DIGITAL REALTY TRUST, INC. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed withthe United States ("U.S.")Securities and Exchange Commission ("SEC"). This report contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, expected use of borrowings under our credit facilities, litigation matters, portfolio performance, leverage policy, acquisition and capital expenditure plans, capital recycling program, returns on invested capital, supply and demand for data center space, capitalization rates, rents to be received in future periods and expected rental rates on new or renewed data center space, as well as our discussion of "Factors Which May Influence Future Results of Operations," contain forward-looking statements. Likewise, all of our statements regarding anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and discussions which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and that we may not be able to realize. We do not guarantee that the transactions and events described will happen as described or that they will happen at all. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: reduced demand for data centers or decreases in information technology spending; increased competition or available supply of data center space; decreased rental rates, increased operating costs or increased vacancy rates; the impact of the COVID-19 pandemic on our or our customers' operations; changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate; the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services; our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers; breaches of our obligations or restrictions under our contracts with our customers; our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties; the impact of current global and local economic, credit and market conditions; global supply chain or procurement disruptions, or increased supply chain costs; our inability to retain data center space that we lease or sublease from third parties; information security and data privacy breaches; difficulties managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas; our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent and future acquisitions; our inability to achieve expected revenue synergies or cost savings as a result of our combination with Interxion; our failure to successfully integrate and operate acquired or developed properties or businesses; difficulties in identifying properties to acquire and completing acquisitions; risks related to joint venture investments, including as a result of our lack of control of such investments; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital; financial market fluctuations and changes in foreign currency exchange rates; adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment charges and goodwill and other intangible asset impairment charges; our inability to manage our growth effectively; losses in excess of our insurance coverage; our inability to attract and retain talent; environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals; our inability to comply with rules and regulations applicable to our Company;Digital Realty Trust, Inc.'s failure to maintain its status as a REIT for federal income tax purposes;Digital Realty Trust, L.P.'s failure to qualify as a partnership for federal income tax purposes; restrictions on our ability to engage in certain business activities; and changes in local, state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates. 33
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While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our annual report on Form 10-K for the year endedDecember 31, 2020 . Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.
Occupancy percentages included in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.
As used in this report: "Ascenty Acquisition" refers to the acquisition of Ascenty by theOperating Partnership and Stellar Participações S.A. (formerly Stellar Participações Ltda.), a Brazilian subsidiary of theOperating Partnership ; "Ascenty entity" refers to the entity, which owns and operates Ascenty, formed with Brookfield Infrastructure; "Brookfield" refers to Brookfield Infrastructure, an affiliate of Brookfield Asset Management; "DFT" refers toDuPont Fabros Technology, Inc. ; "DFT Merger" refers to the Company's acquisition ofDuPont Fabros Technology, Inc. ; "DFT Operating Partnership " refers toDuPont Fabros Technology, L.P. ; "Interxion" refers to InterXion Holding N.V.; and "Interxion Combination" refers to the Company's combination with Interxion Holding N.V. 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 ofMarch 31, 2021 , our portfolio included 290 data centers, including 44 data centers held as investments in unconsolidated entities, with approximately 45.3 million rentable square feet including approximately 7.7 million square feet of space under active development and approximately 2.2 million square feet of space held for development. The 44 data centers held as investments in unconsolidated entities have an aggregate of approximately 4.5 million rentable square feet. The 32 parcels of developable land we own as ofMarch 31, 2021 comprised approximately 879 acres. At 34
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March 31, 2021 , excluding unconsolidated entities, approximately 7.1 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 eightU.S. metropolitan areas, 12 EMEA metropolitan areas, five Asian metropolitan areas, one Australian metropolitan area and one Canadian metropolitan area, consisting of approximately 3.7 million square feet of base building construction and 3.4 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 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 ofMarch 31, 2021 , our portfolio included 290 data centers through ourOperating Partnership , including 44 data centers held as investments in unconsolidated entities. Our global portfolio includes 142 data centers located inNorth America , with 104 located inEurope , 23 inLatin America , 12 inAsia , six inAustralia and three inAfrica .
The following table presents an overview of our portfolio of data centers,
including the 44 data centers held as investments in unconsolidated entities,
and developable land, based on information as of
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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 5,868,718 458,715 76,944
Chicago 10 3,426,580 - 148,101
New York 13 2,050,581 233,560 99,980
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 41,661 313,581
Los Angeles 4 798,571 19,908 -
Seattle 1 400,369 - -
Portland 2 331,242 823,056 -
Toronto, Canada 3 316,362 515,128 -
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 126 22,716,866 2,323,994 958,592
EMEA
London, England 16 1,431,735 - 160,850
Frankfurt, Germany 27 1,660,202 1,553,403 -
Amsterdam, Netherlands 13 1,172,741 94,730 95,262
Paris, France 10 472,687 440,846 -
Vienna, Austria 2 358,282 - -
Dublin, Ireland 8 380,818 94,005 -
Marseille, France 4 274,960 245,213 -
Madrid, Spain 4 218,136 225,000 -
Zurich, Switzerland 3 284,677 258,240 -
Brussels, Belgium 3 136,685 27,420 -
Stockholm, Sweden 6 206,139 48,659 -
Copenhagen, Denmark 3 163,755 162,123 -
Dusseldorf, Germany 2 105,523 - -
Athens, Greece 2 55,170 - -
Zagreb, Croatia 1 19,105 12,801 -
Nairobi, Kenya 1 15,710 - -
Mombasa, Kenya 2 10,115 37,026 -
EMEA Total 107 6,966,440 3,199,466 256,112
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 1,614,874 -
Non-Data Center Properties - 263,668 - -
Managed Unconsolidated
Entities
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
Entities
Sao Paulo, Brazil 16 897,625 307,493 414,503
Tokyo, Japan 2 892,667 - -
Osaka, Japan 2 277,031 24,181 30,874
Rio De Janeiro, Brazil 2 72,442 26,781 -
Fortaleza, Brazil 1 94,205 - -
Seattle 1 51,000 - -
Santiago, Chile 2 67,340 45,209 180,835
Queretaro, Mexico 2 - 108,178 376,202
28 2,352,310 511,842 1,002,414
Total 290 35,404,425 7,650,175 2,217,118
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Current net rentable square feet as of
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
but excludes space under active development and space held for development.
Space under active development includes current base building and data center
projects in progress, and excludes space held for development. For additional (2) information on the current and future investment for space under active
development, see "-Liquidity and Capital Resources of the Operating
Partnership-Construction ".
Space held for development includes space held for future data center (3) development, and excludes space under active development. For additional
information on the current investment for space held for development, see
"-Liquidity and Capital Resources of the
As ofMarch 31, 2021 , our portfolio, including the 44 data centers held as investments in unconsolidated entities, was approximately 85.3% leased excluding approximately 7.7 million square feet of space under active development and approximately 2.2 million square feet of space held for development. Due to the capital-intensive and long-term nature of the operations we support, our lease terms are generally longer than standard commercial leases. As ofMarch 31, 2021 , our average remaining lease term is approximately five years. Our scheduled lease expirations throughDecember 31, 2022 are 21.9% of rentable square feet excluding month-to-month leases, space under active development and space held for development as ofMarch 31, 2021 .
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 three months endedMarch 31, 2021 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 collectedApril 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 37 Table of Contents ultimately result in modification agreements, nor are we forgoing our contractual rights under our agreements. These 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 three months endedMarch 31, 2021 , circumstances related to the COVID-19 pandemic could potentially result in recording impairments, lease modifications and credit losses in future periods. April collections and rent relief requests may not necessarily be indicative of collections or requests in any future period. 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 . 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. Foreign currency exchange risk. For the three months endedMarch 31, 2021 and 2020, we had foreign operations, including through our investments in unconsolidated entities, 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 , along withGreece andCroatia as part of other acquisitions in 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, Croatian kuna 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 entity 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. 38 Table of Contents
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 7.7 million square feet of space under active development and approximately 2.2 million square feet of space held for development, our portfolio, including the 44 data centers held as investments in unconsolidated entities, was approximately 85.3% occupied as ofMarch 31, 2021 . As ofMarch 31, 2021 , we had more than 4,000 customers in our data center portfolio, including the 16 data centers held in our managed portfolio of unconsolidated entities. As ofMarch 31, 2021 , approximately 93% 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 ofMarch 31, 2021 approximately 3.5 million square feet of data center space with extensive installed tenant improvements available for lease was included in our approximately 30.9 million net rentable square feet, excluding space under active development and space held for development and 44 data centers held as investments in unconsolidated entities. In addition, as ofMarch 31, 2021 , we had approximately 7.7 million square feet of space under active development and approximately 2.2 million square feet of space held for development, or approximately 22% of the total rentable space in our portfolio, including the 44 data centers held as investments in unconsolidated entities. 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. 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. 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 4.9 million square feet of available space in our portfolio, which excludes approximately 7.7 million square feet of space under active development and approximately 2.2 million square feet of space held for development as ofMarch 31, 2021 and the 28 data centers held as investments in our non-managed unconsolidated entities, leases representing approximately 9.9% and 12.0% of the net rentable square footage of our portfolio are scheduled to expire during the nine months endingDecember 31, 2021 and the year endingDecember 31, 2022 , respectively. 39
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During the three months endedMarch 31, 2021 , we signed renewal leases totaling approximately 1.3 million square feet of space and new leases totaling approximately 0.6 million square feet of space. The following table summarizes our leasing activity in the three months endedMarch 31, 2021 : TI's/Lease Weighted Commissions Average Lease Rentable Expiring New Rental Rate Per Square Terms Square Feet (1) Rates (2) Rates (2) Changes Foot (years)
Leasing Activity (3)(4) Renewals Signed 0 - 1 MW 482,810$ 259.22 $ 265.66 2.5 %$ 0.34 1.6 > 1 MW 387,773$ 141.22 $ 144.74 2.5 %$ 1.09 3.9 Other (6) 419,471$ 17.61 $ 21.30 21.0 %$ 0.02 2.5 New Leases Signed (5) 0 - 1 MW 121,245 -$ 268.92 -$ 32.32 3.9 > 1 MW 462,908 -$ 150.05 -$ 18.32 7.8 Other (6) 54,139 -$ 29.49 -$ 3.13 8.3 Leasing Activity Summary 0 - 1 MW 604,056$ 266.31 > 1 MW 850,681$ 147.63 Other (6) 473,610$ 22.23
For some of our properties, we calculate square footage based on factors in (1) addition to contractually leased square feet, including power, required
support space and common area.
Rental rates represent average annual estimated base cash rent per rentable
square foot - calculated for each contract based on total cash base rent (2) divided by the total number of years in the contract (including any tenant
concessions). All rates were calculated in the local currency of each
contract and then converted to USD based on average exchange rates for the
three months ended
(3) Excludes short-term leases.
(4) Commencement dates for the leases signed range from 2021 to 2022.
(5) Includes leases signed for new and re-leased space.
(6) Other includes
office space within fully improved data center facilities.
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 three months endedMarch 31, 2021 , rents on renewed space increased by an average of 2.5% on a GAAP basis on our 0-1 MW space compared to the expiring rents and increased by an average of 2.5% 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. 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 ofMarch 31, 2021 , our portfolio, 40
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including the 44 data centers held as investments in unconsolidated entities, was geographically concentrated in the following metropolitan areas.
Percentage of
March 31, 2021
total annualized
Metropolitan Area rent (1)
Northern Virginia 19.5 %
Chicago 9.0 %
London, England 7.5 %
Silicon Valley 6.8 %
New York 6.5 %
Dallas 6.0 %
Frankfurt, Germany 5.7 %
Amsterdam, Netherlands 4.0 %
Sao Paulo, Brazil 3.7 %
Singapore 2.8 %
Phoenix 2.0 %
Paris, France 2.0 %
San Francisco 1.9 %
Tokyo, Japan 1.9 %
Atlanta 1.6 %
Other 19.1 %
Total 100.0 %
Annualized rent is monthly contractual rent (defined as cash base rent before
abatements) under existing leases as of
100% ownership level. The aggregate amount of abatements for the three months
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. 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. 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, announcing inApril 2021 a target of reducing net US GHG emissions by 50-52 percent from 2005 levels by 2030. 41
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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 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. As another example, inApril 2021 , theWashington Legislature passed a law capping GHG emissions from electricity generators and other entities, with compliance obligations to begin in 2023. 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.Canada set a GHG emissions reduction target of 40-45% below 2005 levels by 2030, and 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. Climate change regulations are also in various stages of implementation in other nations as well, including nations where we operate, such asJapan (which set a GHG emissions reduction target of 46% below 2013 levels by 2030),Brazil (which committed to carbon neutrality by 2050),Singapore , andAustralia . 42
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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 ofMarch 31, 2021 , we had approximately$104.0 million of variable rate debt subject to interest rate swap agreements, along with$458.3 million and$351.9 million of variable rate debt that was outstanding on the global revolving credit facilities 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. Data center demand. 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.
Recently Issued Accounting Pronouncements
Please refer to Item 1, Note 1 "New Accounting Pronouncements" in the notes to the condensed consolidated financial statements.
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Results of Operations
The discussion below relates to our results of operations for the three months
ended March 31, 2021 and 2020. A summary of our operating results for the three
months ended March 31, 2021 and 2020 is as follows (in thousands).
Three Months Ended March 31,
2021 2020
Income Statement Data:
Total operating revenues $ 1,090,391 $ 823,337
Total operating expenses (897,872) (723,288)
Operating income 192,519 100,049
Equity in loss of unconsolidated entities (23,031) (78,996)
Gain on disposition of properties, net 333,921 304,801 Other expense, net (7,186) (3,542) Interest expense (75,653) (85,800)
Loss from early extinguishment of debt (18,347)
(632) Income tax expense (7,547) (7,182) Net income$ 394,676 $ 228,698 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, 2019 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 2020-2021 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 Three Months Ended
Portfolio As ofMarch 31, 2021 , our portfolio consisted of 290 data centers, including 44 data centers held as investments in unconsolidated entities, with an aggregate of 45.3 million rentable square feet including 7.7 million square feet of space under active development and 2.2 million square feet of space held for development compared to a portfolio consisting of 213 data centers (excluding the Interxion portfolio), including 40 data centers held as investments in unconsolidated entities, with an aggregate of 35.7 million rentable square feet including 4.3 million square feet of space under active development and 1.7 million square feet of space held for development as ofMarch 31, 2020 . 44 Table of Contents Revenues Total operating revenues for the three months endedMarch 31, 2021 and 2020 were as follows (in thousands): Three Months Ended March 31, 2021 2020 Change Rental and other services$ 1,087,906 $ 820,072 $ 267,834 Fee income and other 2,485 3,265 (780) Total operating revenues$ 1,090,391 $ 823,337 $ 267,054 The following tables show rental and other services revenue for the three months endedMarch 31, 2021 and 2020 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 Three Months Ended March 31, Three Months Ended March 31, 2021 2020 $ Change %
Change 2021 2020 Change
Rental and other services
Stabilized rental and other services revenue increased$15.5 million for the three months endedMarch 31, 2021 compared to the same period in 2020 due to new leasing and renewals, net of expirations as well as increased tenant reimbursements associated with higher utility costs inTexas due to winter storm Uri. Non-stabilized rental and other services revenues increased$252.3 million for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily as a result of revenues associated with the Interxion Combination of$236.2 million and$47.4 million for the three months endedMarch 31, 2021 and 2020, respectively, offset by properties sold in 2020 and 2021. 45 Table of Contents
Operating Expenses and Interest Expense
Operating expenses and interest expense during the three months ended
Three Months Ended March 31,
2021 2020 Change
Rental property operating and maintenance
52,503 45,670 6,833
Depreciation and amortization 369,733 291,457
78,276
General and administrative 99,994 63,538
36,456
Transaction and integration expenses 14,120 56,801 (42,681) Other (257) 114 (371) Total operating expenses$ 897,872 $ 723,288 $ 174,584 Interest expense$ 75,653 $ 85,800 $ (10,147) The following tables show property level expenses for the three months endedMarch 31, 2021 and 2020 for stabilized properties and non-stabilized properties and other (all other properties) (in thousands). Expense totals for non-stabilized and other 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 Three Months Ended March 31, Three Months Ended March 31, 2021 2020 $ Change % Change 2021 2020 Change Rental property operating and maintenance$ 212,331 $ 185,357 $ 26,974 14.6 %$ 149,448 $ 80,351 $ 69,097 Property taxes and insurance 33,928 32,732 1,196 3.7 % 18,575 12,938 5,637$ 246,259 $ 218,089 $ 28,170 12.9 %$ 168,023 $ 93,289 $ 74,734
Stabilized rental property operating and maintenance expenses increased
approximately
Non-stabilized rental property operating and maintenance expenses increased by approximately$69.1 million in the three months endedMarch 31, 2021 compared to the same period in 2020, primarily due to the Interxion Combination, which contributed$89.7 million and$19.4 million for the three monthsMarch 31, 2021 and 2020, respectively, along with higher expenses as a result of leasing activity during the twelve months endedMarch 31, 2021 offset by properties sold in 2020 and 2021.
Depreciation and Amortization
Depreciation and amortization expense increased by approximately$78.3 million in the three months endedMarch 31, 2021 compared to the same period in 2020. The increase was principally due to the Interxion Combination.
General and Administrative
General and administrative expenses increased by approximately
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Transactions and Integration Expenses
Transactions and integration expense decreased by approximately
Interest Expense
Interest expense decreased by approximately$10.1 million in the three months endedMarch 31, 2021 compared to the same period in 2020. The decrease was primarily due to the redemption of the 2.750% 2023 Notes inFebruary 2021 , the 4.750% 2023 Notes inOctober 2020 and the 3.950% 2022 Notes and 3.625% 2022 Notes inAugust 2020 partially offset by lower rate debt issuances, 1.125% 2031 Notes inJune 2020 , 1.000% 2032 Notes and 2022 Floating Rate Notes inSeptember 2020 and 0.625% 2031 Notes inJanuary 2021 .
Other Expense, Net
Other expense, net increased approximately
Gain on Disposition of Properties, Net
During the three months endedMarch 31, 2021 , we sold a portfolio of 11 data centers inEurope (four in theUnited Kingdom , three inthe Netherlands , three inFrance and one inSwitzerland ) to Ascendas Reit, a CapitaLand sponsored REIT, for total purchase consideration of approximately$680.0 million resulting in a gain of approximately$333.3 million inMarch 2021 . During the three months endedMarch 31, 2020 , we sold 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$304.8 million inJanuary 2020 .
Loss from Early Extinguishment of Debt
Loss from early extinguishment of debt increased approximately
Liquidity and Capital Resources of the Parent
In this "Liquidity and Capital Resources of the Parent" section and in the "Liquidity and Capital Resources of theOperating Partnership " section below, the term our "Parent" refers toDigital Realty Trust, Inc. on an unconsolidated basis, excluding ourOperating Partnership .
Analysis of Liquidity and Capital Resources
Our Parent's business is operated primarily through ourOperating Partnership , of which our Parent is the sole general partner and which it consolidates for financial reporting purposes. Because our Parent 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 on a consolidated basis and how our Company is operated as a whole. Our Parent 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 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 and ourOperating Partnership are the same on their respective financial statements, 47 Table of Contents
except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by our Parent. All debt is held directly or indirectly at theOperating Partnership level. Our Parent's principal funding requirement is the payment of dividends on its common and preferred stock. Our Parent'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 has the full, exclusive and complete responsibility for ourOperating Partnership's day-to-day management and control. Our Parent causes ourOperating Partnership to distribute such portion of its available cash as our Parent may in its discretion determine, in the manner provided in ourOperating Partnership's partnership agreement. Our Parent receives proceeds from its equity issuances from time to time, but is generally required by ourOperating Partnership's partnership agreement to contribute the proceeds from its equity issuances to ourOperating Partnership in exchange for partnership units of ourOperating Partnership . Our Parent is a well-known seasoned issuer with an effective shelf registration statement filed onMarch 17, 2020 , which allows our Parent to register an unspecified amount of various classes of equity securities. As circumstances warrant, our Parent may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. Any proceeds from such equity issuances would generally be contributed to ourOperating Partnership in exchange for additional equity interests in ourOperating Partnership . OurOperating Partnership may use the proceeds to acquire additional properties, to fund development opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or equity securities. The liquidity of our Parent is dependent on ourOperating Partnership's ability to make sufficient distributions to our Parent. The primary cash requirement of our Parent is its payment of dividends to its stockholders. Our Parent 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 guarantee obligations, then our Parent will be required to fulfill its cash payment commitments under such guarantees. However, our Parent'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 and, in turn, for our Parent to make its dividend payments to its stockholders. However, we cannot assure you that ourOperating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including making distribution payments to our Parent. The lack of availability of capital could adversely affect ourOperating Partnership's ability to pay its distributions to our Parent, which would in turn, adversely affect our Parent's ability to pay cash dividends to its stockholders.Digital Realty Trust, Inc. andDigital Realty Trust, L.P. are parties to an ATM equity offering sales agreement datedJanuary 4, 2019 , as amended in 2020 (the "Sales Agreement"). In accordance with the Sales Agreement, following the date of the 2020 Amendment,Digital Realty Trust, Inc. may offer and sell shares of its common stock having an aggregate offering price of up to$1.0 billion . Prior to the 2020 Amendment,Digital Realty Trust, Inc. had offered and sold shares of its common stock having an aggregate gross sales price of approximately$652.2 million . The sales of common stock made under the Sales Agreement will be made in "at the market" offerings as defined in Rule 415 of the Securities Act. There was no activity under the Sales Agreement during the three months endedMarch 31, 2021 and 2020. As ofMarch 31, 2021 , approximately$749.4 million remains available for future sales under the program. Our Parent has used and intends to use the net proceeds from the program to temporarily repay borrowings under ourOperating Partnership's global revolving credit facilities, to acquire additional properties or businesses, to fund development opportunities and for working capital and other general corporate purposes, including potentially for the repayment of other debt or the repurchase, redemption or retirement of outstanding debt securities. For additional information regarding the Sales Agreement, see our 2020 Form 10-K.
Future Uses of Cash
Our Parent 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 48
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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 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 intends to make, but is not contractually bound to make, regular quarterly distributions to its common stockholders from cash flow from ourOperating Partnership's operating activities. While historically our Parent has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Parent's Board of Directors. Our Parent considers market factors and ourOperating Partnership's performance in addition to REIT requirements in determining distribution levels. Our Parent has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our Parent's status as a REIT. As a result of this distribution requirement, ourOperating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. Our Parent may need to continue to raise capital in the debt and equity markets to fund ourOperating Partnership's working capital needs, as well as potential developments at new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, our Parent may be required to use borrowings under our global revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our Parent's REIT status. For additional information regarding dividends declared and paid by our Parent on its common and preferred stock for the three months endedMarch 31, 2021 and 2020, see Note 10 to our condensed consolidated financial statements contained herein. Distributions out of our Parent's current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent's current and accumulated earnings and profits, to the extent of a stockholder'sU.S. federal income tax basis in our Parent's stock, are generally classified as a return of capital. Distributions in excess of a stockholder'sU.S. federal income tax basis in our Parent's stock are generally characterized as capital gain. Cash provided by operating activities has been generally sufficient to fund distributions on an annual basis. However, we may also need to utilize borrowings under the global revolving credit facility to fund distributions.
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 together with their consolidated subsidiaries, as the context requires.
Analysis of Liquidity and Capital Resources
Our Parent 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, the section entitled "Liquidity and Capital Resources of the Parent" should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.
As of
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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 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, see Note 8 to our condensed consolidated financial statements contained herein. Our short-term liquidity requirements primarily consist of operating expenses, development costs and other expenditures associated with our properties, distributions to our Parent in order for it to make dividend payments on its preferred stock, distributions to our Parent in order for it to make dividend payments to its 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.
OnJanuary 12, 2021 ,Digital Intrepid Holding B.V ., an indirect wholly owned holding and finance subsidiary of theOperating Partnership through which the Interxion business is held, issued and sold €1.0 billion aggregate principal amount of 0.625% Guaranteed Notes due 2031 (the "2031 Notes"). The 2031 Notes are senior unsecured obligations ofDigital Intrepid Holding B.V . and are fully and unconditionally guaranteed byDigital Realty Trust, Inc. and theOperating Partnership . Net proceeds from the offering were approximately €988.3 million (approximately$1,206.4 million based on the exchange rate onJanuary 12, 2021 ) after deducting managers' discounts and estimated offering expenses. We intend to allocate an amount equal to the net proceeds from the offering of the 2031 Notes to finance or refinance, in whole or in part, recently completed or future green building, energy and resource efficiency and renewable energy projects (collectively, "Eligible Green Projects"), including the development and redevelopment of such projects. Pending the allocation of an amount equal to the net proceeds of the 2031 Notes to Eligible Green Projects, all or a portion of an amount equal to the net proceeds from the 2031 Notes were used to temporarily repay borrowings outstanding under theOperating Partnership's global credit facility and for other general corporate purposes. 50 Table of Contents Construction The table below summarizes our land held for future development and construction in progress and space held for development as ofMarch 31, 2021 andDecember 31, 2020 : Development Lifecycle As of March 31, 2021 As of December 31, 2020 Net Rentable Current Net Rentable Current Future Square Feet Investment Future Investment Square Feet Investment Investment
(dollars in thousands) (1) (2) (3) Total Cost (1) (4) (3) Total Cost Land held for future development (5) N/A$ 192,896 $ -$ 192,896 N/A$ 226,862 $ -$ 226,862 Construction in Progress and Space Held for Development Land - Current Development (5) N/A$ 683,782 $ -$ 683,782 N/A$ 785,182 $ -$ 785,182 Space Held for Development (6) 1,214,704 234,993 - 234,993 1,501,310 236,545 - 236,545 Base Building Construction 3,758,048 527,310 635,573 1,162,883 2,331,472 458,357 485,613 943,970 Data Center Construction 3,380,286 1,405,086 2,516,622 3,921,708 2,573,759 1,232,762 1,596,821 2,829,583 Equipment Pool & Other Inventory N/A 8,357 - 8,357 N/A 9,761 - 9,761 Campus, Tenant Improvements & Other N/A 45,118 32,223 77,341 N/A 45,719 42,848 88,567Total Construction in Progress and Land Held for Future Development 8,353,038$ 3,097,541 $ 3,184,418$ 6,281,959 6,406,541$ 2,995,188 $ 2,125,282 $ 5,120,470
We estimate the total net rentable square feet available for lease based on a
number of factors in addition to contractually leased square feet, including (1) available power, required support space and common areas. Excludes square
footage of properties held in unconsolidated entities. Square footage is
based on current estimates and project plans, and may change upon completion
of the project due to remeasurement.
(2) Represents balances incurred through
by unconsolidated entities.
(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 entities.
(5) Represents approximately 879 acres as of
927 acres as of
(6) Excludes space held for development through unconsolidated entities.
Land inventory and space held for development reflect cumulative cost spent pending future development. Base building construction consists of ongoing improvements to building infrastructure in preparation for future data center fit-out. Data center construction includes 7.1 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 ofMarch 31, 2021 , we had approximately 7.7 million square feet under active development and approximately 2.2 million square feet held for development. Depending upon customer demand, we expect to incur significant improvement costs to build out and develop additional capacity. AtMarch 31, 2021 , excluding unconsolidated entities, approximately 7.1 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 eightU.S. metropolitan areas, 12 EMEA metropolitan areas, five Asian metropolitan areas, one Australian metropolitan area and one Canadian metropolitan area, consisting of approximately 3.7 million square feet of base building construction and 3.4 million square feet of data center construction. AtMarch 31, 2021 , we had open commitments, related to construction contracts of approximately$1.4 billion , including amounts reimbursable of approximately$31.9 million .
We currently expect to incur approximately
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materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.
Historical Capital Expenditures (Cash Basis)
The table below summarizes our capital expenditure activity for the three months
ended
Three Months Ended March 31,
2021 2020
Development projects $ 439,793 $ 320,093
Enhancement and improvements 58 28
Recurring capital expenditures 39,522 34,677
Total capital expenditures (excluding indirect costs)
For the three months endedMarch 31, 2021 , total capital expenditures increased$124.6 million to approximately$479.4 million from$354.8 million for the same period in 2020. Capital expenditures on our development projects plus our enhancement and improvements projects for the three months endedMarch 31, 2021 were approximately$439.9 million , which reflects an increase of approximately 37% from the same period in 2020. This increase was primarily due to Interxion, which had approximately$158 million of capital expenditures for the three months endedMarch 31, 2021 . Our development capital expenditures are generally funded by our available cash and equity and debt capital. Indirect costs, including capitalized interest, capitalized in the three months endedMarch 31, 2021 and 2020 were$29.2 million and$22.5 million , respectively. Capitalized interest comprised approximately$11.4 million and$9.9 million of the total indirect costs capitalized for the three months endedMarch 31, 2021 and 2020, respectively. Capitalized interest in the three months endedMarch 31, 2021 increased, compared to the same period in 2020, due to an increase in qualifying activities. Excluding capitalized interest, indirect costs in the three months endedMarch 31, 2021 increased compared to the same period in 2020 due primarily to capitalized amounts relating to compensation expense of employees directly engaged in construction activities. 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 "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 through cash purchases and/or exchanges for equity securities of our Parent in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material. 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. 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 ofMay 4, 2021 , we had approximately$2.2 billion of borrowings available under our global revolving credit facilities. If we are not able to obtain additional financing on terms attractive to us, or at all, including as a result 52 Table of Contents of the circumstances described above under "Factors Which May Influence Future Results of Operations-Global market and economic conditions" and "COVID-19", we may be required to reduce our acquisition or capital expenditure plans, which could have a material adverse effect upon our business and results of operations.
Distributions
All distributions on our units are at the discretion of our Parent's Board of Directors. For additional information regarding distributions paid on our common and preferred units for the three months endedMarch 31, 2021 , see Note 10 to our condensed consolidated financial statements contained herein.
Outstanding Consolidated Indebtedness
The table below summarizes our debt, as of
Debt Summary: Fixed rate$ 12,457.1 Variable rate debt subject to interest rate swaps 104.0
Total fixed rate debt (including interest rate swaps) 12,561.1 Variable rate-unhedged
810.2
Total $ 13,371.3
Percent of Total Debt:
Fixed rate (including swapped debt) 93.9 %
Variable rate 6.1 %
Total 100.0 %
Effective Interest Rate as of March 31, 2021
Fixed rate (including hedged variable rate debt) 2.41 %
Variable rate 0.55 %
Effective interest rate 2.30 %
As of March 31, 2021 , we had approximately $13.4 billion of outstanding
consolidated long-term debt as set forth in the table above, which excludes
deferred financing costs. Our ratio of debt to total enterprise value was
approximately 24% (based on the closing price of Digital Realty Trust, Inc.'s
common stock on March 31, 2021 of $140.84 ). For this purpose, our total
enterprise value is defined as the sum of the market value of Digital Realty
Trust, Inc.'s outstanding common stock (which may decrease, thereby increasing
our debt to total enterprise value ratio), plus the liquidation value of Digital
Realty Trust, Inc.'s preferred stock, plus the aggregate value of our Operating
Partnership's units not held by Digital Realty Trust, Inc. (with the per unit
value equal to the market value of one share of Digital Realty Trust, Inc.'s
common stock and excluding long-term incentive units, Class C units and Class D
units), plus the book value of our total consolidated indebtedness.
The variable rate debt shown above bears interest at interest rates based on
various one-month LIBOR, SOR, JPY LIBOR and CDOR rates, depending on the
respective agreement governing the debt, including our global revolving credit
facilities. As of March 31, 2021 , our debt had a weighted average term to
initial maturity of approximately 6.7 years (or approximately 6.7 years assuming
exercise of extension options).
Off-Balance Sheet Arrangements
As ofMarch 31, 2021 , we were party to interest rate swap agreements related to$104.0 million of outstanding principal on our variable rate debt. See Item 3. "Quantitative and Qualitative Disclosures about Market Risk."
As of
53
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Cash Flows
The following summary discussion of our cash flows is based on the condensed
consolidated statements of cash flows and is not meant to be an all-inclusive
discussion of the changes in our cash flows for the periods presented below.
Comparison of Three Months Ended
The following table shows cash flows and ending cash and cash equivalent
balances for the three months ended
Three Months Ended March 31,
2021 2020 Change
Net cash provided by operating activities $ 327,875 $ 226,660 $ 101,215
Net cash provided by (used in) investing
activities 185,458 (137,443) 322,901
Net cash (used in) provided by financing
activities (416,665) 91,010 (507,675)
Net increase in cash, cash equivalents and
restricted cash $ 96,668 $ 180,227 $ (83,559) The increase in net cash provided by operating activities was primarily due to the Interxion Combination offset by the operating activities of properties sold during the twelve months endedMarch 31, 2021 .
The changes in the activities that comprise net cash provided by investing
activities for the three months ended
ChangeIncrease in cash used for improvements to investments in real estate
$ (131,228)
Decrease in cash paid for business combinations and assets acquisition, net of cash and restricted cash acquired
168,904
Increase in cash from investment in joint ventures
118,296
Increase in cash provided by proceeds from sale of real estate
159,122
Other changes
7,807
Increase in net cash provided by investing activities $
322,901
The increase in net cash provided by investing activities was primarily due to a decrease in cash paid for acquisitions related to the acquisition of an additional 49% ownership interest in theWestin Building Exchange inFebruary 2020 , along with an increase in cash provided by proceeds from sale of investments related to the sale of 11 data centers inEurope inMarch 2021 partially offset by the sale of 10 Powered Base Building® properties, which comprise 12 data centers, inNorth America to Mapletree inJanuary 2020 and an increase in cash used for improvements to investments in real estate. The changes in the activities that comprise net cash used in financing activities for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 for the Company consisted of the following amounts (in thousands). Change Increase in cash used for net repayments of short-term borrowings$ (326,303) Decrease in cash provided by proceeds from secured / unsecured debt (585,487) Decrease in cash used for repayment on secured / unsecured debt
548,438
Increase in cash used for dividend and distribution payments
(113,145)
Other changes
(31,178)
Increase in net cash used in financing activities$ (507,675) 54 Table of Contents The increase in cash used in financing activities was primarily due to an increase in cash used for repayments of short-term borrowings during the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 partially along with an increase in dividend and distribution payments for the three months endedMarch 31, 2021 as compared to the same period in 2020 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 three months endedMarch 31, 2021 as compared to the same period in 2020.
Noncontrolling Interests in
Noncontrolling interests relate to the common units in ourOperating Partnership that are not owned byDigital Realty Trust, Inc. , which, as ofMarch 31, 2021 , amounted to 2.7% 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 ofMarch 31, 2021 , approximately 0.2 million common units of theOperating Partnership that were issued to certain former unitholders ofDuPont Fabros Technology, L.P. in connection with the Company's acquisition ofDuPont Fabros Technology, Inc. were outstanding, which are subject to certain restrictions and, accordingly, are not presented as permanent capital in the condensed consolidated balance sheet.
Inflation
Many of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.
Funds from Operations
We calculate funds from operations, or FFO, in accordance with the standards established by 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. 55 Table of Contents Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO) (unaudited, in thousands, except per share and unit data) Three Months Ended March 31, 2021 2020 Net Income Available to Common Stockholders $ 372,406 $ 202,859 Adjustments: Non-controlling interests in operating partnership 9,800 7,800 Real estate related depreciation & amortization (1) 364,697 286,517
Unconsolidated JV real estate related depreciation & amortization
19,378 19,923
Gain on disposition of properties (333,921) (304,801)
FFO available to common stockholders and unitholders (2) $ 432,360 $ 212,298 Basic FFO per share and unit
$ 1.50 $ 0.92
Diluted FFO per share and unit (2) $ 1.49 $ 0.91
Weighted average common stock and units outstanding Basic
288,377 230,443
Diluted (2) 289,199 232,754
(1) Real estate related depreciation and amortization
was computed as follows:
Depreciation and amortization per income statement $ 369,733 $ 291,457
Non-real estate depreciation (5,036) (4,940)
$ 364,697 $ 286,517
For all periods presented, we have excluded the effect of the series C,
series G, series I, series J, series K and series L preferred stock, as (2) applicable, that may be converted into common stock upon the occurrence of
specified change in control transactions as described in the articles
supplementary governing the series C, series G, series I, series J, series K
and series L preferred stock, as applicable, as they would be anti-dilutive.
Three Months Ended March 31,
2021 2020
Weighted average common stock and units
outstanding 288,377 230,443
Add: Effect of dilutive securities 822
2,311
Weighted average common stock and units outstanding-diluted 289,199
232,754
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