UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the Transition Period From to .
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (IRS employer | ||
incorporation or organization) | identification number) | ||
(Address of principal executive offices) | |||
(
(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 | |
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. |
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Digital Realty Trust, L.P. |
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. |
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Digital Realty Trust, L.P. |
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.:
| Accelerated filer ◻ | |
Non-accelerated filer ◻ | Smaller reporting company | |
Emerging growth company |
Digital Realty Trust, L.P.:
Large accelerated filer ◻ |
| 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 |
Digital Realty Trust, L.P. | Yes |
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.:
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Class |
| Outstanding at November 2, 2022 |
Common Stock, $.01 par value per share |
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 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 September 30, 2022, the Parent owned an approximate 97.9% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 2.1% of the common limited partnership interests of Digital Realty Trust, L.P. are owned by non-affiliated third parties and certain directors and officers of the Parent. As of September 30, 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
On August 1, 2022, we completed the acquisition of an indirect controlling interest in Teraco Data Environments (Pty) Ltd (“Teraco”). Certain portfolio information regarding Teraco is excluded from Management’s Discussion and Analysis in this Quarterly Report on Form 10-Q. Specifically, Teraco has been excluded from data regarding: new metropolitan areas in which we do business, the number of data centers we own/operate, square footage, development projects, occupancy percentages, and lease terms. Teraco’s financial information is included in our condensed consolidated financial statements and the associated notes to those financial statements.
3
DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
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PART I. | FINANCIAL INFORMATION | |
ITEM 1. | Condensed Consolidated Financial Statements of Digital Realty Trust, Inc.: | |
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Condensed Consolidated Financial Statements of Digital Realty Trust, L.P.: | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 45 | |
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4
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS | ||||||
Investments in real estate: | ||||||
Investments in properties, net | $ | | $ | | ||
Investments in unconsolidated entities |
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Net investments in real estate |
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Operating lease right-of-use assets, net | | | ||||
Cash and cash equivalents |
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Accounts and other receivables, net |
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Deferred rent, net |
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Goodwill |
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Customer relationship value, deferred leasing costs and intangibles, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
Global revolving credit facilities, net | $ | | $ | | ||
Unsecured term loans, net |
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Unsecured senior notes, net of discount |
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Secured and other debt, including premiums |
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Operating lease liabilities | | | ||||
Accounts payable and other accrued liabilities |
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Deferred tax liabilities, net | | | ||||
Accrued dividends and distributions |
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Security deposits and prepaid rents |
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Total liabilities |
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Redeemable noncontrolling interests |
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Commitments and contingencies | ||||||
Equity: | ||||||
Stockholders’ Equity: | ||||||
Preferred Stock: $ |
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Common Stock: $ |
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Additional paid-in capital |
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Accumulated dividends in excess of earnings |
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Accumulated other comprehensive loss, net |
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Total stockholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity | $ | | $ | | ||
See accompanying notes to the condensed consolidated financial statements.
5
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating Revenues: | ||||||||||||
Rental and other services | $ | | $ | | $ | | $ | | ||||
Fee income and other |
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Total operating revenues |
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Operating Expenses: | ||||||||||||
Rental property operating and maintenance |
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Property taxes and insurance |
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Depreciation and amortization |
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General and administrative |
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Transactions and integration |
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Other |
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Total operating expenses |
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Operating income |
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Other Income (Expenses): | ||||||||||||
Equity in (loss) earnings of unconsolidated entities |
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Gain (loss) on disposition of properties, net | | ( | | | ||||||||
Other income (expenses), net |
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Interest expense |
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Loss from early extinguishment of debt |
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Income tax expense |
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Net income |
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Net income attributable to noncontrolling interests |
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Net income attributable to Digital Realty Trust, Inc. |
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Preferred stock dividends |
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Gain on redemption of preferred stock |
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Net income available to common stockholders | $ | | $ | | $ | | $ | | ||||
Net income per share available to common stockholders: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic |
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Diluted |
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See accompanying notes to the condensed consolidated financial statements.
6
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments |
| ( |
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Increase in fair value of interest rate swaps |
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Reclassification to interest expense from interest rate swaps |
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Other comprehensive loss | ( | ( | ( | ( | ||||||||
Comprehensive (loss) income |
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Comprehensive loss (income) attributable to noncontrolling interests |
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Comprehensive (loss) income attributable to Digital Realty Trust, Inc. | $ | ( | $ | ( | $ | ( | $ | | ||||
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 September 30, 2022 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of June 30, 2022 |
| $ | | $ | | | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||||
Conversion of common units to common stock | — | — | | — | | — | — | ( | — | |||||||||||||||||
Vesting of restricted stock, net | — | — | | — | — | — | — | — | — | |||||||||||||||||
Partial settlement of forward sale agreements, net of costs |
| — | — | | | | — | — | — | | ||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting |
| — | — | | — | | — | — | — | | ||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | — | | — | — | — | | |||||||||||||||||
Reclassification of vested share based awards | — | — | — | — | ( | — | — | | — | |||||||||||||||||
Adjustment to redeemable noncontrolling interests |
| ( | — | — | — | | — | — | — | | ||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||
Dividends and distributions on common stock and common and incentive units | ( | — | — | — | — | ( | — | ( | ( | |||||||||||||||||
Redeemable noncontrolling interests associated with acquisition of Teraco |
| | — | — | — | — | — | — | — | — | ||||||||||||||||
Contributions from (distributions to) noncontrolling interests |
| — | — | — | — | — | — | — | | | ||||||||||||||||
Net income/(loss) |
| ( | — | — | — | — | | — | | | ||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | ( | — | — | — | — | — | ( | ( | ( | |||||||||||||||||
Other comprehensive income—fair value of interest rate swaps | — | — | — | — | — | — | | | | |||||||||||||||||
Other comprehensive income—reclassification of accumulated other comprehensive income to interest expense | — | — | — | — | — | ( | — | ( | ||||||||||||||||||
Balance as of September 30, 2022 |
| $ | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||||
See accompanying notes to the condensed consolidated financial statements.
8
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 | |||||||||||||||||||
Nine Months Ended September 30, 2022 |
| Interests |
| Stock |
| Shares |
| Stock |
| Capital |
| Earnings |
| Loss, Net |
| Interests |
| Total Equity | ||||||||
Balance as of December 31, 2021 |
| $ | | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | |||||||
Conversion of common units to common stock |
| — | — | | — | | — | — | ( | — | ||||||||||||||||
Vesting of restricted stock, net |
| — | — | | — | — | — | — | — | — | ||||||||||||||||
Partial settlement of forward sale agreements, net of costs |
| — | — | | | | — | — | — | | ||||||||||||||||
Shares issued under equity plans, net of share settlement to satisfy tax withholding upon vesting |
| — | — | | — | | — | — | — | | ||||||||||||||||
Amortization of unearned compensation regarding share based awards |
| — | — | — | — | | — | — | — | | ||||||||||||||||
Reclassification of vested share based awards | — | — | — | — | ( | — | — | | — | |||||||||||||||||
Adjustment to redeemable noncontrolling interests | ( | — | — | — | | — | ||||||||||||||||||||