |
| 857,095 |
| 744,995 | ||||
Property taxes and insurance |
| 51,049 |
| 48,498 |
| 101,273 |
| 101,001 | ||||
Depreciation and amortization |
| 376,967 |
| 368,981 |
| 759,099 |
| 738,714 | ||||
General and administrative |
| 105,776 |
| 97,492 |
| 204,289 |
| 197,486 | ||||
Transactions and integration |
| 13,586 |
| 7,075 |
| 25,554 |
| 21,195 | ||||
Other |
| 70 |
| 2,298 |
| 7,727 |
| 2,041 | ||||
Total operating expenses |
| 968,950 |
| 907,560 |
| 1,955,037 |
| 1,805,432 | ||||
Operating income |
| 170,372 |
| 185,628 | 311,607 | 378,147 | ||||||
Other Income (Expenses): |
| |||||||||||
Equity in earnings (loss) of unconsolidated entities |
| (34,088) |
| 52,143 |
| 26,870 |
| 29,112 | ||||
Gain on disposition of properties, net | — | 499 | 2,770 | 334,420 | ||||||||
Other income (expense), net |
| 13,008 |
| 10,124 |
| 16,059 |
| 2,938 | ||||
Interest expense |
| (69,023) |
| (75,014) |
| (135,748) |
| (150,667) | ||||
Loss from early extinguishment of debt | — | — | (51,135) | (18,347) | ||||||||
Income tax expense |
| (16,406) |
| (47,582) |
| (29,650) |
| (55,129) | ||||
Net income |
| 63,863 |
| 125,798 | 140,773 | 520,474 | ||||||
Net (income) loss attributable to noncontrolling interests |
| 1,064 |
| (1,344) |
| (965) |
| (300) | ||||
Net income attributable to Digital Realty Trust, L.P. |
| 64,927 |
| 124,454 | 139,808 | 520,174 | ||||||
Preferred units distributions |
| (10,181) |
| (11,885) |
| (20,362) |
| (25,399) | ||||
Gain on redemption of preferred units |
| — |
| 18,000 |
| — |
| 18,000 | ||||
Net income available to common unitholders | $ | 54,746 | $ | 130,569 | $ | 119,446 | $ | 512,775 | ||||
Net income per unit available to common unitholders: |
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.78 | ||||
Diluted | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.77 | ||||
Weighted average common units outstanding: |
|
|
|
|
|
|
|
| ||||
Basic |
| 290,528 |
| 288,843 |
| 290,346 |
| 288,588 | ||||
Diluted |
| 290,944 |
| 289,485 |
| 290,716 |
| 289,219 | ||||
See accompanying notes to the condensed consolidated financial statements.
13
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | 63,863 | $ | 125,798 | $ | 140,773 | $ | 520,474 | ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
| (293,913) |
| 111,678 |
| (307,790) |
| (107,324) | ||||
Increase in fair value of interest rate swaps |
| 356 |
| 226 |
| (988) |
| 563 | ||||
Reclassification to interest expense from interest rate swaps |
| 41 |
| 353 |
| (62) |
| 712 | ||||
Other comprehensive (loss) income | (293,516) | 112,257 | (308,840) | (106,049) | ||||||||
Comprehensive (loss) income attributable to Digital Realty Trust, L.P. | $ | (229,653) | $ | 238,055 | $ | (168,067) | $ | 414,425 | ||||
Comprehensive loss (income) attributable to noncontrolling interests |
| 1,064 |
| (1,344) |
| (965) |
| (300) | ||||
Comprehensive (loss) income attributable to Digital Realty Trust, L.P. | $ | (228,589) | $ | 236,711 | $ | (169,032) | $ | 414,125 | ||||
See accompanying notes to the condensed consolidated financial statements.
14
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
(unaudited, in thousands, except unit data)
Accumulated | |||||||||||||||||||||||||||
Redeemable | General Partner | Limited Partners | Other | ||||||||||||||||||||||||
Limited Partner | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Three Months Ended June 30, 2022 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of March 31, 2022 |
| $ | 42,734 | 30,200,000 | $ | 731,690 | 284,666,082 | $ | 17,155,361 | 6,290,465 | $ | 451,954 | $ | (196,769) | $ | 66,470 | $ | 18,208,706 | |||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | 2,436 |
| 201 | (2,436) |
| (201) |
| — |
| — |
| — | ||||||||||
Vesting of restricted common units, net | — | — | — | 65,404 | — | — | — | — | — | — | |||||||||||||||||
Payment of common unit offering costs and other, net | — | — | — | — | 211 | — | — | — | — | 211 | |||||||||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | 11,449 |
| — |
| — |
| — |
| — | ||||||||||
Net unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | — |
| (981) | — |
| — |
| — |
| — |
| (981) | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| 22,420 | — |
| — |
| — |
| — |
| 22,420 | ||||||||||
Reclassification of vested share-based awards | — | — |
| — | — |
| (1,746) | — |
| 1,746 |
| — |
| — |
| — | |||||||||||
Adjustment to redeemable partnership units |
| (1,868) | — |
| — | — |
| 1,868 | — |
| — |
| — |
| — |
| 1,868 | ||||||||||
Distributions | (190) | — | — | — | (358,258) | — | (8,027) | — | — | (366,285) | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests in consolidated entities | 336 | — | — | — | — | — | — | — | (6,032) | (6,032) | |||||||||||||||||
Net income | 35 | — | — | — | 63,427 | — | 1,465 | — | (1,064) | 63,828 | |||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — | — |
| — | — |
| — | — |
| — |
| (293,913) |
| — |
| (293,913) | ||||||||||
Other comprehensive income—fair value of interest rate swaps |
| — | — |
| — | — |
| — | — |
| — |
| 356 |
| — |
| 356 | ||||||||||
Other comprehensive loss—reclassification of accumulated other comprehensive income to interest expense |
| — | — |
| — | — |
| — | — |
| — |
| 41 |
| — |
| 41 | ||||||||||
Balance as of June 30, 2022 |
| $ | 41,047 | 30,200,000 | $ | 731,690 | 284,733,922 | $ | 16,882,503 | 6,299,478 | $ | 446,937 | $ | (490,285) | $ | 59,374 | $ | 17,630,219 | |||||||||
See accompanying notes to the condensed consolidated financial statements.
15
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
(unaudited, in thousands, except unit data)
Accumulated | |||||||||||||||||||||||||||
Redeemable | General Partner | Limited Partners | Other | ||||||||||||||||||||||||
Noncontrolling | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Six Months Ended June 30, 2022 |
| Interests |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of December 31, 2021 |
| $ | 46,995 | 30,200,000 | $ | 731,690 | 284,415,013 | $ | 17,446,758 |
| 5,931,771 | $ | 432,902 | $ | (181,445) | $ | 46,882 | $ | 18,476,787 | ||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | 17,297 |
| 1,459 |
| (17,297) |
| (1,459) |
| — |
| — |
| — | |||||||||
Vesting of restricted common units, net |
| — | — |
| — | 259,424 |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||
Payment of common unit offering costs and other, net | — | — |
| — | — |
| (3,813) |
| — |
| — |
| — |
| — |
| (3,813) | ||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — |
| 385,004 |
| — |
| — |
| — |
| — | |||||||||
Units issued in connection with employee stock purchase plan |
| — | — |
| — | 42,188 |
| 4,969 |
| — |
| — |
| — |
| — |
| 4,969 | |||||||||
Net unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | — |
| (7,143) |
| — |
| — |
| — |
| — |
| (7,143) | |||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| 40,965 |
| — |
| — |
| — |
| — |
| 40,965 | |||||||||
Reclassification of vested share-based awards |
| — | — |
| — | — |
| (28,277) |
| — |
| 28,277 |
| — |
| — |
| — | |||||||||
Adjustment to redeemable partnership units |
| (7,341) | — |
| — | — |
| 7,341 |
| — |
| — |
| — |
| — |
| 7,341 | |||||||||
Distributions |
| (380) | — |
| — | — |
| (716,464) |
| — |
| (15,813) |
| — |
| — |
| (732,277) | |||||||||
Contributions from noncontrolling interests in consolidated entities | 1,703 | — | — | — | — | — | — | — | 11,527 | 11,527 | |||||||||||||||||
Net income |
| 70 | — |
| — | — |
| 136,708 |
| — |
| 3,030 |
| — |
| 965 |
| 140,703 | |||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — | — |
| — | — |
| — |
| — |
| — |
| (307,790) |
| — |
| (307,790) | |||||||||
Other comprehensive loss—fair value of interest rate swaps |
| — | — |
| — | — |
| — |
| — |
| — |
| (988) |
| — |
| (988) | |||||||||
Other comprehensive income—reclassification of accumulated other comprehensive income to interest expense | — | — | — | — | — | — | — | (62) | — | (62) | |||||||||||||||||
Balance as of June 30, 2022 |
| $ | 41,047 | 30,200,000 | $ | 731,690 | 284,733,922 | $ | 16,882,503 |
| 6,299,478 | $ | 446,937 | $ | (490,285) | $ | 59,374 | $ | 17,630,219 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
16
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
(unaudited, in thousands, except unit data)
Accumulated | |||||||||||||||||||||||||||
Redeemable | General Partner | Limited Partners | Other | ||||||||||||||||||||||||
Limited Partner | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Three Months Ended June 30, 2021 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Income (Loss), Net |
| Interests |
| Total Capital | |||||||
Balance as of March 31, 2021 |
| $ | 40,097 | 38,250,000 | $ | 950,940 | 281,372,310 | $ | 16,750,580 |
| 7,741,271 | $ | 577,015 | $ | (83,506) | $ | 150,295 | $ | 18,345,324 | ||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | 698,485 |
| 57,784 | (698,485) |
| (57,784) |
| — |
| — |
| — | ||||||||||
Payment of common unit offering costs and other, net | — | — |
| — | 477,762 | 75,670 | — | — | — |
| — |
| 75,670 | ||||||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | 12,623 |
| — |
| — |
| — |
| — | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| 21,063 | — |
| — |
| — |
| — |
| 21,063 | ||||||||||
Vesting of restricted common units, net |
| — | — |
| — | 54,595 |
| — | — |
| — |
| — |
| — |
| — | ||||||||||
Reclassification of vested share-based awards | — | — | — | — | (2,322) | — | 2,322 | — |
| — |
| — | |||||||||||||||
Redemption of series C preferred units |
| — | (8,050,000) |
| (219,250) | — |
| 18,000 | — |
| — |
| — |
| — |
| (201,250) | ||||||||||
Units repurchased and retired to satisfy tax withholding upon vesting | — | — |
| — | — |
| (6,131) | — |
| — |
| — |
| — |
| (6,131) | |||||||||||
Adjustment to redeemable partnership units |
| 1,501 | — |
| — | — |
| (1,501) | — |
| — |
| — |
| — |
| (1,501) | ||||||||||
Distributions | (181) | — | (11,885) | — | (328,279) | — | (7,801) | — | — | (347,965) | |||||||||||||||||
Contributions from noncontrolling interests in consolidated entities | — | — | — | — | — | — | — | — | 41,055 | 41,055 | |||||||||||||||||
Net income |
| 73 | — |
| 11,885 | — |
| 109,369 | — |
| 3,127 |
| — |
| 1,344 |
| 125,725 | ||||||||||
Other comprehensive income—foreign currency translation adjustments |
| — | — |
| — | — |
| — | — |
| — |
| 111,678 |
| — |
| 111,678 | ||||||||||
Other comprehensive income—fair value of interest rate swaps |
| — | — |
| — | — |
| — | — |
| — |
| 226 |
| — |
| 226 | ||||||||||
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense |
| — | — |
| — | — |
| — | — |
| — |
| 353 | — | 353 | ||||||||||||
Balance as of June 30, 2021 |
| $ | 41,490 | 30,200,000 | $ | 731,690 | 282,603,152 | $ | 16,694,233 |
| 7,055,409 | $ | 516,879 | $ | 28,751 | $ | 192,694 | $ | 18,164,247 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
17
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
(unaudited, in thousands, except unit data)
Accumulated | |||||||||||||||||||||||||||
Redeemable | General Partner | Limited Partners | Other | ||||||||||||||||||||||||
Noncontrolling | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Six Months Ended June 30, 2021 |
| Interests |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Income, Net |
| Interests |
| Total Capital | |||||||
Balance as of December 31, 2020 |
| $ | 42,011 | 38,250,000 | $ | 950,940 | 280,289,726 | $ | 16,631,747 | 8,046,267 | $ | 609,190 | $ | 134,800 | $ | 119,659 | $ | 18,446,336 | |||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | 1,340,675 |
| 111,397 | (1,340,675) |
| (111,397) |
| — |
| — |
| — | ||||||||||
Common units issued in connection with acquisition |
| — | — | — | 125,395 | 18,270 | — | — | — | — | 18,270 | ||||||||||||||||
Issuance of common units, net of offering costs |
| — | — |
| — | 477,762 |
| 75,438 | — |
| — |
| — |
| — |
| 75,438 | ||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | 349,817 |
| — |
| — |
| — |
| — | ||||||||||
Units issued in connection with employee stock purchase plan |
| — | — |
| — | 29,475 |
| 3,427 | — |
| — |
| — |
| — |
| 3,427 | ||||||||||
Units repurchased and retired to satisfy tax withholding upon vesting |
| — | — |
| — | — |
| (15,849) | — |
| — |
| — |
| — |
| (15,849) | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| 49,851 | — |
| — |
| — |
| — |
| 49,851 | ||||||||||
Vesting of restricted common units, net |
| — | — |
| — | 340,119 |
| — | — |
| — |
| — |
| — |
| — | ||||||||||
Reclassification of vested share-based awards | — | — | — | — | (22,870) | — | 22,870 | — | — | — | |||||||||||||||||
Redemption of series C preferred units |
| — | (8,050,000) |
| (219,250) | — |
| 18,000 | — |
| — |
| — |
| — |
| (201,250) | ||||||||||
Adjustment to redeemable partnership units |
| 1,709 | — |
| — | — |
| (1,709) | — |
| — |
| — |
| — |
| (1,709) | ||||||||||
Distributions |
| (362) | — |
| (25,399) | — |
| (655,244) | — |
| (16,502) |
| — |
| — |
| (697,145) | ||||||||||
Contributions from (distributions to) noncontrolling interests in consolidated entities |
| (2,150) | — |
| — | — |
| — | — |
| — |
| — |
| 72,735 |
| 72,735 | ||||||||||
Net income |
| 282 | — |
| 25,399 | — |
| 481,775 | — |
| 12,718 |
| — |
| 300 |
| 520,192 | ||||||||||
Other comprehensive loss—foreign currency translation adjustments |
| — | — |
| — | — |
| — | — |
| — |
| (107,324) |
| — |
| (107,324) | ||||||||||
Other comprehensive income—fair value of interest rate swaps | — | — | — | — | — | — | — | 563 | — | 563 | |||||||||||||||||
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense |
| — | — |
| — | — |
| — | — |
| — |
| 712 |
| — |
| 712 | ||||||||||
Balance as of June 30, 2021 |
| $ | 41,490 | 30,200,000 | $ | 731,690 | 282,603,152 | $ | 16,694,233 | 7,055,409 | $ | 516,879 | $ | 28,751 | $ | 192,694 | $ | 18,164,247 | |||||||||
See accompanying notes to the condensed consolidated financial statements.
18
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended June 30, | ||||||
2022 |
| 2021 | ||||
Cash flows from operating activities: |
|
|
| |||
Net income | $ | 140,773 | $ | 520,474 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Gain on disposition of properties, net |
| (2,770) |
| (334,420) | ||
Equity in (earnings) of unconsolidated entities |
| (26,870) |
| (29,112) | ||
Distributions from unconsolidated entities |
| 22,972 |
| 57,631 | ||
Depreciation and amortization | 759,099 | 738,714 | ||||
Amortization of share-based compensation |
| 40,965 |
| 47,668 | ||
Loss from early extinguishment of debt |
| 51,135 |
| 18,347 | ||
Straight-lined rents and amortization of above and below market leases |
| (16,885) |
| (14,908) | ||
Amortization of deferred financing costs and debt discount / premium | 9,359 | 9,571 | ||||
Other items, net | 17,024 | 30,586 | ||||
Changes in assets and liabilities: | ||||||
Increase in accounts receivable and other assets | (248,310) | (126,688) | ||||
Increase (decrease) in accounts payable and other liabilities |
| 37,086 |
| (67,372) | ||
Net cash provided by operating activities | 783,578 | 850,491 | ||||
Cash flows from investing activities: |
| |||||
Improvements to investments in real estate |
| (1,067,027) |
| (1,081,446) | ||
Cash paid for assets acquired | (97,205) | (168,439) | ||||
(Investment in) proceeds from unconsolidated entities, net |
| (199,945) |
| 6,131 | ||
Proceeds from sale of real estate | — | 703,936 | ||||
Other investing activities, net | (63,655) | (18,827) | ||||
Net cash (used in) investing activities | (1,427,832) | (558,645) | ||||
Cash flows from financing activities: | ||||||
Net proceeds from credit facilities | $ | 1,077,719 | $ | 508,169 | ||
Borrowings on secured / unsecured debt | 1,125,451 | 1,218,650 | ||||
Repayments on secured / unsecured debt |
| (450,737) |
| (886,963) | ||
Premium paid for early extinguishment of debt | (49,662) | (16,482) | ||||
Capital contributions from noncontrolling interests, net |
| 17,977 | 70,585 | |||
General partner contributions | — | 75,438 | ||||
General partner distributions | — | (201,250) | ||||
Payments of dividends and distributions |
| (1,071,386) |
| (1,021,893) | ||
Other financing activities, net |
| (16,271) |
| (21,602) | ||
Net cash provided by (used in) financing activities |
| 633,091 |
| (275,348) | ||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (11,163) |
| 16,498 | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (31,101) | (11,637) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 151,485 | 123,652 | ||||
Cash, cash equivalents and restricted cash at end of period | $ | 109,221 | $ | 128,513 | ||
See accompanying notes to the condensed consolidated financial statements.
19
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Organization and Description of Business. Digital Realty Trust, Inc. (the Parent), through its controlling interest in Digital Realty Trust, L.P. (the Operating Partnership or the OP) and the subsidiaries of the OP (collectively, we, our, us or the Company), is a leading global provider of data center (including colocation and interconnection) solutions for customers across a variety of industry verticals ranging from cloud and information technology services, social networking and communications to financial services, manufacturing, energy, healthcare, and consumer products. The OP, a Maryland limited partnership, is the entity through which the Parent, a Maryland corporation, conducts its business of owning, acquiring, developing and operating data centers. The Parent operates as a REIT for federal income tax purposes.
The Parent’s only material asset is its ownership of partnership interests of the OP. The Parent generally does not conduct business itself, other than acting as the sole general partner of the OP, issuing public securities from time to time and guaranteeing certain unsecured debt of the OP and certain of its subsidiaries and affiliates. The Parent has not issued any debt but guarantees the unsecured debt of the OP and certain of its subsidiaries and affiliates.
The OP holds substantially all the assets of the Company. The OP conducts the operations of the business and has no publicly traded equity. Except for net proceeds from public equity issuances by the Parent, which are generally contributed to the OP in exchange for partnership units, the OP generally generates the capital required by the Company’s business primarily through the OP’s operations, by the OP’s or its affiliates’ direct or indirect incurrence of indebtedness or through the issuance of partnership units.
Accounting Principles and Basis of Presentation. The accompanying unaudited interim condensed consolidated financial statements and accompanying notes (the “Financial Statements”) are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and are presented in our reporting currency, the U.S. dollar. All of the accounts of the Parent, the OP, and the subsidiaries of the OP are included in the accompanying Financial Statements. All material intercompany transactions with consolidated entities have been eliminated. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. Interim results are not always indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (“SEC”), our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, as filed with the SEC, and other filings with the SEC.
Management Estimates and Assumptions. U.S. GAAP requires that we make estimates and assumptions that affect reported amounts of revenue and expenses during the reporting period, reported amounts for assets and liabilities as of the date of the financial statements, and disclosures of contingent assets and liabilities as of the date of the financial statements. Although we believe the estimates and assumptions we made are reasonable and appropriate, as discussed in the applicable sections throughout the consolidated financial statements, different assumptions and estimates could materially impact our reported results. Actual results and outcomes may differ from our assumptions.
New Accounting Pronouncements. Recently issued accounting pronouncements that have yet to be adopted by the Company are not expected to have a material impact to the condensed consolidated financial statements.
20
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Investments in Properties
A summary of our investments in properties is below (in thousands):
Property Type | As of June 30, 2022 | As of December 31, 2021 | |||||
Land | $ | 1,033,770 | $ | 1,019,723 | |||
Acquired ground lease | 6,051 | 6,721 | |||||
Buildings and improvements | 22,319,146 | 21,914,091 | |||||
Tenant improvements | 706,966 | 684,915 | |||||
24,065,933 | 23,625,450 | ||||||
Accumulated depreciation and amortization | (6,665,118) | (6,210,281) | |||||
Investments in operating properties, net | 17,400,815 | 17,415,169 | |||||
Construction in progress and space held for development | 3,362,114 | 3,213,389 | |||||
Land held for future development | 37,460 | 133,683 | |||||
Investments in properties, net | $ | 20,800,389 | $ | 20,762,241 | |||
3. Leases
Lessor Accounting
We generate most of our revenue by leasing operating properties to customers under operating lease agreements. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term if we determine that it is probable that substantially all of the lease payments will be collected over the lease term. Otherwise, rental revenue is recognized based on the amount contractually due. Generally, under the terms of our leases, most of our rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from our customers. We record amounts reimbursed by customers in the period the applicable expenses are incurred, which is generally ratably throughout the term of the lease. Reimbursements are recognized in rental and other services revenue in the condensed consolidated income statements as we are the primary obligor with respect to purchasing and selecting goods and services from third-party vendors and bearing the associated credit risk.
Lessee Accounting
We lease space at certain of our data centers from third parties and certain equipment under noncancelable lease agreements. Leases for our data centers expire at various dates through 2069. As of June 30, 2022, certain of our data centers, primarily in Europe and Singapore, are subject to ground leases. As of June 30, 2022, the termination dates of these ground leases generally range from 2049 to 2108. In addition, our corporate headquarters along with several regional office locations are subject to leases with termination dates ranging from 2022 to 2028. The leases generally require us to make fixed rental payments that increase at defined intervals during the term of the lease plus pay our share of common area, real estate and utility expenses as incurred. The leases neither contain residual value guarantees nor impose material restrictions or covenants on us. Further, the leases have been classified and accounted for as either operating or finance leases. Rent expense related to operating leases included in rental property operating and maintenance expense in the condensed consolidated income statements amounted to approximately $35.6 million and $37.4 million for the three months ended June 30, 2022 and 2021, respectively, and approximately $73.0 million for each of the six months ended June 30, 2022 and 2021.
21
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Receivables
Accounts and Other Receivables, Net
Accounts and other receivables, net is primarily comprised of contractual rents and other lease-related obligations currently due from customers. These amounts are shown in the subsequent table as Accounts receivable – trade. Other receivables shown separately from Accounts receivable – trade, consist primarily of amounts that have not yet been billed to customers, such as for utility reimbursements and installation fees.
Balance as of | Balance as of | |||||
(Amounts in thousands): | June 30, 2022 | December 31, 2021 | ||||
Accounts receivable – trade, net | $ | 493,754 | $ | 399,029 | ||
Allowance for doubtful accounts | (37,799) | (28,574) | ||||
Accounts receivable, net | 455,955 | 370,455 | ||||
Accounts receivable – customer recoveries | 160,577 | 131,538 | ||||
Value-added tax receivables | 81,849 | 104,036 | ||||
Accounts receivable – installation fees | 50,482 | 43,626 | ||||
Other receivables | 48,345 | 22,066 | ||||
Accounts and other receivables, net | $ | 797,208 | $ | 671,721 | ||
Deferred Rent
Deferred rent receivables represent rental income that has been recognized as revenue under ASC 842, but which is not yet due from customers under their existing rental agreements. The Company recognizes an allowance against deferred rent receivables to the extent it becomes no longer probable that a customer or group of customers will be able to make substantially all of their required cash rental payments over the entirety of their respective lease terms.
Balance as of | Balance as of | |||||
(Amounts in thousands): | June 30, 2022 | December 31, 2021 | ||||
Deferred rent receivables | $ | 577,723 | $ | 556,251 | ||
Allowance for deferred rent receivables | (23,707) | (8,866) | ||||
Deferred rent receivables, net | $ | 554,016 | $ | 547,385 | ||
22
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Investments in Unconsolidated Entities
See below for a summary of our investments in unconsolidated entities accounted for under the equity method of accounting as presented in our condensed consolidated balance sheets (in thousands):
Year | Metropolitan | Balance as of | Balance as of | ||||||||||
Entity | Entity Formed | Area of Properties | % Ownership | June 30, 2022 | December 31, 2021 | ||||||||
Digital Core REIT (DCRU) | 2021 | U.S. / Canada | 35 | % | $ | 342,464 | $ | 343,317 | |||||
Ownership interest in DCRU operating properties | 2021 | U.S. / Canada | 10 | % | 140,499 | 144,050 | |||||||
Ascenty | 2019 | Brazil / Chile / Mexico | 51 | % | 645,184 | 553,031 | |||||||
Mapletree | 2019 | Northern Virginia | 20 | % | 166,507 | 172,465 | |||||||
Mitsubishi | Various | Osaka / Tokyo | 50 | % |
| 399,786 |
| 401,509 | |||||
Lumen | 2012 | Hong Kong | 50 | % |
| 69,144 |
| 68,854 | |||||
Other | Various | U.S. / India / Nigeria | Various |
| 178,965 |
| 124,463 | ||||||
Total |
|
| $ | 1,942,549 | $ | 1,807,689 | |||||||
DCREIT – Digital Core REIT is a standalone real estate investment trust publicly-traded on the Singapore Exchange under the ticker symbol “DCRU”. Digital Core REIT owns 10 operating data center properties. The Company’s ownership interest in the units of DCRU, as well as its ownership interest in the operating properties of DCRU are collectively referred to as the Company’s investment in DCREIT. As of June 30, 2022, the Company held 35% of the outstanding DCRU units and separately owned a 10% retained interest in the underlying operating properties. The Company’s 35% interest in DCRU consisted of 392 million units and 390 million units as of June 30, 2022 and December 31, 2021, respectively. Based on the closing price per unit of $0.77 as of June 30, 2022, the fair value of the units the Company owns in DCRU was approximately $302 million. Based on the closing price per unit of $1.16 as of December 31, 2021, the fair value of the units the Company owns in DCRU was approximately $453 million. This value does not include the value of the Company’s 10% interest in the operating properties of DCRU, because the associated ownership interests are not publicly traded. The Company accounts for its investment in DCREIT as an equity method investment (and not at fair value) based on the significant influence it is able to exert on DCREIT. The Company determined that the decline in fair value of the investment in DCRU as compared to the Company’s book basis as of June 30, 2022 was temporary in nature.
Pursuant to contractual agreements with the DCRU and its operating properties, the Company will earn fees for asset and property management services as well as fees for aiding in future acquisition, disposition and development activities. Certain of these fees are payable to the Company in the form of additional units in DCRU or in cash. During the three and six months ended June 30, 2022, the Company earned fees pursuant to these contractual agreements of approximately $2.8 million and $5.1 million, respectively, which is recorded as fee income and other on the condensed consolidated income statement.
Ascenty – The Company’s ownership interest in Ascenty includes an approximate 2% interest held by one of the Company’s non-controlling interest holders. This 2% interest had a carrying value of approximately $22.6 million and $20.9 million as of June 30, 2022 and December 31, 2021, respectively. Ascenty is a variable interest entity (“VIE”) and the Company’s maximum exposure to loss related to this VIE is limited to our equity investment in the entity.
The debt of our unconsolidated entities generally is non-recourse to us, except for customary exceptions pertaining to matters such as intentional misuse of funds, environmental conditions, and material misrepresentations.
23
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Goodwill
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. Changes in the value of goodwill at June 30, 2022 as compared to December 31, 2021 were driven by changes in exchange rates associated with goodwill balances denominated in foreign currencies – primarily the devaluation of the Euro as compared to the U.S. dollar.
7. Acquired Intangible Assets and Liabilities
The following table summarizes our acquired intangible assets and liabilities:
Amortization of customer relationship value, acquired in-place lease value and other intangibles (a component of depreciation and amortization expense) was approximately $57.3 million and $66.4 million for the three months ended June 30, 2022 and 2021 respectively, and approximately $118.9 million and $134.1 million for the six months ended June 30, 2022 and 2021, respectively.
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase in rental and other services revenue of $0.3 million and a decrease of $(1.1) million for the three months ended June 30, 2022 and 2021, respectively and $0.6 million and $(2.6) million for the six months ended June 30, 2022 and 2021, respectively.
24
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Estimated annual amortization for each of the five succeeding years and thereafter, commencing July 1, 2022 is as follows:
| ||||||||||||||
(Amounts in thousands) | Customer relationship value | Acquired in-place lease value | Other (1) | Acquired above-market leases | Acquired below-market leases | |||||||||
Remainder of 2022 | $ | 81,641 | $ | 24,499 | $ | 4,560 | $ | 4,363 | $ | (6,683) | ||||
2023 |
| 162,614 |
| 43,327 |
| 3,021 |
| 4,758 |
| (12,507) | ||||
2024 |
| 162,034 |
| 37,709 |
| 1,677 |
| 2,584 |
| (11,214) | ||||
2025 |
| 161,532 |
| 34,679 |
| 1,638 |
| 1,452 |
| (10,225) | ||||
2026 |
| 161,097 |
| 30,619 |
| 1,442 |
| 684 |
| (8,663) | ||||
Thereafter |
| 1,217,357 |
| 80,752 |
| 19,941 |
| 900 |
| (45,862) | ||||
Total | $ | 1,946,275 | $ | 251,585 | $ | 32,279 | $ | 14,741 | $ | (95,154) |
| (1) | Excludes power grid rights in the amount of approximately $41.8 million that are currently not being amortized. Amortization of these assets will begin once the data centers associated with the power grid rights are placed into service. |
8. Debt of the Operating Partnership
All debt is currently held by the OP or its consolidated subsidiaries, and the Parent is the guarantor or co-guarantor of the global revolving credit facilities and unsecured senior notes. A summary of outstanding indebtedness is as follows (in thousands):
The weighted-average interest rates shown represent interest rates at the end of the periods for the debt outstanding and include the impact of designated interest rate swaps, which effectively fix the interest rates on certain variable rate debt.
We primarily borrow in the functional currencies of the countries where we invest. Included in the outstanding balances were borrowings denominated in the following currencies (in thousands, U.S. dollars):
25
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below summarizes our debt maturities and principal payments as of June 30, 2022 (in thousands):
Global Revolving | Unsecured | Secured and | ||||||||||
| Credit Facilities (1) |
| Senior Notes |
| Other Debt |
| Total Debt | |||||
2022 | $ | — | $ | 629,040 | $ | — | $ | 629,040 | ||||
2023 | — | 104,725 | 3,081 | 107,806 | ||||||||
2024 | — | 933,490 | — | 933,490 | ||||||||
2025 |
| — |
| 1,168,580 |
| — |
| 1,168,580 | ||||
2026 |
| — |
| 1,415,023 |
| — |
| 1,415,023 | ||||
Thereafter |
| 1,458,730 |
| 8,541,564 |
| 155,943 |
| 10,156,237 | ||||
Subtotal | $ | 1,458,730 | $ | 12,792,422 | $ | 159,024 | $ | 14,410,176 | ||||
Unamortized net discounts |
| — |
| (36,026) |
| — |
| (36,026) | ||||
Unamortized deferred financing costs | (18,690) | (60,828) | (325) | (79,843) | ||||||||
Total | $ | 1,440,040 | $ | 12,695,568 | $ | 158,699 | $ | 14,294,307 | ||||
| (1) | Includes amounts outstanding for the Global Revolving Credit Facility and the Yen Revolving Credit Facility (together, referred to as the “Global Revolving Credit Facilities”). |
Unsecured Senior Notes
The following table provides details of our unsecured senior notes (balances in thousands):
Aggregate Principal Amount at Issuance | Balance as of | |||||||||||||
Borrowing Currency | USD | Maturity Date | June 30, 2022 | December 31, 2021 | ||||||||||
Floating rate notes due 2022 | € | 300,000 | $ | 349,800 | Sep 23, 2022 | $ | 314,520 | $ | 341,100 | |||||
0.125% notes due 2022 | € | 300,000 | 332,760 | Oct 15, 2022 | 314,520 | 341,100 | ||||||||
0.600% notes due 2023 | CHF | 100,000 | 108,310 | Oct 02, 2023 | 104,725 | - | ||||||||
2.625% notes due 2024 | € | 600,000 | 677,040 | Apr 15, 2024 | 629,040 | 682,200 | ||||||||
2.750% notes due 2024 | £ | 250,000 | 324,925 | Jul 19, 2024 | 304,450 | 338,300 | ||||||||
4.250% notes due 2025 | £ | 400,000 | 634,480 | Jan 17, 2025 | 487,120 | 541,280 | ||||||||
0.625% notes due 2025 | € | 650,000 | 720,980 | Jul 15, 2025 | 681,460 | 739,050 | ||||||||
4.750% notes due 2025 | $ | 450,000 | 450,000 | Oct 01, 2025 | - | 450,000 | ||||||||
2.500% notes due 2026 | € | 1,075,000 | 1,224,640 | Jan 16, 2026 | 1,127,030 | 1,222,275 | ||||||||
0.200% notes due 2026 | CHF | 275,000 | 298,404 | Dec 15, 2026 | 287,993 | 301,419 | ||||||||
1.700% notes due 2027 | CHF | 150,000 | 162,465 | Mar 30, 2027 | 157,087 | - | ||||||||
3.700% notes due 2027 | $ | 1,000,000 | 1,000,000 | Aug 15, 2027 | 1,000,000 | 1,000,000 | ||||||||
1.125% notes due 2028 | € | 500,000 | 548,550 | Apr 09, 2028 | 524,200 | 568,500 | ||||||||
4.450% notes due 2028 | $ | 650,000 | 650,000 | Jul 15, 2028 | 650,000 | 650,000 | ||||||||
0.550% notes due 2029 | CHF | 270,000 | 292,478 | Apr 16, 2029 | 282,757 | 295,938 | ||||||||
3.600% notes due 2029 | $ | 900,000 | 900,000 | Jul 01, 2029 | 900,000 | 900,000 | ||||||||
3.300% notes due 2029 | £ | 350,000 | 454,895 | Jul 19, 2029 | 426,230 | 473,620 | ||||||||
1.500% notes due 2030 | € | 750,000 | 831,900 | Mar 15, 2030 | 786,300 | 852,750 | ||||||||
3.750% notes due 2030 | £ | 550,000 | 719,825 | Oct 17, 2030 | 669,790 | 744,260 | ||||||||
1.250% notes due 2031 | € | 500,000 | 560,950 | Feb 01, 2031 | 524,200 | 568,500 | ||||||||
0.625% notes due 2031 | € | 1,000,000 | 1,220,700 | Jul 15, 2031 | 1,048,400 | 1,137,000 | ||||||||
1.000% notes due 2032 | € | 750,000 | 874,500 | Jan 15, 2032 | 786,300 | 852,750 | ||||||||
1.375% notes due 2032 | € | 750,000 | 849,375 | Jul 18, 2032 | 786,300 | - | ||||||||
$ | 12,792,422 | $ | 13,000,042 | |||||||||||
Unamortized discounts, net of premiums | (36,026) | (33,612) | ||||||||||||
Deferred financing costs, net | (60,828) | (63,060) | ||||||||||||
Total unsecured senior notes, net of discount and deferred financing costs | $ | 12,695,568 | $ | 12,903,370 | ||||||||||
26
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restrictive Covenants in Unsecured Senior Notes
The indentures governing our senior notes contain certain covenants, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40% and (3) an interest coverage ratio of greater than 1.50. The covenants also require us to maintain total unencumbered assets of not less than 150% of the aggregate principal amount of unsecured debt. At June 30, 2022, we were in compliance with each of these financial covenants.
Early Extinguishment of Unsecured Senior Notes
We recognized the following losses on early extinguishment of unsecured notes:
| ● | During the six months ended June 30, 2022: $51.1 million primarily due to redemption of the 4.750% Notes due 2025 in February 2022. |
| ● | During the six months ended June 30, 2021: $18.3 million primarily due to redemption of the 2.750% Notes due 2023 in February 2021. |
Global Revolving Credit Facility Amendment
On April 5, 2022, the Operating Partnership entered into an amendment (the “Amendment”) to the Second Amended and Restated Global Senior Credit Agreement (the “Credit Agreement”) The Amendment provides for, among other things: (1) an increase in the size of the global revolving credit facility from $3.0 billion to $3.75 billion and (2) the transition from U.S. dollar London Interbank Offered Rate (LIBOR) to Term Secured Overnight Financing Rate (SOFR) for floating rate borrowings denominated in U.S. dollars for all purposes under the Credit Agreement.
9. Earnings per Common Share or Unit
The following is a summary of basic and diluted income per share/unit (in thousands, except per share/unit amounts):
Digital Realty Trust, Inc. Earnings per Common Share
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income available to common stockholders | $ | 53,246 | $ | 127,369 | $ | 116,346 | $ | 499,775 | ||||
Weighted average shares outstanding—basic |
| 284,694 |
| 281,792 |
| 284,610 |
| 281,445 | ||||
Potentially dilutive common shares: |
|
|
|
|
|
| ||||||
Unvested incentive units |
| 178 |
| 177 |
| 183 |
| 168 | ||||
Unvested restricted stock | 49 | 165 | 62 | 143 | ||||||||
Market performance-based awards |
| 189 |
| 300 |
| 125 |
| 320 | ||||
Weighted average shares outstanding—diluted |
| 285,110 |
| 282,434 |
| 284,980 |
| 282,076 | ||||
Income per share: |
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.78 | ||||
Diluted | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.77 | ||||
27
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Digital Realty Trust, L.P. Earnings per Unit
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income available to common unitholders | $ | 54,746 | $ | 130,569 | $ | 119,446 | $ | 512,775 | ||||
Weighted average units outstanding—basic |
| 290,528 |
| 288,843 |
| 290,346 |
| 288,588 | ||||
Potentially dilutive common units: |
|
|
|
|
|
|
|
| ||||
Unvested incentive units |
| 178 |
| 177 |
| 183 |
| 168 | ||||
Unvested restricted units | 49 | 165 | 62 | 143 | ||||||||
Market performance-based awards |
| 189 |
| 300 |
| 125 |
| 320 | ||||
Weighted average units outstanding—diluted |
| 290,944 |
| 289,485 |
| 290,716 |
| 289,219 | ||||
Income per unit: |
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.78 | ||||
Diluted | $ | 0.19 | $ | 0.45 | $ | 0.41 | $ | 1.77 | ||||
The below table shows the securities that would be antidilutive or not dilutive to the calculation of earnings per share and unit. Common units of the Operating Partnership not owned by Digital Realty Trust, Inc. were excluded only from the calculation of earnings per share as they are not applicable to the calculation of earnings per unit. All other securities shown below were excluded from the calculation of both earnings per share and earnings per unit (in thousands).
28
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Equity and Capital
Equity Distribution Agreement
Digital Realty Trust, Inc. and Digital Realty Trust, L.P. were parties to an at-the-market (ATM) equity offering sales agreement dated January 4, 2019, as amended in 2020 (the “2020 Sales Agreement”). Pursuant to the 2020 Sales Agreement, Digital Realty Trust, Inc. was able to issue and sell common stock having an aggregate offering price of up to $1.0 billion through various named agents from time to time. The 2020 Sales Agreement was terminated on April 1, 2022 when Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into a new ATM equity offering sales agreement dated April 1, 2022 (the “2022 Sales Agreement”). At the time of the termination, $577.6 million remained unsold under the 2020 Sales Agreement. Pursuant to the 2022 Sales Agreement , Digital Realty Trust, Inc. can issue and sell common stock having an aggregate offering price of up to $1.5 billion through various named agents from time to time. For the six months ended June 30, 2022, we had no sales under the 2022 Sales Agreement and $1.5 billion is still available.
Forward Equity Sale
On September 13, 2021, Digital Realty Trust, Inc. completed an underwritten public offering of 6,250,000 shares of its common stock, all of which were offered in connection with forward sale agreements it entered into with certain financial institutions acting as forward purchasers. The forward purchasers borrowed and sold an aggregate of 6,250,000 shares of Digital Realty Trust, Inc.’s common stock in the public offering. Digital Realty Trust, Inc. did not receive any proceeds from the sale of our common stock by the forward purchasers in the public offering. The Company may receive gross proceeds of approximately $1.0 billion (based on the offering price of $155.69 per share) upon full physical settlement of the forward sale agreements, which is to be no later than March 13, 2023.
Upon physical settlement of the forward sale agreements, the Operating Partnership is expected to issue general partner common partnership units to Digital Realty Trust, Inc. in exchange for contribution of the net proceeds.
We account for our forward equity sales agreements in accordance with the accounting guidance governing financial instruments and derivatives. As of June 30, 2022, none of our forward equity sales agreements were deemed to be liabilities as they did not embody obligations to repurchase our shares, nor did they embody obligations to issue a variable number of shares for which the monetary value was predominantly fixed, varied with something other than the fair value of our shares, or varied inversely in relation to our shares. We also evaluated whether the agreements met the derivatives and hedging guidance scope exception to be accounted for as equity instruments and concluded that the agreements could be classified as equity contracts based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to our own stock.
29
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Noncontrolling Interests in Operating Partnership
Noncontrolling interests in the Operating Partnership relate to the proportion of entities consolidated by the Company that are owned by third parties. The following table shows the ownership interest in the Operating Partnership as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022 | December 31, 2021 | |||||||||
Number of | Percentage of | Number of | Percentage of | |||||||
| units |
| total | units |
| total | ||||
Digital Realty Trust, Inc. | 284,734 | 97.8 | % | 284,415 | 98.0 | % | ||||
Noncontrolling interests consist of: |
|
|
|
|
|
| ||||
Common units held by third parties |
| 4,387 |
| 1.5 | % | 4,389 |
| 1.5 | % | |
Incentive units held by employees and directors (see Note 12. "Incentive Plan") |
| 1,912 |
| 0.7 | % | 1,543 |
| 0.5 | % | |
| 291,033 |
| 100.0 | % | 290,347 |
| 100.0 | % | ||
Limited partners have the right to require the Operating Partnership to redeem all or a portion of their common units for cash based on the fair market value of an equivalent number of shares of Digital Realty Trust, Inc. common stock at the time of redemption. Alternatively, Digital Realty Trust, Inc. may elect to acquire those common units in exchange for shares of its common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events. The common units and incentive units of the Operating Partnership are classified within equity, except for certain common units issued to certain former DuPont Fabros Technology, L.P. unitholders in the Company’s acquisition of DuPont Fabros Technology, Inc., which are subject to certain restrictions and, accordingly, are not presented as permanent equity in the condensed balance sheet.
The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $765.8 million and $1,074.7 million based on the closing market price of Digital Realty Trust, Inc. common stock on June 30, 2022 and December 31, 2021, respectively.
The following table shows activity for the noncontrolling interests in the Operating Partnership for the six months ended June 30, 2022 (in thousands):
| (1) | These redemptions and conversions were recorded as a reduction to noncontrolling interests in the Operating Partnership and an increase to common stock and additional paid-in capital based on the book value per unit in the accompanying consolidated balance sheet of Digital Realty Trust, Inc. |
30
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Dividends and Distributions
Digital Realty Trust, Inc. Dividends
We have declared and paid the following dividends on our common and preferred stock for the six months ended June 30, 2022 (in thousands, except per share data):
Series J | Series K | Series L | ||||||||||||
Preferred | Preferred | Preferred | Common | |||||||||||
Date dividend declared |
| Dividend payment date |
| Stock |
| Stock |
| Stock | Stock | |||||
March 3, 2022 | March 31, 2022 | $ | 2,625 | $ | 3,071 | $ | 4,485 | $ | 348,025 | |||||
May 24, 2022 | June 30, 2022 | 2,625 | 3,071 | 4,485 | 348,077 | |||||||||
$ | 5,250 | $ | 6,142 | $ | 8,970 | $ | 696,102 | |||||||
Annual rate of dividend per share | $ | 1.31250 | $ | 1.46250 | $ | 1.30000 | $ | 4.88000 | ||||||
Digital Realty Trust, L.P. Distributions
All distributions on the Operating Partnership’s units are at the discretion of Digital Realty Trust, Inc.’s Board of Directors. The table below shows the distributions declared and paid by the Operating Partnership on its common and preferred units for the six months ended June 30, 2022 (in thousands, except for per unit data):
Series J | Series K | Series L | ||||||||||||
Preferred | Preferred | Preferred | Common | |||||||||||
Date distribution declared |
| Distribution payment date |
| Units |
| Units | Units | Units | ||||||
March 3, 2022 | March 31, 2022 | $ | 2,625 | $ | 3,071 | $ | 4,485 | $ | 355,812 | |||||
May 24, 2022 | June 30, 2022 | 2,625 | 3,071 | 4,485 | 355,885 | |||||||||
$ | 5,250 | $ | 6,142 | $ | 8,970 | $ | 711,697 | |||||||
Annual rate of distribution per unit | $ | 1.31250 | $ | 1.46250 | $ | 1.30000 | $ | 4.88000 | ||||||
31
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Accumulated Other Comprehensive Income (Loss), Net
The accumulated balances for each item within accumulated other comprehensive income (loss) are shown below (in thousands) for Digital Realty Trust, Inc. and separately for Digital Realty Trust, L.P:
Digital Realty Trust, Inc.
Foreign currency | Cash flow | Foreign currency net | Accumulated other | |||||||||
translation | hedge | investment hedge | comprehensive | |||||||||
| adjustments |
| adjustments |
| adjustments |
| income (loss), net | |||||
Balance as of December 31, 2021 | $ | (212,653) | $ | (107) | $ | 38,880 | $ | (173,880) | ||||
Net current period change |
| (300,656) |
| (965) |
| — |
| (301,621) | ||||
Reclassification to interest expense from interest rate swaps |
| — |
| (60) |
| — |
| (60) | ||||
Balance as of June 30, 2022 | $ | (513,309) | $ | (1,132) | $ | 38,880 | $ | (475,561) | ||||
Digital Realty Trust, L.P.
Foreign currency | Cash flow | Foreign currency net | Accumulated other | |||||||||
translation | hedge | investment hedge | comprehensive | |||||||||
| adjustments |
| adjustments |
| adjustments |
| income (loss) | |||||
Balance as of December 31, 2021 | $ | (219,882) | $ | (1,240) | $ | 39,677 | $ | (181,445) | ||||
Net current period change |
| (307,790) |
| (988) |
| — |
| (308,778) | ||||
Reclassification to interest expense from interest rate swaps |
| — |
| (62) |
| — |
| (62) | ||||
Balance as of June 30, 2022 | $ | (527,672) | $ | (2,290) | $ | 39,677 | $ | (490,285) | ||||
12. Incentive Plans
2014 Incentive Award Plan
The Company provides incentive awards in the form of common stock or awards convertible into common stock pursuant to the Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2014 Incentive Award Plan, as amended (the “Incentive Plan”). The major categories of awards that can be issued under the Incentive Plan include:
Long-Term Incentive Units (“LTIP Units”): LTIP Units, in the form of profits interest units of the Operating Partnership, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP Units (other than Class D units), whether vested or not, receive the same quarterly per-unit distributions as Operating Partnership common units. Initially, LTIP Units do not have full parity with common units with respect to liquidating distributions. However, if such parity is reached, vested LTIP Units may be converted into an equal number of common units of the Operating Partnership at any time. The awards generally vest over periods between and four years.
Service-Based Restricted Stock Units: Service-based Restricted Stock Units, which vest over periods between and four years, convert to shares of Digital Realty Trust, Inc.’s common stock upon vesting.
Performance-Based Awards (“the Performance Awards”): Performance Awards in the form of Class D units of the Operating Partnership and Restricted Stock Units covering shares of Digital Realty Trust, Inc.’s common stock may be issued to officers and employees of the Company. Depending on the award, the total number of units that qualify to fully
32
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
vest is determined based on either a market performance criterion (“Market-Based Performance Awards”) or financial performance criterion (“Financial-Based Performance Awards”).
Market-Based Performance Awards.
The percentage of the total number of units that performance vest for Market-Based Performance Awards is determined by comparing the Company’s total shareholder return (“TSR”) relative to the MSCI US REIT Index (“RMS”) over a three-year period. The awards then have a time-based vesting element that allows for 50% of the performance-vested units to fully vest in the immediately following year and 50% of the performance-vested units to fully vest in the next-subsequent year. The fair value of these awards is determined using a Monte Carlo simulation to estimate the probability of the market vesting condition being satisfied.
Achievement of the market performance condition is measured based on the difference between Digital Realty Trust, Inc.’s TSR percentage and the TSR percentage of the RMS as is shown in the subsequent table (the “RMS Relative Market Performance”).
If the RMS Relative Market Performance falls between the levels specified in the above table, the percentage of the award that will vest with respect to the market condition will be determined using straight-line linear interpolation between such levels.
2019 Awards
Following the completion of the applicable Market Performance Period, in January 2022, the Compensation Committee made the following determinations regarding the vesting of these awards:
| ● | The RMS Relative Market Performance fell between the target and high levels for the 2019 awards and accordingly, 239,436 Class D units and 70,721 Restricted Stock Units performance vested and qualified for time-based vesting. |
| ● | The number of performance-vested Class D units included 18,966 distribution equivalent units that immediately vested on December 31, 2021. |
| ● | On February 27, 2022, 50% of the 2019 awards vested and the remaining 50% will vest on February 27, 2023, subject to continued employment through the applicable vesting date. |
The grant date fair value of the Market-Based Performance Awards was approximately $12.3 million and $25.0 million for the six months ended June 30, 2022 and 2021, respectively. This amount will be recognized as compensation expense on a straight-line basis over the expected service period of approximately four years.
33
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial-Based Performance Awards.
On March 4, 2022, the Company granted Financial-Based Performance Awards, based on growth in core funds from operation (“Core FFO”) during the three-year period commencing on January 1, 2022. The awards have a time-based vesting element consistent with the Market-Based Performance Awards discussed above. For these awards, fair value is based on market value on the date of grant and compensation cost is recognized based on the probable achievement of the performance condition at each reporting period. The grant date fair value of these awards is $12.3 million, based on the Company’s closing stock price at the grant date.
Other Items: In addition to the LTIP Units, service-based Restricted Stock Units and Performance Awards described above, one-time grants of time and/or performance-based Class D units and Restricted Stock Units were issued in connection with the Company’s combination with InterXion Holding N.V. These awards vest over a period of and three years based on the attainment of performance metrics related to the successful integration of the Interxion business and continued service.
As of June 30, 2022, approximately 5.0 million shares of common stock, including awards that can be converted to or exchanged for shares of common stock, remained available for future issuance under the Incentive Plan.
Each LTIP unit and each Class D unit issued under the Incentive Plan counts as one share of common stock for purposes of calculating the limit on shares that may be issued under the Incentive Plan and the individual award limits set forth therein.
Below is a summary of our compensation expense and our unearned compensation (in millions):
Activity for LTIP Units and service-based Restricted Stock Units for the six months ended June 30, 2022 is shown below.
34
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted-Average | |||||
| Grant Date Fair | ||||
Unvested Restricted Stock Units |
| Shares |
| Value | |
Unvested, beginning of period |
| 509,369 | $ | 129.52 | |
Granted |
| 312,244 |
| 138.35 | |
Vested |
| (169,630) |
| 124.32 | |
Cancelled or expired |
| (44,828) |
| 133.37 | |
Unvested, end of period |
| 607,155 | $ | 135.23 | |
13. Derivative Instruments
We had no material outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk as of June 30, 2022.
Amounts reported in accumulated other comprehensive loss related to interest rate swaps are reclassified to interest expense as interest payments are made on our debt. As of June 30, 2022, we had no material interest rate swap agreements outstanding.
The derivative instruments the Company enters into typically contain provisions that would declare the Company as being in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to any default on the indebtedness. As of June 30, 2022, we did not have any material derivatives outstanding.
14. Fair Value of Financial Instruments
There have been no significant changes in our policy for fair value measurements from what was disclosed in our 2021 Form 10-K.
As of June 30, 2022 and December 31, 2021, the carrying amounts for cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other accrued liabilities, accrued dividends and distributions, security deposits and prepaid rents approximate fair value because of the short-term nature of these instruments. The carrying value of our global revolving credit facilities approximates estimated fair value, because these liabilities have variable interest rates and our credit ratings have remained stable. Differences between the carrying value and fair value of our unsecured senior notes and secured and other debt are caused by differences in interest rates or borrowing spreads that were available to us on June 30, 2022 and December 31, 2021 as compared to those in effect when the debt was issued or assumed.
We calculate the fair value of our secured and other debt and unsecured senior notes based on currently available market rates assuming the loans are outstanding through maturity and considering the collateral and other loan terms. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to our debt.
35
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The aggregate estimated fair value and carrying value of our global revolving credit facilities, unsecured senior notes and secured and other debt as of the respective periods is shown below (in thousands):
Categorization | As of June 30, 2022 | As of December 31, 2021 | ||||||||||||
under the fair value | Estimated Fair | Estimated Fair | ||||||||||||
| hierarchy |
| Value |
| Carrying Value |
| Value |
| Carrying Value | |||||
Global revolving credit facilities |
| Level 2 | $ | 1,458,730 | $ | 1,458,730 | $ | 415,116 | $ | 415,116 | ||||
Unsecured senior notes (1) |
| Level 2 |
| 11,262,417 |
| 12,792,422 |
| 13,580,262 |
| 13,000,042 | ||||
Secured and other debt (1) |
| Level 2 |
| 153,543 |
| 159,024 |
| 152,511 |
| 147,082 | ||||
$ | 12,874,690 | $ | 14,410,176 | $ | 14,147,889 | $ | 13,562,240 | |||||||
| (1) | Valuations for our unsecured senior notes and secured and other debt are determined based on the expected future payments discounted at risk-adjusted rates and quoted market prices. |
15. Commitments and Contingencies
Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements including ground up construction. From time to time in the normal course of our business, we enter into various construction contracts with third parties that may obligate us to make payments. At June 30, 2022, we had open commitments, including amounts reimbursable by customers of approximately $55.1 million, related to construction contracts of approximately $1.9 billion.
In the ordinary course of our business, we may become subject to various legal proceedings. As of June 30, 2022, we were not a party to any legal proceedings which we believe would have a material adverse effect on our operations or financial position.
16. Supplemental Cash Flow Information
Cash, cash equivalents, and restricted cash balances as of June 30, 2022, and December 31, 2021:
Balance as of | ||||||
(Amounts in thousands) |
| June 30, 2022 |
| December 31, 2021 | ||
Cash and cash equivalents | $ | 99,226 | $ | 142,698 | ||
Restricted cash (included in other assets) |
| 9,995 |
| 8,787 | ||
Total | $ | 109,221 | $ | 151,485 | ||
We paid $144.1 million and $151.7 million for interest, net of amounts capitalized, for the six months ended June 30, 2022 and 2021, respectively.
We paid $8.8 million and $12.7 million for income taxes, net of refunds, for the six months ended June 30, 2022 and 2021, respectively.
Accrued construction related costs totaled $469.6 million and $370.3 million as of June 30, 2022 and 2021, respectively.
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DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
17. Segment and Geographic Information
Most of the Company’s largest customers are global entities that transact with the Company across multiple geographies worldwide. The Company manages critical decisions around development, operations, and leasing globally based on customer demand considerations to best address the needs of its global customers. In this regard, the Company manages customer relationships on a global basis in order to achieve consistent sales and delivery experience of our products for our customers. In order to best accommodate the needs of our current and potential global customers, the Company manages its operations as a single global business – with one operating segment and, therefore, one reporting segment. A breakout of the Company’s Operating Revenues, Investments in Properties, net, and Operating lease right-of-use assets, net by geography is shown below.
18. Subsequent Events
On August 1, 2022, we completed the acquisition of a 55% majority interest in Teraco, a leading carrier-neutral data center and interconnection services provider in South Africa. The total purchase price was $1.7 billion cash, funded by our global revolving credit facility and a partial settlement of the forward sale agreements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2021, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, each as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). This report contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, expected use of borrowings under our credit facilities, expected use of proceeds from our ATM equity program, expected settlement and use of proceeds from our forward sale agreements, litigation matters, portfolio performance, leverage policy, acquisition and capital expenditure plans, capital recycling program, returns on invested capital, supply and demand for data center space, capitalization rates, rents to be received in future periods and expected rental rates on new or renewed data center space contain forward-looking statements. Likewise, all of our statements regarding anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and discussions which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and that we may not be able to realize. We do not guarantee that the transactions and events described will happen as described or that they will happen at all. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: reduced demand for data centers or decreases in information technology spending; increased competition or available supply of data center space; decreased rental rates, increased operating costs or increased vacancy rates; the impact on our, our customers’ and our suppliers’ operations during a pandemic, such as COVID-19; changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate; the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services; our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers; breaches of our obligations or restrictions under our contracts with our customers; our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties; the impact of current global and local economic, credit and market conditions, including impacts of inflation; global supply chain or procurement disruptions, or increased supply chain costs; our inability to retain data center space that we lease or sublease from third parties; information security and data privacy breaches; difficulties managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas; our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent and future acquisitions; our inability to achieve expected revenue synergies or cost savings as a result of our combination with Interxion; our failure to successfully integrate and operate acquired or developed properties or businesses; difficulties in identifying properties to acquire and completing acquisitions; risks related to joint venture investments, including as a result of our lack of control of such investments; 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; our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital; financial market fluctuations and changes in foreign currency exchange rates; 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 and goodwill and other intangible asset impairment charges; our inability to manage our growth effectively; losses in excess of our insurance coverage; our inability to attract and retain talent; environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals; our inability to comply with rules and regulations applicable to our Company; Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes; Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes; restrictions on our ability to
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engage in certain business activities; and changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes.
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our annual report on Form 10-K for the year ended December 31, 2021. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.
Occupancy percentages included in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.
As used in this report: “Ascenty entity” refers to the entity, which owns and operates Ascenty, formed with Brookfield Infrastructure.
Business Overview and Strategy
Digital Realty Trust, Inc., through its controlling interest in Digital Realty Trust, L.P. and its subsidiaries, delivers comprehensive space, power, and interconnection solutions that enable its customers and partners to connect with each other and service their own customers on a global technology and real estate platform. We are a leading global provider of data center, colocation and interconnection solutions for customers across a variety of industry verticals. Digital Realty Trust, Inc. operates as a REIT for federal income tax purposes, and our Operating Partnership is the entity through which we conduct our business and own our assets.
Our primary business objectives are to maximize:
| (i) | sustainable long-term growth in earnings and funds from operations per share and unit; |
| (ii) | cash flow and returns to our stockholders and Digital Realty Trust, L.P.’s unitholders through the payment of distributions; and |
| (iii) | return on invested capital. |
We expect to accomplish our objectives by achieving superior risk-adjusted returns, prudently allocating capital, diversifying our product offerings, accelerating our global reach and scale, and driving revenue growth and operating efficiencies. A significant component of our current and future internal growth is anticipated through the development of our existing space held for development, acquisition of land for future development, and acquisition of new properties.
We target high-quality, strategically located properties containing the physical and connectivity infrastructure that supports the applications and operations of data center and technology industry customers and properties that may be developed for such use. Most of our data center properties contain fully redundant electrical supply systems, multiple power feeds, above-standard cooling systems, raised floor areas, extensive in-building communications cabling and high-level security systems. Fundamentally, we bring together foundational real estate and innovative technology expertise around the world to deliver a comprehensive, dedicated product suite to meet customers’ data and connectivity needs. We represent an important part of the digital economy that we believe will benefit from powerful, long-term growth drivers.
We have developed detailed, standardized procedures for evaluating new real estate investments to ensure that they meet our financial, technical and other criteria. We expect to continue to acquire additional assets as part of our growth
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strategy. We intend to aggressively manage and lease our assets to increase their cash flow. We may continue to build out our development portfolio when justified by anticipated demand and returns.
We may acquire properties subject to existing mortgage financing and other indebtedness or we may incur new indebtedness in connection with acquiring or refinancing these properties. Debt service on such indebtedness will have a priority over any cash dividends with respect to Digital Realty Trust, Inc.’s common stock and preferred stock. We are committed to maintaining a conservative capital structure. We target a debt-to-Adjusted EBITDA ratio at or less than 5.5x, fixed charge coverage of greater than three times, and floating rate debt at less than 20% of total outstanding debt. In addition, we strive to maintain a well-laddered debt maturity schedule, and we seek to maximize the menu of our available sources of capital, while minimizing the cost.
Summary of 2022 Significant Activities
We completed the following significant activities during the six months ended June 30, 2022:
| ● | In December 2021 we entered into a definitive agreement to acquire a majority stake in Teraco, South Africa’s leading carrier-neutral colocation provider, in a transaction valuing Teraco at approximately $3.5 billion. The transaction closed on August 1, 2022. |
| ● | In January, we issued and sold €750.0 million aggregate principal amount of 1.375% Guaranteed Notes due 2032 (the “2032 Notes”). The 2032 Notes are senior unsecured obligations of Digital Intrepid Holding B.V. and are fully and unconditionally guaranteed by Digital Realty Trust, Inc. and Digital Realty Trust, L.P. Net proceeds from the offering were approximately €737.5 million (approximately $835.3 million based on the exchange rate on January 18, 2022) after deducting managers’ discounts and estimated offering expenses. |
| ● | In February, we redeemed $450.0 million of 4.750% Notes due 2025. As part of this redemption, we recorded a $51.1 million loss on extinguishment of debt. |
| ● | In March, we issued and sold CHF 100 million aggregate principal amount of 0.600% Guaranteed Notes due 2023 (the “2023 Notes”) and CHF 150 million aggregate principal amount of 1.700% Guaranteed Notes due 2027 (the “2027 Notes” and, together with the 2023 Notes, the “Swiss Franc Notes”). The Swiss Franc Notes are senior unsecured obligations of Digital Intrepid Holding B.V. and are fully and unconditionally guaranteed by Digital Realty Trust, Inc. and Digital Realty Trust, L.P. Net proceeds from the offering of the Swiss Franc Notes were approximately CHF 248.6 million (approximately $269.2 million based on the exchange rate on March 30, 2022) after deducting the managers’ commissions and certain offering expenses. |
| ● | In June, we announced the formation of a joint venture with Mivne Real Estate (K.D.). The joint venture will operate under the brand name Digital Realty Mivne and will develop a multi-tenant data center campus in Israel. |
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Revenue Base
Most of our revenue consists of rental income generated by the data centers in our portfolio. Our ability to generate and grow revenue depends on several factors, including our ability to maintain or improve occupancy rates. A summary of our data center portfolio and related square feet occupied (excluding space under development or held for development) is shown below. Unconsolidated portfolios shown below consist of assets owned by unconsolidated entities in which we have invested. We often provide management services for these entities under management agreements and receive management fees. These are shown as Managed Unconsolidated Portfolio. Entities for which we do not provide such services are shown as Non-Managed Unconsolidated Portfolio.
| (1) | Net rentable square feet represents the current square feet under lease as specified in the applicable lease agreement plus management’s estimate of space available for lease based on engineering drawings. The amount includes customers’ proportional share of common areas but excludes space held for the intent of or under active development. |
| (2) | Space under active development includes current base building and data center projects in progress, and excludes space held for development. For additional information on the current and future investment for space under active development, see “Liquidity and Capital Resources—Development Projects”. |
| (3) | Space held for development includes space held for future data center development and excludes space under active development. For additional information on the current investment for space held for development, see “Liquidity and Capital Resources—Development Projects”. |
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Leasing Activities
Due to the capital-intensive and long-term nature of the operations we support, our lease terms with customers are generally longer than standard commercial leases. As of June 30, 2022, our average remaining lease term was approximately five years.
Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. The subsequent table summarizes our leasing activity in the six months ended June 30, 2022:
| (1) | For some of our properties, we calculate square footage based on factors in addition to contractually leased square feet, including power, required support space and common area. |
| (2) | Rental rates represent average annual estimated base cash rent per rentable square foot – calculated for each contract based on total cash base rent divided by the total number of years in the contract (including any tenant concessions). All rates were calculated in the local currency of each contract and then converted to USD based on average exchange rates for the period presented. |
| (3) | Excludes short-term leases. |
| (4) | Commencement dates for the leases signed range from 2022 to 2023. |
| (5) | Includes leases signed for new and re-leased space. |
| (6) | Other includes Powered Base Building shell capacity as well as storage and office space within fully improved data center facilities. |
We continue to see strong demand in most of our key metropolitan areas for data center space and, subject to the supply of available data center space in these metropolitan areas, we expect average aggregate rental rates on renewed data center leases for 2022 expirations to be slightly positive as compared with the rates currently being paid for the same space on a GAAP basis and on a cash basis. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our data centers will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular metropolitan area may not be consistent with rental rates across our portfolio as a whole and may fluctuate from one period to another due to a number of factors, including local economic conditions, local supply and demand for data center space, competition from other data center developers or operators, the condition of the property and whether the property, or space within the property, has been developed.
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Geographic Concentration
We depend on the market for data centers in specific geographic regions and significant changes in these regional or metropolitan areas can impact our future results. The following table shows the geographic concentration of annualized rent from our portfolio, including data centers held as investments in unconsolidated entities.
| Percentage of | ||
June 30, 2022 | |||
Metropolitan Area | total annualized rent (1) | ||
Northern Virginia |
| 18.7 | % |
Chicago |
| 9.1 | % |
New York |
| 6.2 | % |
London |
| 5.8 | % |
Frankfurt |
| 5.8 | % |
Silicon Valley |
| 5.6 | % |
Dallas | 5.4 | % | |
Singapore |
| 5.3 | % |
Sao Paulo |
| 4.5 | % |
Amsterdam |
| 4.1 | % |
Paris |
| 2.2 | % |
San Francisco |
| 1.9 | % |
Portland |
| 1.8 | % |
Phoenix |
| 1.8 | % |
Atlanta | 1.5 | % | |
Other |
| 20.3 | % |
Total |
| 100.0 | % |
| (1) | Annualized rent is monthly contractual rent (defined as cash base rent before abatements) under existing leases as of the end of the period presented, multiplied by 12. Includes consolidated portfolio and unconsolidated entities at the entities’ 100% ownership level. The aggregate amount of abatements for the six months ended June 30, 2022 was approximately $55.1 million. |
Operating Expenses
Operating expenses primarily consist of utilities, property and ad valorem taxes, property management fees, insurance and site maintenance costs, and rental expenses on our ground and building leases. Our buildings require significant power to support data center operations and the cost of electric power and other utilities is a significant component of operating expenses.
Many of our leases contain provisions under which tenants reimburse us for all or a portion of property operating expenses and real estate taxes incurred by us. However, in some cases we are not entitled to reimbursement of property operating expenses, other than utility expense, and real estate taxes under our leases for Turn-Key Flex® facilities. We expect to incur additional operating expenses as we continue to expand.
Costs pertaining to our asset management function, legal, accounting, corporate governance, reporting and compliance are categorized as general and administrative costs within operating expenses.
Other key components of operating expenses include: depreciation of our fixed assets, amortization of intangible assets, and transaction and integration costs.
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Other Income / (Expenses)
Equity in earnings of unconsolidated entities, interest expense, and income tax expense make up the majority of other income/(expense). Equity in earnings of unconsolidated entities represents our share of the income/(loss) of entities in which we invest, but do not consolidate under U.S. GAAP. The largest of these investments is currently our investment in Ascenty, which is located primarily in Brazil. Our second-largest equity-method investment is Digital Core REIT, which is publicly traded on the Singapore Exchange (“SGX”) and which owns a portfolio of 10 properties operating in the United States and Canada. Refer to additional discussion of Digital Core REIT and Ascenty in the Notes to the Condensed Consolidated Financial Statements.
Results of Operations
As a result of the consistent and significant growth in our business since the first property acquisition in 2002, we evaluate period-to-period results for revenue and property level operating expenses on a stabilized versus non-stabilized portfolio basis.
Stabilized: The stabilized portfolio includes properties owned as of the beginning of all periods presented with less than 5% of total rentable square feet under development.
Non-stabilized: The non-stabilized portfolio includes: (1) properties that were undergoing, or were expected to undergo, development activities during any of the periods presented; (2) any properties contributed to joint ventures, sold, or held for sale during the periods presented; and (3) any properties that were acquired or delivered at any point during the periods presented.
A roll forward showing changes in the stabilized and non-stabilized portfolios for the six months ended June 30, 2022 as compared to December 31, 2021 is shown below.
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Comparison of the Results of Operations for the three and six months ended June 30, 2022 to the three and six months ended June 30, 2021
Revenues
Total operating revenues as shown on our condensed consolidated income statements was as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 |
| 2021 |
| $ Change | % Change |
| 2022 |
| 2021 |
| $ Change | % Change | |||||||||||
Stabilized | $ | 863,188 | $ | 887,660 | $ | (24,472) | (2.8) | % | $ | 1,735,114 | $ | 1,779,575 | $ | (44,461) | (2.5) | % | ||||||||
Non-Stabilized | 268,349 | 201,735 | 66,614 | 33.0 | % | 517,973 | 397,726 | 120,247 | 30.2 | % | ||||||||||||||
Rental and other services | 1,131,537 | 1,089,395 | 42,142 | 3.9 | % | 2,253,087 | 2,177,301 | 75,786 | 3.5 | % | ||||||||||||||
Fee income and other | 7,785 | 3,793 | 3,992 | 105.2 | % |
| 13,557 |
| 6,278 | 7,279 | 115.9 | % | ||||||||||||
Total operating revenues | $ | 1,139,322 | $ | 1,093,188 | $ | 46,134 | 4.2 | % | $ | 2,266,644 | $ | 2,183,579 | $ | 83,065 | 3.8 | % | ||||||||
Total operating revenues increased by approximately $46.1 million and $83.1 million in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, driven primarily by growth in non-stabilized rental and other services revenue.
Stabilized rental and other services revenue decreased $24.5 million in the three months ended June 30, 2022, compared to the same period in 2021 primarily due to a $35.2 million unfavorable foreign currency translation effect (primarily related to weaking of the Euro and British pound sterling versus the U.S. dollar) partially offset by a net increase in tenant reimbursements related to higher utility consumption of $13.4 million.
Stabilized rental and other services revenue decreased $44.5 million in the six months ended June 30, 2022, compared to the same period in 2021, primarily due to a $54.7 million unfavorable foreign currency translation effect (primarily due to the Euro and British pound sterling versus the U.S. dollar), and a $15.1 million increase in bad debt and straight-line rent reserves, partially offset by a net increase in tenant reimbursements related to higher utility consumption of $20.4 million.
Non-stabilized rental and other services revenue increased $66.6 million in the three months ended June 30, 2022, compared to the same period in 2021 driven primarily by:
| (i) | an increase of $73.4 million due to the completion of global development pipeline and related lease up operating activities; |
| (ii) | $26.2 million generated from an APAC property, which was not operational for the three months ended March 31, 2021; |
| (iii) | offset by a $27.4 million decrease from the impact of properties sold in 2021 and the unfavorable foreign currency translation effect primarily due to the Euro versus the U.S. dollar of approximately $8.7 million. |
Non-stabilized rental and other services revenue increased $120.2 million in the six months ended June 30, 2022, compared to the same period in 2021, driven primarily by:
| (i) | an increase of $148.4 million due to the completion of global development pipeline and related lease up operating activities; |
| (ii) | $58.4 million generated from an APAC property, which was not operational for the three months ended March 31, 2021; |
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| (iii) | offset by a $68.3 million decrease from the impact of properties sold in 2021 and the unfavorable foreign currency translation effect primarily due to the Euro versus the U.S. dollar of approximately $13.1 million. |
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Operating Expenses — Property Level
Property level operating expenses as shown in our condensed consolidated income statements were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 |
| 2021 |
| $ Change | % Change | 2022 |
| 2021 |
| $ Change | % Change | ||||||||||||
Stabilized | $ | 317,625 | $ | 312,250 | $ | 5,375 | 1.7 | % | $ | 643,989 | $ | 633,048 | $ | 10,941 | 1.7 | % | ||||||||
Non-Stabilized |
| 103,877 |
| 70,966 | 32,911 | 46.4 | % |
| 213,106 |
| 111,947 | 101,159 | 90.4 | % | ||||||||||
Rental property operating and maintenance | 421,502 | 383,216 | 38,286 | 10.0 | % | 857,095 | 744,995 | 112,100 | 15.0 | % | ||||||||||||||
Stabilized |
| 40,868 |
| 38,692 | 2,176 | 5.6 | % |
| 81,337 |
| 79,322 | 2,015 | 2.5 | % | ||||||||||
Non-Stabilized |
| 10,181 |
| 9,806 | 375 | 3.8 | % |
| 19,936 |
| 21,679 | (1,743) | (8.0) | % | ||||||||||
Property taxes and insurance |
| 51,049 |
| 48,498 | 2,551 | 5.3 | % |
| 101,273 |
| 101,001 | 272 | 0.3 | % | ||||||||||
Total Property Level Expenses | $ | 472,551 | $ | 431,714 | $ | 40,837 | 9.5 | % | $ | 958,368 | $ | 845,996 | $ | 112,372 | 13.3 | % | ||||||||
Property level operating expenses include costs to operate and maintain the properties in our portfolio as well as taxes and insurance.
Stabilized property operating and maintenance expenses increased by approximately $5.4 million in the three months ended June 30, 2022, compared to the same period in 2021 primarily due to:
| (i) | $17.6 million increase in utility consumption and higher rates at certain properties in the stabilized portfolio; |
| (ii) | offset by a $12.2 million decrease in rental property operating expenses as a result of the expiration of enhanced COVID janitorial and security screening protocols and data center labor. |
Stabilized property operating and maintenance expenses increased $10.9 million in the six months ended June 30, 2022, compared to the same period in 2021 primarily due to:
| (i) | $26.7 million increase in utility consumption and higher rates at certain properties in the stabilized portfolio; |
| (ii) | offset by a $15.8 million decrease in rental property operating expenses as a result of the expiration of enhanced COVID janitorial and security screening protocols and data center labor. |
Non-stabilized property operating and maintenance expenses increased $32.9 million and $101.2 million in three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, primarily due to higher utility consumption in a growing portfolio of recently completed development sites of approximately $20.8 million and $76.9 million, respectively.
The cost of electric power comprises a significant component of our operating expenses. Any additional taxation or regulation of energy use, including as a result of (i) new legislation that the U.S. Congress may pass, (ii) the regulations that the U.S. EPA has proposed or finalized, (iii) regulations under legislation that states have passed or may pass, or (iv) any further legislation or regulations in the EU, APAC or other regions where we operate could significantly increase our costs, and we may not be able to effectively pass all of these costs on to our customers. These matters could adversely impact our business, results of operations, or financial condition.
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Other Operating Expenses
Other operating expenses include costs which are either non-cash in nature (such as depreciation and amortization), or which do not directly pertain to operation of data center properties. A comparison of other operating expenses for the three and six months ended June 30, 2022 and 2021 is shown below.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 |
| 2021 | $ Change | % Change |
| 2022 |
| 2021 | $ Change | % Change | |||||||||||||
Depreciation and amortization |
| $ | 376,967 | $ | 368,981 | $ | 7,986 | 2.2 | % |
| $ | 759,099 | $ | 738,714 | $ | 20,385 | 2.8 | % | ||||||
General and administrative | 105,776 | 97,492 | 8,284 | 8.5 | % | 204,289 | 197,486 | 6,803 | 3.4 | % | ||||||||||||||
Transaction, integration and other expense |
| 13,586 |
| 7,075 | 6,511 | 92.0 | % |
| 25,554 | 21,195 | 4,359 | 20.6 | % | |||||||||||
Other |
| 70 |
| 2,298 | (2,228) | 97 | % |
| 7,727 | 2,041 | 5,686 | 278.6 | % | |||||||||||
Total Other Operating Expenses | 496,399 | 475,846 | 20,553 | 4.3 | % | 996,669 | 959,436 | 37,233 | 3.9 | % | ||||||||||||||
Property level operating expenses | 472,551 | 431,714 | 40,837 | 9.5 | % | 958,368 | 845,996 | 112,372 | 13.3 | % | ||||||||||||||
Total Operating Expenses | $ | 968,950 | $ | 907,560 | 61,390 | 6.8 | % | $ | 1,955,037 | $ | 1,805,432 | 149,605 | 8.3 | % | ||||||||||
Equity in earnings (loss) of unconsolidated entities
Equity in earnings (loss) of unconsolidated entities decreased approximately $86.0 million and $2.2 million in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The foreign exchange remeasurement of debt associated with our Ascenty unconsolidated entity creates volatility in our equity in earnings.
Gain on Disposition of Properties, Net
Gain on disposition of properties decreased approximately $0.5 million and $331.7 million in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, because we recognized a gain of approximately $333.3 million in March 2021 associated with sale of a portfolio of 11 data centers in Europe (four in the United Kingdom, three in the Netherlands, three in France and one in Switzerland) to Ascendas Reit, a CapitaLand sponsored REIT, for total purchase consideration of approximately $680.0 million.
Loss from Early Extinguishment of Debt
Loss from early extinguishment of debt increased approximately $32.8 million in the six months ended June 30, 2022 compared to the same period in 2021. The increase is primarily due to the redemption of the 4.750% Notes due 2025 in February 2022, which resulted in a $51.1 million loss, offset by the redemption 2.750% Notes due 2023 in February 2021, which resulted in a $18.3 million loss.
Income Tax Expense
Income tax expense decreased by $31.2 million and $25.5 million during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decrease was driven primarily by an increase in the corporate tax rate that increased deferred tax expense in the United Kingdom from 19% to 25% during the quarter ended June 30, 2021.
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Liquidity and Capital Resources
The sections “Analysis of Liquidity and Capital Resources — Parent” and “Analysis of Liquidity and Capital Resources — Operating Partnership” should be read in conjunction with one another to understand our liquidity and capital resources on a consolidated basis. The term “Parent” refers to Digital Realty Trust, Inc. on an unconsolidated basis, excluding our Operating Partnership. The term “Operating Partnership” or “OP” refers to Digital Realty Trust, L.P. on a consolidated basis.
Analysis of Liquidity and Capital Resources — Parent
Our Parent does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time, incurring certain expenses in operating as a public company (which are fully reimbursed by the Operating Partnership) and guaranteeing certain unsecured debt of the Operating Partnership and certain of its subsidiaries and affiliates. If our Operating Partnership or such subsidiaries fail to fulfill their debt requirements, which trigger Parent guarantee obligations, then our Parent will be required to fulfill its cash payment commitments under such guarantees. Our Parent’s only material asset is its investment in our Operating Partnership.
Our Parent’s principal funding requirement is the payment of dividends on its common and preferred stock. Our Parent’s principal source of funding is the distributions it receives from our Operating Partnership.
As the sole general partner of our Operating Partnership, our Parent has the full, exclusive and complete responsibility for our Operating Partnership’s day-to-day management and control. Our Parent causes our Operating Partnership to distribute such portion of its available cash as our Parent may in its discretion determine, in the manner provided in our Operating Partnership’s partnership agreement.
As circumstances warrant, our Parent may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. Any proceeds from such equity issuances would generally be contributed to our Operating Partnership in exchange for additional equity interests in our Operating Partnership. Our Operating Partnership may use the proceeds to acquire additional properties, to fund development opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or equity securities.
Our Parent and our Operating Partnership were parties to an at-the-market (ATM) equity offering sales agreement dated January 4, 2019, as amended in 2020 (the “2020 Sales Agreement”). In accordance with the 2020 Sales Agreement, following the date of the 2020 amendment, Digital Realty Trust, Inc. could offer and sell shares of its common stock having an aggregate offering price of up to $1.0 billion. The 2020 Sales Agreement was terminated when Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into a new ATM equity offering sales agreement dated April 1, 2022 (the “2022 Sales Agreement”). At the time of the termination, $577.6 million remained unsold under the 2020 Sales Agreement. Pursuant to the 2022 Sales Agreement, Digital Realty Trust, Inc. can issue and sell common stock having an aggregate offering price of up to $1.5 billion through various named agents from time to time. The sales of common stock made under the 2022 Sales Agreement will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. Our Parent has used and intends to use the net proceeds from the program to temporarily repay borrowings under our Operating Partnership’s global revolving credit facilities, to acquire additional properties or businesses, to fund development opportunities and for working capital and other general corporate purposes, including potentially for the repayment of other debt or the repurchase, redemption or retirement of outstanding debt securities.
On September 13, 2021, Digital Realty Trust, Inc. completed an underwritten public offering of 6,250,000 shares of its common stock, all of which were offered in connection with forward sale agreements it entered into with certain financial institutions acting as forward purchasers. The forward purchasers borrowed and sold an aggregate of 6,250,000 shares of Digital Realty Trust, Inc.’s common stock in the public offering. Digital Realty Trust, Inc. did not receive any proceeds from the sale of our common stock by the forward purchasers in the public offering. The Company may receive gross proceeds of approximately $1.0 billion (based on the offering price of $155.69 per share) upon full physical settlement of the forward sale agreements, which is to be no later than March 13, 2023. Upon physical settlement of the
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forward sale agreements, the Operating Partnership is expected to issue general partner common partnership units to Digital Realty Trust, Inc. in exchange for contribution of the net proceeds. The forward purchasers had also granted to the underwriters an option, exercisable until October 13, 2021, to purchase up to 937,500 additional shares at a price of $155.69, which represents the initial price to the public less the underwriting discount. The underwriters opted not to exercise their option within the specified time period.
We believe our Operating Partnership’s sources of working capital, specifically its cash flow from operations, and funds available under its global revolving credit facility are adequate for it to make its distribution payments to our Parent and, in turn, for our Parent to make its dividend payments to its stockholders. However, we cannot assure you that our Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including making distribution payments to our Parent. The lack of availability of capital could adversely affect our Operating Partnership’s ability to pay its distributions to our Parent, which would in turn, adversely affect our Parent’s ability to pay cash dividends to its stockholders.
Future Uses of Cash — Parent
Our Parent may from time to time seek to retire, redeem or repurchase its equity or the debt securities of our Operating Partnership or its subsidiaries through cash purchases and/or exchanges for equity securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, redemptions or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material.
Dividends and Distributions — Parent
Our Parent is required to distribute 90% of its taxable income (excluding capital gains) on an annual basis to continue to qualify as a REIT for federal income tax purposes. Our Parent intends to make, but is not contractually bound to make, regular quarterly distributions to its common stockholders from cash flow from our Operating Partnership’s operating activities. While historically our Parent has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Parent’s Board of Directors. Our Parent considers market factors and our Operating Partnership’s performance in addition to REIT requirements in determining distribution levels. Our Parent has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal and state income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our Parent’s status as a REIT.
As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. Our Parent may need to continue to raise capital in the debt and equity markets to fund our Operating Partnership’s working capital needs, as well as potential developments at new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, our Parent may be required to use borrowings under the Operating Partnership’s global revolving credit facility (which is guaranteed by our Parent), if necessary, to meet REIT distribution requirements and maintain our Parent’s REIT status.
Distributions out of our Parent’s current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent’s current and accumulated earnings and profits, to the extent of a stockholder’s U.S. federal income tax basis in our Parent’s stock, are generally classified as a return of capital. Distributions in excess of a stockholder’s U.S. federal income tax basis in our Parent’s stock are generally characterized as capital gain. Cash provided by operating activities has been generally sufficient to fund distributions on an annual basis. However, we may also need to utilize borrowings under the global revolving credit facility to fund distributions.
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For additional information regarding dividends declared and paid by our Parent on its common and preferred stock for the six months ended June 30, 2022, see Note 10. “Equity and Capital” to our condensed consolidated financial statements contained herein.
Analysis of Liquidity and Capital Resources — Operating Partnership
As of June 30, 2022, we had $99.2 million of cash and cash equivalents, excluding $10.0 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits. Our liquidity requirements primarily consist of:
| ● | operating expenses; |
| ● | development costs and other expenditures associated with our properties; |
| ● | distributions to our Parent to enable it to make dividend payments; |
| ● | distributions to unitholders of common limited partnership interests in Digital Realty Trust, L.P.; |
| ● | debt service; and |
| ● | potentially, acquisitions. |
Future Uses of Cash
Our properties require periodic investments of capital for customer-related capital expenditures and for general capital improvements. Depending upon customer demand, we expect to incur significant improvement costs to build out and develop additional capacity. At June 30, 2022, we had open commitments, related to construction contracts of approximately $1.9 billion, including amounts reimbursable of approximately $55.1 million.
We currently expect to incur approximately $1.3 billion to $1.5 billion of capital expenditures for our development programs during the six months ending December 31, 2022. This amount could go up or down, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.
On August 1, 2022, we completed the acquisition of a 55% majority interest in Teraco, a leading carrier-neutral data center and interconnection services provider in South Africa. The total purchase price was $1.7 billion cash, funded by our global revolving credit facility and a partial settlement of the forward sale agreements. The transaction is expected to position Digital Realty as the premier data center and connectivity provider on the African continent.
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Development Projects
The costs we incur to develop our properties is a key component of our liquidity requirements. The following table summarizes our cumulative investments in current development projects as well as expected future investments in these projects as of the periods presented, excluding costs incurred or to be incurred by unconsolidated entities.
Development Lifecycle | As of June 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||
Net Rentable | Current | Future | Net Rentable | Current | Future | |||||||||||||||||
(dollars in thousands) |
| Square Feet (1) |
| Investment (2) |
| Investment (3) |
| Total Cost |
| Square Feet (1) |
| Investment (4) |
| Investment (3) |
| Total Cost | ||||||
Land held for future development (5) |
| N/A |
| $ | 37,460 |
| $ | — |
| $ | 37,460 |
| N/A |
| $ | 133,683 |
| $ | — |
| $ | 133,683 |
Construction in Progress and Space Held for Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Land - Current Development (5) | N/A | $ | 1,036,470 | $ | — | $ | 1,036,470 | N/A | $ | 974,464 | $ | — | $ | 974,464 | ||||||||
Space Held for Development (6) |
| 1,091,051 |
| 232,514 |
| — |
| 232,514 |
| 1,091,451 | 210,903 |
| — | 210,903 | ||||||||
Base Building Construction |
| 3,384,304 |
| 510,711 | 633,859 |
| 1,144,570 |
| 3,319,999 |
| 545,529 | 460,595 |
| 1,006,124 | ||||||||
Data Center Construction |
| 4,109,331 |
| 1,493,446 |
| 2,834,864 |
| 4,328,310 |
| 2,979,791 |
| 1,409,403 |
| 1,825,369 |
| 3,234,772 | ||||||
Equipment Pool and Other Inventory |
| N/A |
| 14,926 |
| — |
| 14,926 |
| N/A |
| 7,881 |
| — |
| 7,881 | ||||||
Campus, Tenant Improvements and Other |
| N/A |
| 74,047 |
| 136,184 |
| 210,231 |
| N/A |
| 65,209 |
| 99,118 |
| 164,327 | ||||||
Total Construction in Progress and Land Held for Future Development |
| 8,584,686 | $ | 3,399,574 | $ | 3,604,907 | $ | 7,004,481 |
| 7,391,241 | $ | 3,347,072 | $ | 2,385,082 | $ | 5,732,154 | ||||||
| (1) | We estimate the total net rentable square feet available for lease based on a number of factors in addition to contractually leased square feet, including available power, required support space and common areas. Excludes square footage of properties held in unconsolidated entities. Square footage is based on current estimates and project plans and may change upon completion of the project due to remeasurement. |
| (2) | Represents balances incurred through June 30, 2022. |
| (3) | Represents estimated cost to complete specific scope of work pursuant to contract, budget or approved capital plan. |
| (4) | Represents balances incurred through December 31, 2021. |
| (5) | Represents approximately 803 acres as of June 30, 2022 and approximately 849 acres as of December 31, 2021. |
| (6) | Excludes space held for development through unconsolidated entities. |
Land inventory and space held for development reflect cumulative cost spent pending future development. Base building construction consists of ongoing improvements to building infrastructure in preparation for future data center fit-out. Data center construction includes 7.5 million square feet of Turn Key Flex® and Powered Base Building® product. We expect to deliver the space within 12 months; however, lease commencement dates may significantly impact final delivery schedules. Equipment pool and other inventory represent the value of long-lead equipment and materials required for timely deployment and delivery of data center construction fit-out. Campus, tenant improvements and other costs include the value of development work which benefits space recently converted to our operating portfolio and is composed primarily of shared infrastructure projects and first-generation tenant improvements.
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Capital Expenditures (Cash Basis)
The table below summarizes our capital expenditure activity for the six months ended June 30, 2022 and 2021 (in thousands):
Six Months Ended June 30, | ||||||
| 2022 |
| 2021 | |||
Development projects | $ | 897,251 | $ | 945,735 | ||
Enhancement and improvements |
| 8,697 |
| 160 | ||
Recurring capital expenditures |
| 90,267 |
| 78,753 | ||
Total capital expenditures (excluding indirect costs) | $ | 996,215 | $ | 1,024,648 | ||
Our development capital expenditures are generally funded by our available cash and equity and debt capital.
Indirect costs, including interest, capitalized in the six months ended June 30, 2022 and 2021 were $70.8 million and $56.8 million, respectively. Capitalized interest comprised approximately $28.9 million and $23.0 million of the total indirect costs capitalized for the six months ended June 30, 2022 and 2021, respectively. Capitalized interest in the six months ended June 30, 2022 increased, compared to the same period in 2021, due to an increase in qualifying activities.
Excluding capitalized interest, indirect costs in the six months ended June 30, 2022 increased compared to the same period in 2021 due primarily to capitalized amounts relating to compensation expense of employees directly engaged in construction activities. See “Future Uses of Cash” for a discussion of the amount of capital expenditures we expect to incur during the year ending December 31, 2022.
Consistent with our growth strategy, we actively pursue potential acquisition opportunities, with due diligence and negotiations often at different stages at different times. The dollar value of acquisitions for the year ending December 31, 2022 will depend upon numerous factors, including customer demand, leasing results, availability of debt or equity capital and acquisition opportunities. Further, the growing acceptance by private institutional investors of the data center asset class has generally pushed capitalization rates lower, as such private investors may often have lower return expectations than us. As a result, we anticipate near-term single asset acquisitions activity to comprise a smaller percentage of our growth while this market dynamic persists.
We may from time to time seek to retire or repurchase our outstanding debt or the equity of our Parent through cash purchases and/or exchanges for equity securities of our Parent in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material.
Sources of Cash
We expect to meet our short-term and long-term liquidity requirements, including payment of scheduled debt maturities and funding of acquisitions and non-recurring capital improvements, with net cash from operations, future long-term secured and unsecured indebtedness, non-core asset sales and/or contributions to capital partner vehicles and the issuance of equity and debt securities and the proceeds of equity issuances by our Parent. We also may fund future short-term and long-term liquidity requirements, including acquisitions and non-recurring capital improvements, using our global revolving credit facilities pending permanent financing. As of August 3, 2022, we had approximately $0.8 billion of borrowings available under our global revolving credit facilities.
Our global revolving credit facilities provide for borrowings up to $4.05 billion (including approximately $0.3 billion available to be drawn on the Yen revolving credit facility). We have the ability from time to time to increase the size of the global revolving credit facility by up to $750 million, subject to the receipt of lender commitments and other conditions precedent. Both facilities mature on January 24, 2026, with two six-month extension options available. These facilities also feature a sustainability-linked pricing component, with pricing subject to adjustment based on annual performance targets, further demonstrating our continued leadership and commitment to sustainable business practices.
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We have used and intend to use available borrowings under the global revolving credit facilities to fund our liquidity requirements from time to time.
Distributions
All distributions on our units are at the discretion of our Parent’s Board of Directors. For additional information regarding distributions paid on our common and preferred units for the six months ended June 30, 2022, see Note 10. “Equity and Capital” to our condensed consolidated financial statements contained herein.
Outstanding Consolidated Indebtedness
The table below summarizes our outstanding debt as of June 30, 2022 (in millions):
Debt Summary: |
|
| ||
Fixed rate | $ | 12,620.8 | ||
Variable rate debt subject to interest rate swaps |
| 8.0 | ||
Total fixed rate debt (including interest rate swaps) |
| 12,628.8 | ||
Variable rate—unhedged |
| 1,781.4 | ||
Total | $ | 14,410.2 | ||
Percent of Total Debt: |
|
| ||
Fixed rate (including swapped debt) |
| 87.6 | % | |
Variable rate |
| 12.4 | % | |
Total |
| 100.0 | % | |
Effective Interest Rate as of June 30, 2022 |
|
| ||
Fixed rate (including hedged variable rate debt) |
| 2.19 | % | |
Variable rate |
| 1.67 | % | |
Effective interest rate |
| 2.25 | % |
Our ratio of debt to total enterprise value was approximately 27% (based on the closing price of Digital Realty Trust, Inc.’s common stock on June 30, 2022 of $129.83). For this purpose, our total enterprise value is defined as the sum of the market value of Digital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total enterprise value ratio), plus the liquidation value of Digital Realty Trust, Inc.’s preferred stock, plus the aggregate value of Digital Realty Trust, L.P.’s units not held by Digital Realty Trust, Inc. (with the per unit value equal to the market value of one share of Digital Realty Trust, Inc.’s common stock and excluding long-term incentive units, Class C units and Class D units), plus the book value of our total consolidated indebtedness.
The variable rate debt shown above bears interest based on various one-month USD LIBOR, EURIBOR, SONIA, SORA, BBR, HIBOR, TIBOR, CDOR, and for Korean Won the base CD rates, depending on the respective agreement governing the debt, including our global revolving credit facilities. As of June 30, 2022, our debt had a weighted average term to initial maturity of approximately 5.7 years (or approximately 5.8 years assuming exercise of extension options).
As of June 30, 2022, our pro-rata share of secured debt of unconsolidated entities was approximately $788.8 million.
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Cash Flows
The following summary discussion of our cash flows is based on the condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021
The following table shows cash flows and ending cash, cash equivalents and restricted cash balances for the respective periods (in thousands).
Six Months Ended June 30, | ||||||||
2022 |
| 2021 |
| Change | ||||
Net cash provided by operating activities | $ | 783,578 | $ | 850,491 | $ | (66,913) | ||
Net cash (used in) investing activities |
| (1,427,832) |
| (558,645) |
| (869,187) | ||
Net cash provided by (used in) financing activities |
| 633,091 |
| (275,348) |
| 908,439 | ||
Net increase in cash, cash equivalents and restricted cash | $ | (11,163) | $ | 16,498 | $ | (27,661) | ||
The changes in the activities that comprise the increase in net cash used in investing activities for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 consisted of the following amounts (in thousands).
The increase in net cash used in investing activities was primarily due to (i) sale of investments related to the sale of 11 data centers in Europe in March 2021, (ii) investments in various unconsolidated entities, offset by (iii) a decrease in cash used for improvements to investments in real estate.
The increase in net cash provided by financing activities was primarily due to (i) an increase in cash proceeds from short-term borrowings, (ii) a decrease in cash used for repayment of unsecured notes (in 2022, we redeemed the 4.750% Notes due 2025 ($450 million); in 2021 we redeemed 2.750% Notes due 2023 ($300 million) and paid down the remaining balance of our unsecured term loan ($537 million)), and (iii) an increase in dividend and distribution payments due to an increased dividend amount per share of common stock and common unit.
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Noncontrolling Interests in Operating Partnership
Noncontrolling interests relate to the common units in Digital Realty Trust, L.P. that are not owned by Digital Realty Trust, Inc., which, as of June 30, 2022, amounted to 2.2% of Digital Realty Trust, L.P. common units. Historically, Digital Realty Trust, L.P. has issued common units to third party sellers in connection with our acquisition of real estate interests from such third parties.
Limited partners have the right to require Digital Realty Trust, L.P. to redeem part or all of their common units for cash based upon the fair market value of an equivalent number of shares of Digital Realty Trust, Inc. common stock at the time of the redemption. Alternatively, we may elect to acquire those common units in exchange for shares of Digital Realty Trust, Inc. common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events. As of June 30, 2022, approximately 0.2 million common units of Digital Realty Trust, L.P. that were issued to certain former unitholders of DuPont Fabros Technology, L.P. in connection with the Company’s acquisition of DuPont Fabros Technology, Inc. were outstanding, which are subject to certain restrictions and, accordingly, are not presented as permanent capital in the condensed consolidated balance sheet.
Inflation
Many of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.
Funds from Operations
We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts (Nareit) in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, a gain from a pre-existing relationship, impairment charges and 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 and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe 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 capitalized 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 other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.
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Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO)
(unaudited, in thousands, except per share and unit data)
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net Income Available to Common Stockholders | $ | 53,246 | $ | 127,369 | $ | 116,346 | $ | 499,775 | ||||
Adjustments: |
|
|
|
|
|
|
|
| ||||
Non-controlling interests in operating partnership |
| 1,500 |
| 3,200 |
| 3,100 |
| 13,000 | ||||
Real estate related depreciation and amortization (1) |
| 369,327 |
| 363,640 |
| 743,489 |
| 728,337 | ||||
Unconsolidated JV real estate related depreciation and amortization | 29,022 | 20,983 | 58,341 | 40,361 | ||||||||
Gain on real estate transactions | (1,144) | (499) | (3,914) | (334,420) | ||||||||
FFO available to common stockholders and unitholders (2) | $ | 451,951 | $ | 514,693 | $ | 917,362 | $ | 947,053 | ||||
Basic FFO per share and unit | $ | 1.56 | $ | 1.78 | $ | 3.16 | $ | 3.28 | ||||
Diluted FFO per share and unit (2) | $ | 1.55 | $ | 1.78 | $ | 3.16 | $ | 3.27 | ||||
Weighted average common stock and units outstanding |
|
|
|
|
|
|
|
| ||||
Basic |
| 290,528 |
| 288,843 |
| 290,346 |
| 288,588 | ||||
Diluted (2) |
| 290,944 |
| 289,485 |
| 290,716 |
| 289,219 | ||||
|
| |||||||||||
(1) Real estate related depreciation and amortization was computed as follows: | ||||||||||||
Depreciation and amortization per income statement |
| $ | 376,967 |
| $ | 368,981 |
| 759,099 |
| 738,714 | ||
Non-real estate depreciation |
| (7,640) | (5,341) |
| (15,610) | (10,377) | ||||||
$ | 369,327 | $ | 363,640 | $ | 743,489 | $ | 728,337 | |||||
| (2) | For all periods presented, we have excluded the effect of the series C, series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series J, series K and series L preferred stock, as applicable, as they would be anti-dilutive. |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments depend upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit ratings and other factors.
Analysis of Debt between Fixed and Variable Rate
We use interest rate swap agreements and fixed rate debt to reduce our exposure to interest rate movements. As of June 30, 2022, our consolidated debt was as follows (in millions):
Sensitivity to Changes in Interest Rates
The following table shows the effect if assumed changes in interest rates occurred, based on fair values and interest expense as of June 30, 2022:
| Change | ||
Assumed event | ($ millions) | ||
Increase in fair value of interest rate swaps following an assumed 10% increase in interest rates | $ | (0.1) | |
Decrease in fair value of interest rate swaps following an assumed 10% decrease in interest rates |
| 0.1 | |
Increase in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% increase in interest rates |
| 4.6 | |
Decrease in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% decrease in interest rates |
| (4.6) | |
Increase in fair value of fixed rate debt following a 10% decrease in interest rates |
| 159.8 | |
Decrease in fair value of fixed rate debt following a 10% increase in interest rates |
| (143.9) | |
Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
Foreign Currency Exchange Risk
We are subject to risk from the effects of exchange rate movements of a variety of foreign currencies, which may affect future costs and cash flows. Our primary currency exposures are to the Euro, Japanese yen, British pound sterling and Singapore dollar. As a result of the Ascenty entity and deconsolidation of Ascenty, our exposure to foreign exchange risk related to the Brazilian real is limited to the impact that currency has on our share of the Ascenty entity’s operations and financial position. We attempt to mitigate a portion of the risk of currency fluctuations by financing our investments in local currency denominations in order to reduce our exposure to any foreign currency transaction gains or losses resulting from transactions entered into in currencies other than the functional currencies of the associated entities. In addition, we may also hedge well-defined transactional exposures with foreign currency forwards or options, although there can be no assurances that these will be effective. As a result, changes in the relation of any such foreign currency to U.S. dollar may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, Inc.)
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Company has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the Company carried out an evaluation, under the supervision and with participation of its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures that were in effect as of the end of the quarter covered by this report. Based on the foregoing, the Company’s chief executive officer and chief financial officer concluded that its disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during its most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, L.P.)
The Operating Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Operating Partnership’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Operating Partnership has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the Operating Partnership does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the Operating Partnership carried out an evaluation, under the supervision and with participation of the chief executive officer and chief financial officer of its general partner, of the effectiveness of the design and operation of its disclosure controls and procedures that were in effect as of the end of the quarter covered by this report. Based on the foregoing, the chief executive officer and chief financial officer of the Operating Partnership’s general partner concluded that its disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the Operating Partnership’s internal control over financial reporting during its most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of our business, we may become subject to various legal proceedings. As of June 30, 2022, we were not a party to any legal proceedings which we believe would have a material adverse effect on our operations or financial position.
ITEM 1A. RISK FACTORS.
The risk factors discussed under the heading “Risk Factors” and elsewhere in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 continue to apply to our business and should be supplemented with the following risk factor:
Many of our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs, could be adversely impacted by periods of heightened inflation.
In recent months, the consumer price index has increased substantially. Federal policies and recent global events, such as the rising price of oil and the conflict between Russia and Ukraine, may have exacerbated, and may continue to exacerbate, increases in the consumer price index.
A sustained or further increase in inflation could have an adverse impact on our operating expenses incurred in connection with, among others, the property-related contracted services such as repairs and maintenance, utilities, security and insurance. With regard to utilities expense, which is our largest expense category, the vast majority of the expense is passed directly through to our customers which significantly mitigates our exposure to increases in power costs. For our other operating expenses, we expect to recover some increases from our customers through our existing lease structures, annual rent escalations or from the resetting of rents from our renewal and re-leasing activities. As a result, we do not believe that inflation would result in a significant adverse effect on our net operating income and operating cash flows at the property level. However, there can be no assurance that the impact of inflation will be adequately offset by some of our annual rent escalations contained in our leases, and it is possible that the resetting of rents from our renewal and re-leasing activities would not fully offset the impact of higher operating expenses resulting from inflationary pressure. As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our customer contracts, we may not adequately mitigate the impact of inflation, which may adversely affect to our business, financial condition, results of operations, and cash flows.
Our general and administrative expenses consist primarily of compensation costs and professional service fees. Rising inflation rates may require us to provide compensation increases beyond historical annual increases, which may unexpectedly or significantly increase our compensation costs. Similarly, professional service fees are also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services. Consequently, inflation may increase our general and administrative expenses over time and may adversely impact our results of operations and cash flows.
Additionally, inflationary pricing may have a negative effect on the construction costs necessary to complete our development projects, including, but not limited to, costs of construction equipment and materials, labor and services from third-party contractors and suppliers. We rely on a number of third-party suppliers and contractors to supply raw materials, skilled labor and services for our construction projects. Certain increases in the costs of construction equipment and materials can often be managed in our development projects through either general budget contingencies built into our overall construction cost estimates for each of our projects or guaranteed maximum price construction contracts, which stipulate a maximum price for certain construction costs and shift inflation risk to our construction general contractors. However, no assurance can be given that our budget contingencies would accurately account for potential construction cost increases given the current severity of inflation and variety of contributing factors or that our general contractors would be able to absorb such increases in costs and complete our construction projects timely, within budget, or at all. Higher construction costs could adversely impact our investments in real estate assets and expected
61
yields on our development projects, which may adversely impact our returns on our investments. As a result, our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders could be adversely affected over time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Digital Realty Trust, Inc.
None.
Digital Realty Trust, L.P.
During the three months ended June 30, 2022, Digital Realty Trust, L.P. issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the three months ended June 30, 2022, Digital Realty Trust, Inc. issued an aggregate of 28,392 shares of its common stock in connection with restricted stock awards for no cash consideration. For each share of common stock issued by Digital Realty Trust, Inc. in connection with such an award, Digital Realty Trust, L.P. issued a restricted common unit to Digital Realty Trust, Inc. During the three months ended June 30, 2022, Digital Realty Trust, L.P. issued an aggregate of 28,392 common units to Digital Realty Trust, Inc., as required by Digital Realty Trust, L.P.’s partnership agreement. During the three months ended June 30, 2022, an aggregate of 51,998 shares of its common stock were forfeited to Digital Realty Trust, Inc. in connection with restricted stock awards for a net forfeiture of 23,606 shares of common stock.
For these issuances of common units to Digital Realty Trust, Inc., Digital Realty Trust, L.P. relied on Digital Realty Trust, Inc.’s status as a publicly traded NYSE-listed company with approximately $36.0 billion in total consolidated assets and as Digital Realty Trust, L.P.’s majority owner and general partner as the basis for the exemption under Section 4(a)(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
63
32.2 | 18 U.S.C. § 1350 Certification of Chief Financial Officer for Digital Realty Trust, Inc. | X | |||||||||||
32.3 | 18 U.S.C. § 1350 Certification of Chief Executive Officer for Digital Realty Trust, L.P. | X | |||||||||||
32.4 | 18 U.S.C. § 1350 Certification of Chief Financial Officer for Digital Realty Trust, L.P. | X | |||||||||||
101 | The following financial statements from Digital Realty Trust, Inc.’s and Digital Realty Trust, L.P.’s Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Income Statements for the three and six months ended June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Equity/Capital for the three and six months ended June 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021; and (vi) Notes to Condensed Consolidated Financial Statements. | ||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||||||||
* | Portions of this exhibit have been omitted because such portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. | |
† | Management contract or compensatory plan or arrangement. | |
64
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DIGITAL REALTY TRUST, INC. | |
August 5, 2022 | /S/ A. WILLIAM STEIN |
A. William Stein | |
August 5, 2022 | /S/ ANDREW P. POWER |
Andrew P. Power | |
August 5, 2022 | /S/ CAMILLA A. HARRIS |
Camilla A. Harris |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DIGITAL REALTY TRUST, L.P. | ||
By: | Digital Realty Trust, Inc. | |
Its general partner | ||
By: | ||
August 5, 2022 | /S/ A. WILLIAM STEIN | |
A. William Stein | ||
August 5, 2022 | /S/ ANDREW P. POWER | |
Andrew P. Power | ||
August 5, 2022 | /s/ CAMILLA A. HARRIS | |
Camilla A. Harris | ||
65
Exhibit 10.2
TRANSITION AND CONSULTING AGREEMENT
THIS TRANSITION AND CONSULTING AGREEMENT (“Agreement”), dated as of July 26, 2022, is made by and between Digital Realty Trust, Inc. (“REIT”), DLR LLC (together with the REIT, “Company”), and David Ruberg (“Executive”).
WHEREAS, pursuant to that certain Amended Management Agreement, dated as of January 4, 2021, by and between the Company, Executive, and InterXion (together with all exhibits and annexes thereto, the “AMA”), Executive served the Company in the role of EVP, Strategic Advisor of the Company and served InterXion II B.V., an indirect subsidiary of the Company (“InterXion”), in the role of statutory director thereof;
WHEREAS, pursuant to the terms of the AMA, as of June 30, 2022 (“Transition Date”), the AMA terminated in accordance with its terms;
WHEREAS, effective as of the Transition Date, the Company and Executive mutually agreed to extend Executive’s employment with the Company on an at-will basis on the same terms and conditions as then in effect and the Company and Executive now mutually agree to terminate Executive’s employment as of the date of this Agreement (“Termination Date”); and
WHEREAS, in connection with Executive’s termination of employment on the Termination Date, the Company wishes to secure the services of Executive as a consultant to the Company upon the terms and subject to the conditions set forth herein, and Executive wishes to render such services to the Company upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
The federal Defend Trade Secrets Act of 2016 (“Act”) provides immunity from liability in certain circumstances to employees, contractors, and consultants for limited disclosures of Digital Group “trade secrets,” as defined by the Act. Specifically, employees, contractors, and consultants may disclose trade secrets: (1) in confidence, either directly or indirectly, to a federal, state, or local government official, or to an attorney, “solely for the purpose of reporting or investigating a suspected violation of law,” or (2) “in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Additionally, employees, contractors, and consultants who file lawsuits for retaliation by an employer for reporting a suspected violation of law may use and disclose related trade secrets in the following manner: (1) the individual may disclose the trade secret to their attorney, and (2) the individual may use the information in the court proceeding, as long as the individual files any document containing the trade secret under seal and does not otherwise disclose the trade secret “except pursuant to court order.”
If to the Company:
Digital Realty Trust, Inc.
5707 Southwest Parkway, Building 1, Suite 275
Austin, TX 78735
Attn: General Counsel
legalnotices@digitalrealty.com
If to Executive, to their most recent address on the Company’s books and records.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed this Transition and Consulting Agreement, effective as of the date first written above.
DIGITAL REALTY TRUST, INC.,
a Maryland corporation
By: /s/ Cindy Fiedelman
Name: Cindy Fiedelman
Title: Chief Human Resources Officer
DLR LLC,
a Maryland limited liability company
By: Digital Realty Trust, L.P.,
its managing member
By: Digital Realty Trust, Inc.,
its general partner
By: /s/ Cindy Fiedelman
Name: Cindy Fiedelman
Title: Chief Human Resources Officer
Accepted and Agreed,
/s/ David Ruberg
David Ruberg
Date: July 26, 2022
Exhibit A
Letter of Resignation from Statutory Directorship
(See Attached)
Letter of Resignation from Statutory Directorship
To: | Digital Realty Trust, Inc. |
Dear Company and InterXion II B.V.,
I refer to the Transition and Consulting Agreement (“Agreement”), dated as of July 26, 2022, among Digital Realty Trust, Inc. (“REIT”), DLR LLC (together with the REIT, “Company”), and myself, David Ruberg (“Executive”).
In accordance with the provisions of the AMA (article 2.4) and the Agreement, I hereby resign effective as of June 30, 2022 from my position as statutory director (statutair bestuurder) of InterXion II B.V.
I confirm that I have no claim against InterXion II B.V., other than my claims under the Agreement.
I hereby confirm that InterXion II B.V. may proceed with all the required formalities with the Trade Register and that I am available to cooperate to effect such deregistration.
Yours sincerely,
/S/ David Ruberg
David Ruberg
Exhibit B
Equity Awards
Performance-Based Equity Awards
Grant Date | Award ID | Type of Equity Award | Number of | Number of Units Fully Vested as of | Number of Unvested Units as of |
2/25/2021 | 30059 | Class D Unit | 16557 | 0 | 16557 |
2/25/2021 | 30059D | Class D Unit | 4967 | 0 | 4967 |
1/1/2022 | 40006D | Class D Unit | 1396 | 0 | 1396 |
1/1/2022 | 40006 | Class D Unit | 4654 | 0 | 4654 |
3/4/2022 | 40040D | Class D Unit | 2,100 | 0 | 2,100 |
3/4/2022 | 40040 | Class D Unit | 7,002 | 0 | 7,002 |
* The number of performance-based units are listed at “target” amounts as of the Grant Date and will be updated upon completion of the relevant Performance Period.
Time-Based Equity Awards
Grant Date | Award ID | Type of Equity Award | Number of | Number of Vested Units as of | Number of Unvested Units as of |
2/1/2017 | 11018242767 | Restricted Stock Units | 57888 | 57888 | 0 |
2/1/2018 | 11018243132 | Restricted Stock Units | 47826 | 47826 | 0 |
2/1/2019 | 11018243497 | Restricted Stock Units | 58130 | 58130 | 0 |
2/1/2020 | 11018243862 | Restricted Stock Units | 24539 | 24539 | 0 |
2/25/2021 | 30068 | Profits Interest Unit | 7981 | 1995 | 5986 |
1/1/2022 | FIDLOJ18S1YTN | Profits Interest Unit | 7350 | 0 | 7350 |
Exhibit C
Employee Confidentiality and Covenant Agreement
(See Attached)
GENERAL RELEASE OF CLAIMS
In consideration of the benefits set forth in the Transition and Consulting Agreement, dated July 26, 2022 between the undersigned, Digital Realty Trust, Inc., and DLR LLC (“Agreement”), and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned does hereby release and forever discharge the “Releasees” hereunder, consisting of Digital Realty Trust, Inc., a Maryland corporation, Digital Realty Trust, L.P., a Maryland limited partnership, and DLR LLC, a Maryland limited liability company (collectively, the “Company”), each of their subsidiaries and affiliates, and, in their capacity as such, each of their predecessors, successors, partners, directors, officers, employees, attorneys, contractors, assurers, assigns and agents of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees, or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), which the undersigned now has or may hereafter have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the date hereof.
The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the service relationship, employment, or termination of service or employment of the undersigned; any alleged breach of any express or implied contract of employment or other service; any alleged torts or other alleged legal restrictions on the Releasees’ rights to terminate the employment or other service of the undersigned; and any alleged violation of any federal, state, or local statute or ordinance including, without limitation, the Age Discrimination in Employment Act, as amended, 29 U.S.C. § 621, et seq.; Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, 42 U.S.C. § 2000 et seq.; the Equal Pay Act, 29 U.S.C. § 206(d); the Civil Rights Act of 1866, 42 U.S.C. § 1981; the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. § 2601 et seq.; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. § 12101 et seq.; the False Claims Act, as amended, 31 U.S.C. § 3729 et seq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq.; the Fair Labor Standards Act, as amended, 29 U.S.C. § 215 et seq.; the Sarbanes-Oxley Act of 2002; the Worker Adjustment Notification and Retaining Act; the California Labor Code (e.g., Sections 132a, 4553 et seq.); the California Fair Employment and Housing Act, as amended; the California Family Rights Act, as amended; the California Worker Adjustment Notification and Retraining Act; and all other federal, state, and local employment and civil rights laws.
Notwithstanding the foregoing, this Release shall not be construed in any way to operate to release any rights or Claims of the undersigned (i) to payments and benefits under the Agreement, (ii) to payments or benefits under any agreement between the undersigned and the Company evidencing outstanding stock options, profits interest units, or other equity-based awards in the Company held by the undersigned, (iii) to accrued or vested benefits the undersigned may have, if any, as of the date hereof under any applicable plan, policy, practice, program, contract, or agreement with the Company, (iv) for indemnification and/or advancement of expenses, arising under any indemnification agreement between the undersigned and the Company or under the bylaws, certificate of incorporation, or other similar governing document of the Company, (v) to any rights or benefits that may not be waived pursuant to applicable law, including, without limitation, any right to unemployment insurance benefits, or (vi) to bring to the attention of the
US-DOCS\102937527.1
Equal Employment Opportunity or California Department of Fair Employment and Housing claims of discrimination, harassment, or retaliation, or (vii) to communicate directly with, cooperate with or provide information to, any federal, state, or local government regulator; provided, however, that the undersigned does release the undersigned’s right to secure damages for any alleged discriminatory, harassing, or retaliatory treatment (except that nothing in this Release shall be interpreted to prohibit or prevent the undersigned from recovering an award for filing or participating in any whistleblower complaint filed with the Securities and Exchange Commission or providing information to any other government agency).
THE UNDERSIGNED ACKNOWLEDGES THAT THEY HAVE BEEN ADVISED TO SEEK INDEPENDENT LEGAL ADVICE PRIOR TO ACCEPTING THIS RELEASE AND HAVE BEEN, OR HAVE HAD THE OPPORTUNITY TO BE, ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT. In connection with such waiver and relinquishment, the undersigned hereby acknowledges that he may hereafter discover claims or facts in addition to, or different from, those which he now knows or believes to exist, but that he expressly agrees to fully, finally, and forever settle and release any and all claims, known or unknown, suspected or unsuspected, which exist or may exist on his behalf against the Company and/or Releasees at the time of execution of this Release.
This Release is intended to satisfy the requirements of the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f).
Undersigned acknowledges and agrees that (a) Undersigned has read and understands the terms of this Release; (b) Undersigned has been given twenty-one (21) days to consider whether or not to enter into this Release (although Undersigned may elect not to use the full 21-day period at Undersigned’s option); and (c) by signing this Release, Undersigned specifically acknowledges and agrees that Undersigned knowingly and voluntarily waives all rights or claims arising under the Age Discrimination in Employment Act of 1967. This Release does not waive or release any rights or claims that Undersigned may have under the Age Discrimination in Employment Act that arise after the execution of this Release.
Undersigned may revoke Undersigned’s acceptance of this Release within seven (7) calendar days after the date Undersigned signs it. Undersigned’s revocation must be in writing and received by Jeannie Lee, EVP, General Counsel at jlee@digitalrealty.com, or 5707 Southwest Parkway, Building 1, Suite 275, Austin, TX 78735, before the eighth day (from Undersigned’s date of execution of this Release) in order to be effective (“Revocation Period”). If mailed, the revocation must be properly addressed to the above addressee and postmarked no later than the last day of the Revocation Period. If Undersigned does not revoke acceptance of this Release within the Revocation Period, Undersigned’s acceptance of this Release shall become binding and enforceable on the eighth day (“Effective Date”).
IN WITNESS WHEREOF, the undersigned has executed this Release on July 26, 2022.
/s/ David Ruberg
David Ruberg
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, A. William Stein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Digital Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2022
By: | /s/ A. WILLIAM STEIN | |
| A. William Stein Chief Executive Officer (Principal Executive Officer) | |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Andrew P. Power, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Digital Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2022
By: | /s/ANDREW P. POWER | |
| Andrew P. Power President & Chief Financial Officer (Principal Financial Officer) | |
Exhibit 31.3
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, A. William Stein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Digital Realty Trust, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2022
By: | /s/ A. WILLIAM STEIN | |
| A. William Stein (Principal Executive Officer) Digital Realty Trust, Inc., sole general partner of Digital Realty Trust, L.P. | |
Exhibit 31.4
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Andrew P. Power, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Digital Realty Trust, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2022
By: | /s/ ANDREW P. POWER | |
| Andrew P. Power (Principal Financial Officer) Digital Realty Trust, Inc., sole general partner of Digital Realty Trust, L.P. | |
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Digital Realty Trust, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: August 5, 2022 | | |
| | |
| /s/ A. WILLIAM STEIN | |
| A. William Stein | |
| Chief Executive Officer | |
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Digital Realty Trust, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: August 5, 2022 | | |
| | |
| /s/ ANDREW P. POWER | |
| Andrew P. Power | |
| President & Chief Financial Officer | |
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.3
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Digital Realty Trust, Inc., in its capacity as the sole general partner of Digital Realty Trust, L.P. (the “Operating Partnership”), hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarterly period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership at the dates and for the periods indicated.
Date: August 5, 2022 | | |
| | |
| /s/ A. WILLIAM STEIN | |
| A. William Stein | |
| Chief Executive Officer | |
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any registration statement of the Operating Partnership filed under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.4
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Digital Realty Trust, Inc., in its capacity as the sole general partner of Digital Realty Trust, L.P. (the “Operating Partnership”), hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarterly period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership at the dates and for the periods indicated.
Date: August 5, 2022 | | |
| | |
| /s/ ANDREW P. POWER | |
| Andrew P. Power | |
| President & Chief Financial Officer | |
Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any registration statement of the Operating Partnership filed under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906 has been provided to the Operating Partnership and will be retained by the Operating Partnership and furnished to the Securities and Exchange Commission or its staff upon request.