filings.toolsDigital Realty Trust 10-K 2019-12-31
Filed 2020-03-02. 22 sections, 900K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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| ☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | For the fiscal year ended December 31, 2019 |
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | For the Transition Period From to . |
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| Commission file number | 001-32336 (Digital Realty Trust, Inc.) | |
| | | 000-54023 (Digital Realty Trust, L.P.) |
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
(Exact name of registrant as specified in its charter)
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| Maryland (Digital Realty Trust, Inc.) Maryland (Digital Realty Trust, L.P.) | 26-0081711 20-2402955 |
| (State or other jurisdiction of incorporation or organization) | (IRS employer identification number) |
| Four Embarcadero Center, Suite 3200 San Francisco**,** CA | 94111 |
| (Address of principal executive offices) | (Zip Code) |
(415) 738-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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|---|---|---|---|---|---|---|---|
| | Title of each class | | | Trading Symbols(s) | Name of each exchange on which registered | ||
| Digital Realty Trust, Inc. | | Common Stock, $0.01 par value per share | | | DLR | | New York Stock Exchange |
| | | Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | | | DLR Pr C | | New York Stock Exchange |
| | | Series G Cumulative Redeemable Preferred Stock, $0.01 par value per share | | | DLR Pr G | | New York Stock Exchange |
| | | Series I Cumulative Redeemable Preferred Stock, $0.01 par value per share | | | DLR Pr I | | New York Stock Exchange |
| | | Series J Cumulative Redeemable Preferred Stock, $0.01 par value per share | | | DLR Pr J | | New York Stock Exchange |
| | | Series K Cumulative Redeemable Preferred Stock, $0.01 par value per share | | | DLR Pr K | | New York Stock Exchange |
| | | Series L Cumulative Redeemable Preferred Stock, $0.01 par value per share | | | DLR Pr L | | New York Stock Exchange |
| Digital Realty Trust, L.P. | | None | | | None | | None |
Securities registered pursuant to Section 12(g) of the Act:
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|---|---|---|
| Digital Realty Trust, Inc. | None | |
| Digital Realty Trust, L.P. | | Common Units of Partnership Interest |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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| Digital Realty Trust, Inc. | Yes ⌧ No ◻ |
| Digital Realty Trust, L.P. | Yes ⌧ No ◻ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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|---|---|
| Digital Realty Trust, Inc. | Yes ◻ No ⌧ |
| Digital Realty Trust, L.P. | Yes ◻ No ⌧ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Digital Realty Trust, Inc. | Yes ⌧ No ◻ |
| Digital Realty Trust, L.P. | Yes ⌧ No ◻ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| Digital Realty Trust, Inc. | Yes ⌧ No ◻ |
| Digital Realty Trust, L.P. | Yes ⌧ No ◻ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Digital Realty Trust, Inc.:
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|---|---|---|---|
| Large accelerated filer | ⌧ | Accelerated filer | ◻ |
| Non-accelerated filer | ◻ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
Digital Realty Trust, L.P.:
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|---|---|---|---|
| Large accelerated filer | ◻ | Accelerated filer | ◻ |
| Non-accelerated filer | ⌧ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| Digital Realty Trust, Inc. | ☐ |
| Digital Realty Trust, L.P. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
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|---|---|
| Digital Realty Trust, Inc. | Yes ☐ No ⌧ |
| Digital Realty Trust, L.P. | Yes ☐ No ⌧ |
The aggregate market value of the common equity held by non-affiliates of Digital Realty Trust, Inc. as of June 28, 2019 totaled approximately $25 billion based on the closing price for Digital Realty Trust, Inc.’s common stock on that day as reported by the New York Stock Exchange. Such value excludes common stock held by executive officers, directors and 10% or greater stockholders as of June 28, 2019. The identification of 10% or greater stockholders as of June 28, 2019 is based on Schedule 13G and amended Schedule 13G reports publicly filed before June 28, 2019. This calculation does not reflect a determination that such parties are affiliates for any other purposes.
There is no public trading market for the common units of Digital Realty Trust, L.P. As a result, the aggregate market value of the common units held by non-affiliates of Digital Realty Trust, L.P. cannot be determined.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Digital Realty Trust, Inc.:
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|---|---|---|---|
| Class | Outstanding at February 26, 2020 | ||
| Common Stock, $.01 par value per share | | 209,039,061 | |
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of Digital Realty Trust, Inc.’s Proxy Statement for its 2020 Annual Meeting of Stockholders which the registrants anticipate will be filed no later than 120 days after the end of its fiscal year pursuant to Regulation 14A.
EXPLANATORY NOTE
This report combines the annual reports on Form 10-K for the year ended December 31, 2019 of Digital Realty Trust, Inc., a Maryland corporation, and Digital Realty Trust, L.P., a Maryland limited partnership, of which Digital Realty Trust, Inc. is the sole general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our Company” or “the Company” refer to Digital Realty Trust, Inc. together with its consolidated subsidiaries, including Digital Realty Trust, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our Operating Partnership” or “the Operating Partnership” refer to Digital Realty Trust, L.P. together with its consolidated subsidiaries.
Digital Realty Trust, Inc. is a real estate investment trust, or REIT, and the sole general partner of Digital Realty Trust, L.P. As of December 31, 2019, Digital Realty Trust, Inc. owned an approximate 95.9% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 4.1% of the common limited partnership interests of Digital Realty Trust, L.P. are owned by non-affiliated third parties and certain directors and officers of Digital Realty Trust, Inc. As of December 31, 2019, Digital Realty Trust, Inc. owned all of the preferred limited partnership interests of Digital Realty Trust, L.P. As the sole general partner of Digital Realty Trust, L.P., Digital Realty Trust, Inc. has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control.
We believe combining the annual reports on Form 10-K of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. into this single report results in the following benefits:
| ● | enhancing investors’ understanding of our Company and our Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
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| ● | eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both our Company and our Operating Partnership; and |
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| ● | creating time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
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There are a few differences between our Company and our Operating Partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between our Company and our Operating Partnership in the context of how we operate as an interrelated consolidated company. Digital Realty Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of Digital Realty Trust, L.P. As a result, Digital Realty Trust, Inc. does not conduct business itself, other than acting as the sole general partner of Digital Realty Trust, L.P., issuing public equity from time to time and guaranteeing certain unsecured debt of Digital Realty Trust, L.P. and certain of its subsidiaries. Digital Realty Trust, Inc. itself does not issue any indebtedness but guarantees the unsecured debt of Digital Realty Trust, L.P. and certain of its subsidiaries and affiliates, as disclosed in this report. Digital Realty Trust, L.P. holds substantially all the assets of the Company and holds the ownership interests in the Company’s joint ventures. Digital Realty Trust, L.P. conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by Digital Realty Trust, Inc., which are generally contributed to Digital Realty Trust, L.P. in exchange for partnership units, Digital Realty Trust, L.P. generates the capital required by the Company’s business through Digital Realty Trust, L.P.’s operations, by Digital Realty Trust, L.P.’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.
The presentation of noncontrolling interests in operating partnership, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of Digital Realty Trust, Inc. and those of Digital Realty Trust, L.P. The common limited partnership interests held by the limited partners in Digital Realty Trust, L.P. are presented as limited partners’ capital within partners’ capital in Digital Realty Trust, L.P.’s consolidated financial statements and as noncontrolling interests in operating partnership within equity in Digital Realty Trust, Inc.’s consolidated financial statements. The common and preferred partnership interests held by Digital Realty Trust, Inc. in Digital Realty Trust, L.P. are presented as general partner’s capital within partners’ capital in Digital Realty Trust, L.P.’s consolidated financial statements and as preferred stock, common stock, additional paid-in capital and accumulated dividends in excess of earnings within stockholders’ equity in Digital Realty Trust, Inc.’s consolidated financial statements. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity issued at the Digital Realty Trust, Inc. and the Digital Realty Trust, L.P. levels.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
| ● | consolidated financial statements; |
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| ● | the following notes to the consolidated financial statements: |
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| ● | "Debt of the Company" and "Debt of the Operating Partnership"; |
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| ● | "Income per Share" and "Income per Unit"; |
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| ● | "Equity and Accumulated Other Comprehensive Loss, Net of the Company" and "Capital and Accumulated Other Comprehensive Loss of the Operating Partnership"; and |
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| ● | "Quarterly Financial Information"; |
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| ● | Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations; |
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| ● | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities; and |
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| ● | Selected Financial Data. |
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This report also includes separate Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and Chief Financial Officer of each entity has made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.
As general partner with control of the Operating Partnership, Digital Realty Trust, Inc. consolidates the Operating Partnership for financial reporting purposes, and it does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. are the same on their respective consolidated financial statements. The separate discussions of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
In this report, “properties” and “buildings” refer to all or any of the buildings in our portfolio, including data centers and non-data centers, and “data centers” refers only to the properties or buildings in our portfolio that contain data center space. In this report, “global revolving credit facility” refers to our Operating Partnership’s $2.35 billion senior unsecured revolving credit facility and global senior credit agreement; “term loan facility” or “unsecured term loans” refers to our Operating Partnership’s senior unsecured multi-currency term loan facility and term loan agreement, which governs a $300 million five-year senior unsecured term loan and a $512 million five-year senior unsecured term loan; “Yen revolving credit facility” refers to our Operating Partnership’s ¥33,285,000,000 (approximately $306 million based on exchange rates at December 31, 2019) senior unsecured revolving credit facility and Yen credit agreement; and “revolving credit facilities” or “global revolving credit facilities” refer to our global revolving credit facility and our Yen revolving credit facility, collectively.
DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
PART I
Item 1. BUSINESS
The Company
Digital Realty Trust, Inc., through its controlling interest in Digital Realty Trust, L.P. (the Operating Partnership) and the subsidiaries of the Operating Partnership, (collectively, we, our, us or the Company) is 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, communications and social networking to financial services, manufacturing, energy, healthcare, and consumer products. 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 owning, acquiring, developing and operating data centers. Digital Realty Trust, Inc. operates as a REIT for federal income tax purposes.
As of December 31, 2019, our portfolio consisted of 225 data centers (including 41 data centers held as investments in unconsolidated joint ventures), of which 147 are located in the United States, 41 are located in Europe, 19 are located in Latin America, 10 are located in Asia, 5 are located in Australia and 3 are located in Canada.
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. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this Annual Report on Form 10-K.
Recent Acquisitions
On October 29, 2019, Digital Realty Trust, Inc., Digital Intrepid Holding B.V., an indirect subsidiary of Digital Realty Trust, Inc., which we refer to as the Buyer, and InterXion Holding N.V., which we refer to as InterXion, entered into a purchase agreement, or the Purchase Agreement, pursuant to which, subject to the terms and conditions of the Purchase Agreement, the Buyer will commence an exchange offer, or the Offer, to purchase all of the outstanding ordinary shares of InterXion, or InterXion Shares, in exchange for shares of common stock of Digital Realty Trust, Inc., or the Offer Consideration. The transaction is expected to close in 2020 and is subject to customary closing conditions. We refer to the transactions contemplated by the Purchase Agreement as the InterXion Combination or the InterXion Transactions.
On November 1, 2019, we closed the joint venture with Mapletree Investments and Mapletree Industrial Trust, which we refer to collectively as Mapletree, on three existing Turn-Key Flex® data centers located in Ashburn, Virginia. The Company retained a 20% ownership interest in the joint venture, and Mapletree acquired the remaining 80% stake for approximately $0.8 billion. We will continue to operate and manage these facilities. The second tranche of the Mapletree transaction, the sale of 10 fully-leased Powered Base Building® properties for $557 million, closed in January 2020.
On December 20, 2018, the Operating Partnership and Stellar Participações S.A. (formerly Stellar Participações Ltda.), a Brazilian subsidiary of the Operating Partnership, completed the acquisition of Ascenty, a leading data center provider in Brazil, for cash and equity consideration of approximately $2.0 billion, including cash assumed. We refer to this transaction as the Ascenty Acquisition. In March 2019, we formed a joint venture with Brookfield Infrastructure, an affiliate of Brookfield Asset Management, one of the largest owners and operators of infrastructure assets globally. Brookfield invested approximately $702 million in exchange for approximately 49% of the total equity interests in the joint venture which owns and operates Ascenty. A subsidiary of the Operating Partnership retained the remaining equity interest in the Ascenty joint venture. As of March 27, 2019, we deconsolidated Ascenty and recorded our retained interest as an investment in unconsolidated joint ventures due to shared control with Brookfield.
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
The digital economy continues to grow and change how enterprises across all industries create and deliver value. Companies increasingly need to operate ubiquitously, on-demand and with real-time intelligence serving customers, partners and employees across multiple channels, business functions and points of business presence. 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.
As the infrastructure for this growing digital economy, we believe the data center industry is poised for sustainable growth. The demand for data center infrastructure is being driven by this digital transformation which is contributing to the explosive growth of data, rapid growth of cloud adoption and greater demand for IT outsourcing. The power requirements and financial costs to support this growth in data, traffic and storage are substantial and growing accordingly. We believe that data centers will continue to play a critical role in the digital economy and enabling business transformation strategies.
We believe cloud solutions and, in particular, hybrid cloud solutions will remain significant drivers of demand for data infrastructure. The hybrid cloud, which combines public and private cloud solutions, has gained traction because it enables corporate enterprises to achieve efficiencies and contain costs as well as scale and secure their most sensitive information. In addition, the leading cloud service providers are generally mature, well-capitalized technology companies, and cloud platforms are among their fastest growing business segments. Data center providers that can solve global coverage, capacity and ecosystem connectivity needs, and coordinate and aggregate diverse customer 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 across all industries, including disaster recovery firms, IT service firms and financial services. As companies focus on their core competencies and rely on outsourcing to meet their needs, they are prioritizing colocation for their data center solutions for various reasons, including to reduce latency in data transfer and increase global presence and connectivity. 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
We solve global coverage, capacity, and ecosystem connectivity needs for companies of all sizes through PlatformDIGITALTM, our global platform for centers of data exchange, interconnection, and colocation solutions. Our global, fit for purpose data center platform enables companies to scale their digital business with a controlled, connected, and optimized network architecture designed to address their specific requirements. We offer a Pervasive Data Center (PDxTM) architecture that integrates the physical and virtual worlds within proximity to centers of data exchange, interconnected to digital ecosystems and tailored to business needs. Our solutions support increasing requirements for a decentralized infrastructure to accommodate the growing need for distributed workflows that vary by type of customer, application, data and location. This platform allows our customers and partners to connect with each other and their own customers and partners.
Fundamentally, our platform brings together foundational real estate and innovative technology expertise to deliver a comprehensive, specialized product suite to meet customers’ global infrastructure needs. Our solutions help enable the global cloud revolution and provide the infrastructure for today’s growing digital economy. We represent an important part of the digital economy that we believe will benefit from powerful, long-term growth drivers.
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 data center solutions provider. Leveraging deep expertise in technology and real estate, we have an expansive global footprint, impressive scale and a full-spectrum fit for purpose 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
Resilient Foundations
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 for our customers to store, manage, and connect their data when, where and how they need it.
Global, Local and Interconnected
Our data centers are hyper-connected hubs, strategically located in 36 key metro areas across 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 ecosystems of interconnected networks, critical data center and cloud services, customers and partners. Our global footprint and network enable our customers to connect with other parties in the way they need.
Trusted Partner
We are a trusted partner for our customers, which include 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 platform provides access to a network of 225 state-of-the-art, interconnected data centers, concentrated in 36 major metropolitan areas across 13 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 24% of total revenue for the year ended December 31, 2019, 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 36.6 million square feet, including approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for future development. The 41 data centers held as investments in unconsolidated joint ventures have an aggregate of approximately 4.7 million rentable square feet. The 24 parcels of developable land we own comprise approximately 944 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, 2019, our portfolio, including the 41 data centers held as investments in unconsolidated joint ventures and excluding space under active development and space held for future development, was approximately 86.8% leased.
Our Diversified Product Offerings
We provide a flexible, global data center platform that allows our customers to tailor infrastructure deployments and controls matched to their business needs. 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 offer 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.
PlatformDIGITAL Solution Model**.** The PlatformDIGITAL solution model is based on our Pervasive Datacenter™ architecture strategy, which brings users, networks, clouds, controls and systems to the data, removing barriers, creating centers of data exchange to accommodate distributed workflows and scaling digital business.
| Network Hub | Consolidates and localizes traffic into ingress/egress points to optimize network performance and cost | |
| Control Hub | Hosts adjacent security and IT controls to improve security posture and IT operations | |
| Data Hub | Localizes data aggregation, staging, analytics, streaming and data management to optimize data | |
| SX Fabric | | Adds SDN overlay to service chain multi-cloud and B2B application ecosystems Connects hubs across metros and regions to enable secure and performant distributed workflows |
Capacity
| Product | 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 |
The PlatformDIGITAL solution model is available in our colocation and Turn-Key Flex® data centers, which are move-in ready, physically secure facilities with the power and cooling capabilities to support customers requiring a single rack or cabinet up to multi-megawatt deployments. 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.
Connectivity
| 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, high-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 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 2,000 customers, and no single customer represented more than approximately 8.0% of the aggregate annualized rent of our portfolio as of December 31, 2019. 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, accounted for approximately 8.0% of the aggregate annualized rent as of December 31, 2019 and no other single customer accounted for more than approximately 6.7% of the aggregate annualized rent of our portfolio. At December 31, 2019, 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 |
| Fortune 50 Software Company | | Facebook, Inc. | | Comcast Corporation |
| IBM | | Fortune 25 Investment Grade-Rated Company | | CenturyLink |
| Oracle America, Inc. | | | China Telecommunications Corporation | |
| Cyxtera Technologies | | JPMorgan Chase & Co. | | Verizon |
| Equinix | | Morgan Stanley | | |
Proven Experience Attracting and Retaining Customers**.** Our specialized data center salesforce, which is aligned to 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, 2019 (in millions):
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|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, 2019 | |||||||||
| | | Commenced | | Signed | | ||||||
| | | Annualized | | Annualized | | ||||||
| | | Square Feet | | GAAP Rent | | Square Feet | | GAAP Rent | | ||
| New | 1.8 | | $ | 216 | 1.7 | (1) | $ | 218 | (1) | ||
| | | | | | | | | | | | |
| Renewals | 5.0 | | $ | 519 | 4.9 | | $ | 509 | |
| (1) | Includes signed new leases with existing customers totaling approximately 1.5 million square feet, which represent approximately $194 million in annualized GAAP rent. |
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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, 2019, we had approximately 4.5 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 $35.0 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 facilities, 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. In October 2019, we entered into a definitive agreement with InterXion, which would expand the combined company’s presence across Europe.
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.
In 2019, for the third consecutive year, we received the Nareit “Leader in the Light” award for data centers, recognizing our sustainability and energy-efficiency achievements. We also issued our second green bond with net proceeds of €1.08 billion to further our efforts to invest in green buildings, energy efficiency improvements, and renewable energy.
The Sustainability Accounting Standards Board (“SASB”) issued the Real Estate 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 we believe best correlate with our business and industry as indicated in the following sections. Energy and water data receives third party assurance as part of our annual environmental, social, and governance (“ESG”) report development process.
Energy Management
| a) | 2018 Energy Data(1) |
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| 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 | Renewable Energy as a % of Energy Consumption(3) | Like-for-Like Change in Energy Consumption for Portfolio Area with Data Coverage(4) |
| 93% | 6,601,549 | 96% | 18% | 1.3% |
| (1) | The most recent full year for which energy data is available is 2018. The scope of data coverage includes managed and indirectly managed assets. In 2018, 97% of the Company’s portfolio consisted of data center space along with limited accessory uses, predominantly office space. These secondary space types are not broken out by subsector. |
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| (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. |
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| (3) | Provided as a percent of energy consumption for managed assets. Excludes renewable energy delivered as part of the standard utility fuel mix. Includes above-baseline utility renewables (e.g., green tariffs), Renewable Energy Credit (“REC”) and Guaranty-of-Origin (“GO”) purchases and RECs generated by the Company. |
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| (4) | Scope of data is aligned with the 2018 GRESB Real Estate Assessment Reference Guide (“Like-for-like Comparison”). |
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| b) | Sustainable Data Center Ratings |
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We seek to certify all major new construction and redevelopment projects under US Green Building Council LEED Silver rating or equivalent certification. Data center space receiving third-party sustainable ratings in 2019 totaled approximately 1.1 million square feet. We received the following sustainable data center ratings for all, or a portion of, the following sites:
| Data Center | Metropolitan Area | Rating System | Level Achieved |
| 1210 Integrity Drive | Richardson | LEED (1) | Gold |
| 21744 Sir Timothy Drive | Ashburn | LEED | Gold |
| 3205 Alfred Street | Santa Clara | LEED | Gold |
| 44274 Round Table Plaza (Bldg L) Phase 2-3 | Ashburn | LEED | Gold |
| Digital Crawley 2 (North Bldg) | London | BREEAM (2) | Excellent |
| (1) | LEEDTM: Leadership in Energy and Environmental Design |
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| (2) | BREEAM: Building Research Establishment Environmental Assessment Method |
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For existing buildings, we seek to benchmark 100% of properties in ENERGY STAR Portfolio Manager and pursue certification for eligible U.S. properties. In 2019, we achieved ENERGY STAR for Data Centers recognition for 29 data centers, representing 54% of our U.S. stabilized and managed data center portfolio by square feet. In total, 46% of our total global stabilized and managed portfolio by square feet has an energy rating as of December 31, 2019.(1)
| (1) | Excludes unstabilized assets, Powered Base Building space, space under active development, space held for development, indirectly managed assets, and space held in unconsolidated joint ventures. |
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| c) | Energy management considerations |
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Energy and resource management considerations are integrated into our business decisions and strategy. For the operating portfolio, annual capital expense investment planning identifies and evaluates resource efficiency project opportunities in a parallel track alongside 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 is intended to incorporate sustainable features that support resource efficiency during construction as well as during eventual operational activity at the sites.
We seek to proactively identify and support opportunities to efficiently utilize resources, such as energy and water, throughout our operating portfolio. We have a colocation power usage effectiveness (PUE) improvement goal of 10% by 2022 against a 2017 baseline and UK Climate Change Agreement energy reduction goals for our UK properties. Our EMEA colocation portfolio participates in the European Union’s Code of Conduct for Energy Efficiency in Data Centers, a voluntary initiative which addresses airflow management, cooling system efficiency and capital plant replacement. Globally, we conduct external technical building assessments as well as utilize ENERGY STAR Portfolio Manager scores to prioritize efficiency opportunities. Energy efficiency measures implemented typically involve HVAC and lighting-related improvements and building commissioning. In 2019, more than 60 energy efficiency measures were implemented, totaling over 19,500 MWh in projected energy savings.
We have set a long-term, global 100% renewable target and in 2019, 100% of our EMEA portfolio and US colocation business units were matched with renewable energy. In 2019, we entered into a 50-megawatt power purchase agreement to source solar power for a portion of our Northern Virginia portfolio and entered into a utility green tariff to supply 120,000 MWh of renewable power to our Oregon data center development. Our Texas wind farm, Illinois wind farm and Virginia solar farm power purchase agreements produced 605,123 MWh of renewable energy credits in 2019.
We implement ISO 14001 (Environmental Management) and ISO 50001 (Energy Management) to measure, manage and improve the energy and environmental performance of our data centers. In 2018, 97% of our EMEA portfolio and 33% of our global portfolio had ISO 14001 certifications and 100% of our EMEA portfolio and 8% of our global portfolio was covered under ISO 50001. Additionally, 100% of our Singapore portfolio was certified under the SS564 Green Data Centres standard for Energy and Environmental Management Systems.
Water Management
| a) | 2018 Water Data (1) |
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| Water Withdrawal Data Coverage as % of Floor Area | % of Floor Area with 40% or Greater Baseline Water Stress (2) | Total Water Withdrawn by Portfolio Area with Data Coverage (cubic meters, in thousands) (3) | % of Water Withdrawn with 40% or Greater Baseline Water Stress (2) | Like-for-Like Change in Water Withdrawals (4) | |
| 86% | 34% | 5,469 | 57% | (0.6)% |
| (1) | The most recent full year for which water data is available is 2018. The scope of data coverage involves managed and indirectly managed assets The scope of water withdrawals is aligned with the 2018 GRESB Real Estate Assessment Reference Guide. In 2018, 97% of the Company’s portfolio consisted of data center space along with limited accessory uses, predominantly office. These secondary space types are not broken out by subsector. |
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| (2) | Based on properties classified as High or Extremely High Baseline Water Stress determined by the World Resources Institute’s (WRI) Water Risk Atlas tool, Aqueduct. Includes properties that have complete water withdrawal data coverage. |
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| (3) | The scope of water consumed includes potable and non- potable water purchased from third-party suppliers. |
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| (4) | Scope of data is aligned with the 2018 GRESB Real Estate Assessment Reference Guide (“Like-for-like Comparison”). |
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| b) | Water Management Risks and Mitigation Strategies |
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Certain assets are in regions of high or extremely high baseline water stress and may face future risk of water scarcity, higher water costs, and regulatory constraints on water consumption. See Section 1A. for further discussion on environmental risks. We consider water availability, cost, and alternate supply solutions to potable water such as municipally supplied non-potable reclaimed water, which accounted for 35% of our total water usage in 2018. We also consider cooling system designs to maximize ‘free cooling’ and reduce or eliminate the site’s reliance on access to water for cooling. In 2019, we announced a program that would expand the Company’s efforts to optimize water use through water reduction, reuse and recycling projects. Additionally, we participate in the Building Owners and Managers Association (“BOMA”) Waste and Water Challenge, committing to monitor and improve our waste and water consumption.
Management of Tenant Sustainability Impacts
| a) | 2019 Tenant Sustainability |
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| 4 | | |||
|---|---|---|---|---|
| % of New Leases with Cost Recovery Clause for Efficiency Improvements (1) | Leased Floor Area of New Leases with Cost Recovery Clause (Square Feet) | % of Total Leased Floor Area with Cost Recovery Clauses (2) | % of Leased Floor Area that is Separately Metered for Electricity Consumption (3) | |
| 29% | | 411,493 | 6.4% | 95% |
| (1) | Data provided for new data center scale leases signed and excludes colocation agreements. |
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| (2) | Total leased floor area excludes non-managed unconsolidated joint ventures, vacant space, space held for development, space under active development, Powered Base Building, colocation, and non-technical space. Leased floor area with cost recovery clauses signed prior to 2017 may not be included. |
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| (3) | Excludes unconsolidated joint ventures, vacant space, space held for development, space under active development, and non-technical space. Water use is predominantly driven by shared cooling infrastructure, common areas, and exterior landscape irrigation and is not separately metered. |
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| b) | Approach to measuring, incentivizing and improving sustainability impacts of tenants |
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We seek to incorporate “green lease” language into agreements with new customers where energy is separately metered, and we endeavor to incorporate green lease language into renewals. We launched our green lease program for applicable contract types to better align interests between landlord and tenants to incentivize energy and resource efficiency investments, share energy and water usage data, streamline renewable energy procurement and support sustainable building certifications.
Climate Change Adaptation
| a) | Properties located in 100-Year Flood Zones |
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Ten U.S. data centers totaling 1,414,708 square feet are located in 100-year flood zones designated by the U.S. Federal Emergency Management Agency (“FEMA”) as special flood hazard areas (“SFHA”). No other non-U.S. sites are in 100-year flood zones or similar high hazard locations.
| b) | Climate Change Risks and Mitigation Strategies |
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Risks related to our business and operations as a result of climate change include both physical and transition risks. Potential risks are included below. For further discussion on climate change risks, see Section 1A. Risk Factors.
| ● | Higher energy costs (e.g., due to more extreme weather events, extreme temperatures or increased demand for limited resources) |
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| ● | Higher water costs (e.g., increased scarcity due to severe droughts) |
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| ● | Increased environmental regulations impacting the cost to develop, or the ability to develop in certain areas |
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| ● | Higher costs of materials due to environmental impacts from extraction and processing of raw materials and production of finished goods |
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| ● | Higher costs of supply chain services, with potential supply chain disruptions related to climate change |
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| ● | Lost revenue or higher expenses related to climate change events (e.g., higher insurance costs, uninsured losses, diminished customer retention in areas subject to extreme weather or resource availability constraints) |
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We are focused on climate change resilience from acquisition and new construction throughout each property’s life cycle. During the acquisition and new construction phase, we seek to identify physical and social risks from climate change and develop risks reports which include prevention recommendations specific to each identified risk. We manage these risks by implementing certain measures to reduce risks, maintain what we believe to be appropriate levels of insurance for each asset, and annually measure the reductions in value-at-risk achieved through mitigation measures implemented. We also implement sustainability projects, including sourcing renewable energy, designing and constructing data centers that use less water and energy, and improving water and energy efficiency for operating data centers.
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 $2.6 billion, $2.5 billion and $1.9 billion and outside the United States were $627.4 million, $564.4 million and $515.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. We had investments in real estate located in the United States of $10.6 billion, $11.1 billion and $10.5 billion and outside the United States of $3.7 billion, $3.8 billion and $3.1 billion as of December 31, 2019, 2018 and 2017, respectively.
Operating revenues from properties located in the United Kingdom were $288.2 million, $295.3 million and $275.1 million, or 9.0 %, 9.7% and 11.2% of total operating revenues, for the years ended December 31, 2019, 2018 and 2017, 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 $1.7 billion, $1.6 billion and $1.7 billion, or 12.0 %, 10.9% and 12.1% of total investments in real estate, as of December 31, 2019, 2018 and 2017, respectively. No other foreign country comprised more than 10% of total investments in real estate as of each of December 31, 2019, 2018 and 2017. 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, 2019 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. 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, 2019 is summarized in the following table.
| | | |
|---|---|---|
| Region | Number of Employees | |
| North America | 1,153 | |
| Europe | 287 | |
| Asia Pacific | 110 | |
| Total | 1,550 |
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, Forms 10-K, Forms 10-Q, Proxy Statements 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.
Item 1A. RISK FACTORS
For purposes of this section, the term “stockholders” means the holders of shares of Digital Realty Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders. You should carefully consider the following factors in evaluating our Company, our properties and our business. The occurrence of any of the following risks might cause Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders to lose all or a part of their investment. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements” starting on page 50.
Risks Related to Our Business and Operations
Our business depends upon the demand for data centers.
We are in the business of owning, acquiring, developing and operating data centers. A reduction in the demand for data center space, power or connectivity would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a less specialized use. Our substantial development activities make us particularly susceptible to general economic slowdowns as well as adverse developments in the data center, Internet and data communications and broader technology industries. Any such slowdown or adverse development could lead to reduced
corporate IT spending or reduced demand for data center space. Reduced demand could also result from business relocations, including to metropolitan areas that we do not currently serve. Changes in industry practice or in technology could also reduce demand for the physical data center space we provide. In addition, our customers may choose to develop new data centers or expand their own existing data centers or consolidate into data centers that we do not own or operate, which could reduce demand for our newly developed data centers or result in the loss of one or more key customers. If any of our key customers were to do so, it could result in a loss of business to us or put pressure on our pricing. If we lose a customer, we cannot assure you that we would be able to replace that customer at a competitive rate or at all. Mergers or consolidations of technology companies could reduce further the number of our customers and potential customers and make us more dependent on a more limited number of customers. If our customers merge with or are acquired by other entities that are not our customers, they may discontinue or reduce the use of our data centers in the future. Our financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
We face significant competition, which may adversely affect the occupancy and rental rates of our data centers.
We compete with numerous data center providers, many of whom own 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. In addition, we may in the future face competition from new entrants into the data center market, including new entrants who may acquire our current competitors. Some of our competitors and potential competitors have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing and other resources and more ready access to capital which allow them to respond more quickly to new or changing opportunities.
If our competitors offer space that our customers or potential customers perceive to be superior to ours based on factors such as available power, security, location, or connectivity, or if they offer rental rates below current market rates, or below the rental rates we are offering, we may lose customers or potential customers or be required to incur costs to improve our data centers or reduce our rental rates. In addition, recently many of our competitors have developed and continue to develop additional data center space. If the supply of data center space continues to increase as a result of these activities or otherwise, rental rates may be reduced or we may face delays in leasing or be unable to lease our vacant space, including space that we develop. Further, if customers or potential customers desire services that we do not offer, we may not be able to lease our space to those customers. Our financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could harm our business reputation and could adversely affect our earnings and financial condition.
Our business depends on providing customers with highly reliable services, including with respect to power supply, physical security and maintenance of environmental conditions. We may fail to provide such service as a result of numerous factors, including mechanical failure, power outage, human error, physical or electronic security breaches, war, terrorism, fire, earthquake, pandemics, hurricane, flood and other natural disasters, sabotage and vandalism.
Problems at one or more of our data centers, whether or not within our control, could result in service interruptions or equipment damage. Substantially all of our customer agreements include terms requiring us to meet certain service level commitments to our customers. Any failure to meet these or other commitments or any equipment damage in our data centers, including as a result of mechanical failure, power outage, human error or other reasons, could subject us to liability under the terms of our customer agreements, including service level credits against customer rent payments, monetary damages, or, in certain cases of repeated failures, the right by the customer to terminate the agreement. Service interruptions, equipment failures or security breaches may also expose us to additional legal liability and monetary
damages and damage our brand and reputation, and could cause our customers to terminate or not renew their agreements. In addition, we may be unable to attract new customers if we have a reputation for service disruptions, equipment failures or physical or electronic security breaches in our data centers. Any such failures could materially adversely affect our business, financial condition and results of operations.
We may be vulnerable to breaches, or unauthorized access to, or disruption of our physical and information security infrastructure and systems, any of which could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
Security breaches, or disruption, of our or our customers’ physical or information technology infrastructure, networks and related management systems could result in, among other things, unauthorized access to our facilities, a breach of our and our customers’ networks and information technology infrastructure, the misappropriation of our or our customers’ or their customers’ proprietary or confidential information, interruptions or malfunctions in our or our customers’ operations, delays or interruptions to our ability to meet customer needs, breach of our leg
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
General
In addition to the information in this Item 2, certain information regarding our portfolio is contained in Schedule III (Financial Statement Schedule) under Part IV, Item 15(a) (2) and which is included in Part II, Item 8.
Our Portfolio
As of December 31, 2019, our portfolio consisted of 225 data centers, including 41 data centers held as investments in unconsolidated joint ventures, and contain a total of approximately 36.6 million rentable square feet, including 4.5 million square feet of space under active development and 1.8 million square feet of space held for development. The following table presents an overview of our portfolio of properties, including the 41 data centers held as investments in unconsolidated joint ventures and developable land, based on information as of December 31, 2019 (dollar amounts in thousands). All data centers are held in fee simple except as otherwise indicated. Please refer to Note 8 in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of all applicable encumbrances as of December 31, 2019.
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| | | | Space Under | | | | | |||||||
| | | Data Center | | Net Rentable | | Active | | Space Held for | | Annualized | | Occupancy | ||
| Metropolitan Area | | Buildings | | Square Feet (1) | | Development (2) | | Development (3) | | Rent (4) | | Percentage (5) | ||
| | | | | | | | | | | | | | | |
| North America | | | | | | | | | | | | | | |
| Northern Virginia | 23 | 5,332,240 | 717,918 | 81,195 | | $ | 520,222 | 90.4 | % | |||||
| Chicago | 10 | 3,040,208 | 386,604 | 148,650 | | 288,526 | 86.6 | % | ||||||
| New York | 12 | 2,048,955 | 34,010 | 137,018 | | 205,297 | 82.1 | % | ||||||
| Silicon Valley | 20 | 2,251,021 | 65,594 | — | | 199,952 | 95.3 | % | ||||||
| Dallas | 20 | 3,354,328 | 182,589 | 49,646 | | 190,385 | 82.0 | % | ||||||
| Phoenix | 3 | 795,687 | — | 227,274 | | 79,344 | 73.5 | % | ||||||
| San Francisco | 4 | 787,083 | 61,210 | — | | 62,224 | 72.1 | % | ||||||
| Atlanta | 4 | 525,414 | — | 313,581 | | 48,921 | 93.0 | % | ||||||
| Los Angeles | 4 | 818,479 | — | — | | 42,932 | 86.1 | % | ||||||
| Toronto | (6) | 2 | 232,980 | 583,029 | — | | 22,960 | 92.8 | % | |||||
| Boston | | 4 | | 467,519 | | — | | 50,649 | | | 22,347 | | 55.2 | % |
| Houston | | 6 | | 392,816 | | — | | 13,969 | | | 19,691 | | 81.8 | % |
| Austin | 1 | 85,688 | — | — | | 8,869 | 65.0 | % | ||||||
| Miami | 2 | 226,314 | — | — | | 7,805 | 89.3 | % | ||||||
| Portland | 2 | 48,574 | 552,862 | — | | 6,606 | 91.4 | % | ||||||
| Minneapolis | 1 | 328,765 | — | — | | 5,798 | 100.0 | % | ||||||
| Charlotte | 3 | 95,499 | — | — | | 4,696 | 88.0 | % | ||||||
| North America Total | 121 | 20,831,571 | 2,583,816 | 1,021,982 | | 1,736,575 | 85.9 | % | ||||||
| | | | | | | | | | | | | | | |
| Europe | | | ||||||||||||
| London, United Kingdom | (7) | 16 | 1,456,352 | 136,921 | 99,175 | | 210,569 | 87.5 | % | |||||
| Amsterdam, Netherlands | (8) | 10 | 599,591 | 48,490 | 95,262 | | 42,160 | 65.9 | % | |||||
| Dublin, Ireland | (8) | 5 | 265,430 | 26,646 | 64,750 | | 22,021 | 75.1 | % | |||||
| Frankfurt, Germany | (8) | 4 | 222,261 | 185,814 | — | | 24,231 | 82.6 | % | |||||
| Paris, France | (8) | 4 | 185,994 | 96,402 | — | | 7,086 | 100.0 | % | |||||
| Geneva, Switzerland | (8) | 1 | | 59,190 | — | — | | 1,783 | 100.0 | % | ||||
| Manchester, England | (7) | 1 | 38,016 | — | — | | 1,815 | 100.0 | % | |||||
| Europe Total | 41 | 2,826,835 | 494,273 | 259,187 | | 309,665 | 82.6 | % | ||||||
| | | | | | | | | | | | | | | |
| Asia Pacific | | | ||||||||||||
| Singapore | (9) | 3 | 540,638 | 344,826 | — | | 79,196 | 85.0 | % | |||||
| Sydney, Australia | (10) | 3 | 225,728 | 88,629 | — | | 19,848 | 67.4 | % | |||||
| Melbourne, Australia | (10) | 2 | | 146,570 | — | — | | 18,489 | 85.8 | % | ||||
| Osaka, Japan | (11) | 1 | — | 193,535 | — | | — | NA | | |||||
| Tokyo, Japan | (11) | 1 | | — | 406,664 | — | | — | NA | | ||||
| Asia Pacific Total | 10 | 912,936 | 1,033,654 | — | | 117,533 | 80.8 | % | ||||||
| | | | | | | | | | | | | | | |
| Held for Sale | | 12 | | 1,377,405 | — | — | | 35,979 | 100.0 | % | ||||
| | | | | | | | | | | | | | | |
| Non-Data Center Properties | — | 278,068 | — | — | | 1,240 | 100.0 | % | ||||||
| | | | | | | | | | | | | | | |
| Managed Unconsolidated Joint Ventures | | | ||||||||||||
| Northern Virginia | 7 | 1,250,419 | — | — | | 91,232 | 100.0 | % | ||||||
| Hong Kong | (12) | 1 | 182,488 | — | 3,812 | | 17,422 | 76.3 | % | |||||
| Silicon Valley | 4 | 326,305 | — | — | | 13,318 | 100.0 | % | ||||||
| Dallas | 3 | 319,876 | — | — | | 5,419 | 82.4 | % | ||||||
| New York | 1 | 108,336 | — | — | | 3,460 | 100.0 | % | ||||||
| | 16 | 2,187,424 | — | 3,812 | | 130,851 | 95.5 | % | ||||||
| | | | | | | | | | | | | | | |
| Non-Managed Unconsolidated Joint Ventures | | | ||||||||||||
| São Paulo, Brazil | (13) | 15 | | 739,373 | 219,118 | 394,988 | | 111,231 | 97.2 | % | ||||
| Seattle | 2 | 451,369 | — | — | | 61,267 | 97.3 | % | ||||||
| Tokyo, Japan | (11) | 2 | 430,277 | — | — | | 36,321 | 93.8 | % | |||||
| Osaka, Japan | (11) | 2 | 207,464 | 93,748 | 30,874 | | 28,199 | 68.6 | % | |||||
| Fortaleza, Brazil | (13) | 1 | | 94,205 | — | — | | 10,062 | 100.0 | % | ||||
| Rio De Janeiro, Brazil | (13) | 2 | | 72,442 | — | 26,781 | | 9,621 | 100.0 | % | ||||
| Santiago, Chile | | 1 | | — | 46,474 | 20,865 | | — | NA | | ||||
| | 25 | 1,995,130 | 359,340 | 473,508 | | 256,702 | 93.7 | % | ||||||
| | | | | | | | | | | | | | | |
| Total | 225 | 30,409,369 | 4,471,083 | 1,758,490 | | 2,588,545 | 86.8 | % |
| (1) | Net rentable square feet at a building represents the current square feet at that building under lease as specified in the lease agreements plus management’s estimate of space available for lease. 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 available power, required support space and common area. Net rentable square feet includes tenants’ proportional share of common areas but excludes space held for development. |
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| (2) | Space under active development includes current base building and data center projects in progress. |
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| (3) | Space held for development includes space held for future data center development, and excludes space under active development. |
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| (4) | Annualized rent represents the monthly contractual rent (defined as cash base rent before abatements) under existing leases as of December 31, 2019 multiplied by 12. |
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| (5) | Excludes space held for development and space under active development. We estimate the total square feet available for lease based on a number of factors in addition to contractually leased square feet, including available power, required support space and common area. |
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| (6) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.77 to 1.00 CAD. |
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| (7) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $1.33 to £1.00. |
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| (8) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $1.12 to €1.00. |
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| (9) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.74 to 1.00 SGD. |
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| (10) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.70 to 1.00 AUD. |
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| (11) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.01 to 1.00 JPY. |
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| (12) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.13 to 1.00 HKD. |
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| (13) | Rental amounts were calculated based on the exchange rate in effect on December 31, 2019 of $0.25 to 1.00 BRL. |
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We have ground leases on Paul van Vlissingenstraat 16 (expires in 2054), Chemin de l’Epinglier 2 (expires in 2074), Clonshaugh Industrial Estate I and II (expires in 2981), Manchester Technopark (expires in 2125), 29A International Business Park (expires in 2038), Gyroscoopweg 2E-2F, which has a continuous ground lease and will be adjusted on January 1, 2042, and Naritaweg 52, which has a continuous ground lease. We have operating leases at 111 8th Avenue (2nd and 6th floors), 111 8th Avenue (3rd and 7th floors) and 410 Commerce Boulevard, which expire in June 2024, February 2022 and December 2026, respectively. The lease at 111 8th Avenue (2ndand 6th floors) has an option to extend the lease until June 2034 and the lease at 111 8th Avenue (3rd and 7th floors) has an option to extend the lease until February 2032. The lease at 410 Commerce Boulevard has no extension options. As part of the Telx Acquisition and European Portfolio Acquisition, leases relating to operating facilities, offices, and equipment under various lease agreements expired or will expire during the years ending December 2019 through June 2047.
We have a fully prepaid ground lease on Cateringweg 5 that expires in 2059. The ground lease at Naritaweg 52 has been prepaid through December 2036.
Customer Diversification
As of December 31, 2019, our portfolio was leased to over 2,000 companies, many of which are internationally recognized firms. The following table sets forth information regarding the 20 largest customers in our portfolio based on annualized rent as of December 31, 2019 (dollar amounts in thousands).
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | Weighted | |||||||
| | | | | | | | | Percentage | | | | | | | Average |
| | | | | | | Total | | of Net | | | | | Percentage | | Remaining |
| | | | | Number | | Occupied | | Rentable | | | | | of | | Lease |
| | | | | of | | Square | | Square | | Annualized | | Annualized | | Term in | |
| | | Customer | | Locations | | Feet (1)(3) | | Feet (3) | | Rent (2)(3) | | Rent | | Months | |
| 1 | Fortune 50 Software Company | 19 | 2,088,316 | 9.6 | % | $ | 174,871 | 8.0 | % | 8.9 | |||||
| 2 | IBM | 27 | 1,021,071 | 4.7 | % | 146,219 | 6.7 | % | 3.8 | ||||||
| 3 | Facebook, Inc. | 17 | 1,044,542 | 4.8 | % | 134,692 | 6.1 | % | 5.0 | ||||||
| 4 | Oracle America, Inc. | | 19 | 576,700 | 2.7 | % | 76,890 | 3.5 | % | 1.9 | |||||
| 5 | Fortune 25 Investment Grade-Rated Company | 13 | 578,852 | 2.7 | % | 72,802 | 3.3 | % | 3.7 | ||||||
| 6 | LinkedIn Corporation | 7 | 510,785 | 2.4 | % | 63,487 | 2.9 | % | 4.9 | ||||||
| 7 | Cyxtera Technologies, Inc. (4) | 16 | 1,399,127 | 6.4 | % | 62,533 | 2.8 | % | 12.1 | ||||||
| 8 | Equinix | 21 | 959,049 | 4.4 | % | 59,689 | 2.7 | % | 9.3 | ||||||
| 9 | Rackspace | 14 | 614,247 | 2.8 | % | 56,118 | 2.6 | % | 8.1 | ||||||
| 10 | Fortune 500 SaaS Provider | 8 | 428,245 | 2.0 | % | 39,237 | 1.8 | % | 6.2 | ||||||
| 11 | Comcast Corporation | 25 | 182,647 | 0.8 | % | 35,767 | 1.6 | % | 6.0 | ||||||
| 12 | JPMorgan Chase & Co. | 16 | 268,443 | 1.2 | % | 35,587 | 1.6 | % | 2.3 | ||||||
| 13 | DXC Technology Company (5) | 11 | 229,644 | 1.1 | % | 31,466 | 1.4 | % | 3.5 | ||||||
| 14 | CenturyLink, Inc. | 84 | 426,810 | 2.0 | % | 27,583 | 1.3 | % | 6.0 | ||||||
| 15 | China Telecommunications Corporation | 9 | 153,156 | 0.7 | % | 27,094 | 1.2 | % | 4.4 | ||||||
| 16 | Verizon | 63 | 238,749 | 1.1 | % | 26,267 | 1.2 | % | 3.8 | ||||||
| 17 | Morgan Stanley | 12 | 173,502 | 0.8 | % | 25,354 | 1.2 | % | 3.5 | ||||||
| 18 | Global Cloud Provider | 14 | 330,084 | 1.5 | % | 24,764 | 1.1 | % | 1.6 | ||||||
| 19 | Uber Technologies, Inc. | 6 | 127,480 | 0.6 | % | 24,753 | 1.1 | % | 3.4 | ||||||
| 20 | SunGard Availability Services LP | 9 | 191,200 | 0.9 | % | 23,845 | 1.1 | % | 6.0 | ||||||
| | Total / Weighted Average | | | 11,542,649 | 53.2 | % | $ | 1,169,018 | 53.2 | % | 6.6 |
Note: Our direct customers may be the entities named in the table above or their subsidiaries or affiliates.
| (1) | Occupied square footage is defined as leases that commenced on or before December 31, 2019. For some of our properties, we calculate occupancy based on factors in addition to contractually leased square feet, including available power, required support space and common area. |
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| (2) | Annualized rent represents the monthly contractual base rent (defined as cash base rent before abatements) under existing leases as of December 31, 2019 multiplied by 12. |
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| (3) | Represents consolidated portfolio plus our managed portfolio of unconsolidated joint ventures based on our ownership percentage. |
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| (4) | Represents leases with former CenturyLink, Inc. affiliates, which are our direct customers. Cyxtera Technologies, Inc. acquired the data center and colocation business, including such direct customers, of CenturyLink, Inc. in 2Q 2017. |
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| (5) | Represents leases with former Hewlett Packard Enterprises affiliates, which are our direct customers. DXC Technology Company was formed in 2Q 2017 from the merger of Computer Sciences Corporation (CSC) and the Enterprise Services business of Hewlett Packard Enterprise. |
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Lease Distribution
The following table sets forth information relating to the distribution of leases in the properties in our portfolio, based on net rentable square feet (excluding approximately 4.5 million square feet of space under active development
and approximately 1.8 million square feet of space held for development at December 31, 2019) under lease as of December 31, 2019 (dollar amounts in thousands).
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Percentage | | | | |||||
| | | Total Net | | of Net | | | | | Percentage | |
| | | Rentable | | Rentable | | | | | of | |
| | | Square | | Square | | Annualized | | Annualized | ||
| Square Feet Under Lease | | Feet(1)(3) | | Feet(1) | | Rent(2)(3) | | Rent | ||
| Available | 3,642,944 | 14.4 | % | | — | — | | |||
| 2,500 or less | 1,660,325 | 6.6 | % | $ | 340,387 | 15.5 | % | |||
| 2,501 - 10,000 | 2,632,273 | 10.4 | % | 320,229 | 14.6 | % | ||||
| 10,001 - 20,000 | 5,888,474 | 23.2 | % | 723,644 | 33.0 | % | ||||
| 20,001 - 40,000 | 4,500,657 | 17.8 | % | 490,805 | 22.4 | % | ||||
| 40,001 - 100,000 | 3,695,855 | 14.6 | % | 214,640 | 9.7 | % | ||||
| Greater than 100,000 | 3,321,112 | 13.0 | % | 106,704 | 4.8 | % | ||||
| Portfolio Total | 25,341,640 | 100.0 | % | $ | 2,196,409 | 100.0 | % |
| (1) | For some of our properties, we calculate square footage based on factors in addition to contractually leased square feet, including available power, required support space and common area. 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 available power, required support space and common area. |
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| (2) | Annualized rent represents the monthly contractual base rent (defined as cash base rent before abatements) under existing leases as of December 31, 2019 multiplied by 12. |
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| (3) | Represents consolidated portfolio plus our managed portfolio of unconsolidated joint ventures based on our ownership percentage. |
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Lease Expirations
The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 2019 plus available space for ten calendar years at the properties in our portfolio, excluding approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development at December 31, 2019. Unless otherwise stated in the footnotes to the table below, the information set forth in the table assumes that tenants exercise no renewal options and all early termination rights (dollar amounts in thousands).
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | Annualized | | | | |
| | | | | Percentage | | | | | | | Annualized | | Rent Per | | | | ||
| | | Square | | of Net | | | | | Percentage | | Rent Per | | Occupied | | | | ||
| | | Footage of | | Rentable | | | | | of | | Occupied | | Square | | Annualized | |||
| | | Expiring | | Square | | Annualized | | Annualized | | Square | | Foot at | | Rent at | ||||
| Year | | Leases (1)(4) | | Feet (4) | | Rent (2)(4) | | Rent (4) | | Foot (4) | | Expiration (4) | | Expiration | ||||
| Available | 3,642,944 | 14.4 | % | | | | | |||||||||||
| Month to Month (3) | 150,863 | 0.6 | % | $ | 36,486 | 1.7 | % | $ | 242 | | $ | 242 | | $ | 36,486 | |||
| 2020 | 2,129,646 | 8.4 | % | 343,564 | 15.6 | % | 161 | | 161 | | 343,700 | |||||||
| 2021 | 2,905,739 | 11.5 | % | 348,046 | 15.9 | % | 120 | | 123 | | 356,320 | |||||||
| 2022 | 2,773,188 | 10.9 | % | 312,835 | 14.2 | % | 113 | | 119 | | 329,300 | |||||||
| 2023 | 1,970,062 | 7.8 | % | 215,012 | 9.8 | % | 109 | | 115 | | 227,504 | |||||||
| 2024 | 2,363,221 | 9.3 | % | 244,689 | 11.1 | % | 104 | | 113 | | 268,173 | |||||||
| 2025 | 2,079,914 | 8.2 | % | 197,594 | 9.0 | % | 95 | | 105 | | 219,344 | |||||||
| 2026 | 1,231,658 | 4.9 | % | 129,903 | 5.9 | % | 105 | | 125 | | 153,616 | |||||||
| 2027 | 554,668 | 2.2 | % | 51,226 | 2.3 | % | 92 | | 111 | | 61,534 | |||||||
| 2028 | 516,881 | 2.0 | % | 40,826 | 1.9 | % | 79 | | 94 | | 48,519 | |||||||
| 2029 | 1,003,075 | 4.0 | % | 66,924 | 3.1 | % | 67 | | 83 | | 83,355 | |||||||
| Thereafter | 4,019,781 | 15.8 | % | 209,304 | 9.5 | % | 52 | | 70 | | 280,599 | |||||||
| Portfolio Total / Weighted Average | 25,341,640 | 100.0 | % | $ | 2,196,409 | 100.0 | % | $ | 101 | | $ | 111 | | $ | 2,408,450 |
| (1) | For some of our properties, we calculate square footage based on factors in addition to contractually leased square feet, including available power, required support space and common area. 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 available power, required support space and common area. |
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| (2) | Annualized rent represents the monthly contractual base rent (defined as cash base rent before abatements) under existing leases as of December 31, 2019 multiplied by 12. |
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| (3) | Includes leases, licenses and similar agreements that upon expiration have been automatically renewed on a month-to-month basis. |
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| (4) | Represents consolidated portfolio plus our managed portfolio of unconsolidated joint ventures based on our ownership percentage. |
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Item 3. LEGAL PROCEEDINGS
In the ordinary course of our business, we may become subject to tort claims, breach of contract and other claims and administrative proceedings. As of December 31, 2019, we were not a party to any legal proceedings which we believe would have a material adverse effect on our operations or financial position.
Item 4. MINE SAFETY DISCLOSURES
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Digital Realty Trust, Inc.
Digital Realty Trust, Inc.’s common stock has been listed, and is traded, on the New York Stock Exchange, or the NYSE, under the symbol “DLR” since October 29, 2004.
Subject to the distribution requirements applicable to REITs under the Code, Digital Realty Trust, Inc. intends, to the extent practicable, to invest substantially all of the proceeds from sales and refinancings of its assets in real estate-related assets and other assets. Digital Realty Trust, Inc. may, however, under certain circumstances, make a dividend of capital or of assets. Such dividends, if any, will be made at the discretion of Digital Realty Trust, Inc.’s Board of Directors.
As of February 21, 2020, there were approximately 43 holders of record of Digital Realty Trust, Inc.’s common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.
Digital Realty Trust, L.P.
There is no established trading market for Digital Realty Trust, L.P.’s common units of limited partnership. As of February 21, 2020, there were 93 holders of record of common units, including Digital Realty Trust, L.P.’s general partner, Digital Realty Trust, Inc.
Digital Realty Trust, L.P. currently intends to continue to make regular quarterly distributions to holders of its common units. Any future distributions will be declared at the discretion of the Board of Directors of Digital Realty Trust, L.P.’s general partner, Digital Realty Trust, Inc., and will depend on our actual cash flow, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code, and such other factors as the Board of Directors may deem relevant.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total stockholder return on Digital Realty Trust, Inc.’s common stock during the period from December 31, 2014 through December 31, 2019, with the cumulative total returns on the MSCI US REIT Index (RMS) and the S&P 500 Market Index. The comparison assumes that $100 was invested on December 31, 2014 in Digital Realty Trust, Inc.’s common stock and in each of these indices and assumes reinvestment of dividends, if any.
COMPARISON OF CUMULATIVE TOTAL RETURNS
AMONG DIGITAL REALTY TRUST, INC., S&P 500 INDEX AND RMS INDEX
Assumes $100 invested on December 31, 2014 and
dividends reinvested
To fiscal year ending December 31, 2019
| | | | | | | |
|---|---|---|---|---|---|---|
| Pricing Date | DLR($) | S&P 500($) | RMS($) | |||
| December 31, 2014 | 100.0 | 100.0 | 100.0 | |||
| December 31, 2015 | 120.1 | 101.4 | 102.5 | |||
| December 31, 2016 | 162.0 | 113.5 | 111.3 | |||
| December 31, 2017 | 194.1 | 138.3 | 117.0 | |||
| December 31, 2018 | 188.2 | 132.2 | 111.6 | |||
| December 31, 2019 | 219.3 | 173.9 | 140.5 |
| ● | This graph and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. |
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| ● | The stock price performance shown on the graph is not necessarily indicative of future price performance. |
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| ● | The hypothetical investment in Digital Realty Trust, Inc.’s common stock presented in the stock performance graph above is based on the closing price of the common stock on December 31, 2014. |
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SALES OF UNREGISTERED EQUITY SECURITIES
Digital Realty Trust, Inc.
None.
Digital Realty Trust, L.P.
During the year ended December 31, 2019, our Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the year ended December 31, 2019, Digital Realty Trust, Inc. issued an aggregate of 298,243 shares of its common stock in connection with restricted stock awards for no cash consideration. For each share of common stock issued by Digital Realty Trust, Inc. in connection with such awards, our Operating Partnership issued a restricted common unit to Digital Realty Trust, Inc. During the year ended December 31, 2019, our Operating Partnership issued an aggregate of 298,243 common units to Digital Realty Trust, Inc., as required by our Operating Partnership’s partnership agreement. During the year ended December 31, 2019, an aggregate of 41,375 shares of its common stock were forfeited to Digital Realty Trust, Inc. in connection with restricted stock awards for a net issuance of 256,868 shares of common stock.
All other issuances of unregistered equity securities of our Operating Partnership during the year ended December 31, 2019 have previously been disclosed in filings with the SEC. For all issuances of units to Digital Realty Trust, Inc., our Operating Partnership relied on Digital Realty Trust, Inc.’s status as a publicly traded NYSE-listed company with over $23.1 billion in total consolidated assets and as our Operating Partnership’s majority owner and general partner as the basis for the exemption under Section 4(a)(2) of the Securities Act.
REPURCHASES OF EQUITY SECURITIES
Digital Realty Trust, Inc.
None.
Digital Realty Trust, L.P.
None.
Item 6. SELECTED FINANCIAL DATA
The following data should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.
SELECTED COMPANY FINANCIAL AND OTHER DATA (Digital Realty Trust, Inc.)
The following table sets forth selected consolidated financial and operating data on an historical basis for Digital Realty Trust, Inc. (amounts in thousands, except share and per share data).
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| | | | |||||||||||||
| Statement of Operations Data: | | | | | | ||||||||||
| Operating Revenues: | | | | | | ||||||||||
| Rental and other services | | $ | 3,196,356 | | $ | 2,412,076 | | $ | 2,010,301 | | $ | 1,746,828 | | $ | 1,395,745 |
| Tenant reimbursements | | — | | 624,637 | | 440,224 | | 355,903 | | 359,875 | |||||
| Fee income and other | | 12,885 | | 9,765 | | 7,403 | | 39,482 | | 7,716 | |||||
| Total operating revenues | | 3,209,241 | | 3,046,478 | | 2,457,928 | | 2,142,213 | | 1,763,336 | |||||
| Operating Expenses: | | | | | | ||||||||||
| Rental property operating and maintenance | | 1,020,578 | | 957,065 | | 759,616 | | 660,177 | | 549,885 | |||||
| Property taxes and insurance | | 172,183 | | 140,918 | | 134,995 | | 111,989 | | 101,397 | |||||
| Change in fair value of contingent consideration | | — | | — | | — | | — | | (44,276) | |||||
| Depreciation and amortization | | 1,163,774 | | 1,186,896 | | 842,464 | | 699,324 | | 570,527 | |||||
| General and administrative | | 211,097 | | 163,667 | | 161,441 | | 152,733 | | 105,549 | |||||
| Transaction and integration expenses | | 27,925 | | 45,327 | | 76,048 | | 20,491 | | 17,400 | |||||
| Impairment on investments in real estate | | 5,351 | | — | | 28,992 | | — | | — | |||||
| Other | | 14,118 | | 2,818 | | 3,077 | | 213 | | 60,943 | |||||
| Total operating expenses | | 2,615,026 | | 2,496,691 | | 2,006,633 | | 1,644,927 | | 1,361,425 | |||||
| Operating income | | 594,215 | | 549,787 | | 451,295 | | 497,286 | | 401,911 | |||||
| Other Income (Expenses): | | | | | | | | ||||||||
| Equity in earnings of unconsolidated joint ventures | | 8,067 | | 32,979 | | 25,516 | | 17,104 | | 15,491 | |||||
| Gain on deconsolidation, net | | 67,497 | | — | | — | | — | | — | |||||
| Gain on disposition of properties, net | | 267,651 | | 80,049 | | 40,354 | | 169,902 | | 94,604 | |||||
| Interest and other income (expense) | | 66,000 | | 3,481 | | 3,655 | | (4,564) | | (2,381) | |||||
| Interest expense | | (353,057) | | (321,529) | | (258,642) | | (236,480) | | (201,435) | |||||
| Tax expense | | (11,995) | | (2,084) | | (7,901) | | (10,385) | | (6,451) | |||||
| (Loss) gain from early extinguishment of debt | | (39,157) | | (1,568) | | 1,990 | | (1,011) | | (148) | |||||
| Net income | | 599,221 | | 341,115 | | 256,267 | | 431,852 | | 301,591 | |||||
| Net income attributable to noncontrolling interests | | (19,460) | | (9,869) | | (8,008) | | (5,665) | | (4,902) | |||||
| Net income attributable to Digital Realty Trust, Inc. | | 579,761 | | 331,246 | | 248,259 | | 426,187 | | 296,689 | |||||
| Preferred stock dividends | | (74,990) | | (81,316) | | (68,802) | | (83,771) | | (79,423) | |||||
| Issuance costs associated with redeemed preferred stock | | (11,760) | | — | | (6,309) | | (10,328) | | — | |||||
| Net income available to common stockholders | | $ | 493,011 | | $ | 249,930 | | $ | 173,148 | | $ | 332,088 | | $ | 217,266 |
| Per Share Data: | | | | | | ||||||||||
| Basic income per share available to common stockholders | | $ | 2.37 | | $ | 1.21 | | $ | 0.99 | | $ | 2.21 | | $ | 1.57 |
| Diluted income per share available to common stockholders | | $ | 2.35 | | $ | 1.21 | | $ | 0.99 | | $ | 2.20 | | $ | 1.56 |
| Cash dividend per common share | | $ | 4.32 | | $ | 4.04 | | $ | 3.72 | | $ | 3.52 | | $ | 3.40 |
| Weighted average common shares outstanding: | | | | | | ||||||||||
| Basic | | 208,325,823 | | 206,035,408 | | 174,059,386 | | 149,953,662 | | 138,247,606 | |||||
| Diluted | | 209,462,247 | | 206,673,471 | | 174,895,098 | | 150,679,688 | | 138,865,421 |
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| Balance Sheet Data: | | | | | | ||||||||||
| Net investments in real estate | | $ | 15,517,684 | | $ | 15,079,726 | | $ | 13,841,186 | | $ | 8,996,362 | | $ | 8,770,212 |
| Total assets | | 23,068,131 | | 23,766,695 | | 21,404,345 | | 12,192,585 | | 11,416,063 | |||||
| Global revolving credit facilities | | 234,105 | | 1,647,735 | | 550,946 | | 199,209 | | 960,271 | |||||
| Unsecured term loans | | 810,219 | | 1,178,904 | | 1,420,333 | | 1,482,361 | | 923,267 | |||||
| Unsecured senior notes, net of discount | | 8,973,190 | | 7,589,126 | | 6,570,757 | | 4,153,797 | | 3,712,569 | |||||
| Mortgages and other secured loans, net of premiums | | 104,934 | | 685,714 | | 106,582 | | 3,240 | | 302,930 | |||||
| Total liabilities | | 12,418,566 | | 12,892,653 | | 10,300,993 | | 7,060,288 | | 6,879,561 | |||||
| Redeemable noncontrolling interests | | 41,465 | | 15,832 | | 53,902 | | — | | — | |||||
| Total stockholders' equity | | 9,879,312 | | 9,858,644 | | 10,349,081 | | 5,096,015 | | 4,500,132 | |||||
| Noncontrolling interests in operating partnership | | 708,163 | | 906,510 | | 698,126 | | 29,684 | | 29,612 | |||||
| Noncontrolling interests in consolidated joint ventures | | 20,625 | | 93,056 | | 2,243 | | 6,598 | | 6,758 | |||||
| Total liabilities and equity | | $ | 23,068,131 | | $ | 23,766,695 | | $ | 21,404,345 | | $ | 12,192,585 | | $ | 11,416,063 |
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| Cash flows from (used in): | | | | | | | | | | | | | | | |
| Operating activities | | $ | 1,513,817 | | $ | 1,385,324 | | $ | 1,023,305 | | $ | 911,242 | | $ | 796,840 |
| Investing activities | | (274,992) | | (3,035,993) | | (1,357,153) | | (1,303,597) | | (2,527,501) | |||||
| Financing activities | | (1,272,021) | | 1,757,269 | | 321,200 | | 350,617 | | 1,750,531 |
SELECTED COMPANY FINANCIAL AND OTHER DATA (Digital Realty Trust, L.P.)
The following table sets forth selected consolidated financial and operating data on an historical basis for our Operating Partnership (amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| | | | |||||||||||||
| Statement of Operations Data: | | | | | | ||||||||||
| Operating Revenues: | | | | | | ||||||||||
| Rental and other services | | $ | 3,196,356 | | $ | 2,412,076 | | $ | 2,010,301 | | $ | 1,746,828 | | $ | 1,395,745 |
| Tenant reimbursements | | — | | 624,637 | | 440,224 | | 355,903 | | 359,875 | |||||
| Fee income and other | | 12,885 | | 9,765 | | 7,403 | | 39,482 | | 7,716 | |||||
| Total operating revenues | | 3,209,241 | | 3,046,478 | | 2,457,928 | | 2,142,213 | | 1,763,336 | |||||
| Operating Expenses: | | | | | | ||||||||||
| Rental property operating and maintenance | | 1,020,578 | | 957,065 | | 759,616 | | 660,177 | | 549,885 | |||||
| Property taxes and insurance | | 172,183 | | 140,918 | | 134,995 | | 111,989 | | 101,397 | |||||
| Change in fair value of contingent consideration | | — | | — | | — | | — | | (44,276) | |||||
| Depreciation and amortization | | 1,163,774 | | 1,186,896 | | 842,464 | | 699,324 | | 570,527 | |||||
| General and administrative | | 211,097 | | 163,667 | | 161,441 | | 152,733 | | 105,549 | |||||
| Transaction and integration expenses | | 27,925 | | 45,327 | | 76,048 | | 20,491 | | 17,400 | |||||
| Impairment on investments in real estate | | 5,351 | | — | | 28,992 | | — | | — | |||||
| Other | | 14,118 | | 2,818 | | 3,077 | | 213 | | 60,943 | |||||
| Total operating expenses | | 2,615,026 | | 2,496,691 | | 2,006,633 | | 1,644,927 | | 1,361,425 | |||||
| Operating income | | 594,215 | | 549,787 | | 451,295 | | 497,286 | | 401,911 | |||||
| Other Income (Expenses): | | | | | | | | ||||||||
| Equity in earnings of unconsolidated joint ventures | | 8,067 | | 32,979 | | 25,516 | | 17,104 | | 15,491 | |||||
| Gain on deconsolidation, net | | 67,497 | | — | | — | | — | | — | |||||
| Gain on disposition of properties, net | | 267,651 | | 80,049 | | 40,354 | | 169,902 | | 94,604 | |||||
| Interest and other income (expense) | | 66,000 | | 3,481 | | 3,655 | | (4,564) | | (2,381) | |||||
| Interest expense | | (353,057) | | (321,529) | | (258,642) | | (236,480) | | (202,800) | |||||
| Tax expense | | (11,995) | | (2,084) | | (7,901) | | (10,385) | | (6,451) | |||||
| (Loss) gain from early extinguishment of debt | | (39,157) | | (1,568) | | 1,990 | | (1,011) | | (148) | |||||
| Net income | | 599,221 | | 341,115 | | 256,267 | | 431,852 | | 300,226 | |||||
| Net loss (income) attributable to noncontrolling interests | | 1,640 | | 311 | | (4,238) | | (367) | | (460) | |||||
| Net income attributable to Digital Realty Trust, L.P. | | 600,861 | | 341,426 | | 252,029 | | 431,485 | | 299,766 | |||||
| Preferred units distributions | | (74,990) | | (81,316) | | (68,802) | | (83,771) | | (79,423) | |||||
| Issuance costs associated with redeemed preferred units | | (11,760) | | — | | (6,309) | | (10,328) | | — | |||||
| Net income available to common unitholders | | $ | 514,111 | | $ | 260,110 | | $ | 176,918 | | $ | 337,386 | | $ | 220,343 |
| Per Unit Data: | | | | | | ||||||||||
| Basic income per unit available to common unitholders | | $ | 2.37 | | $ | 1.21 | | $ | 0.99 | | $ | 2.21 | | $ | 1.56 |
| Diluted income per unit available to common unitholders | | $ | 2.35 | | $ | 1.21 | | $ | 0.99 | | $ | 2.20 | | $ | 1.56 |
| Cash distributions per common unit | | $ | 4.32 | | $ | 4.04 | | $ | 3.72 | | $ | 3.52 | | $ | 3.40 |
| Weighted average common units outstanding: | | | | | | ||||||||||
| Basic | | 217,284,755 | | 214,312,871 | | 178,055,936 | | 152,359,680 | | 140,905,897 | |||||
| Diluted | | 218,421,179 | | 214,950,934 | | 178,891,648 | | 153,085,706 | | 141,523,712 |
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| Balance Sheet Data: | | | | | | ||||||||||
| Net investments in real estate | | $ | 15,517,684 | | $ | 15,079,726 | | $ | 13,841,186 | | $ | 8,996,362 | | $ | 8,770,212 |
| Total assets | | 23,068,131 | | 23,766,695 | | 21,404,345 | | 12,192,585 | | 11,416,063 | |||||
| Global revolving credit facilities | | 234,105 | | 1,647,735 | | 550,946 | | 199,209 | | 960,271 | |||||
| Unsecured term loans | | 810,219 | | 1,178,904 | | 1,420,333 | | 1,482,361 | | 923,267 | |||||
| Unsecured senior notes, net of discount | | 8,973,190 | | 7,589,126 | | 6,570,757 | | 4,153,797 | | 3,712,569 | |||||
| Secured debt, including premiums | | 104,934 | | 685,714 | | 106,582 | | 3,240 | | 302,930 | |||||
| Total liabilities | | 12,418,566 | | 12,892,653 | | 10,300,993 | | 7,060,288 | | 6,880,926 | |||||
| Redeemable noncontrolling interests | | 41,465 | | 15,832 | | 53,902 | | — | | — | |||||
| General partner’s capital | | 9,967,234 | | 9,974,291 | | 10,457,513 | | 5,231,620 | | 4,595,357 | |||||
| Limited partners’ capital | | 711,650 | | 911,256 | | 702,579 | | 34,698 | | 33,986 | |||||
| Accumulated other comprehensive loss | | (91,409) | | (120,393) | | (112,885) | | (140,619) | | (100,964) | |||||
| Noncontrolling interests in consolidated joint ventures | | 20,625 | | 93,056 | | 2,243 | | 6,598 | | 6,758 | |||||
| Total liabilities and capital | | $ | 23,068,131 | | $ | 23,766,695 | | $ | 21,404,345 | | $ | 12,192,585 | | $ | 11,416,063 |
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | |||||||||||||
| | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
| Cash flows from (used in): | | | | | | ||||||||||
| Operating activities | | $ | 1,513,817 | | $ | 1,385,324 | | $ | 1,023,305 | | $ | 911,242 | | $ | 796,840 |
| Investing activities | | (274,992) | | (3,035,993) | | (1,357,153) | | (1,303,597) | | (2,527,501) | |||||
| Financing activities | | (1,272,021) | | 1,757,269 | | 321,200 | | 350,617 | | 1,750,531 |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.” Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the sections in this report entitled “Risk Factors” and “Forward-Looking Statements.”
Occupancy percentages included in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.
Overview
Our Company. Digital Realty Trust, Inc. completed its initial public offering of common stock, or our IPO, on November 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 on March 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 of Digital Realty Trust, Inc. common stock in connection with the initial capitalization of the Company. Our Operating Partnership was formed on July 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 of December 31, 2019, our portfolio included 225 data centers, including 12 held-for-sale data centers and 41 data centers held as investments in unconsolidated joint ventures, with approximately 36.6 million rentable square feet including approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development. The 41 data centers held as investments in unconsolidated joint ventures have an aggregate of approximately 5.0 million rentable square feet. The 24 parcels of developable land we own comprised approximately 944 acres. At December 31, 2019, excluding non-managed joint ventures, approximately 4.1 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 seven U.S. metropolitan areas, five European metropolitan areas, three Asian metropolitan areas, one Australian metropolitan area and one Canadian metropolitan area, consisting of approximately 2.9 million square feet of base building construction and 1.2 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 to Digital 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 of December 31, 2019, we operated 225 data centers through our Operating Partnership, including 12 held-for-sale data centers and 41 data centers held as investments in unconsolidated joint ventures, and developable land. These data centers are mainly located throughout North America, with 41 located in Europe, 19 in Latin America, 10 in Asia and five in Australia.
The following table presents an overview of our portfolio of data centers, including the 41 data centers held as investments in unconsolidated joint ventures, and developable land, based on information as of December 31, 2019.
| | | | | | | | |
|---|---|---|---|---|---|---|---|
| | | | Space Under | | |||
| | Data Center | | Net Rentable | | Active | | Space Held for |
| Metropolitan Area | Buildings | | Square Feet (1) | | Development (2) | | Development (3) |
| | | | | | | | |
| North America | | | | | | | |
| Northern Virginia | 23 | 5,332,240 | 717,918 | 81,195 | |||
| Chicago | 10 | 3,040,208 | 386,604 | 148,650 | |||
| New York | 12 | 2,048,955 | 34,010 | 137,018 | |||
| Silicon Valley | 20 | 2,251,021 | 65,594 | — | |||
| Dallas | 20 | 3,354,328 | 182,589 | 49,646 | |||
| Phoenix | 3 | 795,687 | — | 227,274 | |||
| San Francisco | 4 | 787,083 | 61,210 | — | |||
| Atlanta | 4 | 525,414 | — | 313,581 | |||
| Los Angeles | 4 | 818,479 | — | — | |||
| Toronto | 2 | 232,980 | 583,029 | — | |||
| Boston | 4 | | 467,519 | | — | | 50,649 |
| Houston | 6 | | 392,816 | | — | | 13,969 |
| Austin | 1 | 85,688 | — | — | |||
| Miami | 2 | 226,314 | — | — | |||
| Portland | 2 | 48,574 | 552,862 | — | |||
| Minneapolis | 1 | 328,765 | — | — | |||
| Charlotte | 3 | 95,499 | — | — | |||
| North America Total | 121 | 20,831,571 | 2,583,816 | 1,021,982 | |||
| | | | | | | | |
| Europe | |||||||
| London, United Kingdom | 16 | 1,456,352 | 136,921 | 99,175 | |||
| Amsterdam, Netherlands | 10 | 599,591 | 48,490 | 95,262 | |||
| Dublin, Ireland | 5 | 265,430 | 26,646 | 64,750 | |||
| F |
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments depend upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit ratings and other factors.
Analysis of Debt between Fixed and Variable Rate
We use interest rate swap agreements and fixed rate debt to reduce our exposure to interest rate movements. As of December 31, 2019, our consolidated debt was as follows (in millions):
| | | | | | | |
|---|---|---|---|---|---|---|
| | | | Estimated Fair | |||
| | | Carrying Value | Value | |||
| Fixed rate debt | | $ | 9,042.5 | | $ | 9,698.5 |
| Variable rate debt subject to interest rate swaps | | 479.8 | | 479.8 | ||
| Total fixed rate debt (including interest rate swaps) | | 9,522.3 | | 10,178.3 | ||
| Variable rate debt | | 683.1 | | 683.1 | ||
| Total outstanding debt | | $ | 10,205.4 | | $ | 10,861.4 |
Interest rate derivatives and their fair values as of December 31, 2019 and December 31, 2018 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | Fair Value at Significant Other | ||||
| Notional Amount | | | | | | | | | | Observable Inputs (Level 2) | ||||||||
| As of | | As of | | | | | | | | | | As of | | As of | ||||
| December 31, | | December 31, | | Type of | | Strike | | Effective | | Expiration | | December 31, | | December 31, | ||||
| 2019 | 2018 | Derivative | Rate | Date | Date | 2019 | 2018 | |||||||||||
| Currently-paying contracts | | | | | | | | | | | | | | | | | | |
| $ | — | | $ | 206,000 | (1) | Swap | 1.611 | | Jun 15, 2017 | | Jan 15, 2020 | | $ | — | | $ | 1,976 | |
| | — | | 54,905 | (1) | Swap | 1.605 | | Jun 6, 2017 | | Jan 6, 2020 | | — | | 517 | ||||
| | 29,000 | (1) | 75,000 | (1) | Swap | 1.016 | | Apr 6, 2016 | | Jan 6, 2021 | | 175 | | 2,169 | ||||
| | 75,000 | (1) | 75,000 | (1) | Swap | 1.164 | | Jan 15, 2016 | | Jan 15, 2021 | | 345 | | 1,970 | ||||
| | 300,000 | (1) | 300,000 | (1) | Swap | 1.435 | | Jan 15, 2016 | | Jan 15, 2023 | | 945 | | 11,463 | ||||
| | 75,825 | (2) | 72,220 | (2) | Swap | 0.779 | | Jan 15, 2016 | | Jan 15, 2021 | | 931 | | 2,024 | ||||
| $ | 479,825 | | $ | 783,125 | | | | $ | 2,396 | | $ | 20,119 |
| (1) | Represents debt which bears interest based on one-month U.S. LIBOR. |
|---|
| (2) | Represents debt which bears interest based on one-month CDOR. Translation to U.S. dollars is based on exchange rates of $0.77 to 1.00 CAD as of December 31, 2019 and $0.73 to 1.00 CAD as of December 31, 2018. |
|---|
Sensitivity to Changes in Interest Rates
The following table shows the effects if assumed changes in interest rates occurred, based on fair values and interest expense as of December 31, 2019:
| | | | |
|---|---|---|---|
| | Change | ||
| Assumed event | | ($ millions) | |
| Increase in fair value of interest rate swaps following an assumed 10% increase in interest rates | | $ | 1.7 |
| Decrease in fair value of interest rate swaps following an assumed 10% decrease in interest rates | | (1.7) | |
| Increase in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% increase in interest rates | | 1.1 | |
| Decrease in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% decrease in interest rates | | (1.1) | |
| Increase in fair value of fixed rate debt following a 10% decrease in interest rates | | 93.1 | |
| Decrease in fair value of fixed rate debt following a 10% increase in interest rates | | (88.1) |
Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
Foreign Currency Exchange Risk
For the years ended December 31, 2019, 2018 and 2017, we had foreign operations in the United Kingdom, Ireland, France, Germany, the Netherlands, Switzerland, Canada, Singapore, Australia, Japan, Hong Kong and Brazil. As such, we 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, Australian dollar, Singapore dollar, Hong Kong dollar and the Japanese yen. Our primary currency exposures are to the British pound sterling, Euro and the Singapore dollar. As a result of the Ascenty joint venture and deconsolidation of Ascenty in March 2019, our exposure to foreign exchange risk related to the Brazilian real is limited to the impact that currency has on our share of the Ascenty joint venture's operations and financial position. We attempt to mitigate a
portion of the risk of currency fluctuation by financing our investments in the local currency denominations and we may also hedge well-defined transactional exposures with foreign currency forwards or options, although there can be no assurances that these will be effective. As a result, changes in the relation of any such foreign currency to U.S. dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of stockholders’ equity. For the years ended December 31, 2019, 2018 and 2017, operating revenues from properties outside the United States contributed $627.4 million, $564.4 million and $515.2 million, respectively, which represented 19.5%, 18.5% and 21.0% of our operating revenues, respectively. Net investment in properties outside the United States was $3.7 billion and $3.8 billion as of December 31, 2019 and December 31, 2018, respectively. Net assets in foreign operations were approximately $(1.4) billion and $0.2 billion as of December 31, 2019 and December 31, 2018, respectively. The decrease was a result of the issuance of the 2026 Notes in January 2019 and March 2019, the proceeds of which were used to pay down the 5.875% Notes due 2020 and U.S. dollar borrowings on the global revolving credit facility.
Other
Certain operating costs incurred by us, such as electricity, are subject to price fluctuations caused by the volatility of underlying commodity prices. In 2019, we entered into a power purchase agreement to secure the renewable energy attributes from a solar farm in Virginia. 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. In 2017, we entered into power purchase agreements to secure the renewable energy attributes from a wind farm in Illinois and a solar farm in North Carolina.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control over Financial Reporting
The management of Digital Realty Trust, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on our assessment, management concluded that as of December 31, 2019, the Company’s internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm has issued an audit report on the Company’s internal control over financial reporting. This report appears on page 102.
Management’s Report on Internal Control over Financial Reporting
The management of Digital Realty Trust, L.P. (the Operating Partnership) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our internal control system was designed to provide reasonable assurance to the Operating Partnership’s management regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our general partner, we assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2019. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on our assessment, management concluded that as of December 31, 2019, the Operating Partnership’s internal control over financial reporting was effective based on those criteria.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Digital Realty Trust, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Digital Realty Trust, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated income statements and consolidated statements of comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedule III, properties and accumulated depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASU No. 2016-02 Leases and related accounting standards updates (collectively Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the stand
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Our Management’s Reports on Internal Control over Financial Reporting for Digital Realty Trust, Inc. and Digital Realty Trust, L.P. are included in Part II, Item 8, Financial Statements and Supplementary Data on page 99.
Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, Inc.)
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Company has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the Company carried out an evaluation, under the supervision and with participation of its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures that were in effect as of December 31, 2019. Based on the foregoing, the Company’s management concluded that its disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting during the three months ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, L.P.)
The Operating Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Operating Partnership’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the Operating Partnership has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the Operating Partnership does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the Operating Partnership carried out an evaluation, under the supervision and with participation of the chief executive officer and chief financial officer of its general partner, of the effectiveness of the design and operation of its disclosure controls and procedures that were in effect as of December 31, 2019. Based on the foregoing, the Operating Partnership’s management concluded that its disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting during the three months ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning our directors, executive officers and corporate governance required by Item 10 will be included in the Proxy Statement to be filed relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
We have filed, as exhibits to this Annual Report on Form 10-K, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes Oxley Act to be filed with the Securities and Exchange Commission regarding the quality of our public disclosure. We have furnished to the Securities and Exchange Commission as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2019, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 906 of the Sarbanes Oxley Act. In addition, as required by Section 303A.12 of the NYSE Listed Company Manual, our Chief Executive Officer made his annual certification to the NYSE stating that he was not aware of any violation by the Company of the corporate governance listing standards of the NYSE.
Item 11. EXECUTIVE COMPENSATION
The information concerning our executive compensation required by Item 11 will be included in the Proxy Statement to be filed relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information concerning the security ownership of certain beneficial owners and management and related stockholder matters (including equity compensation plan information) required by Item 12 will be included in the Proxy Statement to be filed relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information concerning certain relationships, related transactions and director independence required by Item 13 will be included in the Proxy Statement to be filed relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning our principal accounting fees and services required by Item 14 will be included in the Proxy Statement to be filed relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
Item 15. EXHIBITS.
| | | |
|---|---|---|
| 31.3 | | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer for Digital Realty Trust, L.P. |
| | | |
| 31.4 | | Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial Officer for Digital Realty Trust, L.P. |
| | | |
| 32.1 | | 18 U.S.C. § 1350 Certifications of Chief Executive Officer for Digital Realty Trust, Inc. |
| | | |
| 32.2 | | 18 U.S.C. § 1350 Certifications of Chief Financial Officer for Digital Realty Trust, Inc. |
| | | |
| 32.3 | | 18 U.S.C. § 1350 Certifications of Chief Executive Officer for Digital Realty Trust, L.P. |
| | | |
| 32.4 | | 18 U.S.C. § 1350 Certifications of Chief Financial Officer for Digital Realty Trust, L.P. |
| | | |
| 101 | | The following financial statements from Digital Realty Trust, Inc.’s and Digital Realty Trust, L.P.’s Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL interactive data files: (i) Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018; (ii) Consolidated Income Statements for each of the years in the three-year period ended December 31, 2019; (iii) Consolidated Statements of Equity and Comprehensive Income/Statements of Capital and Comprehensive Income for each of the years in the three-year period ended December 31, 2019; (iv) Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2019; and (v) Notes to Consolidated Financial Statements. |
| | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| † | Management contract or compensatory plan or arrangement. |
|---|
| * | Portions of this exhibit have been omitted pursuant to a grant of confidential treatment and have been filed separately with the Securities and Exchange Commission. |
|---|
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
|---|---|---|
| | | DIGITAL REALTY TRUST, INC. |
| | | |
| | By: | /s/ A. WILLIAM STEIN |
| | | A. William Stein Chief Executive Officer |
| | | |
| | Date: | March 2, 2020 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. William Stein, Andrew P. Power and Joshua A. Mills, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | |
|---|---|---|---|---|
| Signature | Title | Date | ||
| | | | | |
| /S/ LAURENCE A. CHAPMAN | | Chairman of the Board | | March 2, 2020 |
| Laurence A. Chapman | | | | |
| | | | | |
| /S/ A. WILLIAM STEIN | | Chief Executive Officer and Director (Principal Executive Officer) | | March 2, 2020 |
| A. William Stein | | | | |
| | | | | |
| /S/ ANDREW P. POWER | | Chief Financial Officer (Principal Financial Officer) | | March 2, 2020 |
| Andrew P. Power | | | | |
| | | | | |
| /S/ EDWARD F. SHAM | | Chief Accounting Officer (Principal Accounting Officer) | | March 2, 2020 |
| Edward F. Sham | | | | |
| | | | | |
| /S/ ALEXIS BLACK BJORLIN | | Director | | March 2, 2020 |
| Alexis Black Bjorlin | | | | |
| | | | | |
| /S/ MICHAEL A. COKE | | Director | | March 2, 2020 |
| Michael A. Coke | | | | |
| | | | | |
| /S/ VeraLinn Jamieson | | Director | | March 2, 2020 |
| VeraLinn Jamieson | | | | |
| | | | | |
|---|---|---|---|---|
| Signature | Title | Date | ||
| | | | | |
| /S/ KEVIN J. KENNEDY | | Director | | March 2, 2020 |
| Kevin J. Kennedy | | | | |
| | | | | |
| /S/ WILLIAM G. LAPERCH | | Director | | March 2, 2020 |
| William G. LaPerch | | | | |
| | | | | |
| /s/ AFSHIN MOHEBBI | | Director | | March 2, 2020 |
| Afshin Mohebbi | | | | |
| | | | | |
| /s/ MARK R. PATTERSON | | Director | | March 2, 2020 |
| Mark R. Patterson | | | | |
| | | | | |
| /s/ MARY HOGAN PREUSSE | | Director | | March 2, 2020 |
| Mary Hogan Preusse | | | | |
| | | | | |
| /s/ DENNIS E. SINGLETON | | Director | | March 2, 2020 |
| Dennis E. Singleton | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
|---|---|---|
| | DIGITAL REALTY TRUST, L.P. | |
| | | |
| | By: | Digital Realty Trust, Inc., |
| | Its | General Partner |
| | | |
| | By: | /s/ A. WILLIAM STEIN |
| | | A. William Stein Chief Executive Officer |
| | | |
| | Date: | March 2, 2020 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. William Stein, Andrew P. Power and Joshua A. Mills, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | |
|---|---|---|---|---|
| Signature | Title | Date | ||
| | | | | |
| /S/ LAURENCE A. CHAPMAN | | Chairman of the Board | | March 2, 2020 |
| Laurence A. Chapman | | | | |
| | | | | |
| /S/ A. WILLIAM STEIN | | Chief Executive Officer and Director (Principal Executive Officer) | | March 2, 2020 |
| A. William Stein | | | | |
| | | | | |
| /S/ ANDREW P. POWER | | Chief Financial Officer (Principal Financial Officer) | | March 2, 2020 |
| Andrew P. Power | | | | |
| | | | | |
| /S/ EDWARD F. SHAM | | Chief Accounting Officer (Principal Accounting Officer) | | March 2, 2020 |
| Edward F. Sham | | | | |
| | | | | |
| /S/ ALEXIS BLACK BJORLIN | | Director | | March 2, 2020 |
| Alexis Black Bjorlin | | | | |
| | | | | |
|---|---|---|---|---|
| Signature | Title | Date | ||
| | | | | |
| /S/ MICHAEL A. COKE | | Director | | March 2, 2020 |
| Michael A. Coke | | | | |
| | | | | |
| /S/ VeraLinn Jamieson | | Director | | March 2, 2020 |
| VeraLinn Jamieson | | | | |
| | | | | |
| /S/ KEVIN J. KENNEDY | | Director | | March 2, 2020 |
| Kevin J. Kennedy | | | | |
| | | | | |
| /S/ WILLIAM G. LAPERCH | | Director | | March 2, 2020 |
| William G. LaPerch | | | | |
| | | | | |
| /s/ AFSHIN MOHEBBI | | Director | | March 2, 2020 |
| Afshin Mohebbi | | | | |
| | | | | |
| /s/ MARK R. PATTERSON | | Director | | March 2, 2020 |
| Mark R. Patterson | | | | |
| | | | | |
| /s/ MARY HOGAN PREUSSE | | Director | | March 2, 2020 |
| Mary Hogan Preusse | | | | |
| | | | | |
| /s/ DENNIS E. SINGLETON | | Director | | March 2, 2020 |
| Dennis E. Singleton | | | | |