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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From              to             .

Commission file number 001-32336 (Digital Realty Trust, Inc.)

000-54023 (Digital Realty Trust, L.P.)

DIGITAL REALTY TRUST, INC.

DIGITAL REALTY TRUST, L.P.

(Exact name of registrant as specified in its charter)

Maryland     (Digital Realty Trust, Inc.)

    

26-0081711

Maryland     (Digital Realty Trust, L.P.)

20-2402955

(State or other jurisdiction of

(IRS employer

incorporation or organization)

identification number)

5707 Southwest Parkway, Building 1, Suite 275

Austin, Texas 78735

(Address of principal executive offices)

(737) 281-0101

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading symbol(s)

    

Name of each exchange on which registered

Common Stock

DLR

New York Stock Exchange

Series J Cumulative Redeemable Preferred Stock

DLR Pr J

New York Stock Exchange

Series K Cumulative Redeemable Preferred Stock

DLR Pr K

New York Stock Exchange

Series L Cumulative Redeemable Preferred Stock

DLR Pr L

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Digital Realty Trust, Inc.

    

Yes        No    

Digital Realty Trust, L.P.

Yes        No    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Digital Realty Trust, Inc.

    

Yes        No    

Digital Realty Trust, L.P.

Yes        No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Digital Realty Trust, Inc.:

Large accelerated filer     

    

Accelerated filer                      

Non-accelerated filer       

Smaller reporting company     

Emerging growth company     

Digital Realty Trust, L.P.:

Large accelerated filer     

    

Accelerated filer                      

Non-accelerated filer       

Smaller reporting company     

Emerging growth company     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Digital Realty Trust, Inc.

    

Digital Realty Trust, L.P.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Digital Realty Trust, Inc.

    

Yes        No    

Digital Realty Trust, L.P.

Yes        No    

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Digital Realty Trust, Inc.:

    

 

Class

    

Outstanding at May 3, 2022

Common Stock, $.01 par value per share

284,672,362

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2022 of Digital Realty Trust, Inc., a Maryland corporation, and Digital Realty Trust, L.P., a Maryland limited partnership, of which Digital Realty Trust, Inc. is the sole general partner. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our Company”, or “the Company” refer to Digital Realty Trust, Inc. together with its consolidated subsidiaries, including Digital Realty Trust, L.P. Unless otherwise, all references to the “Parent” refer to Digital Realty Trust, Inc., and all references to “our Operating Partnership,” “the Operating Partnership” or “the OP” refer to Digital Realty Trust, L.P. together with its consolidated subsidiaries.

The Parent is a real estate investment trust, or REIT, and the sole general partner of the OP. In statements regarding qualification as a REIT, such terms refer solely to Digital Realty Trust, Inc. As of March 31, 2022, the Parent owned an approximate 97.8% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 2.2% of the common limited partnership interests of Digital Realty Trust, L.P. are owned by non-affiliated third parties and certain directors and officers of the Parent. As of March 31, 2022, the Parent owned all of the preferred limited partnership interests of Digital Realty Trust, L.P. As the sole general partner of Digital Realty Trust, L.P., the Parent has the full, exclusive and complete responsibility for the OP’s day-to-day management and control.

We believe combining the quarterly reports on Form 10-Q of the Parent and the OP into this single report results in the following benefits:

enhancing investors’ understanding of the Parent and the OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;
eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Parent and the OP; and
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the OP and issuing public equity from time to time and guaranteeing certain unsecured debt of the OP and certain of its subsidiaries and affiliates. The OP holds substantially all the assets of the business, directly or indirectly. The OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are generally contributed to the OP in exchange for partnership units, the OP generates capital required by the business through the OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

To highlight the differences between the Parent and the OP, separate sections in this report, as applicable, individually discuss the Parent and the OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the OP, this report refers to actions or holdings as being actions or holdings of the Company.

As general partner with control of the OP, the Parent consolidates the OP for financial reporting purposes, and it does not have significant assets other than its investment in the OP. Therefore, the assets and liabilities of the Parent and the OP are the same on their respective condensed consolidated financial statements. The separate discussions of the Parent and the OP in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

2

DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

Page
Number

PART I.

FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements of Digital Realty Trust, Inc.:

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 (unaudited)

4

Condensed Consolidated Income Statements for the three months ended March 31, 2022 and 2021 (unaudited)

5

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (unaudited)

6

Condensed Consolidated Statement of Equity for the three months ended March 31, 2022 and 2021 (unaudited)

7

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

9

Condensed Consolidated Financial Statements of Digital Realty Trust, L.P.:

Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 (unaudited)

10

Condensed Consolidated Income Statements for the three months ended March 31, 2022 and 2021 (unaudited)

11

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 (unaudited)

12

Condensed Consolidated Statement of Capital for the three months ended March 31, 2022 and 2021 (unaudited)

13

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

15

Notes to Condensed Consolidated Financial Statements of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. (unaudited)

16

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

34

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

50

ITEM 4.

Controls and Procedures (Digital Realty Trust, Inc.)

51

Controls and Procedures (Digital Realty Trust, L.P.)

52

PART II.

OTHER INFORMATION

53

ITEM 1.

Legal Proceedings

53

ITEM 1A.

Risk Factors

53

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

ITEM 3.

Defaults Upon Senior Securities

53

ITEM 4.

Mine Safety Disclosures

53

ITEM 5.

Other Information

53

ITEM 6.

Exhibits

54

Signatures

56

3

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

    

March 31, 

    

December 31, 

2022

2021

ASSETS

Investments in real estate:

Investments in properties, net

$

20,932,965

$

20,762,241

Investments in unconsolidated entities

 

2,044,074

 

1,807,689

Net investments in real estate

 

22,977,039

 

22,569,930

Operating lease right-of-use assets, net

1,361,942

1,405,441

Cash and cash equivalents

 

157,964

 

142,698

Accounts and other receivables, net

 

774,577

 

671,721

Deferred rent, net

 

545,666

 

547,385

Goodwill

 

7,802,440

 

7,937,440

Customer relationship value, deferred leasing costs and intangibles, net

 

2,640,795

2,735,486

Other assets

 

420,119

 

359,459

Total assets

$

36,680,542

$

36,369,560

LIABILITIES AND EQUITY

Global revolving credit facilities, net

$

943,325

$

398,172

Unsecured senior notes, net of discount

 

13,284,650

 

12,903,370

Secured and other debt, including premiums

 

160,240

 

146,668

Operating lease liabilities

1,472,510

1,512,187

Accounts payable and other accrued liabilities

 

1,572,357

 

1,543,623

Deferred tax liabilities, net

649,112

666,451

Accrued dividends and distributions

 

 

338,729

Security deposits and prepaid rents

 

346,908

 

336,578

Total liabilities

 

18,429,102

 

17,845,778

Redeemable noncontrolling interests

 

42,734

 

46,995

Commitments and contingencies

Equity:

Stockholders’ Equity:

Preferred Stock: $0.01 par value per share, 110,000,000 shares authorized; $755,000 liquidation preference ($25.00 per share), 30,200,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

731,690

 

731,690

Common Stock: $0.01 par value per share, 392,000,000 shares authorized; 284,666,082 and 284,415,013 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

2,824

 

2,824

Additional paid-in capital

 

21,069,391

 

21,075,863

Accumulated dividends in excess of earnings

 

(3,916,854)

 

(3,631,929)

Accumulated other comprehensive (loss) income, net

 

(188,844)

 

(173,880)

Total stockholders’ equity

 

17,698,207

 

18,004,568

Noncontrolling interests

 

510,499

 

472,219

Total equity

 

18,208,706

 

18,476,787

Total liabilities and equity

$

36,680,542

$

36,369,560

See accompanying notes to the condensed consolidated financial statements.

4

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except per share data)

Three Months Ended March 31, 

    

2022

    

2021

Operating Revenues:

Rental and other services

$

1,121,550

$

1,087,906

Fee income and other

 

5,772

 

2,485

Total operating revenues

 

1,127,322

 

1,090,391

Operating Expenses:

Rental property operating and maintenance

 

435,593

 

361,779

Property taxes and insurance

 

50,224

 

52,503

Depreciation and amortization

 

382,132

 

369,733

General and administrative

 

98,513

 

99,994

Transactions and integration

 

11,968

 

14,120

Other

 

7,657

 

(257)

Total operating expenses

 

986,087

 

897,872

Operating income

 

141,235

 

192,519

Other Income (Expenses):

Equity in earnings (loss) of unconsolidated entities

 

60,958

 

(23,031)

Gain on disposition of properties, net

2,770

333,921

Other income (expenses), net

 

3,051

 

(7,186)

Interest expense

 

(66,725)

 

(75,653)

Loss from early extinguishment of debt

 

(51,135)

 

(18,347)

Income tax expense

 

(13,244)

 

(7,547)

Net income

 

76,910

 

394,676

Net income attributable to noncontrolling interests

 

(3,629)

 

(8,756)

Net income attributable to Digital Realty Trust, Inc.

 

73,281

 

385,920

Preferred stock dividends

 

(10,181)

 

(13,514)

Net income available to common stockholders

$

63,100

$

372,406

Net income per share available to common stockholders:

Basic

$

0.22

$

1.32

Diluted

$

0.22

$

1.32

Weighted average common shares outstanding:

Basic

 

284,526

 

281,095

Diluted

 

285,025

 

281,917

See accompanying notes to the condensed consolidated financial statements.

5

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

Three Months Ended March 31, 

    

2022

    

2021

Net income

$

76,910

$

394,676

Other comprehensive income (loss):

Foreign currency translation adjustments

 

(13,877)

 

(219,002)

(Decrease) increase in fair value of interest rate swaps

 

(1,344)

 

337

Reclassification to interest expense from interest rate swaps

 

(103)

 

359

Other comprehensive loss

(15,324)

(218,306)

Comprehensive income

 

61,586

 

176,370

Comprehensive income attributable to noncontrolling interests

 

(3,269)

 

(3,143)

Comprehensive income attributable to Digital Realty Trust, Inc.

$

58,317

$

173,227

See accompanying notes to the condensed consolidated financial statements.

6

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(unaudited, in thousands, except share data)

Accumulated

Accumulated

Redeemable

Number of

Additional

Dividends in

Other

Noncontrolling

Preferred

Common

Common

Paid-in

Excess of

Comprehensive

Noncontrolling

Three Months Ended March 31, 2022

    

Interests

    

Stock

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss), Net

    

Interests

    

Total Equity

Balance as of December 31, 2021

 

$

46,995

$

731,690

 

284,415,013

$

2,824

$

21,075,863

$

(3,631,929)

$

(173,880)

$

472,219

$

18,476,787

Conversion of common units to common stock

14,861

1,258

 

(1,258)

 

Vesting of restricted stock, net

 

 

 

194,020

 

 

Payment of offering costs and other

 

 

 

(4,024)

 

 

(4,024)

Shares issued under employee stock purchase plan

 

 

 

42,188

4,969

 

 

4,969

Shares repurchased and retired to satisfy tax withholding upon vesting

 

 

 

(6,162)

 

 

(6,162)

Amortization of unearned compensation on share-based awards

 

 

 

18,545

 

 

18,545

Reclassification of vested share-based awards

 

 

 

(26,531)

 

26,531

 

Adjustment to redeemable noncontrolling interests

 

(5,473)

 

 

5,473

 

 

5,473

Dividends declared on preferred stock

(10,181)

(10,181)

Dividends and distributions on common stock and common and incentive units

(190)

(348,025)

(7,786)

(355,811)

Contributions from noncontrolling interests

 

1,367

 

 

 

17,559

 

17,559

Net income

 

35

 

 

73,281

 

3,594

 

76,875

Other comprehensive loss—foreign currency translation adjustments

 

 

 

(13,551)

 

(326)

 

(13,877)

Other comprehensive loss—fair value of interest rate swaps

 

 

 

(1,312)

 

(32)

 

(1,344)

Other comprehensive income—reclassification of accumulated other comprehensive income to interest expense

 

 

 

(101)

 

(2)

 

(103)

Balance as of March 31, 2022

 

$

42,734

$

731,690

 

284,666,082

$

2,824

$

21,069,391

$

(3,916,854)

$

(188,844)

$

510,499

$

18,208,706

See accompanying notes to the condensed consolidated financial statements.

7

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(unaudited, in thousands, except share data)

Accumulated

Accumulated

Redeemable

Number of

Additional

Dividends in

Other

Noncontrolling

Preferred

Common

Common

Paid-in

Excess of

Comprehensive

Noncontrolling

Three Months Ended March 31, 2021

    

Interests

    

Stock

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss), Net

    

Interests

    

Total Equity

Balance as of December 31, 2020

 

$

42,011

$

950,940

 

280,289,726

$

2,788

$

20,626,897

$

(3,997,938)

$

135,010

$

728,639

$

18,446,336

Conversion of common units to common stock

 

 

 

642,190

 

6

 

53,607

 

 

 

(53,613)

 

Common stock issued in connection with acquisition

 

 

 

125,395

 

1

 

18,269

 

 

 

 

18,270

Payment of offering costs

 

 

 

 

 

(232)

 

 

 

 

(232)

Shares issued under employee stock purchase plan

 

 

 

29,475

 

 

3,427

 

 

 

 

3,427

Amortization of share-based compensation

 

 

 

 

 

28,788

 

 

 

 

28,788

Vesting of restricted stock, net

 

 

285,524

 

 

 

 

 

 

Shares repurchased and retired to satisfy tax withholding upon vesting

 

 

 

 

(9,718)

 

 

 

 

(9,718)

Reclassification of vested share-based awards

 

 

 

 

 

(20,548)

 

 

 

20,548

 

Adjustment to redeemable noncontrolling interests

208

(208)

(208)

Dividends declared on preferred stock

(13,514)

(13,514)

Dividends and distributions on common stock and common and incentive units

 

(181)

 

 

 

 

 

(326,965)

 

 

(8,701)

 

(335,666)

Contributions from noncontrolling interests

 

(2,150)

 

 

 

 

 

 

 

31,680

 

31,680

Net income

 

209

 

 

 

 

 

385,920

 

 

8,547

 

394,467

Other comprehensive loss—foreign currency translation adjustments

 

 

 

 

 

 

 

(213,471)

 

(5,531)

 

(219,002)

Other comprehensive income—fair value of interest rate swaps

 

 

 

 

 

 

 

328

 

9

 

337

Other comprehensive income— reclassification of accumulated other comprehensive income to interest expense

 

 

 

 

 

 

 

350

 

9

 

359

Balance as of March 31, 2021

 

$

40,097

$

950,940

 

281,372,310

$

2,795

$

20,700,282

$

(3,952,497)

$

(77,783)

$

721,587

$

18,345,324

See accompanying notes to the condensed consolidated financial statements.

8

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three Months Ended March 31, 

    

2022

    

2021

Cash flows from operating activities:

  

 

Net income

$

76,910

$

394,676

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on disposition of properties, net

 

(2,770)

 

(333,921)

Equity in (earnings) loss of unconsolidated entities

 

(60,958)

 

23,031

Distributions from unconsolidated entities

 

14,419

 

15,567

Depreciation and amortization

382,132

369,733

Amortization of share-based compensation

 

18,545

 

27,654

Loss from early extinguishment of debt

 

51,135

 

18,347

Straight-lined rents and amortization of above and below market leases

 

4,456

 

(8,539)

Amortization of deferred financing costs and debt discount / premium

4,972

4,672

Other items, net

8,995

1,945

Changes in assets and liabilities:

Increase in accounts receivable and other assets

(168,789)

(108,993)

Decrease in accounts payable and other liabilities

(51,362)

(76,297)

Net cash provided by operating activities

 

277,685

327,875

Cash flows from investing activities:

Improvements to investments in real estate

 

(518,734)

 

(508,523)

Cash paid for assets acquired

(20,133)

(27,623)

(Investment in) proceeds from unconsolidated entities, net

(150,196)

40,796

Proceeds from sale of real estate

685,484

Other investing activities, net

(30,029)

(4,676)

Net cash (used in) provided by investing activities

 

(719,092)

 

185,458

Cash flows from financing activities:

Net proceeds from (payments on) credit facilities

$

551,022

$

(69,438)

Borrowings on secured / unsecured debt

1,125,318

1,215,890

Repayments on secured / unsecured debt

(450,000)

(886,959)

Premium paid for early extinguishment of debt

(49,662)

(16,482)

Capital contributions from noncontrolling interests, net

 

18,926

 

29,530

Payments of dividends and distributions

(704,911)

(673,747)

Other financing activities, net

(12,397)

(15,459)

Net cash provided by (used in) financing activities

 

478,296

 

(416,665)

Net increase in cash, cash equivalents and restricted cash

 

36,889

 

96,668

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(20,035)

 

10,392

Cash, cash equivalents and restricted cash at beginning of period

 

151,485