The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. 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." Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the sections in this report entitled "Risk Factors" and "Forward-Looking Statements."
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.
Overview
Our Company.Digital Realty Trust, Inc. completed its initial public offering of common stock, or our IPO, onNovember 3, 2004 . We believe that we have operated in a manner that has enabled us to qualify, and have elected to be treated, as a REIT under Sections 856 through 860 of the Code. Our Company was formed onMarch 9, 2004 . During the period from our formation until we commenced operations in connection with the completion of our IPO, we did not have any corporate activity other than the issuance of shares ofDigital Realty Trust, Inc. common stock in connection with the initial capitalization of the Company. OurOperating Partnership was formed onJuly 21, 2004 . Business and strategy. 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 operating partnership'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. We plan to focus on our core business of investing in and developing and operating data centers. 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. As ofDecember 31, 2020 , our portfolio included 291 data centers, including 43 data centers held as investments in unconsolidated joint ventures, with approximately 43.6 million rentable square feet including approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development. The 43 data centers held as investments in unconsolidated joint ventures have an aggregate of approximately 4.5 million rentable square feet. The 34 parcels of developable land we own as ofDecember 31, 2020 comprised approximately 927 acres. AtDecember 31, 2020 , excluding unconsolidated joint ventures, approximately 4.9 million square feet was under construction for Turn-Key Flex® and Powered Base Building® products, all of which are expected to be income producing on or after completion, in sevenU.S. metropolitan areas, nine European metropolitan areas, four Asian metropolitan areas, one Australian metropolitan area, one African metropolitan area and one Canadian metropolitan area, consisting of approximately 2.3 million square feet of base building construction and 2.6 million square feet of data center construction.
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
62 Table of Contents Index to Financial Statements
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 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. Revenue base. As ofDecember 31, 2020 , our portfolio included 291 data centers, including 43 data centers held as investments in unconsolidated joint ventures. Our global portfolio includes 141 data centers located inNorth America , with 107 located inEurope , 22 inLatin America , 12 inAsia , six inAustralia and three inAfrica . 63 Table of Contents Index to Financial Statements The following table presents an overview of our portfolio of data centers, including the 43 data centers held as investments in unconsolidated joint ventures, and developable land, based on information as ofDecember 31, 2020 . Space Under Data Center Net Rentable Active Space Held for Metropolitan Area Buildings Square Feet (1) Development (2) Development (3) North America Northern Virginia 24 5,721,264 699,908 78,538 Chicago 10 3,427,367 - 148,101 New York 13 2,050,605 233,807 99,955 Silicon Valley 20 2,251,021 65,594 - Dallas 21 3,530,749 143,051 28,094 Phoenix 3 795,687 - 227,274 San Francisco 4 824,972 23,321 - Atlanta 4 525,414 - 313,581 Los Angeles 4 798,571 19,908 - Seattle 1 400,369 - - Toronto, Canada 2 316,170 499,839 - Portland 2 264,973 336,463 - Boston 4 467,519 - 50,649 Houston 6 392,816 - 13,969 Miami 2 226,314 - - Austin 1 85,688 - - Minneapolis/St. Paul 1 328,765 - - Charlotte 3 95,499 - - North America Total 125 22,503,763 2,021,891 960,161 Europe London, England 19 1,715,719 - 161,136 Frankfurt, Germany 21 1,627,677 357,733 - Amsterdam, Netherlands 17 1,442,910 48,490 95,262 Paris, France 12 658,681 376,162 - Vienna, Austria 2 359,809 - - Dublin, Ireland 8 380,739 94,005 - Marseille, France 4 278,617 161,449 - Madrid, Spain 3 222,047 - - Zurich, Switzerland 3 229,388 315,197 - Brussels, Belgium 2 132,501 - - Stockholm, Sweden 6 164,421 89,276 - Copenhagen, Denmark 3 164,489 61,342 - Dusseldorf, Germany 2 105,523 - - Athens, Greece 2 55,167 - - Zagreb, Croatia 1 19,365 12,538 - Geneva, Switzerland 1 59,190 - - Manchester, England 1 38,016 - - Europe Total 107 7,654,259 1,516,192 256,398 Asia Pacific Singapore 3 540,638 344,826 - Sydney, Australia 4 226,697 222,838 - Melbourne, Australia 2 146,570 - - Tokyo, Japan 1 - 406,664 - Osaka, Japan 1 - 193,535 - Seoul, South Korea 1 - 162,260 - Hong Kong 1 - - 284,751 Asia Pacific Total 13 913,905 1,330,123 284,751 Africa Nairobi, Kenya 1 15,710 - - Mombasa, Kenya 2 9,590 37,025 - Africa Total 3 25,300 37,025 - Non-Data Center Properties - 263,668 - - Managed Unconsolidated Joint Ventures Northern Virginia 7 1,250,419 - - Hong Kong 1 186,300 - - Silicon Valley 4 326,305 - - Dallas 3 319,876 - - New York 1 108,336 - - 16 2,191,236 - - Non-Managed Unconsolidated Joint Ventures Sao Paulo, Brazil 15 897,625 254,264 201,589 Tokyo, Japan 2 892,667 - - Osaka, Japan 2 248,906 52,306 30,874 Fortaleza, Brazil 1 94,205 - - Rio De Janeiro, Brazil 2 72,442 26,781 - Seattle 1 51,000 - - Queretaro, Mexico 2 - 108,178 376,202 Santiago, Chile 2 67,340 45,209 180,835 27 2,324,185 486,738 789,500 Total 291 35,876,316 5,391,969 2,290,810 64 Table of Contents Index to Financial Statements
Current net rentable square feet as of
the current square feet under lease as specified in the applicable lease (1) agreements plus management's estimate of space available for lease based on
engineering drawings. Includes customers' proportional share of common areas
and excludes space under active development and space held for development.
(2) Space under active development includes current base building and data center
projects in progress.
(3) Space held for development includes space held for future data center
development, and excludes space under active development.
As ofDecember 31, 2020 , our portfolio, including the 43 data centers held as investments in unconsolidated joint ventures, were approximately 86.3% leased excluding approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development. Due to the capital-intensive and long-term nature of the operations being supported, our lease terms are generally longer than standard commercial leases. As ofDecember 31, 2020 , our average remaining lease term is approximately five years. Our scheduled lease expirations throughDecember 31, 2022 are 26.0% of rentable square feet excluding month-to-month leases, space under active development and space held for development as ofDecember 31, 2020 .
Factors Which May Influence Future Results of Operations
COVID-19. We are closely monitoring the impact of the COVID-19 pandemic on our global business and operations, including the impact on our customers, suppliers and business partners. As of the date of this report, all of our facilities have been and continue to be fully operational and operating in accordance with our business continuity and pandemic response plans. Across our portfolio, our facilities have been deemed essential operations, allowing us to remain staffed with critical personnel in place to continue to provide services and support for our customers. While we did not experience significant disruptions from the COVID-19 pandemic during the year endedDecember 31, 2020 nor as of the date of this report, we cannot predict the impact that the COVID-19 pandemic will have on our future financial condition, results of operations and cash flows due to numerous uncertainties. The full extent to which the COVID-19 pandemic and the various responses to it impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals' actions that have been and continue to be taken in response to the pandemic; the availability of and cost to access the capital markets; the effect on our customers and customer demand for and ability to pay for our services; the impact on our development projects; and disruptions or restrictions on our employees' ability to work and travel. The global impact of the outbreak has been rapidly evolving and federal and local governments, including in locations where we operate, have responded by instituting quarantines, restrictions on travel, "shelter in place" rules, restrictions on the types of business that may continue to operate, and restrictions on construction projects. We cannot predict whether further restrictions will be implemented or how long they will be in effect. The impacts from the severe disruptions caused by the effective shutdown of large segments of the global economy remain unknown. Our workforce, excluding our critical data center employees, is working from home, which may impact its productivity. We have also experienced delays in construction activity in a few of our markets due to government restrictions in certain locations and as a result of availability of labor, and these delays are impacting some of our anticipated deliveries to our customers. We may continue to experience delays in construction activity, even after these restrictions are eased or lifted, due to increased safety protocols implemented in response to the COVID-19 pandemic. We continue to closely monitor the situation and communicate with our customers, contractors and suppliers. From a supply chain perspective, as of the date of this report, we believe we have secured the vast majority of equipment needed to complete our current development activities. In addition, we cannot predict the impact that COVID-19 will have on our customers, suppliers and other business partners; however, any material effect on these parties could adversely impact us. As of the date of this report, we have collected 2020 andJanuary 2021 base rent and other payments at levels consistent with the comparable prior period. We received requests for rent relief related to COVID-19, most often in the form of rent deferral requests or requests for further discussion, from customers representing approximately 3% of annualized recurring rent. We are evaluating each customer rent relief request on an individual basis, considering a number of factors. Not all customer requests will ultimately result in modification agreements, nor are we forgoing our contractual rights under our agreements. These 65 Table of Contents Index to Financial Statements requests for rent relief have not yet indicated that the probability of collecting the remaining rent due from these customers was less than likely. Consequently, there were no instances where we deemed it necessary to cease the recognition of income from rentals on a straight-line basis and begin the recognition of income from rentals on a cash basis when lease payments are collected. While we did not have any material adjustments to amounts as of and during the year endedDecember 31, 2020 , circumstances related to the COVID-19 pandemic could potentially result in recording impairments, lease modifications and credit losses in future periods.January 2021 collections and rent relief requests may not necessarily be indicative of collections or requests in any future period.
COVID-19 Philanthropic Efforts. We have undertaken a comprehensive, philanthropic initiative consisting of corporate contributions, matching gifts and community outreach initiatives to help support organizations combating COVID-19 around the world.
In
? COVID-19 relief efforts in the communities we operate in globally, including
donations to global and local charitable organizations.
In
? of April we were waiving port fees for new ports on Service Exchange across our
global portfolio to anyone in the government, medical, emergency services, and
education verticals for six months.
Global market and economic conditions. General economic conditions and the cost and availability of capital may be adversely affected in some or all of the metropolitan areas in which we own properties and conduct our operations, including as a result of the COVID-19 pandemic. Changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate, such as recent escalations in political and trade tensions involving theU.S. ,China andHong Kong , could potentially result in adverse effects on our, and our customers', operations. InJune 2016 , a majority of voters in theUnited Kingdom elected to withdraw from theEuropean Union in a national referendum. TheUnited Kingdom formally withdrew from theEuropean Union onJanuary 31, 2020 and ratified a trade and cooperation agreement governing its future relationship with theEuropean Union . The agreement, which is being applied provisionally fromJanuary 1, 2021 until it is ratified by theEuropean Parliament and theCouncil of the European Union , addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between theUnited Kingdom and theEuropean Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. Instability in theU.S. , European,Asia Pacific and other international financial markets and economies may adversely affect our ability, and the ability of our customers, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and could potentially result in adverse effects on our, and our customers', financial condition and results of operations. In addition, our access to funds under our global revolving credit facilities depends on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We cannot assure you that recent and long-term disruptions in the global economy, including as a result of the COVID-19 pandemic, and the return of tighter credit conditions among, and potential failures or nationalizations of, third-party financial institutions as a result of such disruptions will not have an adverse effect on our lenders. If our lenders are not able to meet their funding commitments to us, our business, results of operations, cash flows and financial condition could be adversely affected. If we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds, access our existing lines of credit or raise debt or equity capital, we may need to source alternative methods to improve our liquidity. Such alternatives could include, without limitation, curtailing development activity, disposing of one or more of our properties, potentially on disadvantageous terms, or entering into or renewing lease agreements on less favorable terms than we otherwise would. 66 Table of Contents Index to Financial Statements Foreign currency exchange risk. For the years endedDecember 31, 2020 and 2019, we had foreign operations, including through our investments in unconsolidated joint ventures, in theUnited Kingdom ,Ireland ,France ,the Netherlands ,Germany ,Switzerland ,Canada ,Singapore ,Australia ,Japan ,Hong Kong ,South Korea andBrazil and we have addedAustria ,Belgium ,Denmark ,Spain ,Sweden andKenya as part of the Interxion Combination, which closed inMarch 2020 , and, as such, are subject to risk from the effects of exchange rate movements of foreign currencies, which may affect future costs and cash flows. Our foreign operations are conducted in the British pound sterling, Euro, Canadian dollar, Brazilian real,Singapore dollar, Australian dollar, Japanese Yen,Hong Kong dollar, South Korean won, Swiss franc, Danish krone, Swedish krona and the Kenyan shilling. Our primary currency exposures are to the British pound sterling, the Euro and theSingapore dollar. The withdrawal of theUnited Kingdom (or any other country) from theEuropean Union , or prolonged periods of uncertainty relating to any of these possibilities, could result in increased foreign currency exchange volatility. The COVID-19 pandemic has impacted global markets and contributed to increased foreign currency exchange volatility, including with respect to the Brazilian real, which is the currency in which our Ascenty joint venture conducts business, and we cannot predict when such volatility will subside. We attempt to mitigate a portion of the currency fluctuation risk by financing our investments in local currency denominations, although there can be no assurance this strategy will be effective. As a result, changes in the relation of any such foreign currency toU.S. dollars may affect our reported revenues, operating margins and distributions and may also affect the book value of our assets, the book value of our debt and the amount of stockholders' equity. Rental income. The amount of rental income generated by the data centers in our portfolio depends on several factors, including our ability to maintain or improve occupancy and to lease currently available capacity and capacity available from lease expirations. Excluding approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development as ofDecember 31, 2020 , the occupancy rate of our portfolio, including the 43 data centers held as investments in unconsolidated joint ventures, was approximately 86.3% of our net rentable square feet. As ofDecember 31, 2020 , we had more than 4,000 customers in our data center portfolio, including the 16 data centers held in our managed portfolio of unconsolidated joint ventures. As ofDecember 31, 2020 , approximately 90% of our leases (on a rentable square footage basis) contained base rent escalations that were either fixed (generally ranging from 2% to 4%) or indexed based on a consumer price index or other similar inflation-related index. We cannot assure you that these escalations will cover all the increases in our costs or will otherwise keep rental rates at or above market rates. The amount of rental income we generated also depends upon maintaining or increasing rental rates at our properties, which in turn depends on several factors, including supply and demand and data center market rental rates. As ofDecember 31, 2020 approximately 3.3 million square feet of data center space with extensive installed tenant improvements available for lease was included in our approximately 31.4 million net rentable square feet, excluding space under active development and space held for development and 43 data centers held as investments in unconsolidated joint ventures. In addition, as ofDecember 31, 2020 , we had approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development, or approximately 18% of the total rentable space in our portfolio, including the 43 data centers held as investments in unconsolidated joint ventures. Our ability to grow earnings depends in part on our ability to develop and lease capacity at favorable rates, which we may not be able to obtain. Development requires significant capital investment in order to develop data center facilities that are ready for use and, in addition, we may require additional time or encounter delays in securing customers for development projects. We may purchase additional vacant properties and properties with vacant development capacity in the future. We will require additional capital to finance our development activities, which may not be available or may not be available on terms acceptable to us, including as a result of the conditions described above under "Global market and economic conditions" and "COVID-19." In addition, the timing between the signing of a new lease with a customer and the commencement of that lease and when we begin to generate rental income may be significant and may not be easily predictable. Certain leases may provide for staggered commencement dates for additional capacity, the timing of which may be significantly delayed. 67 Table of Contents Index to Financial Statements
Economic downturns, including as a result of the conditions described above under "Global market and economic conditions" and "COVID-19," or regional downturns affecting our metropolitan areas or downturns in the data center industry that impair our ability to lease or renew or re-lease capacity, or otherwise reduce returns on our investments, or the ability of our customers to fulfill their lease obligations, as in the case of customer bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. Dispositions. Dispositions of our properties, to the extent such properties are operating properties, will reduce our revenue and operating income unless offset by acquisitions, leasing of development space or rental rate increases. InNovember 2019 , we completed our joint venture withMapletree Investments and Mapletree Industrial Trust, which we refer to collectively as Mapletree, on three existing fully leased Turn-Key Flex® data centers located inAshburn, Virginia . We retained a 20% ownership interest in the joint venture, while Mapletree acquired the remaining 80% stake for approximately$811 million . Subsequent to year-end, Mapletree acquired a portfolio of 10 Powered Base Building® properties, which were fully leased, from us for a total purchase price of approximately$557 million , before customary closing costs and transaction fees. Non-Recurring Income. Transactions that we enter into, including, for example, joint venture contributions of our properties, may generate income that is not duplicated in similar or other transactions. For example, certain income generated from our Ascenty joint venture withBrookfield in 2019 is not likely to recur. Additionally, other non-recurring income, such as tax credits, which we receive in one year is not likely to occur in future periods. Scheduled lease expirations. Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. In addition to approximately 4.7 million square feet of available space in our portfolio, which excludes approximately 5.4 million square feet of space under active development and approximately 2.3 million square feet of space held for development as ofDecember 31, 2020 and the 27 data centers held as investments in our non-managed unconsolidated joint ventures, leases representing approximately 15.3% and 10.7% of the net rentable square footage of our portfolio are scheduled to expire during the years endingDecember 31, 2021 and 2022, respectively. 68 Table of Contents Index to Financial Statements During the year endedDecember 31, 2020 , we signed new renewal leases totaling approximately 2.6 million square feet of space and new leases totaling approximately 3.4 million square feet of space. The following table summarizes our leasing activity in the year endedDecember 31, 2020 : TI's/Lease Weighted Commissions Average Lease Rentable Expiring New Rental Rate Per Square Terms Square Feet (1) Rates (2) Rates (2) Changes Foot (years)
Leasing Activity (3)(4) Renewals Signed 0 - 1 MW 1,438,498$ 288.90 $ 290.79 0.7 %$ 0.59 1.7 > 1 MW 848,270$ 138.69 $ 143.45 3.4 %$ 3.31 6.3 Other (6) 321,722$ 21.53 $ 23.01 6.8 %$ 2.71 2.9 New Leases Signed (5) 0 - 1 MW 434,220 -$ 223.54 -$ 20.64 4.1 > 1 MW 2,223,564 -$ 121.52 -$ 20.21 7.9 Other (6) 714,945 -$ 33.66 -$ 2.11 13.2 Leasing Activity Summary 0 - 1 MW 1,872,718$ 275.19 > 1 MW 3,071,834$ 127.57 Other (6) 1,036,667$ 30.35
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 annual estimated cash rent per rentable square foot (2) adjusted for straight-line rents in accordance with GAAP. GAAP rental rates
are inclusive of tenant concessions, if any.
(3) Excludes short-term leases.
(4) Commencement dates for the leases signed range from 2020 to 2021.
(5) Includes leases signed for new and re-leased space.
(6) Other includes
office space within fully improved data center facilities.
Our ability to re-lease or renew expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. 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 the rental rates we are likely to achieve on re-leased or renewed data center space leases for 2021 expirations on an average aggregate basis will generally be consistent with the rates currently being paid for the same space on a GAAP basis and on a cash basis. For the year endedDecember 31, 2020 , rents on renewed space increased by an average of 0.7% on a GAAP basis on our 0-1 MW space compared to the expiring rents and increased by an average of 3.4% on a GAAP basis on our > 1 MW space compared to the expiring rents. 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.
69 Table of Contents Index to Financial Statements 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. As ofDecember 31, 2020 , our portfolio, including the 43 data centers held as investments in unconsolidated joint ventures, was geographically concentrated in the following metropolitan areas. Percentage ofDecember 31, 2020 total annualizedMetropolitan Area rent (1)Northern Virginia 20.0 %Chicago 8.8 %London, England 7.7 %Silicon Valley 6.6 %New York 6.3 %Dallas 5.9 %Frankfurt, Germany 5.6 %Amsterdam, Netherlands 4.4 %Sao Paulo, Brazil 3.5 %Singapore 2.8 %Paris, France 2.2 %Phoenix 2.1 %San Francisco 1.9 %Tokyo, Japan 1.9 %Atlanta 1.5 % Other 18.8 % Total 100.0 %
Annualized rent is monthly contractual rent (defined as cash base rent before
abatements) under existing leases as of
joint ventures' 100% ownership level. The aggregate amount of abatements for
the year ended
Operating expenses. Our operating expenses generally consist of utilities, property and ad valorem taxes, property management fees, insurance and site maintenance costs, as well as rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations contained in them. Many of our leases contain provisions under which the 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 also incur general and administrative expenses, including expenses relating to our asset management function, as well as significant legal, accounting and other expenses related to corporate governance,Securities Exchange Commission , or theSEC , reporting and compliance with the various provisions of the Sarbanes-Oxley Act. Increases or decreases in such operating expenses will impact our overall performance. We expect to incur additional operating expenses as we continue to expand. Significant transactions. The prospect of future share dilution related to future transactions could negatively impact our share price and per share results of operations. The share issuances in future significant transactions may reduce our net income per share available to common stockholders, and could negatively impact the trading price of our common stock. Climate change legislation. InJune 2009 , theU.S. House of Representatives approved comprehensive clean energy and climate change legislation intended to cut greenhouse gas, or GHG, emissions, via a cap-and-trade program. TheU.S. Senate did not subsequently pass similar legislation. 70 Table of Contents Index to Financial Statements In the absence of comprehensive federal climate change legislation, regulatory agencies, including theU.S. Environmental Protection Agency , orEPA , and states have taken the lead in regulating GHG emissions in theU.S. Under the Obama administration, from 2009 through 2016, theEPA moved aggressively to regulate GHG emissions from automobiles and large stationary sources, including electricity producers, using its authority under the Clean Air Act. From 2017 through 2020, the Trump administration moved to eliminate or modify certain of theEPA 's GHG emissions regulations and refocus theEPA 's mission away from such regulation. However, the new Biden administration has described climate change regulation as a top priority. TheEPA made an endangerment finding in 2009 that allows it to create regulations imposing emissions reporting, permitting, control technology installation, and monitoring requirements applicable to certain emitters of GHGs, including facilities that provide electricity to our data centers, although the materiality of the impacts will not be fully known until all regulations are finalized and legal challenges are resolved. Under the Obama administration, theEPA finalized rules imposing permitting and control technology requirements upon certain newly-constructed or modified facilities which emit GHGs under theClean Air Act New Source Review Prevention of Significant Deterioration, or NSR PSD, and Title V permitting programs. As a result, newly-issued NSR PSD and Title V permits for new or modified electricity generating units (EGUs) and other facilities may need to address GHG emissions, including by requiring the installation of "Best Available Control Technology." TheEPA also implemented inDecember 2015 the "Clean Power Plan" regulating carbon dioxide (CO2) emissions from coal-fired and natural gas EGUs. However, inJune 2019 theEPA repealed the Clean Power Plan and issued the "Affordable Clean Energy Rule" to replace the Clean Power Plan. The Affordable Clean Energy Rule requires heat rate efficiency improvements at certain EGUs, but does not place numeric limits on EGU emissions. InJanuary 2021 , theU.S. Court of Appeals for the District of Columbia Circuit vacated both the Affordable Clean Energy Rule and the Clean Power Plan repeal rule. Separately, theEPA 's GHG "reporting rule" requires that certain emitters, including electricity generators, monitor and report GHG emissions. As a result of the former Trump administration policies, states have been driving near-term regulation to reduce GHG emissions inthe United States . At the state level,California implemented a GHG cap-and-trade program that began imposing compliance obligations on industrial sectors, including electricity generators and importers, inJanuary 2013 . InSeptember 2016 ,California adopted legislation calling for a further reduction in GHG emissions to 40% below 1990 levels by 2030, and inJuly 2017 ,California extended its cap-and-trade program through 2030. InSeptember 2018 ,California adopted legislation that will require all of the state's electricity to come from carbon-free sources by 2045. As another example of state action, a number of states have adopted Renewable Portfolio Standards to increase the use of renewable energy, and a number of eastern states participate in the Regional Greenhouse Gas Initiative (RGGI), a market-based program aimed at reducing GHG emissions from power plants. Outsidethe United States , theEuropean Union , or EU (as well as theUnited Kingdom ), have been operating since 2005 under a cap-and-trade program, which directly affects the largest emitters of GHGs, including electricity producers from whom we purchase power, and the EU has taken a number of other climate change-related initiatives, including a directive targeted at improving energy efficiency (which introduces energy efficiency auditing requirements). InDecember 2019 , EU leaders endorsed the objective of achieving by 2050 a climate-neutral EU, with net-zero GHG emissions, and inMarch 2020 theEuropean Commission proposed the European Climate Law to write this goal into the law. TheEuropean Commission adopted inSeptember 2020 a proposal to strengthen the EU's 2030 GHG reduction target from 40% below 1990 levels to at least 55% below 1990 levels, and separately introduced a proposal to institute a carbon import tax, which would cover electricity imports. National legislation may also be implemented independently by members of the EU. It is not yet clear how Brexit will impact theUnited Kingdom's approach to climate change regulation; theUnited Kingdom adopted a target of net-zero GHG emissions by 2050. The Paris Agreement, which was adopted bythe United States and 194 other countries and looks to prevent global average temperatures from increasing by more than 2 degrees Celsius above preindustrial levels officially, went into force inNovember 2016 .President Trump announced inJune 2017 that he would initiate the process to withdrawthe United States from the Paris Agreement; however, upon his inauguration inJanuary 2021 ,President Biden signed an order rejoining the Paris Agreement. 71 Table of Contents Index to Financial Statements The Canadian Greenhouse Gas Pollution Pricing Act established a carbon-pricing regime that went into effect inJanuary 2019 for provinces and territories inCanada where there is no provincial system in place already, or where the provincial system does not meet the federal benchmark. However, this act is being challenged in court. Climate change regulations are also in various stages of implementation in other nations as well, including nations where we operate, such asJapan ,Singapore , andAustralia . 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 theEPA 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. Interest rates. As ofDecember 31, 2020 , we had approximately$181.4 million of variable rate debt subject to interest rate swap agreements, along with$540.2 million ,$460.1 million and$366.5 million of variable rate debt that was outstanding on the global revolving credit facilities, the unswapped portion of the unsecured term loans and the Floating Rate Notes due 2022, respectively. The availability of debt and equity capital may contract or be on unfavorable terms as a result of the circumstances described above under "Global market and economic conditions," "COVID-19" or other factors. The effects on commercial real estate mortgages, if available, include, but may not be limited to: higher credit spreads, tightened loan covenants, reduced loan-to-value ratios resulting in lower borrower proceeds and higher principal payments. Potential future increases in interest rates and credit spreads may increase our interest expense and fixed charges and negatively affect our financial condition and results of operations, potentially impacting our future access to the debt and equity capital markets. Higher interest rates may also increase the risk that the counterparties to our swap agreements will default on their obligations, which could further increase our interest expense. If we cannot obtain capital from third-party sources, we may not be able to satisfy our debt service obligations, acquire or develop properties when strategic opportunities exist or pay the cash dividends toDigital Realty Trust, Inc.'s stockholders necessary to maintain its qualification as a REIT. Demand for data center space. Our portfolio consists primarily of data centers. A reduction in the demand for, or an increase in the supply of, data center solutions would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified customer base or less specialized use. We have invested in building out additional inventory primarily in what we anticipate will be our most active major metropolitan areas prior to having executed leases for this additional inventory. We believe that demand in key metropolitan areas is largely in line with supply and we continue to see strong demand in other key metropolitan areas across our portfolio. However, until this inventory is leased up, which will depend on a number of factors, including available data center solutions in these metropolitan areas, our return on invested capital will be negatively impacted. Our development activities make us susceptible to general economic slowdowns, including recessions and the other circumstances described above under "Global market and economic conditions" and "COVID-19," as well as adverse developments in the data center and broader technology industries. Any such slowdown or adverse development could lead to reduced corporate IT spending or reduced demand for data center solutions. Reduced demand could also result from business relocations, including to metropolitan areas we do not currently serve. Changes in industry practice or in technology, such as virtualization technology, more efficient computing or networking devices, or devices that require higher power densities than today's devices, could also reduce demand for the physical data center capacity we provide or render the improvements in our facilities obsolete or in need of significant upgrades to remain viable. In addition, the development of new technologies, the adoption of new industry standards or other factors could render many of our customers' current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy. In addition, data center demand and/or pricing could be adversely impacted either across our portfolio or in specific metropolitan areas as a result of an increase in the number of competitors, or the amount of competitive supply being offered in our metropolitan areas and other metropolitan areas by our competitors. 72 Table of Contents Index to Financial Statements
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Item 8, Note 2 "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements. We describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and consolidated results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believes are reasonable as of the date on the front cover of this report. Business combinations and real estate asset acquisitions. The price that we pay to acquire a business or a real estate asset is impacted by many factors including the condition of the property and improvements, the occupancy of the building, the term and rate of in-place leases, the customer attrition rate, the customer growth rates, the creditworthiness of the customers, favorable or unfavorable financing, above- or below-market ground leases and numerous other factors. Accordingly, we are required to make subjective assessments to allocate the purchase price paid to acquire businesses and real estate assets among the identifiable assets including intangibles and liabilities assumed based on our estimate of the fair value of such assets and liabilities. This includes determining the value of the property and improvements, land, ground leases, if any, and tenant improvements. Additionally, we evaluate the value of in-place leases on occupancy and market rent, the value of the customer relationships, the value (or negative value) of above (or below) market leases, any debt or deferred taxes assumed from the seller or loans made by the seller to us, any building leases assumed from the seller and, only in the case of business combinations, goodwill. Each of these estimates requires a great deal of judgment and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our results of operations. For example, if we were to allocate more value to land, there would be no depreciation with respect to such amount. If we were to allocate more value to the property as opposed to allocating to the value of in-place tenant leases, this amount would be recognized as an expense over a much longer period of time. This potential effect occurs because the amounts allocated to property are depreciated over the estimated lives of the property whereas amounts allocated to in-place tenant leases are amortized over the estimated term (including renewal and extension assumptions) of the leases. Additionally, the amortization of the value (or negative value) assigned to above (or below) market rate leases is recorded as an adjustment to rental revenue as compared to amortization of the value of in-place tenant leases and customer relationships, which is included in depreciation and amortization in our consolidated income statements. From time to time, we will receive offers from third parties to purchase our properties, either solicited or unsolicited. For those offers that we accept, the prospective buyers will usually require a due diligence period before consummation of the transactions. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. We classify real estate as "held for sale" when all criteria under the GAAP guidance have been met. Revenue Recognition. The majority of our revenue is derived from lease arrangements, which we account for pursuant to Topic 842 commencing onJanuary 1, 2019 . We accounted for the non-lease components within our lease arrangements (prior to the adoption of Topic 842), as well as other sources of revenue, in accordance with Topic 606. Upon the adoption of Topic 842, we elected the practical expedient that requires us to account for lease and non-lease components associated with that lease as a single lease component, which are recorded within rental revenue. We commence recognition of income from rentals related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession, or controls the physical use, of the leased asset. Our leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases, which may span multiple years. The excess of rents recognized over amounts contractually due pursuant to the 73 Table of Contents Index to Financial Statements underlying leases is included in deferred rent in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts and other receivables. As ofDecember 31, 2020 and 2019, the balance of deferred rent was$528.2 million and$478.7 million , respectively, and rent receivable, net of allowance, was$358.0 million and$186.8 million , respectively, and is classified within accounts and other receivables, net of allowance for doubtful accounts in the accompanying consolidated balance sheets. We make subjective estimates as to the probability of collection of substantially all lease payments over the term of a lease. We specifically analyze customer creditworthiness, accounts receivable and historical bad debts and current economic trends when evaluating the probability of collection. If collection of substantially all lease payments over the term of a lease is deemed not probable, rental revenue would be recognized when payment is received and revenue would not be recognized on a straight-line basis. We monitor the probability of collection over the life of the lease and in the event the collection of substantially all lease payments is no longer probable, we cease recognizing revenue on a straight-line basis and write-off the balance of all deferred rent related to the lease and commence recording rental revenue on a cash collected basis. In addition, we record a full valuation allowance on the balance of any accounts receivable, less the balance of any security deposits or letters of account. In the event that we subsequently determine the collection is probable, we resume recognizing rental revenue on a straight-line basis and record the incremental revenue such that the cumulative rental revenue is equal to the amount of revenue that would have been recorded on a straight-line basis since the inception of the lease. We also would reverse the allowance for bad debt recorded on the balance of accounts receivable. Asset impairment evaluation. We review each of our properties for indicators that its carrying amount may not be recoverable. Examples of such indicators may include a significant decrease in the market price of the property, a change in the expected holding period for the property, a significant adverse change in how the property is being used or expected to be used based on the underwriting at the time of acquisition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of the property, or a history of operating or cash flow losses of the property. When such impairment indicators exist, we review an estimate of the future undiscounted net cash flows (excluding interest charges) expected to result from the property's or asset group's use and eventual disposition and compare that estimate to the carrying value of the property or the asset group. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our future undiscounted net cash flow evaluation indicates that we are unable to recover the carrying value of a property or asset group, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property or fair value of the properties within the asset group. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows on properties considered to be long-lived assets to be held and used are considered on an undiscounted basis to determine whether the carrying value of a property or asset group is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of their carrying values not being recoverable and therefore requiring the recording of an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value. We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In certain cases, we may supplement this analysis by obtaining outside broker opinions of value.Goodwill impairment evaluation. We perform an annual impairment test for goodwill and between annual tests, we evaluate goodwill for impairment whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. 74 Table of Contents Index to Financial Statements
Recently Issued Accounting Pronouncements
Please refer to Item 8, Note 2(aa) in the Notes to the Consolidated Financial Statements for new accounting standards adopted in 2020.
Results of Operations
The discussion below relates to our results of operations for the years endedDecember 31, 2020 , 2019 and 2018. A summary of our operating results for the years endedDecember 31, 2020 , 2019 and 2018 is as follows (in thousands). Year Ended December 31, 2020 2019 2018 Income Statement Data: Total operating revenues$ 3,903,609 $ 3,209,241 $ 3,046,478 Total operating expenses (3,346,083) (2,615,026) (2,496,691) Operating income 557,526 594,215 549,787 Equity in (loss) earnings of unconsolidated joint ventures (57,629) 8,067 32,979
Gain on disposition of properties, net 316,894 267,651
80,049
Gain on deconsolidation, net - 67,497 - Interest and other income, net 20,222 66,000
3,481
Interest expense (333,021) (353,057)
(321,529)
Loss from early extinguishment of debt (103,215) (39,157)
(1,568) Income tax expense (38,047) (11,995) (2,084) Net income$ 362,730 $ 599,221 $ 341,115 Our property portfolio has experienced consistent and significant growth since the first property acquisition inJanuary 2002 . As a result of this growth, our period-to-period comparison of our financial performance focuses on the impact on our revenues and expenses on a stabilized portfolio basis. Our stabilized portfolio includes properties owned as ofDecember 31, 2018 with less than 5% of total rentable square feet under development and excludes properties that were undergoing, or were expected to undergo, development activities in 2019-2020 and properties sold or contributed to joint ventures. Our non-stabilized pool includes the results of the newly acquired operating properties and newly delivered properties that were previously under development.
Comparison of the Year Ended
Portfolio
As ofDecember 31, 2020 , our portfolio consisted of 291 data centers, including 43 data centers held as investments in unconsolidated joint ventures, with an aggregate of 43.6 million rentable square feet including 5.4 million square feet of space under active development and 2.3 million square feet of space held for development compared to a portfolio consisting of 225 data centers, including 12 held-for-sale data centers and 41 data centers held as investments in unconsolidated joint ventures, with an aggregate of approximately 36.6 million rentable square feet including 5.4 million square feet of space under active development and 2.3 million square feet of space held for development as ofDecember 31, 2019 and compared to a portfolio consisting of 214 data centers, including 18 data centers held as investments in unconsolidated joint ventures, with an aggregate of approximately 34.5 million rentable square feet including 3.4 million square feet of space under active development and 2.1 million square feet of space held for development as ofDecember 31, 2018 . 75 Table of Contents Index to Financial Statements
Revenues
Total operating revenues for the years ended
Year Ended December 31, Change Percentage Change 2020 2019 2018
2020 vs 2019 2019 vs 2018 2020 vs 2019 2019 vs 2018
Rental and other services
690,190$ 784,280 21.6 % 32.5 % Tenant reimbursements - - 624,637 - (624,637) - % (100.0) % Fee income and other 17,063 12,885 9,765 4,178 3,120 32.4 % 32.0 % Total operating revenues$ 3,903,609 $ 3,209,241 $ 3,046,478 $
694,368$ 162,763 21.6 % 5.3 % The following tables show revenues for the years endedDecember 31, 2020 , 2019 and 2018 for stabilized properties and non-stabilized properties and other (all other properties) (in thousands). Revenue totals for non-stabilized include results from properties that have not yet met the definition of stabilized and properties that are classified as held for sale or were sold during the period. Stabilized Non-Stabilized Year Ended December 31, Year Ended December 31, 2020 2019 Change %
Change 2020 2019 Change
Rental and other services
Stabilized revenue decreased$36.9 million for the year endedDecember 31, 2020 compared to the same period in 2019 due to delayed timing of re-leasing space that expired towards the end of 2019 as well as reduced utility consumption also related to these vacancies not yet re-leased. Non-stabilized revenues increased$727.1 million for the year endedDecember 31, 2020 compared to the same period in 2019 primarily as a result of revenues associated with the Interxion Combination of$691.4 million for the year endedDecember 31, 2020 along with development properties placed into service during the year endedDecember 31, 2020 , partially offset by properties sold to Mapletree inJanuary 2020 , properties contributed to the Mapletree joint venture inNovember 2019 and the Ascenty Acquisition prior to deconsolidation inMarch 2019 . Stabilized Non-Stabilized Year Ended December 31, Year Ended December 31, 2019 2018 $ Change % Change 2019 2018 Change
Rental and other services$ 2,396,319 $ 1,915,882 $ 480,437 25.1 %$ 800,037 $ 496,194 $ 303,843 Tenant reimbursements - 514,050 (514,050) (100.0) % - 110,588 (110,588) Total$ 2,396,319 $ 2,429,932 $ (33,613)
(1.4) %
OnJanuary 1, 2019 , we adopted Topic 842 and the practical expedient that resulted in combining the expenses reimbursed by our customers ("tenant reimbursements") with contractual rental revenue if certain criteria were met. We assessed these criteria and concluded that the timing and pattern of transfer for rental revenue and the associated tenant reimbursements are the same and as our leases qualify as operating leases, we accounted for and presented rental and other services and tenant reimbursements as a single component under rental and other services in our consolidated income statements for the years endedDecember 31, 2020 and 2019. As a result, the prior periods are not directly comparable other than on an aggregate basis. Stabilized revenue decreased$33.6 million for the year endedDecember 31, 2019 compared to the same period in 2018 due to unfavorable currency translation along with expiring leases at certain properties in the stabilized portfolio and higher bad debt expense. 76 Table of Contents Index to Financial Statements Non-stabilized revenues increased$193.3 million for the year endedDecember 31, 2019 compared to the same period in 2018 primarily as a result of new leasing activity and reimbursement from development properties and the Ascenty Acquisition (only for the three months endedMarch 31, 2019 , prior to deconsolidation).
Operating Expenses and Interest Expense
Operating expenses and interest expense during the years ended
Year Ended December 31, Change Percentage Change 2020 2019 2018
2020 vs 2019 2019 vs 2018 2020 vs 2019 2019 vs 2018 Rental property operating and maintenance
$ 1,331,493 $ 1,020,578 $ 957,065 $ 310,915 $ 63,513 30.5 % 6.6 % Property taxes and insurance 182,623 172,183 140,918 10,440 31,265 6.1 % 22.2 % Depreciation and amortization 1,366,379 1,163,774 1,186,896 202,605 (23,122) 17.4 % (1.9) % General and administrative 351,369 211,097 163,667 140,272 47,430 66.4 % 29.0 % Transaction and integration expenses 106,662 27,925 45,327 78,737 (17,402) 282.0 % (38.4) % Impairment of investments in real estate 6,482 5,351 - 1,131 5,351 21.1 - % Other 1,075 14,118 2,818 (13,043) 11,300 (92.4) % 401.0 % Total operating expenses$ 3,346,083 $ 2,615,026 $ 2,496,691
$ 731,057 $ 118,335 28.0 % 4.7 % Interest expense$ 333,021 $ 353,057 $ 321,529 $ (20,036) $ 31,528 (5.7) % 9.8 % The following tables show expenses for the years endedDecember 31, 2020 , 2019 and 2018 for stabilized properties and non-stabilized properties (all other properties) (in thousands). Expense totals for non-stabilized include results from properties that have not yet met the definition of stabilized and properties that are classified as held for sale or were sold during the period. Stabilized Non-Stabilized Year Ended December 31, Year Ended December 31, 2020 2019 Change % Change 2020 2019 Change Rental property operating and maintenance$ 772,725 $ 778,006 $ (5,281) (0.7) %$ 558,769 $ 242,571 $ 316,198 Property taxes and insurance 131,204 125,994 5,210 4.1 % 51,418 46,190 5,228$ 903,929 $ 904,000 $ (71) (0.0) %$ 610,187 $ 288,761 $ 321,426 Stabilized rental property operating and maintenance expenses decreased approximately$5.3 million for the year endedDecember 31, 2020 compared to the same period in 2019, primarily related to lower utility consumption at certain properties in the stabilized portfolio.
Stabilized property taxes and insurance increased by approximately
Non-stabilized rental property operating and maintenance expenses increased by approximately$316.2 million for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to the Interxion Combination, which contributed$275.7 million for the year endedDecember 31, 2020 along with higher expenses as a result of leasing activity during the twelve months endedDecember 31, 2020 partially offset by properties sold to Mapletree inJanuary 2020 , properties contributed to the Mapletree joint venture inNovember 2019 and the Ascenty Acquisition prior to deconsolidation inMarch 2019 . Non-stabilized property taxes increased approximately$5.2 million for the year endedDecember 31, 2020 compared to the same period in 2019 due to the Interxion Combination, which contributed$3.5 million for the year endedDecember 31 2020 along with increased assessed values at our non-stabilizedNorthern Virginia andChicago 77 Table of Contents Index to Financial Statements
properties offset by properties sold to Mapletree in
Stabilized Non-Stabilized Year Ended December 31, Year Ended December 31, 2019 2018 $ Change % Change 2019 2018 Change Rental property operating and maintenance$ 756,326 $ 753,340 $ 2,986 0.4 %$ 264,252 $ 203,726 $ 60,526 Property taxes and insurance 118,292 103,908 14,384 13.8 % 53,891 37,010 16,881$ 874,618 $ 857,248 $ 17,370 2.0 %$ 318,143 $ 240,736 $ 77,407 Stabilized rental property operating and maintenance expenses increased approximately$3.0 million for the year endedDecember 31, 2019 compared to the same period in 2018, primarily related to higher rent expense and internal labor costs across the portfolio. Stabilized property taxes increased by approximately$14.4 million , or 13.8%, for the year endedDecember 31, 2019 compared to the same period in 2018. The increase was primarily due to a tax refund in 2018 at one of our properties in the stabilized portfolio along with higher 2019 assessments at certain properties in the stabilized portfolio. Non-stabilized rental property operating and maintenance expenses increased by approximately$60.5 million for the year endedDecember 31, 2019 compared to the same period in 2018, primarily due to higher expenses as a result of leasing activity during the twelve months endedDecember 31, 2019 and the Ascenty Acquisition that increased expenses during the first quarter of 2019.
Non-stabilized property taxes and insurance expense increased approximately
Depreciation and Amortization
Depreciation and amortization expense increased by approximately$202.6 million for the year endedDecember 31, 2020 compared to the same period in 2019. The increase was principally due to the Interxion Combination offset by properties sold to Mapletree inJanuary 2020 , properties contributed to the Mapletree joint venture inNovember 2019 , certain intangibles related to the DFT Merger being fully amortized prior to the year endedDecember 31, 2020 along with 2019 activity from the Ascenty Acquisition prior to deconsolidation inMarch 2019 . Depreciation and amortization expense decreased by approximately$23.1 million for the year endedDecember 31, 2019 compared to the same period in 2018. The decrease for the year was principally due to certain intangibles related to the DFT Merger being fully amortized during the year endedDecember 31, 2019 . General and Administrative
General and administrative expenses increased by approximately
General and administrative expenses increased by approximately$47.4 million for the year endedDecember 31, 2019 compared to the same period in 2018, primarily due to the adoption of ASC 842 which resulted in an increase in the amount of fixed compensation expenses associated with successful leasing activities which were previously capitalized under ASC 840. 78 Table of Contents Index to Financial Statements
Transactions and Integration Expense
Transactions and integration expense increased by approximately
Transactions and integration expense decreased by approximately
Impairment of Investments in Real Estate
During the year endedDecember 31, 2020 , it became more-likely-than-not that several assets would be disposed of in advance of their useful lives. We performed impairment procedures over said assets and as a result, recognized a$6.5 million of impairment charge on a property located inEurope . An impairment of approximately$5.4 million was also recognized during the year endedDecember 31, 2019 on a property located inthe United States . The fair value of the properties were primarily based on comparable sales price data.
Interest Expense
Interest expense decreased by approximately$20.0 million for the year endedDecember 31, 2020 compared to the same period in 2019. The decrease was primarily due to lower average balances on our global revolving credit facilities and term loans in 2020, the redemption of the 4.750% 2023 Notes inOctober 2020 and the 3.950% 2022 Notes and 3.625% 2022 Notes inAugust 2020 along with the paydown of the Ascenty loan inMarch 2019 . This was offset by the issuances of the 2.500% 2026 Notes inFebruary 2019 , the 3.600% 2029 Notes inJune 2019 , 1.125% 2028 Notes inOctober 2019 , the 0.125% 2022 Notes, 0.625% 2025 Notes and 1.500% 2030 Notes inJanuary 2020 , the 1.250% 2031 Notes inJune 2020 and the 2032 Notes inSeptember 2020 . Interest expense increased by approximately$31.5 million for the year endedDecember 31, 2019 compared to the same period in 2018, primarily due to the issuances of the 4.450% 2028 Notes inJune 2018 , the 3.750% 2030 Notes in October of 2018, the 2.500% 2026 Notes inFebruary 2019 , the 3.600% 2029 Notes inJune 2019 and the 1.125% 2028 Notes inOctober 2019 and the Ascenty loan offset by the early tender offer and subsequent redemption of the 5.875% 2020 Notes in January andFebruary 2019 and the 3.400% Notes due 2020 and 2021 Notes inJune 2019 andJuly 2019 .
Interest and Other Income, Net
Interest and other income, net decreased approximately
Gain on Disposition of Properties
During the year endedDecember 31, 2020 , we sold (i) Liverpoolweg 10 inAmsterdam for gross proceeds of approximately$21.5 million , resulting in a gain of approximately$10.4 million inJuly 2020 and (ii) 10 Powered Base Building® properties, which comprise 12 data centers, inNorth America to Mapletree at a purchase consideration of approximately$557.0 million , resulting in a gain of approximately$306.5 million inJanuary 2020 . OnNovember 1, 2019 , we formed a joint venture with Mapletree and we contributed three Turn-Key Flex® data centers, valued at approximately$1.0 billion , to the new joint venture in which we retained a 20% interest. The transaction generated approximately$0.8 billion of net proceeds to us, comprised of Mapletree's equity contribution, less our share of closing costs and accordingly we recognized a gain of approximately$266 million on the sale of the 80% interest in the joint venture. 79 Table of Contents Index to Financial Statements During the year endedDecember 31, 2018 , we recognized a gain on sale of properties of$80.4 million primarily related to the disposition of (i)200 Quannapowitt Parkway , which sold for$15.0 million inJanuary 2018 , (ii)34551 Ardenwood Boulevard , which sold for$73.3 million inFebruary 2018 , (iii)3065 Gold Camp Drive , which sold for$14.2 million inMarch 2018 , (iv)11085 Sun Center Drive , which sold for$36.8 million inMarch 2018 , (v) theAustin Portfolio, which sold for$47.6 million inApril 2018 , (vi)2010 East Centennial Circle , which sold for$5.5 million inMay 2018 , (vii)1125 Energy Park Drive , which sold for$7.0 million inMay 2018 and (viii)360 Spear Street , which sold for$92.3 million inSeptember 2018 .
Gain on Deconsolidation
During the year ended
Loss from Early Extinguishment of Debt
Loss from early extinguishment of debt increased approximately$64.1 million for the year endedDecember 31, 2020 compared to the same period in 2019, primarily due to the redemption of the 4.750% 2023 Notes inOctober 2020 and the 3.950% 2022 Notes and 3.625% 2022 Notes inAugust 2020 offset by the costs associated with the early tender offer and subsequent redemption of the 5.875% 2020 Notes in January andFebruary 2019 along with the 3.400% Notes due 2020 and 2021 Notes inJune 2019 .
Liquidity and Capital Resources of the Parent Company
In this "Liquidity and Capital Resources of the Parent Company" section and in the "Liquidity and Capital Resources of theOperating Partnership " section below, the term, our "Parent Company" refers toDigital Realty Trust, Inc. on an unconsolidated basis, excluding ourOperating Partnership .
Analysis of Liquidity and Capital Resources
Our Parent Company's business is operated primarily through ourOperating Partnership , of which our Parent Company is the sole general partner and which it consolidates for financial reporting purposes. Because our Parent Company operates on a consolidated basis with ourOperating Partnership , the section entitled "Liquidity and Capital Resources of theOperating Partnership " should be read in conjunction with this section to understand the liquidity and capital resources of our Parent Company on a consolidated basis and how our Company
is operated as a whole. Our Parent Company issues public equity from time to time, but generally does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by theOperating Partnership . Our Parent Company itself does not hold any indebtedness other than guarantees of the indebtedness of ourOperating Partnership and certain of its subsidiaries, and its only material asset is its ownership of partnership interests of ourOperating Partnership . Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of our Parent Company and ourOperating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by our Parent Company. All debt is held directly or indirectly at theOperating Partnership level. Our Parent Company's principal funding requirement is the payment of dividends on its common and preferred stock. Our Parent Company's principal source of funding for its dividend payments is distributions it receives from ourOperating Partnership . As the sole general partner of ourOperating Partnership , our Parent Company has the full, exclusive and complete responsibility for ourOperating Partnership's day-to-day management and control. Our Parent Company causes ourOperating Partnership to distribute such portion of its available cash as our Parent Company may in its discretion determine, in the manner provided in ourOperating Partnership's partnership agreement. Our Parent Company receives proceeds from its equity issuances from time to time, but is generally required by ourOperating Partnership's 80 Table of Contents Index to Financial Statements
partnership agreement to contribute the proceeds from its equity issuances to ourOperating Partnership in exchange for partnership units of ourOperating Partnership .
Our Parent Company is a well-known seasoned issuer with an effective shelf registration statement filed onMarch 17, 2020 , which allows our Parent Company to register an unspecified amount of various classes of equity securities. As circumstances warrant, our Parent Company 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. The liquidity of our Parent Company is dependent on ourOperating Partnership's ability to make sufficient distributions to our Parent Company. The primary cash requirement of our Parent Company is its payment of dividends to its stockholders. Our Parent Company also guarantees ourOperating Partnership's , as well as certain of its subsidiaries' and affiliates', unsecured debt. If ourOperating Partnership or such subsidiaries fail to fulfill their debt requirements, which trigger Parent Company guarantee obligations, then our Parent Company will be required to fulfill its cash payment commitments under such guarantees. However, our Parent Company's only material asset is its investment in ourOperating Partnership . 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 Company and, in turn, for our Parent Company 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 Company. The lack of availability of capital could adversely affect ourOperating Partnership's ability to pay its distributions to our Parent Company, which would in turn, adversely affect our Parent Company's ability to pay cash dividends to its stockholders. OnMay 11, 2020 ,Digital Realty Trust, Inc. andDigital Realty Trust, L.P. entered into an amendment, which we refer to as the 2020 Amendment, to our ATM equity offering sales agreement datedJanuary 4, 2019 , which, as amended, we refer to as the Sales Agreement, withBofA Securities, Inc. ,Barclays Capital Inc. ,BTIG, LLC ,Credit Suisse Securities (USA) LLC ,Deutsche Bank Securities Inc. ,Jefferies LLC ,J.P. Morgan Securities LLC ,Mizuho Securities USA LLC ,Morgan Stanley & Co. LLC ,MUFG Securities Americas Inc. ,Raymond James & Associates, Inc. ,RBC Capital Markets, LLC ,Scotia Capital (USA) Inc. ,SMBC Nikko Securities America, Inc. ,SunTrust Robinson Humphrey, Inc. ,TD Securities (USA) LLC , andWells Fargo Securities, LLC , or the Agents, to increase the number of shares of common stockDigital Realty Trust, Inc. could issue and sell from time to time through, at its discretion, any of the Agents as its sales agents or as principals. Sales may also be made on a forward basis pursuant to separate forward sale agreements. 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, 2020 ,Digital Realty Trust, Inc. generated net proceeds of approximately$893.8 million from the issuance of approximately 6.1 million common shares under the Sales Agreement at an average price of$146.90 per share after payment of approximately$9.0 million of commissions to the Agents, and approximately$749.4 million remains available for future sales under the program. The proceeds from the issuances for the year endedDecember 31, 2020 were contributed to ourOperating Partnership in exchange for the issuance of approximately 6.1 million common units to our Parent Company. Our Parent Company 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 regarding the Sales Agreement, see Item 8, Note 13 in the Notes to the Consolidated Financial Statements. 81 Table of Contents Index to Financial Statements Additionally, onSeptember 27, 2018 ,Digital Realty Trust, Inc. completed an underwritten public offering of 9,775,000 shares of its common stock (including 1,275,000 shares from the exercise in full of the underwriters' option to purchase additional shares), 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 9,775,000 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 its common stock by the forward purchasers in the public offering. OnSeptember 17, 2019 , the Company amended the forward sale agreements to extend the maturity date of such forward sales agreements fromSeptember 27, 2019 toSeptember 25, 2020 . OnSeptember 24, 2020 , we physically settled the forward sale agreements in full by issuing an aggregate of 9,775,000 shares of our common stock to the forward purchasers in exchange for net proceeds of approximately$1.0 billion . OnSeptember 8, 2020 , our Parent Company redeemed all 10,000,000 outstanding shares of its 6.350% series I cumulative redeemable preferred stock, or the series I preferred stock, for a redemption price of$25.29545 per share. The redemption price was equal to the original issuance price of$25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date. The excess of the redemption price over the carrying value of the series I preferred stock of approximately$8.0 million relates to the original issuance costs and was recorded as a reduction to net income available to common stockholders OnOctober 15, 2020 , our Parent Company redeemed all 10,000,000 outstanding shares of its 5.875% series G cumulative redeemable preferred stock, or the series G preferred stock, for a redemption price of$25.057118 per share. The redemption price is equal to the original issuance price of$25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date. The excess of the redemption price over the carrying value of the series G preferred stock of approximately$8.5 million relates to the original issuance costs and will be reflected as a reduction to net income available to common stockholders. Future Uses of Cash 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.
We are also subject to the commitments discussed below under "Dividends and Distributions."
Dividends and Distributions
Our Parent Company is required to distribute 90% of its taxable income (excluding capital gains) on an annual basis in order for it to continue to qualify as a REIT for federal income tax purposes. Accordingly, our Parent Company 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 Company 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 Company's Board of Directors. Our Parent Company considers market factors and ourOperating Partnership's performance in addition to REIT requirements in determining distribution levels. Our Parent Company has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal 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 Company's status as a REIT. As a result of this distribution requirement, ourOperating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not REITs can. Our Parent Company 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
82 Table of Contents Index to Financial Statements
existing or newly created joint ventures. In addition, our Parent Company may be required to use borrowings under our global revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our Parent Company's REIT status.
For additional information regarding dividends declared and paid by our Parent Company on its common and preferred stock for the years endedDecember 31, 2020 , 2019 and 2018, see Item 8, Note 13 in the Notes to the Consolidated Financial Statements. Distributions out of our Parent Company's current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent Company's current and accumulated earnings and profits, to the extent of a stockholder'sU.S. federal income tax basis in our Parent Company'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 Company'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 Company's common stock and preferred stock paid in 2020 is as follows: approximately 72% ordinary income and 28% capital gain distribution. The tax treatment of distributions on our Parent Company's common stock and preferred stock paid in 2019 is as follows: approximately 83% ordinary income and 17% capital gain distribution. The tax treatment of distributions on our Parent Company's common stock paid in 2018 was as follows: approximately 80% ordinary income and 20% return of capital. Distributions on our Parent Company's preferred stock paid in 2018 were treated as 100% ordinary income.
Liquidity and Capital Resources of the
In this "Liquidity and Capital Resources of theOperating Partnership " section, the terms "we", "our" and "us" refer to ourOperating Partnership together with its consolidated subsidiaries or ourOperating Partnership and our Parent Company together with their consolidated subsidiaries, as the context requires.
Analysis of Liquidity and Capital Resources
Our Parent Company is our sole general partner and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with our Parent Company, the section entitled "Liquidity and Capital Resources of the Parent Company" should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis. As ofDecember 31, 2020 , we had$108.5 million of cash and cash equivalents, excluding$15.2 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits. Our global revolving credit facility provides for borrowings up to$2.35 billion . We have the ability from time to time to increase the size of the global revolving credit facility and our term loan facility, in any combination, by up to$1.25 billion , subject to the receipt of lender commitments and other conditions precedent. The global revolving credit facility matures onJanuary 24, 2023 , with two six-month extension options available. The global revolving credit facility provides for borrowings inU.S. , Canadian,Singapore , Australian andHong Kong dollars, as well as Euro, British pound sterling and Japanese yen 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 and term loan facility, see Item 8, Note 9 in the Notes to the Consolidated Financial Statements. Our short-term liquidity requirements primarily consist of operating expenses, development costs and other expenditures associated with our properties, distributions to our Parent Company in order for it to make dividend payments on its preferred stock, distributions to our Parent Company in order for it to make dividend payments to its 83 Table of Contents Index to Financial Statements stockholders required to maintain its REIT status, distributions to the unitholders of common limited partnership interests inDigital Realty Trust, L.P. , capital expenditures, debt service on our loans and senior notes, and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, restricted cash accounts established for certain future payments and by drawing upon our global revolving credit facilities.
For a discussion of the potential impact of current global economic and market conditions on our liquidity and capital resources, see "Factors Which May Influence Future Results of Operations-Global market and economic conditions" and "-COVID-19" above.
OnMay 11, 2020 ,Digital Realty Trust, Inc. andDigital Realty Trust, L.P. entered into the 2020 Amendment to increase the number of shares of common stockDigital Realty Trust, Inc. could issue and sell from time to time through, at its discretion, any of the Agents as its sales agents or as principals. Sales may also be made on a forward basis pursuant to separate forward sale agreements. 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, 2020 , our Parent Company generated net proceeds of approximately$893.8 million from the issuance of approximately 6.1 million common shares under the Sales Agreement at an average price of$146.90 per share after payment of approximately$9.0 million of commissions to the Agents, and approximately$749.4 million remains available for future sales under the program. The proceeds from the issuances for the year endedDecember 31, 2020 were contributed to ourOperating Partnership in exchange for the issuance of approximately 6.1 million common units to our Parent Company. Our Parent Company 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 regarding the Sales Agreement, see Item 8, Note 13 in the Notes to the Consolidated Financial Statements. OnJanuary 17, 2020 ,Digital Dutch Finco B.V ., an indirect wholly owned finance subsidiary of theOperating Partnership , issued and sold €300.0 million aggregate principal amount of 0.125% Guaranteed Notes due 2022 (the "0.125% 2022 Notes"), €650.0 million aggregate principal amount of 0.625% Guaranteed Notes due 2025 (the "0.625% 2025 Notes") and €750.0 million aggregate principal amount of 1.500% Guaranteed Notes due 2030 (the "1.500% 2030 Notes" and, together with the 0.125% 2022 Notes and 0.625% 2025 Notes, the "Euro Notes"). The Euro Notes are senior unsecured obligations ofDigital Dutch Finco B.V . and are fully and unconditionally guaranteed byDigital Realty Trust, Inc. and theOperating Partnership . Net proceeds from the offering were approximately €1,678.6 million (or approximately$1,861.9 million based on the exchange rate as ofJanuary 17, 2020 ) after deducting managers' discounts and estimated offering expenses. We intend to allocate an amount equal to the net proceeds from the offering of the 0.625% 2025 Notes and the 1.500% 2030 Notes to finance or refinance, in whole or in part, recently completed or future green building, energy and resource efficiency and renewable energy projects (collectively, "Eligible Green Projects"), including the development and redevelopment of such projects. Pending the allocation of an amount equal to the net proceeds of the 0.625% 2025 Notes and the 1.500% 2030 Notes to Eligible Green Projects, a portion of an amount equal to the net proceeds from the Euro Notes were used for the repayment, redemption and/or discharge of debt of Interxion or its subsidiaries and the payment of certain transaction fees and expenses incurred in connection with the Interxion Combination, to temporarily repay borrowings outstanding under theOperating Partnership's global credit facility and for other general corporate purposes. OnJune 26, 2020 ,Digital Dutch Finco B.V . issued and sold €500.0 million aggregate principal amount of 1.250% Guaranteed Notes due 2031 (the "2031 Notes"). The 2031 Notes are senior unsecured obligations ofDigital Dutch Finco B.V . and are fully and unconditionally guaranteed byDigital Realty Trust, Inc. and theOperating Partnership . Net proceeds from the offering were approximately €493.1 million (or approximately$553.2 million based on the exchange rate as ofJune 26, 2020 ) after deducting managers' discounts and estimated offering expenses. We used the net proceeds 84 Table of Contents Index to Financial Statements from the offering of the 2031 Notes to temporarily repay borrowings outstanding under theOperating Partnership's global credit facilities, for acquisitions and to provide for working capital and other general corporate purposes. OnAugust 3, 2020 (the "2022 Notes Redemption Date"), theOperating Partnership redeemed the$300 million aggregate principal amount outstanding of its 3.625% Notes due 2022 (the "3.625% Notes") and the$500 million aggregate principal amount outstanding of its 3.950% Notes due 2022 (the "3.950% Notes"). The redemption price for the 3.625% Notes was equal to the sum of (a)$1,060.018 per$1,000 principal amount of the 3.625% Notes, or 106.0018% of the aggregate principal amount of the 3.625% Notes, plus (b) accrued and unpaid interest to, but excluding, the 2022 Notes Redemption Date equal to$12.285 per$1,000 principal amount of the 3.625% Notes. The redemption price for the 3.950% Notes was equal to the sum of (a)$1,060.306 per$1,000 principal amount of the 3.950% Notes, or 106.0306% of the aggregate principal amount of the 3.950% Notes, plus (b) accrued and unpaid interest to, but excluding, the 2022 Notes Redemption Date equal to$3.511 per$1,000 principal amount of the 3.950% Notes.The Operating Partnership primarily used borrowings on the revolving credit facility to fund the redemption. OnSeptember 23, 2020 ,Digital Dutch Finco B.V . issued and sold €750.0 million aggregate principal amount of 1.000% Guaranteed Notes due 2032 (the "2032 Notes"). The 2032 Notes are senior unsecured obligations ofDigital Dutch Finco B.V . and are fully and unconditionally guaranteed byDigital Realty Trust, Inc. and theOperating Partnership . Net proceeds from the offering were approximately €737.5 million (or approximately$860.0 million based on the exchange rate as ofSeptember 23, 2020 ) after deducting managers' discounts and estimated offering expenses. We intend to allocate an amount equal to the net proceeds from the offering of the 2032 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, "2032 Eligible Green Projects"). Pending the allocation of the net proceeds of the 2032 Notes to 2032 Eligible Green Projects, the net proceeds from the 2032 Notes were used to temporarily repay borrowings outstanding under theOperating Partnership's global revolving credit facilities and for other general corporate purposes. OnSeptember 23, 2020 ,Digital Dutch Finco B.V . issued and sold €300.0 million aggregate principal amount of Floating Rate Guaranteed Notes due 2022 (the "2022 Notes"). The 2022 Notes bear interest at a rate per annum, reset quarterly, equal to three-month EURIBOR plus 0.48%, subject to a zero floor, and the interest rate for the initial interest period was 0%. The 2022 Notes are senior unsecured obligations ofDigital Dutch Finco B.V . and are fully and unconditionally guaranteed byDigital Realty Trust, Inc. and theOperating Partnership . Net proceeds from the offering were approximately €299.0 million (or approximately$348.7 million based on the exchange rate as ofSeptember 23, 2020 ) after deducting managers' discounts and estimated offering expenses. We used the net proceeds from the offering of the 2022 Notes to fund the redemption in full ofDigital Stout Holding, LLC's 4.750% Guaranteed Notes due 2023, which occurred onOctober 14, 2020 . OnOctober 14, 2020 (the "GBP Note Redemption Date"),Digital Stout Holding, LLC , a wholly owned subsidiary of theOperating Partnership , redeemed the £300 million aggregate principal amount outstanding of its 4.750% Notes due 2023 (the "4.750% Notes"). The redemption price for the 4.750% Notes was equal to the sum of (a) £1,123.25 per £1,000 principal amount of the 4.750% Notes, or 112.325% of the aggregate principal amount of the 4.750% Notes, plus (b) accrued and unpaid interest to, but excluding, the GBP Note Redemption Date equal to £0.13 per £1,000 principal amount of the 4.750% Notes. Net proceeds from the issuance of the 2022 Notes were primarily used to fund the redemption. The redemption resulted in an early extinguishment charge of approximately$49.8 million during the three months endedDecember 31, 2020 . 85 Table of Contents Index to Financial Statements
Construction ($ in thousands)
Development Lifecycle As of December 31, 2020 As of December 31, 2019 Net Rentable Current Net Rentable Current Future Square Feet Investment Future 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$ 226,862 $ -$ 226,862 N/A$ 147,597 $ -$ 147,597 Construction in Progress and Space Held for Development Land -Current Development (5) N/A$ 785,182 $ -$ 785,182 N/A$ 517,900 $ - $
517,900
Space Held for Development (6) 1,501,310 236,545 - 236,545 1,281,169 241,563 -
241,563
Base Building Construction 2,331,472 458,357
485,613 943,970 2,936,071 485,489 404,082 889,571 Data Center Construction 2,573,759 1,232,762 1,596,821 2,829,583 1,175,673 441,852 703,607 1,145,459 Equipment Pool & Other Inventory N/A 9,761 - 9,761 N/A 27,283 - 27,283 Campus, Tenant Improvements & Other N/A 45,718 42,848 88,566 N/A 18,468 22,968
41,436
Total Construction in Progress and Land Held for Future Development 6,406,541$ 2,995,187 $
2,125,282
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 joint ventures. 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
incurred by unconsolidated joint ventures.
(3) Represents estimated cost to complete specific scope of work pursuant to
contract, budget or approved capital plan.
(4) Represents balances incurred through
incurred by unconsolidated joint ventures.
(5) Represents approximately 927 acres as of
944 acres as of
(6) Excludes space held for development through unconsolidated joint ventures.
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 5.0 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.
Future Uses of Cash
Our properties require periodic investments of capital for customer-related capital expenditures and for general capital improvements. As ofDecember 31, 2020 , we had approximately 5.4 million square feet under active development and approximately 2.3 million square feet held for development. Depending upon customer demand, we expect to incur significant improvement costs to build out and develop additional capacity. AtDecember 31, 2020 , excluding unconsolidated joint ventures, approximately 4.9 million square feet was under active development for Turn-Key Flex® and Powered Base Building® products, all of which is expected to be income-producing on or after completion, in sevenU.S. metropolitan areas, nine European metropolitan areas, four Asian metropolitan areas, one Australian metropolitan area, one African metropolitan area and one Canadian metropolitan area, consisting of approximately 2.3 million square feet of base building construction and 2.6 million square feet of data center construction. AtDecember 31, 2020 , we had open commitments, related to construction contracts of approximately$1.1 billion , including amounts reimbursable of approximately$37.6 million .
We currently expect to incur approximately
86 Table of Contents Index to Financial Statements
down, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.
Historical Capital Expenditures
Year Ended December 31, 2020 2019 Development projects$ 1,751,502 $ 1,166,218 Enhancement and improvements 1,024 3,249
Recurring capital expenditures 210,727
180,713
Total capital expenditures (excluding indirect costs)
For the year endedDecember 31, 2020 , total capital expenditures increased$613.1 million to approximately$2.0 billion from$1.4 billion for the same period in 2019. Capital expenditures on our development projects plus our enhancement and improvements projects for the year endedDecember 31, 2020 were approximately$1.8 billion , which reflects an increase of approximately 50% from the same period in 2019. This increase was primarily due to Interxion, which had approximately$469.8 million of capital expenditures for the year endedDecember 31, 2020 , offset by 2019 spending related to Ascenty, which was deconsolidated inMarch 2019 . 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, 2020 and 2019 were$101.0 million and$86.7 million , respectively. Capitalized interest comprised approximately$47.3 million and$40.2 million of the total indirect costs capitalized for the years endedDecember 31, 2020 and 2019, respectively. Capitalized interest in the year endedDecember 31, 2020 increased, compared to the same period in 2019, due to an increase in qualifying activities. Excluding capitalized interest, indirect costs in the year endedDecember 31, 2020 increased compared to the same period in 2019 due primarily to capitalized amounts relating to compensation expense of employees directly engaged in construction activities. See "-Future Uses of Cash" above for a discussion of the amount of capital expenditures we expect to incur during the year endingDecember 31, 2021 .
We are also subject to the commitments discussed below under "Commitments and Contingencies," "Off-Balance Sheet Arrangements" and "Distributions."
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, 2021 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 Company through cash purchases and/or exchanges for equity securities of our Parent Company 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. We expect to meet our short-term and long-term liquidity requirements, including to pay for scheduled debt maturities and to fund 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 Company. 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 24, 2021 , we had approximately$1.9 billion of borrowings available under our global revolving credit facilities. If we are not able to obtain additional financing on terms attractive to us, or at all, including as 87 Table of Contents
Index to Financial Statements
a result of the circumstances described above under "Factors Which May Influence Future Results of Operations-Global market and economic conditions" and "-COVID-19", we may be required to reduce our acquisition or capital expenditure plans, which could have a material adverse effect upon our business and results of operations. Distributions All distributions on our units are at the discretion of our Parent Company's Board of Directors. For additional information regarding distributions paid on our common and preferred units for the years endedDecember 31, 2020 , 2019 and 2018, see Item 8, Note 14 in the Notes to the Consolidated Financial Statements. As ofDecember 31, 2020 , we were a party to interest rate swap agreements which hedge variability in cash flows related theU.S. LIBOR and CDOR-based tranches of our debt. Under these swaps, we pay variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amounts. See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk."
The following table summarizes our debt, interest, lease and construction
contract payments due by period as of
Obligation 2021 2022-2023 2024-2025 Thereafter Total Secured and unsecured debt (1) $ -$ 2,218,001 $ 2,912,493 $ 8,282,519 $ 13,413,013 Interest payable (2) 319,207 612,320 490,418 519,705 1,941,650 Operating and finance leases (3) 149,902 333,176 313,598 1,290,908 2,087,584 Construction contracts (4) 1,081,282 -
- - 1,081,282$ 1,550,391 $ 3,163,497 $ 3,716,509 $ 10,093,132 $ 18,523,529
Includes
facilities and
reflected on the consolidated balance sheets under Item 8 in this Annual
Report on Form 10-K.
Interest payable is based on the interest rates in effect on
the effect of interest rate swaps is as follows (in thousands): 2021$ 317,641 2022-2023 611,304 2024-2025 490,534 Thereafter 519,705$ 1,939,184 BeginningJanuary 1, 2019 , as a lessee we were required to record both a
right-of-use asset and lease liability for our ground and office space leases (3) based on the present value of our future minimum lease payments. See Item 8,
Note 4 in the Notes to the Consolidated Financial Statements for additional
information.
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
(4) payments. At
reimbursable of approximately$37.6 million , related to construction contracts of approximately$1.1 billion . 88 Table of Contents Index to Financial Statements
Outstanding Consolidated Indebtedness
The table below summarizes our debt maturities and principal payments as of
Global Revolving Unsecured Total Credit Facilities (1) Term Loans Senior Notes Secured Debt Debt 2021 $ - $ - $ - $ - $ - 2022 - - 732,960 330 733,290 2023 493,241 537,470 350,000 104,000 1,484,711 2024 46,943 - 1,074,710 - 1,121,653 2025 - - 1,790,840 - 1,790,840 Thereafter - - 8,147,519 135,000 8,282,519 Subtotal $ 540,184$ 537,470 $ 12,096,029 $ 239,330 $ 13,413,013 Unamortized discount - - (40,915) (4) (40,919) Unamortized premium - - 5,927 - 5,927 Total $ 540,184$ 537,470 $ 12,061,041 $ 239,326 $ 13,378,021
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.
The table below summarizes our debt, as of
Debt Summary: Fixed rate$ 11,864.8 Variable rate debt subject to interest rate swaps 181.4
Total fixed rate debt (including interest rate swaps) 12,046.2 Variable rate-unhedged
1,366.8 Total$ 13,413.0 Percent of Total Debt: Fixed rate (including swapped debt) 89.8 % Variable rate 10.2 % Total 100.0 % Effective Interest Rate as ofDecember 31, 2020 Fixed rate (including hedged variable rate debt) 2.57 % Variable rate 0.73 % Effective interest rate 2.38 %
As ofDecember 31, 2020 , we had approximately$13.4 billion of outstanding consolidated long-term debt as set forth in the table above. Our ratio of debt to total enterprise value was approximately 24% (based on the closing price ofDigital Realty Trust, Inc.'s common stock onDecember 31, 2020 of$139.51 ). 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. The variable rate debt shown above bears interest at interest rates 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, 2020 , our debt had a weighted 89 Table of Contents Index to Financial Statements
average term to initial maturity of approximately 6.2 years (or approximately 6.3 years assuming exercise of extension options).
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , we were party to interest rate swap agreements related to$181.4 million of outstanding principal amount on our variable rate debt. See Item 7A. "Quantitative and Qualitative Disclosures about Market Risk."
As of
Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Comparison of Year Ended
The following table shows cash flows and ending cash, cash equivalents and restricted cash balances for the years endedDecember 31, 2020 , 2019 and 2018 (in thousands). Year Ended December 31, 2020 2019 2018 Net cash provided by operating activities$ 1,706,541 $ 1,513,817 $ 1,385,324 Net cash used in investing activities (2,599,347) (274,992) (3,035,993) Net cash provided by (used in) financing activities 935,689 (1,272,021) 1,757,269 Net increase (decrease) in cash, cash equivalents and restricted cash$ 42,883 $ (33,196) $ 106,600 Cash provided by operating activities in 2020 increased approximately$192.7 million over 2019 and cash provided by operating activities in 2019 increased approximately$128.5 million over 2018. The 2020 increase was primarily due to the Interxion Combination offset by properties sold or contributed to unconsolidated joint ventures during the twelve months endedDecember 31, 2020 . The 2019 increase was primarily due to properties placed into service during the twelve months endedDecember 31, 2019 partially offset by properties sold in 2019 and 2018 and an increase in interest expense. The changes in the activities that comprise net cash used in investing activities for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 consisted of the following amounts (in thousands). Change 2020 vs 2019
2019 vs 2018 Increase in cash used for improvements to investments in real estate
$ (627,164) $ (111,740) (Increase) decrease in cash paid for acquisitions (953,948)
2,014,838
Increase (decrease) in cash provided by cash assumed in acquisitions 121,085
(116,000)
Increase (decrease) in cash provided by proceeds from sale of properties, net of sales costs
564,615
(286,204)
(Decrease) increase in cash provided by proceeds from the joint venture transactions
(1,494,881)
1,494,881
Decrease in cash used in deconsolidation of Ascenty cash 97,081
(97,081)
Increase in cash used for investments in unconsolidated joint ventures (43,222)
(100,428)
Other changes 12,079
(37,265)
(Increase) decrease in net cash used in investing activities$ (2,324,355) $ 2,761,001 90 Table of Contents
Index to Financial Statements
The increase in cash used in investing activities was primarily due to a decrease in cash proceeds from the formation of the Ascenty joint venture inMarch 2019 withBrookfield , net of deconsolidated Ascenty cash and the increase in cash used related to the acquisition of an additional 49% ownership interest in theWestin Building Exchange inFebruary 2020 and the acquisition of theFrankfurt leasehold site inJuly 2020 classified within acquisitions of real estate, partially offset by the sale of 10 Powered Base Building® properties, which comprise 12 data centers, inNorth America to Mapletree inJanuary 2020 . The changes in the activities that comprise net cash provided by (used in) financing activities for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 and for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 for the Company consisted of the following amounts (in thousands). Change 2020 vs 2019 2019 vs 2018
Increase (decrease) in cash provided by short-term borrowings$ 539,247 $ (414,482) Decrease (increase) in cash used for repayments of short-term borrowings
1,110,252 (2,267,147) Increase in cash provided by net proceeds from issuance of common and preferred stock, including equity plans
1,345,378 539,069 Increase in cash provided by proceeds from secured / unsecured debt
700,903 1,123,589 Increase in cash used for repayment on secured / unsecured debt (1,088,623) (1,539,707) Increase in cash used for redemption of preferred stock (134,950) (365,050) Increase in cash used for dividend and distribution payments (242,552) (65,984) Other changes
(21,945) (39,578)
Increase (decrease) in net cash provided by financing activities
The increase in cash provided by financing activities for the Company was primarily due to an increase in cash from the proceeds of sales of common stock issued under the ATM equity offering program and the full physical settlement of our forward equity agreements, a decrease in cash used for repayments of short-term borrowings and an increase in cash provided by the issuance of unsecured debt, net of repayments during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 partially offset by an increase in dividend and distribution payments for the year endedDecember 31, 2020 as compared to the same period in 2019 as a result of an increase in the number of shares outstanding due to the Interxion Combination and increased dividend amount per share of common stock in the year endedDecember 31, 2020 as compared to the same period in 2019. The decrease in cash provided by financing activities was due to an increase in cash used for repayments of short-term borrowings and a decrease in cash provided by short-term borrowings during the year endedDecember 31, 2019 as compared to 2018 and the increase in cash used to repay unsecured debt including the repayment of the floating rate notes due 2019, redemption and/or tender offers of the 5.875% 2020 Notes, 3.400% 2020 Notes and 2021 Notes along with an increase in cash used to redeem preferred stock including the redemption of the series H preferred stock offset by higher proceeds in 2019 from the issuance of the series K preferred stock, series L preferred stock, 2026 Notes, 1.125% 2028 Notes, 3.600% 2029 Notes and 2030 Notes. The increase in dividend and distribution payments for 91 Table of Contents Index to Financial Statements the year endedDecember 31, 2019 as compared to 2018 was a result of an increase in the number of shares outstanding and increased dividend amount per share of common stock in the year endedDecember 31, 2019 as compared to 2018.
The changes in the activities that comprise net cash provided by (used in)
financing activities for the year ended
2020 vs 2019 2019 vs 2018
Increase (decrease) in cash provided by short-term borrowings$ 539,247 $ (414,482) Decrease (increase) in cash used for repayments of short-term borrowings 1,110,252 (2,267,147) Increase in cash provided by general partner contributions 1,345,378 539,069 Increase in cash provided by proceeds from secured / unsecured debt 700,903 1,123,589 Increase in cash used for repayment on secured / unsecured debt (1,088,623) (1,539,707)
Decrease in cash used for general partner distributions regarding redemption of preferred units (134,950) (365,050) Increase in cash used for distribution payments
(242,552) (65,984) Other changes (21,945) (39,578) Increase (decrease) in net cash provided by financing activities
$ 2,207,710 $ (3,029,290) The increase in cash provided by financing activities for theOperating Partnership was primarily due to an increase in cash from the proceeds of sales of common stock issued under the ATM equity offering program and the full physical settlement of our forward equity agreements, a decrease in cash used for repayments of short-term borrowings and an increase in cash provided by the issuance of unsecured debt, net of repayments during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 partially offset by an increase in distribution payments for the year endedDecember 31, 2020 as compared to the same period in 2019 as a result of an increase in the number of units outstanding due to the Interxion Combination and increased distribution amount per common unit in the year endedDecember 31, 2020 as compared to the same period in 2019. The decrease in cash provided by financing activities was due to an increase in cash used for repayments of short-term borrowings and a decrease in cash provided by short-term borrowings during the year endedDecember 31, 2019 as compared to 2018 and the increase in cash used to repay unsecured debt including the repayment of the floating rate notes due 2019, redemption and/or tender offers of the 5.875% 2020 Notes, 3.400% 2020 Notes and 2021 Notes along with an increase in cash used to redeem preferred units including the redemption of the series H preferred units offset by higher proceeds in 2019 from the issuance of the series K preferred units, series L preferred units, 2026 Notes, 1.125% 2028 Notes, 3.600% 2029 Notes and 2030 Notes. The increase in distribution payments for the year endedDecember 31, 2019 as compared to 2018 was a result of an increase in the number of units outstanding and increased distribution amount per common unit in the year endedDecember 31, 2019 as compared to 2018.
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, 2020 , amounted to 2.8% 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, 2020 , 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 92 Table of Contents Index to Financial Statements
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.
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. 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, 2020 2019 2018
Net Income Available to Common Stockholders$ 263,342 $ 493,011 $ 249,930 Adjustments: Non-controlling interests in operating partnership 9,500 21,100 10,180 Real estate related depreciation & amortization (1) 1,341,836
1,149,240 1,173,917 Unconsolidated JV real estate related depreciation & amortization
77,730 52,716 14,587 Gain on disposition of properties (316,894) (267,651) (80,049) Impairment of investments in real estate 6,482 5,351 - FFO available to common stockholders and unitholders (2)$ 1,381,996 $ 1,453,767 $ 1,368,565 Basic FFO per share and unit$ 5.16 $ 6.69$ 6.39 Diluted FFO per share and unit (2)$ 5.11
$ 6.66
268,073 217,285 214,313 Diluted (2) 270,497 218,440 214,951 (1) Real estate related depreciation and amortization was computed as follows: Depreciation and amortization per income statement$ 1,366,379 $ 1,163,774 $ 1,186,896 Non-real estate depreciation (24,543)
(14,534) (12,979)$ 1,341,836 $ 1,149,240 $ 1,173,917
For all periods presented, we have excluded the effect of dilutive series C, (2) series G, series H, series I, series J, series K and series L preferred
stock, as applicable, that may be converted upon the occurrence of specified change in 93 Table of Contents
Index to Financial Statements
control transactions as described in the articles supplementary governing the
series C, series G, series H, series I, series J, series K and series L
preferred stock, as applicable, which we consider highly improbable.
Year Ended December 31, 2020 2019 2018 Weighted average common stock and units outstanding 268,073 217,285
214,313
Add: Effect of dilutive securities 2,424 1,155
618
Weighted average common stock and units outstanding-diluted 270,497 218,440
214,931
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