Equity and Capital

6 Months Ended

Jun. 30, 2022

Equity and Capital

Equity and Capital

10. Equity and Capital

Equity Distribution Agreement

Digital Realty Trust, Inc. and Digital Realty Trust, L.P. were parties to an at-the-market (ATM) equity offering sales agreement dated January 4, 2019, as amended in 2020 (the “2020 Sales Agreement”). Pursuant to the 2020 Sales Agreement, Digital Realty Trust, Inc. was able to issue and sell common stock having an aggregate offering price of up to $1.0 billion through various named agents from time to time. The 2020 Sales Agreement was terminated on April 1, 2022 when Digital Realty Trust, Inc. and Digital Realty Trust, L.P. entered into a new ATM equity offering sales agreement dated April 1, 2022 (the “2022 Sales Agreement”). At the time of the termination, $577.6 million remained unsold under the 2020 Sales Agreement. Pursuant to the 2022 Sales Agreement , Digital Realty Trust, Inc. can issue and sell common stock having an aggregate offering price of up to $1.5 billion through various named agents from time to time. For the six months ended June 30, 2022, we had no sales under the 2022 Sales Agreement and $1.5 billion is still available.

Forward Equity Sale

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.

We account for our forward equity sales agreements in accordance with the accounting guidance governing financial instruments and derivatives. As of June 30, 2022, none of our forward equity sales agreements were deemed to be liabilities as they did not embody obligations to repurchase our shares, nor did they embody obligations to issue a variable number of shares for which the monetary value was predominantly fixed, varied with something other than the fair value of our shares, or varied inversely in relation to our shares. We also evaluated whether the agreements met the derivatives and hedging guidance scope exception to be accounted for as equity instruments and concluded that the agreements could be classified as equity contracts based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to our own stock.

Noncontrolling Interests in Operating Partnership

Noncontrolling interests in the Operating Partnership relate to the proportion of entities consolidated by the Company that are owned by third parties. The following table shows the ownership interest in the Operating Partnership as of June 30, 2022 and December 31, 2021 (in thousands):

	June 30, 2022			December 31, 2021
	Number of	Percentage of		Number of	Percentage of
	units	total		units	total
Digital Realty Trust, Inc.	284,734	97.8	%	284,415	98.0	%
Noncontrolling interests consist of:
Common units held by third parties	4,387	1.5	%	4,389	1.5	%
Incentive units held by employees and directors (see Note 12. "Incentive Plan")	1,912	0.7	%	1,543	0.5	%
	291,033	100.0	%	290,347	100.0	%

Limited partners have the right to require the Operating Partnership to redeem all or a portion of their common units for cash based on the fair market value of an equivalent number of shares of Digital Realty Trust, Inc. common stock at the time of redemption. Alternatively, Digital Realty Trust, Inc. may elect to acquire those common units in exchange for shares of its 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. The common units and incentive units of the Operating Partnership are classified within equity, except for certain common units issued to certain former DuPont Fabros Technology, L.P. unitholders in the Company’s acquisition of DuPont Fabros Technology, Inc., which are subject to certain restrictions and, accordingly, are not presented as permanent equity in the condensed balance sheet.

The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $765.8 million and $1,074.7 million based on the closing market price of Digital Realty Trust, Inc. common stock on June 30, 2022 and December 31, 2021, respectively.

The following table shows activity for the noncontrolling interests in the Operating Partnership for the six months ended June 30, 2022 (in thousands):

	Common Units	Incentive Units	Total
As of December 31, 2021	4,389	1,542	5,931
Redemption of common units for shares of Digital Realty Trust, Inc. common stock (1)	(2)	—	(2)
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock (1)	—	(15)	(15)
Incentive units issued upon achievement of market performance condition	—	221	221
Grant of incentive units to employees and directors	—	167	167
Cancellation / forfeitures of incentive units held by employees and directors	—	(3)	(3)
As of June 30, 2022	4,387	1,912	6,299

(1) These redemptions and conversions were recorded as a reduction to noncontrolling interests in the Operating Partnership and an increase to common stock and additional paid-in capital based on the book value per unit in the accompanying consolidated balance sheet of Digital Realty Trust, Inc.

Dividends and Distributions

Digital Realty Trust, Inc. Dividends

We have declared and paid the following dividends on our common and preferred stock for the six months ended June 30, 2022 (in thousands, except per share data):

		Series J		Series K		Series L
		Preferred		Preferred		Preferred		Common
Date dividend declared	Dividend payment date	Stock		Stock		Stock		Stock
March 3, 2022	March 31, 2022	$	2,625	$	3,071	$	4,485	$	348,025
May 24, 2022	June 30, 2022		2,625		3,071		4,485		348,077
		$	5,250	$	6,142	$	8,970	$	696,102
Annual rate of dividend per share		$	1.31250	$	1.46250	$	1.30000	$	4.88000

Digital Realty Trust, L.P. Distributions

All distributions on the Operating Partnership’s units are at the discretion of Digital Realty Trust, Inc.’s Board of Directors. The table below shows the distributions declared and paid by the Operating Partnership on its common and preferred units for the six months ended June 30, 2022 (in thousands, except for per unit data):

		Series J		Series K		Series L
		Preferred		Preferred		Preferred		Common
Date distribution declared	Distribution payment date	Units		Units		Units		Units
March 3, 2022	March 31, 2022	$	2,625	$	3,071	$	4,485	$	355,812
May 24, 2022	June 30, 2022		2,625		3,071		4,485		355,885
		$	5,250	$	6,142	$	8,970	$	711,697
Annual rate of distribution per unit		$	1.31250	$	1.46250	$	1.30000	$	4.88000