DIGITAL REALTY TRUST, INC. 
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this report and the matters described under Item 1A. Risk Factors. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled "Forward-Looking Statements." A discussion regarding our financial condition and results of operations for 2021 as compared to 2020 is presented herein. Information on 2019 is presented in graphs and other tables only to show year-over-year trends in our results of operations and operating metrics. Our financial condition for 2019 and results of operations for 2019 - and also 2019 as compared to 2020 - can be found under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on form 10-K for the fiscal year ended 2020, filed with theSEC onMarch 1, 2021 .
Business Overview and Strategy
Digital Realty Trust, Inc. , through its controlling interest inDigital 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 ourOperating 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 our
unitholders through the payment of distributions; and
(iii) return on invested capital.
We expect to accomplish our objectives by achieving superior risk-adjusted returns, prudently allocating capital, diversifying our product offerings, accelerating our global reach and scale, and driving revenue growth and operating efficiencies. A significant component of our current and future internal growth is anticipated through the development of our existing space held for development, acquisition of land for future development, and acquisition of new properties.
We target high-quality, strategically located properties containing the physical and connectivity infrastructure that supports the applications and operations of data center and technology industry customers and properties that may be developed for such use. Most of our data center properties contain fully redundant electrical supply systems, multiple power feeds, above-standard cooling systems, raised floor areas, extensive in-building communications cabling and high-level security systems. We focus exclusively on owning, acquiring, developing and operating data centers because we believe that the growth in data center demand and the technology-related real estate industry generally will continue to outpace the overall economy. 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 toDigital Realty Trust, Inc.'s common stock and preferred stock. We are committed to maintaining a conservative capital structure. We target a debt-to-Adjusted EBITDA ratio at or less than 56 Table of Contents Index to Financial Statements
5.5x, fixed charge coverage of greater than three times, and floating rate debt at less than 20% of total outstanding debt. In addition, we strive to maintain a well-laddered debt maturity schedule, and we seek to maximize the menu of our available sources of capital, while minimizing the cost.
Summary of 2021 Significant Activities
We completed the following significant activities in 2021 as described in the Notes to the Consolidated Financial Statements:
In January, we issued and sold €1.0 billion aggregate principal amount of
0.625% Guaranteed Notes due 2031 (the "2031 Notes"). The 2031 Notes are senior
unsecured obligations of
? subsidiary of the OP) and are fully and unconditionally guaranteed by the
Parent and the OP. Net proceeds from the offering were approximately €988.3
million (approximately
issuance date of
estimated offering expenses.
? In February, we redeemed €350 million of 2.750% notes due in 2023. As part of
this redemption, we recorded a
In March, we sold a portfolio of 11 data centers in
?
million. The total gain recorded as a result of this sale was approximately
$332.0 million . In May, we redeemed all of the Parent's outstanding Series C cumulative
redeemable perpetual preferred stock for
price of
? including the redemption date (the "Series C Preferred Share Redemption"). The
transaction resulted in a gain on redemption of
reflected as gain on redemption of preferred stock which increased net income
available to common stockholders.
In July, we issued and sold
guaranteed notes due 2026 and
0.55% guaranteed notes due 2029 (collectively referred to as, "the Swiss Franc
? Notes"). Net proceeds from the offering were approximately
(approximately
or in part, recently completed or future green building, energy and resource
efficiency and renewable energy projects.
In August, an existing unconsolidated joint venture between the Company and
consisting of 10 data centers in
resulted in a gain on sale of assets for the joint venture. Our portion of the
? gain was
Entities in our consolidated income statements. In connection with completion
of the sale, we also received a
partnership exceeding certain investor return thresholds over the life of the
partnership. The amount received is included in fee income and other in our
consolidated income statements.
In September, we completed an underwritten public offering of 6,250,000 shares
of the Parent's common stock, all of which were offered in connection with
forward sale agreements we entered into with certain financial institutions
acting as forward purchasers. The forward purchasers borrowed and sold an
? aggregate of 6,250,000 shares of common stock in the public offering. We did
not receive any proceeds from the sale of our common stock by the forward
purchaser. We expect to receive net proceeds of approximately
of fees and estimated expenses) upon full physical settlement of the forward
sale agreements (for which the timing is fully determined at our option and is
expected to be no later thanMarch 13, 2023 ). 57 Table of Contents Index to Financial Statements In November, we refinanced our global revolving credit facility and Yen
revolving credit facility (collectively referred to as the "global revolving
credit facilities"). The global revolving credit facilities provide for
borrowings of up to
available to be drawn on the Yen revolving credit facility). The global
revolving credit facility provides for borrowings in a variety of currencies
? and can be increased by an additional
lender commitments and other conditions precedent. Both facilities mature on
facilities also feature a sustainability-linked pricing component, with pricing
subject to adjustment based on annual performance targets, further
demonstrating the Company's continued leadership and commitment to sustainable
business practices. ? In December, we:
completed the listing of Digital Core REIT as a standalone
estate investment trust publicly traded on the Singapore Exchange. Digital Core
REIT and its subsidiaries are hereafter referred to as the "SREIT". In
connection with the listing, we contributed a portfolio of 10 operating data
o center properties valued at
million cash and an initial retained investment of approximately 39.4% in
Digital Core REIT as well as a 10% direct interest in the underlying operating
properties of the SREIT. As part of this transaction, we recognized a gain on
sale of assets of approximately
entered into a definitive agreement to acquire approximately 55% of the total
equity interests in
o provider. The remaining 45% will be held by a consortium of existing investors.
The transaction values
transaction is dependent upon customary closing conditions.
Revenue Base
The majority of our revenue consists of rental income generated by the data
centers in our portfolio. Our ability to generate and grow revenue depends on
several factors, including our ability to maintain or improve occupancy rates. A
summary of our data center portfolio and related square feet occupied (excluding
space under development or held for development) is shown below. Unconsolidated
portfolios shown below consist of assets owned by unconsolidated entities in
which we have invested. We often provide management services for these entities
under management agreements and receive management fees. These are shown as
Managed Unconsolidated Portfolio. Entities for which we do not provide such
services are shown as Non-Managed Unconsolidated Portfolio.
As of December 31, 2021 As of December 31, 2020
Net Space Under Space Held Net Space Under Space Held
Data Rentable Active for Data Rentable Active for
Center Square Development Development Center Square Development Development
Region Buildings Feet (1) (2) (3) Occupancy Buildings Feet (1) (2) (3) Occupancy
North America 114 21,751,638 2,327,121 900,357 85.4 % 125 22,767,431 2,021,891 960,161 87.0 %
Europe 107 7,549,209 3,125,451 191,094 74.6 % 107 7,654,259 1,516,192 256,398 78.7 %
Asia Pacific 12 1,355,243 806,252 - 76.2 % 13 913,905 1,330,123 284,751 89.0 %
Africa 4 25,825 40,965 - 58.5 % 3 25,300 37,025 - 48.3 %
Consolidated
Portfolio 237 30,681,914 6,299,789 1,091,451 82.5 % 248 31,360,895 4,905,231 1,501,310 85.2 %
Managed
Unconsolidated
Portfolio 16 2,383,729 - - 95.2 % 16 2,191,236 - - 96.4 %
Non-Managed
Unconsolidated
Portfolio 34 2,565,185 930,670 1,591,004 86.0 %27 2,324,185 486,738 789,500 92.1 % Total Portfolio 287 35,630,828 7,230,460 2,682,456 83.6 %
291 35,876,316 5,391,969 2,290,810 86.3 %
Net rentable square feet represents the current square feet under lease as
specified in the applicable lease agreement plus management's estimate of (1) 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.
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Space under active development includes current base building and data center
projects in progress, and excludes space held for development. For additional (2) information on the current and future investment for space under active
development, see "-Liquidity and Capital Resources of the Operating
Partnership-Construction ".
Space held for development includes space held for future data center (3) development, and excludes space under active development. For additional
information on the current investment for space held for development, see
"-Liquidity and Capital Resources of the
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 ofDecember 31, 2021 , 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 year endedDecember 31, 2021 : 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 1,776,184$ 267.61 $ 272.39 1.8 %$ 0.70 1.7 > 1 MW 1,509,389$ 156.71 $ 146.39 (6.6) %$ 1.30 4.3 Other (6) 1,536,720$ 21.20 $ 23.79 12.3 %$ 1.12 3.9 New Leases Signed (5) 0 - 1 MW 549,391 -$ 269.94 -$ 15.38 3.6 > 1 MW 2,180,268 -$ 134.79 -$ 1.68 8.1 Other (6) 351,853 -$ 27.44 -$ 0.27 13.0 Leasing Activity Summary 0 - 1 MW 2,325,575$ 271.81 > 1 MW 3,689,657$ 139.54 Other (6) 1,888,573$ 24.47
For some of our properties, we calculate square footage based on factors in (1) addition to contractually leased square feet, including power, required
support space and common area.
Rental rates represent average annual estimated base cash rent per rentable
square foot - calculated for each contract based on total cash base rent (2) 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
year presented.
(3) Excludes short-term leases.
(4) Commencement dates for the leases signed range from 2021 to 2022.
(5) Includes leases signed for new and re-leased space.
(6) Other includes
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 re-leased or
renewed data center leases for 2022 expirations to generally be consistent 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
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Index to Financial Statements
from other data center developers or operators, the condition of the property and whether the property, or space within the property, has been developed.
Geographic concentration
We depend on the market for data centers in specific geographic regions and significant changes in these regional or metropolitan areas can impact our future results. The following table shows the geographic concentration of annualized rent from our portfolio, including data centers held as investments in unconsolidated entities.
Percentage of
December 31, 2021
Metropolitan Area total annualized rent (1)
Northern Virginia 19.5 %
Chicago 9.0 %
London 6.6 %
New York 6.2 %
Silicon Valley 6.1 %
Frankfurt 5.7 %
Dallas 5.5 %
Amsterdam 4.2 %
Sao Paulo 4.1 %
Singapore 4.0 %
Paris 2.2 %
Phoenix 2.0 %
San Francisco 1.9 %
Osaka 1.6 %
Atlanta 1.5 %
Other 19.9 %
Total 100.0 %
Annualized rent is monthly contractual rent (defined as cash base rent before
abatements) under existing leases as of the end of the period presented, (1) multiplied by 12. Includes consolidated portfolio and unconsolidated entities
at the entities' 100% ownership level. The aggregate amount of abatements for
the year ended
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.
Other Income / (Expenses)
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Index to Financial Statements
Equity in earnings of unconsolidated entities, interest expense, and income tax expense make up the majority of other income/(expense). Equity in earnings of unconsolidated entities represents our share of the income/(loss) of entities in which we invest, but do not consolidate underU.S. GAAP. The largest of these investments is currently our investment in Digital Core REIT, which is publicly traded on the Singapore Exchange ("SGX") and which owns a portfolio of 10 properties operating inthe United States andCanada . Our second-largest equity-method investment is in Ascenty which is located primarily inBrazil . Refer to additional discussion of the SREIT and Ascenty in the footnotes to
the 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 vs. 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.
Comparison of the Year Ended
Revenues
Total operating revenues as shown on our consolidated income statements was as follows (in thousands):
Year Ended December 31, $ Change % Change
2021 2020 2021 vs 2020 2021 vs 2020
Rental and other services $ 4,395,039 $ 3,886,546 $ 508,493 13.1 %
Fee income and other 32,843 17,063 15,780 92.5 %
Total operating revenues $ 4,427,882 $ 3,903,609 $ 524,273 13.4 %
A break-out of rental and other services revenue between stabilized properties
and non-stabilized properties is shown in the subsequent table (in thousands).
Fee income and other is not broken out between stabilized and non-stabilized
categories because it is typically generated by the Company as a whole and not
by individual properties.
Year Ended December 31,
2021 2020 $ Change % Change
Stabilized $ 2,307,668 $ 2,298,695 $ 8,973 0.4 %
Non-Stabilized 2,087,371 1,587,851 499,520 31.5 %
Rental and other services 4,395,039 3,886,546 508,493 13.1 %
Fee income and other 32,843 17,063 15,780
92.5 %
Total operating revenues
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Index to Financial Statements
Total operating revenues increased by approximately$524.3 million for the year endedDecember 31, 2021 compared to the same period in 2020 driven primarily by growth in non-stabilized rental and other services revenue. Non-stabilized rental and other services revenue increased$499.5 million for the year endedDecember 31, 2021 , compared to the same period in 2020 primarily due to the completion of global development pipeline and related lease up operating activities and expansion into new markets in EMEA, offset by the impact of properties sold in 2020 and 2021 and due to the Interxion Combination, which contributed$303.8 million to the increase. Stabilized rental and other services revenue increased$9.0 million for the year endedDecember 31, 2021 compared to the same period in 2020 due to increased tenant reimbursements associated with higher utility costs inTexas due to winter storm Uri less new leasing and renewals, net of expirations.
Operating Expenses - Property Level
Property level operating expenses as shown in our consolidated income statements were as follows (in thousands):
Year Ended December 31, $ Change % Change
2021 2020 2021 vs 2020 2021 vs 2020
Rental property
operating and
maintenance $ 1,570,506 $ 1,331,493 $ 239,013 18.0 %
Property taxes and
insurance 207,814 182,623 25,191 13.8 %
Total Property
Level Expenses $ 1,778,320 $ 1,514,116 $ 264,204 17.4 %
A break-out of property level expenses between stabilized properties and
non-stabilized properties (all other properties) is shown below (in thousands).
Year Ended December 31,
2021 2020 $ Change % Change
Stabilized $ 811,952 $ 747,873 $ 64,079 8.6 %
Non-Stabilized 758,554 583,620 174,934 30.0 %Rental property operating and maintenance 1,570,506 1,331,493
239,013 18.0 % Stabilized 130,023 122,290 7,733 6.3 % Non-Stabilized 77,791 60,333 17,458 28.9 %
Property taxes and insurance 207,814 182,623 25,191 13.8 % Total Property Level Expenses$ 1,778,320 $ 1,514,116
$ 264,204 17.4 % 62 Table of Contents
Index to Financial Statements
Property level operating expenses include costs to operate and maintain the locations as well as taxes and insurance. Stabilized property operating and maintenance expenses increased by approximately$64.1 million for the year endedDecember 31, 2021 compared to the same period in 2020 primarily related to higher utility consumption at certain properties in the stabilized portfolio. Non-stabilized property operating and maintenance expenses increased$174.9 million for the year endedDecember 31, 2021 compared to the same period in 2020 primarily due to (i) the Interxion Combination, which contributed$127.5 million to the increase, (ii) the completion of global development pipeline and related lease up operating activities and expansion into new markets in EMEA offset by (iii) the impact of properties sold in 2020 and 2021. 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 thatCongress may pass, (ii) the regulations that the EPA has proposed or finalized, (iii) regulations under legislation that states have passed or may pass, or (iv) any further legislation or regulations in the EU 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. Stabilized property taxes and insurance increased by approximately$7.7 million for the year endedDecember 31, 2021 compared to the same period in 2020 primarily related to property tax reassessments for certain properties located inChicago in the stabilized portfolio. Non-stabilized property taxes and insurance increased by approximately$17.5 million for the year endedDecember 31, 2021 compared to the same period in 2020 primarily related to property tax reassessments for certain properties located inChicago andDallas in the non-stabilized portfolio.
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). The increases in depreciation and amortization and general and administrative expenses for the 2021 period as compared to 2020 were primarily driven by the Interxion Combination, which
closed inMarch 2020 . Year Ended December 31, $ Change % Change 2021 2020 2021 vs 2020 2021 vs 2020 Depreciation and amortization$ 1,486,632 $ 1,366,379 $ 120,253 8.8 % General and administrative 400,654 351,369 49,285 14.0 % Transaction, integration and other expense 47,426 106,662 (59,236) (55.5) % Impairment of investments in real estate 18,291 6,482 11,809 182.2 % Other 2,550 1,075 1,475 137.2 % Total Other Operating Expenses 1,955,553 1,831,967 123,586 6.7 % Property level operating expenses 1,778,320 1,514,116 264,204 17.4 % Total Operating Expenses$ 3,733,873 $ 3,346,083 $ 387,790 11.6 %
Equity in Earnings (Loss) of Unconsolidated Entities
Equity in earnings (loss) of unconsolidated entities increased approximately$119.9 million for the year endedDecember 31, 2021 , compared to 2020, primarily due to: (i) a$64 million gain we recorded as a component of our share of earnings in the PGIM joint venture which was associated with the joint venture's sale of a portfolio of 10 data centers inAugust 2021 , and (ii) a$59.3 million increase primarily related to a reduction of the foreign-exchange loss recorded by our Ascenty joint venture associated with re-measurement of its debt denominated in U. S. Dollars to Brazilian Real. 63 Table of Contents Index to Financial Statements
Gain on Disposition of Properties
Gain on disposition of properties, increased$1,063.9 million for the year endedDecember 31, 2021 compared to the same period in 2020, due primarily to the approximately$1 billion gain we recorded on disposition of 10 operating properties to the SREIT onDecember 6, 2021 . Refer to additional information in the "Notes to the Consolidated Financial Statements." The gain on disposition of properties recorded for the year endedDecember 31, 2020 consisted of (i) a gain of$10.4 million on sale of Liverpoolweg 10 inAmsterdam for gross proceeds of approximately$21.5 million , and (ii) a gain of$306.5 million on sale of 10 Powered Base Building® properties (which comprised 12 data centers) inNorth America to Mapletree at a purchase consideration of approximately$557.0 million .
Loss from Early Extinguishment of Debt
Loss from early extinguishment of debt decreased approximately$84.5 million for the year endedDecember 31, 2021 compared to the same period in 2020, primarily due to the redemption of the 3.950% 2022 Notes and 3.625% 2022 Notes inAugust 2020 , offset by the redemption of the 2.750% 2023 Notes inFebruary 2021 .
Income Tax Expense
Income tax expense increased by$34.8 million for the year endedDecember 31, 2021 compared to the same period in 2020, primarily due to an increase in the corporate tax rate in theUnited Kingdom from 19% to 25% during the quarter endedJune 30, 2021 .
Interest Expense
Interest expense decreased by approximately
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 toDigital Realty Trust, Inc. on an unconsolidated basis, excluding ourOperating Partnership . The term "Operating Partnership" or "OP" refers toDigital Realty Trust, L.P. on a consolidated basis.
Analysis of Liquidity and Capital Resources - Parent
Our Parent does not conduct business itself, other than acting as the sole general partner of theOperating Partnership , issuing public equity from time to time, incurring certain expenses in operating as a public company (which are fully reimbursed by theOperating Partnership ) and guaranteeing certain unsecured debt of theOperating Partnership and certain of its subsidiaries and affiliates. If ourOperating 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 ourOperating 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
As the sole general partner of ourOperating Partnership , our Parent has the full, exclusive and complete responsibility for ourOperating Partnership's day-to-day management and control. Our Parent causes ourOperating Partnership to 64 Table of Contents Index to Financial Statements
distribute such portion of its available cash as our Parent may in its
discretion determine, in the manner provided in our
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 ourOperating Partnership in exchange for additional equity interests in ourOperating Partnership . OurOperating 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 ourOperating Partnership are parties to an at-the-market (ATM) equity offering sales agreement datedJanuary 4, 2019 , as amended in 2020 (the "Sales Agreement"). In accordance with the Sales Agreement, following the date of the 2020 amendment,Digital Realty Trust, Inc. may offer and sell shares of its common stock having an aggregate offering price of up to$1.0 billion . Prior to the 2020 amendment,Digital Realty Trust, Inc. had offered and sold shares of its common stock having an aggregate gross sales price of approximately$652.2 million . The sales of common stock made under the Sales Agreement will be made in "at the market" offerings as defined in Rule 415 of the Securities Act. For the year endedDecember 31, 2021 ,Digital Realty Trust, Inc. issued approximately 1.1 million common shares under the Sales Agreement at an average price of$161.92 per share. As ofDecember 31, 2021 , approximately$577.6 million remains available for future sales under the program. Our Parent has used and intends to use the net proceeds from the program to temporarily repay borrowings under ourOperating 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. For additional information on the Sales Agreement, see our Annual Report on Form 10-K for the year endedDecember 31, 2020 . OnSeptember 13, 2021 ,Digital Realty Trust, Inc. completed an underwritten public offering of 6,250,000 shares of its common stock, all of which were offered in connection with forward sale agreements it entered into with certain financial institutions acting as forward purchasers. The forward purchasers borrowed and sold an aggregate of 6,250,000 shares ofDigital Realty Trust, Inc.'s common stock in the public offering.Digital Realty Trust, Inc. did not receive any proceeds from the sale of our common stock by the forward purchasers in the public offering. The Company expects to receive net proceeds of approximately$1.0 billion (net of fees and estimated expenses) upon full physical settlement of the forward sale agreements, which is anticipated to be no later thanMarch 13, 2023 . Upon physical settlement of the forward sale agreements, theOperating Partnership is expected to issue partnership units toDigital Realty Trust, Inc. in exchange for contribution of the net proceeds. We believe ourOperating 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 ourOperating 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 ourOperating 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 Company may from time to time seek to retire, redeem or repurchase its equity or the debt securities of ourOperating 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. 65 Table of Contents Index to Financial Statements
Dividends and Distributions - Parent
Our Parent is required to distribute 90% of its taxable income (excluding capital gains) on an annual basis to continue to qualify as a REIT for federal income tax purposes. Our Parent intends to make, but is not contractually bound to make, regular quarterly distributions to its common stockholders from cash flow from ourOperating 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 ourOperating Partnership's performance in addition to REIT requirements in determining distribution levels. Our Parent has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal and state income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our Parent's status as a REIT. As a result of this distribution requirement, ourOperating 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 ourOperating 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 theOperating Partnership's global revolving credit facility (which is guaranteed by our Parent), if necessary, to meet REIT distribution requirements and maintain our Parent's REIT status. Distributions out of our Parent's current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent's current and accumulated earnings and profits, to the extent of a stockholder'sU.S. federal income tax basis in our Parent's stock, are generally classified as a return of capital. Distributions in excess of a stockholder'sU.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. The expected tax treatment of distributions on our Parent's common stock and preferred stock paid in 2021 is as follows: approximately 9% ordinary income and 91% capital gain distribution. The tax treatment of distributions on our Parent's common stock and preferred stock paid in 2020 was as follows: approximately 72% ordinary income and 28% capital gain distribution. The tax treatment of distributions on our Parent's common stock paid in 2019 was as follows: approximately 83% ordinary income and 17% return of capital. For additional information regarding dividends declared and paid by our Parent on its common and preferred stock for the years endedDecember 31, 2021 , 2020 and 2019, see Item 8, Note 14 in the Notes to the Consolidated Financial Statements contained herein.
Analysis of Liquidity and Capital Resources - Operating Partnership
As ofDecember 31, 2021 , we had$142.7 million of cash and cash equivalents, excluding$8.8 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits. Our liquidity requirements primarily consist of: ? operating expenses,
? development costs and other capital expenditures associated with our
properties,
? distributions to our Parent to enable it to make dividend payments,
? distributions to unitholders of common limited partnership interests inDigital Realty Trust, L.P. , ? debt service, and, ? potentially, acquisitions. 66 Table of Contents
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OnNovember 18, 2021 , we refinanced our global revolving credit facility and Yen revolving credit facility. The global revolving credit facilities provide for borrowings of up to$3.3 billion (including approximately$0.3 billion available to be drawn on the Yen revolving credit facility). The global revolving credit facility provides for borrowings in a variety of currencies and can be increased by an additional$1.5 billion , subject to receipt of lender commitments and other conditions precedent. Both facilities mature onJanuary 24, 2026 , with two six-month extension options available. The 2021 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 facility 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 Item 8, Note 8 in the Notes to the Consolidated Financial Statements.
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. AtDecember 31, 2021 , we had open commitments, related to construction contracts of approximately$1.3 billion , including amounts reimbursable of approximately$37.8 million .
We currently expect to incur approximately
We are party to a definitive agreement under which we committed to acquire
approximately 55% of the total equity interest in
Development Projects
The costs we incur to develop our properties is a key component of our liquidity
requirements. The following table summarizes our cumulative investments in
current development projects as well as expected future investments in these
projects as of the periods presented, excluding costs incurred or to be incurred
by unconsolidated entities.
Development Lifecycle As of December 31, 2021 As of December 31, 2020
Net Rentable Current Future Net Rentable Current Future
Square Feet Investment Investment Square Feet Investment Investment
(dollars in
thousands) (1) (2) (3) Total Cost (1) (4) (3) Total Cost
Land held for future
development (5) N/A $ 133,683 $ - $ 133,683 N/A $ 226,862 $ - $ 226,862
Construction in
Progress and Space
Held for Development
Land - Current
Development (5) N/A $ 974,464 $ - $ 974,464 N/A $ 785,182 $ - $ 785,182
Space Held for
Development (6) 1,091,451 210,903 - 210,903 1,501,310 236,545 - 236,545
Base Building
Construction 3,319,999 545,529 460,595 1,006,124 2,331,472 458,357 485,613 943,970
Data Center
Construction 2,979,791 1,409,403 1,825,369 3,234,772 2,573,759 1,232,762 1,596,821 2,829,583
Equipment Pool &
Other Inventory N/A 7,881 - 7,881 N/A 9,761 - 9,761
Campus, Tenant
Improvements & Other N/A 65,209 99,118 164,327 N/A 45,718 42,848 88,566
Total Construction in
Progress and Land
Held for Future
Development 7,391,241 $ 3,347,072 $ 2,385,082 $ 5,732,154 6,406,541 $ 2,995,187 $ 2,125,282 $ 5,120,469 We estimate the total net rentable square feet available for lease based on a
number of factors in addition to contractually leased square feet, including (1) available power, required support space and common areas. Excludes square
footage of properties held in unconsolidated entities. Square footage is
based on current estimates and project plans, and may change upon completion
of the project due to remeasurement.
(2) Represents balances incurred through
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(3) Represents estimated cost to complete specific scope of work pursuant to
contract, budget or approved capital plan.
(4) Represents balances incurred through
(5) Represents approximately 849 acres as of
927 acres as of
(6) Excludes space held for development through unconsolidated entities.
Land inventory and space held for development reflect cumulative cost spent pending future development. Base building construction consists of ongoing improvements to building infrastructure in preparation for future data center fit-out. Data center construction includes 6.8 million square feet of Turn Key Flex® and Powered Base Building® product. Generally, we expect to deliver the space within 12 months; however, lease commencement dates may significantly impact final delivery schedules. Equipment pool and other inventory represent the value of long-lead equipment and materials required for timely deployment and delivery of data center construction fit-out. Campus, tenant improvements and other costs include the value of development work which benefits space recently converted to our operating portfolio and is composed primarily of shared infrastructure projects and first-generation tenant improvements.
Capital Expenditures (Cash Basis)
The table below summarizes our capital expenditure activity for the year ended
Year Ended December 31,
2021 2020
Development projects $ 2,176,203 $ 1,751,502
Enhancement and improvements 2,812 1,024Recurring capital expenditures 217,103
210,727
Total capital expenditures (excluding indirect costs)
For the year endedDecember 31, 2021 , total capital expenditures increased$432.9 million to approximately$2,396.1 million from$1,963.3 million for the same period in 2020. Capital expenditures on our development projects plus our enhancement and improvements projects for the year endedDecember 31, 2021 were approximately$2,179.0 million , which reflects an increase of approximately 24% from the same period in 2020. This increase was primarily due to development activity at properties acquired in the Interxion Combination. Our development capital expenditures are generally funded by our available cash and equity and debt capital. Indirect costs, including capitalized interest, capitalized in the years endedDecember 31, 2021 and 2020 were$124.7 million and$101.0 million , respectively. Capitalized interest comprised approximately$53.5 million and$47.3 million of the total indirect costs capitalized for the years endedDecember 31, 2021 and 2020, respectively. Capitalized interest in the year endedDecember 31, 2021 increased, compared to the same period in 2020, due to an increase in qualifying activities. Excluding capitalized interest, indirect costs in the year endedDecember 31, 2021 increased compared to the same period in 2020 due primarily to capitalized amounts relating to compensation expense of employees directly engaged in construction activities. 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 endingDecember 31, 2022 will depend upon numerous factors, including customer demand, leasing results, availability of debt or equity capital and acquisition opportunities. Further, the growing acceptance by private institutional investors of the data center asset class has generally pushed capitalization rates lower, as such private investors may often have lower return expectations than us. As a result, we anticipate near-term single asset acquisitions activity to comprise a smaller percentage of our growth while this market dynamic persists.
We may from time to time seek to retire or repurchase our outstanding debt or the equity of our Parent through cash purchases and/or exchanges for equity securities of our Parent in open market purchases, privately negotiated
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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 ofFebruary 22, 2022 , we had approximately$2.4 billion of borrowings available under our global revolving credit facilities. Our global revolving credit facility provides for borrowings up to$3.0 billion . We have the ability from time to time to increase the size of the global revolving credit facility by up to$1.5 billion , subject to the receipt of lender commitments and other conditions precedent. The global revolving credit facility matures onJanuary 24, 2026 , with two six-month extension options available. We have used and intend to use available borrowings under the global revolving credit facility to fund our liquidity requirements from time to time. For additional information regarding our global revolving credit facility, see Note 11. "Debt of theOperating Partnership " to our condensed consolidated financial statements contained herein. In connection with the issuance of the Swiss Franc Notes inJuly 2021 , we intend to allocate an amount equal to the net proceeds from the offering of the Swiss Franc Notes to finance or refinance, in whole or in part, recently completed or future green building, energy and resource efficiency and renewable energy projects, including the development and redevelopment of such projects (collectively, "Eligible Green Projects"). Pending the allocation of an amount equal to the net proceeds of the Swiss Franc Notes to Eligible Green Projects, all or a portion of an amount equal to the net proceeds from the Swiss Franc Notes were used to temporarily repay borrowings outstanding under theOperating Partnership's global credit facility and for other general corporate purposes. For additional information regarding our Swiss Franc Notes, see Note 11. "Debt of theOperating Partnership " to our condensed consolidated financial statements contained herein. 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 years endedDecember 31, 2021 , 2020 and 2019, see Item 8, Note. 14 in the Notes to the Consolidated Financial Statements. 69 Table of Contents Index to Financial Statements
Outstanding Consolidated Indebtedness
The below tables summarize our outstanding debt, and also our contractual debt
maturities and principal payments as of
Outstanding Debt
Debt Summary: Fixed rate$ 12,797.8 Variable rate debt subject to interest rate swaps -
Total fixed rate debt (including interest rate swaps) 12,797.8 Variable rate-unhedged
764.4
Total $ 13,562.2
Percent of Total Debt:
Fixed rate (including swapped debt) 94.4 %
Variable rate 5.6 %
Total 100.0 %
Effective Interest Rate as of December 31, 2021
Fixed rate (including hedged variable rate debt) 2.33 %
Variable rate 0.47 %
Effective interest rate 2.22 %
Contractual Debt Maturities and Principal Payments
Global Revolving Unsecured Secured and Total
Credit Facilities (1) Senior Notes Other Debt Debt
2022 $ - $ 682,200 $ 336 $ 682,536
2023 - - 3,081 3,081
2024 - 1,020,500 - 1,020,500
2025 - 1,730,330 - 1,730,330
2026 415,116 1,523,694 3,870 1,942,680
Thereafter - 8,043,318 139,794 8,183,112
Subtotal $ 415,116 $ 13,000,042 $ 147,082 $ 13,562,240
Unamortized discount - (33,612) - (33,612)
Unamortized premium (16,944) (63,060) (414) (80,418)
Total $ 398,172 $ 12,903,370 $ 146,668 $ 13,448,210 Subject to two six-month extension options exercisable by us. The bank group (1) is obligated to grant the extension options provided we give proper notice,
we make certain representations and warranties and no default exists under
the global revolving credit facilities, as applicable.
Our ratio of debt to total enterprise value was approximately 21% (based on the closing price ofDigital Realty Trust, Inc.'s common stock onDecember 31, 2021 of$176.87 . For this purpose, our total enterprise value is defined as the sum of the market value ofDigital Realty Trust, Inc.'s outstanding common stock (which may decrease, thereby increasing our debt to total enterprise value ratio), plus the liquidation value ofDigital Realty Trust, Inc.'s preferred stock, plus the aggregate value of ourOperating Partnership's units not held byDigital Realty Trust, Inc. (with the per unit value equal to the market value of one share ofDigital Realty Trust, Inc.'s common stock and excluding long-term incentive units, Class C units and Class D units), plus the book value of our total consolidated indebtedness. 70 Table of Contents Index to Financial Statements The variable rate debt shown above bears interest based on various one-month LIBOR, EURIBOR, SOR, BBR, HIBOR, JPY LIBOR and CDOR rates, depending on the respective agreement governing the debt, including our global revolving credit facilities and unsecured term loans. As ofDecember 31, 2021 our debt had a weighted average term to initial maturity of approximately 6.0 years (or approximately 6.1 years assuming exercise of extension options).
Off-Balance Sheet Arrangements
As of
Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Comparison of Year EndedDecember 31, 2021 to Year EndedDecember 31, 2020
The following table shows cash flows and ending cash, cash equivalents and restricted cash balances for the respective periods (in thousands).
Year Ended December 31,
2021 2020 2019
Net cash provided by operating activities$ 1,702,228 $ 1,706,541 $ 1,513,817 Net cash used in investing activities (1,061,721) (2,599,347) (274,992) Net cash (used in) provided by financing activities (590,630) 935,689
(1,272,021)
Net (decrease) increase in cash, cash equivalents and restricted cash$ 49,877 $ 42,883 $
(33,196)
The changes in the activities that comprise net cash used in investing
activities for the year ended
Change
2021 vs 2020
Increase in cash used for improvements to investments in real estate
$ (456,706)
Decrease in cash paid for acquisitions in cash paid for business combinations and assets acquisition, net of cash and restricted cash acquired
716,552
Increase in net cash provided by proceeds from sale of real estate
1,126,457
Increase in cash provided by proceeds from the unconsolidated entities transactions
146,988
Other changes
4,335
Decrease in net cash used in investing activities $
1,537,626
The 2021 decrease in net cash used in investing activities was primarily due to an increase in cash provided by proceeds from (i) contribution of properties to the SREIT, (ii) sale of investments related to the sale of 11 data centers inEurope inMarch 2021 partially offset by the sale of 10 Powered Base Building® properties, which comprise 12 data centers, inNorth America to Mapletree inJanuary 2020 , (iii) an increase in cash used for improvements to investments in real estate and a decrease in cash paid for acquisitions related to the acquisition of an additional 49% ownership interest in theWestin Building Exchange inFebruary 2020 , and (iv) partially offset by an increase in cash used for improvements to investments in real estate. Change 2021 vs 2020
Increase in cash used in/provided by short-term borrowings
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(Decrease) in cash provided by net proceeds from issuance of common and preferred stock, including equity plans, net
(1,707,861)
(Decrease) in cash provided by proceeds from secured / unsecured debt
(1,748,731)
Decrease in cash used for repayment on secured / unsecured debt
1,937,956
Decrease in cash used for redemption of preferred stock
298,750
Increase in cash used for dividend and distribution payments
(139,880)
Other changes
85,112
(Decrease) in net cash provided by financing activities $ (1,526,319)
The decrease in net cash provided by finance activities as compared to the same period in 2020 was primarily due to (i) a decrease of net proceeds from issuance of common stock, due to the full physical settlement of our forward equity agreements inSeptember 2020 , (ii) higher activity in the ATM equity offering program in 2020 compared to 2021, (iii) an increase in dividend and distribution payments for the year endedDecember 31, 2021 due to an increase in the number of shares outstanding subsequent to the Interxion Combination and (iv) offset by an increase in cash proceeds from short-term borrowings.
Noncontrolling Interests in
Noncontrolling interests relate to the common units in ourOperating Partnership that are not owned byDigital Realty Trust, Inc. , which, as ofDecember 31, 2021 , amounted to 2.0% of ourOperating Partnership common units. Historically, ourOperating Partnership 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 ourOperating Partnership to redeem part or all of their common units for cash based upon the fair market value of an equivalent number of shares ofDigital Realty Trust, Inc. common stock at the time of the redemption. Alternatively, we may elect to acquire those common units in exchange for shares ofDigital Realty Trust, Inc. common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events. As ofDecember 31, 2021 , approximately 0.2 million common units of theOperating Partnership that were issued to certain former unitholders ofDuPont Fabros Technology, L.P. in connection with the Company's acquisition ofDuPont Fabros Technology, Inc. were outstanding, which are subject to certain restrictions and, accordingly, are not presented as permanent capital in the 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.
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Critical Accounting Policies
A critical accounting policy is one that involves management's use of judgement
regarding expected outcomes of uncertain events in order to make estimates and
assumptions that are material to an entity's financial condition and results of
operations. Though we base our estimates and assumptions regarding these matters
on historical and current conditions as well as future expectations, these
estimates and assumptions are subjective in nature. Changes to the estimates and
assumptions we make regarding these matters could affect our financial position
and specific items in our results of operations used by stockholders, potential
investors, industry analysts and lenders in the evaluation of our performance.
Of the significant accounting policies described in Note 2 to the Consolidated
Financial Statements, the subsequent items have been identified by us as meeting
the criteria to be considered critical accounting policies. Refer to Note 2 for
more information on these critical accounting policies.
Fair Value Measurements. Fair value is intended to reflect the price that would
be received for the sale of an asset or paid for the transfer of a liability in
an orderly transaction between market participants at the measurement date (the
exit price). We use fair value measurements to enable us to determine the fair
value of a variety of items. Fair value measurements are most significant to our
financial statements in the following areas: 1) evaluation of recoverability of
real estate and intangible assets (which involves comparison of fair value of
the assets to net book value to quantify any potential impairments), 2)
accounting for assets held for sale (which involves recording assets qualifying
for held for sale treatment at the lower of book value or fair value less costs
to sell), and 3) determination of fair value of assets and liabilities acquired
in connection with business combinations or asset acquisitions as well as
certain equity interests in unconsolidated entities.
We estimate fair value using available market information and valuation methods
we believe to be appropriate for these purposes. Given the significant amount of
judgement and subjectivity involved in the determination of fair value,
estimated fair value is not necessarily indicative of amounts that would be
realized on disposition. Refer to Note 2. "Summary of Significant Accounting
Policies" the Consolidated Financial Statements for additional information.
Recoverability of Real Estate Assets. We assess the carrying value of our
properties whenever events or circumstances indicate carrying amounts of these
assets may not be fully recoverable ("triggering events"). Triggering events
typically relate to a change in the expected holding period of a property, an
adverse change in expected future cash flows of the property, or a trend of past
cash flow losses that is expected to continue in the future. If our assessment
of triggering events indicates the carrying value of a property or asset group
might not be recoverable, we estimate the future undiscounted net cash flows
expected to be generated by the assets and compare that amount to the book value
of the assets. If our future undiscounted net cash flow evaluation indicates we
are unable to recover the carrying value of a property or asset group, we record
an impairment loss to the extent the carrying value of the property or asset
group exceeds fair value. Refer to Note 2. "Summary of Significant Accounting
Policies" of the Consolidated Financial Statements for additional information.
Consolidation. We consolidate all entities that are wholly owned as well as all
partially-owned entities that we control. In addition, we consolidate any
variable interest entities ("VIEs") for which we are the primary beneficiary. We
evaluate whether or not an entity is a VIE (and we are the primary beneficiary)
through consideration of substantive terms in the arrangement to identify which
enterprise has the power to direct the activities of the entity that most
significantly impact the entity's economic performance and the obligation to
absorb losses/receive benefits from the entity.
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For entities that do not meet the definition of VIEs, we first consider if we
are the general partner or a limited partner (or the equivalent in investments
not structured as partnerships). We consolidate entities in which we are the
general partner and the limited partners do not have rights that would preclude
control. For entities in which we are the general partner, but the limited
partners hold substantive participating or kick-out rights that prohibit our
ability to control the entity, we apply the equity method of accounting since,
as the general partner, we have the ability to exercise significant influence
over the operating and financial policies of the entities. For entities in which
we are a limited partner, or that are not structured similar to a partnership,
we consider factors such as ownership interest, voting control, authority to
make decisions and contractual and substantive participating rights of the
partners. When factors indicate we have a controlling financial interest in an
entity, we consolidate the entity. Refer to Note 8. "Investments in
Unconsolidated Entities" of the Consolidated Financial Statements for additional
information.
Revenue Recognition. We generate the majority of our revenue by leasing our
properties to customers under operating lease agreements, which are accounted
for under Accounting Standards Codification 842, Leases ("ASC 842"). We
recognize the total minimum lease payments provided for under the leases on a
straight-line basis over the lease term if we determine it is probable that
substantially all of the lease payments will be collected over the lease term.
We estimate the probability of collection of lease payments based on customer
creditworthiness, outstanding accounts receivable balances, and historical bad
debts - as well as current economic trends. If collection of substantially all
lease payments over the lease term is not probable, rental revenue is recognized
when payment is received, and we record a full valuation allowance on the
balance of any rent receivable, less the balance of any security deposits or
letters of credit. If collection is subsequently determined to be probable, we:
1) resume recognizing rental revenue on a straight-line basis, 2) record
incremental revenue such that the cumulative amount recognized is equal to the
amount that would have been recorded on a straight-line basis since inception of
the lease, and 3) reverse the allowance for bad debt recorded on outstanding
receivables. Refer to Note 5. "Receivables" of the Consolidated Financial
Statements for additional information.
New Accounting Pronouncements
See Note 2. "Summary of Significant Accounting Policies" of the Consolidated Financial Statements.
Funds From Operations We calculate funds from operations, or FFO, in accordance with the standards established by theNational Association of Real Estate Investment Trusts (Nareit) in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, a gain from a pre-existing relationship, impairment charges and real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the Nareit definition and, accordingly, our FFO may not be comparable to other REITs' FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance. 74 Table of Contents Index to Financial Statements Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO) (in thousands, except per share and unit data) (unaudited) Year Ended December 31, 2021 2020 2019 Net Income Available to Common Stockholders$ 1,681,498 $ 263,342 $ 493,011 Adjustments: Non-controlling interests in operating partnership 39,100 9,500 21,100 Real estate related depreciation & amortization (1) 1,463,512
1,341,836 1,149,240 Unconsolidated JV real estate related depreciation & amortization
85,800 77,730 52,716
Gain on real estate transactions (1,445,230) (316,895) (267,651)
Impairment of investments in real estate 18,291 6,482 5,351
FFO available to common stockholders and unitholders (2) $ 1,842,971 $ 1,381,995 $ 1,453,767
Basic FFO per share and unit $ 6.37 $ 5.16 $ 6.69
Diluted FFO per share and unit (2) $ 6.36 $ 5.11 $ 6.66 Weighted average common stock and units outstanding Basic
289,165 268,073 217,285
Diluted (2) 289,912 270,497 218,440
(1) Real estate related depreciation and amortization
was computed as follows:
Depreciation and amortization per income statement
$ 1,366,379 $ 1,163,774 Non-real estate depreciation (23,120)
(24,543) (14,534)
$ 1,463,512 $ 1,341,836 $ 1,149,240 For all periods presented, we have excluded the effect of the series C,
series J, series K and series L preferred stock, as applicable, that may be (2) converted into common stock upon the occurrence of specified change in
control transactions as described in the articles supplementary governing the
series C, series J, series K and series L preferred stock, as applicable, as
they would be anti-dilutive.
Year Ended December 31,
2021 2020 2019
Weighted average common stock and units outstanding 289,165 268,073
217,285
Add: Effect of dilutive securities 747 2,424
1,155
Weighted average common stock and units outstanding-diluted 289,912 270,497
218,440
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