Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, each as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). This report contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, expected use of borrowings under our credit facilities, expected use of proceeds from our ATM equity program, expected settlement and use of proceeds from our forward sale agreements, litigation matters, portfolio performance, leverage policy, acquisition and capital expenditure plans, capital recycling program, returns on invested capital, supply and demand for data center space, capitalization rates, rents to be received in future periods and expected rental rates on new or renewed data center space, as well as our discussion of “Factors Which May Influence Future Results of Operations,” contain forward-looking statements. Likewise, all of our statements regarding anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and discussions which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and that we may not be able to realize. We do not guarantee that the transactions and events described will happen as described or that they will happen at all. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: reduced demand for data centers or decreases in information technology spending; increased competition or available supply of data center space; decreased rental rates, increased operating costs or increased vacancy rates; the impact of the COVID-19 pandemic on our, our customers’ and our suppliers’ operations; changes in political conditions, geopolitical turmoil, political instability, civil disturbances, restrictive governmental actions or nationalization in the countries in which we operate; the suitability of our data centers and data center infrastructure, delays or disruptions in connectivity or availability of power, or failures or breaches of our physical and information security infrastructure or services; our dependence upon significant customers, bankruptcy or insolvency of a major customer or a significant number of smaller customers, or defaults on or non-renewal of leases by customers; breaches of our obligations or restrictions under our contracts with our customers; our inability to successfully develop and lease new properties and development space, and delays or unexpected costs in development of properties; the impact of current global and local economic, credit and market conditions; global supply chain or procurement disruptions, or increased supply chain costs; our inability to retain data center space that we lease or sublease from third parties; information security and data privacy breaches; difficulties managing an international business and acquiring or operating properties in foreign jurisdictions and unfamiliar metropolitan areas; our failure to realize the intended benefits from, or disruptions to our plans and operations or unknown or contingent liabilities related to, our recent and future acquisitions; our inability to achieve expected revenue synergies or cost savings as a result of our combination with Interxion; our failure to successfully integrate and operate acquired or developed properties or businesses; difficulties in identifying properties to acquire and completing acquisitions; risks related to joint venture investments, including as a result of our lack of control of such investments; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; our failure to obtain necessary debt and equity financing, and our dependence on external sources of capital; financial market fluctuations and changes in foreign currency exchange rates; adverse economic or real estate developments in our industry or the industry sectors that we sell to, including risks relating to decreasing real estate valuations and impairment charges and goodwill and other intangible asset impairment charges; our inability to manage our growth effectively; losses in excess of our insurance coverage; our inability to attract and retain talent; environmental liabilities, risks related to natural disasters and our inability to achieve our sustainability goals; our inability to comply with rules and regulations applicable to our Company; Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes; Digital Realty Trust, L.P.’s failure to qualify as a partnership for federal income tax purposes; restrictions on our ability to engage in certain business activities; and changes in local,

state, federal and international laws and regulations, including related to taxation, real estate and zoning laws, and increases in real property tax rates.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in our annual report on Form 10-K for the year ended December 31, 2020. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to identify all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

Occupancy percentages included in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.

As used in this report: “Ascenty Acquisition” refers to the acquisition of Ascenty by the Operating Partnership and Stellar Participações S.A. (formerly Stellar Participações Ltda.), a Brazilian subsidiary of the Operating Partnership; “Ascenty entity” refers to the entity, which owns and operates Ascenty, formed with Brookfield Infrastructure; “Brookfield” refers to Brookfield Infrastructure, an affiliate of Brookfield Asset Management; “Interxion” refers to InterXion Holding N.V.; and “Interxion Combination” refers to the Company’s combination with InterXion Holding N.V.

Business Overview and Strategy

Digital Realty Trust, Inc., through its controlling interest in Digital Realty Trust, L.P. and its subsidiaries, delivers comprehensive space, power, and interconnection solutions that enable its customers and partners to connect with each other and service their own customers on a global technology and real estate platform. We are a leading global provider of data center, colocation and interconnection solutions for customers across a variety of industry verticals ranging from cloud and information technology services, social networking and communications to financial services, manufacturing, energy, healthcare, and consumer products. Digital Realty Trust, Inc. operates as a REIT for federal income tax purposes, and our Operating Partnership is the entity through which we conduct our business and own our assets.

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. 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.

We have developed detailed, standardized procedures for evaluating new real estate investments to ensure that they meet our financial, technical and other criteria. We expect to continue to acquire additional assets as part of our growth strategy. We intend to aggressively manage and lease our assets to increase their cash flow. We may continue to build out our development portfolio when justified by anticipated demand and returns.

We may acquire properties subject to existing mortgage financing and other indebtedness or we may incur new indebtedness in connection with acquiring or refinancing these properties. Debt service on such indebtedness will have a priority over any cash dividends with respect to Digital Realty Trust, Inc.’s common stock and preferred stock. We are committed to maintaining a conservative capital structure. We target a debt-to-Adjusted EBITDA ratio at or less than 5.5x, fixed charge coverage of greater than three times, and floating rate debt at less than 20% of total outstanding debt. In addition, we strive to maintain a well-laddered debt maturity schedule, and we seek to maximize the menu of our available sources of capital, while minimizing the cost.

Revenue Base

The majority of revenue consists of rental income generated by the data centers in our portfolio. Our ability to generate and grow revenue depends on several factors, including our ability to maintain or improve occupancy rates. As of September 30, 2021, and December 31, 2020, our portfolio (excluding space under development or held for development) was 84.2% and 86.3% leased, respectively. A summary of our data center portfolio and related square feet occupied as of September 30, 2021 is shown below. Unconsolidated portfolios shown below consist of assets owned by unconsolidated entities in which we have invested. We often provide management services for these entities under management agreements and receive management fees. These are shown as Managed Unconsolidated Portfolio. Entities for which we do not provide such services are shown as Non-Managed Unconsolidated Portfolio.

​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​
​	​	As of September 30, 2021
Region	​	Data Center Buildings	​	Net Rentable Square Feet (1)	​	Space Under Active Development (2)	​	Space Held for Development (3)	​	Occupancy	​
North America	​	123	​	22,944,292	​	2,067,360	​	861,917	​	86.0	%
Europe		107	​	7,209,395		3,330,572	​	255,874	​	76.2	%
Asia Pacific		12	​	1,127,636		1,036,418	​	—	​	86.6	%
Africa		4	​	25,825		40,965	​	—	​	51.3	%
Consolidated Portfolio		246	​	31,307,147		6,475,315	​	1,117,791	​	83.8	%
Managed Unconsolidated Portfolio	​	6	​	1,174,565	​	—	​	—	​	90.2	%
Non-Managed Unconsolidated Portfolio		30	​	2,506,538		989,318	​	970,909	​	86.3	%
Total Portfolio		282	​	34,988,250		7,464,633	​	2,088,701	​	84.2	%

​

(1)	Net rentable square feet represents the current square feet under lease as specified in the applicable lease agreement plus management’s estimate of space available for lease based on engineering drawings. The amount includes customers’ proportional share of common areas but excludes space held for the intent of or under active development.

(2)	Space under active development includes current base building and data center projects in progress, and excludes space held for development. For additional information on the current and future investment for space under active development, see “—Liquidity and Capital Resources of the Operating Partnership—Construction”.

(3)	Space held for development includes space held for future data center development, and excludes space under active development. For additional information on the current investment for space held for development, see “—Liquidity and Capital Resources of the Operating Partnership—Construction”.

​

Leasing Activities

As of September 30, 2021, our average remaining lease term was approximately five years.

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. The following table summarizes our leasing activity in the nine months ended September 30, 2021:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		​		​	​		​	​		​		TI’s/Lease			Weighted
​	​	​	​	​	​	​	​	​	​	​	​	Commissions		​	Average Lease
​	​	Rentable	​	Expiring		​	New		​	Rental Rate	​	Per Square		​	Terms
​	​	Square Feet (1)	​	Rates (2)		​	Rates (2)		​	Changes	​	Foot		​	(years)
Leasing Activity (3)(4)				​			​					​
Renewals Signed				​			​					​
0 — 1 MW		1,434,422	​	$	261.42	​	$	266.36		1.9	%	$	0.65		1.7
> 1 MW		1,251,852	​	$	149.69	​	$	142.70		(4.7)	%	$	0.55		3.6
Other (6)		1,461,105	​	$	20.84	​	$	23.43		12.5	%	$	1.17		3.9
New Leases Signed (5)		​	​			​		​		​	​				​
0 — 1 MW		386,377	​		—	​	$	275.73		—	​	$	36.99		3.6
> 1 MW		1,466,006	​		—	​	$	134.52		—	​	$	14.61		7.7
Other (6)		74,762	​		—	​	$	35.28		—	​	$	7.49		7.5
Leasing Activity Summary			​			​		​		​	​
0 — 1 MW		1,820,799	​		​	​	$	268.35		​	​		​
> 1 MW		2,717,858	​		​	​	$	138.29		​	​		​
Other (6)		1,535,867	​		​	​	$	24.01		​	​		​

(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 average annual estimated base cash rent per rentable square foot – calculated for each contract based on total cash base rent divided by the total number of years in the contract (including any tenant concessions). All rates were calculated in the local currency of each contract and then converted to USD based on average exchange rates for the nine months ended September 30, 2021.

(3)	Excludes short-term leases.

(4)	Commencement dates for the leases signed range from 2021 to 2022.

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

(6)	Other includes Powered Base Building shell capacity as well as storage and office space within fully improved data center facilities.

​

We continue to see strong demand in most of our key metropolitan areas for data center space and, subject to the supply of available data center space in these metropolitan areas, we expect average aggregate rental rates on re-leased or renewed data center leases for 2021 expirations to generally be consistent with the rates currently being paid for the same space on a GAAP basis and on a cash basis. Our past performance may not be indicative of future results, and we cannot assure you that leases will be renewed or that our data centers will be re-leased at all or at rental rates equal to or above the current average rental rates. Further, re-leased/renewed rental rates in a particular metropolitan area may not be consistent with rental rates across our portfolio as a whole and may fluctuate from one period to another due to a number of factors, including local economic conditions, local supply and demand for data center space, competition from other data center developers or operators, the condition of the property and whether the property, or space within the property, has been developed.

Geographic concentration

​

We depend on the market for data centers in specific geographic regions and significant changes in these regional or metropolitan areas can impact our future results. The following table shows the geographic concentration of annualized rent from our portfolio, including data centers held as investments in unconsolidated entities.

​

​	​	​	​
​		Percentage of
​	​	September 30, 2021
​	​	total annualized
Metropolitan Area	​	rent (1)
Northern Virginia		19.3	%
Chicago		8.9	%
London, England		7.1	%
New York		6.4	%
Silicon Valley		6.3	%
Frankfurt, Germany		5.7	%
Dallas	​	5.7	%
Amsterdam, Netherlands		4.3	%
Sao Paulo, Brazil		3.9	%
Singapore		3.8	%
Phoenix		2.0	%
San Francisco		2.0	%
Paris, France		1.9	%
Osaka, Japan		1.6	%
Tokyo, Japan	​	1.6	%
Other		19.5	%
Total		100.0	%

(1)	Annualized rent is monthly contractual rent (defined as cash base rent before abatements) under existing leases as of September 30, 2021 multiplied by 12. Includes consolidated portfolio and unconsolidated entities at the entities’ 100% ownership level. The aggregate amount of abatements for the nine months ended September 30, 2021 was approximately $79.6 million.

Operating expenses

Operating expenses primarily consist of utilities, property and ad valorem taxes, property management fees, insurance and site maintenance costs, and rental expenses on our ground and building leases. Our buildings require significant power to support data center operations and the cost of electric power and other utilities is a significant component of operating expenses.

Many of our leases contain provisions under which 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 expect to incur additional operating expenses as we continue to expand.

Costs pertaining to our asset management function, legal, accounting, corporate governance, reporting and compliance are categorized as general and administrative costs within operating expenses.

Other key components of operating expenses include: depreciation of our fixed assets, amortization of intangible assets, and transaction and integration costs.

Other Income / (Expenses)

Equity in earnings of unconsolidated entities, interest expense, and income tax expense make up the majority of other income/(expense). Equity in earnings of unconsolidated entities represents our share of the income/(loss) of entities

in which we invest, but do not consolidate under U.S. GAAP. The largest of these investments is currently Ascenty which is located primarily in Brazil. We also hold investments in multiple other unconsolidated entities across the globe. Given that many of these entities transact in currencies other than the U.S. Dollar, results of these entities can be significantly impacted by changes in foreign currency exchange rates.

Interest expense pertains primarily to unsecured senior notes, the majority of which are issued at fixed rates. The Company is subject to foreign, state and local taxes in the jurisdictions in which it operates and income tax expense can be impacted by changes in tax rates in these various jurisdictions.

Factors Which May Influence Future Results of Operations

COVID-19. We continue to closely monitor the impact of the COVID-19 pandemic on our global business and operations, including the impact on our customers, suppliers and business partners. While we did not experience significant disruptions from the COVID-19 pandemic during the nine months ended September 30, 2021 nor as of the date of this report, we cannot predict the impact that the COVID-19 pandemic will have on our future financial condition, results of operations and cash flows due to numerous uncertainties.

Rental Income. As of September 30, 2021, most of our leases (on a rentable square footage basis) contained base rent escalations that were either fixed (generally ranging from 2% to 4%) or indexed based on a consumer price index or other similar inflation-related index. We cannot assure you that these escalations will cover all the increases in our costs or will otherwise keep rental rates at or above market rates.

Our ability to increase revenue depends in part on our ability to develop and lease capacity at favorable rates, which we may not be able to obtain. Significant capital investment is required in order to develop data center facilities that are ready for use and, in addition, we may require additional time or encounter delays in securing customers for development projects. We may purchase additional vacant properties and properties with vacant development capacity in the future. We will require additional capital to finance our development activities, which may not be available or may not be available on terms acceptable to us.

In addition to approximately 5.1 million square feet of available space in our portfolio, which excludes approximately 6.5 million square feet of space under active development and approximately 1.1 million square feet of space held for development as of September 30, 2021 and the 30 data centers held as investments in our non-managed unconsolidated entities, leases representing approximately 2.8% and 11.6% of the net rentable square footage of our portfolio are scheduled to expire during the three months ending December 31, 2021 and the year ending December 31, 2022, respectively.

Results of Operations

As a result of the consistent and significant growth in our business since the first property acquisition in 2002, we evaluate period-to-period results for revenue and property level operating expenses on a stabilized, rather than non-stabilized portfolio basis.

​

Stabilized: The stabilized portfolio includes properties owned as of the beginning of all periods presented with less than 5% of total rentable square feet under development.

Non-stabilized: The non-stabilized portfolio includes: 1) properties that were undergoing, or were expected to undergo, development activities during any of the periods presented, 2) any properties contributed to joint ventures, sold, or held for sale during the periods presented, and 3) any properties that were acquired or delivered at any point during the periods presented.

Comparison of the Three and Nine Months Ended September 30, 2021 to the Three and Nine Months Ended September 30, 2020

Revenues

Total operating revenues increased by approximately $108.5 million and $475.7 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, driven primarily by growth in non-stabilized rental and other services revenue. Non-stabilized rental and other services revenue increased $88.3 million for the three-month period primarily due to the completion of global development pipeline and related lease up operating activities and expansion into new markets in EMEA offset by the impact of properties sold in 2020 and 2021. For the nine-month period, non-stabilized rental and other services revenue increased $435.9 million, primarily due to the Interxion Combination, which contributed $276.8 million to the increase. Stabilized rental and other services revenue increased $1.7 million and $23.6 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020 due to new leasing and renewals, net of expirations as well as increased tenant reimbursements associated with higher utility costs in Texas due to winter storm Uri.

​

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended September 30,											​	Nine Months Ended September 30,											​
​		2021			2020			$ Change		​	% Change			2021			2020			$ Change		​	% Change		​
Stabilized	​	$	601,498	​	$	599,789	​	$	1,709	​	0.3	%	​	$	1,817,043	​	$	1,793,464	​	$	23,579	​	1.3	%	​
Non-Stabilized	​	​	509,406	​	​	421,142	​	​	88,264	​	21.0	%	​	​	1,471,162	​	​	1,035,214	​	​	435,948	​	42.1	%	​
Rental and other services	​	​	1,110,904	​	​	1,020,931	​	​	89,973	​	8.8	%	​	​	3,288,205	​	​	2,828,678	​	​	459,527	​	16.2	%	​
Fee income and other	​	​	22,232	​	​	3,737	​	​	18,495	​	494.9	%	​		28,510	​		12,322	​	​	16,188	​	131.4	%	​
Total operating revenues	​	$	1,133,136	​	$	1,024,668	​	$	108,468	​	10.6	%	​	$	3,316,715	​	$	2,841,000	​	$	475,715	​	16.7	%	​

​

​

Operating Expenses — Property Level

Property level operating expenses include costs to operate and maintain the locations as well as taxes and insurance. Stabilized property operating and maintenance expenses increased by approximately $10.2 million and $52.4 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily related to higher utility consumption at certain properties in the stabilized portfolio. Non-stabilized property operating and maintenance expenses increased $37.4 million for the three-month period, primarily due to the completion of global development pipeline and related lease up operating activities and expansion into new markets in EMEA offset by the impact of properties sold in 2020 and 2021. For the nine-month period, non-stabilized property operating and maintenance expenses increased $141.9 million, primarily due to the Interxion Combination, which contributed $114.0 million to the increase. Stabilized property taxes and insurance increased by approximately $11.7 million in the three and nine months ended September 30, 2021 compared to the same periods in 2020, primarily related to property tax reassessments for certain properties located in Chicago in the stabilized portfolio during the three months ended September 30, 2021.

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended September 30,											​	Nine Months Ended September 30,											​
​		2021			2020			$ Change		​	% Change		​	2021			2020			$ Change		​	% Change
Stabilized	​	$	209,308	​	$	199,086	​	$	10,222	​	5.1	%	​	$	622,345	​	$	569,975	​	$	52,370	​	9.2	%	​
Non-Stabilized	​		197,021	​		159,593	​	​	37,428	​	23.5	%	​		528,979	​		387,059	​	​	141,920	​	36.7	%	​
Rental property operating and maintenance	​	​	406,329	​	​	358,679	​	​	47,650	​	13.3	%	​	​	1,151,324	​	​	957,034	​	​	194,290	​	20.3	%	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Stabilized	​		41,256	​		29,546	​	​	11,710	​	39.6	%	​		106,584	​		94,927	​	​	11,657	​	12.3	%	​
Non-Stabilized	​		19,377	​		13,113	​	​	6,264	​	47.8	%	​		55,050	​		41,843	​	​	13,207	​	31.6	%	​
Property taxes and insurance	​		60,633	​		42,659	​	​	17,974	​	42.1	%	​		161,634	​		136,770	​	​	24,864	​	18.2	%	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total Property Level Expenses	​	$	466,962	​	$	401,338	​	$	65,624	​	16.4	%	​	$	1,312,958	​	$	1,093,804	​	$	219,154	​	20.0	%	​

​

​

Other Operating Expenses

Other operating expenses include costs which are either non-cash in nature (such as depreciation and amortization), or which do not directly pertain to operation of data center properties. A comparison of other operating expenses for the three and nine months ended September 30, 2021 and 2020 is shown below. The increases in depreciation and amortization and general and administrative expenses for the 2021 periods were primarily driven by the Interxion Combination, which closed in March 2020.

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended September 30,											​	Nine Months Ended September 30,											​
​		2021			2020		​	$ Change		​	% Change			2021			2020		​	$ Change		​	% Change
Depreciation and amortization		$	369,035	​	$	365,842	​	$	3,193	​	0.9	%		$	1,107,749	​	$	1,006,464	​	$	101,285	​	10.1	%
General and administrative	​	​	98,460	​	​	91,352	​	​	7,108	​	7.8	%	​	​	295,946	​	​	249,181	​	​	46,765	​	18.8	%	​
Transaction, integration and other expense	​		14,314	​		15,251	​	​	(937)	​	(6.1)	%	​		37,550	​	​	87,806	​	​	(50,256)	​	(57.2)	%	​
Impairment of investments in real estate	​	​	—	​	​	6,482	​	​	(6,482)	​	(100.0)	%	​	​	—	​	​	6,482	​	​	(6,482)	​	(100.0)	%	​
Total Other Operating Expenses	​	​	481,809	​	​	478,927	​	​	2,882	​	0.6	%	​	​	1,441,245	​	​	1,349,933	​	​	91,312	​	6.8	%	​
Property level operating expenses	​	​	466,962	​	​	401,338	​	​	65,624	​	16.4	%	​	​	1,312,958	​	​	1,093,804	​	​	219,154	​	20.0	%	​
Total Operating Expenses	​	$	948,771	​	$	880,265	​	​	68,506	​	7.8	%	​	$	2,754,203	​	$	2,443,737	​	​	310,466	​	12.7	%	​

​

Equity in earnings (loss) of unconsolidated entities

Equity in earnings (loss) of unconsolidated entities increased approximately $42.9 million and $158.7 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to one of our unconsolidated entities completing the sale of a portfolio of 10 data centers during the three months ended September 30, 2021, which resulted in a gain of approximately $64 million, along with the foreign exchange remeasurement of debt associated with our Ascenty unconsolidated entity, which decreased $22.7 million and increased

$97.4 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

Gain on Disposition of Properties, Net

Gain on disposition of properties, net decreased approximately $11.0 million and increased approximately $18.6 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. In March 2021, we sold a portfolio of 11 data centers in Europe (four in the United Kingdom, three in the Netherlands, three in France and one in Switzerland) to Ascendas Reit, a CapitaLand sponsored REIT, for total purchase consideration of approximately $680.0 million resulting in a gain of approximately $333.3 million. In January 2020, we sold 10 Powered Base Building® properties, which comprise 12 data centers, in North America to Mapletree at a purchase consideration of approximately $557.0 million, resulting in a gain of approximately $304.8 million.

Loss from Early Extinguishment of Debt

Loss from early extinguishment of debt decreased approximately $53.0 million and $35.3 million in the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, primarily due to the redemption of the 3.950% 2022 Notes and 3.625% 2022 Notes in August 2020, offset by the redemption of the 2.750% 2023 Notes in February 2021.

Income Tax Expense

Income tax expense decreased by $2.3 million during the three months ended September 30, 2021 and increased by $34.1 million during the nine months ended September 30, 2021. The increase for the nine-month period was driven primarily by an increase in the corporate tax rate in the United Kingdom from 19% to 25% during the quarter ended June 30, 2021.

Liquidity and Capital Resources

The sections “Analysis of Liquidity and Capital Resources - Parent” and “Analysis of Liquidity and Capital Resources - Operating Partnership” should be read in conjunction with one another to understand our liquidity and capital resources on a consolidated basis. The term “Parent” refers to Digital Realty Trust, Inc. on an unconsolidated basis, excluding our Operating Partnership. The term “Operating Partnership” refers to Digital Realty Trust, L.P. on a consolidated basis.

Analysis of Liquidity and Capital Resources — Parent

Our Parent does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time, and guaranteeing certain unsecured debt of the Operating Partnership and certain of its subsidiaries and affiliates. If our Operating Partnership or such subsidiaries fail to fulfill their debt requirements, which trigger Parent guarantee obligations, then our Parent will be required to fulfill its cash payment commitments under such guarantees. Our Parent’s only material asset is its investment in our Operating Partnership.

Our Parent’s principal funding requirement is the payment of dividends on its common and preferred stock. Our Parent’s principal source of funding is the distributions it receives from our Operating Partnership.

As the sole general partner of our Operating Partnership, our Parent has the full, exclusive and complete responsibility for our Operating Partnership’s day-to-day management and control. Our Parent causes our Operating Partnership to distribute such portion of its available cash as our Parent may in its discretion determine, in the manner provided in our Operating Partnership’s partnership agreement.

As circumstances warrant, our Parent may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. Any proceeds from such equity issuances would generally be contributed to 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.

Our Parent and our Operating Partnership are parties to an at-the-market (ATM) equity offering sales agreement dated January 4, 2019, as amended in 2020 (the “Sales Agreement”). In accordance with the Sales Agreement, following the date of the 2020 amendment, Digital Realty Trust, Inc. may offer and sell shares of its common stock having an aggregate offering price of up to $1.0 billion. Prior to the 2020 amendment, Digital Realty Trust, Inc. had offered and sold shares of its common stock having an aggregate gross sales price of approximately $652.2 million. The sales of common stock made under the Sales Agreement will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. For the nine months ended September 30, 2021, Digital Realty Trust, Inc. issued approximately 1.1 million common shares under the Sales Agreement at an average price of $161.92 per share. For the nine months ended September 30, 2020, Digital Realty Trust, Inc. issued approximately 6.1 million common shares under the Sales Agreement at an average price of $146.89 per share. As of September 30, 2021, approximately $577.6 million remains available for future sales under the program. Our Parent has used and intends to use the net proceeds from the program to temporarily repay borrowings under our Operating Partnership’s global revolving credit facilities, to acquire additional properties or businesses, to fund development opportunities and for working capital and other general corporate purposes, including potentially for the repayment of other debt or the repurchase, redemption or retirement of outstanding debt securities. For additional information regarding the Sales Agreement, see our Annual Report on Form 10-K for the year ended December 31, 2020.

On September 13, 2021, Digital Realty Trust, Inc. completed an underwritten public offering of 6,250,000 shares of its common stock, all of which were offered in connection with forward sale agreements it entered into with certain financial institutions acting as forward purchasers. The forward purchasers borrowed and sold an aggregate of 6,250,000 shares of Digital Realty Trust, Inc.’s common stock in the public offering. Digital Realty Trust, Inc. did not receive any proceeds from the sale of our common stock by the forward purchasers in the public offering. The Company may receive gross proceeds of approximately $1.0 billion (based on the offering price of $155.69 per share) upon full physical settlement of the forward sale agreements, which is to be no later than March 13, 2023. Upon physical settlement of the forward sale agreements, the Operating Partnership is expected to issue general partner common partnership units to Digital Realty Trust, Inc. in exchange for contribution of the net proceeds. The forward purchasers had also granted to the underwriters an option, exercisable until October 13, 2021, to purchase up to 937,500 additional shares at a price of $155.69, which represents the initial price to the public less the underwriting discount. The underwriters opted not to exercise their option within the specified time period.

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 and, in turn, for our Parent 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. The lack of availability of capital could adversely affect our Operating Partnership’s ability to pay its distributions to our Parent, which would in turn, adversely affect our Parent’s ability to pay cash dividends to its stockholders.

Future Uses of Cash — Parent

Our Parent 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.

Dividends and Distributions — Parent

Our Parent is required to distribute 90% of its taxable income (excluding capital gains) on an annual basis to continue to qualify as a REIT for federal income tax purposes. Our Parent 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 has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Parent’s Board of Directors. Our Parent considers market factors and our Operating Partnership’s performance in addition to REIT requirements in determining distribution levels. Our Parent has distributed at least 100% of its taxable income annually since inception to minimize corporate level federal income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our Parent’s status as a REIT.

As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. Our Parent may need to continue to raise capital in the debt and equity markets to fund 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 may be required to use borrowings under the Operating Partnership’s global revolving credit facility (which is guaranteed by our Parent), if necessary, to meet REIT distribution requirements and maintain our Parent’s REIT status.

Distributions out of our Parent’s current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our Parent’s current and accumulated earnings and profits, to the extent of a stockholder’s U.S. federal income tax basis in our Parent’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’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.

For additional information regarding dividends declared and paid by our Parent on its common and preferred stock for the nine months ended September 30, 2021, see Note 10 to our condensed consolidated financial statements contained herein.

Analysis of Liquidity and Capital Resources — Operating Partnership

As of September 30, 2021, we had $116.0 million of cash and cash equivalents, excluding $11.1 million of restricted cash. Restricted cash primarily consists of contractual capital expenditures plus other deposits. Our liquidity requirements primarily consist of:

	●	operating expenses,

	●	development costs and other expenditures associated with our properties,

	●	distributions to our Parent to enable it to make dividend payments,

	●	distributions to unitholders of common limited partnership interests in Digital Realty Trust, L.P.,

	●	capital expenditures,

	●	debt service, and,

	●	potentially, acquisitions.

​

Future Uses of Cash

Our properties require periodic investments of capital for customer-related capital expenditures and for general capital improvements. Depending upon customer demand, we expect to incur significant improvement costs to build out

and develop additional capacity. At September 30, 2021, we had open commitments, related to construction contracts of approximately $1.5 billion, including amounts reimbursable of approximately $47.2 million.

We currently expect to incur approximately $0.5 billion to $0.8 billion of capital expenditures for our development programs during the three months ending December 31, 2021. This amount could go up or down, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.

Development Projects

The costs we incur to develop our properties is a key component of our liquidity requirements. The following table summarizes our cumulative investments in current development projects as well as expected future investments in these projects as of the periods presented, excluding costs incurred or to be incurred by unconsolidated entities.

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Development Lifecycle	​	As of September 30, 2021										​	As of December 31, 2020
​	​	Net Rentable	​	Current		​	​	​	​	​	​	​	Net Rentable	​	Current		​	Future		​	​	​
​	​	Square Feet	​	Investment		​	Future Investment		​	​	​	​	Square Feet	​	Investment		​	Investment		​	​	​
(dollars in thousands)		(1)​		(2)​			(3)​			Total Cost			(1)​		(4)​			(3)​			Total Cost
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Land held for future development (5)	​	N/A		$	118,091		$	—		$	118,091	​	N/A		$	226,862		$	—		$	226,862
Construction in Progress and Space Held for Development				​			​			​					​			​			​
Land - Current Development (5)	​	N/A	​	$	913,855	​	$	—	​	$	913,855	​	N/A	​	$	785,182	​	$	—	​	$	785,182
Space Held for Development (6)		1,117,791		​	230,779		​	—		​	230,779		1,501,310	​	​	236,545		​	—	​	​	236,545
Base Building Construction		3,334,023		​	503,391	​	​	566,701		​	1,070,093		2,331,472	​		458,357	​	​	485,613	​		943,970
Data Center Construction		3,141,292		​	1,559,410	​		1,907,286		​	3,466,696		2,573,759	​		1,232,762	​		1,596,821	​		2,829,583
Equipment Pool & Other Inventory		N/A		​	12,741	​		—		​	12,741		N/A	​		9,761	​		—	​		9,761
Campus, Tenant Improvements & Other		N/A		​	18,274	​		46,175		​	64,449		N/A	​		45,719	​		42,848	​		88,567
Total Construction in Progress and Land Held for Future Development		7,593,106	​	$	3,356,542	​	$	2,520,162	​	$	5,876,704		6,406,541	​	$	2,995,188	​	$	2,125,282	​	$	5,120,470

(1)

We estimate the total net rentable square feet available for lease based on a number of factors in addition to contractually leased square feet, including available power, required support space and common areas. Excludes square footage of properties held in unconsolidated entities. Square footage is based on current estimates and project plans, and may change upon completion of the project due to remeasurement.

(2)	Represents balances incurred through September 30, 2021.

(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, 2020.

(5)	Represents approximately 832 acres as of September 30, 2021 and approximately 927 acres as of December 31, 2020.

(6)	Excludes space held for development through unconsolidated entities.

​

Land inventory and space held for development reflect cumulative cost spent pending future development. Base building construction consists of ongoing improvements to building infrastructure in preparation for future data center fit-out. Data center construction includes 7.4 million square feet of Turn Key Flex® and Powered Base Building® product. Generally, we expect to deliver the space within 12 months; however, lease commencement dates may significantly impact final delivery schedules. Equipment pool and other inventory represent the value of long-lead equipment and materials required for timely deployment and delivery of data center construction fit-out. Campus, tenant improvements and other costs include the value of development work which benefits space recently converted to our operating portfolio and is composed primarily of shared infrastructure projects and first-generation tenant improvements.

Capital Expenditures (Cash Basis)

The table below summarizes our capital expenditure activity for the nine months ended September 30, 2021 and 2020 (in thousands):

​

​	​	​	​	​	​	​
​	​	Nine Months Ended September 30,
​		2021			2020
Development projects	​	$	1,527,588	​	$	1,175,494
Enhancement and improvements	​		571	​		171
Recurring capital expenditures	​		129,553	​		127,156
Total capital expenditures (excluding indirect costs)	​	$	1,657,712	​	$	1,302,821

​

For the nine months ended September 30, 2021, total capital expenditures increased $354.9 million to approximately $1,657.7 million from $1,302.8 million for the same period in 2020. Capital expenditures on our development projects plus our enhancement and improvements projects for the nine months ended September 30, 2021 were approximately $1,528.2 million, which reflects an increase of approximately 30% from the same period in 2020. This increase was primarily due to development activity at properties acquired in the Interxion Combination. Our development capital expenditures are generally funded by our available cash and equity and debt capital.

Indirect costs, including capitalized interest, capitalized in the nine months ended September 30, 2021 and 2020 were $90.4 million and $74.2 million, respectively. Capitalized interest comprised approximately $38.1 million and $35.5 million of the total indirect costs capitalized for the nine months ended September 30, 2021 and 2020, respectively. Capitalized interest in the nine months ended September 30, 2021 increased, compared to the same period in 2020, due to an increase in qualifying activities. Excluding capitalized interest, indirect costs in the nine months ended September 30, 2021 increased compared to the same period in 2020 due primarily to capitalized amounts relating to compensation expense of employees directly engaged in construction activities. See “—Future Uses of Cash” below for a discussion of the amount of capital expenditures we expect to incur during the year ending December 31, 2021.

Consistent with our growth strategy, we actively pursue potential acquisition opportunities, with due diligence and negotiations often at different stages at different times. The dollar value of acquisitions for the year ending December 31, 2021 will depend upon numerous factors, including customer demand, leasing results, availability of debt or equity capital and acquisition opportunities. Further, the growing acceptance by private institutional investors of the data center asset class has generally pushed capitalization rates lower, as such private investors may often have lower return expectations than us. As a result, we anticipate near-term single asset acquisitions activity to comprise a smaller percentage of our growth while this market dynamic persists.

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

Sources of Cash

We expect to meet our short-term and long-term liquidity requirements, including payment of scheduled debt maturities and funding of acquisitions and non-recurring capital improvements, with net cash from operations, future

long-term secured and unsecured indebtedness and the issuance of equity and debt securities and the proceeds of equity issuances by our Parent. We also may fund future short-term and long-term liquidity requirements, including acquisitions and non-recurring capital improvements, using our global revolving credit facilities pending permanent financing. As of November 3, 2021, we had approximately $1.5 billion of borrowings available under our global revolving credit facilities.

Our global revolving credit facility provides for borrowings up to $2.35 billion. We have the ability from time to time to increase the size of the global revolving credit facility by up to $1.25 billion, subject to the receipt of lender commitments and other conditions precedent. The global revolving credit facility matures on January 24, 2023, with two six-month extension options available. We have used and intend to use available borrowings under the global revolving credit facility to fund our liquidity requirements from time to time. For additional information regarding our global revolving credit facility, see Note 8 to our condensed consolidated financial statements contained herein.

In connection with the issuance of the Swiss Franc Notes in July 2021, we intend to allocate an amount equal to the net proceeds from the offering of the Swiss Franc Notes to finance or refinance, in whole or in part, recently completed or future green building, energy and resource efficiency and renewable energy projects, including the development and redevelopment of such projects (collectively, “Eligible Green Projects”). Pending the allocation of an amount equal to the net proceeds of the Swiss Franc Notes to Eligible Green Projects, all or a portion of an amount equal to the net proceeds from the Swiss Franc Notes were used to temporarily repay borrowings outstanding under the Operating Partnership’s global credit facility and for other general corporate purposes. For additional information regarding our Swiss Franc Notes, see Note 8 to our condensed consolidated financial statements contained herein.

Distributions

All distributions on our units are at the discretion of our Parent’s Board of Directors. For additional information regarding distributions paid on our common and preferred units for the three and nine months ended September 30, 2021, see Note 10 to our condensed consolidated financial statements contained herein.

​

Outstanding Consolidated Indebtedness

The table below summarizes our debt, as of September 30, 2021 (in millions):

​

​	​	​	​	​
Debt Summary:		​		​
Fixed rate	​	$	12,905.2	​
Variable rate debt subject to interest rate swaps	​		104.0	​
Total fixed rate debt (including interest rate swaps)	​		13,009.2	​
Variable rate—unhedged	​		1,185.5	​
Total	​	$	14,194.7	​
Percent of Total Debt:	​			​
Fixed rate (including swapped debt)	​		91.6	%
Variable rate	​		8.4	%
Total	​		100.0	%
​	​	​	​	​
Effective Interest Rate as of September 30, 2021	​			​
Fixed rate (including hedged variable rate debt)	​		2.32	%
Variable rate	​		0.69	%
Effective interest rate	​		2.19	%

​

As of September 30, 2021, we had approximately $14.2 billion of outstanding consolidated long-term debt as set forth in the table above, which excludes deferred financing costs. Our ratio of debt to total enterprise value was approximately 25% (based on the closing price of Digital Realty Trust, Inc.’s common stock on September 30, 2021 of $144.45). For this purpose, our total enterprise value is defined as the sum of the market value of Digital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total enterprise value ratio), plus the liquidation value of Digital Realty Trust, Inc.’s preferred stock, plus the aggregate value of our Operating Partnership’s units not held by Digital Realty Trust, Inc. (with the per unit value equal to the market value of one share of Digital Realty Trust, Inc.’s common stock and excluding long-term incentive units, Class C units and Class D units), plus the book value of our total consolidated indebtedness.

The variable rate debt shown above bears interest at interest rates based on various one-month LIBOR, EURIBOR, SOR, JPY LIBOR, HIBOR, BBR, Base CD and CDOR rates, depending on the respective agreement governing the debt, including our global revolving credit facilities. As of September 30, 2021, our debt had a weighted average term to initial maturity of approximately 6.0 years (or approximately 6.1 years assuming exercise of extension options).

Off-Balance Sheet Arrangements

As of September 30, 2021, we were party to interest rate swap agreements related to $104.0 million of outstanding principal on our variable rate debt. See Item 3. “Quantitative and Qualitative Disclosures about Market Risk.”

As of September 30, 2021, our pro-rata share of secured debt of unconsolidated entities was approximately $684.7 million.

Cash Flows

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

Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020

The following table shows cash flows and ending cash and cash equivalent balances for the nine months ended September 30, 2021 and 2020 (in thousands).

​

​	​	​	​	​	​	​	​	​	​
​	​	Nine Months Ended September 30,
​		2021			2020			Change
Net cash provided by operating activities	​	$	1,250,290	​	$	1,180,739	​	$	69,551
Net cash used in investing activities	​		(1,179,817)	​		(1,519,519)	​		339,702
Net cash (used in) provided by financing activities	​		(77,170)	​		1,231,150	​		(1,308,320)
Net (decrease) increase in cash, cash equivalents and restricted cash	​	$	(6,698)	​	$	892,370	​	$	(899,068)

​

The increase in net cash provided by operating activities was primarily due to the Interxion Combination offset by the operating activities of properties sold during the twelve months ended September 30, 2021.

The changes in the activities that comprise the decrease in net cash used in investing activities for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 consisted of the following amounts (in thousands).

​

​	​	​	​
​	​	Change
Increase in cash used for improvements to investments in real estate	​	$	(371,280)
Decrease in cash paid for business combinations and assets acquisition, net of cash and restricted cash acquired	​	​	328,207
Increase in cash from investment in joint ventures	​		138,204
Increase in cash provided by proceeds from sale of real estate	​	​	171,851
Other changes	​		72,720
Decrease in net cash used in investing activities	​	$	339,702

​

The decrease in net cash used in investing activities was primarily due to an increase in cash provided by proceeds from sale of investments related to the sale of 11 data centers in Europe in March 2021 partially offset by the sale of 10 Powered Base Building® properties, which comprise 12 data centers, in North America to Mapletree in January 2020, an increase in cash used for improvements to investments in real estate and a decrease in cash paid for acquisitions related to the acquisition of an additional 49% ownership interest in the Westin Building Exchange in February 2020, partially offset by an increase in cash used for improvements to investments in real estate.

​

The changes in the activities that comprise the increase in net cash used in financing activities for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 for the Company consisted of the following amounts (in thousands).

​

​	​	​	​
​		Change
Increase in proceeds from short-term borrowings, net of repayments	​	$	552,308
Decrease in cash provided by proceeds from secured / unsecured debt	​		(1,756,943)
Decrease in cash used for repayment on secured / unsecured debt	​	​	1,649,394
Decrease in cash provided by proceeds from issuance of common stock, net	​	​	(1,712,855)
Decrease in cash used for redemption of preferred stock	​	​	48,750
Increase in cash used for dividend and distribution payments	​		(143,704)
Other changes	​		54,730
Increase in net cash used in financing activities	​	$	(1,308,320)

​

The increase in cash used in financing activities was primarily due to a decrease in cash provided by proceeds from secured / unsecured debt, due to the redemption of two tranches of notes in August 2020, a decrease in cash provided by proceeds from issuance of common stock and an increase in dividend and distribution payments for the nine months ended September 30, 2021 as compared to the same period in 2020 as a result of an increase in the number of shares outstanding due to the Interxion Combination and increased dividend amount per share of common stock in the nine months ended September 30, 2021 as compared to the same period in 2020 partially offset by an increase in cash proceeds from short-term borrowings and a decrease in repayments of secured / unsecured debt.

​

​

Noncontrolling Interests in Operating Partnership

Noncontrolling interests in the Operating Partnership relate to the common units in our Operating Partnership that are not owned by Digital Realty Trust, Inc., which, as of September 30, 2021, amounted to 2.2% 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 September 30, 2021, approximately 0.2 million common units of the Operating Partnership that were issued to certain former unitholders of DuPont Fabros Technology, L.P. in connection with the Company’s acquisition of DuPont Fabros Technology, Inc. were outstanding, which are subject to certain restrictions and, accordingly, are not presented as permanent capital in the condensed consolidated balance sheet.

Inflation

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

Funds from Operations

We calculate funds from operations, or FFO, in accordance with the standards established by 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)

(unaudited, in thousands, except per share and unit data)

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​		Three Months Ended September 30,						Nine Months Ended September 30,
​		2021			2020			2021			2020
Net Income Available to Common Stockholders	​	$	124,094	​	$	(37,370)	​	$	623,869	​	$	219,165
Adjustments:	​			​			​			​
Non-controlling interests in operating partnership	​		3,000	​		(1,000)	​		16,000	​		8,200
Real estate related depreciation & amortization (1)	​		362,728	​		358,619	​		1,091,065	​		987,470
Unconsolidated JV real estate related depreciation & amortization	​	​	21,293	​	​	19,213	​	​	61,654	​	​	56,259
Gain on real estate transactions	​		(63,799)	​		(10,410)	​		(398,219)	​		(315,211)
Impairment of investments in real estate	​		—	​		6,482	​		—	​		6,482
FFO available to common stockholders and unitholders (2)	​	$	447,316	​	$	335,534	​	$	1,394,369	​	$	962,365
Basic FFO per share and unit	​	$	1.54	​	$	1.21	​	$	4.83	​	$	3.68
Diluted FFO per share and unit (2)	​	$	1.54	​	$	1.19	​	$	4.82	​	$	3.64
Weighted average common stock and units outstanding	​			​			​			​
Basic	​		289,535	​		278,079	​		288,897	​		261,416
Diluted (2)	​		290,229	​		281,524	​		289,565	​		264,401
(1) Real estate related depreciation and amortization was computed as follows:	​	​	​	​	​	​	​	​	​	​	​	​
Depreciation and amortization per income statement		$	369,035		$	365,842		​	1,107,749		​	1,006,464
Non-real estate depreciation		​	(6,307)	​	​	(7,223)		​	(16,684)	​	​	(18,994)
​	​	$	362,728	​	$	358,619	​	$	1,091,065	​	$	987,470

(2)

For all periods presented, we have excluded the effect of the series C, series G, series I, series J, series K and series L preferred stock, as applicable, that may be converted into common stock upon the occurrence of specified change in control transactions as described in the articles supplementary governing the series C, series G, series I, series J, series K and series L preferred stock, as applicable, as they would be anti-dilutive.

​

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Three Months Ended September 30,						Nine Months Ended September 30,
​		2021			2020			2021			2020
Weighted average common stock and units outstanding	​		289,535			278,079			288,897		​	261,416
Add: Effect of dilutive securities	​		694			3,445			668		​	2,985
Weighted average common stock and units outstanding—diluted	​	​	290,229		​	281,524		​	289,565		​	264,401

​

​