Investments in Unconsolidated Entities

12 Months Ended

Dec. 31, 2023

Investments in Unconsolidated Entities.

Investments in Unconsolidated Entities

8. Investments in Unconsolidated Entities

A summary of the Company’s investments in unconsolidated entities accounted for under the equity method of accounting is shown below (in thousands):

	Balance as of		Balance as of
		December 31, 2023		December 31, 2022
Americas (1)	$	1,363,226	$	951,331
APAC (2)		569,996		543,521
EMEA (3)		28,334		31,559
Global (4)		334,333		465,015
Total	$	2,295,889	$	1,991,426

Includes the following unconsolidated entities along with our ownership percentage:

(1) Ascenty (50%), Clise (50%), Colovore (17%), GI Partners (35%), Mapletree (20%), Menlo (20%), Realty Income (20%), TPG Real Estate (20%), and Walsh (85%).

(2) Digital Connexion (33%), Lumen (50%), and MC Digital Realty (50%).

(3) Medallion (60%) and Mivne (50%).

(4) Digital Core REIT (43%).

GI Partners Joint Venture – On July 13, 2023, we formed a joint venture with GI Partners. We contributed two stabilized hyperscale data center buildings in the Chicago metro area, at a purchase price of $900 million, to the new joint venture. We received approximately $0.7 billion of gross proceeds from the contribution of our data centers to the joint venture and the associated financing and retained a 35% interest in the joint venture. GI Partners contributed such cash to the joint venture in exchange for a 65% interest in the joint venture. We also granted GI Partners an option to purchase an interest in the third facility on the same hyperscale data center campus in Chicago. In addition, GI Partners has a call option to increase their ownership interest in the joint venture from 65% to 80%. The call option top-up election notice was delivered to the Company on December 21, 2023. On January 12, 2024, GI Partners made an additional cash capital contribution in the amount of $68 million, resulting in an additional 15% ownership in the joint venture. Currently, GI Partners has an 80% interest in the joint venture, and we have retained a 20% interest. We perform the day-to-day accounting and property management functions for the joint venture and, as such, will earn a management fee. We serve as the managing member responsible for operations in the ordinary course of business. However, certain approval rights are granted through the terms of the joint venture agreement and require unanimous consent of both members with respect to any major decisions. Major decisions are defined to include the annual plan which sets out joint venture and property level budgets, including lease revenues, operating expenses, and capital expenditures. As such, we concluded we do not own a controlling interest and accounted for our interest in the joint venture under the equity method of accounting.

As of the date of the joint venture formation, we used a discounted cash flow model to calculate the fair value of our retained equity interest. The fair value of the retained interest was $157 million and is classified as a Level 3 investment in the fair value hierarchy. The primary inputs to the valuation included volatility, hold period, and dividend yield.

TPG Real Estate Joint Venture – On July 25, 2023, we formed a joint venture with TPG Real Estate. We contributed three stabilized hyperscale data center buildings in Northern Virginia, at a purchase price of $1.5 billion, to the new joint venture. We received approximately $1.4 billion of gross proceeds from the contribution of our data centers to the joint venture and the associated financing and retained a 20% interest in the joint venture. TPG Real Estate contributed such cash to the joint venture in exchange for an 80% interest in the joint venture. We perform the day-to-day accounting and property management functions for the joint venture and, as such, will earn a management fee. We serve as the managing member responsible for operations in the ordinary course of business. However, certain approval rights are granted through the terms of the joint venture agreement and require unanimous consent of both members with respect to any major decisions. Major decisions are defined to include the annual plan which sets out joint venture and property level budgets, including lease revenues, operating expenses, and capital expenditures. As such, we concluded we do not own a controlling interest and accounted for our interest in the joint venture under the equity method of accounting.

As of the date of the joint venture formation, we used a discounted cash flow model to calculate the fair value of our retained equity interest. The fair value of the retained interest was $121 million and is classified as a Level 3 investment in the fair value hierarchy. The primary inputs to the valuation included volatility, hold period, and dividend yield.

Realty Income Joint Venture – On November 10, 2023, we formed a joint venture with Realty Income to support the development of two data centers in Northern Virginia. The facilities were 100% pre-leased prior to construction. We contributed the two data center buildings at a purchase price of $185 million, which represented costs spent through November 10, 2023, to the new joint venture. We received approximately $148 million of gross proceeds from the contribution of our data centers to the joint venture and retained a 20% interest in the joint venture. Realty Income contributed such cash to the joint venture in exchange for an 80% interest in the joint venture. Each partner will fund its pro rata share of the remaining $150 million estimated development cost for the first phase of the project, which is slated for completion in mid-2024. We perform the day-to-day accounting and property management functions for the joint venture and, as such, will earn a management fee. We serve as the managing member responsible for operations in the ordinary course of business. However, certain approval rights are granted through the terms of the joint venture agreement and require unanimous consent of both members with respect to any major decisions. Major decisions are defined to include the annual plan which sets out joint venture and property level budgets, including lease revenues, operating expenses, and capital expenditures. As such, we concluded we do not own a controlling interest and accounted for our interest in the joint venture under the equity method of accounting.

DCREIT – Digital Core REIT is a standalone real estate investment trust formed under Singapore law, which is publicly traded on the Singapore Exchange under the ticker symbol “DCRU”. Digital Core REIT owns 12 operating data center properties. The Company’s ownership interest in the units of DCRU, as well as its ownership interest in the operating properties of DCRU are collectively referred to as the Company’s investment in DCREIT.

As of December 31, 2023, the Company held 36% of the outstanding DCRU units, separately owned a 10% direct retained interest in the underlying North American operating properties and a 75% direct retained interest in the underlying German operating property.

The Company’s 36% interest in DCRU consisted of 406 million units and 396 million units as of December 31, 2023 and 2022, respectively. Based on the closing price per unit of $0.65 and $0.55 as of December 31, 2023 and 2022, respectively, the fair value of the units the Company owned in DCRU was approximately $264 million and $218 million as of December 31, 2023 and 2022, respectively.

These values do not include the value of the Company’s 10% interest in the North American operating properties and 75% interest in the German operating property of DCRU, because the associated ownership interests are not publicly traded. The Company accounts for its investment in DCREIT as an equity method investment (and not at fair value) based on the significant influence it is able to exert on DCREIT.

Pursuant to contractual agreements with DCRU and its operating properties, the Company will earn fees for asset and property management services as well as fees for aiding in future acquisition, disposition and development activities. Certain of these fees are payable to the Company in the form of additional units in DCRU or in cash. During the years ended December 31, 2023 and 2022, the Company earned fees pursuant to these contractual agreements of approximately $10.7 million and $10.6 million, respectively, which is recorded as fee income and other on the consolidated income statement.

During the year ended December 31, 2023, we concluded that the decline in fair value of our equity investment in DCRU was other than temporary due to the length of time and extent to which the fair value of our investment has been less than the carrying value. As a result, we recorded an impairment charge of $95 million for the three months ended September 30, 2023, which was recorded to provision for impairment in our consolidated income statements. The charge reflected the difference between the fair value of our equity investment in DCRU using DCRU's share price as of September 30, 2023 and the carrying value of our equity investment in DCRU at September 30, 2023.

Ascenty – The Company’s ownership percentage in Ascenty includes an approximate 2% interest held by one of the Company’s non-controlling interest holders. This 2% interest had a carrying value of approximately $18 million and $23 million as of December 31, 2023 and 2022, respectively. Ascenty is a variable interest entity (“VIE”) and the Company’s maximum exposure to loss related to this VIE is limited to our equity investment in the entity.

Summarized Financial Information of Investments in Unconsolidated Entities

The subsequent tables provide summarized financial information for all of our investments in unconsolidated entities accounted for using the equity method. Amounts are shown in thousands.

									Net		Net
	Total		Total						Operating		Income
December 31, 2023	Assets		Liabilities		Equity		Revenues		Income		(Loss)
Unconsolidated entities
Americas	$	6,627,520	$	3,105,127	$	3,522,393	$	590,264	$	326,042	$	(13,097)
APAC		2,097,115		880,972		1,216,143		257,905		121,053		42,244
EMEA		80,525		83,819		(3,294)		1,601		939		(8,225)
Global		1,542,331		591,470		950,861		112,931		73,390		(60,867)
Total Unconsolidated entities	$	10,347,491	$	4,661,388	$	5,686,103	$	962,701	$	521,424	$	(39,945)
Our investment in and share of equity in earnings of unconsolidated entities					$	2,295,889					$	(29,791)

									Net		Net
	Total		Total						Operating		Income
December 31, 2022	Assets		Liabilities		Equity		Revenues		Income		(Loss)
Unconsolidated entities
Americas	$	3,648,169	$	1,350,163	$	2,298,006	$	406,325	$	240,498	$	(38,874)
APAC		1,705,553		541,509		1,164,044		201,405		90,924		25,946
EMEA		121,950		68,223		53,727		1,632		851		(5,475)
Global		1,602,725		551,088		1,051,637		118,233		77,582		(19,455)
Total Unconsolidated entities	$	7,078,397	$	2,510,983	$	4,567,414	$	727,595	$	409,855	$	(37,858)
Our investment in and share of equity in loss of unconsolidated entities					$	1,991,426					$	(13,497)

									Net		Net
	Total		Total						Operating		Income
December 31, 2021	Assets		Liabilities		Equity		Revenues				(Loss)
Unconsolidated entities
Americas	$	3,377,842	$	1,223,434	$	2,154,408	$	375,271	$	231,960	$	183,336
APAC		1,527,323		548,578		978,745		193,744		102,822		32,691
EMEA		65,459		38,377		27,082		316		141		(172)
Global		1,440,500		350,000		1,090,500		8,184		5,844		(4,648)
Total Unconsolidated entities	$	6,411,124	$	2,160,389	$	4,250,735	$	577,515	$	340,767	$	211,207
Our investment in and share of equity in earnings of unconsolidated entities					$	1,807,689					$	62,283

The amounts reflected in the previous tables on this topic are based on the historical financial information of the respective individual entities and have not been adjusted to show only the portion that is owned by the Company. The debt of our unconsolidated entities generally is non-recourse to us, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions, and material misrepresentations.