Workflow
Digital Realty Trust(DLR) - 2023 Q4 - Annual Report
DLRDigital Realty Trust(DLR)2024-02-22 16:00
Transcript

Debt and Interest Rate Exposure - Total outstanding debt as of December 31, 2023 was 17.54billion,withfixedratedebt(includinginterestrateswaps)at17.54 billion, with fixed rate debt (including interest rate swaps) at 14.96 billion and variable rate debt at 2.58billion[460]−A102.58 billion[460] - A 10% increase in interest rates would increase the fair value of interest rate swaps by 4.1 million, while a 10% decrease would decrease the fair value by 4.2million[461]−A104.2 million[461] - A 10% increase in interest rates would increase annual interest expense on variable rate debt not subject to swaps by 11.1 million, while a 10% decrease would decrease annual interest expense by 11.1million[461]−A1011.1 million[461] - A 10% decrease in interest rates would increase the fair value of fixed rate debt by 2.39 billion, while a 10% increase would decrease the fair value by 2.84billion[461]RevenueandReceivables−Rentalandotherservicesrevenuefor2023was2.84 billion[461] Revenue and Receivables - Rental and other services revenue for 2023 was 5.4 billion, with deferred rent and accounts receivable at 624millionand624 million and 653 million respectively as of December 31, 2023[480] - Rental and other services revenue for the year ended December 31, 2023 was 5.4billion,withdeferredrent,netandaccountsreceivable−trade,netat5.4 billion, with deferred rent, net and accounts receivable - trade, net at 624 million and 653million,respectively[498]−Rentalandotherservicesrevenuegrewto653 million, respectively[498] - Rental and other services revenue grew to 5,430,173 thousand in 2023, up from 4,662,683thousandin2022,a16.54,662,683 thousand in 2022, a 16.5% increase[506] - Rental and other services revenue grew to 5.430 billion in 2023, up from 4.663billionin2022,a16.54.663 billion in 2022, a 16.5% increase[526] Currency and Hedging - The company's primary currency exposures are to the Euro, Japanese yen, British pound sterling, Singapore dollar, South African rand and Brazilian real[462] - The company uses cross-currency interest rate swaps to hedge currency exposure associated with net investment in foreign subsidiaries[462] - Digital Intrepid Holding B.V. has notes denominated in Swiss francs with a total outstanding principal balance of 545 million CHF designated as non-derivative hedges[585] - Cross-currency interest rate swap agreements synthetically swap U.S. dollar-denominated fixed rate debt for foreign currency-denominated fixed rate debt[587] Internal Controls and Audits - Management concluded that internal control over financial reporting was effective as of December 31, 2023 based on COSO framework criteria[467][471] - The independent auditor expressed an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2023[484] - The evaluation of probability of collection for Scale and Hyperscale lease payments was identified as a critical audit matter due to significant judgment required[481] Financial Position and Assets - Total assets increased to 44.11 billion as of December 31, 2023, up from 41.48billionin2022[504]−Investmentsinproperties,netroseto41.48 billion in 2022[504] - Investments in properties, net rose to 24.24 billion in 2023 from 23.77billionin2022[504]−Cashandcashequivalentssurgedto23.77 billion in 2022[504] - Cash and cash equivalents surged to 1.63 billion in 2023, compared to 141.77millionin2022[504]−Accountsandotherreceivables,netincreasedto141.77 million in 2022[504] - Accounts and other receivables, net increased to 1.28 billion in 2023 from 969.29millionin2022[504]−Unsecuredseniornotes,netofdiscount,grewto969.29 million in 2022[504] - Unsecured senior notes, net of discount, grew to 13.42 billion in 2023 from 13.12billionin2022[504]−Totalliabilitiesincreasedto13.12 billion in 2022[504] - Total liabilities increased to 23.12 billion in 2023 from 21.86billionin2022[504]−Totalstockholders′equityroseto21.86 billion in 2022[504] - Total stockholders' equity rose to 19.12 billion in 2023 from 17.58billionin2022[504]−Additionalpaid−incapitalincreasedto17.58 billion in 2022[504] - Additional paid-in capital increased to 24.40 billion in 2023 from 22.14billionin2022[504]−Accumulateddividendsinexcessofearningsdecreasedto−22.14 billion in 2022[504] - Accumulated dividends in excess of earnings decreased to -5.26 billion in 2023 from -4.70billionin2022[504]−Totalassetsincreasedto4.70 billion in 2022[504] - Total assets increased to 44.11 billion in 2023 from 41.48billionin2022[523]−Totalliabilitiesincreasedto41.48 billion in 2022[523] - Total liabilities increased to 23.12 billion in 2023 from 21.86billionin2022[523]−Redeemablenoncontrollinginterestsdecreasedto21.86 billion in 2022[523] - Redeemable noncontrolling interests decreased to 1.39 billion in 2023 from 1.51billionin2022[523]−Accumulatedothercomprehensivelossincreasedto1.51 billion in 2022[523] - Accumulated other comprehensive loss increased to 772.7 million in 2023 from 613.4millionin2022[523]−Cash,cashequivalents,andrestrictedcashattheendof2023were613.4 million in 2022[523] - Cash, cash equivalents, and restricted cash at the end of 2023 were 1.64 billion, up from 150.7millionin2022[520]−Totalpartners′capitalincreasedto150.7 million in 2022[520] - Total partners' capital increased to 19.56 billion in 2023 from 18.00billionin2022[523]−Totalcapitalincreasedfrom18.00 billion in 2022[523] - Total capital increased from 18,107.465 million in 2022 to 19,601.507millionin2023,reflectinggrowthinthecompany′sfinancialposition[537]−TotalcapitalasofDecember31,2021,was19,601.507 million in 2023, reflecting growth in the company's financial position[537] - Total capital as of December 31, 2021, was 18.477 billion, with common units amounting to 17.447billion[531]IncomeandExpenses−Totaloperatingrevenuesincreasedto17.447 billion[531] Income and Expenses - Total operating revenues increased to 5,477,061 thousand in 2023, up from 4,691,834thousandin2022,representinga16.74,691,834 thousand in 2022, representing a 16.7% year-over-year growth[506] - Net income attributable to Digital Realty Trust, Inc. rose significantly to 948,838 thousand in 2023, compared to 377,684thousandin2022,a151377,684 thousand in 2022, a 151% increase[506] - Operating expenses increased to 4,952,600 thousand in 2023, up from 4,101,866thousandin2022,a20.74,101,866 thousand in 2022, a 20.7% rise[506] - Comprehensive income attributable to Digital Realty Trust, Inc. was 792,055 thousand in 2023, a significant improvement from a loss of 44,234thousandin2022[508]−Foreigncurrencytranslationadjustmentsresultedinalossof44,234 thousand in 2022[508] - Foreign currency translation adjustments resulted in a loss of 209,973 thousand in 2023, compared to a loss of 377,873thousandin2022[508]−Gainondispositionofproperties,net,surgedto377,873 thousand in 2022[508] - Gain on disposition of properties, net, surged to 900,531 thousand in 2023, up from 176,754thousandin2022,a409176,754 thousand in 2022, a 409% increase[506] - Interest expense increased to 437,741 thousand in 2023, up from 299,132thousandin2022,a46.3299,132 thousand in 2022, a 46.3% rise[506] - Weighted average common shares outstanding (diluted) increased to 309,065 thousand in 2023, up from 297,919 thousand in 2022[506] - Net income for 2023 was 950.3 million, compared to 380.3millionin2022and380.3 million in 2022 and 1.75 billion in 2021[520] - Total operating revenues increased to 5.477billionin2023,upfrom5.477 billion in 2023, up from 4.692 billion in 2022, representing a 16.7% growth[526] - Net income attributable to Digital Realty Trust, L.P. rose to 969.5millionin2023,comparedto969.5 million in 2023, compared to 385.8 million in 2022, a 151.2% increase[526] - Operating expenses increased to 4.953billionin2023,upfrom4.953 billion in 2023, up from 4.102 billion in 2022, a 20.7% rise[526] - Gain on disposition of properties, net, surged to 900.5millionin2023,comparedto900.5 million in 2023, compared to 176.8 million in 2022, a 409.4% increase[526] - Comprehensive income attributable to Digital Realty Trust, L.P. was 809.1millionin2023,asignificantrecoveryfromalossof809.1 million in 2023, a significant recovery from a loss of 46.2 million in 2022[528] - Foreign currency translation adjustments resulted in a loss of 210.0millionin2023,improvingfromalossof210.0 million in 2023, improving from a loss of 377.9 million in 2022[528] - Weighted average common units outstanding (diluted) increased to 315.1 million in 2023, up from 303.7 million in 2022[526] - Net income per unit available to common unitholders (diluted) rose to 3.01in2023,comparedto3.01 in 2023, compared to 1.12 in 2022[526] - Net income (loss) for 2023 was 967.930million,asignificantincreasefrom967.930 million, a significant increase from 384.978 million in 2022[537] - Net income for 2023 was 950.3million,asignificantincreasefrom950.3 million, a significant increase from 380.3 million in 2022[540] Cash Flows and Investments - Cash flows from operating activities were 1.63billionin2023,slightlylowerthan1.63 billion in 2023, slightly lower than 1.66 billion in 2022[520] - Investments in real estate improvements totaled 3.53billionin2023,upfrom3.53 billion in 2023, up from 2.64 billion in 2022[520] - Proceeds from issuance of common stock, net, were 2.21billionin2023,comparedto2.21 billion in 2023, compared to 928.4 million in 2022[520] - Net cash provided by operating activities in 2023 was 1.63billion,slightlylowerthan1.63 billion, slightly lower than 1.66 billion in 2022[540] - Cash used in investing activities decreased to 1.12billionin2023from1.12 billion in 2023 from 4.70 billion in 2022, primarily due to reduced business acquisitions and real estate investments[540] - Cash provided by financing activities in 2023 was 963.5million,adecreasefrom963.5 million, a decrease from 2.97 billion in 2022, driven by lower proceeds from credit facilities and secured/unsecured debt[540] - The company's cash, cash equivalents, and restricted cash at the end of 2023 stood at 1.64billion,upfrom1.64 billion, up from 150.7 million at the end of 2022[540] Acquisitions and Joint Ventures - The company completed the acquisition of a 61.1% indirect controlling interest in Teraco for a total purchase price of 1.7billionincash,fundedbytheGlobalRevolvingCreditFacilityandpartialsettlementofforwardequitysaleagreements[617]−TheacquisitionofTeracoaddedSouthAfricatothecompany′sexistingmarketsinKenya,Mozambique,andNigeria,enhancingstrategicconnectivityacrossAfrica[618]−Thecompanyrecorded1.7 billion in cash, funded by the Global Revolving Credit Facility and partial settlement of forward equity sale agreements[617] - The acquisition of Teraco added South Africa to the company's existing markets in Kenya, Mozambique, and Nigeria, enhancing strategic connectivity across Africa[618] - The company recorded 1.6 billion in goodwill from the Teraco acquisition, reflecting the strategic benefits of cross-connects, cloud on-ramps, and access to subsea cables[618] - The company entered into a put/call agreement with the owners of the remaining Teraco interest, allowing them to sell or buy the interest starting in 2026 and 2028, respectively[621] - The company and Blackstone Inc. announced a 7billionjointventuretodevelopfourhyperscaledatacentercampusesacrossFrankfurt,Paris,andNorthernVirginia[636]−In2023,thecompanyformedjointventureswithGIPartners,TPGRealEstate,andRealtyIncome,receivinggrossproceedsof7 billion joint venture to develop four hyperscale data center campuses across Frankfurt, Paris, and Northern Virginia[636] - In 2023, the company formed joint ventures with GI Partners, TPG Real Estate, and Realty Income, receiving gross proceeds of 0.7 billion, 1.4billion,and1.4 billion, and 148 million respectively, while retaining 20-35% interests in the ventures[649][650][651] Real Estate and Asset Sales - Real estate assets held for sale as of December 31, 2023, had an aggregate carrying value of 478.5millionintotalassetsand478.5 million in total assets and 39.0 million in total liabilities[637] - The company contributed 10 operating data center properties to Digital Core REIT with a fair value of approximately 1.4billion,receiving1.4 billion, receiving 919 million in cash and a 39.4% equity interest in Digital Core REIT[640][641] - The company recognized a gain on sale of assets of approximately 1.0billionfromtheDigitalCoreREITtransaction[643]−Thecompanysoldnon−coreassetsin2023forgrossproceedsofapproximately1.0 billion from the Digital Core REIT transaction[643] - The company sold non-core assets in 2023 for gross proceeds of approximately 341 million, resulting in a net gain of 87million[653]−Thecompanysoldanon−corebuildinginDallasin2022fornetproceedsofapproximately87 million[653] - The company sold a non-core building in Dallas in 2022 for net proceeds of approximately 203 million, resulting in a net gain of 174million[654]−ThecompanysoldaEuropeanportfolioof11datacentersin2021fortotalconsiderationofapproximately174 million[654] - The company sold a European portfolio of 11 data centers in 2021 for total consideration of approximately 680 million, recording a gain of 332million[655]LeasingandRent−Thecompany′soperatingleaserevenuefor2024isprojectedtobe332 million[655] Leasing and Rent - The company's operating lease revenue for 2024 is projected to be 2.9 billion, with total minimum lease payments due under operating leases amounting to 13.2billion[626]−Rentexpenserelatedtooperatingleaseswas13.2 billion[626] - Rent expense related to operating leases was 153.2 million for the year ended December 31, 2023, compared to 144.0millionin2022[627]−Theweightedaverageremainingleasetermforoperatingleasesandfinanceleaseswas13yearsand14years,respectively,asofDecember31,2023[628]AccountingandFinancialReporting−Thecompany′sprimaryfunctionalcurrenciesincludetheEuro,Japaneseyen,Britishpoundsterling,Singaporedollar,SouthAfricanrand,andBrazilianreal[549]−Forassetacquisitions,transactioncostsareincludedinthetotalcostsandallocatedpro−ratatothecarryingvalueoftheassetsandliabilitiesacquired[552]−Thefairvalueofacquiredrealestateisdeterminedusingmarketdata,replacementcosts,andincomeapproachmethodologies[555]−In−placeleasevalueisamortizedovertheremaininginitialtermsoftherespectiveleases,reflectingthebenefitsofexistingtenants[556]−Customerrelationshipvalueisdeterminedusingthemulti−periodexcessearningsmethod,consideringfactorslikeprojectedrevenuegrowth,historicalleaserenewals,anddiscountrates[557]−Deferredleasingcostscapitalizedwereapproximately144.0 million in 2022[627] - The weighted average remaining lease term for operating leases and finance leases was 13 years and 14 years, respectively, as of December 31, 2023[628] Accounting and Financial Reporting - The company's primary functional currencies include the Euro, Japanese yen, British pound sterling, Singapore dollar, South African rand, and Brazilian real[549] - For asset acquisitions, transaction costs are included in the total costs and allocated pro-rata to the carrying value of the assets and liabilities acquired[552] - The fair value of acquired real estate is determined using market data, replacement costs, and income approach methodologies[555] - In-place lease value is amortized over the remaining initial terms of the respective leases, reflecting the benefits of existing tenants[556] - Customer relationship value is determined using the multi-period excess earnings method, considering factors like projected revenue growth, historical lease renewals, and discount rates[557] - Deferred leasing costs capitalized were approximately 43.1 million, 51.8million,and51.8 million, and 42.8 million for the years ended December 31, 2023, 2022, and 2021, respectively[572] - Amortization expense on leasing costs was approximately 76.8million,76.8 million, 79.2 million, and 83.4millionfortheyearsendedDecember31,2023,2022,and2021,respectively[572]−Thefairvalueofacquireddebtisrecognizedbasedoncontractualfuturecashflowsdiscountedusingborrowingspreadsandmarketinterestrates[557]−Thecompanyutilizesfairvaluemeasurementsonarecurringbasisformarketableequitysecurities,share−basedcompensationawards,derivativeinstruments,andoutstandingdebt[560]−Investmentsinunconsolidatedentitiesareaccountedforusingtheequitymethod,reflectingthecompany′sproportionateshareofnetearnings/lossesandotheradjustments[562]−Thecompanyevaluatesgoodwillforimpairmentannually,comparingthereportingunit′scarryingvaluetoitsfairvaluebasedonquotedmarketprices[576]−Derivativeinstruments,suchasinterestrateswaps,areusedtomanageinterestrateandforeigncurrencyexposures,withfairvaluedeterminedusingLevel2inputs[579]−Thecompanycapitalizesdevelopmentcostsduringthelanddevelopmentandconstructionperiodsofqualifyingprojects,includingcostsforland,buildings,andinterest[571]−Thefairvalueofrentalpropertiesisestimatedusingadiscountedcashflowanalysis,supplementedbyoutsidebrokeropinionsofvalueincertaincases[575]−InterestratederivativesarepresentedonagrossbasiswithnoimpactfromnettingarrangementsasofDecember31,2023,duetonoderivativesinliabilitypositions[583]−ThecompanyhadnooutstandingderivativeforeigncurrencycontractsasofDecember31,2023[584]−DigitalRealtyTrust,Inc.istreatedasaREITandgenerallynotrequiredtopayU.S.federalcorporateincometaxiftaxableincomeisdistributedtostockholders[589]−ThecompanyrecognizescurrentanddeferredincometaxesforitstaxableREITsubsidiariesinvariousjurisdictions[590]−RevenuerecognizedunderASC606waslessthan1083.4 million for the years ended December 31, 2023, 2022, and 2021, respectively[572] - The fair value of acquired debt is recognized based on contractual future cash flows discounted using borrowing spreads and market interest rates[557] - The company utilizes fair value measurements on a recurring basis for marketable equity securities, share-based compensation awards, derivative instruments, and outstanding debt[560] - Investments in unconsolidated entities are accounted for using the equity method, reflecting the company's proportionate share of net earnings/losses and other adjustments[562] - The company evaluates goodwill for impairment annually, comparing the reporting unit's carrying value to its fair value based on quoted market prices[576] - Derivative instruments, such as interest rate swaps, are used to manage interest rate and foreign currency exposures, with fair value determined using Level 2 inputs[579] - The company capitalizes development costs during the land development and construction periods of qualifying projects, including costs for land, buildings, and interest[571] - The fair value of rental properties is estimated using a discounted cash flow analysis, supplemented by outside broker opinions of value in certain cases[575] - Interest rate derivatives are presented on a gross basis with no impact from netting arrangements as of December 31, 2023, due to no derivatives in liability positions[583] - The company had no outstanding derivative foreign currency contracts as of December 31, 2023[584] - Digital Realty Trust, Inc. is treated as a REIT and generally not required to pay U.S. federal corporate income tax if taxable income is distributed to stockholders[589] - The company recognizes current and deferred income taxes for its taxable REIT subsidiaries in various jurisdictions[590] - Revenue recognized under ASC 606 was less than 10% of total rental and other services revenue for the years ended December 31, 2023, 2022, and 2021[604] - The company adopted ASU 2021-08 on January 1, 2023, with no material impact on consolidated financial statements[612] - FASB issued ASU 2023-07 in November 2023, effective for fiscal years beginning after December 15, 2024, with enhanced segment expense disclosures[613] - FASB issued ASU 2023-09 in December 2023, effective for fiscal years beginning after December 15, 2024, requiring greater disaggregation of income tax disclosures[614] Unconsolidated Entities and Investments - The company's investments in unconsolidated entities totaled 2.3 billion as of December 31, 2023, with significant holdings in Americas (1.36billion)andAPAC(1.36 billion) and APAC (570 million)[656] Distributions and Equity - Distributions to partners decreased slightly from 1,544.156millionin2023comparedto1,544.156 million in 2023 compared to 1,474.864 million in 2022[537] - Common units issued under equity plans increased from 291,148,222 units in 2022 to 311,607,580 units in 2023[537] - Limited partner common units increased from 6,288,669 units in 2022 to 6,448,987 units in 2023[537] - Share-based compensation amortization decreased from 92.461millionin2022to92.461 million in 2022 to 88.518 million in 2023[537] - Contributions from noncontrolling interests decreased from 46.277millionin2022to46.277 million in 2022 to 4.345 million in 2023[537] - Other comprehensive income (loss) improved from (431.978)millionin2022to(431.978) million in 2022 to (157.198) million in 2023[537] Business Overview - Digital Realty Trust operates as a REIT and is a global provider of data center solutions across various industries[542]