Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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

Index to Financial Statements

strategy. We intend to aggressively manage and lease our assets to increase their cash flow. We may continue to build out our development portfolio when justified by anticipated demand and returns.

We may acquire properties subject to existing mortgage financing and other indebtedness or we may incur new indebtedness in connection with acquiring or refinancing these properties. Debt service on such indebtedness will have a priority over any cash dividends with respect 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
Frankfurt, Germany	4	222,261	185,814	—
Paris, France	4	185,994	96,402	—
Geneva, Switzerland	1	59,190	—	—
Manchester, England	1	38,016	—	—
Europe Total	41	2,826,835	494,273	259,187

Asia Pacific
Singapore	3	540,638	344,826	—
Sydney, Australia	3	225,728	88,629	—
Melbourne, Australia	2	146,570	—	—
Osaka, Japan	1	—	193,535	—
Tokyo, Japan	1	—	406,664	—
Asia Pacific Total	10	912,936	1,033,654	—

Held for Sale	12	1,377,405	—	—

Non-Data Center Properties	—	278,068	—	—

Managed Unconsolidated Joint Ventures
Northern Virginia	7	1,250,419	—	—

Index to Financial Statements

Hong Kong	1	182,488	—	3,812
Silicon Valley	4	326,305	—	—
Dallas	3	319,876	—	—
New York	1	108,336	—	—
	16	2,187,424	—	3,812

Non-Managed Unconsolidated Joint Ventures
São Paulo, Brazil	15	739,373	219,118	394,988
Seattle	2	451,369	—	—
Tokyo, Japan	2	430,277	—	—
Osaka, Japan	2	207,464	93,748	30,874
Fortaleza, Brazil	1	94,205	—	—
Rio De Janeiro, Brazil	2	72,442	—	26,781
Santiago, Chile	1	—	46,474	20,865
	25	1,995,130	359,340	473,508

Total	225	30,409,369	4,471,083	1,758,490

(1)	Current net rentable square feet as of December 31, 2019, which represents the current square feet under lease as specified in the applicable lease agreements plus management’s estimate of space available for lease based on engineering drawings. Includes customers’ proportional share of common areas and excludes space under active development and space held for development.

(2)	Space under active development includes current base building and data center projects in progress.

(3)	Space held for development includes space held for future data center development, and excludes space under active development.

As of December 31, 2019, our portfolio, including the 41 data centers held as investments in unconsolidated joint ventures, were approximately 86.8% leased excluding approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development. Due to the capital-intensive and long-term nature of the operations being supported, our lease terms are generally longer than standard commercial leases. As of December 31, 2019, our average remaining lease term is approximately five years. Our scheduled lease expirations through December 31, 2021 are 19.9% of rentable square feet excluding month-to-month leases, space under active development and space held for development as of December 31, 2019.

Factors Which May Influence Future Results of Operations

Global market and economic conditions. General economic conditions and the cost and availability of capital may be adversely affected in some or all of the metropolitan areas in which we own properties and conduct our operations. In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The United Kingdom formally withdrew from the European Union on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties. Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will occur if negotiations are not completed by the end of the transition period. Instability in the U.S., European, Asia Pacific and other international financial markets and economies may adversely affect our ability, and the ability of our customers, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our, and our customers’, financial condition and results of operations.

In addition, our access to funds under our global revolving credit facilities depends on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We cannot assure you that long-term disruptions in the global economy and the return of tighter credit conditions among, and potential failures or nationalizations of, third party financial institutions as a result of such disruptions will not have an adverse effect on our lenders. If our lenders are not able to meet their funding commitments to us, our business, results of operations, cash flows and financial condition could be adversely affected.

Index to Financial Statements

If we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds, access our existing lines of credit or raise equity or debt capital, we may need to source alternative ways to increase our liquidity. Such alternatives may include, without limitation, curtailing development activity, disposing of one or more of our properties possibly on disadvantageous terms or entering into or renewing leases on less favorable terms than we otherwise would.

Foreign currency exchange risk. For the years ended December 31, 2019 and 2018, we had foreign operations including through our investments in unconsolidated joint ventures, in the United Kingdom, Ireland, France, the Netherlands, Germany, Switzerland, Canada, Singapore, Australia, Japan, Hong Kong and Brazil, and, as such, are subject to risk from the effects of exchange rate movements of foreign currencies, which may affect future costs and cash flows. Our foreign operations are conducted in the British pound sterling, Euro, Canadian dollar, Brazilian real, Singapore dollar, Australian dollar, Japanese Yen and the Hong Kong dollar. Our primary currency exposures are to the British pound sterling, the Euro and the Singapore dollar. The withdrawal of the United Kingdom (or any other country) from the European Union, or prolonged periods of uncertainty relating to any of these possibilities, could result in increased foreign currency exchange volatility. We attempt to mitigate a portion of the risk of currency fluctuation by financing our investments in the local currency denominations, although there can be no assurance that this 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, the book value of our debt and the amount of stockholders’ equity.

Rental income. The amount of rental income generated by the data centers in our portfolio depends on several factors, including our ability to maintain or improve the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations. Excluding approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development as of December 31, 2019, the occupancy rate of our portfolio, including the 41 data centers held as investments in unconsolidated joint ventures, was approximately 86.8% of our net rentable square feet.

As of December 31, 2019, we had over 2,000 tenants in our data center portfolio, including the 16 data centers held in our managed portfolio of unconsolidated joint ventures. As of December 31, 2019, approximately 89% of our leases (on a rentable square footage basis) contained base rent escalations that were either fixed (generally ranging from 2% to 4%) or indexed based on a consumer price index or other similar inflation related index. We cannot assure you that these escalations will cover any increases in our costs or will otherwise keep rental rates at or above market rates.

The amount of rental income we generate also depends on maintaining or increasing rental rates at our properties, which in turn depends on several factors, including supply and demand and market rates for data center space. Included in our approximately 26.2 million net rentable square feet, excluding space under active development and space held for development and 41 data centers held as investments in unconsolidated joint ventures, at December 31, 2019 is approximately 1.8 million square feet of data center space with extensive installed tenant improvements available for lease. Our Turn-Key Flex® product is an effective solution for customers who prefer to utilize a partner with the expertise or capital budget to provide extensive data center infrastructure and security. Our expertise in data center construction and operations enables us to lease space to these customers at a premium over other uses. In addition, as of December 31, 2019, we had approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development, or approximately 17% of the total rentable space in our portfolio, including the 41 data centers held as investments in unconsolidated joint ventures. Our ability to grow earnings depends in part on our ability to develop space and lease development space at favorable rates, which we may not be able to obtain. Development space requires significant capital investment in order to develop data center facilities that are ready for use and, in addition, we may require additional time or encounter delays in securing customers for development space. We may purchase additional vacant properties and properties with vacant development space in the future. We will require additional capital to finance our development activities, which may not be available or may not be available on terms acceptable to us, including as a result of the conditions described above under “Global market and economic conditions.”

Index to Financial Statements

In addition, the timing between when we sign a new lease with a customer and when that lease commences and we begin to generate rental income may be significant and may not be easily predictable. Certain leases may provide for staggered commencement dates for additional space, the timing of which may be delayed significantly.

Economic downturns, including as a result of the conditions described above under “Global market and economic conditions,” or regional downturns affecting our metropolitan areas or downturns in the data center industry that impair our ability to lease or renew or re-lease space, or otherwise reduce returns on our investments or the ability of our customers to fulfill their lease commitments, as in the case of customer bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties.

Dispositions. Dispositions of our properties, to the extent such properties are operating properties, will reduce our revenue and operating income unless offset by acquisitions, leasing of development space or rental rate increases. In November 2019, we completed our joint venture with Mapletree Investments and Mapletree Industrial Trust, which we refer to collectively as Mapletree, on three existing fully leased Turn-Key Flex® data centers located in Ashburn, Virginia. We retained a 20% ownership interest in the joint venture, while Mapletree acquired the remaining 80% stake for approximately $811 million. Subsequent to year-end, Mapletree acquired a portfolio of 10 Powered Base Building® properties, which were fully leased, from us for a total purchase price of approximately $557 million, before customary closing costs and transaction fees.

Non-Recurring Income. Transactions that we enter into, including, for example, joint venture contributions of our properties, may generate income that is not duplicated in similar or other transactions. For example, certain income generated from our previously disclosed Ascenty joint venture with Brookfield is not likely to recur. Additionally, other non-recurring income, such as tax credits, which we receive in one year is not likely to occur in future periods.

Scheduled lease expirations. Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. In addition to approximately 3.6 million square feet of available space in our portfolio, which excludes approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development as of December 31, 2019 and the 25 data centers held as investments in our non-managed unconsolidated joint ventures, leases representing approximately 8.4% and 11.5% of the net rentable square footage of our portfolio are scheduled to expire during the years ending December 31, 2020 and 2021, respectively.

During the year ended December 31, 2019, we had the highest lease expirations, based on net rentable square footage, in our history. Although our customer retention was a little over 80% of expiring leases, in line with our long-term average, the impact of these expirations may potentially weigh on near-term results. While we expect to be able to re-lease available space, an inability to re-lease available space could potentially have an impact on our operating income going forward.

Index to Financial Statements

During the year ended December 31, 2019, we signed new leases totaling approximately 1.7 million square feet of space and renewal leases totaling approximately 4.9 million square feet of space. The following table summarizes our leasing activity in the year ended December 31, 2019:


								TI’s/Lease		Weighted
								Commissions		Average Lease
	Rentable	Expiring		New		Rental Rate		Per Square		Terms
	Square Feet (1)	Rates (2)		Rates (2)		Changes		Foot		(years)
Leasing Activity (3)(4)
Renewals Signed
Turn-Key Flex ®	1,804,230	$	148.86	$	152.34	2.3	%	$	6.36	4.7
Powered Base Building ®	2,347,564	$	31.73	$	36.51	15.0	%	$	10.82	14.2
Colocation	502,679	$	279.25	$	285.44	2.2	%	$	0.03	1.2
Non-technical	289,342	$	17.43	$	20.70	18.7	%	$	4.09	5.6
New Leases Signed (5)
Turn-Key Flex ®	1,280,465		—	$	136.57	—		$	23.45	6.8
Powered Base Building ®	196,073		—	$	48.68	—		$	21.67	10.7
Colocation	98,521		—	$	310.58	—		$	29.50	2.0
Non-technical	126,883		—	$	16.97	—		$	4.78	4.5
Leasing Activity Summary
Turn-Key Flex ®	3,084,695			$	145.79
Powered Base Building ®	2,543,637			$	37.44
Colocation	601,200			$	289.56
Non-technical	416,225			$	19.56

(1)	For some of our properties, we calculate square footage based on factors in addition to contractually leased square feet, including power, required support space and common area.

(2)	Rental rates represent annual estimated cash rent per rentable square foot adjusted for straight-line rents in accordance with GAAP. GAAP rental rates are inclusive of tenant concessions, if any.

(3)	Excludes short-term leases.

(4)	Commencement dates for the leases signed range from 2019 to 2020.

(5)	Includes leases signed for new and re-leased space.

Our ability to re-lease or renew expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. We continue to see strong demand in most of our key metropolitan areas for data center space. For the year ended December 31, 2019, rents on renewed space increased by an average of 2.3% on a GAAP basis on our Turn-Key Flex® space compared to the expiring rents and increased by an average of 15.0% on a GAAP basis on our Powered Base Building® space compared to the expiring rents. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our data centers will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular metropolitan area may not be consistent with rental rates across our portfolio as a whole and may fluctuate from one period to another due to a number of factors, including local real estate conditions, local supply and demand for data center space, competition from other data center developers or operators, the condition of the property and whether the property, or space within the property, has been developed.

Index to Financial Statements

Geographic concentration. We depend on the market for data centers in specific geographic regions and significant changes in these regional or metropolitan areas can impact our future results. As of December 31, 2019, our portfolio, including the 41 data centers held as investments in unconsolidated joint ventures, was geographically concentrated in the following metropolitan areas:


	Percentage of
	December 31, 2019
	total annualized
Metropolitan Area	rent (1)
Northern Virginia	24.0	%
Chicago	11.2	%
Silicon Valley	8.2	%
London, United Kingdom	8.1	%
New York	8.1	%
Dallas	7.6	%
São Paulo, Brazil	4.3	%
Phoenix	3.2	%
Singapore	3.1	%
San Francisco	2.4	%
Seattle	2.4	%
Atlanta	2.1	%
Los Angeles	1.7	%
Amsterdam, Netherlands	1.6	%
Other	12.0	%
Total	100.0	%

(1)	Annualized rent is monthly contractual rent (defined as cash base rent before abatements) under existing leases as of December 31, 2019 multiplied by 12. The aggregate amount of abatements for the year ended December 31, 2019 was approximately $70.3 million. Includes consolidated portfolio and unconsolidated joint ventures at the joint ventures’ 100% ownership level.

Operating expenses. Our operating expenses generally consist of utilities, property and ad valorem taxes, property management fees, insurance and site maintenance costs, as well as rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations contained in them. Many of our leases contain provisions under which the tenants reimburse us for all or a portion of property operating expenses and real estate taxes incurred by us. However, in some cases we are not entitled to reimbursement of property operating expenses, other than utility expense, and real estate taxes under our leases for Turn-Key Flex® facilities. We also incur general and administrative expenses, including expenses relating to our asset management function, as well as significant legal, accounting and other expenses related to corporate governance, Securities Exchange Commission, or the SEC, reporting and compliance with the various provisions of the Sarbanes-Oxley Act. Increases or decreases in such operating expenses will impact our overall performance. We expect to incur additional operating expenses as we continue to expand.

Significant transactions. The prospect of future share dilution related to pending and future transactions could negatively impact our share price and per share results of operations. On October 29, 2019, Digital Realty Trust, Inc. and its indirect, wholly owned subsidiary entered into a purchase agreement pursuant to which we commenced an offer to purchase all ordinary shares of InterXion Holding, N.V., a public limited liability company organized under the laws of the Netherlands, which we refer to as the Offer. We expect to complete the Offer in March 2020. Upon the completion of the Offer, and subject to the satisfaction or waiver of the various closing conditions, each InterXion share validly tendered and not properly withdrawn will be converted automatically into the right to receive 0.7067 shares of Digital Realty Trust, Inc. common stock. The transactions will dilute the ownership position of Digital Realty Trust, Inc.’s stockholders and result in InterXion shareholders having an ownership stake in Digital Realty Trust, Inc. that represents about 20% of the combined company. The share issuances in the InterXion transactions, or in future significant

Index to Financial Statements

transactions, may reduce our net income per share available to common stockholders, and could negatively impact the trading price of our common stock.

Climate change legislation. In June 2009, the U.S. House of Representatives approved comprehensive clean energy and climate change legislation intended to cut greenhouse gas, or GHG, emissions, via a cap-and-trade program. The U.S. Senate did not subsequently pass similar legislation. Significant opposition to federal climate change legislation exists.

In the absence of comprehensive federal climate change legislation, regulatory agencies, including the U.S. Environmental Protection Agency, or EPA, and states have taken the lead in regulating GHG emissions in the U.S. Under the Obama administration, the EPA moved aggressively to regulate GHG emissions from automobiles and large stationary sources, including electricity producers, using its own authority under the Clean Air Act. The Trump administration has moved to eliminate or modify certain of the EPA’s GHG emissions regulations and refocus the EPA’s mission away from such regulation.

The EPA made an endangerment finding in 2009 that allows it to create regulations imposing emissions reporting, permitting, control technology installation, and monitoring requirements applicable to certain emitters of GHGs, including facilities that provide electricity to our data centers, although the materiality of the impacts will not be fully known until all regulations are finalized and legal challenges are resolved. Under the Obama administration, the EPA finalized rules imposing permitting and control technology requirements upon certain newly-constructed or modified facilities which emit GHGs under the Clean Air Act New Source Review Prevention of Significant Deterioration, or NSR PSD, and Title V permitting programs. As a result, newly-issued NSR PSD and Title V permits for new or modified electricity generating units (EGUs) and other facilities may need to address GHG emissions, including by requiring the installation of “Best Available Control Technology.” The EPA implemented in December 2015 the “Clean Power Plan” regulating carbon dioxide (CO2) emissions from new and existing coal-fired and natural gas EGUs. The Clean Power Plan subjected new, modified, and reconstructed EGUs to “New Source Performance Standards” that include both technological requirements and numeric emission limits. However, in March 2017, President Trump ordered the EPA to review and if appropriate revise or rescind the Clean Power Plan, and in June 2019 the EPA repealed the Clean Power Plan and issued the “Affordable Clean Energy Rule” to replace the Clean Power Plan. The Affordable Clean Energy Rule requires heat rate efficiency improvements at certain EGUs, but does not place numeric limits on EGU emissions. Separately, the EPA’s GHG “reporting rule” requires that certain emitters, including electricity generators, monitor and report GHG emissions.

As a result of Trump administration policies, states may drive near-term regulation to reduce GHG emissions in the United States. At the state level, California implemented a GHG cap-and-trade program that began imposing compliance obligations on industrial sectors, including electricity generators and importers, in January 2013. In September 2016, California adopted legislation calling for a further reduction in GHG emissions to 40% below 1990 levels by 2030, and in July 2017, California extended its cap-and-trade program through 2030. In September 2018, California adopted legislation that will require all of the state’s electricity to come from carbon-free sources by 2045. As another example of state action, a number of eastern states participate in the Regional Greenhouse Gas Initiative (RGGI), a market-based program aimed at reducing GHG emissions from power plants.

Outside the United States, the European Union, or EU (as well as the United Kingdom), have been operating since 2005 under a cap-and-trade program, which directly affects the largest emitters of GHGs, including electricity producers from whom we purchase power, and the EU has taken a number of other climate change-related initiatives, including a directive targeted at improving energy efficiency (which introduces energy efficiency auditing requirements). EU Commission President-elect Ursula von der Leyen announced her intent in July 2019 to extend the EU emissions-trading system to include mobile sources, strengthen the EU’s GHG reduction target from 40% below 1990 levels to 50% to 55% below 1990 levels, and institute a carbon import tax to encourage climate legislation in other countries. In December 2019, EU leaders endorsed the objective of achieving a climate-neutral EU, with net-zero GHG emissions with the exception of Poland, by 2050. National legislation may also be implemented independently by members of the EU. It is not yet clear how Brexit will impact the United Kingdom’s approach to climate change regulation.

Index to Financial Statements

The Paris Agreement, which was adopted by the United States and 194 other countries and looks to prevent global average temperatures from increasing by more than 2 degrees Celsius above preindustrial levels officially went into force in November 2016. President Trump announced in June 2017 that he will initiate the process to withdraw the United States from the Paris Agreement; however, a number of states have formed groups supporting the Paris Agreement and pledging to fulfill its goals at the state level.

The Canadian Greenhouse Gas Pollution Pricing Act established a carbon-pricing regime that went into effect in January 2019 for provinces and territories in Canada where there is no provincial system in place already, or where the provincial system does not meet the federal benchmark. Climate change regulations are also in various stages of implementation in other nations as well, including nations where we operate, such as Japan, Singapore, and Australia.

The cost of electric power comprises a significant component of our operating expenses. Any additional taxation or regulation of energy use, including as a result of (i) new legislation that Congress may pass, (ii) the regulations that the EPA has proposed or finalized, (iii) regulations under legislation that states have passed or may pass, or (iv) any further legislation or regulations in the EU or other regions where we operate could significantly increase our costs, and we may not be able to effectively pass all of these costs on to our customers. These matters could adversely impact our business, results of operations, or financial condition.

Interest rates. As of December 31, 2019, we had approximately $0.5 billion of variable rate debt subject to interest rate swap agreements, along with $0.2 billion and $0.4 billion of variable rate debt that was outstanding on the global revolving credit facilities and the unswapped portion of the unsecured term loans, respectively. The availability of debt and equity capital may decrease or be on unfavorable terms as a result of the circumstances described above under “Global market and economic conditions” or other factors. The effects on commercial real estate mortgages, if available, include, but may not be limited to: higher loan spreads, tightened loan covenants, reduced loan-to-value ratios resulting in lower borrower proceeds and higher principal payments. Potential future increases in interest rates and credit spreads may increase our interest expense and fixed charges and negatively affect our financial condition and results of operations, potentially impacting our future access to the debt and equity capital markets. Increased interest rates may also increase the risk that the counterparties to our swap agreements will default on their obligations, which could further increase our interest expense. If we cannot obtain capital from third party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or pay the cash dividends to Digital Realty Trust, Inc.’s stockholders necessary to maintain its qualification as a REIT.

Demand for data center space. Our portfolio consists primarily of data centers. A decrease in the demand for, or increase in supply of, data center space, Internet gateway facilities or other technology-related real estate would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified customer base or less specialized use. We have invested in building out additional inventory primarily in what we anticipate will be our active major metropolitan areas prior to having executed leases with respect to this space. We believe that demand in key metropolitan areas is largely in line with supply and continue to see strong demand in other key metropolitan areas across our portfolio. However, until this inventory is leased up, which will depend on a number of factors, including available data center space in these metropolitan areas, our return on invested capital is negatively impacted. Our development activities make us particularly susceptible to general economic slowdowns, including recessions and the other circumstances described above under “Global market and economic conditions,” as well as adverse developments in the corporate 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, such as virtualization technology, more efficient computing or networking devices, or devices that require higher power densities than today’s devices, could also reduce demand for the physical data center space we provide or make the tenant improvements in our facilities obsolete or in need of significant upgrades to remain viable. In addition, the development of new technologies, the adoption of new industry standards or other factors could render many of our customers’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy. In addition, demand for data center space, or the rates at which we lease space, may be adversely impacted either across our portfolio or in specific metropolitan areas as a result of an

Index to Financial Statements

increase in the number of competitors, or the amount of space being offered in our metropolitan areas and other metropolitan areas by our competitors.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Item 8, Note 2 “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. We describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and consolidated results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believes are reasonable as of the date on the front cover of this report.

Investments in Real Estate

Acquisition of real estate. The price that we pay to acquire a property is impacted by many factors including the condition of the property and improvements, the occupancy of the building, the term and rate of in-place leases, the creditworthiness of the customers, favorable or unfavorable financing, above- or below-market ground leases and numerous other factors.

Accordingly, we are required to make subjective assessments to allocate the purchase price paid to acquire investments in real estate among the identifiable assets including intangibles and liabilities assumed based on our estimate of the fair value of such assets and liabilities. This includes determining the value of the property and improvements, land, ground leases, if any, and tenant improvements. Additionally, we evaluate the value of in-place leases on occupancy and market rent, the value of the tenant relationships, the value (or negative value) of above (or below) market leases, any debt or deferred taxes assumed from the seller or loans made by the seller to us and any building leases assumed from the seller. Each of these estimates requires a great deal of judgment and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our results of operations. For example, if we were to allocate more value to land, there would be no depreciation with respect to such amount. If we were to allocate more value to the property as opposed to allocating to the value of in-place tenant leases, this amount would be recognized as an expense over a much longer period of time. This potential effect occurs because the amounts allocated to property are depreciated over the estimated lives of the property whereas amounts allocated to in-place tenant leases are amortized over the estimated term (including renewal and extension assumptions) of the leases. Additionally, the amortization of the value (or negative value) assigned to above (or below) market rate leases is recorded as an adjustment to rental revenue as compared to amortization of the value of in-place tenant leases and tenant relationships, which is included in depreciation and amortization in our consolidated income statements.

From time to time, we will receive offers from third parties to purchase our properties, either solicited or unsolicited. For those offers that we accept, the prospective buyers will usually require a due diligence period before consummation of the transactions. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. We classify real estate as “held for sale” when all criteria under the GAAP guidance have been met.

Asset impairment evaluation. We review each of our properties for indicators that its carrying amount may not be recoverable. Examples of such indicators may include a significant decrease in the market price of the property, a change in the expected holding period for the property, a significant adverse change in how the property is being used or expected to be used based on the underwriting at the time of acquisition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of the property, or a history of operating or cash flow losses of the property. When such impairment indicators exist, we review an estimate of the future undiscounted net

Index to Financial Statements

cash flows (excluding interest charges) expected to result from the property’s or asset group’s use and eventual disposition and compare that estimate to the carrying value of the property or the asset group. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our future undiscounted net cash flow evaluation indicates that we are unable to recover the carrying value of a property or asset group, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property or fair value of the properties within the asset group. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows on properties considered to be long-lived assets to be held and used are considered on an undiscounted basis to determine whether the carrying value of a property or asset group is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of their carrying values not being recoverable and therefore requiring the recording of an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value.

We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In certain cases, we may supplement this analysis by obtaining outside broker opinions of value.

Goodwill impairment evaluation. We perform an annual impairment test for goodwill and between annual tests, we evaluate goodwill for impairment whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. In our impairment tests of goodwill, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If based on this assessment, we determine that the fair value of the reporting unit is not less than its carrying value, then performing the additional two-step impairment test is unnecessary. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets including goodwill to the fair value of the reporting unit. We estimate the fair value of the reporting unit using a technique based on a performance measure or measures consistent with the objective of measuring fair value, which may include quoted market prices, multiples of earnings or discounted cash flows. If the fair value is determined to be less than the book value of the net assets, including goodwill, a second step is performed to compute the amount of impairment as the difference between the implied fair value of goodwill and its carrying value. If the carrying value of goodwill exceeds its implied fair value, an impairment charge is recognized.

Revenue Recognition

The majority of our revenue is derived from lease arrangements, which we account for in accordance with “Leases (Topic 840)” prior to 2019 and pursuant to Topic 842 commencing on January 1, 2019. We accounted for the non-lease components within our lease arrangements (prior to the adoption of Topic 842), as well as other sources of revenue, in accordance with Topic 606. Upon the adoption of Topic 842, we elected the practical expedient that requires us to account for lease and non-lease components associated with that lease as a single lease component, which are recorded within rental revenue.

We commence recognition of income from rentals related to the operating leases at the date the property is ready for its intended use by the tenant and the tenant takes possession, or controls the physical use, of the leased asset. Our leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases, which may span multiple years. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rent in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts and other receivables. As of December 31, 2019 and 2018, the balance of deferred rent was $478.7 million and $463.2 million, respectively, and rent receivable, net of allowance, was $171.9 million and

Index to Financial Statements

$185.7 million, respectively, and is classified within accounts and other receivables, net of allowance for doubtful accounts in the accompanying consolidated balance sheets.

We make subjective estimates as to the probability of collection of substantially all lease payments over the term of a lease. We specifically analyze customer creditworthiness, accounts receivable and historical bad debts and current economic trends when evaluating the probability of collection. If collection of substantially all lease payments over the term of a lease is deemed not probable, rental revenue would be recognized when payment is received and revenue would not be recognized on a straight-line basis. We monitor the probability of collection over the life of the lease and in the event the collection of substantially all lease payments is no longer probable, we cease recognizing revenue on a straight-line basis and write-off the balance of all deferred rent related to the lease and commence recording rental revenue on a cash-basis. In addition, we record a full valuation allowance on the balance of any accounts receivable, less the balance of any security deposits or letters of account. In the event that we subsequently determine the collection is probable, we resume recognizing rental revenue on a straight-line basis and record the incremental revenue such that the cumulative rental revenue is equal to the amount of revenue that would have been recorded on a straight-line basis since the inception of the lease. We also would reverse the allowance for bad debt recorded on the balance of accounts receivable.

Recently Issued Accounting Pronouncements

Please refer to Item 8, Note 2(s) in the Notes to the Consolidated Financial Statements, “Lease Accounting" for new accounting standards adopted in 2019 and Note 2(bb), “New Accounting Standards Issued but not Yet Adopted" for new accounting standards that could impact future results.

Results of Operations

The discussion below relates to our financial condition and results of operations for the years ended December 31, 2019, 2018 and 2017. A summary of our operating results from continuing operations for the years ended December 31, 2019, 2018 and 2017 was as follows (in thousands).


	Year Ended December 31,
	2019		2018		2017
Income Statement Data:
Total operating revenues	$	3,209,241	$	3,046,478	$	2,457,928
Total operating expenses		(2,615,026)		(2,496,691)		(2,006,633)
Operating income		594,215		549,787		451,295
Gain on deconsolidation, net		67,497		—		—
Gain on disposition of properties, net		267,651		80,049		40,354
Interest and other income, net		66,000		3,481		3,655
Interest expense		(353,057)		(321,529)		(258,642)
(Loss) gain from early extinguishment of debt		(39,157)		(1,568)		1,990
Other income (expenses), net		(3,928)		30,895		17,615
Net income	$	599,221	$	341,115	$	256,267

Our portfolio of properties has experienced consistent and significant growth since the first property acquisition in January 2002. As a result of this growth, our period-to-period comparison of our financial performance focuses on the impact on our revenues and expenses on a stabilized portfolio basis. Our stabilized portfolio includes properties owned as of December 31, 2017 with less than 5% of total rentable square feet under development and excludes properties that were undergoing, or were expected to undergo, development activities in 2018-2019 and properties sold or contributed to joint ventures. Our pre-stabilized pool includes the results of the operating properties acquired below and newly delivered properties that were previously under development.

Index to Financial Statements

In September 2017, as part of the DFT Merger, we acquired 15 data centers, 14 of which are located in the United States and one is located in Canada.

2019 Dispositions


				Fair Value		Gain on contribution
Location / Portfolio	Metro Area	Date Contributed		(in millions)		(in millions)
Mapletree portfolio (1)	Northern Virginia		Nov 1, 2019	$	996.6	$	266.0


(1)	Consists of three data centers that were contributed to a joint venture.

None of the Company’s dispositions to date represented a significant component or significant shift in strategy that would require discontinued operations presentation.

Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 and Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017

Portfolio

As of December 31, 2019, our portfolio consisted of 225 data centers, including 12 held-for-sale data centers and 41 data centers held as investments in unconsolidated joint ventures, with an aggregate of approximately 36.6 million rentable square feet, including 4.5 million square feet of space under active development and 1.8 million square feet of space held for development, compared to a portfolio consisting of 214 data centers, including 18 data centers held as investments in unconsolidated joint ventures, with an aggregate of approximately 34.5 million rentable square feet, including 3.4 million square feet of space under active development and 2.1 million square feet of space held for development as of December 31, 2018, and compared to a portfolio consisting of 205 data centers, including seven held-for-sale data centers and 18 data centers held as investments in unconsolidated joint ventures, with an aggregate of approximately 32.1 million rentable square feet, including 2.7 million square feet of space under active development and 1.7 million square feet of space held for development as of December 31, 2017.

Index to Financial Statements

Revenues

Total operating revenues for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):


	Year Ended December 31,						Change				Percentage Change
	2019		2018		2017		2019 vs 2018		2018 vs 2017		2019 vs 2018		2018 vs 2017
Rental and other services	$	3,196,356	$	2,412,076	$	2,010,301	$	784,280	$	401,775	32.5	%	20.0	%
Tenant reimbursements		—		624,637		440,224		(624,637)		184,413	(100.0)	%	41.9	%
Fee income and other		12,885		9,765		7,403		3,120		2,362	32.0	%	31.9	%
Total operating revenues	$	3,209,241	$	3,046,478	$	2,457,928	$	162,763	$	588,550	5.3	%	23.9	%

The following tables show revenues for the years ended December 31, 2019, 2018 and 2017 for stabilized properties and pre-stabilized properties and other (all other properties) (in thousands). Revenue totals for pre-stabilized and other include results from properties that have not yet met the definition of stabilized and properties that are classified as held for sale or were sold during the period.


	Stabilized								Pre-Stabilized and Other
	Year Ended December 31,								Year Ended December 31,
	2019		2018		$ Change		% Change		2019		2018		Change
Rental and other services	$	2,396,319	$	1,915,882	$	480,437	25.1	%	$	800,037	$	496,194	$	303,843
Tenant reimbursements		—		514,050		(514,050)	(100.0)	%		—		110,588		(110,588)
Total	$	2,396,319	$	2,429,932	$	(33,613)	(1.4)	%	$	800,037	$	606,782	$	193,255

On January 1, 2019, we adopted Topic 842 and the practical expedient that resulted in combining the expenses reimbursed by our customers (“tenant reimbursements”) with contractual rental revenue if certain criteria were met. We assessed these criteria and concluded that the timing and pattern of transfer for rental revenue and the associated tenant reimbursements are the same and as our leases qualify as operating leases, we accounted for and presented rental and other services and tenant reimbursements as a single component under rental and other services in our consolidated income statements for the year ended December 31, 2019. As a result, the prior periods are not directly comparable other than on an aggregate basis.

Stabilized revenue decreased $33.6 million for the year ended December 31, 2019 compared to the same period in 2018 due to unfavorable currency translation along with expiring leases at certain properties in the stabilized portfolio and higher bad debt expense.

Pre-stabilized and other revenues increased $193.3 million for the year ended December 31, 2019 compared to the same period in 2018 primarily as a result of new leasing activity and reimbursement from development properties and the Ascenty Acquisition (only for the three months ended March 31, 2019, prior to deconsolidation).


	Stabilized								Pre-Stabilized and Other
	Year Ended December 31,								Year Ended December 31,
	2018		2017		Change		% Change		2018		2017		Change
Rental and other services	$	1,397,953	$	1,388,427	$	9,526	0.7	%	$	1,014,123	$	621,874	$	392,249
Tenant reimbursements		254,725		254,876		(151)	(0.1)	%		369,912		185,348		184,564
Total	$	1,652,678	$	1,643,303	$	9,375	0.6	%	$	1,384,035	$	807,222	$	576,813

Stabilized rental and other services revenue increased $9.5 million, or 0.7%, for the year ended December 31, 2018 compared to the same period in 2017 primarily as a result of an increase in revenues from colocation services and new leasing at our properties during the year ended December 31, 2018, the largest of which was for space at 350 E. Cermak Road, 2121 South Price Road and 29A International Business Park, partially offset by expiring leases at certain properties in the stabilized portfolio. Stabilized tenant reimbursement revenue decreased $0.2 million, or 0.1%, for

Index to Financial Statements

the year ended December 31, 2018 compared to the same period in 2017 primarily as a result of reimbursement credits and property tax refunds to customers at properties in the stabilized portfolio offset by higher utility reimbursements driven by increased power consumption and new leasing.

Pre-stabilized and other revenue increases during the year ended December 31, 2018 compared to the same period in 2017 were primarily a result of the properties acquired in the DFT Merger, which contributed approximately $311.4 million and $164.0 million to the rental and other services revenue and tenant reimbursement increases, respectively. In addition, 505 North Railroad Avenue, which was acquired in December 2017, contributed $21.9 million and $5.1 million to the rental and other services revenue and tenant reimbursements increases, respectively, for the year ended December 31, 2018 compared to the same period in 2017. Also, there were contributions from new leases at our properties that were under development during the year ended December 31, 2018, offset partially by a decrease in revenues as a result of properties sold during the year ended December 31, 2018.

Fee Income and Other

Occasionally, customers engage the Company for certain services. The nature of these services historically involves property management, construction management, and assistance with financing. The proper revenue recognition of these services can be different, depending on whether the arrangements are service revenue or contractor type revenue. Service revenues are typically recognized on an equal monthly basis based on the minimum fee to be earned. The monthly amounts could be adjusted depending on whether certain performance milestones are met.

Fee income also includes management fees. These fees arise from contractual agreements with entities in which we have a noncontrolling interest. The management fees are recognized as earned under the respective agreements. Management and other fee income related to partially owned entities are recognized to the extent attributable to the unaffiliated interest.

Operating Expenses and Interest Expense

Operating expenses and interest expense during the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):


	Year Ended December 31,						Change				Percentage Change
	2019		2018		2017		2019 vs 2018		2018 vs 2017		2019 vs 2018		2018 vs 2017
Rental property operating and maintenance	$	1,020,578	$	957,065	$	759,616	$	63,513	$	197,449	6.6	%	26.0	%
Property taxes and insurance		172,183		140,918		134,995		31,265		5,923	22.2	%	4.4	%
Depreciation and amortization		1,163,774		1,186,896		842,464		(23,122)		344,432	(1.9)	%	40.9	%
General and administrative		211,097		163,667		161,441		47,430		2,226	29.0	%	1.4	%
Transaction and integration expenses		27,925		45,327		76,048		(17,402)		(30,721)	(38.4)	%	(40.4)	%
Impairment of investments in real estate		5,351		—		28,992		5,351		(28,992)	—		—
Other		14,118		2,818		3,077		11,300		(259)	401.0	%	(8.4)	%
Total operating expenses	$	2,615,026	$	2,496,691	$	2,006,633	$	118,335	$	490,058	4.7	%	24.4	%
Interest expense	$	353,057	$	321,529	$	258,642	$	31,528	$	62,887	9.8	%	24.3	%

The following tables show expenses for the years ended December 31, 2019, 2018 and 2017 for stabilized properties and pre-stabilized properties and other (all other properties) (in thousands). Expense totals for pre-stabilized and other

Index to Financial Statements

include results from properties that have not yet met the definition of stabilized and properties that are classified as held for sale or were sold during the period.


	Stabilized								Pre-Stabilized and Other
	Year Ended December 31,								Year Ended December 31,
	2019		2018		$ Change		% Change		2019		2018		Change
Rental property operating and maintenance	$	756,326	$	753,340	$	2,986	0.4	%	$	264,252	$	203,726	$	60,526
Property taxes and insurance		118,292		103,908		14,384	13.8	%		53,891		37,010		16,881
	$	874,618	$	857,248	$	17,370	2.0	%	$	318,143	$	240,736	$	77,407

Stabilized rental property operating and maintenance expenses increased approximately $3.0 million for the year ended December 31, 2019 compared to the same period in 2018, primarily related to higher rent expense and internal labor costs across the portfolio.

Stabilized property taxes increased by approximately $14.4 million, or 13.8%, for the year ended December 31, 2019 compared to the same period in 2018. The increase was primarily due to a tax refund in 2018 at one of our properties in the stabilized portfolio along with higher 2019 assessments at certain properties in the stabilized portfolio.

Pre-stabilized and other rental property operating and maintenance expenses increased by approximately $60.5 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to higher expenses as a result of leasing activity during the twelve months ended December 31, 2019 and the Ascenty Acquisition that increased expenses during the first quarter of 2019.

Pre-stabilized and other property taxes and insurance expense increased approximately $16.9 million for the year ended December 31, 2019 compared to the same period in 2018, due to increased assessed values at our Chicago properties along with properties being placed in service.


	Stabilized								Pre-Stabilized and Other
	Year Ended December 31,								Year Ended December 31,
	2018		2017		Change		% Change		2018		2017		Change
Rental property operating and maintenance	$	505,127	$	494,852	$	10,275	2.1	%	$	451,938	$	264,764	$	187,174
Property taxes and insurance		81,274		86,223		(4,949)	(5.7)	%		59,644		48,772		10,872
	$	586,401	$	581,075	$	5,326	0.9	%	$	511,582	$	313,536	$	198,046

Stabilized rental property operating and maintenance expenses increased by approximately $10.3 million, or 2.1%, for the year ended December 31, 2018 compared to the same period in 2017. The increase was primarily related to higher utility costs offset by reduced labor costs and cost containment measures across the portfolio.

Stabilized property taxes and insurance decreased by approximately $4.9 million, or 5.7%, for the year ended December 31, 2018 compared to the same period in 2017. The decrease was primarily due to a refund at one of our properties in our stabilized portfolio.

Pre-stabilized and other rental property operating and maintenance expenses increased by approximately $187.2 million for the year ended December 31, 2018 compared to the same period in 2017, primarily as a result of the properties acquired in the DFT Merger, which contributed approximately $138.7 million.

Pre-stabilized and other property taxes and insurance increased approximately $10.9 million for the year ended December 31, 2018 compared to the same period in 2017, primarily as a result of the properties acquired in the DFT Merger, which contributed approximately $16.1 million offset partially by a decrease in property taxes as a result of properties sold during the year ended December 31, 2018 and a reduction in property tax liabilities at certain properties in our pre-stabilized and other portfolio.

Index to Financial Statements

Depreciation and Amortization

Depreciation and amortization expense decreased by approximately $23.1 million for the year ended December 31, 2019 compared to the same period in 2018. The decrease for the year was principally due to certain intangibles related to the DFT Merger being fully amortized during the year ended December 31, 2019.

Depreciation and amortization expense increased by approximately $344.4 million for the year ended December 31, 2018 compared to the same period in 2017, principally because of amortization of finite-lived intangibles associated with the DFT Merger, which contributed approximately $310.7 million to the increase.

General and Administrative

General and administrative expenses increased by approximately $47.4 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to the adoption of ASC 842 which resulted in an increase in the amount of fixed compensation expenses associated with successful leasing activities which were previously capitalized under ASC 840.

General and administrative expenses increased by approximately $2.2 million for the year ended December 31, 2018 compared to the same period in 2017, primarily due to an increase in headcount from 2017 to 2018 to support the Company’s continued growth.

Transactions and Integration Expense

Transactions and integration expense decreased by approximately $17.4 million for the year ended December 31, 2019 compared to the same period in 2018, principally due to higher transaction costs in 2018 related to the Ascenty Acquisition.

Transactions and integration expense decreased by approximately $30.7 million for the year ended December 31, 2018 compared to the same period in 2017, principally due to expenses incurred for the DFT Merger, which was completed in September 2017 partially offset by costs incurred related to the Ascenty Acquisition.

Interest Expense

Interest expense increased by approximately $31.5 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to the issuances of the 4.450% 2028 Notes in June 2018, the 3.750% 2030 Notes in October of 2018, the 2.500% 2026 Notes in February 2019, the 3.600% 2029 Notes in June 2019 and the 1.125% 2028 Notes in October 2019 and the Ascenty loan offset by the early tender offer and subsequent redemption of the 5.875% 2020 Notes in January and February 2019 and the 3.400% Notes due 2020 and 2021 Notes in June 2019 and July 2019.

Interest expense increased by approximately $62.9 million for the year ended December 31, 2018 compared to the same period in 2017, primarily due to the issuances of the 2019 Notes in May 2017, the 2.750% 2024 Notes and the 2029 Notes in July 2017, the 2.750% 2023 Notes and the 2027 Notes in August 2017, the 2028 Notes in June 2018 and the 2030 Notes in October 2018.

Impairment of Investments in Real Estate

We evaluated the carrying value of the properties identified as held for sale to ensure the carrying value was recoverable in light of a potentially shorter holding period. As a result of our evaluation, during the years ended December 31, 2019 and 2017, we recognized $5.4 million and $29.0 million of impairment charges, respectively, on four properties (one in 2019, three in 2017) located in the United States to reduce the carrying values to the estimated fair values less costs to sell. The fair values of the four properties were based on comparable sales price data. There were no impairment charges for the year ended December 31, 2018.

Index to Financial Statements

Gain on Deconsolidation

During the year ended December 31, 2019, we recognized a gain on the deconsolidation of Ascenty of approximately $67.5 million as a result of the formation of the Ascenty joint venture with Brookfield Infrastructure.

Gain on Disposition of Properties

On November 1, 2019, we formed a joint venture with Mapletree, where we contributed three Turn-Key Flex® data centers, valued at approximately $1.0 billion, to the new joint venture for which we retained a 20% interest. The transaction generated approximately $0.8 billion of net proceeds to us, comprised of Mapletree’s equity contribution, less our share of closing costs and accordingly we recognized a gain of approximately $266 million on the sale of the 80% interest in the joint venture.

During the year ended December 31, 2018, we recognized a gain on sale of properties of $80.4 million primarily related to the disposition of (i) 200 Quannapowitt Parkway, which sold for $15.0 million in January 2018, (ii) 34551 Ardenwood Boulevard, which sold for $73.3 million in February 2018, (iii) 3065 Gold Camp Drive, which sold for $14.2 million in March 2018, (iv) 11085 Sun Center Drive, which sold for $36.8 million in March 2018, (v) the Austin Portfolio, which sold for $47.6 million in April 2018, (vi) 2010 East Centennial Circle, which sold for $5.5 million in May 2018, (vii) 1125 Energy Park Drive, which sold for $7.0 million in May 2018 and (viii) 360 Spear Street, which sold for $92.3 million in September 2018.

During the year ended December 31, 2017, we recognized a gain on sale of properties of $40.4 million primarily related to the disposition of (i) 8025 North Interstate 35, which sold for $20.2 million in August 2017, (ii) 44874 Moran Road, which sold for $34.0 million in October 2017, and (iii) 1 Solutions Parkway, which sold for $37.1 million in November 2017.

Liquidity and Capital Resources of the Parent Company

In this “Liquidity and Capital Resources of the Parent Company” section and in the “Liquidity and Capital Resources of the Operating Partnership” section below, the term, our “Parent Company” refers to Digital Realty Trust, Inc. on an unconsolidated basis, excluding our Operating Partnership.

Analysis of Liquidity and Capital Resources

Our Parent Company’s business is operated primarily through our Operating Partnership, of which our Parent Company is the sole general partner and which it consolidates for financial reporting purposes. Because our Parent Company operates on a consolidated basis with our Operating Partnership, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of our Parent Company on a consolidated basis and how our Company is operated as a whole.

Our Parent Company issues public equity from time to time, but generally does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. Our Parent Company itself does not hold any indebtedness other than guarantees of the indebtedness of our Operating Partnership and certain of its subsidiaries, and its only material asset is its ownership of partnership interests of our Operating Partnership. Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of our Parent Company and our Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by our Parent Company. All debt is held directly or indirectly at the Operating Partnership level. Our Parent Company’s principal funding requirement is the payment of dividends on its common and preferred stock. Our Parent Company’s principal source of funding for its dividend payments is distributions it receives from our Operating Partnership.

Index to Financial Statements

As the sole general partner of our Operating Partnership, our Parent Company has the full, exclusive and complete responsibility for our Operating Partnership’s day-to-day management and control. Our Parent Company causes our Operating Partnership to distribute such portion of its available cash as our Parent Company may in its discretion determine, in the manner provided in our Operating Partnership’s partnership agreement. Our Parent Company receives proceeds from its equity issuances from time to time, but is generally required by our Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to our Operating Partnership in exchange for partnership units of our Operating Partnership.

Our Parent Company is a well-known seasoned issuer with an effective shelf registration statement filed on September 22, 2017, which allows our Parent Company to register an unspecified amount of various classes of equity securities. As circumstances warrant, our Parent Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. Any proceeds from such equity issuances would generally be contributed to our Operating Partnership in exchange for additional equity interests in our Operating Partnership. Our Operating Partnership may use the proceeds to acquire additional properties, to fund development opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or equity securities.

The liquidity of our Parent Company is dependent on our Operating Partnership’s ability to make sufficient distributions to our Parent Company. The primary cash requirement of our Parent Company is its payment of dividends to its stockholders. Our Parent Company also guarantees our Operating Partnership’s, as well as certain of its subsidiaries’ and affiliates’, unsecured debt. If our Operating Partnership or such subsidiaries fail to fulfill their debt requirements, which trigger Parent Company guarantee obligations, then our Parent Company will be required to fulfill its cash payment commitments under such guarantees. However, our Parent Company’s only material asset is its investment in our Operating Partnership.

We believe our Operating Partnership’s sources of working capital, specifically its cash flow from operations, and funds available under its global revolving credit facility are adequate for it to make its distribution payments to our Parent Company and, in turn, for our Parent Company to make its dividend payments to its stockholders. However, we cannot assure you that our Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including making distribution payments to our Parent Company. The lack of availability of capital could adversely affect our Operating Partnership’s ability to pay its distributions to our Parent Company, which would in turn, adversely affect our Parent Company’s ability to pay cash dividends to its stockholders.

On January 4, 2019, our Parent Company entered into equity distribution agreements, which we refer to as the 2019 Equity Distribution Agreements, under which it can issue and sell shares of its common stock having an aggregate offering price of up to $1.0 billion from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act. To date, no sales have been made under the program. For additional information regarding the 2019 Equity Distribution Agreements, see Note 13 to our consolidated financial statement contained herein.

On March 13, 2019 and March 15, 2019, our Parent Company completed an underwritten public offering of 8,400,000 shares in the aggregate of its 5.850% series K cumulative redeemable preferred stock for net proceeds of approximately $203.4 million after deducting the underwriting discount and other estimated expenses payable by our Parent Company.

On April 1, 2019, our Parent Company redeemed all 14,600,000 outstanding shares of its 7.375% series H cumulative redeemable preferred stock, or the series H preferred stock, for $25.00 per share. The redemption price was equal to the original issuance price of $25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date. The excess of the redemption price over the carrying value of the series H preferred stock of approximately $11.8 million relates to the original issuance costs and was recorded as a reduction to net income available to common stockholders.

Index to Financial Statements

On October 10, 2019, our Parent Company completed an underwritten public offering of 13,800,000 shares in the aggregate of its 5.200% series L cumulative redeemable preferred stock for net proceeds of approximately $334.6 million after deducting the underwriting discount and other estimated expenses payable by our Parent Company.

Future Uses of Cash

Our Parent Company may from time to time seek to retire, redeem or repurchase its equity or the debt securities of our Operating Partnership or its subsidiaries through cash purchases and/or exchanges for equity securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases, redemptions or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material.

We are also subject to the commitments discussed below under “Dividends and Distributions.”

Dividends and Distributions

Our Parent Company is required to distribute 90% of its taxable income (excluding capital gains) on an annual basis in order for it to continue to qualify as a REIT for federal income tax purposes. Accordingly, our Parent Company intends to make, but is not contractually bound to make, regular quarterly distributions to its common stockholders from cash flow from our Operating Partnership’s operating activities. While historically our Parent Company has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Parent Company’s Board of Directors. Our Parent Company considers market factors and our Operating Partnership’s performance in addition to REIT requirements in determining distribution levels. Our Parent Company has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our Parent Company’s status as a REIT.

As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not REITs can. Our Parent Company may need to continue to raise capital in the debt and equity markets to fund our Operating Partnership’s working capital needs, as well as potential developments at new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, our Parent Company may be required to use borrowings under our global revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our Parent Company’s REIT status.

Index to Financial Statements

Our Parent Company declared the following dividends on its common and preferred stock during the years ended December 31, 2019, 2018 and 2017 (in thousands, except per share amounts):


		Series C			Series F			Series G		Series H			Series I		Series J			Series K			Series L
		Preferred			Preferred			Preferred		Preferred			Preferred		Preferred			Preferred			Preferred			Common
Date dividend declared	Dividend payment date	Stock			Stock			Stock		Stock			Stock		Stock			Stock			Stock			Stock
March 1, 2017	March 31, 2017	$	—		$	3,023		$	3,672	$	6,730		$	3,969	$	—		$	—		$	—		$	148,358	(1)
May 8, 2017	June 30, 2017		—			—	(2)		3,672		6,730			3,969		—			—			—			150,814	(1)
August 7, 2017	September 29, 2017		—			—			3,672		6,730			3,969		—			—			—			191,041	(1)
November 2, 2017	December 29, 2017 for Preferred Stock; January 12, 2018 for Common Stock		3,963	(3)		—			3,672		6,730			3,969		4,200	(3)		—			—			191,067	(1)
		$	3,963		$	3,023		$	14,688	$	26,920		$	15,876	$	4,200		$	—		$	—		$	681,280
March 1, 2018	March 30, 2018	$	3,333		$	—		$	3,672	$	6,730		$	3,969	$	2,625		$	—		$	—		$	208,015	(4)
May 8, 2018	June 29, 2018		3,333			—			3,672		6,730			3,969		2,625			—			—			208,071	(4)
August 14, 2018	September 28, 2018		3,333			—			3,672		6,730			3,969		2,625			—			—			208,166	(4)
November 12, 2018	December 31, 2018 for Preferred Stock; January 15, 2019 for Common Stock		3,333			—			3,672		6,730			3,969		2,625			—			—			208,415	(4)
		$	13,332		$	—		$	14,688	$	26,920		$	15,876	$	10,500		$	—		$	—		$	832,667

February 21, 2019	March 29, 2019	$	3,333			—		$	3,672	$	6,730		$	3,969	$	2,625		$	—		$	—		$	224,802	(5)
May 13, 2019	June 28, 2019		3,333			—			3,672		—	(6)		3,969		2,625			3,686	(7)		—			224,895	(5)
August 13, 2019	September 30, 2019		3,333			—			3,672		—			3,969		2,625			3,071			—			225,188	(5)
November 19, 2019	December 31, 2019 for Preferred Stock; January 15, 2020 for Common Stock		3,333			—			3,672		—			3,969		2,625			3,071			4,036	(8)		225,488	(5)
		$	13,332		$	—		$	14,688	$	6,730		$	15,876	$	10,500		$	9,828		$	4,036		$	900,373
Annual rate of dividend per share		$	1.65625		$	1.65625		$	1.46875	$	1.84375		$	1.58750	$	1.31250		$	1.46250		$	1.30000

(1)	$3.720 annual rate of dividend per share.

(2)

Redeemed on April 5, 2017 for $25.01840 per share, or a redemption price of $25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date of approximately $0.1 million in the aggregate. In connection with the redemption, the previously incurred offering costs of approximately $6.3 million were recorded as a reduction to net income available to common stockholders.

(3)	Represents a pro rata dividend from and including the original issue date to and including December 31, 2017.

(4)	$4.040 annual rate of dividend per share.

(5)	$4.320 annual rate of dividend per share.

(6)	Redeemed on April 1, 2019 for $25.00 per share, or a redemption price of $25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date. In connection with the redemption, the previously incurred offering costs of approximately $11.8 million were recorded as a reduction to net income available to common stockholders.

(7)	Represents a pro rata dividend from and including the original issue date to and including June 30, 2019.

(8)	Represents a pro rata dividend from and including the original issue date to and including December 31, 2019.

Distributions out of our Parent Company’s current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent Company’s current and accumulated earnings and profits, to the extent of a stockholder’s U.S. federal income tax basis in our Parent Company’s stock, are generally classified as a return of capital. Distributions in excess of a stockholder’s U.S. federal income tax basis in our Parent Company’s stock are generally characterized as capital gain. Cash provided by operating activities has been generally sufficient to fund distributions on an annual basis, however, we may also need to utilize borrowings under the global revolving credit facility to fund distributions.

The expected tax treatment of distributions on our Parent Company’s common stock and preferred stock paid in 2019 is as follows: approximately 83% ordinary income and 17% return of capital. The tax treatment of distributions on our Parent Company’s common stock paid in 2018 was as follows: approximately 80% ordinary income and 20% return of capital. Distributions on our Parent Company’s preferred stock paid in 2018 were treated as 100% ordinary income.

Index to Financial Statements

The tax treatment of distributions on our Parent Company’s common stock and preferred stock paid in 2017 was as follows: approximately 95% ordinary income and 5% capital gain distribution.

Liquidity and Capital Resources of the Operating Partnership

In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we”, “our” and “us” refer to our Operating Partnership together with its consolidated subsidiaries or our Operating Partnership and our Parent Company together with their consolidated subsidiaries, as the context requires.

Analysis of Liquidity and Capital Resources

Our Parent Company is our sole general partner and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with our Parent Company, the section entitled “Liquidity and Capital Resources of the Parent Company” should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.

As of December 31, 2019, we had $89.8 million of cash and cash equivalents, excluding $7.4 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits.

Our global revolving credit facility provides for borrowings up $2.35 billion. We have the ability from time to time to increase the size of the global revolving credit facility and our term loan facility, in any combination, by up to $1.25 billion, subject to the receipt of lender commitments and other conditions precedent. The global revolving credit facility matures on January 24, 2023, with two six-month extension options available. The global revolving credit facility provides for borrowings in U.S., Canadian, Singapore, Australian and Hong Kong dollars, as well as Euro, British pound sterling and Japanese yen and includes the ability to add additional currencies in the future. We have used and intend to use available borrowings under the global revolving credit facility to acquire additional properties, fund development opportunities and for general working capital and other corporate purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or equity securities. For additional information regarding our global revolving credit facility and term loan facility, see Note 9 to our consolidated financial statement contained herein.

Our short-term liquidity requirements primarily consist of operating expenses, development costs and other expenditures associated with our properties, distributions to our Parent Company in order for it to make dividend payments on its preferred stock, distributions to our Parent Company in order for it to make dividend payments to its stockholders required to maintain its REIT status, distributions to the unitholders of common limited partnership interests in Digital Realty Trust, L.P., capital expenditures, debt service on our loans and senior notes, and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, restricted cash accounts established for certain future payments and by drawing upon our global revolving credit facilities.

For a discussion of the potential impact of current global economic and market conditions on our liquidity and capital resources, see “—Factors Which May Influence Future Results of Operations—Global market and economic conditions” above.

On January 4, 2019, our Parent Company entered into the 2019 Equity Distribution Agreements under which it can issue and sell shares of its common stock having an aggregate offering price of up to $1.0 billion from time to time in “at the market” offerings as defined in Rule 415 of the Securities Act. To date, no sales have been made under the program. For additional information regarding the 2019 Equity Distribution Agreements, see Note 13 to our consolidated financial statement contained herein.

On June 14, 2019, we issued $900.0 million in aggregate principal amount of notes, maturing on July 1, 2029 with an interest rate of 3.600% per annum, which we refer to as the 3.600% 2029 Notes. The purchase price paid by the initial purchasers was 99.823% of the principal amount. The 3.600% 2029 Notes are our general unsecured senior obligation, rank equally in right of payment with all of our other senior unsecured indebtedness and are fully and unconditionally guaranteed by our Parent Company. Interest on the 3.600% 2029 Notes is payable on January 1 and July 1 of each year,

Index to Financial Statements

beginning on January 1, 2020. The net proceeds from the offering after deducting the original issue discount of approximately $1.6 million and underwriting commissions and expenses of approximately $7.8 million was approximately $890.6 million. We used the net proceeds from this offering to finance the tender offer for, and redemption of, our 3.400% 2020 Notes and 2021 Notes, temporarily repay borrowings under our global revolving credit facility and for general corporate purposes.

On October 9, 2019, Digital Euro Finco, LLC, a wholly owned indirect finance subsidiary of the Operating Partnership, issued and sold €500.0 million (approximately $548.6 million based on the exchange rate on October 9, 2019) aggregate principal amount of 1.125% Guaranteed Notes due 2028, or the 2028 Notes. The 2028 Notes are senior unsecured obligations of Digital Euro Finco, LLC and are fully and unconditionally guaranteed by the Parent Company and the Operating Partnership. Net proceeds from the offering were approximately €491.9 million (approximately $539.7 million based on the exchange rate on October 9, 2019) after deducting managers’ discounts and estimated offering expenses. We used the net proceeds from the offering to repay borrowings outstanding under our global revolving credit facility and for other general corporate purposes.

Construction ($ in thousands)


Development Lifecycle	As of December 31, 2019							As of December 31, 2018
	Net Rentable	Current						Net Rentable	Current		Future
	Square Feet	Investment		Future Investment				Square Feet	Investment		Investment
(dollars in thousands)	(1)	(2)		(3)		Total Cost		(1)	(4)		(3)		Total Cost

Land held for future development (5)	N/A	$	147,597	$	—	$	147,597	N/A	$	162,941	$	—	$	162,941
Construction in Progress and Space Held for Development
Land - Current Development (5)	N/A	$	517,900	$	—	$	517,900	N/A	$	385,892	$	—	$	385,892
Space Held for Development (6)	1,281,169		241,563		—		241,563	1,805,844		396,440		—		396,440
Base Building Construction	2,936,071		485,489		404,082		889,571	1,724,740		214,634		223,360		437,994
Data Center Construction	1,175,673		441,852		703,607		1,145,459	1,103,465		586,995		521,387		1,108,382
Equipment Pool & Other Inventory	N/A		27,283		—		27,283	N/A		14,558		—		14,558
Campus, Tenant Improvements & Other	N/A		18,468		22,968		41,436	N/A		23,409		16,228		39,637
Total Construction in Progress and Land Held for Future Development	5,392,913	$	1,880,152	$	1,130,657	$	3,010,809	4,634,049	$	1,784,869	$	760,975	$	2,545,844

(1)	Square footage is based on current estimates and project plans, and may change upon completion of the project or due to remeasurement.

(2)	Represents balances incurred through December 31, 2019.

(3)	Represents estimated cost to complete specific scope of work pursuant to contract, budget or approved capital plan.

(4)	Represents balances incurred through December 31, 2018.

(5)	Represents approximately 944 acres as of December 31, 2019 and approximately 959 acres as of December 31, 2018.

(6)	Excludes space held for development through unconsolidated joint ventures.

Land inventory and space held for development reflect cumulative cost spent pending future development. Base building construction consists of ongoing improvements to building infrastructure in preparation for future data center fit-out. Data center construction includes 4.1 million square feet of Turn-Key Flex®, colocation and Powered Base Building® product. Generally, we expect to deliver the space within 12 months; however, lease commencement dates may significantly impact final delivery schedules. Equipment pool and other inventory represent the value of long-lead equipment and materials required for timely deployment and delivery of data center construction fit-out. Campus, tenant improvements and other costs include the value of development work which benefits space recently converted to our operating portfolio and is composed primarily of shared infrastructure projects and first-generation tenant improvements.

Future Uses of Cash

Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements. As of December 31, 2019, we had approximately 4.5 million square feet of space under active development and approximately 1.8 million square feet of space held for development. Turn-Key Flex® space is move-

Index to Financial Statements

in-ready space for the placement of computer and network equipment required to provide a data center environment. Depending on demand for additional Turn-Key Flex® space, we expect to incur significant tenant improvement costs to build out and develop these types of spaces. 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. At December 31, 2019, we had open commitments, including amounts reimbursable of approximately $25.4 million, related to construction contracts of approximately $472.7 million.

We currently expect to incur significant capital expenditures for our development programs during the year ending December 31, 2020, although the amount may increase or decrease, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.

Historical Capital Expenditures


	Year Ended December 31,
	2019		2018
Development projects	$	1,166,218	$	1,115,149
Enhancement and improvements		3,249		14,240
Recurring capital expenditures		180,713		132,226
Total capital expenditures (excluding indirect costs)	$	1,350,180	$	1,261,615

For the year ended December 31, 2019, total capital expenditures increased $88.6 million to approximately $1.4 billion from $1.3 billion for the same period in 2018. Capital expenditures on our development projects plus our enhancement and improvements projects for the year ended December 31, 2019 were approximately $1.2 billion, which reflects an increase of approximately 4% from the same period in 2018. This increase was primarily due to increased spending for ground-up development projects (including development projects acquired in the DFT Merger) and base building improvements. Our development capital expenditures are generally funded by our available cash and equity and debt capital.

Indirect costs, including capitalized interest, capitalized in the years ended December 31, 2019 and 2018 were $86.7 million and $108.4 million, respectively. Capitalized interest comprised approximately $40.2 million and $34.7 million of the total indirect costs capitalized for the years ended December 31, 2019 and 2018, respectively. Capitalized interest in the year ended December 31, 2019 increased, compared to the same period in 2018, due to an increase in qualifying activities. See “—Future Uses of Cash” above for a discussion of the amount of capital expenditures we expect to incur during the year ending December 31, 2020.

We are also subject to the commitments discussed below under “Commitments and Contingencies,” “Off-Balance Sheet Arrangements” and “Distributions.”

Consistent with our growth strategy, we actively pursue opportunities for potential acquisitions, with due diligence and negotiations often at different stages at different times. The dollar value of acquisitions for the year ending December 31, 2020 will be based on numerous factors, including customer demand, leasing results, availability of debt or equity capital and acquisition opportunities. Further, the growing acceptance by private institutional investors of the data center asset class has generally pushed capitalization rates lower, as such private investors may often have lower return expectations than us. As a result, we anticipate near-term single asset acquisitions activity to comprise a smaller percentage of our growth while this market dynamic persists.

We may from time to time seek to retire or repurchase our outstanding debt or the equity of our Parent Company through cash purchases and/or exchanges for equity securities of our Parent Company in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material.

Index to Financial Statements

We expect to meet our short-term and long-term liquidity requirements, including to pay for scheduled debt maturities and to fund acquisitions and non-recurring capital improvements, with net cash from operations, future long-term secured and unsecured indebtedness and the issuance of equity and debt securities and the proceeds of equity issuances by our Parent Company. We also may fund future short-term and long-term liquidity requirements, including acquisitions and non-recurring capital improvements, using our global revolving credit facilities pending permanent financing. If we are not able to obtain additional financing on terms attractive to us, or at all, including as a result of the circumstances described above under “Factors Which May Influence Future Results of Operations—Global market and economic conditions”, we may be required to reduce our acquisition or capital expenditure plans, which could have a material adverse effect upon our business and results of operations.

Distributions

All distributions on our units are at the discretion of our Parent Company’s Board of Directors. In 2019, 2018 and 2017, our Operating Partnership declared the following distributions (in thousands):


		Series C			Series F			Series G		Series H			Series I		Series J			Series K			Series L
		Preferred			Preferred			Preferred		Preferred			Preferred		Preferred			Preferred			Preferred			Common
Date distribution declared	Distribution payment date	Units			Units			Units		Units			Units		Units			Units			Units			Units
Mar 1, 2017	March 31, 2017	$	—		$	3,023		$	3,672	$	6,730		$	3,969	$	—		$	—		$	—		$	150,968	(1)
May 8, 2017	June 30, 2017		—			—	(2)		3,672		6,730			3,969		—			—			—			153,176	(1)
Aug 7, 2017	September 29, 2017		—			—			3,672		6,730			3,969		—			—			—			199,049	(1)
Nov 2, 2017	December 29, 2017 for Preferred Units; January 12, 2018 for Common Units		3,963	(3)		—			3,672		6,730			3,969		4,200	(5)		—			—			199,061	(1)
		$	3,963		$	3,023		$	14,688	$	26,920		$	15,876	$	4,200		$	—		$	—		$	702,254
Mar 1, 2017	March 30, 2018	$	3,333		$	—		$	3,672	$	6,730		$	3,969	$	2,625		$	—		$	—		$	216,953	(4)
May 8, 2018	June 29, 2018		3,333			—			3,672		6,730			3,969		2,625			—			—			216,789	(4)
Aug 14, 2018	September 28, 2018		3,333			—			3,672		6,730			3,969		2,625			—			—			216,825	(4)
Nov 12, 2018	December 31, 2018 for Preferred Units; January 15, 2019 for Common Units		3,333			—			3,672		6,730			3,969		2,625			—			—			216,838	(4)
		$	13,332		$	—		$	14,688	$	26,920		$	15,876	$	10,500		$	—		$	—		$	867,405

February 21, 2019	March 29, 2019	$	3,333		$	—		$	3,672	$	6,730		$	3,969	$	2,625		$	—		$	—		$	235,256	(5)
May 13, 2019	June 28, 2019		3,333			—			3,672		—	(6)		3,969		2,625			3,686	(7)		—			235,142	(5)
August 13, 2019	September 30, 2019		3,333			—			3,672		—			3,969		2,625			3,071			—			235,164	(5)
November 19, 2019	December 31, 2019 for Preferred Units; January 15, 2020 for Common Units		3,333			—			3,672		—			3,969		2,625			3,071			4,036	(8)		235,154	(5)
		$	13,332		$	—		$	14,688	$	6,730		$	15,876	$	10,500		$	9,828		$	4,036		$	940,716

Annual rate of distribution per unit		$	1.65625		$	1.65625		$	1.46875	$	1.84375		$	1.58750	$	1.31250		$	1.46250		$	1.30000

(1)	$3.720 annual rate of distribution per unit.

(2)

Redeemed on April 5, 2017 for $25.01840 per unit, or a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $0.1 million in the aggregate. In connection with the redemption, the previously incurred offering costs of approximately $6.3 million were recorded as a reduction to net income available to common unitholders.

(3)	Represents a pro rata distribution from and including the original issue date to and including December 31, 2017.

(4)	$4.040 annual rate of distribution per unit.

(5)	$4.320 annual rate of distribution per unit.

(6)	Redeemed on April 1, 2019 for $25.00 per unit, or a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date. In connection with the redemption, the previously incurred offering costs of approximately $11.8 million were recorded as a reduction to net income available to common unitholders.

(7)	Represents a pro rata distribution from and including the original issue date to and including June 30, 2019.

Index to Financial Statements

(8)	Represents a pro rata distribution from and including the original issue date to and including December 31, 2019.

As of December 31, 2019, we were a party to interest rate swap agreements which hedge variability in cash flows related the U.S. LIBOR and CDOR-based tranches of our debt. Under these swaps, we pay variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amounts. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk.”

The following table summarizes our debt, interest, lease and construction contract payments due by period as of December 31, 2019 (in thousands):


Obligation	2020		2021-2022		2023-2024		Thereafter		Total
Secured and unsecured debt (1)	$	1,089	$	800,000	$	2,914,886	$	6,489,458	$	10,205,433
Interest payable (2)		331,761		646,638		451,867		573,388		2,003,654
Operating and finance leases (3)		94,158		184,143		173,142		704,502		1,155,945
Construction contracts (4)		472,660		—		—		—		472,660
	$	899,668	$	1,630,781	$	3,539,895	$	7,767,348	$	13,837,692

(1)	Includes $245.8 million of borrowings under our global revolving credit facilities and $0.8 billion of borrowings under our unsecured term loans and excludes unamortized premiums (discounts) and deferred financing costs reflected on the consolidated balance sheets under Item 8 in this annual report on Form 10-K.

(2)	Interest payable is based on the interest rates in effect on December 31, 2019, including the effect of interest rate swaps. Interest payable excluding the effect of interest rate swaps is as follows (in thousands):


2020	$	333,917
2021-2022		650,949
2023-2024		452,020
Thereafter		573,388
	$	2,010,274

(3)	Beginning January 1, 2019, as a lessee we were required to record both a right-of-use asset and lease liability for our ground and office space leases based on the present value of our future minimum lease payments. See Note 4 to the Consolidated Financial Statements for additional information.

(4)	From time to time in the normal course of our business, we enter into various construction contracts with third parties that may obligate us to make payments. At December 31, 2019, we had open commitments, including amounts reimbursable of approximately $25.4 million, related to construction contracts of approximately $472.7 million.

Index to Financial Statements

Outstanding Consolidated Indebtedness

The table below summarizes our debt maturities and principal payments as of December 31, 2019 (in thousands):


	Global Revolving		Unsecured			Unsecured			Total
	Credit Facilities (1)		Term Loans (1)		Senior Notes		Secured Debt		Debt
2020	$	—	$	—	$	—	$	1,089	$	1,089
2021		—		—		—		—		—
2022		—		—		800,000		—		800,000
2023		99,315		813,205		747,710		104,000		1,764,230
2024		146,451		—		1,004,205		—		1,150,656
Thereafter		—		—		6,489,458		—		6,489,458
Subtotal	$	245,766	$	813,205	$	9,041,373	$	105,089	$	10,205,433
Unamortized discount		—		—		(22,554)		—		(22,554)
Unamortized premium		—		—		6,409		54		6,463
Total	$	245,766	$	813,205	$	9,025,228	$	105,143	$	10,189,342

(1)	Subject to two six-month extension options exercisable by us. The bank group is obligated to grant the extension options provided we give proper notice, we make certain representations and warranties and no default exists under the global revolving credit facility, as applicable.

The table below summarizes our debt, as of December 31, 2019 (in millions):


Debt Summary:
Fixed rate	$	9,042.5
Variable rate debt subject to interest rate swaps		479.8
Total fixed rate debt (including interest rate swaps)		9,522.3
Variable rate—unhedged		683.1
Total	$	10,205.4
Percent of Total Debt:
Fixed rate (including swapped debt)		93.3	%
Variable rate		6.7	%
Total		100.0	%

Effective Interest Rate as of December 31, 2019
Fixed rate (including hedged variable rate debt)		3.35	%
Variable rate		1.94	%
Effective interest rate		3.25	%

(1)	Excludes impact of deferred financing cost amortization.

As of December 31, 2019, we had approximately $10.2 billion of outstanding consolidated long-term debt as set forth in the table above. Our ratio of debt to total enterprise value was approximately 27% (based on the closing price of Digital Realty Trust, Inc.’s common stock on December 31, 2019 of $119.74). For this purpose, our total enterprise value is defined as the sum of the market value of Digital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total enterprise value ratio), plus the liquidation value of Digital Realty Trust, Inc.’s preferred stock, plus the aggregate value of our Operating Partnership’s units not held by Digital Realty Trust, Inc. (with the per unit value equal to the market value of one share of Digital Realty Trust, Inc.’s common stock and excluding long-term incentive units, Class C units and Class D units), plus the book value of our total consolidated indebtedness.

The variable rate debt shown above bore interest at interest rates based on various one-month LIBOR, EURIBOR, GBP LIBOR, SOR, BBR, HIBOR, JPY LIBOR, CDOR and U.S. Prime rates, depending on the respective agreement

Index to Financial Statements

governing the debt, including our global revolving credit facilities and unsecured term loans. As of December 31, 2019, our debt had a weighted average term to initial maturity of approximately 6.3 years (or approximately 6.3 years assuming exercise of extension options).

Off-Balance Sheet Arrangements

As of December 31, 2019, we were party to interest rate swap agreements related to $479.8 million of outstanding principal amount on our variable rate debt. See Item 7A. “Quantitative and Qualitative Disclosures about Market Risk.”

As of December 31, 2019, our pro-rata share of secured debt of unconsolidated joint ventures was approximately $591.2 million, of which $10.2 million is subject to an interest rate cap agreement.

Cash Flows

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Comparison of Year Ended December 31, 2019 to Year Ended December 31, 2018 and Comparison of Year Ended December 31, 2018 to Year Ended December 31, 2017

The following table shows cash flows and ending cash, cash equivalent and restricted cash balances for the years ended December 31, 2019, 2018 and 2017 (in thousands).


	Year Ended December 31,
	2019		2018		2017
Net cash provided by operating activities	$	1,513,817	$	1,385,324	$	1,023,305
Net cash used in investing activities		(274,992)		(3,035,993)		(1,357,153)
Net cash (used in) provided by financing activities		(1,272,021)		1,757,269		321,200
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(33,196)	$	106,600	$	(12,648)

Cash provided by operating activities in 2019 increased approximately $128.5 million over 2018 and cash provided by operating activities in 2018 increased approximately $362.0 million over 2017. The 2019 increase was primarily due to properties placed into service during the twelve months ended December 31, 2019. The increases in cash flow were partially offset by properties sold in 2018 and 2019 and an increase in interest expense. The 2018 increase was driven by year-over-year increase in the cash flow from properties acquired in the September 2017 DFT Merger. The increases in cash flow were offset by properties sold in 2017 and 2018 and an increase in interest expense.

Net cash used in investing activities consisted of the following amounts (in thousands).


	Year Ended December 31,
	2019		2018		Change
Improvements to investments in real estate	$	(1,436,902)	$	(1,325,162)	$	(111,740)
Ascenty acquisition, net of cash assumed		—		(1,563,830)		1,563,830
Acquisitions of real estate		(75,704)		(410,712)		335,008
Prepaid construction costs and other investments		(2,597)		(13,254)		10,657
Proceeds from sale of properties, net of sales costs		—		286,204		(286,204)
Proceeds from joint venture transactions		1,494,881		—		1,494,881
Deconsolidation of Ascenty cash		(97,081)		—		(97,081)
Investment in unconsolidated joint ventures		(101,101)		(673)		(100,428)
Other		(56,488)		(8,566)		(47,922)
Net cash used in investing activities	$	(274,992)	$	(3,035,993)	$	2,761,001

Index to Financial Statements


	Year Ended December 31,
	2018		2017		Change
Ascenty acquisition, net of cash assumed	$	(1,563,830)	$	—	$	(1,563,830)
Improvements to investments in real estate		(1,325,162)		(1,150,619)		(174,543)
Acquisitions of real estate		(410,712)		(415,764)		5,052
Prepaid construction costs and other investments		(13,254)		—		(13,254)
Proceeds from sale of properties, net of sales costs		286,204		89,333		196,871
Distribution from debt proceeds from closing of joint venture		—		135,793		(135,793)
Investment in unconsolidated joint ventures		(673)		(93,405)		92,732
Excess proceeds from forward contracts		—		63,956		(63,956)
Other		(8,566)		13,553		(22,119)
Net cash used in investing activities	$	(3,035,993)	$	(1,357,153)	$	(1,678,840)

Net cash flows (used in) provided by financing activities for the Company consisted of the following amounts (in thousands).


	Year Ended December 31,
	2019		2018		2017
Repayments of short-term borrowings, net of proceeds	$	(1,412,388)	$	1,100,651	$	(124,130)
Net proceeds from issuance of common and preferred stock, including equity plans		541,082		7,068		411,309
Redemption of preferred stock		(365,050)		—		(182,500)
Proceeds from secured / unsecured debt		2,848,296		2,192,629		2,352,230
Repayment on secured / unsecured debt		(1,915,301)		(674,926)		(1,411,907)
Distribution payments		(996,766)		(930,782)		(715,209)
Capital contributions from (distributions to) noncontrolling interests in consolidated joint ventures, net		63,173		66,124		(8,593)
Other		(35,067)		(3,495)		—
Net cash (used in) provided by financing activities	$	(1,272,021)	$	1,757,269	$	321,200

The increase in cash used in financing activities was due to repayments of borrowings, net of proceeds, increasing during the year ended December 31, 2019 as compared to 2018 and the repayment of the Floating rate notes due 2019, 5.875% 2020 Notes, 3.400% 2020 Notes and 2021 Notes along with the redemption of the series H preferred stock offset by higher proceeds in 2019 from the issuance of the series K preferred stock, series L preferred stock, 2026 Notes, 1.125% 2028 Notes, 3.600% 2029 Notes and 2030 Notes. The increase in dividend and distribution payments for the year ended December 31, 2019 as compared to 2018 was a result of an increase in the number of shares outstanding and increased dividend amount per share of common stock in the year ended December 31, 2019 as compared to 2018.

The increase in cash provided by financing activities was due to proceeds from borrowings, net of repayments increasing during the year ended December 31, 2018 as compared to 2017 offset by higher proceeds in 2017 from the issuance of the 2019 Notes, 2.750% 2024 Notes, 2029 Notes, 2.750% 2023 Notes and 2027 Notes as compared to the proceeds in 2018 from the issuance of the 2028 Notes and 2030 Notes. The increase in dividend and distribution payments for the year ended December 31, 2018 as compared to 2017 was a result of an increase in the number shares

Index to Financial Statements

outstanding due to the DFT Merger and increased dividend amount per share of common stock in 2018 as compared to 2017. The 2018 borrowing activity was used in part to fund a portion of the Ascenty Acquisition.

Net cash flows (used in) provided by financing activities for the Operating Partnership consisted of the following amounts (in thousands).


	Year Ended December 31,
	2019		2018		2017

Proceeds from borrowings, net of repayments	$	(1,412,388)	$	1,100,651	$	(124,130)
General partner contributions, net		176,032		7,068		228,809
Proceeds from secured / unsecured debt		2,848,296		2,192,629		2,352,230
Repayment on secured / unsecured debt		(1,915,301)		(674,926)		(1,411,907)
Distribution payments		(996,766)		(930,782)		(715,209)
Capital contributions from (distributions to) noncontrolling interests in consolidated joint ventures, net		63,173		66,124		(8,593)
Other		(35,067)		(3,495)		—
Net cash (used in) provided by financing activities	$	(1,272,021)	$	1,757,269	$	321,200

The increase in cash used in financing activities was due to repayments of borrowings, net of proceeds, increasing during the year ended December 31, 2019 as compared to 2018 and the repayment of the Floating rate notes due 2019, 5.875% 2020 Notes, 3.400% 2020 Notes and 2021 Notes along with the redemption of the series H preferred units offset by higher proceeds in 2019 from the issuance of the series K preferred units, series L preferred units, 2026 Notes, 1.125% 2028 Notes, 3.600% 2029 Notes and 2030 Notes. The increase in distribution payments for the year ended December 31, 2019 as compared to 2018 was a result of an increase in the number of units outstanding and increased distribution amount per common unit in the year ended December 31, 2019 as compared to 2018.

The increase in cash provided by financing activities was due to proceeds from borrowings, net of repayments increasing during the year ended December 31, 2018 as compared to 2017 offset by higher proceeds in 2017 from the issuance of the 2019 Notes, 2.750% 2024 Notes, 2029 Notes, 2.750% 2023 Notes and 2027 Notes as compared to the proceeds in 2018 from the issuance of the 2028 Notes and 2030 Notes. The increase in distribution payments for the year ended December 31, 2018 as compared to 2017 was a result of an increase in the number of common units outstanding due to the DFT Merger and increased distribution amount per common unit in 2018 as compared to 2017. The 2018 borrowing activity was used in part to fund a portion of the Ascenty Acquisition.

Noncontrolling Interests in Operating Partnership

Noncontrolling interests relate to the common units in our Operating Partnership that are not owned by Digital Realty Trust, Inc., which, as of December 31, 2019, amounted to 4.1% of our Operating Partnership common units. Historically, our Operating Partnership has issued common units to third party sellers in connection with our acquisition of real estate interests from such third parties.

Limited partners have the right to require our Operating Partnership to redeem part or all of their common units for cash based upon the fair market value of an equivalent number of shares of Digital Realty Trust, Inc. common stock at the time of the redemption. Alternatively, we may elect to acquire those common units in exchange for shares of Digital Realty Trust, Inc. common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events. As of December 31, 2019, approximately 0.2 million common units of the Operating Partnership that were issued to certain former unitholders in the DFT Operating Partnership in connection with the DFT Merger were outstanding, which are subject to certain restrictions and, accordingly, are not presented as permanent capital in the consolidated balance sheet.

Index to Financial Statements

Inflation

Many of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.

Funds From Operations

We calculate funds from operations, or FFO, in accordance with the standards established by the National Association of Real Estate Investment Trusts (Nareit) in the Nareit Funds From Operations White Paper - 2018 Restatement. FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, a gain from a pre-existing relationship, impairment charges and real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Management uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions and after adjustments for unconsolidated partnerships and joint ventures, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition and results from operations, the utility of FFO as a measure of our performance is limited. Other REITs may not calculate FFO in accordance with the Nareit definition and, accordingly, our FFO may not be comparable to other REITs’ FFO. FFO should be considered only as a supplement to net income computed in accordance with GAAP as a measure of our performance.

Reconciliation of Net Income Available to Common Stockholders to Funds From Operations (FFO)

(in thousands, except per share and unit data)

(unaudited)


	Year Ended December 31,
	2019		2018		2017
Net Income Available to Common Stockholders	$	493,011	$	249,930	$	173,148
Adjustments:
Non-controlling interests in operating partnership		21,100		10,180		3,770
Real estate related depreciation & amortization (1)		1,149,240		1,173,917		830,252
Real estate related depreciation and amortization related to investment in unconsolidated joint ventures		52,716		14,587		11,566
Gain on disposition of properties		(267,651)		(80,049)		(40,354)
Impairment of investments in real estate		5,351		—		28,992
Noncontrolling interests share of gain on sale of property		—		—		3,900
FFO available to common stockholders and unitholders (2)	$	1,453,767	$	1,368,565	$	1,011,274
Basic FFO per share and unit	$	6.69	$	6.39	$	5.68
Diluted FFO per share and unit (2)	$	6.66	$	6.37	$	5.65
Weighted average common stock and units outstanding
Basic		217,285		214,313		178,056
Diluted (2)		218,421		214,951		178,892

(1) Real estate related depreciation and amortization was computed as follows:
Depreciation and amortization per income statement		1,163,774		1,186,896		842,464
Non-real estate depreciation		(14,534)		(12,979)		(12,212)
	$	1,149,240	$	1,173,917	$	830,252

Index to Financial Statements

(2)

For all periods presented, we have excluded the effect of dilutive series C, series F, series G, series H, series I, series J, series K and series L preferred stock, as applicable, that may be converted upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series F, series G, series H, series I, series J, series K and series L preferred stock, as applicable, which we consider highly improbable.


	Year Ended December 31,
	2019	2018	2017
Weighted average common stock and units outstanding	217,285	214,313	178,056
Add: Effect of dilutive securities	1,136	638	836
Weighted average common stock and units outstanding—diluted	218,421	214,951	178,892

Previous: Item 6. SELECTED FINANCIAL DATA · Next: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK