filings.toolsItem 1. BUSINESS
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Item 1. BUSINESS
The Company
Digital Realty Trust, Inc., through its controlling interest in Digital Realty Trust, L.P. and its subsidiaries, delivers comprehensive space, power, and interconnection solutions that enable its customers and partners to connect with each other and service their own customers on a global technology and real estate platform. We are a leading global provider of data center, colocation and interconnection solutions for customers across a variety of industry verticals ranging from cloud and information technology services, social networking and communications to financial services, manufacturing, energy, healthcare, and consumer products. Digital Realty Trust, Inc. operates as a real estate investment trust, or REIT, for federal income tax purposes.
As of December 31, 2018, our portfolio consisted of 214 data centers (including 18 data centers held as investments in unconsolidated joint ventures), of which 145 are located in the United States, 38 are located in Europe, 16 are located in Latin America, seven are located in Asia, five are located in Australia and three are located in Canada.
Digital Realty Trust, L.P., a Maryland limited partnership, is the entity through which Digital Realty Trust, Inc., a Maryland corporation, conducts its business of acquiring, developing, owning and operating data centers. Digital Realty Trust, Inc. was incorporated in the state of Maryland on March 9, 2004. Digital Realty Trust, L.P. was organized in the state of Maryland on July 21, 2004. Our principal executive offices are located at Four Embarcadero Center, Suite 3200, San Francisco, California 94111. Our telephone number is (415) 738-6500. Our website is www.digitalrealty.com.
Recent Acquisitions
On December 20, 2018, our Brazilian subsidiary, Stellar Participações Ltda., completed the acquisition of Ascenty, a leading data center provider in Brazil, from private equity firm Great Hill Partners in a transaction valued at approximately $1.8 billion, net of cash purchased. We believe this transaction, which we refer to as the Ascenty Acquisition, represented a significant extension of our global platform and established us as the premier data center solutions provider in the Latin America region. Separately, we entered into an independent bilateral equity commitment letter with Brookfield Infrastructure, an affiliate of Brookfield Asset Management, one of the largest owners and operators of infrastructure assets globally, under which Brookfield has committed to fund approximately $700 million, excluding Brookfield's share of transaction costs, in exchange for 49% of the total equity interests in a joint venture entity expected to ultimately own Ascenty. The agreement with Brookfield is subject to certain closing conditions and is expected to close in the first quarter of 2019.
On September 14, 2017, we completed the acquisition of DuPont Fabros Technology, Inc., or DFT, in an all-stock merger, which we refer to as the DFT Merger, for equity consideration of approximately $6.2 billion. We believe this transaction expanded our reach with a complementary portfolio in top U.S. metropolitan areas while enhancing our ability to meet the growing demand for hyper-scale and public cloud solutions and solidifying our blue-chip customer base.
On July 5, 2016, we completed the acquisition of a portfolio of eight high-quality, carrier-neutral data centers in Europe, which we refer to as the European Portfolio Acquisition, for a total purchase price of $818.9 million (based on the exchange rate at the date of acquisition). We believe the acquisition of these highly strategic assets in Amsterdam, Frankfurt and London enhanced our global colocation and interconnection platform.
On October 9, 2015, we acquired Telx Holdings, Inc., or Telx, a leading U.S. provider of data center colocation, interconnection and cloud enablement solutions, which we refer to as the Telx Acquisition, for approximately $1.9 billion. We believe this was a transformational transaction that established us as a leading provider of colocation and interconnection solutions in the U.S., and was highly complementary to our existing data center solutions.
Industry Background
We believe the data center industry is poised for sustainable growth. The demand for data center infrastructure is being driven by many factors, including the explosive growth of data, rapid growth of cloud adoption and greater demand for IT outsourcing. Computational processing power requirements continue to advance, data traffic is growing, and the volume of data that enterprises generate, transmit, process, analyze, monitor and manage is expanding dramatically. The Internet of Things, 5G, autonomous vehicles and artificial intelligence, among other technological advancements, are driving unprecedented growth of the digital economy, and data centers play an important role. The power requirements and financial costs to support this growth in data, traffic and storage are substantial and growing accordingly.
We believe cloud adoption represents the next generation of corporate IT outsourcing and remains a significant driver of demand for data infrastructure. The cloud is gaining traction because it enables corporate enterprises to achieve efficiencies and contain costs. In addition, the leading cloud service providers are generally mature, well-capitalized technology companies, and cloud platforms are among their fastest growing business segments. Large data centers that deploy computational resources and accompanying power, security and other services at significantly lower cost per unit than smaller ones, and coordinate and aggregate diverse customer, geographic and application demand, are poised to benefit from these cloud-specific industry drivers.
These diverse and secular industry dynamics are driving greater demand for data center capacity not only from global cloud service providers, but also from businesses as diverse as disaster recovery firms and IT service firms. As companies focus on their core competencies and rely on outsourcing to meet their needs, they are also prioritizing colocation for their data center solutions to reduce latency in data transfer. New technologies need a fast, reliable and flexible foundation to operate, and the importance of offering a full spectrum of power, space and connectivity solutions continues to grow.
Our Business
By providing a global real estate and technology platform that enables our customers and partners to connect with each other and service their own customers, we represent an important part of the digital economy that we believe will benefit from powerful, long-term growth drivers. Our platform brings together foundational real estate and innovative technology expertise to deliver a comprehensive, highly specialized product suite to meet customers’ scale, colocation, and connectivity needs. Our solutions help enable the global cloud revolution and provide the infrastructure for today’s growing digital economy.
We believe that the growth trends in the data center market, the cloud, Internet traffic and Internet-based services, combined with cost advantages in outsourcing data center requirements, provide attractive growth opportunities for us as a service provider and are only beginning to penetrate the data center market. Leveraging deep expertise in technology and real estate, we have an expansive global footprint, impressive scale and a full-spectrum product offering in key metropolitan areas around the world. These advantages simplify the contracting process for multinational enterprises, eliminating their need to contract with multiple local data center solutions providers. In addition, in areas where high data center construction and operating costs and long time-to-market prohibit many of our customers from building their own data centers, our global footprint and scale allow us to quickly and efficiently meet our customers' needs.
Digital Realty Pillars
Technology-Enabled Solutions Provider
Our global real estate and technology platform provides comprehensive, customizable solutions and global scale to meet customers’ constantly evolving and expanding data center needs. We provide the trusted foundation for the digital economy, powering our customers’ digital ambitions and supporting their growth.
Global, Local and Interconnected
Our data centers are hyper-connected-hubs, strategically located in 35 key metro areas around the world. Our global strength is matched by the expertise of our local teams on the ground. Our data centers provide high-performance access to one of the largest ecosystem of interconnected networks, critical data center and cloud services, customers and partners.
Resiliency
Our record of resiliency, 12 consecutive years of “five-nines” (99.999%) uptime for facilities owned and operated by us, and our award-winning sustainability program ensure our customers’ high-performance networks are effective and
environmentally conscious. We design, own and manage data centers and are trusted with the critical IT infrastructures of companies globally, from small businesses to large multinational enterprises. We provide the critical digital foundations to store, manage, and connect our customers’ data, allowing them to focus on performance, innovation and accelerating their business growth.
Trusted Partner
We are a trusted partner for many of the most digitally ambitious companies in the world, helping safeguard their digital capital and driving their growth. Whether designing and delivering dedicated data center facilities, or solving cloud connectivity issues, our dedicated team of technical experts strives to ensure customer success through consistency in operations, customer care and ease of doing business.
Our Data Center Portfolio
Our portfolio of high-quality data centers provides secure, highly-connected and continuously available environments for the exchange, processing and storage of critical electronic information. Data centers are used for digital communication, disaster recovery purposes, transaction processing and housing mission-critical corporate IT applications. Our internet gateway data centers are highly interconnected, network-dense facilities that serve as hubs for internet and data communications within and between major metropolitan areas. We believe internet gateways are extremely valuable and a high-quality, highly interconnected global portfolio such as ours could not be easily replicated today on a cost-competitive basis.
Our global real estate and technology platform provides access to a network of 214 state-of-the-art, interconnected data centers, concentrated in 35 major metropolitan areas across 12 countries on five continents. We are diversified across major metropolitan areas characterized by a high concentration of connected end-users and technology companies. Northern Virginia represented 22% of total revenue for the year ended December 31, 2018, followed by Chicago with 13% of total revenue.
Through strategic investments, we have grown our presence in key metropolitan areas throughout North America, Europe, Latin America, Asia and Australia. Recent acquisitions have expanded our footprint into Latin America, enhanced our data center offerings in strategic and complementary U.S. metropolitan areas, established our colocation and interconnection platform in the U.S. and expanded our colocation and interconnection platform in Europe, each transaction enhancing our presence in top-tier locations throughout the U.S., Europe and Latin America.
The locations of and improvements to our data centers, the network density, interconnection infrastructure and connectivity-centric customers in certain of our facilities, and our comprehensive product offerings are critical to our
customers’ businesses, which we believe results in high occupancy levels, longer average lease terms and customer relationships, as well as lower turnover. In addition, many of our data centers contain significant improvements that have been installed at our customers’ expense. The tenant improvements in our data centers are generally readily adaptable for use by similar customers.
Our data centers are physically secure, network-rich and equipped to meet the power and cooling requirements of smaller footprints up to the most demanding IT applications. Many of our data centers are located on major aggregation points formed by the physical presence of multiple major telecommunications service providers, which reduces our customers’ costs and operational risks and enhances the attractiveness of our properties. In addition, our strategically located global data center campuses offer our customers the ability to expand their global footprint as their businesses grow, while our connectivity offerings on our campuses enhance the capabilities and attractiveness of these facilities. Further, the network density, interconnection infrastructure and connectivity-centric customers in certain of our data centers has led to the organic formation of densely interconnected ecosystems that are difficult for others to replicate and deliver added value to our customers.
Our portfolio contains a total of approximately 34.5 million square feet, including approximately 3.4 million square feet of space under active development and approximately 2.1 million square feet of space held for future development. The 18 data centers held as investments in unconsolidated joint ventures have an aggregate of approximately 2.5 million rentable square feet. The 26 parcels of developable land we own comprise approximately 959 acres. A significant component of our current and future growth is expected to be generated through the development of our existing space held for development and acquisition of new properties. As of December 31, 2018, our portfolio, including the 18 data centers held as investments in unconsolidated joint ventures and excluding space under active development and space held for future development, was approximately 89.0% leased.
Our Diversified Product Offerings
We provide flexible, customer-centric data center solutions designed to meet the needs of companies of all sizes across multiple industry verticals around the world. Our data centers and comprehensive suite of product offerings are scalable to meet our customers’ needs, from a single rack or cabinet, up to multi-megawatt deployments, along with connectivity, interconnection and solutions to support their hybrid cloud architecture requirements. Over the past few years, we have expanded our product mix to appeal to a broader spectrum of data center customers, especially those seeking to support a greater portion of their data center requirements through a single provider. We are now one of the only data center providers with a comprehensive global product offering that covers the spectrum from single rack colocation to multiple megawatt deployments and connectivity around the world to suit our customers’ current needs and to enable their future growth. Our Critical Facilities Management® services and team of technical engineers and data center operations experts provide 24/7 support for these mission-critical facilities.
Colocation, Scale and Hyper-Scale Platform.
| Product Types & Names | Description | |
| Colocation | Small (one cabinet) to medium (75 cabinets) deployments Provides agility to quickly deploy in days Contract length generally 2-3 years Consistent designs, operational environment, power expenses | |
| Scale & Hyperscale Powered Base Building® Turn-Key Flex® | Scale from medium (300+ kW) to very large deployments Solution can be executed in weeks Contract length generally 5-10+ years Customized data center environment for specific deployment needs |
Our colocation and Turn-Key Flex® data centers are move-in ready, physically secure facilities with the power and cooling capabilities to support customers requiring a single rack or cabinet up to mission-critical IT enterprise applications. We believe our colocation and Turn-Key Flex® facilities are effective solutions for customers who may lack the bandwidth, capital budget, expertise or desire to provide their own extensive data center infrastructure, management and security. For customers who possess the ability to build and operate their own facility, our Powered Base Building® solution provides the physical location, requisite power and network access necessary to support a state-of-the-art data center.
Additionally, our data center campuses offer our customers the opportunity to expand in or near their existing deployments within our data center campuses.
Interconnection and Cloud-Enablement Platform
| Product | Description | |
| Cross Connect | A Layer 1 connection between two customer defined end points in a Digital Realty facility | |
| Campus Connect | Local, dedicated connectivity solution within Digital Realty campus environments located in hyperconnected metros around the world | |
| Metro Connect | Dedicated connection between multiple Digital Realty facilities located in the same metro area | |
| Internet Exchange | Peering with major carrier, content, and wireless networks on a single, highly-availability service platform | |
| Service Exchange | Access to multiple connections through multiple service providers all from one portal | |
| IP Bandwidth | Blended bandwidth upstream connectivity with routing to provide a fast, resilient, dedicated Internet connection | |
| Pathway | Point-of-entry access for carriers, terminating into the POP or Meet Me Room within a given facility |
Through our recent investments and strategic partnerships, we have significantly expanded our capabilities as a leading provider of interconnection and cloud-enablement services globally. We believe interconnection is an attractive line of business that would be difficult to build organically and enhances the overall value proposition of our colocation, scale and hyper-scale data center product offerings. Furthermore, through product offerings such as our Service Exchange and partnerships with cloud service providers, we are able to support our customers’ hybrid cloud architecture requirements.
Our Global Customers
Our portfolio has attracted a high-quality, diversified mix of customers. We have more than 2,300 customers, and no single customer represented more than approximately 6.8% of the aggregate annualized rent of our portfolio as of December 31, 2018. We provide each customer access to a choice of highly customized solutions based on their scale, colocation, and interconnection needs.
Global Customer Base across a Wide Variety of Industry Sectors. We use our in-depth knowledge of requirements for and trends impacting cloud and information technology service providers, content providers, network and communications providers, and other data center users, including enterprise customers, to market our data centers to meet these customers’ specific technology needs. Our customers are increasingly launching multi-regional deployments and growing with us internationally. Our largest customer, Facebook, accounted for approximately 6.8% of the aggregate annualized rent as of December 31, 2018 and no other single customer accounted for more than approximately 6.4% of the aggregate annualized rent of our portfolio. At December 31, 2018, our customers represented a variety of industry verticals, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, gaming, life sciences and consumer products.
| Cloud and IT Services | Digital Content Providers and Financial Companies | Network and Mobile Services |
| IBM | Facebook, Inc. | Verizon |
| Fortune 50 Software Company | Fortune 25 Investment Grade-Rated Company | AT&T |
| Cyxtera Technologies | Comcast Corporation | |
| Oracle America, Inc. | JPMorgan Chase & Co. | CenturyLink |
| Equinix | China Telecommunications Corporation |
Proven Experience Attracting and Retaining Customers. Our specialized data center salesforce, which is aligned t o meet our customers’ needs for global, enterprise and network solutions, provides a robust pipeline of new customers, while
existing customers continue to grow and expand their utilization of our technology-enabled services to support a greater portion of their IT needs.
Below is a summary of our leasing activity for the year ended December 31, 2018 (in millions):
| Year Ended December 31, 2018 | ||||||||||||||
| Commenced | Signed | |||||||||||||
| Square Feet | Annualized GAAP Rent | Square Feet | Annualized GAAP Rent | |||||||||||
| New | 1.9 | $ | 255 | 1.9 | (1) | $ | 240 | (1) | ||||||
| Renewals | 2.0 | $ | 312 | 2.0 | $ | 330 |
| (1) | Includes signed new leases with existing customers totaling approximately 1.9 million square feet, which represent approximately $223 million in annualized GAAP rent. |
Our Design and Construction Program
Our extensive development activity, operating scale and process-based approach to data center design and construction result in significant cost savings and added value for our customers. We have leveraged our purchasing power by securing global purchasing agreements and developing relationships with major equipment manufacturers, reducing costs and shortening delivery timeframes on key components, including major mechanical and electrical equipment. Utilizing our innovative modular data center design, we deliver what we believe to be a technically superior data center environment at significant cost savings. In addition, by utilizing our POD Architecture® to develop new Turn-Key Flex® facilities in our existing Powered Base Building® facilities, on average we can deliver a fully commissioned facility in under 30 weeks. Finally, our access to capital and investment-grade ratings allow us to provide data center solutions for customers who do not want to invest their own capital.
Our Investment Approach
We have developed detailed, standardized procedures for evaluating acquisitions and investments, including income-producing properties as well as vacant buildings and land suitable for development, to ensure that they meet our strategic, financial, technical and other criteria. These procedures, together with our in-depth knowledge of the technology, data center and real estate industries, allow us to identify strategically located properties and evaluate investment opportunities efficiently and, as appropriate, commit and close quickly. Our investment-grade ratings, along with our broad network of contacts within the data center industry, enable us to effectively capitalize on acquisition and investment opportunities.
Our Management Team and Organization
Our senior management team has many years of experience in the technology and/or real estate industries, including experience as investors in and advisors to technology companies. We believe that our senior management team’s extensive knowledge of both the technology and the real estate industries provides us with a key competitive advantage. Further, a significant portion of compensation for our senior management team and directors is in the form of common equity interests in our Company. We also maintain minimum stock ownership requirements for our senior management team and directors, further aligning their interests with those of external stockholders, as well as an employee stock purchase plan, which encourages our employees to increase their ownership in the Company.
Our Business and Growth Strategies
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 dividends and distributions and (iii) return on invested capital. We expect to accomplish these 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.
Superior Risk-Adjusted Returns. We believe that achieving appropriate risk-adjusted returns on our business, including on our development pipeline and leasing transactions, will deliver superior stockholder returns. At December 31, 2018, we had
approximately 3.4 million square feet of space under active development. We may continue to build out our development pipeline when justified by anticipated returns. We have established robust internal guidelines for reviewing and approving leasing transactions, which we believe will drive risk-adjusted returns. We also believe that providing an even stronger value proposition to our customers, including through new and more comprehensive product offerings, as well as continuing to improve operational efficiencies, will further drive improved returns for our business.
Prudently Allocate Capital. We believe that the accretive deployment of capital at sufficiently positive spreads above our cost of capital enables us to increase cash flow and create long-term stockholder value.
Strategic and Complementary Investments. We have developed significant expertise at underwriting, financing and executing data center investment opportunities. We employ a collaborative approach to deal analysis, risk management and asset allocation, focusing on key elements, such as market fundamentals, accessibility to fiber and power, and the local regulatory environment. In addition, the specialized nature of data centers makes these investment opportunities more difficult for traditional real estate investors to underwrite, resulting in reduced competition for investments relative to other property types. We believe this dynamic creates an opportunity for us to generate attractive risk-adjusted returns on our capital.
Preserve the Flexibility of Our Balance Sheet. 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 related cost. Since Digital Realty Trust Inc.’s initial public offering in 2004, we have raised approximately $30.6 billion of capital through common (excluding forward contracts), preferred and convertible preferred equity offerings, exchangeable debt offerings, non-exchangeable bond offerings, our global revolving credit facility, our term loan facility, a senior notes shelf facility, secured mortgage financings and re-financings, joint venture partnerships and the sale of non-core assets. We endeavor to maintain financial flexibility while using our liquidity and access to capital to support operations, our acquisition, investment, leasing and development programs and global campus expansion, which are important sources of our growth.
Leverage Technology to Develop Comprehensive and Diverse Products. We have diversified our product offering, through acquisitions and organically through leveraging innovative technologies, and believe that we have one of the most comprehensive suites of global data center solutions available to customers from a single provider.
Global Service Infrastructure Platform. With our recent acquisitions, which extended our footprint into Latin America, enhanced our portfolio of scale and hyper-scale data centers in the U.S. and established us as a leading provider of colocation, interconnection and cloud-enablement services globally, we are able to offer a broader range of data center solutions to meet our customers’ needs, from a single rack or cabinet to multi-megawatt deployments. We believe our products like Service Exchange and our partnerships with managed services and cloud service providers further enhance the attractiveness of our data centers.
Provide Foundational Services to Enable Customers and Partners. We believe that the real estate platform, through which we offer the foundational services of space, power and connectivity, will enable our customers and partners to serve their customers and grow their businesses. We believe our Internet gateway data centers, individual data centers and data center campuses are attractive to a wide variety of customers and partners of all sizes. Furthermore, we believe our colocation and interconnection offerings, as well as the densely connected ecosystems that have developed within our facilities, and the availability and scalability of our comprehensive suite of products are valuable and critical to our customers and partners.
Accelerate Global Reach and Scale. We have strategically pursued international expansion since our IPO in 2004 and now operate across five continents. We believe that our global multi-product data center portfolio is a foundational element of our strategy and our scale and global platform represent key competitive advantages difficult to replicate. Customers and competitors are recognizing the value of interconnected scale, which aligns with our connected campus strategy that enables customers to “land and expand” with us. We expect to continue to source and execute strategic and complementary transactions to strengthen our data center portfolio, expand our global footprint and product mix, and enhance our scale. In December 2018, we completed the acquisition of Ascenty, a leading data center provider in Brazil, immediately establishing Digital Realty as the premier data center solutions provider in the Latin America region.
Drive Revenue Growth and Operating Efficiencies. We aggressively manage our properties to maximize cash flow and control costs by leveraging our scale to drive operating efficiencies.
Leverage Strong Industry Relationships. We use our strong industry relationships with international, national and regional corporate enterprise information technology groups and technology-intensive companies to identify and solve their
data center needs. Our sales professionals are technology and real estate industry specialists who can develop complex facility solutions for the most demanding data center and other technology customers.
Maximize Cash Flow. We often acquire properties with substantial in-place cash flow and some vacancy, which enables us to create upside through lease-up. We control our costs by negotiating expense pass-through provisions in customer agreements for operating expenses, including power costs and certain capital expenditure. We have also focused on centralizing functions and optimizing operations as well as improving processes and technologies. We believe that expanding our global data center campuses will also contribute to operating efficiencies because we expect to achieve economies of scale on our campus environments.
Sustainability
We believe that addressing sustainability by driving environmental efficiency through the implementation of cost-effective design and use of renewable energy serves as a key differentiator enabling us to deliver products that help attract and retain customers, generate cash flow, and manage operational risks. Ninety percent of our top 20 customers have publicly stated sustainability goals, further highlighting the competitive importance of our sustainability initiatives. Our sustainability platform includes the following:
| • | We manage our data centers so that they offer high degrees of operational efficiencies for our customers. We benchmark and certify certain data centers in accordance with the U.S. Environmental Protection Agency, or EPA, Energy Star program, LEEDTM, BREEAM, as well as other recognized third-party rating standards. A portion of our U.S. portfolio is enrolled in the U.S. Department of Energy’s Better Buildings Challenge for Data Centers. |
| • | We have developed solutions to help our customers efficiently utilize energy and water, and to help them procure renewable energy. |
In 2018, we received the Nareit “Leader in the Light” award for data centers, recognizing our sustainability and energy-efficiency achievements.
Energy and resource management considerations are integrated into our business decisions. For the operating portfolio, annual capital expense investment planning identifies and evaluates resource efficiency project opportunities in a parallel but distinct process from non-resource-impacting capital investments. For acquisitions and new development activity, resiliency risks, resource availability, and renewable energy access are considered. Our design and construction process incorporates sustainable features that support resource efficiency during both construction as well as during eventual operational activity at the sites. We consider water availability, cost, and alternate supply solutions to potable water such as municipally supplied reclaimed water. We also consider cooling system designs to maximize ‘free cooling’ and reduce or eliminate the site’s reliance on access to water for cooling.
Sustainable Data Center Ratings
Data centers receiving third-party sustainable ratings in 2018 totaled approximately 1.4 million square feet, or approximately 44% of our total shell completions in 2018. We received the following sustainable data center ratings for all, or a portion of, the following sites:
| • | 44274 Round Table Plaza, Ashburn, VA USA |
| • | 2220 De La Cruz Blvd Phase 3, Santa Clara, CA USA |
| • | 1400 Devon Ave, Elk Grove Village, IL USA |
| • | Jan Wijsmullerdreef 10, Hoofddorp, Netherlands |
We also received an operational phase recertification that totaled 370,500 square feet for 29A International Business Park, Jurong, Singapore.
In 2018, we achieved Energy Star for Data Centers recognition for all, or a portion of, the following sites, representing approximately 35% of our U.S. operating portfolio. (1)
| (1) | Percentage is based on U.S. stabilized assets, excluding Powered Base Building space, space under active development, space held for development, and space held in unconsolidated joint ventures. |
Resource Conservation
We seek to proactively identify and support opportunities to efficiently utilize resources, such as energy and water, throughout our operating portfolio. In 2018, we completed 43 conservation projects primarily focusing on energy and water conservation.
Renewable Energy
In 2018, we entered into power purchase agreements to secure the renewable energy attributes from a solar farm in North Carolina to support the renewable energy needs of a customer in Virginia. We secured additional capacity from our previously announced solar farm contract in North Carolina, and we announced that our Chandler, Arizona portfolio has been enrolled in a utility solar program expected to supply a portion of the site’s energy requirements from utility-supplied solar energy. Our previously disclosed Texas wind farm and Virginia solar farm power purchase agreements produced a total of 428,470 MWh of renewable energy credits in 2018.
SASB
The Sustainability Accounting Standards Board (“SASB”) issued the Real Estate Owners, Developers & Investment Trusts Sustainability Accounting Standard guidance, which outlines proposed disclosure topics and accounting metrics for the real estate industry. We provide data on energy and water management metrics that best correlate with our business and industry as indicated in the following sections. The energy and water data we use is primarily collected and reviewed by third parties who compile the data from property utility statements. These metrics enable us to better manage our portfolio, track our progress on resource efficiency improvements, and track renewable energy sourcing.
Energy Data
| Year (1) | Energy Consumption Data Coverage as % of Floor Area | Total Energy Consumed by Portfolio Area with Data Coverage (MWh) (2) | Grid Electricity Consumption as a % of Energy Consumption | % of Energy Generated from Renewable Resources (3) | Like-for-Like Change in Energy Consumption of Portfolio Area with Data Coverage (4) | MWh per Occupied kW (5) | MWh per Occupied kW Year over Year % Change | |||
| 2017 (6) | 81 | % | 5,813,940 | 96% | 12.6% | (7) | 3.7% | 6.31 | (3.0)% | |
| 2016 | 84 | % | 3,699,472 | 95% | 23.4% | 2.5% | 6.50 | (5.8)% | ||
| 2015 | 77 | % | 3,252,836 | 95% | 9.5% | n/a | 6.90 | n/a |
| (1) | Full-year 2018 energy data is not currently available. The most recent full year for which energy data is available is 2017. |
| (2) | The scope of energy includes: energy purchased from sources external to the Company and its customers; energy produced by the Company and its customers (i.e., self-generated); and energy from all other sources, including direct fuel usage, purchased electricity, and purchased chilled water. |
| (3) | Excludes renewable energy supplied by standard baseline utility fuel mix. Includes above-baseline utility renewables (e.g., green tariffs), Renewable Energy Credit (REC) purchases and RECs generated by the Company. |
| (4) | Data reported in MWh on a like-for-like comparison excludes properties which were acquired, disposed of, under development or redeveloped during the reported year. |
| (5) | We provide a “MWh per occupied kW” metric to assess relative resource use intensity. Excludes kW associated with Powered Base Building space. |
| (6) | Includes full-year data for properties acquired in the DFT Merger in 2017. |
| (7) | Reflects the growth of the portfolio due to the DFT Merger in 2017 as well as the conclusion of the Clean Start REC program at the end of 2016. |
Water Data
| Year (1) | Water Consumption Data Coverage as % of Floor Area | Total Water Consumed by Portfolio Area with Data Coverage (kGal) (2) | Like-for-Like Change in Water Consumption of Portfolio Area with Data Coverage (3) | kGal per Occupied kW (4) | Gal per Occupied kW Year over Year % Change | |||
| 2017 (5) | 72 | % | 1,258,493 | (6) | 5.8% | 1.37 | 69.2% | |
| 2016 | 64 | % | 459,127 | (2.0)% | 0.81 | (5.8)% | ||
| 2015 | 60 | % | 403,373 | n/a | 0.86 | n/a |
| (1) | Full-year 2018 water data is not currently available. The most recent full year for which water data is available is 2017. |
| (2) | Data reported in kilo-gallons (kGal). The scope of water consumed includes potable and non-potable water purchased from third-party suppliers. |
| (3) | The like-for-like comparison excludes properties which were acquired, disposed, under development or redeveloped during the reported year. |
| (4) | We provide a “kGal per occupied kW” metric to assess relative resource use intensity. Excludes kGal associated with Powered Base Building space. |
| (5) | Includes full-year data for properties acquired in the DFT Merger in 2017. |
| (6) | This change is primarily attributable to the properties acquired in the DFT Merger in 2017, which predominantly utilize water-based cooling solutions. |
Competition
We compete with numerous data center providers, many of whom own or operate properties similar to ours in some of the same metropolitan areas where our data centers are located, including CoreSite Realty Corporation, CyrusOne Inc., Equinix, Inc., QTS Realty Trust, Inc., Switch, Inc. and various local developers in the U.S., as well as Global Switch Holdings Limited and various regional operators in Europe, Asia, Latin America and Australia. See "We face significant competition, which may adversely affect the occupancy and rental rates of our data centers." in Item 1A. Risk Factors.
Geographic Information
Operating revenues from properties in the United States were $2,482.1 million, $1,942.7 million and $1,670.2 million and outside the United States were $564.4 million, $515.2 million and $442.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. We had investments in real estate located in the United States of $11.1 billion, $10.5 billion and $6.3 billion and outside the United States of $3.8 billion, $3.1 billion and $2.6 billion as of December 31, 2018, 2017 and 2016, respectively.
Operating revenues from properties located in the United Kingdom were $295.3 million, $275.1 million and $234.3 million, or 9.7%, 11.2% and 11.1% of total operating revenues, for the years ended December 31, 2018, 2017 and 2016, respectively. No other foreign country comprised more than 10% of total operating revenues for each of these years. We had investments in real estate located in the United Kingdom of $1.6 billion, $1.7 billion and $1.5 billion, or 10.9%, 12.1% and 16.6% of total investments in real estate, as of December 31, 2018, 2017 and 2016, respectively. No other foreign country comprised more than 10% of total investments in real estate as of each of December 31, 2018, 2017 and 2016. See “Ownership of data centers located outside of the United States subjects us to foreign currency and related risks which may adversely impact our ability to make distributions”, “Our international activities are subject to unique risks different than those faced by us in the United States and we may not be able to effectively manage our international business” and “We face risks with our international acquisitions associated with investing in unfamiliar metropolitan areas” in Item 1A. Risk Factors for risks relating to our international operations.
Regulation
General
Our properties are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe each of our properties as of December 31, 2018 has the necessary permits and approvals to operate. Our properties must comply with Title III of the Americans with Disabilities Act of 1990, or the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. We believe our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, non-compliance with the ADA could result in imposition of fines or an award of damages to private litigants. See “We may incur significant costs complying with the Americans with Disabilities Act and similar laws.” in Item 1A. Risk Factors.
Environmental Matters
We are exposed to various environmental risks that may result in unanticipated losses and could affect our operating results and financial condition. Either the previous owners or we have conducted environmental reviews on a majority of the properties we have acquired, including land. While some of these assessments have led to further investigation and sampling, none of the environmental assessments have revealed an environmental liability that we believe would have a material adverse effect on our business, financial condition or results of operations. See "We could incur significant costs related to environmental matters, including from government regulation, private litigation, and existing conditions at some of our properties." in Item 1A. Risk Factors for further discussion.
Insurance
We carry commercial general liability, property, and business interruption insurance, including rental income loss coverage on all of the properties in our portfolio under a blanket program. We select policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of coverage, and industry practice. We believe the properties in our portfolio are adequately insured. We do not carry insurance for generally uninsured exposures such as loss from war or nuclear reaction. In addition, we carry earthquake insurance on our properties in an amount and with deductibles we believe are commercially reasonable. We intend to partially fund the earthquake insurance deductibles through a captive insurance company we established in May 2014. Certain of the properties in our portfolio are located in areas known to be seismically active. See “Potential losses may not be covered by insurance.” in Item 1A. Risk Factors.
Employees
The geographic distribution of our global employee base as of December 31, 2018 is summarized in the following table.
| Region | Number of Employees | ||
| North America | 1,148 | ||
| Europe | 284 | ||
| Asia Pacific | 98 | ||
| Total | 1,530 |
Available Information
All reports we file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. We will also provide copies of our Forms 8-K, 10-K, 10-Q, Proxy Statement and amendments to those documents at no charge to investors upon request and make electronic copies of such reports available through our website at www.digitalrealty.com as soon as reasonably practicable after filing such material with the SEC. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.
Offices
Our headquarters are located in San Francisco. We have regional U.S. offices in Boston, Chicago, Dallas, Los Angeles, New York, Northern Virginia and Phoenix and regional international offices in Amsterdam, Dublin, London, São Paulo, Singapore, Sydney, Tokyo and Hong Kong.
Reports to Security Holders
Digital Realty Trust, Inc. is required to send an annual report to its securityholders and to our Operating Partnership’s unitholders.
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