アメリカ合衆国
証券取引委員会
ワシントンDC20549
フォーム
報告期間が終了した2023年6月30日をもって
移行期間は から までです。
委員会ファイル番号
（会社設立時の指定名）
| |||
（設立または組織の州またはその他の管轄区域） | （内国歳入庁雇用者識別番号） | ||
（I.R.S.雇用者識別番号） | 識別番号） | ||
(本社の所在地) | |||
(
（登録者の電話番号（市外局番を含む））
法第12条（b）に基づく登録証券
各クラスの名称 |
| 取引シンボル |
| 登録された各取引所の名前 | |
$
Digital Realty Trust, Inc. |
| |
デジタルリアルティ トラスト 大口 |
申立人が、規則405に基づいて提出が必要なすべてのインタラクティブデータファイルを、前の12か月間（または申立人がこれらのファイルを提出する必要があったより短い期間）に電子的に提出したかどうかを示してください。
Digital Realty Trust, Inc. |
| |
デジタルリアルティ トラスト 大口 |
註記: 記録者が大型加速ファイラー、加速ファイラー、非加速ファイラー、小規模報告会社、または新興成長企業であるかをチェックマークで示せ。取引所法第120億2条の“大型加速ファイラー”、“加速ファイラー”、“小規模報告会社”、“新興成長企業”の定義については、§120億2規則を参照せよ。
Digital Realty trust,Inc.:
| 加速提出者◻ | |
非加速報告者 ◻ | 小規模報告会社 | |
新興成長企業 |
Digital Realty trust,L.P.:
大規模加速報告者◻ |
| 加速報告者◻ |
小規模報告会社 | ||
新興成長企業 |
新しいまたは改訂された財務会計基準に従うための拡張期間を使用しないことを選択した場合は、新興成長企業である場合、エクステンデッドトランジション期間を利用しないことを示すために、チェックマークを付けてください。
Digital Realty Trust, Inc. |
| ◻ |
デジタルリアルティ トラスト 大口 | ◻ |
発行者が取り決めの12b-2の定義に該当するシェル企業であるかどうかを示すチェックマークを付けてください。
Digital Realty Trust, Inc. |
| ☐ |
デジタルリアルティ トラスト 大口 | ☐ |
発行済み全株式の数を示してください。最新の実行可能な日付で、発行済みの申請者の全株式は2024年4月22日の時点で10,937,245株でした。
Digital Realty trust,Inc.:
|
| |
クラス |
| 2024年10月28日の発行済み |
普通株式、株式1株あたり0.01ドル |
注記
このレポートは、2024年9月30日に終了した四半期のフォーム10-Qに関するDigital Realty Trust, Inc.（メリーランド州法人）及びDigital Realty Trust, L.P.（メリーランド州限定パートナーシップ）の合併財務諸表を組み合わせています。Digital Realty Trust, Inc.は唯一の一般パートナーであるDigital Realty Trust, L.P.に所属します。本報告書において「当社」「我々」「弊社」「当社」または「同社」として言及されるすべての参照は、Digital Realty Trust, Inc.及びDigital Realty Trust, L.P.を含む連結子会社全体を指します。REItとしての資格に関する記述において、こういった用語はDigital Realty Trust, Inc.のみに言及します。本報告書において親会社に言及される場合は、Digital Realty Trust, Inc.を指し、営業パートナーシップまたはOPに言及される場合は、Digital Realty Trust, L.P.を意味し、その関連会社全体も含みます。
親会社は、不動産投資信託であるreitsであり、OPの唯一の一般パートナーです。2024年9月30日時点で、親会社はDigital Realty Trust, L.P.における一般パートナーシップの約98.1％を所有しています。Digital Realty Trust, L.P.の残りの約1.9％の一般限定パートナーシップ権益は、関係のない第三者及び親会社の一部の取締役および役員が所有しています。2024年9月30日時点で、親会社はDigital Realty Trust, L.P.の全ての優先限定パートナーシップ権益を所有しています。Digital Realty Trust, L.P.の唯一の一般パートナーとして、親会社はOPの日々の運営と管理に完全かつ独占的に責任を負っています。
当社は、親会社とOPの四半期報告書を1つのレポートに組み合わせることで以下の利点が得られると考えています。
| ● | 投資家がビジネス全体を管理陣が見る方法と同じように、全体として見ることで親会社とOPを理解することができるようになり、それによって投資家の理解を高めると信じています。 |
| ● | 重複する開示を省き、開示の大部分が親会社とOPの両方に適用されることから、より簡略化され読みやすいプレゼンテーションを提供する。 |
| ● | 2つの別々のレポートの代わりに1つの統合レポートの作成により、時間とコストの効率化が生まれる。 |
会社の運営方法の文脈で、親会社とOPの間のわずかな違いを理解することは重要です。親会社は、OPの唯一の一般パートナーとして行動し、時折公開株式を発行し、OPおよびそのいくつかの子会社および関連会社の特定の無担保負債の保証を行う以外には、自らビジネスを行いません。OPは、ビジネスのほぼすべての資産を直接または間接的に保有しています。OPはビジネスの運営を行い、公開された株式のないパートナーシップとして構成されています。親会社からの株式発行による正味収益を除き、これらは一般的にパートナーシップユニットと交換するためにOPに寄与される、ビジネスに必要な資本を、OPはその運営、負債の負担、および第三者に対するパートナーシップユニットの発行によって生み出します。
親会社とOPの連結財務諸表の主な相違点は、非支配持分、株主資本、およびパートナーの資本のプレゼンテーションです。株主資本とパートナーの資本のプレゼンテーションの相違は、親会社とOPでの株主資本と資本の発行の相違によるものです。
親会社とOPの間の相違点を強調するため、本レポートの該当箇所には、親会社とOPについて個別に論じたり、個別の財務諸表およびExhibit 31と32の証明書を含む別々のセクションがあります。親会社とOPの結合開示を行うセクションでは、本レポートでは行動や保有物を会社の行動や保有物として言及しています。
OPを支配している一般パートナーとして、親会社は財務報告の目的でOPを連結しており、OP以外にはそのOPへの投資以外にほとんど資産を持っていません。したがって、親会社とOPの資産および負債は、それぞれの要約連結財務諸表で同じです。本レポートでの親会社とOPの別々の議論は、会社の総合的な結果と経営手法を理解するために、互いに補完しあうように読むべきです。
2
この報告書において、「物件」と「ビル」は当社のポートフォリオ内のすべてまたは任意のビルを指し、idc関連と非idc関連の両方を含みます。また、「idc関連」は当社のポートフォリオ内でidcスペースを含む物件またはビルを指します。この報告書において、「グローバルリボルビングクレジットファシリティ」は、当社のオペレーティングパートナーシップが保有する42億ドル相当のシニア無担保リボルビングクレジットファシリティおよびグローバルシニア与信契約を指し、「円リボルビングクレジットファシリティ」は、当社のオペレーティングパートナーシップが保有する¥42,511,000,000（2024年9月30日の為替レートに基づく約29600万ドル）のシニア無担保リボルビングクレジットファシリティおよび円与信契約を指します。「グローバルリボルビングクレジットファシリティ」は、当社のグローバルリボルビングクレジットファシリティと円リボルビングクレジットファシリティを併せて指します。
この報告書において、「euroタームローン契約」は、(i) €375,000,000の3年シニア無担保タームローンファシリティ（「2025タームファシリティ」）を規定するタームローン契約であり、その全額は当該日付に供給され、(ii) €375,000,000の5年シニア無担保タームローンファシリティ（「2025-27タームファシリティ」）を規定するものであり、2025タームファシリティと合わせて「euroタームローンファシリティ」と総称され、€125,000,000の初期タームローン、および2023年9月9日に供給された€250,000,000の遅延引き出しタームローンのコミットメントを含みます。
この報告書において、「usdタームローン契約」は、$74000万のシニア無担保タームローンファシリティ（「usdタームローンファシリティ」）に関するタームローン契約を指します。
3
デジタル・リアルティ・トラスト社、およびデジタル・リアルティ・トラスト・L.P.
FORM 10-Q
2024年9月30日終了の四半期のため
目次
ページ | ||
第一部分 | 財務情報 | |
ITEm 1. | デジタルリアルティ trust, inc.の要約連結財務諸表： | |
5 | ||
6 | ||
2024年および2023年9月30日に終了した3ヶ月および9ヶ月のための凝縮された連結包括利益（損失）計算書（監査されていない） | 7 | |
8 | ||
12 | ||
デジタルリアルティtrust, L.P.の簡潔な連結財務諸表: | ||
13 | ||
14 | ||
15 | ||
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20 | ||
21 | ||
43 | ||
66 | ||
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71 |
4
デジタルリティトラスト株式会社及びその子会社
連結簡易貸借対照表
(未監査、千単位、シェアデータを除く)
| 9月30日、 |
| 12月31日 | |||
2024 | 2023 | |||||
資産 | ||||||
不動産業への投資： | ||||||
不動産への投資、純額 | $ | | $ | | ||
非連結事業体への投資 |
| |
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不動産への純投資 |
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使用中リース資産、正味額 | | | ||||
現金及び現金同等物 |
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債権およびその他の債権、純額 |
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繰延賃料、ネット |
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のれん |
| |
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顧客関係価値、繰延賃貸費用及びその他の無形資産、純額 |
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売却予定資産 |
| — |
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その他の資産 |
| |
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総資産 | $ | | $ | | ||
負債および純資産 | ||||||
グローバル回転信用枠、ネット | $ | | $ | | ||
担保されていないタームローン、ネット |
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担保されていない優先債/シニア債、ディスカウント後 |
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担保されているその他の債務、ディスカウント後 |
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オペレーティングリース負債 | | | ||||
未払買掛金およびその他の未払務 pass口 |
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繰延税金負債（純額） | | | ||||
未払いの配当及び分配 |
| — |
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セキュリティデポジットおよび前払家賃 |
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販売目的で保有されている資産に関連する義務 |
| — |
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総負債 |
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償還可能な非支配株主持分 |
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コミットメント及び事態に関する注記 | ||||||
株式資本: | ||||||
株主資本： | ||||||
优先股: $ |
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普通株式: $ |
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追加出資資本 |
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利益を超える累積配当 |
| ( |
| ( | ||
その他の包括損失累積額（純額） |
| ( |
| ( | ||
純資産合計 |
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非支配株主持分 |
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企業の総資産 |
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負債および純資産合計 | $ | | $ | | ||
簡略化された連結財務諸表の注記を参照してください。
5
デジタルリティトラスト株式会社及びその子会社
簡約連結損益計算書
(未監査、千単位、シェアデータを除く)
9月30日終了の3か月間 | 9月30日終了の9か月間 | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
営業収入: | ||||||||||||
賃貸およびその他のサービス | $ | | $ | | $ | | $ | | ||||
手数料収入およびその他 |
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総売上高 |
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運営費: | ||||||||||||
賃貸物件の営業費用とメンテナンス |
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固定資産税と保険 |
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減価償却および償却 |
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一般管理費 |
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取引と統合 |
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減損処理引当金 |
| — |
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その他 |
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総営業費用 |
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営業利益 |
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その他の収益(費用): | ||||||||||||
非連結法人の損失または利益に対する持分 |
| ( |
| ( |
| ( |
| | ||||
(損失) 資産処分による利益、純額 | ( | | | | ||||||||
その他の収益、当期純利益 |
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利子費用 |
| ( |
| ( |
| ( |
| ( | ||||
債務消滅および変更による損失 |
| ( |
| — |
| ( |
| — | ||||
法人税費用 |
| ( |
| ( |
| ( |
| ( | ||||
純利益 |
| |
| |
| |
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非支配株主に帰属する当期純利益(純損失) |
| |
| ( |
| |
| ( | ||||
デジタルリアルティtrust, inc.に帰属する当期純利益 |
| |
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优先股配当 |
| ( |
| ( |
| ( |
| ( | ||||
普通株式株主に配当可能な当期純利益 | $ | | $ | | $ | | $ | | ||||
普通株主に利用可能な当期純利益シェア: | ||||||||||||
基本 | $ | | $ | | $ | | $ | | ||||
希薄化後 | $ | | $ | | $ | | $ | | ||||
平均発行済み普通株式数: | ||||||||||||
基本 |
|
| |
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希薄化後 |
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簡略化された連結財務諸表の注記を参照してください。
6
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments |
| |
| ( |
| |
| ( | ||||
(Decrease) increase in fair value of derivatives |
| ( |
| |
| |
| | ||||
Reclassification to interest expense from derivatives |
| ( |
| ( |
| ( |
| ( | ||||
Other comprehensive income (loss) | | ( | | ( | ||||||||
Comprehensive income |
| |
| |
| |
| | ||||
Comprehensive (income) loss attributable to noncontrolling interests |
| ( |
| ( |
| ( |
| | ||||
Comprehensive income attributable to Digital Realty Trust, Inc. | $ | | $ | | $ | | $ | | ||||
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 | |||||||||||||||||||
Three Months Ended September 30, 2024 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of June 30, 2024 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Conversion of common units to common stock | — | — | | — | | — | — | ( | — | |||||||||||||||||
Vesting of restricted stock, net | — | — | | — | — | — | — | — | — | |||||||||||||||||
Issuance of common stock, net of costs |
| — | — | | | | — | — | — | | ||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting | — | — | | — | | — | — | — | | |||||||||||||||||
Reclassification of vested share-based awards | — | — | — | — | ( | — | — | | — | |||||||||||||||||
Amortization of unearned compensation regarding share-based awards | — | — | — | — | | — | — | — | | |||||||||||||||||
Adjustment to redeemable noncontrolling interests | | — | — | — | ( | — | — | — | ( | |||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units |
| ( | — | — | — | — | ( | — | ( | ( | ||||||||||||||||
Contributions from (distributions to) noncontrolling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income (loss) | ( | — | — | — | — | | — | ( | | |||||||||||||||||
Other comprehensive income (loss) |
| | — | — | — | | — | | | | ||||||||||||||||
Balance as of September 30, 2024 |
| $ | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||||
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 | |||||||||||||||||||
Nine Months Ended September 30, 2024 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of December 31, 2023 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Conversion of common units to common stock |
| — | — | | — | | — | — | ( | — | ||||||||||||||||
Vesting of restricted stock, net |
| — | — | | — | — | — | — | — | — | ||||||||||||||||
Issuance of common stock, net of costs |
| — | — | | | | — | — | — | | ||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting |
| — | — | | — | | — | — | — | | ||||||||||||||||
Reclassification of vested share-based awards |
| — | — | — | — | ( | — | — | | — | ||||||||||||||||
Amortization of unearned compensation regarding share-based awards | — | — | — | — | | — | — | — | | |||||||||||||||||
Adjustment to redeemable noncontrolling interests | | — | — | — | ( | — | — | — | ( | |||||||||||||||||
Dividends declared on preferred stock |
| — | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Dividends and distributions on common stock and common and incentive units | ( | — | — | — | — | ( | — | ( | ( | |||||||||||||||||
Sale of noncontrolling interest in property to DCRU | — | — | — | — | | — | — | | | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income (loss) |
| ( | — | — | — | — | | — | | | ||||||||||||||||
Other comprehensive income (loss) | | — | — | — | | — | | ( | | |||||||||||||||||
Balance as of September 30, 2024 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
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 | |||||||||||||||||||
Three Months Ended September 30, 2023 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of June 30, 2023 |
| $ | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||||
Conversion of common units to common stock | — | — | | | | — | — | ( | — | |||||||||||||||||
Vesting of restricted stock, net | — | — | | — | — | — | — | — | — | |||||||||||||||||
Issuance of common stock, net of costs | — | — | | | | — | — | — | | |||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting |
| — | — | | — | | — | — | — | | ||||||||||||||||
Amortization of unearned compensation regarding share-based awards | — | — | — | — | | — | — | — | | |||||||||||||||||
Reclassification of vested share-based awards | — | — | — | — | ( | — | — | | — | |||||||||||||||||
Adjustment to redeemable noncontrolling interests |
| | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units | ( | — | — | — | — | ( | — | ( | ( | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income |
| ( | — | — | — | — | | — | | | ||||||||||||||||
Other comprehensive income (loss) |
| ( | — | — | — | | — | ( | ( | ( | ||||||||||||||||
Balance as of September 30, 2023 |
| $ | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||||
See accompanying notes to the condensed consolidated financial statements.
10
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 | |||||||||||||||||||
Nine Months Ended September 30, 2023 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of December 31, 2022 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Conversion of common units to common stock |
| — | — | | | | — | — | ( | — | ||||||||||||||||
Vesting of restricted stock, net |
| — | — | | — | — | — | — | — | — | ||||||||||||||||
Issuance of common stock, net of costs |
| — | — | | | | — | — | — | | ||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting |
| — | — | | | ( | — | — | — | ( | ||||||||||||||||
Amortization of unearned compensation regarding share-based awards |
| — | — | — | — | | — | — | — | | ||||||||||||||||
Reclassification of vested share-based awards |
| — | — | — | — | ( | — | — | | — | ||||||||||||||||
Adjustment to redeemable noncontrolling interests | | — | — | — | ( | — | — | — | ( | |||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units |
| ( | — | — | — | — | ( | — | ( | ( | ||||||||||||||||
Contributions from (distributions to) noncontrolling interests | | — | — | — | — | — | — | | | |||||||||||||||||
Deconsolidation of noncontrolling interests in consolidated entities | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income | ( | — | — | — | — | | — | | | |||||||||||||||||
Other comprehensive income (loss) | ( | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||
Balance as of September 30, 2023 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
See accompanying notes to the condensed consolidated financial statements.
11
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: |
|
| ||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Gain on disposition of properties, net |
| ( |
| ( | ||
Provision for impairment | |
| | |||
Equity in loss (earnings) of unconsolidated entities |
| | ( | |||
Distributions from unconsolidated entities |
| |
| | ||
Depreciation and amortization | |
| | |||
Amortization of share-based compensation |
| |
| | ||
Loss on debt extinguishment and modifications |
| |
| — | ||
Straight-lined rents and amortization of above and below market leases |
| ( |
| ( | ||
Amortization of deferred financing costs and debt discount / premium | |
| | |||
Other operating activities, net | |
| ( | |||
Changes in assets and liabilities: | ||||||
Increase in accounts receivable and other assets | ( |
| ( | |||
Increase in accounts payable and other liabilities | |
| | |||
Net cash provided by operating activities |
| | | |||
Cash flows from investing activities: | ||||||
Improvements to investments in real estate | ( | ( | ||||
Cash paid for business combination / asset acquisitions, net of cash acquired | ( | ( | ||||
Investments in and advances to unconsolidated entities | ( | ( | ||||
Return of investment from unconsolidated entities | | — | ||||
Proceeds from sale of assets | | | ||||
Other investing activities, net | ( | ( | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from credit facilities | | | ||||
Payments on credit facilities | ( | ( | ||||
Borrowings on secured / unsecured debt | | | ||||
Repayments on secured / unsecured debt | ( | ( | ||||
Capital (distribution to) contributions from noncontrolling interests, net |
| ( | | |||
Proceeds from issuance of common stock, net | | | ||||
Payments of dividends and distributions | ( | ( | ||||
Other financing activities, net | | ( | ||||
Net cash provided by (used in) financing activities |
| |
| ( | ||
Net increase in cash, cash equivalents and restricted cash |
| |
| | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
| ( |
| ( | ||
Cash, cash equivalents and restricted cash at beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
See accompanying notes to the condensed consolidated financial statements.
12
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per unit data)
| September 30, |
| December 31, | |||
2024 | 2023 | |||||
ASSETS |
|
| ||||
Investments in real estate: |
|
|
|
| ||
Investments in properties, net | $ | | $ | | ||
Investments in unconsolidated entities |
| |
| | ||
Net investments in real estate |
| |
| | ||
Operating lease right-of-use assets, net | | | ||||
Cash and cash equivalents |
| |
| | ||
Accounts and other receivables, net |
| |
| | ||
Deferred rent, net |
| |
| | ||
Goodwill |
| |
| | ||
Customer relationship value, deferred leasing costs and other intangibles, net |
| |
| | ||
Assets held for sale |
| — |
| | ||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND CAPITAL |
|
|
|
| ||
Global revolving credit facilities, net | $ | | $ | | ||
Unsecured term loans, net | | | ||||
Unsecured senior notes, net of discount |
| |
| | ||
Secured and other debt, net of discount | | | ||||
Operating lease liabilities | | | ||||
Accounts payable and other accrued liabilities |
| |
| | ||
Deferred tax liabilities, net | | | ||||
Accrued dividends and distributions |
| — |
| | ||
Security deposits and prepaid rents |
| |
| | ||
Obligations associated with assets held for sale |
| — |
| | ||
Total liabilities |
| |
| | ||
Redeemable noncontrolling interests | | | ||||
Commitments and contingencies |
|
| ||||
Capital: |
|
|
|
| ||
Partners’ capital: |
|
|
|
| ||
General Partner: |
|
|
|
| ||
Preferred units, $ |
| |
| | ||
Common units, |
| |
| | ||
Limited Partners, |
| |
| | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total partners’ capital |
| |
| | ||
Noncontrolling interests in consolidated entities |
| |
| | ||
Total capital |
| |
| | ||
Total liabilities and capital | $ | | $ | | ||
See accompanying notes to the condensed consolidated financial statements.
13
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per unit data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Operating Revenues: |
|
|
|
|
|
|
| |||||
Rental and other services | $ | | $ | | $ | | $ | | ||||
Fee income and other |
| |
| |
| |
| | ||||
Total operating revenues |
| |
| |
| |
| | ||||
Operating Expenses: |
|
|
|
|
|
|
|
| ||||
Rental property operating and maintenance |
| |
| |
| |
| | ||||
Property taxes and insurance |
| |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
General and administrative |
| |
| |
| |
| | ||||
Transactions and integration |
| |
| |
| |
| | ||||
Provision for impairment |
| — |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
Operating income |
| |
| | | | ||||||
Other Income (Expenses): |
| |||||||||||
Equity in (loss) earnings of unconsolidated entities |
| ( |
| ( |
| ( |
| | ||||
(Loss) gain on disposition of properties, net | ( | | | | ||||||||
Other income, net |
| |
| |
| |
| | ||||
Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Loss on debt extinguishment and modifications | ( | — | ( | — | ||||||||
Income tax expense |
| ( |
| ( |
| ( |
| ( | ||||
Net income |
| |
| | | | ||||||
Net loss attributable to noncontrolling interests |
| |
| |
| |
| | ||||
Net income attributable to Digital Realty Trust, L.P. |
| |
| | | | ||||||
Preferred units distributions |
| ( |
| ( |
| ( |
| ( | ||||
Net income available to common unitholders | $ | | $ | | $ | | $ | | ||||
Net income per unit available to common unitholders: |
|
|
|
|
|
|
|
| ||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Weighted average common units outstanding: |
|
|
|
|
|
|
|
| ||||
Basic |
|
| |
|
| | ||||||
Diluted |
|
| |
|
| | ||||||
See accompanying notes to the condensed consolidated financial statements.
14
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
| |
| ( |
| |
| ( | ||||
(Decrease) increase in fair value of derivatives |
| ( |
| |
| |
| | ||||
Reclassification to interest expense from derivatives |
| ( |
| ( |
| ( |
| ( | ||||
Other comprehensive income (loss) | | ( | | ( | ||||||||
Comprehensive income | $ | | $ | | $ | | $ | | ||||
Comprehensive (income) loss attributable to noncontrolling interests |
| ( |
| |
| ( |
| | ||||
Comprehensive income attributable to Digital Realty Trust, L.P. | $ | | $ | | $ | | $ | | ||||
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 | ||||||||||||||||||||||||
Limited Partner | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Three Months Ended September 30, 2024 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of June 30, 2024 |
| $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | | $ | | ||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | |
| | ( |
| ( |
| — |
| — |
| — | ||||||||||
Vesting of restricted common units, net | — | — | — | | — | — | — | — | — | — | |||||||||||||||||
Issuance of common units, net of costs |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | |
| — |
| — |
| — |
| — | ||||||||||
Units issued under equity plans, net of unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| | — |
| — |
| — |
| — |
| | ||||||||||
Reclassification of vested share-based awards | — | — |
| — | — |
| ( | — |
| |
| — |
| — |
| — | |||||||||||
Adjustment to redeemable partnership units |
| | — |
| — | — |
| ( | — |
| — |
| — |
| — |
| ( | ||||||||||
Distributions | ( | — | ( | — | ( | — | ( | — | — | ( | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests in consolidated entities | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income (loss) | ( | — | | — | | — | | — | ( | | |||||||||||||||||
Other comprehensive income (loss) | | — | — | — | | — | — | | | | |||||||||||||||||
Balance as of September 30, 2024 |
| $ | | | $ | | | $ | | | $ | | $ | ( | $ | | $ | | |||||||||
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 | ||||||||||||||||||||||
Nine Months Ended September 30, 2024 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of December 31, 2023 |
| $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | | $ | | ||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | |
| | ( |
| ( |
| — |
| — |
| — | ||||||||||
Vesting of restricted common units, net |
| — | — | — | | — | — | — | — | — | — | ||||||||||||||||
Issuance of common units, net of costs |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | |
| — |
| — |
| — |
| — | ||||||||||
Units issued under equity plans, net of unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| | — |
| — |
| — |
| — |
| | ||||||||||
Reclassification of vested share-based awards |
| — | — |
| — | — |
| ( | — |
| |
| — |
| — |
| — | ||||||||||
Adjustment to redeemable partnership units |
| | — |
| — | — |
| ( | — |
| — |
| — |
| — |
| ( | ||||||||||
Distributions | ( | — | ( | — | ( | — | ( | — | — | ( | |||||||||||||||||
Sale of noncontrolling interest in property to DCRU | — | — | — | — | | — | — | — | | | |||||||||||||||||
Contributions from (distributions to) noncontrolling interests in consolidated entities | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income (loss) |
| ( | — | | — | | — | | — | | | ||||||||||||||||
Other comprehensive income (loss) | | — |
| — | — |
| | — |
| ( |
| |
| ( |
| | |||||||||||
Balance as of September 30, 2024 |
| $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | | $ | | ||||||||
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 | ||||||||||||||||||||||||
Limited Partner | Preferred Units | Common Units | Common Units | Comprehensive | Noncontrolling | ||||||||||||||||||||||
Three Months Ended September 30, 2023 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of June 30, 2023 |
| $ | | | $ | | | $ | | | $ | | $ | ( | $ | | $ | | |||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | |
| | ( |
| ( |
| — |
| — |
| — | ||||||||||
Vesting of restricted common units, net | — | — | — | | — | — | — | — | — | — | |||||||||||||||||
Issuance of common units, net of costs |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — |
| — | |
| — |
| — |
| — |
| — | ||||||||||
Units issued under equity plans, net of unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | |
| | — |
| — |
| — |
| — |
| | ||||||||||
Amortization of share-based compensation |
| — | — |
| — | — |
| | — |
| — |
| — |
| — |
| | ||||||||||
Reclassification of vested share-based awards | — | — |
| — | — |
| ( | — |
| |
| — |
| — |
| — | |||||||||||
Adjustment to redeemable partnership units |
| | — |
| — | — |
| ( | — |
| — |
| — |
| — |
| ( | ||||||||||
Distributions | ( | — | ( | — | ( | — | ( | — | — | ( | |||||||||||||||||
Contributions from noncontrolling interests in consolidated entities | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income | ( | — | | — | | — | | — | ( | | |||||||||||||||||
Other comprehensive income (loss) | ( | — | — | — | | — | — | ( | ( | ( | |||||||||||||||||
Balance as of September 30, 2023 |
| $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | | $ | | ||||||||
See accompanying notes to the condensed consolidated financial statements.
18
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 | ||||||||||||||||||||||
Nine Months Ended September 30, 2023 |
| Common Units |
| Units |
| Amount |
| Units |
| Amount |
| Units |
| Amount |
| Loss, Net |
| Interests |
| Total Capital | |||||||
Balance as of December 31, 2022 |
| $ | | | $ | | | $ | | | $ | | $ | ( | $ | | $ | | |||||||||
Conversion of limited partner common units to general partner common units |
| — | — |
| — | | | ( | ( | — | — | — | |||||||||||||||
Vesting of restricted common units, net |
| — | — | — | | — | — | — | — | — | — | ||||||||||||||||
Issuance of common units, net of costs |
| — | — |
| — | | | — | — | — | — | | |||||||||||||||
Issuance of limited partner common units, net |
| — | — |
| — | — | — | | — | — | — | — | |||||||||||||||
Units issued under equity plans, net of unit settlement to satisfy tax withholding upon vesting |
| — | — |
| — | | ( | — | — | — | — | ( | |||||||||||||||
Amortization of share-based compensation |
| — | — |
| — | — | | — | — | — | — | | |||||||||||||||
Reclassification of vested share-based awards |
| — | — |
| — | — | ( | — | | — | — | — | |||||||||||||||
Adjustment to redeemable partnership units |
| | — |
| — | — | ( | — | — | — | — | ( | |||||||||||||||
Distributions | ( | — | ( | — | ( | — | ( | — | — | ( | |||||||||||||||||
Contributions from noncontrolling interests in consolidated entities | | — | — | — | — | — | — | — | | | |||||||||||||||||
Deconsolidation of noncontrolling interest in consolidated entities | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Net income | ( | — | | — | | — | | — | ( | | |||||||||||||||||
Other comprehensive income (loss) |
| ( | — | — | — | ( | — | — | ( | | ( | ||||||||||||||||
Balance as of September 30, 2023 |
| $ | | | $ | | | $ | |
| | $ | | $ | ( | $ | | $ | | ||||||||
See accompanying notes to the condensed consolidated financial statements.
19
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended September 30, | ||||||
2024 |
| 2023 | ||||
Cash flows from operating activities: |
|
|
| |||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Gain on disposition of properties, net |
| ( |
| ( | ||
Provision for impairment | | | ||||
Equity in loss (earnings) of unconsolidated entities |
| |
| ( | ||
Distributions from unconsolidated entities |
| |
| | ||
Depreciation and amortization | | | ||||
Amortization of share-based compensation |
| |
| | ||
Loss on debt extinguishment and modifications |
| |
| — | ||
Straight-lined rents and amortization of above and below market leases |
| ( |
| ( | ||
Amortization of deferred financing costs and debt discount / premium | | | ||||
Other operating activities, net | | ( | ||||
Changes in assets and liabilities: | ||||||
Increase in accounts receivable and other assets | ( | ( | ||||
Increase in accounts payable and other liabilities |
| |
| | ||
Net cash provided by operating activities | | | ||||
Cash flows from investing activities: |
| |||||
Improvements to investments in real estate | ( | ( | ||||
Cash paid for business combination / asset acquisitions, net of cash acquired | ( | ( | ||||
Investments in and advances to unconsolidated entities |
| ( | ( | |||
Return of investment from unconsolidated entities | | — | ||||
Proceeds from sale of assets | | | ||||
Other investing activities, net | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash flows from financing activities: | ||||||
Proceeds from credit facilities | | | ||||
Payments on credit facilities | ( | ( | ||||
Borrowings on secured / unsecured debt | | | ||||
Repayments on secured / unsecured debt |
| ( | ( | |||
Capital (distribution to) contributions from noncontrolling interests, net |
| ( | | |||
General partner contributions | | | ||||
Payments of dividends and distributions |
| ( | ( | |||
Other financing activities, net |
| | ( | |||
Net cash provided by (used in) financing activities |
| |
| ( | ||
Net increase in cash, cash equivalents and restricted cash |
| |
| | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( |
| ( | |||
Cash, cash equivalents and restricted cash at beginning of period | |
| | |||
Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
See accompanying notes 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)
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 U.S. 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, 2023 (“2023 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (“SEC”), our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024, and June 30, 2024, as filed with the SEC, and other filings with the SEC.
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.
21
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 September 30, 2024 | As of December 31, 2023 | |||||
Land | $ | | $ | | |||
Acquired ground lease | | | |||||
Buildings and improvements | | | |||||
Tenant improvements | | | |||||
| | ||||||
Accumulated depreciation and amortization | ( | ( | |||||
Investments in operating properties, net | | | |||||
Construction in progress and space held for development | | | |||||
Land held for future development | | | |||||
Investments in properties, net | $ | | $ | | |||
Acquisitions
In January 2024, we acquired a
In July 2024, the Company acquired
Dispositions
On January 11, 2024, we formed a joint venture with Blackstone Inc. to develop
In January 2024, we closed on the sale of our interest in
22
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On March 1, 2024, we formed a joint venture with Mitsubishi Corporation, or Mitsubishi, to support the development of
On April 16, 2024, we expanded our existing joint venture with GI Partners with the sale to GI Partners of a
During our second quarter 2024 impairment review, we determined that certain non-core properties in secondary U.S. markets had carrying amounts that may not be fully recoverable as we determined that we no longer intend to hold these properties long-term. Accordingly, the recorded amounts were reduced to reflect management’s estimate of fair value based on sales of similar properties and ongoing negotiations with third parties. During the nine months ended September 30, 2024, we recorded a provision for impairment on real estate investments of $
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, some 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. Our largest customer’s total revenue approximates
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 September 30, 2024, certain of our data centers, primarily in Europe and Singapore, are subject to ground leases. As of September 30, 2024, the termination dates of these ground leases generally range from 2038 to 2073. In addition, our corporate headquarters along with several regional office locations are subject to leases with termination dates ranging from 2024 to 2036.
23
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $
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 (net of an allowance for estimated uncollectible amounts) are shown in the subsequent table as Accounts receivable – trade, net. Other receivables shown separately from Accounts receivable – trade, net 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): | September 30, 2024 | December 31, 2023 | ||||
Accounts receivable – trade | $ | | $ | | ||
Allowance for doubtful accounts | ( | ( | ||||
Accounts receivable – trade, net | | | ||||
Accounts receivable – customer recoveries | | | ||||
Value-added tax receivables | | | ||||
Accounts receivable – installation fees | | | ||||
Other receivables | | | ||||
Accounts and other receivables, net | $ | | $ | | ||
Deferred Rent, Net
Deferred rent, net represents 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): | September 30, 2024 | December 31, 2023 | ||||
Deferred rent receivables | $ | | $ | | ||
Allowance for deferred rent receivables | ( | ( | ||||
Deferred rent, net | $ | | $ | | ||
24
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
A summary of the Company’s investments in unconsolidated entities accounted for under the equity method of accounting is shown below (in thousands):
Balance as of | Balance as of | |||||
September 30, 2024 | December 31, 2023 | |||||
Americas (1)(5) | $ | | $ | | ||
APAC (2) | | | ||||
EMEA (3) | | | ||||
Global (4) | | | ||||
Total | $ | | $ | | ||
Includes the following unconsolidated entities along with our ownership percentage:
| (1) | Ascenty ( |
| (2) | Digital Connexion ( |
| (3) | Blackstone ( |
| (4) | Digital Core REIT ( |
| (5) | In May 2024, we liquidated our |
Generally, we serve as the managing member responsible for operations in the ordinary course of business of the joint ventures. We perform the day-to-day accounting and property management functions for the joint ventures and, as such, will earn management fees. However, certain approval rights are granted through the terms of the joint venture agreements and require unanimous consent of both members with respect to any major decisions. Generally, major decisions are defined to include the annual plan which sets out joint venture and property level budgets, including lease revenues, operating expenses, and capital expenditures. As such, we concluded we do not own a controlling interest and accounted for our interest in the joint ventures under the equity method of accounting.
GI Partners Joint Venture – On July 13, 2023, we formed a joint venture with GI Partners, and GI Partners acquired a
TPG Real Estate Joint Venture – On July 25, 2023, we formed a joint venture with TPG Real Estate, and TPG Real Estate acquired an
25
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Realty Income Joint Venture – On November 10, 2023, we formed a joint venture with Realty Income to support the development of
Blackstone Joint Venture - On January 11, 2024, we formed a joint venture with Blackstone Inc. to develop
Mitsubishi Joint Venture - On March 1, 2024, we formed a joint venture with Mitsubishi Corporation, or Mitsubishi, to support the development of
DCREIT – Digital Core REIT is a standalone real estate investment trust formed under Singapore law, which is publicly traded on the Singapore Exchange under the ticker symbol “DCRU”. Digital Core REIT owns
As of September 30, 2024, the Company held
The Company’s
Pursuant to contractual agreements with 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. The Company earned fees pursuant to these contractual agreements of approximately $
26
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On April 19, 2024, we completed the sale of an additional
Ascenty – The Company’s ownership interest in Ascenty includes an approximate
Debt – 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.
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 September 30, 2024 as compared to December 31, 2023 were primarily driven by changes in exchange rates associated with goodwill balances denominated in foreign currencies.
7. Acquired Intangible Assets and Liabilities
The following table summarizes our acquired intangible assets and liabilities:
Balance as of | ||||||||||||||||||
September 30, 2024 | December 31, 2023 | |||||||||||||||||
(Amounts in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
Customer relationship value | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
Acquired in-place lease value | | ( | | | ( | | ||||||||||||
Other | | ( | | | ( | | ||||||||||||
Acquired above-market leases | | ( | | | ( | | ||||||||||||
Acquired below-market leases | ( | | ( | ( | | ( | ||||||||||||
Amortization of customer relationship value, acquired in-place lease value and other intangibles (a component of depreciation and amortization expense) was approximately $
Amortization of acquired below-market leases, net of acquired above-market leases, resulted in an increase in rental and other services revenue of $
27
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 October 1, 2024 is as follows:
(Amounts in thousands) | Customer relationship value | Acquired in-place lease value | Other (1) | Acquired above-market leases | Acquired below-market leases | |||||||||
2024 | $ | | $ | | $ | | $ | | $ | ( | ||||
2025 |
| |
| |
| |
| |
| ( | ||||
2026 |
| |
| |
| |
| |
| ( | ||||
2027 |
| |
| |
| |
| |
| ( | ||||
2028 |
| |
| |
| |
| |
| ( | ||||
Thereafter |
| |
| |
| |
| |
| ( | ||||
Total | $ | | $ | | $ | | $ | | $ | ( | ||||
| (1) | Excludes power grid rights in the amount of approximately $ |
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 Facility and the Yen Revolving Credit Facility (together, referred to as the “Global Revolving Credit Facilities”), the unsecured term loans and the unsecured senior notes.
| September 30, 2024 |
| December 31, 2023 | |||||||||
Weighted- | Weighted- | |||||||||||
average | Amount | average | Amount | |||||||||
interest rate | Outstanding | interest rate | Outstanding | |||||||||
Global Revolving Credit Facilities | | % | $ | | | % | $ | | ||||
Unsecured term loans | | % | | | % | | ||||||
Unsecured senior notes | | % | | | % | | ||||||
Secured and other debt | | % |
| | | % |
| | ||||
Total | | % | $ | |
| | % | $ | | |||
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, along with cross-currency interest rate swaps, which effectively convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign currency-denominated fixed-rate debt in order to hedge the currency exposure associated with our net investment in foreign subsidiaries.
28
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We primarily borrow in the functional currencies of the countries where we invest.
September 30, 2024 | December 31, 2023 | |||||||||||
Amount | Amount | |||||||||||
Denomination of Draw |
| Outstanding |
| % of Total | Outstanding |
| % of Total | |||||
U.S. dollar ($) | $ | |
| | % | $ | |
| | % | ||
British pound sterling (£) |
| |
| | % | | | % | ||||
Euro (€) | | | % | | | % | ||||||
Other | | | % | | | % | ||||||
Total | $ | |
| $ | |
| ||||||
The table below summarizes debt maturities and principal payments as of September 30, 2024 (in thousands):
Global Revolving | Unsecured | Unsecured | Secured and | ||||||||||||
| Credit Facilities (1)(2) |
| Term Loans(3)(4)(5) |
| Senior Notes |
| Other Debt |
| Total Debt | ||||||
2024 | $ | — | $ | — | $ | — | $ | | $ | | |||||
2025 | — | | | | | ||||||||||
2026 | — | — | | | | ||||||||||
2027 |
| — |
| — |
| |
| |
| | |||||
2028 |
| — |
| — |
| |
| |
| | |||||
Thereafter |
| |
| — |
| |
| |
| | |||||
Subtotal | $ | | $ | | $ | | $ | | $ | | |||||
Unamortized net discounts |
| — |
| — |
| ( |
| ( |
| ( | |||||
Unamortized deferred financing costs | ( | ( | ( | ( | ( | ||||||||||
Total | $ | | $ | | $ | | $ | | $ | | |||||
| (1) | Includes amounts outstanding for the Global Revolving Credit Facilities. |
| (2) | The Global Revolving Credit Facilities are subject to |
| (3) | A € |
| (4) | On January 9, 2024, we paid down $ |
| (5) | On September 13, 2024, we paid down € |
On September 24, 2024, we refinanced our Global Revolving Credit Facilities. Below are key terms for our Global Revolving Credit Facility and Yen Revolving Credit Facility.
29
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Global Revolving Credit Facility
We have a Global Revolving Credit Facility under which we may draw up to $
We have the ability to increase the size of the Global Revolving Credit Facility by up to $
| ● | Maturity date: January 24, 2029, with |
| ● | Interest rate: the applicable index plus a margin which is based on the credit ratings of our long-term debt and is currently |
| ● | Annual facility fee: based on the total commitment amount of the facility and the credit ratings of our long-term debt is currently |
| ● | Sustainability-linked pricing component: pricing can increase by up to |
Yen Revolving Credit Facility
In addition to the Global Revolving Credit Facility, we have a revolving credit facility that provides for borrowings in Japanese Yen of up to ¥
| ● | Maturity date: January 24, 2029, with |
| ● | Interest rate: the applicable index plus a margin which is based on the credit ratings of our long-term debt and is currently |
| ● | Quarterly unused commitment fee: currently is |
| ● | Sustainability-linked pricing component: pricing can increase by up to |
30
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 | September 30, 2024 | December 31, 2023 | ||||||||||
€ | | $ | | Apr 15, 2024 | $ | — | $ | | ||||||
£ | | $ | | Jul 19, 2024 | — | | ||||||||
£ | | $ | | Jan 17, 2025 | | | ||||||||
€ | | $ | | Jul 15, 2025 | | | ||||||||
€ | | $ | | Jan 16, 2026 | | | ||||||||
CHF | | $ | | Dec 15, 2026 | | | ||||||||
CHF | | $ | | Mar 30, 2027 | | | ||||||||
$ | | $ | | Aug 15, 2027 | | | ||||||||
$ | | $ | | Jan 15, 2028 | | | ||||||||
€ | | $ | | Apr 09, 2028 | | | ||||||||
$ | | $ | | Jul 15, 2028 | | | ||||||||
CHF | | $ | | Apr 16, 2029 | | | ||||||||
$ | | $ | | Jul 01, 2029 | | | ||||||||
£ | | $ | | Jul 19, 2029 | | | ||||||||
€ | | $ | | Mar 15, 2030 | | | ||||||||
£ | | $ | | Oct 17, 2030 | | | ||||||||
€ | | $ | | Feb 01, 2031 | | | ||||||||
€ | | $ | | Jul 15, 2031 | | | ||||||||
€ | | $ | | Jan 15, 2032 | | | ||||||||
€ | | $ | | Jul 18, 2032 | | | ||||||||
€ | | $ | | Sep 13, 2033 | | — | ||||||||
$ | | $ | | |||||||||||
Unamortized discounts, net of premiums | ( | ( | ||||||||||||
Deferred financing costs, net | ( | ( | ||||||||||||
Total unsecured senior notes, net of discount and deferred financing costs | $ | | $ | | ||||||||||
| (1) | Paid at maturity on April 15, 2024. |
| (2) | Paid at maturity on July 19, 2024. |
| (3) | Subject to cross-currency swaps. |
Restrictive Covenants in Unsecured Senior Notes
The indentures governing our senior notes contain certain covenants, including (1) a leverage ratio not to exceed
Issuance of Unsecured Senior Notes
On September 13, 2024, Digital Dutch Finco B.V., an indirect wholly owned finance subsidiary of the Operating Partnership, issued and sold €
31
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Numerator: | ||||||||||||
Net income available to common stockholders | $ | | $ | $ | $ | |||||||
Loss attributable to redeemable noncontrolling interest (1) | ( | ( | ( | ( | ||||||||
Net income available to common stockholders - diluted EPS | | | | | ||||||||
Denominator: | ||||||||||||
Weighted average shares outstanding—basic |
|
| |
|
| | ||||||
Potentially dilutive common shares: |
|
|
|
|
|
| ||||||
Unvested incentive units |
|
| |
|
| | ||||||
Unvested restricted stock | | | ||||||||||
Forward equity offering | — | | — | | ||||||||
Market performance-based awards |
|
| |
|
| | ||||||
Redeemable noncontrolling interest shares (1) | | | ||||||||||
Weighted average shares outstanding—diluted |
|
| |
|
| | ||||||
Income per share: |
|
|
|
|
|
|
|
| ||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
32
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 September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Numerator: | ||||||||||||
Net income available to common unitholders | $ | | $ | $ | $ | |||||||
Loss attributable to redeemable noncontrolling interest (1) | ( | ( | ( | ( | ||||||||
Net income available to common unitholders - diluted EPS | | | | | ||||||||
Denominator: | ||||||||||||
Weighted average units outstanding—basic |
|
| |
|
| | ||||||
Potentially dilutive common units: |
|
|
|
|
|
|
|
| ||||
Unvested incentive units |
|
| |
|
| | ||||||
Unvested restricted units | | | ||||||||||
Forward equity offering | — | | — | | ||||||||
Market performance-based awards |
|
| |
|
| | ||||||
Redeemable noncontrolling interest shares (1) | | | ||||||||||
Weighted average units outstanding—diluted |
|
| |
|
| | ||||||
Income per unit: |
|
|
|
|
|
|
|
| ||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
| (1) | As part of the acquisition of Teraco in 2022, certain of Teraco's minority indirect shareholders (“Rollover Shareholders”) have the right to put their shares in an upstream parent company of Teraco (“Remaining Interest”) to the Company in exchange for cash or the equivalent value of shares of the Company common stock, or a combination thereof. Under U.S. GAAP, diluted earnings per share must be reflected in a manner that assumes such put right was exercised at the beginning of the respective periods and settled entirely in shares. The amounts shown represent the redemption value of the Remaining Interest of Teraco divided by Digital Realty Trust, Inc.’s average share price for the respective periods. The put right is exercisable by the Rollover Shareholders for a |
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.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |
Shares subject to Forward Equity Offering | — | | — | | ||||
Weighted average of Operating Partnership common units not owned by Digital Realty Trust, Inc. |
| |
| |
| |
| |
Potentially dilutive Series J Cumulative Redeemable Preferred Stock |
| |
| |
| |
| |
Potentially dilutive Series K Cumulative Redeemable Preferred Stock | | | | | ||||
Potentially dilutive Series L Cumulative Redeemable Preferred Stock | | | | | ||||
Total |
| |
| |
| |
| |
33
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 ATM Equity OfferingSM Sales Agreement dated August 4, 2023 (the “2023 Sales Agreement”). Pursuant to the 2023 Sales Agreement, Digital Realty Trust, Inc. could issue and sell common stock having an aggregate offering price of up to $
The 2023 Sales Agreement was amended on February 23, 2024 (the “2024 Sales Agreement Amendment”). At the time of the amendment, $
Equity Offering
On May 7, 2024, Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into an underwriting agreement with BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters relating to the sale of up to approximately
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.
September 30, 2024 | December 31, 2023 | |||||||||
Number of | Percentage of | Number of | Percentage of | |||||||
(Units in thousands) |
| units |
| total | units |
| total | |||
Digital Realty Trust, Inc. | | % | | | % | |||||
Noncontrolling interests consist of: |
|
|
|
|
|
| ||||
Common units held by third parties |
|
| | % | |
| | % | ||
Incentive units held by employees and directors (see Note 12. ''Incentive Plans'') |
|
| | % | |
| | % | ||
|
| | % | |
| | % | |||
34
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $
The following table shows activity for noncontrolling interests in the Operating Partnership for the nine months ended September 30, 2024 (in thousands):
(Units in thousands) |
| Common Units |
| Incentive Units |
| Total |
As of December 31, 2023 |
| |
| |
| |
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock (1) |
| ( |
| ( |
| ( |
Incentive units issued upon achievement of market performance condition |
| |
| |
| |
Grant of incentive units to employees and directors |
| |
| |
| |
Cancellation / forfeitures of incentive units held by employees and directors |
| |
| ( |
| ( |
As of September 30, 2024 |
| |
| |
| |
| (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. |
Dividends and Distributions
Digital Realty Trust, Inc. Dividends
We have declared and paid the following dividends on our common and preferred stock for the nine months ended September 30, 2024 (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 | |||||
$ | | $ | | $ | | $ | | |||||||
| | | | |||||||||||
| | | | |||||||||||
$ | | $ | | $ | | $ | | |||||||
Annual rate of dividend per share | $ | | $ | | $ | | $ | | ||||||
35
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. 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 nine months ended September 30, 2024 (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 | ||||||
$ | | $ | | $ | | $ | | |||||||
| | | | |||||||||||
| | | | |||||||||||
$ | | $ | | $ | | $ | | |||||||
Annual rate of distribution per unit | $ | | $ | | $ | | $ | | ||||||
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 | Increase (decrease) in | Accumulated other | |||||||
translation | fair value of derivatives, | comprehensive | |||||||
| adjustments |
| net of reclassification |
| income (loss), net | ||||
Balance as of December 31, 2023 | $ | ( | $ | ( | $ | ( | |||
Net current period change |
| |
| ( |
| | |||
Balance as of September 30, 2024 | $ | ( | $ | ( | $ | ( | |||
Digital Realty Trust, L.P.
Foreign currency | Increase (decrease) in | Accumulated other | |||||||
translation | fair value of derivatives, | comprehensive | |||||||
| adjustments |
| net of reclassification |
| income (loss) | ||||
Balance as of December 31, 2023 | $ | ( | $ | ( | $ | ( | |||
Net current period change |
| |
| ( |
| | |||
Balance as of September 30, 2024 | $ | ( | $ | ( | $ | ( | |||
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 have been 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
36
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Service-Based Restricted Stock Units: Service-based Restricted Stock Units, which vest over periods between and
Performance-Based Awards (“the Performance Awards”): Performance-based Class D units of the Operating Partnership and performance-based Restricted Stock Units of Digital Realty Trust, Inc.’s common stock may be issued to officers and employees of the Company. The Performance Awards include performance-based and time-based vesting criteria. Depending on the type of award, the total number of units that qualify to fully vest is determined based on either a market performance criterion (“Market-Based Performance Awards”) or financial performance criterion (“Financial-Based Performance Awards”), in each case, subject to time-based vesting.
Market-Based Performance Awards.
The market performance criterion compares Digital Realty Trust, Inc.’s total shareholder return (“TSR”) relative to the MSCI US REIT Index (“RMS”) over a
Vesting with respect to the market 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”).
Market | ||||
Performance | ||||
RMS Relative | Vesting | |||
Level | Market Performance | Percentage | ||
Below Threshold Level | ≤ - | | % | |
Threshold Level | - | % | ||
Target Level | | % | ||
High Level | ≥ | | % | |
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.
2021 Awards
● | In January 2024, the RMS Relative Market Performance fell between the threshold and target levels for the 2021 awards and, accordingly, |
● | The Class D units included |
● | On February 27, 2024, |
37
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The grant date fair value of the Market-Based Performance Awards was approximately $
Financial-Based Performance Awards.
On January 1, 2024, the Company granted Financial-Based Performance Awards, which vest based on growth in same-store cash net operating income during the
As of September 30, 2024, approximately
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):
Expected | ||||||||||||||||||||
|
| period to | ||||||||||||||||||
Deferred Compensation | Unearned Compensation |
| recognize | |||||||||||||||||
Expensed | Capitalized | As of | As of |
| unearned | |||||||||||||||
| Three Months Ended September 30, |
| September 30, | December 31, |
| compensation | ||||||||||||||
Type of incentive award |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| (in years) | ||||||
Long-term incentive units | $ | | $ | | $ | — | $ | | $ | | $ | |
| |||||||
Performance-based awards |
| |
| |
| — |
| |
| |
| |
| |||||||
Service-based restricted stock units |
| |
| |
| |
| |
| |
| |
| |||||||
Interxion awards | — | | — | — | — | — | ||||||||||||||
Nine Months Ended September 30, |
| |||||||||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| ||||||||||||
Long-term incentive units | $ | | $ | | $ | | $ | | ||||||||||||
Performance-based awards |
| |
| |
| |
| | ||||||||||||
Service-based restricted stock units | | | | | ||||||||||||||||
Interxion awards |
| — |
| |
| |
| | ||||||||||||
Activity for LTIP Units and service-based Restricted Stock Units for the nine months ended September 30, 2024 is shown below.
|
| Weighted-Average | |||
| Grant Date Fair | ||||
Unvested LTIP Units | Units |
| Value | ||
Unvested, beginning of period |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Cancelled or expired |
| ( |
| | |
Unvested, end of period |
| | $ | | |
38
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 |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Cancelled or expired |
| ( |
| | |
Unvested, end of period |
| | $ | | |
13. Derivative Instruments
Derivatives Designated as Hedging Instruments
Net Investment Hedges
In September 2022, we entered into cross-currency interest rate swaps, which effectively convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign currency-denominated fixed-rate debt in order to hedge the currency exposure associated with our net investment in foreign subsidiaries. As of September 30, 2024, we had cross-currency interest rate swaps outstanding with notional amounts of $
The effect of these net investment hedges on accumulated other comprehensive loss and the condensed consolidated income statements for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | ||||||||
Cross-currency interest rate swaps (included component) (1) | $ | ( | $ | | $ | ( | $ | | |||||
Cross-currency interest rate swaps (excluded component) (2) | | ( | | ( | |||||||||
Total | $ | ( | $ | | $ | | $ | | |||||
Location of | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
gain or (loss) | 2024 |
| 2023 | 2024 |
| 2023 | |||||||
Interest expense | $ | | $ | | $ | | $ | | |||||
| (1) | Included component represents foreign exchange spot rates. |
| (2) | Excluded component represents cross-currency basis spread and interest rates. |
Cash Flow Hedges
As of September 30, 2024, we had derivatives designated as cash flow hedges on the Euro Term Loan Facilities (€
39
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The effect of these cash flow hedges on accumulated other comprehensive income and the condensed consolidated income statements for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2024 |
| 2023 | 2024 |
| 2023 | ||||||||
Interest rate swaps | $ | ( | $ | | $ | ( | $ | | |||||
Location of | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
gain or (loss) | 2024 |
| 2023 | 2024 |
| 2023 | |||||||
Interest expense | $ | | $ | | $ | | $ | | |||||
Fair Value of Derivative Instruments
The subsequent table presents the fair value of derivative instruments recognized in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 | December 31, 2023 | |||||||||||
|
|
|
| |||||||||
Cross-currency interest rate swaps | $ | | $ | | $ | — | $ | | ||||
Interest rate swaps | | | | — | ||||||||
| | | | |||||||||
| (1) | As presented in our condensed consolidated balance sheets within Other assets. |
| (2) | As presented in our condensed consolidated balance sheets within Accounts payable and other accrued liabilities. |
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 2023 Form 10-K.
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, Euro Term Loan Facilities and USD Term Loan Facility 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 September 30, 2024 and December 31, 2023 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.
40
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, Euro Term Loan Facilities and USD Term Loan Facility, unsecured senior notes and secured and other debt as of the respective periods is shown below (in thousands):
Categorization | As of September 30, 2024 | As of December 31, 2023 | ||||||||||||
under the fair value | Estimated Fair | Estimated Fair | ||||||||||||
| hierarchy |
| Value |
| Carrying Value |
| Value |
| Carrying Value | |||||
Global Revolving Credit Facilities (1) |
| Level 2 | $ | | $ | | $ | | $ | | ||||
Unsecured term loans (1) |
| Level 2 | | | | | ||||||||
Unsecured senior notes (2) |
| Level 2 | | |
| |
| | ||||||
Secured and other debt (2) |
| Level 2 | | |
| |
| | ||||||
$ | | $ | | $ | | $ | | |||||||
| (1) | The carrying value of our Global Revolving Credit Facilities and unsecured term loans approximates estimated fair value, due to the variability of interest rates and the stability of our credit ratings. |
| (2) | 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. |
During the nine months ended September 30, 2024, we recorded an impairment charge of $
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 September 30, 2024, we had open commitments, including amounts reimbursable by customers of approximately $
Legal Proceedings – Although the Company is involved in legal proceedings arising in the ordinary course of business, as of September 30, 2024, the Company is not currently a party to any legal proceedings nor, to its knowledge, is any legal proceeding threatened against it that it believes would have a material adverse effect on its financial position, results of operations or liquidity.
As disclosed previously, the Division of Enforcement of the U.S. Securities and Exchange Commission (SEC) is conducting an investigation into the adequacy of our disclosures of cybersecurity risks and our related disclosure controls and procedures. We are cooperating with the SEC and are not aware of any cybersecurity issue or event that caused the Staff to open this matter. Responding to an investigation of this type can be costly and time-consuming. While we are unable to predict the likely outcome of this matter or the potential cost or exposure or duration of the process, based on the information we currently possess, we do not expect the total potential cost to be material to our financial condition. If the SEC believes that violations occurred, it could seek remedies including, but not limited to, civil monetary penalties and injunctive relief, and/or file litigation against the Company.
41
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. Supplemental Cash Flow Information
Cash, cash equivalents, and restricted cash balances as of September 30, 2024, and December 31, 2023:
Balance as of | ||||||
(Amounts in thousands) |
| September 30, 2024 |
| December 31, 2023 | ||
Cash and cash equivalents | $ | | $ | | ||
| |
| | |||
Total | $ | | $ | | ||
We paid $
We paid $
Accrued construction related costs totaled $
17. Segment and Geographic Information
A majority of the Company’s largest customers are global entities that transact with the Company across multiple geographies worldwide. In order to better address the needs of these global customers, the Company manages critical decisions around development, operations, and leasing globally based on customer demand considerations. 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 throughout the global portfolio. In order to best accommodate the needs of global customers (and customers that might one day become global), the Company manages its operations as a single global business – with
Operating Revenues | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(Amounts in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Inside the United States | $ | | $ | | $ | | $ | | ||||||||
Outside the United States | | | | | ||||||||||||
Revenue Outside of U.S. % | % | % | % | % | ||||||||||||
Investments in Properties, net | Operating lease right-of-use assets, net | |||||||||||||||
As of September 30, | As of December 31, | As of September 30, | As of December 31, | |||||||||||||
(Amounts in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Inside the United States | $ | | $ | | $ | | $ | | ||||||||
Outside the United States | | | | | ||||||||||||
Net Assets in Foreign Operations | $ | | $ | | ||||||||||||
42
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, 2023, and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024, 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, litigation matters or legal proceedings, 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, 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 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; decreased rental rates, increased operating costs or increased vacancy rates; increased competition or available supply of data center space; 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; 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; global supply chain or procurement disruptions, or increased supply chain costs; the impact from periods of heightened inflation on our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs; the impact on our customers’ and our suppliers’ operations during an epidemic, pandemic, or other global events; 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; changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate; 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 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; the expected operating performance of anticipated near-term acquisitions and descriptions relating to these expectations; our inability to comply with rules and regulations applicable to our Company; Digital Realty
43
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 engage in certain business activities; 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; the impact of any financial, accounting, legal or regulatory issues or litigation that may affect us; and those additional risks and factors discussed in reports filed with the SEC by us from time to time, including those discussed under the heading “Risk Factors” in our most recently filed Annual Report on Form 10-K and in other sections of this report, including under Part II, Item 1A, Risk Factors.
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, 2023 and in other sections of this report, including under Part II, Item 1A, Risk Factors. 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.
44
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 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. Our goal is to average through business cycles the following financial ratios: 1) a debt-to-Adjusted EBITDA ratio around 5.5x, 2) a fixed charge coverage of greater than three times, and 3) 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.
Changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate, including escalations in political and trade tensions involving the U.S. and regulatory and legislative changes, could potentially result in adverse effects on our, and our customers’, operations.
Summary of 2024 Significant Activities
We completed the following significant activities during the nine months ended September 30, 2024:
| ● | In January 2024, we: |
| o | formed a joint venture with Blackstone Inc. to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia. We received approximately $231 million of net proceeds from the contribution of our data centers to the first phase of the joint venture and retained a 20% interest in the joint venture. |
| o | closed on the sale of our interest in four data centers to Brookfield Infrastructure Partners L.P., or Brookfield, for approximately $271 million. The sale was completed subsequent to Brookfield’s November 2023 acquisition of one of our customers, Cyxtera Technologies. As a result of the sale, we recognized a total gain on disposition of approximately $203.1 million, of which $194.2 million is included within Gain on disposition of properties, net and $8.9 million is included within Equity in (loss) earnings of unconsolidated entities on our condensed consolidated income statements. |
| ● | In March 2024, we formed a joint venture with Mitsubishi Corporation, or Mitsubishi, to support the development of two data centers in the Dallas metro area. The facilities were 100% pre-leased prior to construction. We contributed the two data center buildings at a contribution value of approximately $261 million. We received approximately $153 million of gross proceeds from the contribution of our data centers to the joint venture and retained a 35% interest in the joint venture. Mitsubishi contributed such cash in exchange for a 65% interest in the joint venture. |
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| ● | In April 2024, we: |
| o | expanded our existing joint venture with GI Partners with the sale to GI Partners of a 75% interest in a third facility on the same hyperscale data center campus in Chicago. We contributed the data center at a value of approximately $453 million. We received approximately $386 million of net proceeds from the contribution of our data center to the joint venture and the associated financing and retained a 25% interest in the joint venture. As a result of transferring control, we derecognized the data center and recognized a gain on disposition of approximately $172 million. |
| o | completed the sale of an additional 24.9% interest in a data center facility in Frankfurt, Germany to DCREIT for total consideration of approximately $126 million, and DCREIT now has a 49.9% interest in the Frankfurt data center. Because the Company still controls this asset, no gain or loss was recorded on this 49.9% interest. In connection with this transaction, DCREIT loaned the consolidated subsidiary that owns the data center approximately $80 million. As of September 30, 2024, DCREIT has loaned $160.4 million, which is secured by the Frankfurt data center and is recorded in our condensed consolidated balance sheets within Accounts payable and other accrued liabilities. |
| ● | In May 2024, Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into an underwriting agreement with BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters relating to the sale of up to approximately 12.1 million shares of common stock (including approximately 1.6 million shares that the underwriters had the option to purchase, and which option was exercised in full on May 8, 2024), at a purchase price to the underwriters of $136.66 per share. The offering closed on May 10, 2024, and we received net proceeds of approximately $1.7 billion. |
| ● | In September 2024: |
| o | Digital Dutch Finco B.V., an indirect wholly owned finance subsidiary of the Operating Partnership, issued and sold €850 million aggregate principal amount of 3.875% Guaranteed Notes due 2033 (the “2033 Notes”). Net proceeds from the offering were approximately €843 million (approximately $933 million based on the exchange rate on September 13, 2024) after deducting managers’ discounts and estimated offering expenses. |
| o | we refinanced our Global Revolving Credit Facility and Yen Revolving Credit Facility. The Global Revolving Credit Facilities provide for borrowings up to $4.5 billion (including approximately $0.3 billion available to be drawn on the Yen Revolving Credit Facility) based on currency commitments and foreign exchange rates as of September 30, 2024. The Global Revolving Credit Facility provides for borrowings in a variety of currencies and can be increased by an additional $1.8 billion, subject to receipt of lender commitments and other conditions precedent. Both facilities mature on January 24, 2029, with two six-month extension options available. |
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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 occupied square feet (in thousands) (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.
As of September 30, 2024 | As of December 31, 2023 | |||||||||||||
Region | Data Center Buildings | Net Rentable Square Feet (1) | Space Under Active Development (2) | Space Held for Development (3) | Occupancy | Data Center Buildings | Net Rentable Square Feet (1) | Space Under Active Development (2) | Space Held for Development (3) | Occupancy | ||||
North America | 103 | 20,003 | 2,887 | 1,194 | 85.4 | % | 107 | 20,150 | 2,590 | 1,335 | 83.8 | % | ||
Europe | 113 | 9,363 | 2,754 | 718 | 77.3 | % | 112 | 8,873 | 3,291 | 319 | 75.8 | % | ||
Asia Pacific | 11 | 1,667 | 73 | 192 | 81.8 | % | 11 | 1,652 | 73 | 207 | 76.7 | % | ||
Africa | 12 | 1,611 | 1,501 | 21 | 79.7 | % | 12 | 1,528 | 1,581 | 23 | 71.0 | % | ||
Consolidated Portfolio | 239 | 32,644 | 7,215 | 2,125 | 82.6 | % | 242 | 32,203 | 7,535 | 1,884 | 79.8 | % | ||
Managed Unconsolidated Portfolio | 26 | 4,819 | 1,203 | 400 | 93.4 | % | 22 | 3,843 | 364 | — | 93.7 | % | ||
Non-Managed Unconsolidated Portfolio | 47 | 3,629 | 708 | 2,338 | 82.6 | % | 45 | 3,641 | 571 | 2,246 | 85.3 | % | ||
Total Portfolio | 312 | 41,092 | 9,126 | 4,863 | 83.9 | % | 309 | 39,688 | 8,470 | 4,130 | 81.7 | % | ||
| (1) | Net rentable square feet represent 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 September 30, 2024, 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 nine months ended September 30, 2024 (square feet in thousands):
|
|
|
|
| TI’s/Lease |
| Weighted | |||||||||
Commissions | Average Lease | |||||||||||||||
Rentable | Expiring | New | Rental Rate | Per Square | Terms | |||||||||||
Square Feet (1) | Rates (2) | Rates (2) | Changes | Foot | (years) | |||||||||||
Leasing Activity (3)(4) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Renewals Signed |
|
|
|
|
|
|
|
|
|
|
|
| ||||
0 — 1 MW |
| 1,545 | $ | 245 | $ | 257 |
| 4.8 | % | $ | 1 |
| 1.6 | |||
> 1 MW |
| 1,812 | $ | 133 | $ | 175 |
| 31.9 | % | $ | 1 |
| 6.1 | |||
Other (6) |
| 368 | $ | 45 | $ | 67 |
| 47.9 | % | $ | 2 |
| 5.7 | |||
New Leases Signed (5) |
|
|
|
|
|
| ||||||||||
0 — 1 MW |
| 440 |
| — | $ | 295 |
| — | $ | 10 |
| 3.6 | ||||
> 1 MW |
| 2,450 |
| — | $ | 309 |
| — | $ | — |
| 11.8 | ||||
Other (6) |
| 96 |
| — | $ | 64 |
| — | $ | 11 |
| 13.0 | ||||
Leasing Activity Summary |
|
|
|
|
|
|
|
|
| |||||||
0 — 1 MW |
| 1,985 |
| $ | 265 |
|
|
|
| |||||||
> 1 MW |
| 4,262 |
| $ | 252 |
|
|
|
| |||||||
Other (6) |
| 464 |
| $ | 66 |
|
|
|
| |||||||
| (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 2024 to 2025. |
| (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 2024 expirations to be 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 based on annualized rent from our portfolio, including data centers held as investments in unconsolidated entities.
| Percentage of | ||
September 30, 2024 | |||
Metropolitan Area | Total annualized rent (1) | ||
Northern Virginia |
| 18.5 | % |
Chicago |
| 7.5 | % |
Frankfurt |
| 5.9 | % |
Singapore |
| 5.6 | % |
London |
| 5.5 | % |
Dallas |
| 4.8 | % |
New York | 4.6 | % | |
Amsterdam |
| 4.2 | % |
Silicon Valley |
| 4.1 | % |
Sao Paulo |
| 3.8 | % |
Portland |
| 3.3 | % |
Paris |
| 3.0 | % |
Johannesburg |
| 3.0 | % |
Tokyo |
| 2.0 | % |
Osaka | 1.7 | % | |
Other |
| 22.5 | % |
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 nine months ended September 30, 2024 was approximately $31.1 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, gain on disposition of properties, interest expense, and income tax expense make up the majority of Other income/(expenses). 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 Latin America. 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, Canada, Germany and Japan. 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 nine months ended September 30, 2024 as compared to December 31, 2023 is shown below (in thousands):
Net Rentable Square Feet |
| Stabilized |
| Non-Stabilized |
| Total |
As of December 31, 2023 | 22,600 | 9,603 | 32,203 | |||
New development and space reconfigurations | (86) | 987 | 901 | |||
Transfers to stabilized from non-stabilized | 2,456 | (2,519) | (63) | |||
Dispositions / Sales | (328) | (348) | (676) | |||
Acquisitions | - | 279 | 279 | |||
As of September 30, 2024 | 24,642 | 8,002 | 32,644 |
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Comparison of the Results of Operations for the Three and Nine Months Ended September 30, 2024 to the Three and Nine Months Ended September 30, 2023
Revenues
Total operating revenues as shown on our condensed consolidated income statements was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 |
| 2023 |
| $ Change | % Change |
| 2024 |
| 2023 |
| $ Change | % Change | |||||||||||
Stabilized | $ | 1,085,360 | $ | 1,121,187 | $ | (35,827) | (3.2) | % | 3,212,416 | $ | 3,271,776 | $ | (59,360) | (1.8) | % | |||||||||
Non-Stabilized | 328,367 | 273,426 | 54,941 | 20.1 | % | 857,550 | 803,232 | 54,318 | 6.8 | % | ||||||||||||||
Rental and other services | 1,413,727 | 1,394,613 | 19,114 | 1.4 | % | 4,069,966 | 4,075,008 | (5,042) | (0.1) | % | ||||||||||||||
Fee income and other | 17,487 | 7,819 | 9,668 | 123.6 | % |
| 49,140 |
| 32,414 | 16,726 | 51.6 | % | ||||||||||||
Total operating revenues | $ | 1,431,214 | $ | 1,402,432 | $ | 28,782 | 2.1 | % | $ | 4,119,106 | $ | 4,107,422 | $ | 11,684 | 0.3 | % | ||||||||
Total operating revenues increased by approximately $28.8 million and $11.7 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.
Stabilized rental and other services revenue decreased $35.8 million and $59.4 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to:
| (i) | a decrease of $50.2 million and $145.6 million, respectively, in utility reimbursement largely driven by power price decreases, mainly in EMEA and APAC; |
| (ii) | a decrease of $5.2 million and an increase of $7.6 million, respectively, in other tenant reimbursements due to adjustments on property tax reimbursements based on new property tax assessments within the Chicago metro area, offset by a favorable property tax assessment at one of our North American properties realized in early 2023, which was passed through to our customers; and |
| (iii) | offset by an increase of $19.6 million and $78.6 million, respectively, in new leasing and renewals across all regions. |
Non-stabilized rental and other services revenue increased $54.9 million and $54.3 million in the three and nine months ended September 30, 2024 and 2023, respectively, compared to the same periods in 2023 primarily due to:
| (i) | an increase of $113.7 million and $296.4 million, respectively, due to the completion of our global development pipeline and related lease up operating activities (with the biggest contributions in Northern Virginia, Portland, New York, Johannesburg, Toronto, Zurich, Paris and Cape Town); and |
| (ii) | offset by a decrease of $58.8 million and $242.1 million, respectively, related to properties sold or contributed after September 30, 2023. |
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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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 |
| 2023 |
| $ Change | % Change | 2024 |
| 2023 |
| $ Change | % Change | ||||||||||||
Stabilized | $ | 282,470 | $ | 340,568 | $ | (58,098) | (17.1) | % | $ | 800,664 | $ | 949,019 | $ | (148,355) | (15.6) | % | ||||||||
Non-Stabilized |
| 73,593 |
| 43,887 | 29,706 | 67.7 | % |
| 195,218 |
| 156,734 | 38,484 | 24.6 | % | ||||||||||
Total Utilities | 356,063 | 384,455 | (28,392) | (7.4) | % | 995,882 | 1,105,753 | (109,871) | (9.9) | % | ||||||||||||||
Stabilized | 182,910 | 166,771 | 16,139 | 9.7 | % | 538,483 | 503,726 | 34,757 | 6.9 | % | ||||||||||||||
Non-Stabilized |
| 66,886 |
| 56,318 | 10,568 | 18.8 | % |
| 173,334 |
| 168,986 | 4,348 | 2.6 | % | ||||||||||
Total Rental property operating and maintenance (excluding utilities) | 249,796 | 223,089 | 26,707 | 12.0 | % | 711,817 | 672,712 | 39,105 | 5.8 | % | ||||||||||||||
Total Rental property operating and maintenance | 605,859 | 607,544 | (1,685) | (0.3) | % | 1,707,699 | 1,778,465 | (70,766) | (4.0) | % | ||||||||||||||
Stabilized |
| 40,958 |
| 44,428 | (3,470) | (7.8) | % |
| 121,328 |
| 107,480 | 13,848 | 12.9 | % | ||||||||||
Non-Stabilized |
| 9,544 |
| 32,140 | (22,596) | (70.3) | % |
| 27,399 |
| 64,970 | (37,571) | (57.8) | % | ||||||||||
Total Property taxes and insurance |
| 50,502 |
| 76,568 | (26,066) | (34.0) | % |
| 148,727 |
| 172,450 | (23,723) | (13.8) | % | ||||||||||
Total property level operating expenses | $ | 656,361 | $ | 684,112 | $ | (27,751) | (4.1) | % | $ | 1,856,426 | $ | 1,950,915 | $ | (94,489) | (4.8) | % | ||||||||
Property level operating expenses include costs to operate and maintain the properties in our portfolio as well as taxes and insurance.
Total Utilities
Total stabilized utilities expenses decreased by approximately $58.1 million and $148.4 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to lower power pricing at certain properties in the stabilized portfolio, mainly in EMEA and APAC.
Total non-stabilized utilities expenses increased by approximately $29.7 million and increased by approximately $38.5 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to:
| (i) | an increase of approximately $53.1 million and $117.4 million, respectively, due to higher utility consumption in a growing portfolio of recently completed development sites (with the biggest contributions in Northern Virginia, Portland, Zurich, Cape Town and Johannesburg); |
| (ii) | a decrease in power agreement credits by $14.2 million and $26.0 million, respectively; and |
| (iii) | offset by a decrease of $9.2 million and $52.9 million, respectively, related to properties sold or contributed after September 30, 2023. |
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 EMEA, 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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Total Rental Property Operating and Maintenance (Excluding Utilities)
Total stabilized rental property operating and maintenance expenses (excluding utilities) increased by approximately $16.1 million and $34.8 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to an increase in common area maintenance expense and data center labor.
Total non-stabilized rental property operating and maintenance expenses (excluding utilities) increased by approximately $10.6 million and $4.4 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to an increase in data center labor expense throughout the portfolio.
Total Property Taxes and Insurance
Total stabilized property taxes and insurance decreased by approximately $3.5 million in the three months ended September 30, 2024 compared to the same period in 2023, based on new property tax assessments within the Chicago metro area. Total stabilized property taxes and insurance increased by approximately $13.9 million in the nine months ended September 30, 2024 compared to the same period in 2023 due to a favorable property tax assessment at one of our North American properties realized in early 2023.
Total non-stabilized property taxes and insurance decreased $22.6 million and $37.6 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily related to properties sold or contributed after September 30, 2023.
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 respective periods is shown below (in thousands).
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 |
| 2023 | $ Change | % Change |
| 2024 |
| 2023 | $ Change | % Change | |||||||||||||
Depreciation and amortization |
| $ | 459,997 | $ | 420,613 | $ | 39,384 | 9.4 | % |
| $ | 1,316,442 | $ | 1,274,384 | $ | 42,058 | 3.3 | % | ||||||
General and administrative | 117,602 | 110,721 | 6,881 | 6.2 | % | 353,207 | 332,257 | 20,950 | 6.3 | % | ||||||||||||||
Transaction, integration and other expense |
| 24,194 |
| 14,465 | 9,729 | 67.3 | % |
| 82,105 | 44,496 | 37,609 | 84.5 | % | |||||||||||
Provision for impairment | — | 113,000 | (113,000) | 100.0 | % | 168,303 | 113,000 | 55,303 | 100.0 | % | ||||||||||||||
Other |
| 4,774 |
| 1,295 | 3,479 | n/m | % |
| 15,081 |
| 1,950 |
| 13,131 | n/m | % | |||||||||
Total other operating expenses | 606,567 | 660,094 | (53,527) | (8.1) | % | 1,935,138 | 1,766,087 | 169,051 | 9.6 | % | ||||||||||||||
Total property level operating expenses | 656,361 | 684,112 | (27,751) | (4.1) | % | 1,856,426 | 1,950,915 | (94,489) | (4.8) | % | ||||||||||||||
Total operating expenses | $ | 1,262,928 | $ | 1,344,206 | (81,278) | (6.0) | % | $ | 3,791,564 | $ | 3,717,002 | $ | 74,562 | 2.0 | % | |||||||||
Equity in Earnings (Loss) of Unconsolidated Entities
The change in Equity in earnings (loss) of unconsolidated entities was approximately $6.7 million and $84.1 million in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The foreign exchange remeasurement of debt associated with our unconsolidated Ascenty entity creates volatility in our equity in earnings and drove this fluctuation.
Gain on Disposition of Properties, Net
Gain on disposition of properties decreased approximately $811.2 million and $449.7 million for the three and nine months ended September 30, 2024, as compared to the same periods in 2023.
In January 2024, we closed on the sale of our interest in four data centers to Brookfield Infrastructure Partners L.P., or Brookfield, for approximately $271 million. As a result of the sale, we recognized a total gain on disposition of approximately $194.2 million.
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In March 2024, we recognized a total gain of $74.4 million from the sale of an easement to a local power provider in Northern Virginia.
In April 2024, we expanded our existing joint venture with GI Partners with the sale to GI Partners of a 75% interest in a third facility on the same hyperscale data center campus in Chicago. We contributed the data center at a value of approximately $453 million. We received approximately $386 million of net proceeds from the contribution of our data center to the joint venture and the associated financing and retained a 25% interest in the joint venture. As a result of transferring control, we derecognized the data center and recognized a gain on disposition of approximately $172 million.
In July 2023, we received approximately $0.7 billion of gross proceeds from the contribution of our data centers to the joint venture with GI Partners for a net gain on sale of approximately $238 million and we received approximately $1.4 billion of gross proceeds from the contribution of our data centers to the joint venture with TPG Real Estate for a net gain on sale of approximately $576 million.
In May 2023, we disposed of a non-core asset, resulting in a net gain on sale of $90 million.
Loss on Debt Extinguishment and Modifications
Loss on debt extinguishment and modifications increased approximately $2.6 million and $3.7 million for the three and nine months ended September 30, 2024, as compared to the same periods in 2023.
In January 2024, we paid down $240 million on the U.S. term loan facility, leaving $500 million outstanding. The paydown resulted in an early extinguishment charge of approximately $1.1 million.
In September 2024, we paid down €375 million on the Euro Term Loan Facilities, leaving €375 million outstanding. The paydown resulted in an early extinguishment charge of approximately $1.6 million. We also refinanced our Global Revolving Credit Facilities and wrote off deferred loan costs of approximately $1.2 million.
Interest Expense
Interest expense increased approximately $13.0 million and $24.0 million in the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 driven primarily by increased borrowings at Teraco.
Income Tax Expense
Income tax expense decreased by approximately $4.8 million and $5.0 million in the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to jurisdictional rate mix in foreign jurisdictions. We carried out an analysis for the purposes of the Model GloBE Rules for Pillar Two and no material top-up tax is expected.
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.
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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 ATM Equity OfferingSM Sales Agreement dated August 4, 2023 (the “2023 Sales Agreement”). Pursuant to the 2023 Sales Agreement, Digital Realty Trust, Inc. could issue and sell common stock having an aggregate offering price of up to $1.5 billion through various named agents from time to time. From January 1, 2024 through February 23, 2024, Digital Realty Trust, Inc. generated net proceeds of approximately $99 million from the issuance of approximately 0.6 million common shares under the 2023 Sales Agreement at an average price of $133.43 per share after payment of approximately $0.6 million of commissions to the agents.
The 2023 Sales Agreement was amended on February 23, 2024 (the “2024 Sales Agreement Amendment”). At the time of the amendment, $258.3 million remained unsold under the 2023 Sales Agreement. Pursuant to the 2024 Sales Agreement Amendment, Digital Realty Trust, Inc. can issue and sell common stock having an aggregate offering price of up to $2.0 billion through various named agents from time to time. During the nine months ended September 30, 2024, Digital Realty Trust, Inc. generated net proceeds of approximately $983 million from the issuance of approximately 6.4 million common shares under the 2024 Sales Agreement Amendment at an average price of $154.84 per share before payment of approximately $9.9 million of commissions to the agents. Subsequent to September 30, 2024, Digital Realty Trust, Inc. generated net proceeds of approximately $62 million from the issuance of approximately 0.4 million common shares under the 2024 Sales Agreement Amendment at an average price of $160.81 per share after payment of approximately $0.6 million of commissions to the agents. As of October 30, 2024, approximately $0.9 billion remains available for future sales under the 2024 Sales Agreement Amendment.
The sales of common stock made under the 2024 Sales Agreement Amendment 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.
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On May 7, 2024, Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into an underwriting agreement with BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters relating to the sale of up to approximately 12.1 million shares of common stock (including approximately 1.6 million shares that the underwriters had the option to purchase, and which option was exercised in full on May 8, 2024), at a purchase price to the underwriters of $136.66 per share. The offering closed on May 10, 2024, and we received net proceeds of approximately $1.7 billion.
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 U.S. 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, in a manner 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.
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Distributions out of our Parent’s current or accumulated earnings and profits are generally classified as ordinary income except to the extent that our Parent recognizes capital gains and declares a capital gains dividend, or that such amounts constitute “qualified dividend income” subject to a reduced rate of tax. Non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning before January 1, 2026. Distributions in excess of our Parent’s current and accumulated earnings and profits are generally classified as a return of capital to the extent of a stockholder’s U.S. federal income tax basis in our Parent’s stock. Distributions in excess of our Parent’s current and accumulated earnings and profits and 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.
For additional information regarding dividends declared and paid by our Parent on its common and preferred stock for the nine months ended September 30, 2024, see Note 10. “Equity and Capital” to our condensed consolidated financial statements contained herein.
Analysis of Liquidity and Capital Resources — Operating Partnership
As of September 30, 2024, we had $2,175.6 million of cash and cash equivalents, excluding $6.5 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits. As circumstances warrant, our Operating Partnership may dispose of assets or enter into joint venture arrangements with institutional investors or strategic partners, on an opportunistic basis dependent upon market conditions. Our Operating Partnership may use the proceeds from such dispositions to acquire additional properties, to fund development opportunities and for general working capital purposes, including the repayment of indebtedness. 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. |
On September 24, 2024, we refinanced our Global Revolving Credit Facility and Yen Revolving Credit Facility. The Global Revolving Credit Facilities provide for borrowings up to $4.5 billion (including approximately $0.3 billion available to be drawn on the Yen Revolving Credit Facility) based on currency commitments and foreign exchange rates as of September 30, 2024. The Global Revolving Credit Facility provides for borrowings in a variety of currencies and can be increased by an additional $1.8 billion, subject to receipt of lender commitments and other conditions precedent. Both facilities mature on January 24, 2029, 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.
The Global Revolving Credit Facility provides for borrowings in a variety of currencies and includes the ability to add additional currencies in the future. We have used and intend to use available borrowings under the Global Revolving Credit Facilities to acquire additional properties, fund development opportunities and for general working capital and other corporate purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or equity securities. For additional information regarding our Global Revolving Credit Facility, see Note 8. “Debt of the Operating Partnership” in the Notes to our Condensed Consolidated Financial Statements.
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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 September 30, 2024, we had open commitments, related to construction contracts of approximately $1.9 billion, including amounts reimbursable of approximately $62.5 million.
We currently expect to incur approximately $0.4 billion to $0.6 billion of capital expenditures for our consolidated development programs during the remainder of 2024. 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.
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.
Construction Projects in Progress | As of September 30, 2024 | As of December 31, 2023 | ||||||||||||||||
Current | Future | Current | Future | |||||||||||||||
(in thousands) |
| Investment (1) |
| Investment (2) |
| Total Cost |
| Investment (3) |
| Investment (2) |
| Total Cost | ||||||
Future Development Capacity (4) |
| $ | 2,177,756 | $ | 1,097,751 |
| $ | 3,275,507 |
| $ | 2,222,062 | $ | 337,681 | $ | 2,559,743 | |||
Data Center Construction |
| 2,519,291 |
| 3,085,841 |
| 5,605,132 |
|
| 2,116,335 |
| 2,231,747 |
| 4,348,082 | |||||
Equipment Pool and Other Inventory (5) |
| 216,476 |
| — |
| 216,476 |
|
| 203,821 |
| — |
| 203,821 | |||||
Campus, Tenant Improvements and Other (6) |
| 284,922 |
| 156,989 |
| 441,911 |
|
| 211,187 |
| 130,260 |
| 341,447 | |||||
Consolidated Land Held and Development Construction in Progress |
| $ | 5,198,446 | $ | 4,340,581 | $ | 9,539,027 |
| $ | 4,753,405 | $ | 2,699,688 | $ | 7,453,093 | ||||
| (1) | Represents cost incurred through September 30, 2024. |
| (2) | Represents estimated cost to complete scope of work pursuant to approved development budget. |
| (3) | Represents costs incurred through December 31, 2023. |
| (4) | Includes land and space held or actively under construction in preparation for future data center fit-out. |
| (5) | Represents long-lead equipment and materials required for timely deployment and delivery of data center fit-out. |
| (6) | Represents improvements in progress, which benefit space recently converted to our operating portfolio and is composed primarily of shared infrastructure projects and first-generation tenant improvements. Includes approximately $3.0 million included in our condensed consolidated balance sheet related to fair value adjustments on Teraco portfolio projects that were partially constructed as of August 1, 2022. |
Future development reflects cumulative cost spent pending future development and includes ongoing improvements to building infrastructure in preparation for future data center fit-out. We expect to deliver the space within 12 months; however, lease commencement dates may significantly impact final delivery schedules.
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Capital Expenditures (Cash Basis)
The table below summarizes our capital expenditure activity for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Development projects | $ | 1,732,337 | $ | 2,121,583 | ||
Enhancement and improvements |
| 21,859 |
| 5,592 | ||
Recurring capital expenditures |
| 175,467 |
| 184,214 | ||
Total capital expenditures (excluding indirect costs) | $ | 1,929,663 | $ | 2,311,389 | ||
Our development capital expenditures are generally funded by our available cash and equity and debt capital.
Indirect costs, including interest, capitalized in the nine months ended September 30, 2024 and 2023 were $166.7 million and $155.1 million, respectively. Capitalized interest comprised approximately $84.4 million and $83.8 million of the total indirect costs capitalized for the nine months ended September 30, 2024 and 2023, respectively. Capitalized interest in the nine months ended September 30, 2024 increased, compared to the same period in 2023, due to an increase in qualifying activities and higher interest rates.
Excluding capitalized interest, indirect costs in the nine months ended September 30, 2024 increased compared to the same period in 2023 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, 2024.
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, 2024 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 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 October 29, 2024, we had approximately $2.5 billion of borrowings available under our Global Revolving Credit Facilities.
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On September 13, 2024, Digital Dutch Finco B.V., an indirect wholly owned finance subsidiary of the Operating Partnership, issued and sold €850 million aggregate principal amount of 3.875% Guaranteed Notes due 2033. Net proceeds from the offering were approximately €843 million (approximately $933 million based on the exchange rate on September 13, 2024) after deducting managers’ discounts and estimated offering expenses. We used the net proceeds from the offering to pay down a portion of our Euro Term Loan Facilities, temporarily repay borrowings under our Global Revolving Credit Facility and for general corporate purposes.
On July 13, 2023, we formed a joint venture with GI Partners, and GI Partners acquired a 65% interest in two stabilized hyperscale data center buildings in the Chicago metro area that we contributed. We retained a 35% interest in the joint venture. As a result of transferring control, we derecognized the data centers. In addition, GI Partners had a call option to increase their ownership interest in the joint venture from 65% to 80%. The call option top-up election notice was delivered to the Company on December 21, 2023. On January 12, 2024, GI Partners made an additional cash capital contribution, pursuant to the exercise of such call option, in the amount of $68 million, resulting in such additional 15% ownership in the joint venture. Currently, GI Partners has an 80% interest in the joint venture, and we have retained a 20% interest.
We also granted GI Partners an option to purchase an interest in the third facility on the same hyperscale data center campus in Chicago. On April 16, 2024, we expanded our existing joint venture with GI Partners with the sale to GI Partners of a 75% interest in this third facility. We received approximately $386 million of net proceeds from the contribution of our data center to the joint venture and the associated financing and retained a 25% interest in the joint venture.
On January 11, 2024, we formed a joint venture with Blackstone Inc. to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia. The campuses are planned to support the construction of 10 data centers with approximately 500 megawatts of potential IT load capacity. The first phase of the joint venture closed on hyperscale data center campuses in Paris and Northern Virginia, while the second phase is scheduled to close in the fourth quarter of 2024, subject to obtaining the required approvals. We received approximately $231 million of net proceeds from the contribution of our data centers to the first phase of the joint venture and retained a 20% interest in the joint venture. Each partner funded its pro rata share of the remaining $3.0 billion estimated development cost for the first phase of the joint venture, which is slated for completion in various stages, contingent on customer demand, which began in the first quarter of 2024.
In January 2024, we closed on the sale of our interest in four data centers to Brookfield Infrastructure Partners L.P., or Brookfield, for approximately $271 million. Two of the data centers were consolidated by us; while two of the data centers were owned by Digital Core REIT. The sale was completed subsequent to Brookfield’s November 2023 acquisition of one of our customers, Cyxtera Technologies. The acquisition was part of Cyxtera’s plan of reorganization under its Chapter 11 bankruptcy proceedings. In conjunction with the sale, we bought out Cyxtera’s leases in three data centers located in Singapore and Frankfurt for approximately $57 million. In addition, Brookfield assumed the leases on three facilities previously leased to Cyxtera and amended the leases on three additional data centers in North America, accelerating the expiration date to September 2024. As a result of the sale, we recognized a total gain on disposition of approximately $203.1 million, of which $194.2 million is included within Gain on disposition of properties, net and $8.9 million is included within Equity in (loss) earnings of unconsolidated entities on our condensed consolidated income statements.
On March 1, 2024, we formed a joint venture with Mitsubishi Corporation, or Mitsubishi, to support the development of two data centers in the Dallas metro area. The facilities were 100% pre-leased prior to construction. We contributed the two data center buildings at a contribution value of approximately $261 million. We received approximately $153 million of gross proceeds from the contribution of our data centers to the joint venture and retained a 35% interest in the joint venture. Mitsubishi contributed such cash in exchange for a 65% interest in the joint venture. Each partner funded its pro rata share of the remaining $140 million estimated development cost for the first phase of the project, of which one project has been completed in June 2024 and another is slated for completion in late 2024.
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On April 16, 2024, we expanded our existing joint venture with GI Partners with the sale to GI Partners of a 75% interest in a third facility on the same hyperscale data center campus in Chicago. We contributed the data center at a value of approximately $453 million. We received approximately $386 million of net proceeds from the contribution of our data center to the joint venture and the associated financing and retained a 25% interest in the joint venture. As a result of transferring control, we derecognized the data center and recognized a gain on disposition of approximately $172 million.
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 three and nine months ended September 30, 2024, 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 September 30, 2024 (in millions):
Debt Summary: |
|
| ||
Fixed rate | $ | 12,211 | ||
Variable rate debt subject to interest rate swaps |
| 2,976 | ||
Total fixed rate debt (including interest rate swaps) |
| 15,187 | ||
Variable rate—unhedged |
| 1,922 | ||
Total | $ | 17,109 | ||
Percent of Total Debt: |
|
| ||
Fixed rate (including swapped debt) |
| 88.8 | % | |
Variable rate |
| 11.2 | % | |
Total |
| 100.0 | % | |
Effective Interest Rate as of September 30, 2024 |
|
| ||
Fixed rate (including hedged variable rate debt) |
| 2.70 | % | |
Variable rate |
| 4.10 | % | |
Effective interest rate |
| 2.86 | % |
Our ratio of debt to total enterprise value was approximately 23% (based on the closing price of Digital Realty Trust, Inc.’s common stock on September 30, 2024 of $161.83). 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. 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 SOFR, EURIBOR, HIBOR, TIBOR, SARON and Base CD Rate rates, depending on the respective agreement governing the debt, including our Global Revolving Credit Facilities and unsecured term loans. As of September 30, 2024, our debt had a weighted average term to initial maturity of approximately 4.3 years (or approximately 4.5 years assuming exercise of extension options).
As of September 30, 2024, our pro-rata share of secured debt of unconsolidated entities was approximately $1,479.5 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 Nine Months Ended September 30, 2024 to Nine Months Ended September 30, 2023
The following table shows cash flows and ending cash, cash equivalents and restricted cash balances for the respective periods (in thousands).
Nine Months Ended September 30, | ||||||||
2024 |
| 2023 |
| Change | ||||
Net cash provided by operating activities | $ | 1,492,002 | $ | 1,172,475 | $ | 319,527 | ||
Net cash used in investing activities |
| (1,394,167) |
| (98,706) |
| (1,295,461) | ||
Net cash provided by (used in) financing activities |
| 521,934 |
| (108,275) |
| 630,209 | ||
Net increase in cash, cash equivalents and restricted cash | $ | 619,769 | $ | 965,494 | $ | (345,725) | ||
The changes in the activities that comprise the decrease in net cash used in investing activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 consisted of the following amounts (in thousands).
Change | ||
2024 vs 2023 | ||
Increase in net cash used in business combinations / asset acquisitions | $ | (271,441) |
Decrease in cash used for improvements to investments in real estate | 370,132 | |
Increase in cash contributed to investments in unconsolidated entities, net | (122,077) | |
Decrease in net cash provided by proceeds from sale of real estate | (1,224,333) | |
Other changes |
| (47,742) |
Increase in net cash used in investing activities | $ | (1,295,461) |
The increase in net cash used in investing activities was primarily due to:
| (i) | an increase in spend due to acquisitions of land parcels in Paris and two data centers located in the Slough Trading Estate; |
| (ii) | a decrease in spend on development projects of approximately $370 million; |
| (iii) | an increase in cash contributed to various investments in unconsolidated entities; |
| (iv) | an increase in cash provided by the sale or contributions of data centers in 2023 as follows: |
| ● | contributions of data centers to our joint ventures with GI Partners and TPG Real Estate for gross proceeds of approximately $0.7 billion and $1.4 billion, respectively; |
| ● | the sale of three non-core assets for gross proceeds of approximately $341 million; offset by |
| (v) | cash provided by the contribution of data centers to our joint ventures with Blackstone and Mitsubishi, for gross proceeds of approximately $231 million and $153 million, respectively; |
| (vi) | the sale of four data centers to Brookfield for gross proceeds of approximately $271 million, the sale of a land parcel in Sydney for gross proceeds of approximately $68 million and the sale of an easement to a local power provider in Northern Virginia for gross proceeds of approximately $92 million; and |
| (vii) | the sale to GI Partners of a 75% interest in a third facility in Chicago. We received approximately $386 million of net proceeds and retained a 25% interest in the joint venture. |
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The changes in the activities that comprise the decrease in net cash provided by financing activities for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 consisted of the following amounts (in thousands).
Change | ||
2024 vs 2023 | ||
Increase in cash provided by short-term borrowings | $ | 412,911 |
Increase in cash provided by proceeds from secured / unsecured debt | 199,748 | |
Increase in cash used for repayment on secured / unsecured debt | (1,613,272) | |
Increase in cash provided by proceeds from issuance of common stock, net of costs | 1,652,640 | |
Increase in cash used for dividend and distribution payments |
| (112,599) |
Other changes, net | 90,781 | |
Increase in net cash provided by financing activities | $ | 630,209 |
The increase in net cash provided by financing activities was primarily due to:
| (i) | an increase in cash proceeds from short-term borrowings; |
| (ii) | an increase in cash provided by proceeds from secured / unsecured debt due to the issuance of the 3.875% Guaranteed Notes due 2033 (the “2033 Notes”) in September 2024, offset by the closing of the U.S. term loan facility in January 2023; |
| (iii) | an increase in cash used for repayment: |
| ● | $240 million on the U.S. term loan facility; |
| ● | $637 million on the Euro notes (2.625% notes due 2024); |
| ● | $324 million on the 2.750% notes due 2024; |
| ● | $415 million on the Euro Term Loan Facilities; |
| (iv) | an increase in cash provided by proceeds from the issuance of: |
| ● | approximately 7.0 million shares of common stock, net of costs, of approximately $1.1 billion under our ATM program; |
| ● | approximately 12.1 million shares of common stock, net of costs, of approximately $1.7 billion from our equity offering; |
| ● | offset by the issuance of approximately 11.3 million shares of common stock, net of costs, of approximately $1.1 billion under our ATM program in 2023; and |
| (v) | an increase in dividend and distribution payments due to an increased number of common shares and common units outstanding. |
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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 September 30, 2024, amounted to 1.9% 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 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. As of September 30, 2024, approximately 0.2 million common units and incentive units of Digital Realty Trust, L.P. 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 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. A period of inflation, however, could cause an increase in the cost of our variable-rate borrowings, including borrowings under our Global Revolving Credit Facilities, borrowings under our Euro Term Loan Facilities and USD Term Loan Facility and issuances of unsecured senior notes.
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 is a non-GAAP financial measure and represents net income (loss) (computed in accordance with GAAP), excluding gain (loss) from the disposition of real estate assets, provision for impairment, real estate related depreciation and amortization (excluding amortization of deferred financing costs), our share of unconsolidated JV real estate related depreciation & amortization, net income attributable to noncontrolling interests in operating partnership and, depreciation related to noncontrolling interests. 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 data centers 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 data centers, 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 September 30, |
| Nine Months Ended September 30, | |||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
GAAP Net Income Available to Common Stockholders | $ | 41,012 | $ | 723,437 | $ | 382,378 | $ | 889,985 | ||||
Non-GAAP Adjustments: |
|
|
|
|
|
|
|
| ||||
Net income attributable to non-controlling interests in operating partnership |
| 1,000 |
| 16,300 |
| 8,700 |
| 20,300 | ||||
Real estate related depreciation and amortization (1) |
| 449,086 |
| 410,836 |
| 1,284,597 |
| 1,247,072 | ||||
Depreciation related to non-controlling interests | (19,746) | (14,569) | (45,081) | (42,101) | ||||||||
Unconsolidated JV real estate related depreciation and amortization | 48,474 | 43,215 | 143,468 | 112,320 | ||||||||
Gain from the disposition of real estate assets | 556 | (810,688) | (459,857) | (908,459) | ||||||||
Provision for impairment | — | 113,000 | 168,303 | 113,000 | ||||||||
FFO available to common stockholders and unitholders (2) | $ | 520,382 | $ | 481,531 | $ | 1,482,508 | $ | 1,432,117 | ||||
Basic FFO per share and unit | $ | 1.56 | $ | 1.56 | $ | 4.55 | $ | 4.74 | ||||
Diluted FFO per share and unit (2)(3) | $ | 1.55 | $ | 1.55 | $ | 4.52 | $ | 4.68 | ||||
Weighted average common stock and units outstanding |
|
|
|
|
|
|
|
| ||||
Basic |
| 334,103 |
| 308,024 |
| 326,154 |
| 302,316 | ||||
Diluted (2)(3) |
| 342,375 |
| 317,538 |
| 334,830 |
| 312,867 | ||||
(1) Real estate related depreciation and amortization was computed as follows: | ||||||||||||
Depreciation and amortization per income statement |
| $ | 459,997 |
| $ | 420,613 | $ | 1,316,442 |
| $ | 1,274,384 | |
Non-real estate depreciation |
| (10,911) | (9,777) | (31,845) | (27,312) | |||||||
$ | 449,086 | $ | 410,836 | $ | 1,284,597 | $ | 1,247,072 | |||||
| (2) | As part of the acquisition of Teraco in 2022, certain of Teraco's minority indirect shareholders have the right to put their shares in an upstream parent company of Teraco to the Company in exchange for cash or the equivalent value of shares of the Company common stock, or a combination thereof. U.S. GAAP requires the Company to assume the put right is settled in shares for purposes of calculating diluted EPS. This same approach was utilized to calculate FFO per share. When calculating diluted FFO, Teraco related minority interest is added back to the FFO numerator as the denominator assumes all shares have been put back to the Company. The Teraco noncontrolling share of FFO was $9,828 and $11,537 for the three months ended September 30, 2024 and 2023, respectively, and $32,049 and $32,251 for the nine months ended September 30, 2024 and 2023, respectively. |
| (3) | For all periods presented, we have excluded the effect of the 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 J, series K and series L preferred stock, as applicable, as they would be anti-dilutive. |
Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||
2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Weighted average common stock and units outstanding |
| 334,103 |
|
| 308,024 |
|
| 326,154 |
| 302,316 | |
Add: Effect of dilutive securities |
| 8,272 |
|
| 9,514 |
|
| 8,676 |
| 10,551 | |
Weighted average common stock and units outstanding—diluted | 342,375 |
| 317,538 |
| 334,830 |
| 312,867 | ||||
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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 September 30, 2024, our consolidated debt was as follows (in millions):
|
| Estimated Fair | ||||
Carrying Value |
| Value | ||||
Fixed rate debt | $ | 12,211 | $ | 9,461 | ||
Variable rate debt subject to interest rate swaps |
| 2,976 |
| 2,976 | ||
Total fixed rate debt (including interest rate swaps) |
| 15,187 |
| 12,437 | ||
Variable rate debt |
| 1,922 |
| 1,922 | ||
Total outstanding debt | $ | 17,109 | $ | 14,359 | ||
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 September 30, 2024:
| Change | ||
Assumed event | ($ millions) | ||
Increase in fair value of interest rate swaps following an assumed 10% increase in interest rates | $ | 2 | |
Decrease in fair value of interest rate swaps following an assumed 10% decrease in interest rates |
| (2) | |
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 |
| 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 |
| (6) | |
Increase in fair value of fixed rate debt following a 10% decrease in interest rates |
| (153) | |
Decrease in fair value of fixed rate debt following a 10% increase in interest rates |
| (145) | |
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.
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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, Singapore dollar, South African rand and Brazilian real. 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. We also utilize cross-currency interest rate swaps, designated as net investment hedges, which effectively convert a portion of our U.S. dollar-denominated fixed-rate debt to foreign currency-denominated fixed-rate debt, to hedge the currency exposure associated with our net investment in our foreign subsidiaries. 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.
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 September 30, 2024, 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, 2023 continue to apply to our business.
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 September 30, 2024, 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 September 30, 2024, Digital Realty Trust, Inc. issued an aggregate of 9,018 shares of its common stock in connection with restricted stock unit 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 September 30, 2024, Digital Realty Trust, L.P. issued an aggregate of 9,018 common units to Digital Realty Trust, Inc., as required by Digital Realty Trust, L.P.’s partnership agreement. During the three months ended September 30, 2024, an aggregate of 27,871 shares of its common stock were forfeited to Digital Realty Trust, Inc. in connection with restricted stock unit awards for a net forfeiture of 18,853 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 $45.3 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.
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ITEM 6. EXHIBITS.
Incorporated by Reference | ||||||||||||
Exhibit | Description |
| Form | File Number | Date | Number | Filed Herewith | |||||
3.1 | Articles of Amendment and Restatement of Digital Realty Trust, Inc., as amended | 10-Q | 001-32336 and 000-54023 | 05/11/2020 | 3.1 | |||||||
3.2 | Ninth Amended and Restated Bylaws of Digital Realty Trust, Inc. | 8-K | 001-32336 and 000-54023 | 04/03/2023 | 3.1 | |||||||
3.3 | Certificate of Limited Partnership of Digital Realty Trust, L.P. | 10 | 000-54023 | 06/25/2010 | 3.1 | |||||||
3.4 | Nineteenth Amended and Restated Agreement of Limited Partnership of Digital Realty Trust, L.P. | 8-K | 001-32336 and 000-54023 | 10/10/2019 | 3.1 | |||||||
4.1 | 8-K | 001-32336 and 000-54023 | 09/13/2024 | 4.1 | ||||||||
10.1 | X | |||||||||||
10.2 | X | |||||||||||
10.3 | X | |||||||||||
10.4 | X | |||||||||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer for Digital Realty Trust, Inc. | X | ||||||||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer for Digital Realty Trust, Inc. | X | ||||||||||
31.3 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer for Digital Realty Trust, L.P. | X | ||||||||||
31.4 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer for Digital Realty Trust, L.P. | X | ||||||||||
32.1 | 18 U.S.C. § 1350 Certification of Chief Executive Officer for Digital Realty Trust, Inc. | X | ||||||||||
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 September 30, 2024, formatted in Inline XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023; (ii) Condensed Consolidated Income Statements for the three and nine months ended September 30, 2024 and 2023; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023; (iv) Condensed Consolidated Statements of Equity/Capital for the three and nine months ended September 30, 2024 and 2023; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; and (vi) Notes to Condensed Consolidated Financial Statements. | |||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||||
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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. | |
November 1, 2024 | /S/ ANDREW P. POWER |
Andrew P. Power | |
November 1, 2024 | /S/ MATTHEW R. MERCIER |
Matthew R. Mercier | |
November 1, 2024 | /s/ CHRISTINE B. KORNEGAY |
Christine B. Kornegay |
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: | ||
November 1, 2024 | /S/ ANDREW P. POWER | |
Andrew P. Power | ||
November 1, 2024 | /S/ MATTHEW R. MERCIER | |
Matthew R. Mercier | ||
November 1, 2024 | /s/ CHRISTINE B. KORNEGAY | |
Christine B. Kornegay | ||
71