Digital Realty Trust(US:DLR)2024-02-22 16:00Debt and Interest Rate Exposure - Total outstanding debt as of December 31, 2023 was $17.54 billion, with fixed rate debt (including interest rate swaps) at $14.96 billion and variable rate debt at $2.58 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 $4.2 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 $11.1 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 $2.84 billion[461] Revenue and Receivables - Rental and other services revenue for 2023 was $5.4 billion, with deferred rent and accounts receivable at $624 million and $653 million respectively as of December 31, 2023[480] - Rental and other services revenue for the year ended December 31, 2023 was $5.4 billion, with deferred rent, net and accounts receivable - trade, net at $624 million and $653 million, respectively[498] - Rental and other services revenue grew to $5,430,173 thousand in 2023, up from $4,662,683 thousand in 2022, a 16.5% increase[506] - Rental and other services revenue grew to $5.430 billion in 2023, up from $4.663 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 $41.48 billion in 2022[504] - Investments in properties, net rose to $24.24 billion in 2023 from $23.77 billion in 2022[504] - Cash and cash equivalents surged to $1.63 billion in 2023, compared to $141.77 million in 2022[504] - Accounts and other receivables, net increased to $1.28 billion in 2023 from $969.29 million in 2022[504] - Unsecured senior notes, net of discount, grew to $13.42 billion in 2023 from $13.12 billion in 2022[504] - Total liabilities increased to $23.12 billion in 2023 from $21.86 billion in 2022[504] - Total stockholders' equity rose to $19.12 billion in 2023 from $17.58 billion in 2022[504] - Additional paid-in capital increased to $24.40 billion in 2023 from $22.14 billion in 2022[504] - Accumulated dividends in excess of earnings decreased to -$5.26 billion in 2023 from -$4.70 billion in 2022[504] - Total assets increased to $44.11 billion in 2023 from $41.48 billion in 2022[523] - Total liabilities increased to $23.12 billion in 2023 from $21.86 billion in 2022[523] - Redeemable noncontrolling interests decreased to $1.39 billion in 2023 from $1.51 billion in 2022[523] - Accumulated other comprehensive loss increased to $772.7 million in 2023 from $613.4 million in 2022[523] - Cash, cash equivalents, and restricted cash at the end of 2023 were $1.64 billion, up from $150.7 million in 2022[520] - Total partners' capital increased to $19.56 billion in 2023 from $18.00 billion in 2022[523] - Total capital increased from $18,107.465 million in 2022 to $19,601.507 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 $17.447 billion[531] Income and Expenses - Total operating revenues increased to $5,477,061 thousand in 2023, up from $4,691,834 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 $377,684 thousand in 2022, a 151% increase[506] - Operating expenses increased to $4,952,600 thousand in 2023, up from $4,101,866 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 $44,234 thousand in 2022[508] - Foreign currency translation adjustments resulted in a loss of $209,973 thousand in 2023, compared to a loss of $377,873 thousand in 2022[508] - Gain on disposition of properties, net, surged to $900,531 thousand in 2023, up from $176,754 thousand in 2022, a 409% increase[506] - Interest expense increased to $437,741 thousand in 2023, up from $299,132 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 $380.3 million in 2022 and $1.75 billion in 2021[520] - Total operating revenues increased to $5.477 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 $969.5 million in 2023, compared to $385.8 million in 2022, a 151.2% increase[526] - Operating expenses increased to $4.953 billion in 2023, up from $4.102 billion in 2022, a 20.7% rise[526] - Gain on disposition of properties, net, surged to $900.5 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 $809.1 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 $210.0 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 $3.01 in 2023, compared to $1.12 in 2022[526] - Net income (loss) for 2023 was $967.930 million, a significant increase from $384.978 million in 2022[537] - Net income for 2023 was $950.3 million, a significant increase from $380.3 million in 2022[540] Cash Flows and Investments - Cash flows from operating activities were $1.63 billion in 2023, slightly lower than $1.66 billion in 2022[520] - Investments in real estate improvements totaled $3.53 billion in 2023, up from $2.64 billion in 2022[520] - Proceeds from issuance of common stock, net, were $2.21 billion in 2023, compared to $928.4 million in 2022[520] - Net cash provided by operating activities in 2023 was $1.63 billion, slightly lower than $1.66 billion in 2022[540] - Cash used in investing activities decreased to $1.12 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 $963.5 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 $1.64 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 $1.7 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 $7 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, $1.4 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 $478.5 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 $1.4 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 $1.0 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 $87 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 $174 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 $332 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 $13.2 billion[626] - Rent expense related to operating leases was $153.2 million for the year ended December 31, 2023, compared to $144.0 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, $51.8 million, and $42.8 million for the years ended December 31, 2023, 2022, and 2021, respectively[572] - Amortization expense on leasing costs was approximately $76.8 million, $79.2 million, and $83.4 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 ($1.36 billion) and APAC ($570 million)[656] Distributions and Equity - Distributions to partners decreased slightly from $1,544.156 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 $92.461 million in 2022 to $88.518 million in 2023[537] - Contributions from noncontrolling interests decreased from $46.277 million in 2022 to $4.345 million in 2023[537] - Other comprehensive income (loss) improved from $(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]