UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2009.2010
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to .
Commission file number 001-32336
Commission file number | 001-32336 (Digital Realty Trust, Inc.) | |||||
000-54023 (Digital Realty Trust, L.P.) |
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Digital Realty Trust, Inc.) Maryland (Digital Realty Trust, L.P.) | 26-0081711 20-2402955 | |
(State or other jurisdiction of
| (IRS employer identification number) | |
560 Mission Street, Suite 2900 San Francisco, CA | 94105 | |
(Address of principal executive offices) | (Zip Code) |
(415) 738-6500
(Registrant’s telephone number, including area code (415) 738-6500code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |||
Digital Realty Trust, Inc. | Common stock, $0.01 par value per share | New York Stock Exchange | ||
Securities registered pursuant to Section 12(g) of the Act: None
Digital Realty Trust, Inc. | None | |
Digital Realty Trust, L.P. | Common Units of Partnership Interest |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Digital Realty Trust, Inc. | Yes x No ¨ | |
Digital Realty Trust, L.P. | Yes ¨ No x |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Digital Realty Trust, Inc. | Yes ¨ No x | |
Digital Realty Trust, L.P. | Yes ¨ No x |
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. Yes x No ¨
Digital Realty Trust, Inc. | Yes x No ¨ | |
Digital Realty Trust, L.P. | Yes x No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ¨ No ¨
Digital Realty Trust, Inc. | Yes x No ¨ | |
Digital Realty Trust, L.P. | Yes ¨ No ¨ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Digital Realty Trust, Inc.:
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | Smaller reporting company | ¨ |
Digital Realty Trust, L.P.:
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.): Yes ¨ No xAct).
Digital Realty Trust, Inc. | Yes ¨ No x | |
Digital Realty Trust, L.P. | Yes ¨ No x |
The aggregate market value of the common equity held by non-affiliates of the registrantDigital Realty Trust, Inc. as of June 30, 20092010 totaled approximately $2.7$5.0 billion based on the closing price for the registrant’sDigital Realty Trust, Inc.’s common stock on that day as reported by the New York Stock Exchange. Such value excludes common stock held by executive officers, directors and 10% or greater stockholders as of June 30, 2009.2010. The identification of 10% or greater stockholders as of June 30, 20092010 is based on Schedule 13G and amended Schedule 13G reports publicly filed before June 30, 2009.2010. This calculation does not reflect a determination that such parties are affiliates for any other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Digital Realty Trust, Inc.:
Class | Outstanding at February | |||
Common Stock, $.01 par value per share | 91,394,399 |
DOCUMENTS INCORPORATED BY REFERENCE
PortionsPart III incorporates by reference portions of the registrant’sDigital Realty Trust, Inc.’s Proxy Statement with respect tofor its 20102011 Annual Meeting of Stockholders towhich the registrants anticipate will be filed notno later than 120 days after the end of the registrant’sits fiscal year are incorporated by reference into Part III hereof.pursuant to Regulation 14A.
This report combines the annual reports on Form 10-K for the year ended December 31, 2010 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 indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating partnership” refer to Digital Realty Trust, L.P. together with its consolidated subsidiaries.
Digital Realty Trust, Inc. is a real estate investment trust, or REIT, and the sole general partner of Digital Realty Trust, L.P. As of December 31, 2010, Digital Realty Trust, Inc. owned an approximate 94.3% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 5.7% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of Digital Realty Trust, Inc. As of December 31, 2010, Digital Realty Trust, Inc. 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., Digital Realty Trust, Inc. has the full, exclusive and complete responsibility for the operating partnership’s day-to-day management and control.
We believe combining the annual reports on Form 10-K of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. into this single report results in the following benefits:
enhancing investors’ understanding of our company and our operating partnership 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 our company and our operating partnership; and
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
There are few differences between our company and our operating partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between our company and our operating partnership in the context of how Digital Realty Trust, Inc. and Digital Realty Trust, L.P. operate as an interrelated consolidated company. Digital Realty Trust, Inc. is a REIT, whose only material asset is its ownership of partnership interests of Digital Realty Trust, L.P. As a result, Digital Realty Trust, Inc. does not conduct business itself, other than acting as the sole general partner of Digital Realty Trust, L.P., issuing public equity from time to time and guaranteeing certain unsecured debt of Digital Realty Trust, L.P. Digital Realty Trust, Inc. itself does not issue any indebtedness but guarantees some of the unsecured debt of Digital Realty Trust, L.P., as disclosed in this report. Digital Realty Trust, L.P. holds substantially all the assets of the company and holds the ownership interests in the company’s joint ventures. Digital Realty Trust, L.P. conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by Digital Realty Trust, Inc., which are generally contributed to Digital Realty Trust, L.P. in exchange for partnership units, Digital Realty Trust, L.P. generates the capital required by the company’s business through Digital Realty Trust, L.P.’s operations, by Digital Realty Trust, L.P.’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.
The presentation of noncontrolling interests in operating partnership, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of Digital Realty Trust, Inc. and those of Digital Realty Trust, L.P. The common limited partnership interests held by the limited partners in Digital Realty Trust, L.P. are presented as limited partners’ capital within partners’ capital in Digital Realty Trust, L.P.’s consolidated financial statements and as noncontrolling interests in operating partnership within equity in Digital Realty Trust, Inc.’s consolidated financial statements. The common and preferred partnership interests held by Digital Realty Trust, Inc. in Digital Realty Trust, L.P. are presented as general partner’s capital
within partners’ capital in Digital Realty Trust, L.P.’s consolidated financial statements and as preferred stock, common stock, additional paid-in capital and accumulated dividends in excess of earnings within stockholders’ equity in Digital Realty Trust, Inc.’s consolidated financial statements. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity issued at the Digital Realty Trust, Inc. and the Digital Realty Trust, L.P. levels.
To help investors understand the significant differences between the company and the operating partnership, this report presents the following separate sections for each of the company and the operating partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Debt;
Equity of the company and Capital of the operating partnership;
Income per Share and Income per Unit; and
Quarterly Financial Information;
Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations;
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities; and
Selected Financial Data.
This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the company and the operating partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the company and the operating partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the company and the operating partnership, the separate sections in this report for the company and the operating partnership specifically refer to the company and the operating partnership. In the sections that combine disclosure of the company and the operating partnership, this report refers to actions or holdings as being actions or holdings of the company. Although the operating partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the company is appropriate because the business is one enterprise and the company operates the business through the operating partnership.
As general partner with control of the operating partnership, Digital Realty Trust, Inc. consolidates the operating partnership for financial reporting purposes, and it does not have significant assets other than its investment in the operating partnership. Therefore, the assets and liabilities of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. are the same on their respective consolidated financial statements. The separate discussions of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. 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.
DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20092010
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ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
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ITEM 8. | ||||||
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |||||
ITEM 9A. | ||||||
ITEM 9B. | ||||||
ITEM 10. | ||||||
ITEM 11. | ||||||
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||||
ITEM 13. | Certain Relationships and Related Transactions and Director Independence | |||||
ITEM 14. | ||||||
ITEM 15. | ||||||
SIGNATURES | ||||||
EXHIBIT INDEX | 177 |
ITEM 1. | BUSINESS |
General
As used herein, the terms “we,” “our,” “us,” “the company”We own, acquire, develop, redevelop and “our company” refer to Digital Realty Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Digital Realty Trust, L.P., a Maryland limited partnership of which we are the sole general partner and which we refer to as our operating partnership.manage technology-related real estate. We target high-quality, strategically located properties containing applications and operations critical to the day-to-day operations of technology industry tenants and corporate enterprise datacenter users, including the information technology, or IT, departments of Fortune 100 and financial services companies. Our tenant base is diversified within the technology industry and reflects a broad spectrum of regional, national and international tenants that are leaders in their respective areas. We operateDigital Realty Trust, L.P., a Maryland limited partnership, is the entity through which Digital Realty Trust, Inc., a Maryland corporation, conducts its business and owns its assets. Digital Realty Trust, Inc. operates as a real estate investment trust, or REIT for federal income tax purposes.
Through our operating partnership, atAt December 31, 20092010, we owned 8196 properties, excluding two properties held as investments in unconsolidated joint ventures. These properties are mainly located throughout the U.S., with 14 properties located in Europe, one property held as an investment in an unconsolidated joint venture. Our properties are primarily located throughout North America with 13 propertiesAsia and one property in Europe.Canada. Our properties contain a total of approximately 14.416.8 million net rentable square feet, including approximately 1.82.2 million square feet held for redevelopment. A significant component of our current and future internal growth is anticipated through the development of our existing space held for redevelopment and through acquisitions of new properties. Our operations and acquisition activities are focused on a limited number of markets where technology industry tenants and corporate datacenter users are concentrated, including the Boston, Chicago, Dallas, Los Angeles, New York/New Jersey,York Metro, Northern Virginia, Phoenix, San Francisco and Silicon Valley metropolitan areas in the U.S., the Amsterdam, Dublin, London and Paris markets in Europe and the London, Dublin, Paris and Amsterdam marketsSingapore market in Europe.Asia. As of December 31, 2009,2010, our portfolio, excluding space held for redevelopment, was approximately 95.0% leased at an average annualized rent per leased square foot of $41.82.94.6% leased. The types of properties within our focus include:
Internet gateway datacenters, which serve as hubs for Internet and data communications within and between major metropolitan areas;
Corporate datacenters, which provide secure, continuously available environments for the storage and processing of critical electronic information. Data centers are used for disaster recovery purposes, transaction processing and to house corporate IT operations;
Technology manufacturing properties, which contain highly specialized manufacturing environments for such purposes as disk drive manufacturing, semiconductor manufacturing and specialty pharmaceutical manufacturing; and
Regional or national offices of technology companies that are located in our target markets.
Unlike traditional office and flex/research and development space, the location of and improvements to our facilities are generally essential to our tenants’ businesses, which we believe results in high occupancy levels, long lease terms and low tenant turnover. In addition, many of our properties have tenant improvements that have been installed at our tenants’ expense. The tenant improvements in our facilities are generally readily adaptable for use by similar tenants. We also had approximately 1.8 million square feet available for redevelopment at December 31, 2009.
We wereDigital Realty Trust, Inc. was incorporated in the state of Maryland on March 9, 2004. Digital Realty Trust, L.P. was organized in the state of Maryland on July 21, 2004. Our principal executive offices are located at 560 Mission Street, Suite 2900, San Francisco, California 94105. Our telephone number at that location is (415) 738-6500. Our website is located at www.digitalrealtytrust.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the United StatesU.S. Securities and Exchange Commission, or the Securities and Exchange Commission.SEC.
Recent Developments
On October 30, 2009, we acquired two fully leased datacenter facilities, 1350 Duane Avenue and 3080 Raymond Street; the adjacent buildings are located in Santa Clara, California. The buildings total approximately 185,000 square feet. The purchaseNovember 9, 2010, Digital Realty Trust, Inc. distributed a Notice of Redemption to all holders of record of its outstanding 7.875% Series B Cumulative Redeemable Preferred Stock, or Series B Preferred Stock, regarding its redemption of all outstanding shares of its Series B Preferred Stock at a redemption price of approximately $90.5 million includes$25.00 per share, plus accrued and unpaid dividends. The redemption date was December 10, 2010. Digital Realty Trust, Inc. funded the assumptionredemption with borrowings under the operating partnership’s revolving credit facility, which the operating partnership distributed to Digital Realty Trust, Inc. in connection with the operating partnership’s redemption of all 2,530,000 of its outstanding 7.875% Series B Cumulative Redeemable Preferred Units held by Digital Realty Trust, Inc.
On November 16, 2010, Digital Realty Trust, Inc. issued 72,826 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $15,125 and accrued and unpaid interest equal to $23,719 in exchange for $2,300,000 in aggregate principal amount of the operating partnership’s 4.125% Exchangeable Senior Debentures due 2026, which we refer to as the 2026 debentures, held by an institutional investor pursuant to an exchange agreement, dated November 16, 2010, by and among Digital Realty Trust, Inc., our operating partnership and such institutional investor.
On November 19, 2010, Digital Realty Trust, Inc. issued 601,127 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $189,889 and accrued and unpaid interest equal to $204,484 in exchange for $18,985,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated November 19, 2010, by and among Digital Realty Trust, Inc., our operating partnership and such institutional investor.
On November 23, 2010, we completed the acquisition of a $52.8datacenter in Singapore for approximately SGD174.4 million, loan.or approximately $132.7 million based on the exchange rate in effect on November 23, 2010. The acquisition was financed with borrowings under our revolving credit facility.
On December 17, 2009, we acquired a two-property datacenter portfolio consisting of four buildings located at 21561 and 21571 Beaumeade Circle in Ashburn, Virginia and 45901 and 45905 Nokes Boulevard in Sterling, Virginia, as well as certain vacant land located at 21551 Beaumeade Circle in Ashburn, Virginia, which we refer to collectively as the Beaumeade/Nokes Property, for a purchase price of approximately $63.3 million. The Beaumeade/Nokes Property totals approximately 332,000 square feet with the vacant land capable of supporting up to 140,000 square feet of new datacenter development. The acquisition was financed with borrowings under our revolving credit facility.
On December 31, 2009, we entered into equity distribution agreements, which we refer to as the Original Equity Distribution Agreements, with each of Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, or the Original Agents, under which we could issue and sell shares of our common stock having an aggregate offering price of up to $400,000,000 from time to time through, at our discretion, any of the Original Agents as our sales agents. On January 22, 2010, we amended and restated each Original Equity Distribution Agreement with the applicable Original Agent, and also entered into a new equity distribution agreement with Morgan Stanley & Co. Incorporated, or collectively the Equity Distribution Agreements, under which we may issue and sell shares of our common stock having an aggregate offering price of up to $400,000,000 (including the approximately 1.1 million shares of common stock having an aggregate offering price of approximately $54.3 million sold pursuant to the Original Equity Distribution Agreements as of January 22, 2010), from time to time through, at our discretion, any of the Original Agents or Morgan Stanley & Co. Incorporated as our sales agents. The sales of common stock made under the Equity Distribution Agreements will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. We intend to use the proceeds from the sale of shares pursuant to the Equity Distribution Agreements to temporarily repay borrowings under our revolving credit facility, to acquire additional properties, to fund development and redevelopment opportunities and for general corporate purposes. As of February 19, 2010, we have generated net proceeds of approximately $53.5 million from the issuance of approximately 1.1 million common shares under our the Equity Distribution Agreements at an average price of $50.54 per share after payment of approximately $0.8 million of commissions to the sales agents.
On January 20, 2010, we closed the sale of $100.0 million aggregate principal amount of our senior unsecured term notes under our Note Purchase and Private Shelf Agreement dated July 24, 2008, or the Prudential shelf facility. The notes were issued in two series referred to as the series D and series E notes. The series D notes have a principal amount of $50.0 million, an interest-only rate of 4.57% per annum and a five-year maturity, and the series E notes have a principal amount of $50.0 million, an interest-only rate of 5.73% per annum and a seven-year maturity. We used the proceeds of the series D and series E notes to fund acquisitions, to temporarily repay borrowings under our revolving credit facility and for working capital. The series D and series E notes are subject to the covenants set forth in the Prudential shelf facility.
On January 22, 2010, we completed the acquisition of a three-property datacenter portfolio located in Massachusetts and Connecticut, which we refer to as the New England Portfolio. The purchase price was approximately $375.0 million and was funded with borrowings under our revolving credit facility. The New England Portfolio comprises a total of approximately 550,000 square feet.
On January 28, 2010, our operating partnership closed the issuance of $500.0 million aggregate principal amount of 5.875% notes due 2020. The purchase price paid by the initial purchasers was 98.296% of the principal amount thereof. The notes are general unsecured senior obligations of our operating partnership, rank equally in right of payment with all other senior unsecured indebtedness of our operating partnership and are
fully and unconditionally guaranteed by us. Interest on the notes is payable on February 1 and August 1 of each year, beginning on August 1, 2010. The net proceeds from the offering after deducting the original issue discount, underwriting commissions and estimated expenses was approximately $487.6 million. We used the net proceeds from the offering to temporarily repay borrowings under our revolving credit facility, fund development and redevelopment opportunities and for general corporate purposes.
On February 3, 2010, we closed the sale of $17.0 million aggregate principal amount of our senior unsecured term notes, which we refer to as the series F notes, under the Prudential shelf facility. The series F notes have an interest-only rate of 4.50% per annum and a five-year maturity. We used the proceeds of the series F to fund acquisitions, to temporarily repay borrowings under our revolving credit facility and fund development and redevelopment opportunities for working capital. The series F notes are subject to the covenants set forth in the Prudential shelf facility.
On February 23, 2010,10, 2011, we declared the following dividenddividends per share. The Operating Partnershipoperating partnership will make an equivalent distribution per unit.
Share Class | Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common stock and common unit | |||||
Dividend and distribution amount | $0.531250 | $0.492188 | $0.273438 | $0.343750 | $0.480000 | |||||
Dividend and distribution payable date | March 31, 2010 | March 31, 2010 | March 31, 2010 | March 31, 2010 | March 31, 2010 | |||||
Dividend payable to shareholders of record on | March 16, 2010 | March 16, 2010 | March 16, 2010 | March 16, 2010 | March 16, 2010 | |||||
Annual equivalent rate of dividend and distribution | $2.125 | $1.969 | $1.094 | $1.375 | $1.920 |
On February 23, 2010, our board of directors approved an amendment to our charter increasing the number of authorized shares of our common stock, par value $.01 per share, available for issuance from 125,000,000 to 145,000,000. No changes were made to the number of authorized shares of our preferred stock, par value $.01 per share, available for issuance (currently 30,000,000). We filed the amendment with the Maryland State Department of Assessments and Taxation on February 26, 2010.
Share Class | Series C Preferred Stock | Series D Preferred Stock | Common stock and common unit | |||||||||
Dividend and distribution amount | $0.273438 | $0.343750 | $0.680000 | |||||||||
Dividend and distribution payable date | March 31, 2011 | March 31, 2011 | March 31, 2011 | |||||||||
Dividend payable to shareholders of record on | March 15, 2011 | March 15, 2011 | March 15, 2011 | |||||||||
Annual equivalent rate of dividend and distribution | $1.094 | $1.375 | $2.720 |
Our Competitive Strengths
We believe we distinguish ourselves from other owners, acquirors and managers of technology-related real estate through our competitive strengths, which include:
High-Quality Portfolio that is Difficult to Replicate.Our portfolio contains state-of-the-art data center facilities with extensive tenant improvements. Based on current market rents and the estimated replacement costs of our properties and their improvements, we believe that they could not be replicated today on a cost-competitive basis. Our portfolio of corporate and Internet gateway data center facilities is equipped to meet the power and cooling requirements for the most demanding corporate IT applications. Many of the properties in our portfolio are located on major aggregation points formed by the physical presence of multiple major telecommunications service providers, which reduces our tenants’ costs and operational risks and increases the attractiveness of our buildings.
Presence in Key Markets.Our portfolio is located in 2728 metropolitan areas, including the Chicago, Dallas, Los Angeles, New York/New Jersey, Northern Virginia, Phoenix, San Francisco and Silicon Valley metropolitan areas in the U.S. and, the Amsterdam, Dublin, London and Paris markets in Europe and the Singapore market in Asia, and is diversified so that no one market represented more than 17.9%13.9% of the aggregate annualized rent of our portfolio as of December 31, 2009.2010.
• | Proven Ability |
Demonstrated Acquisition Capability.As of December 31, 2009,2010, our portfolio consisted of 8196 technology-related real estate properties, excluding one propertytwo properties held through an investmentas investments in an unconsolidated joint venture,ventures, that we or our predecessor acquired beginning in 2002, for an aggregate of 14.416.8 million net rentable square feet, including approximately 1.82.2 million square feet held for redevelopment. We have developed detailed, standardized procedures for evaluating acquisitions, including income producing assets and vacant properties suitable for redevelopment, to ensure that they meet our financial, technical and other criteria. These procedures and our in-depth knowledge of the technology and data center industries allow us to identify strategically located properties and evaluate investment opportunities efficiently and, as appropriate, commit and close quickly. Our broad network of contacts within a highly fragmented universe of sellers and brokers of technology-related real estate enables us to capitalize on acquisition opportunities. As a result, we acquired more than half of our properties before they were broadly marketed by real estate brokers.
• | Flexible Datacenter Solutions.We provide flexible, customer oriented solutions designed to meet the needs of technology and corporate data center users, including Turn-Key Datacenter®, Powered Base Building® and build-to-suit options. Our Turn-Key Datacenters® are move-in ready, physically secure facilities with the power and cooling capabilities to support mission-critical IT enterprise applications. We believe our Turn-Key Datacenters® are effective solutions for tenants that lack the expertise, capital budget or desire to provide their own extensive data center infrastructure, management and security. For tenants that possess the ability to build and operate their own facility, our Powered Base Building® solution provides the physical location, required power and network access necessary to support a state-of-the-art data center. Our in-house engineering and design and construction professionals can also provide tenants with customized build-to-suit solutions to meet their unique specifications. Our Critical Facilities Management® services and team of technical engineers and data center operations experts provide 24/7 support for these mission-critical facilities. |
• | Differentiating Development Advantages.Our extensive development activity, operating scale and process-based approach to data center design, construction and operations result in significant cost savings and added value for our tenants. We have leveraged our purchasing power by securing global purchasing agreements and developing relationships with major equipment manufacturers, reducing costs and shortening delivery timeframes on key components, including major mechanical and electrical equipment. Utilizing our innovative modular data center design referred to as POD Architecture®, we deliver what we believe to be a technically superior data center environment at significant cost savings. In addition, by utilizing our POD Architecture® to develop new Turn-Key Datacenters® in our existing Powered Base Buildings®, on average we are able to deliver a fully commissioned facility in just under 30 weeks. Finally, our access to capital allows us to provide financing options for tenants that do not want to invest their own capital. |
Diverse Tenant Base Across a Variety of Industry Sectors.We use our in-depth knowledge of the requirements and trends for Internet and data communications and corporate data center users to market our properties to domestic and international tenants with specific technology needs. At December 31, 2009,2010, we had approximately 325540 tenants across a variety of industry sectors, ranging from information technology and Internet enterprises to financial services, energy and manufacturing companies. No single tenant accounted for more than 10% of the aggregate annualized rent of our portfolio as of December 31, 2009.
technology and Internet enterprises to financial services, energy and manufacturing companies. Our largest tenant accounted for approximately 7.9% of the aggregate annualized rent of our portfolio as of December 31, 2010 and no other single tenant accounted for more than approximately 5% of the aggregate annualized rent of our portfolio. |
Experienced and Committed Management Team and Organization.Our senior management team, including our Chairman, has an average of over 2526 years of experience in the technology or real estate
industries, including experience as investors in, advisors to and founders of technology companies. We believe that our senior management team’s extensive knowledge of both the real estate and the technology industries provides us with a key competitive advantage. At |
Long-Term Leases That Complement Our Growth.We have long-term leases with stable cash flows. As of December 31, 2009,2010, our weighted-average lease term wassenior management team collectively owned common equity interests in excessour company of 13 years,approximately 1.4%, which aligns management’s interests with a weighted-average of seven years remaining, excluding renewal options. Our lease expirations through December 31, 2011 are 14.2%those of our net rentable square feet excluding space held for redevelopment as of December 31, 2009.stockholders.
Business and Growth Strategies
Our primary business objectives are to maximize sustainable long-term growth in earnings, funds from operations and cash flow per share and unit and to maximize returns to our stockholders.stockholders and our operating partnership’s unitholders. Our business strategies to achieve these objectives are:
• | Achieve Superior Returns on Redevelopment Inventory.At December 31, |
Capitalize on Acquisition Opportunities. We believe that acquisitions enable us to increase cash flow and create long-term stockholder value. Our relationships with corporate information technology groups, technology tenants and real estate brokers who are dedicated to serving these tenants provide us with ongoing access to potential acquisitions and often enable us to avoid competitive bidding. Furthermore, the specialized nature of technology-related real estate makes it more difficult for traditional real estate investors to understand, which results in reduced competition for acquisitions relative to other property types. We believe this dynamic creates an opportunity for us to obtain better risk-adjusted returns on our capital.
Access and Use Capital Efficiently.We believe we can increase stockholder returns by effectively accessing and deploying capital. Since ourDigital Realty Trust, Inc.’s initial public offering in 2004, we haveour company has raised over $4.5$5.9 billion of capital through common, preferred and convertible preferred equity offerings, two exchangeable debt offerings, two non-exchangeable bond offerings, our revolving credit facility, secured mortgage financings and refinancings and sales of non-core assets. We will endeavor to maintain financial flexibility while using our liquidity and access to capital to support operations, including our acquisition, leasing, development and redevelopment programs, which are important sources of growth for the company.our growth.
Maximize the Cash Flow of ourOur Properties. We aggressively manage and lease our assets to increase their cash flow. We often acquire properties with substantial in-place cash flow and some vacancy, which enables us to create upside through lease-up. Moreover, many of our properties contain extensive in-place infrastructure or buildout that may result in higher rents when leased to tenants seeking these improvements. We control our costs by negotiating expense pass-through provisions in tenant leases for operating expenses, including power costs and certain capital expenditures. Leases covering more than 75%approximately 73% of the leased net rentable square feet in our portfolio as of December 31, 20092010 required tenants to pay all or a portion of increases in operating expenses, including real estate taxes, insurance, common area charges and other expenses.
Leverage Strong Industry Relationships.We use our strong industry relationships with national and regional corporate enterprise information technology groups and technology-intensive companies to identify and comprehensively respond to their real estate needs. Our company’s leasing and sales professionals are real estate and technology industry specialists who can develop complex facility solutions for the most demanding corporate data center and other technology tenants.
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Competition
We compete with numerous developers, owners and operators of real estate and datacenters, many of which own properties similar to ours in the same markets in which our properties are located, including DuPont Fabros Technology, Inc., 365 Main Inc., CoreSite Realty Corporation and various local developers in the U.S., and Global Switch, CentrumSentrum and various regional operators in Europe.Europe and Asia. If our competitors offer space that our tenants or potential tenants perceive to be superior to ours based on numerous factors, including available power, security considerations, location, or connectivity, or if they offer rental rates below current market rates, or below the rental rates we are offering, we may lose tenants or potential tenants or be required to incur costs to improve our properties or reduce our rental rates. In addition, recently many of our competitors have developed or redeveloped additional datacenter space. If the supply of datacenter space continues to increase as a result of these activities or otherwise, rental rates may be reduced or we may face delays in leasing or be unable to lease our vacant space, including space that we develop or redevelop. Finally, if tenants or potential tenants desire services that we do not offer, we may not be able to lease our space to those tenants. Our financial condition, results of operations, cash flow, cash available for distribution including cash available to pay dividends to our preferred or common stockholders, and ability to satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
Regulation
General
Office properties in our submarkets are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe that each of our properties as of December 31, 20092010 has the necessary permits and approvals to operate its business.
Americans With Disabilities Act
Our properties must comply with Title III of the Americans with Disabilities Act of 1990, or the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
Environmental Matters
Under various laws relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up such contamination at that property or emanating from that property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. Previous owners used some of our properties for industrial and retail purposes, soand those properties may contain some level of environmental contamination. Fuel storage tanks are present at many of our properties, and if releases were to occur, we may be liable for the costs of cleaning any resulting contamination. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability or materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral.
Some of the properties may contain asbestos-containing building materials. Environmental laws require that asbestos-containing building materials be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. These laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
In addition, some of our tenants, particularly those in the biotechnology and life sciences industry and those in the technology manufacturing industry, routinely handle hazardous substances and wastes as part of their operations at our properties.properties, including chemical solvents, medical waste, hydrocarbons, batteries and pesticides. Environmental laws and regulations subject our tenants, and potentially us, to liability resulting from these activities or from previous industrial or retail uses of those properties. Environmental liabilities could also affect a tenant’s ability to make rental payments to us. We require our tenants to comply with these environmental laws and regulations and to indemnify us for any related liabilities.
Independent environmental consultants have conducted Phase I or similar environmental site assessments on all of the properties in our portfolio. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey. None of the recent site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on our business, assets or results of operations. However, the assessments may have failed to reveal all environmental conditions, liabilities or compliance concerns. Material environmental conditions, liabilities or compliance concerns may have arisen after the review was completed or may arise in the future; and future laws, ordinances or regulations may impose material additional environmental liability.
Our properties and their uses often require permits from various government agencies, including permits related to zoning and land use, such as permits to operate data center facilities. Certain permits from state or local environmental regulatory agencies, including regulators of air quality, are usually required to install and operate diesel-powered generators, which provide emergency back-up power at some of our facilities. These permits often set emissions limits for certain air pollutants, including oxides of nitrogen. In addition, various federal, state, and local environmental, health and safety requirements, such as fire requirements and treated and storm water discharge requirements, apply to some of our properties. Changes to applicable regulations, such as air quality regulations, or the permit requirements for equipment at our facilities, could hinder or prevent our construction or operation of data center facilities.
The environmental laws and regulations—including those directly regulating our climate change impacts and those which regulate the climate change impacts of companies with which we do business, such as utilities which provide our facilities with electricity—to which our properties are subject may change in the future, and new laws and regulations may be created. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Which May Influence Future Results of Operations—Climate change legislation.” We do not know if or how the requirements will change, but changes may require that we make significant unanticipated expenditures, and such expenditures may materially adversely impact our: financial condition, cash flow, results, cash available for distributions, common stock’s per share trading price, and ability to satisfy our debt service obligations.
Insurance
We carry comprehensive liability, fire, extended coverage, earthquake, business interruption and rental loss insurance covering all of the properties in our portfolio under a blanket policy. We select policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our company’s management, the properties in our portfolio are currently adequately insured. We do not carry insurance for generally uninsured losses such as loss from war or nuclear reaction. In addition, we carry earthquake insurance on our properties in an amount and with deductibles which
we believe are commercially reasonable. Certain of the properties in our portfolio are located in areas known to be seismically active. See “Risk Factors—Risks Related to Our Business and Operations—Potential losses may not be covered by insurance.”
Employees
As of December 31, 20092010, we had 264454 employees. None of these employees are represented by a labor union.
How to Obtain Our SEC Filings
All reports we file with the SEC arewill be available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. We will also provide copies of our Forms 8-K, 10-K, 10-Q, Proxy Statement, Annual Report and amendments to those documents at no charge to investors upon request and make electronic copies of such reports available through our website at www.digitalrealtytrust.com as soon as reasonably practicable after filing such material with the SEC. The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this annual report on Form 10-K, or any other document that we file with the SEC.
Offices
Our headquarters are located in San Francisco. We have regional offices in Boston, Chicago, Dallas, Los Angeles, New York, Northern Virginia and Phoenix and international offices in Dublin, London, Paris and Paris.Singapore.
Reports to Security Holders
Digital Realty Trust, Inc. is required to send an annual report to its securityholders and to our operating partnership’s unitholders.
ITEM 1A. | RISK FACTORS |
For purposes of this section, the term “stockholders” means the holders of shares of ourDigital Realty Trust, Inc.’s common stock and of our preferred stock. Set forth below are the risks that we believe are material to our stockholders.Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders. You should carefully consider the following factors in evaluating our company, our properties and our business. The occurrence of any of the following risks might cause ourDigital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders to lose all or a part of their investment. Some statements in this report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements” starting on page 29.30.
Risks Related to Our Business and Operations
Global economic conditions could adversely affect our liquidity and financial condition.
Recent U.S., EuropeanIn the United States and other internationalglobally, market and economic conditions have been unprecedented over the past few years and challenging with significantly tighter credit conditions and recessionslower economic growth in all markets in which we own properties and conduct our operations continuing into 2010. Continuedoperations. The U.S. and global economies have experienced a recession and face continued concerns about the systemic impact of potential wide-spread and long-term recession,adverse economic conditions, such as high energy costs, geopolitical issues, the availability and cost of credit, unstable global financial and mortgage markets, high corporate, consumer and governmental debt levels, high unemployment and declining residential and commercial real estate markets have contributed to increased market volatility and diminished expectations for the U.S., European and other economies. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have and continue to contribute to global volatility of unprecedented levels.markets.
As a result of these conditions, general economic conditions and the cost and availability of capital have been and may continue toagain be adversely affected in some or all of the markets in which we own properties and conduct our operations. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease, to provide credit to businesses and consumers. ContinuedRenewed or increased turbulence in the U.S., European and other international financial markets and economies may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. If these market and economic conditions continue, they may limit our ability, and the ability of our tenants, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our, and our tenants’, financial condition and results of operations.
In addition, our access to funds under our revolving credit facility and other lines of credit depend on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We cannot assure you that continuing long-term disruptions in the global economy and the continuationreturn of tighter credit conditions among, and potential failures or nationalizations of, third party financial institutions as a result of such disruptions will not have an adverse effect on our lenders. If our lenders are not able to meet their funding commitments to us, our business, results of operation, cash flows and financial condition could be adversely affected.
If we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds, access our revolvingexisting lines of credit facility or raise equity or debt capital, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, curtailing development or redevelopment activity, disposing of one or more of our properties possibly on disadvantageous terms or entering into or renewing leases on less favorable terms than we otherwise would.
Our growth depends on external sources of capital which are outside of our control.
In order for Digital Realty Trust, Inc. to maintain ourits qualification as a REIT, we areit is required under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, to annually distribute at least 90% of ourits net taxable income,
determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, weDigital Realty Trust, Inc. will be subject to income tax at regular corporate rates to the extent that we distributeit distributes less than 100% of ourits net taxable income, including any net capital gains. Digital Realty Trust, L.P. is required to make distributions to Digital Realty Trust, Inc. that will enable the latter to satisfy this distribution requirement and avoid tax liability. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition or redevelopment financing, from operating cash flow. Consequently, we rely on third-party sources to fund our capital needs.
Our access to third-party sources of capital depends on a number of factors, including general market conditions, the market’s perception of our business prospects and growth potential, our current and expected future earnings, funds from operations and growth thereof, our cash flow and cash distributions, and the market price per share of Digital Realty Trust, Inc.’s common stock. We may not be able to obtain equity or debt financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Our access to third-party sources of capital depends, in part, on:
general market conditions;
the market’s perception of our business prospects and growth potential;
our current debt levels;
our current and expected future earnings, funds from operations and growth thereof;
our cash flow and cash distributions;
the market price per share of our common stock and preferred stock; and
our ability to maintain our investment grade credit rating with the ratings agencies.
If the United States Federal Reserve increases short term interest rates, this would have a significant upward impact on shorter-term interest rates, including the interest rates that our variable rate debt is based upon. Furthermore, difficulties with “sub-prime” residential housing credit have impacted corporate debt. Liquidity previously provided by commercial mortgage-backed securities and collateralized debt obligations has significantly decreased. The affects on commercial real estate mortgages and other debt include:
higher loan spreads;
tighter loan covenants;
reduced loan to value ratios and resulting borrower proceeds; and
higher amortization and reserve requirements.
There is no assuranceWe cannot assure you that we will be able to obtain debt financing at all or on terms favorable or acceptable to us.
Potential future increases in interest rates and credit spreads may Any additional debt we incur will increase our interest expense and therefore negatively affect our financial condition, results of operations, and reduce our access to capital markets. Increased interest rates may also increase the risk that the counterparties to our swap agreements will default on their obligations, which would further increase our interest expense. Equityleverage. Further, equity markets have experienced high volatility recently and there is no assurancewe cannot assure you that we will be able to raise capital through the sale of equity securities at all or on favorable terms. Sales of equity on unfavorable terms could result in substantial dilution to Digital Realty Trust, Inc.’s common stockholders and Digital Realty Trust, L.P.’s unitholders. In addition, we may be forced to dispose of one or more of our common stockholders.properties, possibly on disadvantageous terms.
If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations, or pay cash dividends to ourDigital Realty Trust, Inc.’s stockholders or make distributions to maintain our qualification as a REIT.Digital Realty Trust, L.P.’s unitholders.
Declining real estate valuations and impairment charges could adversely affect our earnings and financial condition.
We review the carrying valueeach of our properties when circumstances,for indicators that its carrying amount may not be recoverable. Examples of such asindicators may include a significant decrease in the market price, a significant adverse market conditions (including conditions resulting fromchange in the ongoing global economic recession), indicate potentialextent
or manner the property is being used in its physical condition or expected to be used based on the underwriting at the time of acquisition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development, or a history of operating or cash flow losses. When such impairment may exist. We base ourindictors exist, we review on an estimate of the future cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition.disposition and compare to the carrying value of the property. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our
undiscounted net cash flow evaluation indicates that we may beare unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to reevaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our financial condition, results of operations and cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders and per share trading price of our common stock or preferred stock.distribution.
Our properties depend upon the demand for technology-related real estate.
Our portfolio of properties consists primarily of technology-related real estate and datacenter real estate in particular. A decrease in the demand for datacenter space, Internet gateway facilities or other technology-related real estate would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified tenant base or less specialized use. Our substantial redevelopment activities make us particularly susceptible to general economic slowdowns, including recessions, as well as adverse developments in the corporate datacenter, Internet and data communications and broader technology industries. Any such slowdown or adverse development could lead to reduced corporate IT spending or reduced demand for datacenter space. Reduced demand could also result from business relocations, including to markets that we do not currently serve such as Asia.serve. Changes in industry practice or in technology, such as virtualization technology, more efficient or miniaturization of computing or networking devices, or devices that require higher power densities than today’s devices, could also reduce demand for the physical datacenter space we provide or make the tenant improvements in our facilities obsolete or in need of significant upgrades to remain viable. In addition, the development of new technologies, the adoption of new industry standards or other factors could render many of our tenants’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy.
We depend on significant tenants, and many of our properties are single-tenant properties or are currently occupied by single tenants.
As of December 31, 2009,2010, the 20 largest tenants in our property portfolio represented approximately 57%48% of the total annualized rent generated by our properties. Our largest tenants by annualized rent are Savvis Communications, and Equinix Operating Company, Inc. and Facebook, Inc. Savvis Communications leased approximately 1.92.0 million square feet of net rentable space as of December 31, 2009,2010, representing approximately 9.8%7.9% of the total annualized rent generated by our properties. Equinix Operating Company, Inc. leased approximately 607,000737,000 square feet of net rentable space as of December 31, 2009,2010, representing approximately 5.0%4.3% of the total annualized rent generated by our properties. Facebook, Inc. leased approximately 229,000 square feet of net rentable space as of December 31, 2010, representing approximately 4.3% of the total annualized rent generated by our properties. In addition, 3842 of our 8196 properties are occupied by single tenants, including properties occupied solely by Savvis Communications, and Equinix Operating Company, Inc. and Facebook, Inc. Many factors, including consequences of current global economic conditions, may cause our tenants to experience a downturn in their businesses or otherwise experience a lack of liquidity, which may weaken their financial condition and result in their failure to make timely rental payments or their default under their leases. If any tenant defaults or fails to make timely rent payments, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.
Our tenants may choose to develop new data centers or expand their own existing data centers, which could result in the loss of one or more key tenants or reduce demand for our newly developed data centers, which could have a material adverse effect on our revenues and results of operations.
Our tenants may choose to develop new data centers or expand or consolidate into data centers that we do not own in the future. In the event that any of our key tenants were to do so, it could result in a loss of business to us or
put pressure on our pricing. If we lose a tenant, there is no assurancewe cannot assure you that we would be able to replace that tenant at a competitive rate or at all, which could have a material adverse effect on our revenues and results of operations.
The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our properties.
If any tenant becomes a debtor in a case under the federal Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might authorize the tenant to reject and terminate its lease with us. Our claim against the tenant for unpaid, future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. In either case, our claim for unpaid rent would likely not be paid in full. At December 31, 2009, one tenant, Lyondell Chemical Company (Lyondell) was in bankruptcy. As of December 31, 2009, Lyondell leased approximately 15,500 square feet of net rentable space at a property2010, we had no material tenants in Dallas, Texas and was current on all of its rental obligations.bankruptcy.
Our revenue and cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, including us, could be materially adversely affected if any of our significant tenants were to become bankrupt or insolvent, or suffer a downturn in its business, or fail to renew its lease or renew on terms less favorable to us than its current terms.
Our portfolio of properties depends upon local economic conditions and is geographically concentrated in certain locations.
Our properties are located in 2728 metropolitan areas. We depend upon the local economic conditions in these markets, including local real estate conditions. Many of these markets experienced downturns in recent years and are currently experiencing downturns as a result of the global economic crisis or other factors. We depend upon the local economic conditions in these markets, including local real estate conditions, and our operations, revenue and cash available for distribution could be materially adversely affected by local economic conditions in these markets. Our operations may also be affected if too many competing properties are built in any of these markets or supply otherwise increases or exceeds demand. Our operations and our revenue and cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, including us, could be materially adversely affected by the global economic downturn. We cannot assure you that these markets will grow or will remain favorable to technology-related real estate.
As of December 31, 2009,2010, our portfolio was geographically concentrated in the following metropolitan markets.
Metropolitan Market | Percentage of total annualized rent(1) | |||
Silicon Valley | ||||
| ||||
| % | |||
Northern Virginia | ||||
| ||||
| % | |||
San Francisco | 10.2 | % | ||
Chicago | 9.9 | % | ||
New York Metro | 9.6 | % | ||
Phoenix | 9.1 | % | ||
Dallas | 8.4 | % | ||
Boston | 6.2 | % | ||
Los Angeles | 5.0 | % | ||
London, England | 3.6 | % | ||
Dublin, Ireland | 2.7 | % | ||
Paris, France | 2.4 | % | ||
Other | 8.7 | % | ||
100.0 | % | |||
(1) | Annualized rent is monthly contractual rent under existing leases as of December 31, |
In addition, we are currently developing or redeveloping properties in certain of these markets. Any further negative changes in real estate, technology or economic conditions in these markets in particular could negatively impact our performance.
Our growth depends upon the successful development of our existing space held for redevelopment and new properties acquired for redevelopment and any delays or unexpected costs in such development or difficulties in leasing or operating newly developed space may delay and harm our growth prospects, future operating results and financial condition.
We had approximately 1.82.2 million square feet held for redevelopment at December 31, 2009,2010, including fourfive vacant properties. We are and intend to continue building out a large portion of this space on a speculative basis at significant cost. Our successful development and redevelopment of these projects is subject to many risks, including those associated with:
delays in construction;
budget overruns;
changes to the plans or specifications;
construction site accidents and other casualties;
increased prices for raw materials or building supplies;
lack of availability and/or increased costs for specialized data center components, including long lead time items such as generators;
financing availability, including our ability to obtain construction financing and permanent financing;
increases in interest rates or credit spreads;
labor availability and costs;
labor disputes and work stoppages with contractors, subcontractors or others that are constructing the project;
failure of contractors to perform on a timely basis or at all, or other misconduct on the part of contractors;
timing of the commencement of rental payments;
ability to lease the space we develop or redevelop at all, or at rates we consider favorable or expected at the time we commenced redevelopment;
increased supply or reduced demand for datacenters space;
access to sufficient power and related costs of providing such power to our tenants;
environmental issues;
fire, flooding, earthquakes and other national disasters;
geological, construction, excavation and equipment problems; and
delays or denials of entitlements or permits, including zoning and related permits, or other delays resulting from our dependence on the cooperation of public agencies and utility companies; and
other property development uncertainties.companies.
In addition, in certain circumstance we lease data center facilities prior to their completion. If we fail to complete the facilities in a timely manner, the tenant may be entitled to terminate its lease, seek damages or penalties against us or pursue other remedies.
Whilewhile we intend to develop data center properties primarily in markets we are familiar with, we may in the future develop properties in new geographic regions where we expect the development of property to result in favorable risk-adjusted returns on our investment. We may not possess the same level of familiarity with the development of other property types or other markets, which could adversely affect our ability to develop such properties successfully or at all or to achieve expected performance.
Development and redevelopment activities, regardless of whether they are ultimately successful, also typically require a substantial portion of our management’s time and attention. This may distract our management from focusing on other operational activities.activities of our business. If we are unable to complete development or redevelopment projects successfully, our business may be adversely affected.
We may be unable to lease vacant or redevelopment space or renew leases, or re-lease space as leases expire.
At December 31, 2009,2010, we owned approximately 1.82.2 million square feet held for redevelopment. Of this space, we are currently redeveloping 87,000532,000 square feet. We intend to continue to add new space to our redevelopment inventory and to continue to redevelop additional space from this inventory. A substantial portion of the space that we redevelop is, and will continue to be, redeveloped on a speculative basis, meaning that we do not have a signed lease for the space when we begin the redevelopment process. We also develop or redevelop space specifically for tenants pursuant to leases signed prior to beginning the development or redevelopment process. In those cases, if we failedfail to meet our development or redevelopment obligations under those leases, these tenants may be able to terminate the leases and we would be required to find a new tenant for this space. In addition, in certain circumstances we lease data center facilities prior to their completion. If we fail to complete the facilities in a timely manner, the tenant may be entitled to terminate its lease, seek damages or penalties against us or pursue other remedies and we may be required to find a new tenant for the space. We cannot assure you that once we have redeveloped a space we will be able to successfully lease it.it at all, or at rates we consider favorable or expected at the time we commenced redevelopment. If we are not able to successfully lease the space that we redevelop, if redevelopment costs are higher than we currently estimate, or if lease rates are lower than expected when we began the project or are otherwise undesirable, our revenue and operating results could be adversely affected.
In addition, as of December 31, 2009,2010, leases representing 14.2%10.7% of the square footage of the properties in our portfolio, excluding space held for redevelopment, were scheduled to expire through 2011,2012, and an additional 5.3%5.4% of the net rentable square footage excluding space held for redevelopment was available to be leased. Some of this space may require substantial capital investment to meet the power and cooling requirements of today’s advanced data centers, or may no longer be suitable for this use. In addition, we cannot provide assuranceassure you that leases will be renewed or that our properties will be re-leased at all, or at net effective rental rates equal to or above the current average net effective rental rates. If the rental rates for our properties decrease, our existing tenants do not renew their leases, we do not re-lease our available space, including newly redeveloped space and space for which leases are scheduled to expire, or it takes longer for us to lease or re-lease this space or for rents to commence on this space, our financial condition, results of operations, cash flow, cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock, and our ability to satisfy our debt service obligations could be materially adversely affected.
We may be unable to identify and complete acquisitions on favorable terms or at all.
We continually evaluate the market of available properties and may acquire additional technology-related real estate when opportunities exist. Our ability to acquire properties on favorable terms may be exposed to the following significant risks:
we may be unable to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded REITs and institutional investment funds;
even if we are able to acquire a desired property, competition from other potential acquirors may significantly increase the purchase price or result in other less favorable terms;
even if we enter into agreements for the acquisition of technology-related real estate, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction;
we may be unable to finance acquisitions on favorable terms or at all; and
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
If we cannot complete property acquisitions on favorable terms, our financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy our debt service obligations could be materially adversely affected.
We may be unable to successfully integrate and operate acquired properties.
Even if we are able to make acquisitions on advantageous terms, our ability to successfully operate them may be exposed to the following significant risks:
we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
we may be unable to integrate new acquisitions quickly and efficiently, particularly acquisitions of operating businesses or portfolios of properties, into our existing operations, and our results of operations and financial condition could be adversely affected;
acquired properties may be subject to reassessment, which may result in higher than expected property tax payments; and
market conditions may result in higher than expected vacancy rates and lower than expected rental rates.
If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow, cash available for distribution and ability to satisfy our debt service obligations could be materially adversely affected.
We may be unable to source off-market deal flow in the future.
A component of our growth strategy is to continue to acquire additional technology-related real estate. To date, more than half of our acquisitions were acquired before they were widely marketed by real estate brokers, or “off-market.” Properties that are acquired off-market are typically more attractive to us as a purchaser because of the absence of competitive bidding, which could potentially lead to higher prices. We obtain access to off-market deal flow from numerous sources. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire additional properties at attractive prices could be adversely affected.
We have substantial debt and face risks associated with the use of debt to fund our business activities, including refinancing and interest rate risks.
Our total consolidated indebtedness at December 31, 2010 was approximately $2.8 billion, and we may incur significant additional debt to finance future acquisition and development activities. We have a revolving credit facility, which has a borrowing limit based upon a percentage of the value of our unsecured properties included in the facility’s borrowing base. At December 31, 2010, approximately $386.5 million was available under this facility, net of outstanding letters of credit. In addition, under our contribution agreement with respect to the 200 Paul Avenue 1-4 and 1100 Space Park Drive properties, we have agreed to make available for guarantee up to $17.8 million of indebtedness and may enter into similar agreements in the future.
Our substantial indebtedness has important consequences in that it currently requires us to dedicate a significant portion of our cash flow from operations to debt service payments, which reduces the availability of our cash flow to fund working capital, capital expenditures, expansion efforts, distributions and other general corporate purposes. Additionally, it could: make it more difficult for us to satisfy our obligations with respect to our indebtedness; limit our ability in the future to undertake refinancings of our debt or obtain financing for expenditures, acquisitions, development or other general corporate purposes on terms and conditions acceptable to us, if at all; or affect adversely our ability to compete effectively or operate successfully under adverse economic conditions.
In addition, we may violate restrictive covenants or fail to maintain financial ratios specified in our loan documents, which would entitle the lenders to accelerate our debt obligations, and our secured lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases. A foreclosure on one or more of our properties could adversely affect our financial condition, results of operations, cash flow and cash available for distribution. Further, our default under any one of our loans could result in a cross default on other indebtedness. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder Digital Realty Trust, Inc.’s ability to meet the REIT distribution requirements imposed by the Code.
Additional risks related to our indebtedness are described below.
We may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness.It is likely that we will need to refinance at least a portion of our outstanding debt as it matures. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds of other capital transactions, then our cash flow may not be sufficient in all years to repay all such maturing debt and to pay distributions. Further, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase.
Fluctuations in interest rates could materially affect our financial results and may increase the risk our counterparty defaults on our interest rate hedges. Because a significant portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense. If the United States Federal Reserve increases short-term interest rates, this would have a significant upward impact on shorter-term interest rates, including the interest rates that our variable rate debt is based upon. Potential future increases in interest rates and credit spreads may increase our interest expense and therefore negatively affect our financial condition and results of operations, and reduce our access to capital markets. We have entered into interest rate swap or cap agreements for a significant portion of our floating rate debt. Increased interest rates may increase the risk that the counterparties to our swap agreements will default on their obligations, which could further increase our exposure to interest rate fluctuations. Conversely, if interest rates are lower than our swapped fixed rates, we will be required to pay more for our debt than we would had we not entered into the swap agreements.
Adverse changes in our company’s credit ratings could negatively affect our financing activity. The credit ratings of our senior unsecured long-term debt and Digital Realty Trust, Inc.’s preferred stock are based on our company’s operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses of our company. Our company’s credit ratings can affect the amount of capital we can access, as well as the terms and pricing of any debt we may incur. We cannot assure you that our company will be able to maintain our current credit ratings, and in the event our current credit ratings are downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing. Also, a downgrade in our company’s credit ratings may trigger additional payments or other negative consequences under our current and future credit facilities and debt instruments. For example, if the credit ratings of our senior unsecured long-term debt are downgraded to below investment grade levels, we may not be able to obtain or maintain extensions on certain of our existing debt. Adverse changes in our credit ratings could negatively impact our refinancing and other capital market activities, our ability to manage our debt maturities, our future growth, our financial condition, the market price of Digital Realty Trust, Inc.’s stock, and our development and acquisition activity.
Our revolving credit facility, Prudential shelf facility, 5.875% notes due 2020 and 4.50% notes due 2015 restrict our ability to engage in some business activities. Our revolving credit facility and Prudential shelf facility contain negative covenants and other financial and operating covenants that, among other things:
restrict our ability to incur additional indebtedness;
restrict our ability to make certain investments;
restrict our ability to merge with another company;
restrict our ability to create, incur or assume liens;
restrict Digital Realty Trust, Inc.’s ability to make distributions to its stockholders;
require us to maintain financial coverage ratios; and
require us to maintain a pool of unencumbered assets approved by the lenders.
For example, our revolving credit facility and Prudential shelf facility restrict Digital Realty Trust, Inc. from making distributions to its stockholders, or redeeming or otherwise repurchasing shares of its capital stock, in an aggregate amount in excess of 95% of its consolidated funds from operations (as defined in our revolving credit facility or Prudential shelf facility, as applicable) during any four consecutive fiscal quarters, except as necessary to enable Digital Realty Trust, Inc. to maintain its qualification as a REIT under all applicable laws, rules and regulations or to avoid the payment of federal or state income or excise tax. Our revolving credit facility and Prudential shelf facility each also provide that, if Digital Realty Trust, L.P. fails to pay when due any principal of or interest on any borrowings under the facility, then Digital Realty Trust, L.P. may make only those partnership distributions to Digital Realty Trust, Inc. and other holders of its partnership interests necessary to enable Digital Realty Trust, Inc. to make distributions to its stockholders which we reasonably believe are necessary to maintain its status as a REIT under all applicable laws, rules and regulations.
In addition, our 5.875% notes due 2020, or the 2020 notes, and our 4.50% notes due 2015, or the 2015 notes, are governed by indentures, which contain various restrictive covenants, including limitations on our ability to incur indebtedness and requirements to maintain a pool of unencumbered assets. These restrictions, and the restrictions in our revolving credit facility and Prudential shelf facility, could cause us to default on our 2020 notes, 2015 notes, revolving credit facility or Prudential shelf facility, as applicable, or negatively affect our operations or our ability to pay dividends to Digital Realty Trust, Inc.’s stockholders or distributions to Digital Realty Trust, L.P.’s unitholders, which could have a material adverse effect on the market value of Digital Realty Trust, Inc.’s common stock and preferred stock.
The exchange and repurchase rights of our exchangeable debentures may be detrimental to Digital Realty Trust, Inc.’s stockholders or Digital Realty Trust, L.P.’s unitholders. As of December 31, 2010, Digital Realty Trust, L.P. had outstanding $88.8 million aggregate principal amount of the 2026 debentures. The 2026 debentures may under certain circumstances be exchanged for cash (up to the principal amount of the exchangeable debentures) and, with respect to any excess exchange value, into cash, shares of Digital Realty Trust, Inc.’s common stock or a combination of cash and shares of Digital Realty Trust, Inc.’s common stock. The exchange rate of the 2026 debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on Digital Realty Trust, Inc.’s common stock in excess of $0.265 per share per quarter, the issuance of certain rights, options or warrants to holders of Digital Realty Trust, Inc.’s common stock, subdivisions or combinations of Digital Realty Trust, Inc.’s common stock, certain distributions of assets, debt securities, capital stock or cash to holders of Digital Realty Trust, Inc.’s common stock and certain tender or exchange offers. The 2026 debentures are redeemable at our option for cash at any time on or after August 18, 2011 and are subject to repurchase for cash at the option of the holder on August 15 in the years 2011, 2016 and 2021, or upon the occurrence of certain events.
In addition, as of December 31, 2010, Digital Realty Trust, L.P. had outstanding $266.4 million aggregate principal amount of 5.50% Exchangeable Senior Debentures due 2029, which we refer to as the 2029 debentures. The 2029 debentures are exchangeable for Digital Realty Trust, Inc.’s common stock. The exchange rate of the 2029 debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on Digital Realty Trust, Inc.’s common stock in excess of $0.33 per share per quarter, the issuance of certain rights, options or warrants to holders of Digital Realty Trust, Inc.’s common stock, subdivisions or combinations of Digital Realty Trust, Inc.’s common stock, certain distributions of assets, debt securities, capital stock or cash to holders of Digital Realty Trust, Inc.’s common stock and certain tender or exchange offers. The 2029 debentures are redeemable at our option for cash at any time on or after April 18, 2014 and are subject to repurchase for cash at the option of the holder on April 15 in the years 2014, 2019 and 2024, or upon the occurrence of certain events.
If the 2026 debentures or 2029 debentures are not exchanged, the repurchase rights of holders of the exchangeable debentures may discourage or impede transactions that might otherwise be in the interest of Digital Realty Trust, Inc.’s stockholders or Digital Realty Trust, L.P.’s unitholders. Further, these exchange or repurchase rights might be triggered in situations where we need to conserve our cash reserves, in which event such repurchase might adversely affect us, Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders.
Failure to hedge effectively against interest rate changes may adversely affect results of operations. We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. Our policy is to use derivatives only to hedge interest rate risks related to our borrowings, not for speculative or trading purposes, and to enter into contracts only with major financial institutions based on their credit ratings and other factors. However, we may choose to change this policy in the future. Including loans currently subject to interest rate caps and swaps, approximately 88% of our total indebtedness as of December 31, 2010 was subject to fixed interest rates. We do not currently hedge our revolving credit facility and as our borrowings under our revolving credit facility increase, so will our percentage of indebtedness not subject to fixed rates and our exposure to interest rates increase. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.
Volatility in and regulation of the commercial mortgage-backed securities market has limited and may continue to impact the pricing of secured debt.As a result of the recent crisis in the residential mortgage-backed securities markets, the recent global recession, and concerns over the ability to refinance or repay existing commercial mortgage-backed securities as they come due, liquidity previously provided by the commercial mortgage-backed securities and collateralized debt obligations markets has significantly decreased. In addition, the recently adopted Dodd-Frank Wall Street Reform and Consumer Protection Act imposes significant new regulations related to the mortgage-backed securities industry and market participants, which has contributed to uncertainty in the market. The volatility in the commercial mortgage-backed securities market could result in the following adverse effects on our incurrence of secured debt, which could have a materially negative impact on our financial condition, results of operations, cash flow and cash available for distribution:
higher loan spreads;
tighter loan covenants;
reduced loan to value ratios and resulting borrower proceeds; and
higher amortization and reserve requirements.
We have owned certain of our properties for a limited time.
We owned 8196 properties at December 31, 2009,2010, excluding one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture. These properties are primarily located throughout North America and 13 properties are located in Europe. The properties contain a totalventures. All of approximately 14.4 million net rentable square feet, including 1.8 million square feet held for redevelopment. All theour properties have been under our management for less than sixseven years, and we have owned six15 of the properties for less than one year at December 31, 2009.2010. The properties may have characteristics or deficiencies unknown to us that could affect their valuation or revenue potential. We cannot assure you that the operating performance of the properties will not decline under our management. In addition, we have a limited history operating Turn-Key Datacenters® that we have developed or redeveloped. Because we generally cannot pass operating expenses (other than energy costs) on to our tenants in Turn-Key Datacenters®, if we incur operating expenses greater than we anticipated based on our limited operating history, our results of operations could be negatively impacted.
We may have difficulty managing our growth.
We have significantly and rapidly expanded the size of our company. For example, during 2009,2010, we acquired six15 properties our number of employees increased from 210 to 264 and we increased the number and size of our
redevelopment activities. TheOur growth in our company may significantly strain our management, operational and financial resources and systems. In addition, as a publicreporting company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act,and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the NYSE.Act. The requirements of these rules and regulations have increasedwill increase our accounting, legal and financial compliance costs and may strain our management and financial, legal and operational resources and systems. An inability to manage our growth effectively or the increased strain on our management of our resources and systems could result in deficiencies in our disclosure controls and procedures or our internal control over financial reporting and could negatively impact our cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, including us.distribution.
Tax protection provisions on certain properties could limit our operating flexibility.
We have agreed with the third-party contributors who contributed the direct and indirect interests in the 200 Paul Avenue 1-4 and 1100 Space Park Drive properties to indemnify them against adverse tax consequences if we were to sell, convey, transfer or otherwise dispose of all or any portion of these interests, in a taxable transaction, in these properties. However, we can sell these properties in a taxable transaction if we pay the contributors cash in the amount of their tax liabilities arising from the transaction and tax payments. The 200 Paul Avenue 1-4 and 1100 Space Park Drive properties represented 6.4%4.9% of our portfolio’s annualized rent as of December 31, 2009.2010. These tax protection provisions apply for a period expiring on the earlier of November 3, 2013 and the date on which these contributors (or certain transferees) hold less than 25% of the units issued to them in connection with the contribution of these properties to our operating partnership.us. Although it may be in our stockholders’the best interest of Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders that we sell a property, it may be economically disadvantageous for us to do so because of these obligations. We have also agreed to make available for guarantee up to $17.8 million of debt available for these contributors to guarantee.contributors. We agreed to these provisions in order to assist these contributors in preserving their tax position after their contributions.
Potential losses may not be covered by insurance.
We carry comprehensive liability, fire, extended coverage, earthquake, business interruption and rental loss insurance covering all of the properties in our portfolio under various insurance policies. We select policy specifications and insured limits which we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for generally uninsured losses such as loss from riots, terrorist threats, war or nuclear reaction. Most of our policies, like those covering losses due to floods, are insured subject to limitations involving large deductibles or co-payments and policy limits which may not be sufficient to cover losses. A large portion of the properties we own are located in California, an area especially subject to earthquakes. Together, these properties represented approximately 27%29% of our portfolio’s annualized rent as of December 31, 2009.2010. While we carry earthquake insurance on our properties, the amount of our earthquake insurance coverage may not be sufficient to fully cover losses from earthquakes. In addition, we
may discontinue earthquake or other insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage relative to the risk of loss.
In addition, many of our buildings contain extensive and highly valuable technology-related improvements. Under the terms of our leases, tenants generally retain title to such improvements and are obligated to maintain adequate insurance coverage applicable to such improvements and under most circumstances use their insurance proceeds to restore such improvements after a casualty. In the event of a casualty or other loss involving one of our buildings with extensive installed tenant improvements, our tenants may have the right to terminate their leases if we do not rebuild the base building within prescribed times. In such cases, the proceeds from tenants’ insurance will not be available to us to restore the improvements, and our insurance coverage may be insufficient to replicate the technology-related improvements made by such tenants. Furthermore, the terms of our mortgage indebtedness at certain of our properties may require us to pay insurance proceeds over to our lenders under certain circumstances, rather than use the proceeds to repair the property.
If we or one or more of our tenants experiences a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.
Payments on our debt reduce cash available for distribution and may expose us to the risk of default under our debt obligations.
Our total consolidated indebtedness at December 31, 2009 was approximately $1.8 billion, and we may incur significant additional debt to finance future acquisition and development activities. We have a revolving credit facility, which has a borrowing limit based upon a percentage of the value of our unsecured properties included in the facility’s borrowing base. At December 31, 2009, approximately $521.5 million was available under this facility. In addition, under our contribution agreement with respect to the 200 Paul Avenue 1-4 and 1100 Space Park Drive properties, we have agreed to make available for guarantee up to $17.8 million of indebtedness and may enter into similar agreements in the future.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, for our operating partnership to pay distributions to its unitholders, including us, and, consequently, for us to pay cash dividends to our stockholders to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on favorable terms;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
because a significant portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;
we may default on our obligations and the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases;
we may violate restrictive covenants in our loan documents beyond applicable grace periods, which would entitle the lenders to accelerate our debt obligations; and
our default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness.
If any one of these events were to occur, our financial condition, results of operations, cash flow, cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock, and our ability to satisfy our debt service obligations could be materially adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
We may be unable to identify and complete acquisitions and successfully operate acquired properties.
We continually evaluate the market of available properties and may acquire additional technology-related real estate when opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be exposed to the following significant risks:
we may be unable to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded REITs and institutional investment funds;
even if we are able to acquire a desired property, competition from other potential acquirors may significantly increase the purchase price or result in other less favorable terms;
even if we enter into agreements for the acquisition of technology-related real estate, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction;
we may be unable to finance acquisitions on favorable terms or at all;
we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;
we may be unable to integrate new acquisitions quickly and efficiently, particularly acquisitions of operating businesses or portfolios of properties, into our existing operations, and our results of operations and financial condition could be adversely affected;
acquired properties may be subject to reassessment, which may result in higher than expected property tax payments;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
If we cannot finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow, cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock, and ability to satisfy our debt service obligations could be materially adversely affected.
We may be unable to source off-market deal flow in the future.
A component of our growth strategy is to continue to acquire additional technology-related real estate. To date, more than half of our acquisitions were acquired before they were widely marketed by real estate brokers, or “off-market.” Properties that are acquired off-market are typically more attractive to us as a purchaser because of the absence of competitive bidding, which could potentially lead to higher prices. We obtain access to off-market deal flow from numerous sources. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire additional properties at attractive prices could be adversely affected.
We face significant competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.
We compete with numerous developers, owners and operators of real estate and datacenters, many of which own properties similar to ours in the same markets in which our properties are located, including DuPont Fabros Technology, Inc., 365 Main Inc., CRG WestCoreSite Realty Corporation and various local developers in the U.S., and Global Switch, Sentrum and
various regional operators in Europe.Europe and Asia. In addition, we may in the future face competition from new entrants into the datacenter market, including new entrants who may acquire our current competitors. Some of our competitors and potential competitors have significant advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential customers, significantly greater financial, marketing and other resources and more ready access to capital which allow them to respond more quickly to new or changing opportunities. If our competitors offer space that our tenants or potential tenants perceive to be superior to ours based on numerous factors, including available power, security considerations, location, or connectivity, or if they offer rental rates below current market rates, or below the rental rates we are offering, we may lose tenants or potential tenants or be required to incur costs to improve our properties or reduce our rental rates. In addition, recently many of our competitors have developed or redeveloped additional datacenter space. If the supply of datacenter space continues to increase as a result of these activities or otherwise, rental rates may be reduced or we may face delays in leasing or be unable to lease our vacant space, including space that we develop or redevelop. Finally,
Further, if tenants or potential tenants desire services that we do not offer, we may not be able to lease our space to those tenants. Our financial condition, results of operations, cash flow, cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, and ability to satisfy our debt service obligations could be materially adversely affected as a result of any or all of these factors.
Our revolving credit facility and 5.875% notes due 2020 restrict our ability to engage in some business activities.
Our revolving credit facility contains negative covenants and other financial and operating covenants that, among other things:
restrict our ability to incur additional indebtedness;
restrict our ability to make certain investments;
restrict our ability to merge with another company;
restrict our ability to create, incur or assume liens;
restrict our ability to make distributions to our stockholders;
require us to maintain financial coverage ratios; and
require us to maintain a pool of unencumbered assets approved by the lenders.
In addition, our 5.875% notes due 2020, or the 2020 notes, are governed by an indenture, which contains various restrictive covenants, including limitations on our ability to incur indebtedness and requirements to maintain a pool of unencumbered assets. These restrictions, and the restrictions in our revolving credit facility, could cause us to default on our 2020 notes or revolving credit facility, as applicable, or negatively affect our operations, our ability to pay cash dividends to our stockholders or our operating partnership’s ability to pay distributions to its unitholders, including us.
The exchange and repurchase rights of our exchangeable debentures may be detrimental to holders of common stock.
Our operating partnership has outstanding $172.5 million aggregate principal amount of 4.125% Exchangeable Senior Debentures due 2026, which we refer to as the 2026 debentures. The 2026 debentures may under certain circumstances be exchanged for cash (up to the principal amount of the exchangeable debentures) and, with respect to any excess exchange value, into cash, shares of our common stock or a combination of cash and shares of our common stock at the current exchange rate of 31.0370 shares per $1,000 principal amount of exchangeable debentures. At the current exchange rate, the 2026 debentures are exchangeable for our common stock at an exchange price of approximately $32.2196 per share. The exchange rate of the 2026 debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on our common stock in excess of $0.265 per share per quarter, the issuance of certain rights, options or warrants to holders of our
common stock, subdivisions or combinations of our common stock, certain distributions of assets, debt securities, capital stock or cash to holders of our common stock and certain tender or exchange offers. The 2026 debentures are redeemable at the Company’s option for cash at any time on or after August 18, 2011 and are subject to repurchase for cash at the option of the holder on August 15 in the years 2011, 2016 and 2021, or upon the occurrence of certain events.
In addition, our operating partnership has outstanding $266.4 million aggregate principal amount of 5.50% Exchangeable Senior Debentures due 2029, which we refer to as the 2029 debentures. At the initial exchange rate, the 2029 debentures are exchangeable for our common stock at an exchange price of approximately $43.00 per share. The exchange rate of the 2029 debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on our common stock in excess of $0.33 per share per quarter, respectively, the issuance of certain rights, options or warrants to holders of our common stock, subdivisions or combinations of our common stock, certain distributions of assets, debt securities, capital stock or cash to holders of our common stock and certain tender or exchange offers. The 2029 debentures are redeemable at the Company’s option for cash at any time on or after April 18, 2014 and are subject to repurchase for cash at the option of the holder on April 15 in the years 2014, 2019 and 2024, or upon the occurrence of certain events. The 2029 debentures are our operating partnership’s senior unsecured and unsubordinated obligations and are fully and unconditionally guaranteed by us.
The exchange of our 2026 debentures or 2029 debentures for our common stock at a time when our common stock is trading above the exchange price would dilute stockholder ownership in our company, and could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Any adjustments to the exchange rate of the 2026 debentures or 2029 debentures would exacerbate their dilutive effect. If the 2026 debentures or 2029 debentures are not exchanged, the repurchase rights of holder of the exchangeable debentures may discourage or impede transactions that might otherwise be in the interest of holders of common stock. Further, these exchange or repurchase rights might be triggered in situations where we need to conserve our cash reserves, in which event such repurchase might adversely affect us and our stockholders.
The conversion rights of our convertible preferred stock may be detrimental to holders of common stock.
We have 6,999,955 shares of 4.375% series C cumulative convertible preferred stock, or the series C preferred stock, and 13,795,500 shares of 5.500% series D cumulative convertible preferred stock, or the series D preferred stock, outstanding. The series C preferred stock and the series D preferred stock may be converted into shares of our common stock subject to certain conditions. The initial conversion rate for the series C preferred stock is 0.5164 shares of our common stock per $25.00 liquidation preference, which is equivalent to an initial conversion price of $48.41 per share of our common stock. Effective December 11, 2009, the conversion rate for the series C preferred stock was adjusted to 0.5225 shares of common stock per $25.00 liquidation preference, which is equivalent to a conversion price of $47.85 per share of our common stock, as a result of the aggregate dividends in excess of the reference dividend that we declared and paid on our common beginning with the quarter ended June 30, 2007 and through the quarter ended December 31, 2009. The initial conversion rate for the series D preferred stock is 0.5955 shares of our common stock per $25.00 liquidation preference, which is equivalent to an initial conversion price of $41.98 per share of our common stock. The conversion rates for the series C preferred stock and the series D preferred stock are subject to adjustment upon the occurrence of specified events, including, but not limited to, increases in dividends on our common stock, the issuance of certain rights, options or warrants to holders of our common stock, subdivisions or combinations of our common stock, certain distributions of assets, debt securities, capital stock or cash to holders of our common stock and certain tender or exchange offers.
In addition, on or prior to April 10, 2014 (in the case of the series C preferred stock) or February 6, 2015 (in the case of the series D preferred stock) in the event of a fundamental change when the applicable price of our common stock is less than $40.34 per share (in the case of the series C preferred stock) or $35.73 per share (in
the case of the series D preferred stock), then holders of shares of the series C preferred stock and the series D preferred stock will have a special right to convert some or all of their series of preferred stock into a number of shares of our common stock per $25.00 liquidation preference equal to such liquidation preference, plus an amount equal to accrued and unpaid dividends to, but not including, the fundamental change conversion date, divided by 98% of the market price of our common stock. In the event that holders of shares of our preferred stock exercise this special conversion right, we have the right to repurchase for cash all or any part of preferred stock as to which the conversion right was exercised at a repurchase price equal to 100% of the liquidation preference of the preferred stock to be repurchased plus an amount equal to accrued and unpaid dividends to, but not including, the fundamental change conversion date.
The conversion of the series C preferred stock or the series D preferred stock for our common stock would dilute stockholder ownership in our company, and could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Any adjustments to the conversion rates of the series C preferred stock and the series D preferred stock would exacerbate their dilutive effect. Further, the fundamental change conversion rights might be triggered in situations where we need to conserve our cash reserves, which may limit our ability to repurchase the shares of preferred stock in lieu of conversion.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers.
We currently, and may in the future, co-invest with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity. In that event, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present when a third party is
not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Our joint venture partners may take actions that are not within our control, which would require us to dispose of the joint venture asset or transfer it to a taxable REIT subsidiary in order for Digital Realty Trust, Inc. to maintain ourits status as a REIT. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our day-to-day business. Consequently, actions by or disputes with partners or co-venturers may subject properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. Finally, we may share information with our third-party partners or co-venturers. Each of these factors may result in returns on these investments being less than we expect or in losses and our financial and operating results may be adversely affected.
Our success depends on key personnel whose continued service is not guaranteed.
We depend on the efforts of key personnel of our company, particularly Michael Foust, ourDigital Realty Trust, Inc.’s Chief Executive Officer, A. William Stein, ourDigital Realty Trust, Inc.’s Chief Financial Officer and Chief Investment Officer and Scott Peterson, our Senior Vice President,Digital Realty Trust, Inc.’s Chief Acquisitions and Christopher Crosby, our Senior Vice President, Corporate Development.Officer. They are important to our success for many reasons, including that each has a national or regional reputation in our industry and the investment community that attracts investors and business and investment opportunities and assists us in negotiations with investors, lenders, existing and potential tenants and industry personnel. If we lost their services, our business and investment opportunities and our relationships with lenders and other capital markets participants, existing and prospective tenants and industry personnel could suffer. Many of our company’s other senior employees also have strong technology, finance and real estate industry reputations. As a result, we have
greater access to potential acquisitions, financing, leasing and other opportunities, and are better able to negotiate with tenants. As ourthe number of our competitors increases, it becomes more likely that a competitor would attempt to hire certain of these individuals away from us.our company. The loss of any of these key personnel would result in the loss of these and other benefits and could materially and adversely affect our results of operations.
Failure to hedge effectively against interest rate changes may adversely affect results of operations.
We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. Our policy is to use derivatives only to hedge interest rate risks related to our borrowings, not for speculative or trading purposes, and to enter into contracts only with major financial institutions based on their credit ratings and other factors. However, we may choose to change this policy in the future. Including loans currently subject to interest rate caps and swaps, approximately 88% of our total indebtedness as of December 31, 2009 was subject to fixed interest rates. We do not currently hedge our revolving credit facility and as our borrowings under our revolving credit facility increase, so will our percentage of indebtedness not subject to fixed rates and our exposure to interest rates increase. Hedging may reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.
Our properties may not be suitable for lease to datacenter or traditional technology office tenants without significant expenditures or renovations.
Because many of our properties contain tenant improvements installed at our tenants’ expense, they may be better suited for a specific corporate enterprise datacenter user or technology industry tenant and could require significant modification in order for us to re-lease vacant space to another corporate enterprise datacenter user or technology industry tenant. The tenant improvements may also become outdated or obsolete as the result of technological change, the passage of time or other factors. In addition, our redevelopment space will generally require substantial improvement to be suitable for datacenter use. For the same reason, our properties also may not be suitable for lease to traditional office tenants without significant expenditures or renovations. As a result, we may be required to invest significant amounts or offer significant discounts to tenants in order to lease or re-lease that space, either of which could adversely affect our financial and operating results.
Ownership of properties located outside of the United States subjects us to foreign currency and related risks which may adversely impact our ability to make distributions.
We owned 1416 properties located outside of the U.S.United States at December 31, 2009.2010. In addition, we are currently considering, and will in the future consider, additional international acquisitions.
The ownership of properties located outside of the U.S.United States subjects us to risk from fluctuations in exchange rates between foreign currencies and the U.S. dollar. We expect that our principal foreign currency exposure will be to the British Pound and the Euro. Changes in the relation of these currencies to the U.S. dollar will affect our revenues and operating margins, may materially adversely impact our financial condition, results of operations, cash flow, cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, the per share trading price of our common stock or preferred stock and our ability to satisfy our debt obligations.
We may attempt to mitigate some or all of the risk of currency fluctuation by financing our properties in the local currency denominations, although we cannot assure you that we will be able to do so or that this will be effective. We may also engage in direct hedging activities to mitigate the risks of exchange rate fluctuations.
Acquisition, development, redevelopment, operation and ownership of foreign properties involveOur international activities are subject to special risks greaterdifferent than those faced by us in the U.S.United States and we may not be able to effectively manage our international business.
Foreign real estate investments usuallyWe have acquired and developed, and may continue to acquire and develop, properties outside the United States. Our foreign operations involve risks not generally associated with investments in the United States. Our international acquisitions, developments, redevelopments, operations are subject to a number of risks,States, including:
risks resulting from our lack of knowledge of local real estate markets, development and redevelopment standards, economies and business practices and customs;
our limited knowledge of and relationships with sellers, tenants, contractors, suppliers or other parties in these markets;
due diligence, transaction and structuring costs higher than those we may face in the U.S.;
complexity and costs associated with managing international development, redevelopment and operations;
difficulty in hiring qualified management, sales and construction personnel and service providers in a timely fashion;
multiple, conflicting and changing legal, regulatory, entitlement and permitting, and tax and treaty environments;
exposure to increased taxation, confiscation or expropriation;
currency transfer restrictions and limitations on our ability to distribute cash earned in foreign jurisdictions to the U.S.;United States;
difficulty in enforcing agreements in non-U.S. jurisdictions, including those entered into in connection with our acquisitions or in the event of a default by one or more of our tenants, suppliers or contractors; and
political and economic instability, including sovereign credit risk, in certain geographic regions.
Our inability to overcome these risks could adversely affect our foreign operations and could harm our business and results of operations.
We face risks with our international acquisitions associated with investing in unfamiliar markets.
We have acquired and may continue to acquire properties on a strategic and selective basis in international markets that are new to us. When we acquire properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy and culture, forging new business relationships in the area and unfamiliarity with local government and permitting procedures, In addition, due diligence, transaction and structuring costs may be higher than those we may face in the United States. We work to mitigate such risks through extensive diligence and research and associations with experienced partners; however, we cannot assure you that all such risks will be eliminated.
Future consolidation in the technology industry could materially adversely affect our revenues by eliminating some of our potential tenants and could make us more dependent on a more limited number of tenants.
Mergers or consolidations of technology companies in the future could reduce the number of our tenants and potential tenants. If our tenants merge with or are acquired by other entities that are not our tenants, they may discontinue or reduce the use of our data centers in the future. Any of these developments could have a material adverse effect on our revenues and results of operations.
We depend on third parties to provide Internet connectivity to the tenants in our data centers and any delays or disruptions in connectivity may materially adversely affect our operating results and cash flow.
We are not a telecommunications carrier. Although our tenants are responsible for providing their own network connectivity, we still depend upon the presence of telecommunications carriers’ fiber networks serving the locations of our data centers in order to attract and retain tenants. We believe that the availability of carrier capacity will directly affect our ability to achieve our projected results. Any carrier may elect not to offer its services within our data centers. Any carrier that has decided to provide Internet connectivity to our data centers may not continue to do so for any period of time. Further, some carriers are experiencing business difficulties or have announced consolidations. As a result, some carriers may be forced to downsize or terminate connectivity within our data centers, which could have an adverse effect on the business of our tenants and, in turn, our own operating results.
Our new data centers require construction and operation of a sophisticated redundant fiber network. The construction required to connect multiple carrier facilities to our data centers is complex and involves factors outside of our control, including regulatory requirements and the availability of construction resources. If the establishment of highly diverse Internet connectivity to our data centers does not occur, is materially delayed or is discontinued, or is subject to failure, our operating results and cash flow may be materially adversely affected. AnyAdditionally, any hardware or fiber failures on this network may result in significant loss of connectivity to our data centers. This could negatively affect our ability to attract new tenants or retain existing tenants.
Risks Related to the Real Estate Industry
Our performance and value are subject to risks associated with real estate assets and with the real estate industry.
Our ability to pay cash dividends to our stockholders and our operating partnership’s ability to pay distributions to its unitholders, depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, and the value of our properties. These events and conditions include:
local oversupply, increased competition or reduction in demand for technology-related space;
inability to collect rent from tenants;
vacancies or our inability to rent space on favorable terms;
inability to finance property development and acquisitions on favorable terms;
increased operating costs, including insurance premiums, utilities and real estate taxes;
costs of complying with changes in governmental regulations; and
the relative illiquidity of real estate investments.
In addition, periods of economic slowdown or recession, rising interest rates or credit spreads, limited or no access to debt or equity capital or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases, which would materially adversely affect our financial condition, results of operations, cash flow, cash available for distribution, including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock and ability to satisfy our debt service obligations.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
Because real estate investments are relatively illiquid and because there may be even fewer buyers for our specialized real estate, our ability to promptly sell properties in our portfolio in response to adverse changes in their performance may be limited, which may harm our financial condition. TheFurther, Digital Realty Trust, Inc. is subject to provisions in the Code that limit a REIT’s ability to dispose of properties, which limitations are not applicable to other types of real estate market is affected by many factors that are beyondcompanies. In addition, the parties who contributed the 200 Paul Avenue 1-4 and 1100 Space Park Drive properties to us would incur adverse tax consequences upon the sale of these properties. While Digital Realty Trust, Inc. has exclusive authority under Digital Realty Trust, L.P.’s limited partnership agreement to determine whether, when, and on what terms to sell a property, any such decision would require the approval of Digital Realty Trust, Inc.’s board of directors. See “Risks Related to Our Organizational Structure—Tax consequences upon sale or refinancing.” These limitations may affect our control, including:
adverseability to sell properties. This lack of liquidity and the Code restrictions may limit our ability to vary our portfolio promptly in response to changes in nationaleconomic or other conditions and, local economicas a result, could adversely affect our financial condition, results of operations, cash flow, cash available for distribution and market conditions;
changes in interest ratesability to access capital necessary to meet our debt payments and in the availability, cost and terms of debt financing;other obligations.
changes in laws and regulations, fiscal policies and zoning ordinances and costs of compliance with laws and regulations, fiscal policies and ordinances;
the ongoing need for capital improvements, particularly in older structures;
changes in operating expenses; and
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result in uninsured and underinsured losses.
We could incur significant costs related to government regulation and private litigation over environmental matters.
Under various laws relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of hazardous or toxic
substances at that property, and may be required to investigate and clean up such contamination at or emanating from that property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. Previous owners used some of our properties for industrial and retail purposes, so those properties may contain some level of environmental contamination. Fuel storage tanks are present at many of our properties, and if releases were to occur, we may be liable for the costs of cleaning any resulting contamination. The presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability or materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral.
Some of the properties may contain asbestos-containing building materials. Environmental laws require that asbestos-containing building materials be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. These laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.
In addition, some of our tenants, particularly those in the biotechnology and life sciences industry and those in the technology manufacturing industry, routinely handle hazardous substances and wastes as part of their operations at our properties. Environmental laws and regulations subject our tenants, and potentially us, to liability resulting from these activities or from previous industrial or retail uses of those properties. Environmental liabilities could also affect a tenant’s ability to make rental payments to us.
Our properties and their uses often require permits from various government agencies, including permits related to zoning and land use, such as permits to operate data center facilities. Certain permits from state or local environmental regulatory agencies, including regulators of air quality, are usually required to install and operate diesel-powered generators, which provide emergency back-up power at some of our facilities. These permits often set emissions limits for certain air pollutants, including oxides of nitrogen. In addition, various federal, state, and local environmental, health and safety requirements, such as fire requirements and treated and storm water discharge requirements, apply to some of our properties. Changes to applicable regulations, such as air quality regulations, or the permit requirements for equipment at our facilities, could hinder or prevent our construction or operation of data center facilities.
Existing conditions at some of our properties may expose us to liability related to environmental matters.
Independent environmental consultants have conducted Phase I or similar environmental site assessments on all of the properties in our portfolio. Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey and the assessments may fail to reveal all environmental conditions, liabilities or compliance concerns. In addition, material environmental conditions, liabilities or compliance concerns may arisehave arisen after these reviews arewere completed or may arise in the future. Future laws, ordinances or regulations may impose additional material environmental liability.
We cannot assure you that costs of future environmental compliance will not affect our ability to pay cash dividends to ourDigital Realty Trust, Inc.’s stockholders or our operating partnership’s ability to payand distributions to itsDigital Realty Trust, L.P.’s unitholders or that such costs or other remedial measures will not have a material adverse effect on our business, assets or results of operations.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for adverse health effects and costs to remedy the problem.
When excessive moisture accumulates in buildings or on building materials, mold may grow, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce
airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and
bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants and others if property damage or health concerns arise.
We may incur significant costs complying with the Americans with Disabilities Act and similar laws.
Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. We have not conducted an audit or investigation of all of our properties to determine our compliance with the ADA. If one or more of the properties in our portfolio does not comply with the ADA, then we would be required to incur additional costs to bring the property into compliance. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. We cannot predict the ultimate cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA and any other similar legislation, our financial condition, results of operations, cash flow, cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock and our ability to satisfy our debt service obligations could be materially adversely affected.
We may incur significant costs complying with other regulations.
The properties in our portfolio are subject to various federal, state and local regulations, such as state and local fire and life safety regulations. If we fail to comply with these various regulations, we may have to pay fines or private damage awards. In addition, we do not know whether existing regulations will change or whether future regulations will require us to make significant unanticipated expenditures that will materially adversely impact our financial condition, results of operations, cash flow, cash available for distribution including cash available for us to pay dividends to our stockholders or for our operating partnership to pay distributions to its unitholders, per share trading price of our common stock or preferred stock and our ability to satisfy our debt service obligations.
The conversion rights of Digital Realty Trust, Inc.’s convertible preferred stock may be detrimental to holders of Digital Realty Trust, Inc.’s common stock.
Digital Realty Trust, Inc. has 6,999,955 shares of 4.375% series C cumulative convertible preferred stock, or the series C preferred stock, and 13,787,300 shares of 5.500% series D cumulative convertible preferred stock, or the series D preferred stock, outstanding. The convertible preferred stock may be converted into shares of Digital Realty Trust, Inc. common stock subject to certain conditions. The initial conversion rate for the series C preferred stock is 0.5164 shares of Digital Realty Trust, Inc. common stock per $25.00 liquidation preference, which is equivalent to an initial conversion price of $48.41 per share of Digital Realty Trust, Inc. common stock. Effective September 13, 2010, the conversion rate for the series C preferred stock was adjusted to 0.5290 shares of common stock per $25.00 liquidation preference, which is equivalent to a conversion price of $47.26 per share of Digital Realty Trust, Inc. common stock, as a result of the aggregate dividends in excess of the reference dividend that Digital Realty Trust, Inc. declared and paid on its common stock beginning with the quarter ended March 31, 2010 and through the quarter ended September 30, 2010. The initial conversion rate for the series D preferred stock is 0.5955 shares of Digital Realty Trust, Inc. common stock per $25.00 liquidation preference, which is equivalent to an initial conversion price of $41.98 per share of Digital Realty Trust, Inc. common stock. Effective June 11, 2010, the conversion rate for the series D preferred stock was adjusted to 0.6030 shares of common stock per $25.00 liquidation preference, which is equivalent to a conversion price of $41.46 per share of Digital Realty Trust, Inc. common stock, as a result of the aggregate dividends in excess of the reference dividend that Digital Realty Trust, Inc. declared and paid on its common stock beginning with the quarter ended December 31, 2008 and through the quarter ended June 30, 2010. The conversion rates for the convertible preferred stock are subject to adjustment upon the occurrence of specified events, including, but not limited to,
increases in dividends on Digital Realty Trust, Inc. common stock, the issuance of certain rights, options or warrants to holders of Digital Realty Trust, Inc. common stock, subdivisions or combinations of Digital Realty Trust, Inc. common stock, certain distributions of assets, debt securities, capital stock or cash to holders of Digital Realty Trust, Inc. common stock and certain tender or exchange offers.
In addition, on or prior to April 10, 2014 (in the case of the series C preferred stock) or February 6, 2015 (in the case of the series D preferred stock) in the event of a fundamental change when the applicable price of Digital Realty Trust, Inc. common stock is less than $40.34 per share (in the case of the series C preferred stock) or $35.73 per share (in the case of the series D preferred stock), then holders of shares of the series C preferred stock and the series D preferred stock will have a special right to convert some or all of their series of preferred stock into a number of shares of Digital Realty Trust, Inc. common stock per $25.00 liquidation preference equal to such liquidation preference, plus an amount equal to accrued and unpaid dividends to, but not including, the fundamental change conversion date, divided by 98% of the market price of Digital Realty Trust, Inc. common stock. In the event that holders of shares of the convertible preferred stock exercise this special conversion right, Digital Realty Trust, Inc. has the right to repurchase for cash all or any part of the convertible preferred stock as to which the conversion right was exercised at a repurchase price equal to 100% of the liquidation preference of the convertible preferred stock to be repurchased plus an amount equal to accrued and unpaid dividends to, but not including, the fundamental change conversion date.
The conversion of the convertible preferred stock for Digital Realty Trust, Inc. common stock would dilute stockholder ownership in Digital Realty Trust, Inc. and unitholder ownership in Digital Realty Trust, L.P., and could adversely affect the market price of Digital Realty Trust, Inc. common stock and could impair our ability to raise capital through the sale of additional equity securities. Any adjustments increasing the conversion rates of the convertible preferred stock would exacerbate their dilutive effect. Further, the fundamental change conversion rights might be triggered in situations where we need to conserve our cash reserves, which may limit our ability to repurchase the shares of convertible preferred stock in lieu of conversion.
Our POD Architecture Services® business is subject to risks particular to third-party construction projects.
Our POD Architecture Services® business is new and we only have limited experience in providing design and construction services to third parties. By providing these design and construction services to third parties, we become subject to a variety of risks unique to these activities. If construction costs of a project exceed original estimates, such costs may have to be absorbed by us, which would make the project less profitable than originally estimated, or possibly not profitable at all. A construction project may be delayed due to government or regulatory approvals, supply shortages, or other events and circumstances beyond our control, or the time required to complete a construction project may be greater than originally anticipated. In addition, we may be liable for any injuries or damage that arise from worksite accidents, or from the design or construction of the datacenters we build. If any such excess costs, project delays or liabilities were to be material, such events may adversely effect our financial condition, results of operations and cash available for distribution.
Risks Related to Our Organizational Structure
ConflictsDigital Realty Trust, Inc.’s duty to its stockholders may conflict with the interests of interest may exist or could arise in the future with holders of units in our operating partnership.Digital Realty Trust, L.P.’s unitholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between usDigital Realty Trust, Inc. and ourits affiliates, on the one hand, and our operating partnership or any partner thereof, on the other. OurDigital Realty Trust, Inc.’s directors and officers have duties to our companyDigital Realty Trust, Inc. and ourits stockholders under Maryland law in connection with their management of our company. At the same time, we,Digital Realty Trust, Inc., as general partner, havehas fiduciary duties under Maryland law to our operating
partnership and to the limited partners in connection with the management of our operating partnership. OurDigital Realty Trust, Inc.’s duties as general partner to our operating partnership and its partners may come into conflict with the duties of ourDigital Realty Trust, Inc.’s directors and officers to our companyDigital Realty Trust, Inc. and ourits stockholders. Under Maryland law, a general partner of a Maryland limited partnership owes its limited partners the duties of loyalty and care, which must be discharged consistently with the obligation of good faith fairness and loyalty,fair dealing, unless the partnership agreement provides otherwise. The partnership agreement of our operating partnership provides that for so long as we ownDigital Realty Trust, Inc. owns a controlling interest in our operating partnership, any conflict that cannot be resolved in a manner not adverse to either ourDigital Realty Trust, Inc.’s stockholders or the limited partners will be resolved in favor of ourDigital Realty Trust, Inc.’s stockholders.
The provisions of Maryland law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict ourDigital Realty Trust, Inc.’s fiduciary duties.
WeDigital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders are also subject to the following additional conflicts of interest with holders of units in our operating partnership:interest:
We may pursue less vigorous enforcement of terms of certain agreements because of conflicts of interest with GI Partners.
GI Partners Fund II, LLP, or GI Partners II, owns The tel(x) Group, an operator of “Meet-Me-Room” network interconnection facilities that leases 126,130202,987 square feet from us under 2631 lease agreements.agreements as of December 31, 2010. Richard Magnuson, the Chairman of ourDigital Realty Trust, Inc.’s board of directors, is and will continue to be the chief executive officer of the advisor to GI Partners II. Additionally, on August 3, 2010, GI Partners Fund III, LLP, or GI Partners III, acquired a controlling interest in SoftLayer Technologies, Inc., or SoftLayer, an on-demand data center services provider that leases 130,238 square feet from us under four lease agreements as of December 31, 2010. Richard Magnuson is and will continue to be the chief executive officer of the advisor to GI Partners III. In the future, we may enter into additional agreements with The tel(x) Group, SoftLayer or other companies owned by GI Partners II, GI Partners III or other GI Partners funds. We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationship with GI Partners funds and Mr. Magnuson.
Tax consequences upon sale or refinancing.Sales of properties and repayment of certain indebtedness will affect holders of common units in our operating partnership and ourDigital Realty Trust, Inc.’s stockholders differently. The parties who contributed the 200 Paul Avenue 1-4 and 1100 Space Park Drive properties to our operating partnership would incur adverse tax consequences upon the sale of these properties and on the repayment of related debt which differ from the tax consequences to usDigital Realty Trust, Inc. and ourits stockholders. Consequently, these holders of common units in our operating partnership may have different objectives regarding the appropriate pricing and timing of any such sale or repayment of debt. While we haveDigital Realty Trust, Inc. has exclusive authority under the limited partnership agreement of our operating partnership to determine when to refinance or repay debt or whether, when, and on what terms to sell a property, any such decision would require the approval of ourDigital Realty Trust, Inc.’s board of directors. Certain of ourDigital Realty Trust, Inc.’s directors and executive officers could exercise their influence in a manner inconsistent with the interests of some, or a majority, of ourDigital Realty Trust, Inc.’s stockholders, including in a manner which could prevent completion of a sale of a property or the repayment of indebtedness.
OurDigital Realty Trust, Inc.’s charter, Digital Realty Trust, L.P.’s partnership agreement and Maryland law contain provisions that may delay, defer or prevent a change of control transaction.
OurDigital Realty Trust, Inc.’s charter and the articles supplementary with respect to the preferred stock contain 9.8% ownership limits.OurDigital Realty Trust, Inc.’s charter, subject to certain exceptions, authorizes ourthe
company’s directors to take such actions as are necessary and desirable to preserve ourthe company’s qualification as a REIT and to limit any person to actual or constructive ownership of no more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of ourthe company’s common stock, 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of any series of preferred stock and 9.8% of the value of ourthe company’s outstanding capital stock. OurDigital Realty Trust, Inc.’s board of directors, in its sole discretion, may exempt (prospectively or retroactively) a proposed transferee from the ownership limit. However, ourDigital Realty Trust, Inc.’s board of directors may not grant an exemption from the ownership limit to any proposed transferee whose direct or indirect ownership of more than 9.8% of the outstanding shares of ourthe company’s common stock, more than 9.8% of the outstanding shares of any series of preferred stock or more than 9.8% of the value of ourthe company’s outstanding capital stock could jeopardize ourthe company’s status as a REIT. These restrictions on transferability and ownership will not apply if ourDigital Realty Trust, Inc.’s board of directors determines that it is no longer in ourthe company’s best interests to attempt to qualify, or to continue to qualify, as a REIT. The ownership limit may delay, defer or prevent a transaction or a change of control that might be in the best interest of our common or preferred stockholders.Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders.
WeDigital Realty Trust, L.P.’s partnership agreement contains provisions that may delay, defer or prevent a change of control transaction.Digital Realty Trust, L.P.’s partnership agreement provides that Digital Realty Trust, Inc. may not engage in any merger, consolidation or other combination with or into another person, any sale of all or substantially all of its assets or any reclassification, recapitalization or change of its outstanding equity interests unless the transaction is approved by the holders of common units and long term incentive units representing at least 35% of the aggregate percentage interests of all holders of common units and long-term incentive units and either:
all limited partners will receive, or have the right to elect to receive, for each common unit an amount of cash, securities or other property equal to the product of the number of shares of Digital Realty Trust, Inc. common stock into which a common unit is then exchangeable and the greatest amount of cash, securities or other property paid in consideration of each share of Digital Realty Trust, Inc. common stock in connection with the transaction (provided that, if, in connection with the transaction, a purchase, tender or exchange offer is made to and accepted by the holders of more than 50% of the shares of Digital Realty Trust, Inc. common stock, each holder of common units will receive, or have the right to elect to receive, the greatest amount of cash, securities or other property which such holder would have received if it exercised its right to redemption and received shares of Digital Realty Trust, Inc. common stock in exchange for its common units immediately prior to the expiration of such purchase, tender or exchange offer and thereupon accepted such purchase, tender or exchange offer and the transaction was then consummated); or
the following conditions are met:
substantially all of the assets directly or indirectly owned by the surviving entity in the transaction are held directly or indirectly by Digital Realty Trust, L.P. or another limited partnership or limited liability company which is the survivor of a merger, consolidation or combination of assets with Digital Realty Trust, L.P., or the surviving partnership;
the holders of common units and long-term incentive units own a percentage interest of the surviving partnership based on the relative fair market value of Digital Realty Trust, L.P.’s net assets and the other net assets of the surviving partnership immediately prior to the consummation of such transaction;
the rights, preferences and privileges of the holders of interests in the surviving partnership are at least as favorable as those in effect immediately prior to the consummation of such transaction and as those applicable to any other limited partners or non-managing members of the surviving partnership; and
the rights of the limited partners or non-managing members of the surviving partnership include at least one of the following: (i) the right to redeem their interests in the surviving partnership for the consideration available to such persons pursuant to Digital Realty Trust, L.P.’s partnership agreement; or (ii) the right to redeem their interests for cash on terms equivalent to those in effect with respect to their common units immediately prior to the consummation of such transaction (or, if the ultimate controlling person of the surviving partnership has publicly traded common equity securities, for such common equity securities, with an exchange ratio based on the determination of relative fair market value of such securities and the shares of Digital Realty Trust, Inc. common stock).
These provisions may discourage others from trying to acquire control of Digital Realty Trust, Inc. and may delay, defer or prevent a change of control transaction that might be beneficial to Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders.
Digital Realty Trust, Inc. could increase or decrease the number of authorized shares of stock and issue stock without stockholder approval.OurDigital Realty Trust, Inc.’s charter authorizes ourthe company’s board of directors, without stockholder approval, to amend the charter from time to time to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, that we have authority to issue, to issue authorized but unissued shares of ourthe company’s common stock or preferred stock and, subject to the voting rights of holders of preferred stock, to classify or reclassify any unissued shares of ourthe company’s common stock or preferred stock and to set the preferences, rights and other terms of such classified or reclassified shares. Although ourDigital Realty Trust, Inc.’s board of directors has no such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such class or series, delay, defer or prevent a transaction or a change of control that might be in the best interest of our common or preferred stockholders.Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders.
Certain provisions of Maryland law could inhibit changes in control. Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of impeding a third party from making a proposal to acquire usDigital Realty Trust, Inc. or of impeding a change of control under circumstances that otherwise could be in the best interests of our common or preferredDigital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders, including:
“business combination” provisions that, subject to limitations, prohibit certain business combinations between usDigital Realty Trust, Inc. and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of ourthe company’s outstanding shares of voting stock or an affiliate or associate of oursthe company who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of ourthe company’s then outstanding shares of stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholdersupermajority voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our companyDigital Realty Trust, Inc. (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by ourthe company’s stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
We haveDigital Realty Trust, Inc. has opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by resolution of ourits board of directors, and in the case of the control share provisions of the MGCL pursuant to a provision in ourits bylaws. However, ourDigital Realty Trust, Inc.’s board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and wethe company may, by amendment to ourits bylaws, opt in to the control share provisions of the MGCL in the future.
The provisions of ourDigital Realty Trust, Inc.’s charter on removal of directors and the advance notice provisions of the bylaws could delay, defer or prevent a transaction or a change of control of ourthe company that might be in the best interest of our common or preferred stockholders.Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders. Likewise, if our company’sDigital Realty Trust, Inc.’s board of directors were to opt in to the business combination provisions of the MGCL or the provisions of Title 3, Subtitle 8 of the MGCL not currently applicable to us,the company, or if the provision in ourthe company’s bylaws opting out of the control share acquisition provisions of the MGCL were rescinded, these provisions of the MGCL could have similar anti-takeover effects. Further, our partnership agreement provides that our company may not engage in any merger, consolidation or other combination with or into another person, sale of all or substantially all of our assets or any reclassification or any recapitalization or change in outstanding shares of our common stock, unless in connection with such transaction we obtain the consent of the holders of at least 35% of our operating partnership’s common and long-term incentive units (including units held by us), and certain other conditions are met.
OurDigital Realty Trust, Inc.’s board of directors may change our investment and financing policies without stockholder approval or approval of Digital Realty Trust, L.P.’s other partners and we may become more highly leveraged, which may increase our risk of default under our debt obligations.
OurDigital Realty Trust, Inc.’s board of directors adopted a policy limiting our indebtedness to 60% of our total market capitalization.enterprise value. Our total market capitalizationenterprise value is defined as the sum of the market value of ourDigital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total capitalization ratio), excluding options issued under our incentive award plan, plus the aggregate value of theDigital Realty Trust, L.P. units not held by us,Digital Realty Trust, Inc. (with the per unit value equal to the market value of one share of Digital Realty Trust, Inc. common stock and excluding long-term incentive units and Class C units), plus the liquidation preference of Digital Realty Trust, Inc.’s outstanding preferred stock, plus the book value of our total consolidated indebtedness. However, ourthe organizational documents of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. OurDigital Realty Trust, Inc.’s board of directors may alter or eliminate our current policy on borrowing at any time without stockholder or unitholder approval. If this policy changed, we could become more highly leveraged which could result in an increase in our debt service and which could materially adversely affect our cash flow and our ability to make
distributions, including cash available for us to pay dividends to ourDigital Realty Trust, Inc.’s stockholders or for our operating partnership to pay distributions to its unitholders, including us.Digital Realty Trust, L.P.’s unitholders. Higher leverage also increases the risk of default on our obligations.
OurDigital Realty Trust, Inc.’s rights and the rights of ourits stockholders to take action against ourits directors and officers are limited.
Maryland law provides that ourDigital Realty Trust, Inc.’s directors have no liability in their capacities as directors if they perform their duties in good faith, in a manner they reasonably believe to be in ourthe company’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. As permitted by the MGCL, ourDigital Realty Trust, Inc.’s charter limits the liability of ourthe company’s directors and officers to usthe company and ourits stockholders for money damages, except for liability resulting from:
actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.
In addition, ourDigital Realty Trust, Inc.’s charter authorizes usthe company to obligate our company,itself, and ourthe company’s bylaws require us,it, to indemnify ourthe company’s directors and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law and we havethe company has entered ininto indemnification agreements with ourits officers and directors. As a result, weDigital Realty Trust, Inc. and ourits stockholders may have more limited rights against ourits directors and officers than might otherwise exist under common law. Accordingly, in the event that actions taken in good faith by any of ourDigital Realty Trust, Inc.’s directors or officers impede the performance of ourthe company, yourthe company’s stockholders’ ability to recover damages from that director or officer will be limited.
Risks Related to OurDigital Realty Trust, Inc.’s Status as a REIT
Failure to qualify as a REIT would have significant adverse consequences to usDigital Realty Trust, Inc. and the value of our stock.its stockholders and to Digital Realty Trust, L.P. and its unitholders.
We haveDigital Realty Trust, Inc. has operated and intendintends to continue operating in a manner that we believeit believes will allow usit to qualify as a REIT for federal income tax purposes under the Code. We haveDigital Realty Trust, Inc. has not requested and dodoes not plan to request a ruling from the IRS that we qualifyit qualifies as a REIT. If we lose ourDigital Realty Trust, Inc. loses its REIT status, weit will face serious tax consequences that would substantially reduce ourits cash available for distribution, including cash available to pay dividends to ourits preferred stockholders or make distributions to ourits common stockholders, for each of the years involved because:
weDigital Realty Trust, Inc. would not be allowed a deduction for distributionsdividends paid to stockholders in computing ourits taxable income and would be subject to federal income tax at regular corporate rates;
weDigital Realty Trust, Inc. also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
unless we areDigital Realty Trust, Inc. is entitled to relief under applicable statutory provisions, weit could not elect to be taxed as a REIT for four taxable years following the year during which we wereit was disqualified.
In addition, if we failDigital Realty Trust, Inc. fails to qualify as a REIT, weit will not be required to make distributions to stockholders.stockholders, and accordingly, distributions Digital Realty Trust, L.P. makes to its unitholders could be similarly reduced. As a result of all these factors, ourDigital Realty Trust, Inc.’s failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and would materially adversely affect the value of our capital stock.
Digital Realty Trust, Inc.’s stock and Digital Realty Trust, L.P.’s units. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury Regulations that have been promulgated under the Code is greater in the case of a REIT that, like us,Digital Realty Trust, Inc., holds its assets through a partnership. OurDigital Realty Trust, Inc.’s ability to qualify as a REIT may be affected by facts and circumstances that are not entirely within ourits control. In order to qualify as a REIT, weDigital Realty Trust, Inc. must satisfy a number of
requirements, including requirements regarding the composition of ourits assets and a requirement that at least 95% of ourits gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, weDigital Realty Trust, Inc. must make distributions to stockholders aggregating annually at least 90% of ourits net taxable income, excluding net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect ourits investors, ourits ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we qualifyDigital Realty Trust, Inc. qualifies as a REIT for federal income tax purposes, weit may be subject to some federal, state and local taxes on ourits income or property and, in certain cases, a 100% penalty tax, in the event we sellit sells property as a dealer. In addition, our domestic corporate subsidiary, Digital Services, Inc., which is a taxable REIT subsidiary of Digital Realty Trust, Inc., could be subject to Federalfederal and state taxes, and our foreign properties and companies are subject to tax in the jurisdictions in which they operate and are located.
To maintain ourDigital Realty Trust, Inc.’s REIT status, we may be forced to borrow funds on a short-term basis during unfavorable market conditions.
To qualify as a REIT, weDigital Realty Trust, Inc. generally must distribute to ourits stockholders at least 90% of ourits net taxable income each year, excluding capital gains, and weDigital Realty Trust, Inc. will be subject to regular corporate income taxes to the extent that we distributeit distributes less than 100% of ourits net taxable income each year. In addition, weDigital Realty Trust, Inc. will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by usDigital Realty Trust, Inc. in any calendar year are less than the sum of 85% of ourits ordinary income, 95% of ourits capital gain net income and 100% of ourits undistributed income from prior years.
While historically we haveDigital Realty Trust, Inc. has satisfied these distribution requirements by making cash distributions to ourits stockholders, a REIT is permitted to satisfy these requirements by making distributions of cash or other property, including, in limited circumstances, its own stock. Assuming we continueDigital Realty Trust, Inc. continues to satisfy these distributions requirements with cash, we may need to borrow funds for Digital Realty Trust, Inc. to meet the REIT distribution requirements even if the then prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments.
WeDigital Realty Trust, Inc. may in the future choose to pay dividends in ourits own stock.stock, in which case its stockholders may be required to pay tax in excess of the cash they receive.
WeDigital Realty Trust, Inc. may in the future elect to distribute taxable dividends that are partially payable in cash and partially payable in ourits stock. Under recent IRS guidance, upUp to 90% of any such taxable dividend with respect to calendar years 2008 through 2011, and in some cases declared as late as December 31, 2012, couldmay be payable in ourDigital Realty Trust, Inc.’s stock if certain conditionsrequirements are met. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of ourDigital Realty Trust, Inc.’s current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of ourDigital Realty Trust, Inc.’s stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, weDigital Realty Trust, Inc. may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of ourDigital Realty Trust, Inc.’s stockholders determine to sell shares of ourthe company’s stock in order to pay taxes owed on dividends, such salesit may put downward pressure on the trading price of ourthe company’s stock.
The power of ourDigital Realty Trust, Inc.’s board of directors to revoke ourDigital Realty Trust, Inc.’s REIT election without stockholder approval may cause adverse consequences to our stockholders.Digital Realty Trust, Inc.’s stockholders and Digital Realty Trust, L.P.’s unitholders.
OurDigital Realty Trust, Inc.’s charter provides that ourits board of directors may revoke or otherwise terminate ourits REIT election, without the approval of ourits stockholders, if it determines that it is no longer in ourDigital Realty Trust, Inc.’s best interests to continue to qualify as a REIT. If we ceaseDigital Realty Trust, Inc. ceases to qualify as a REIT, weit would become subject to U.S. federal income tax on ourits taxable income and weit would no longer be required to distribute most of ourits taxable income to ourits stockholders which may have adverse consequences on the total returnand accordingly, distributions Digital Realty Trust, L.P. makes to our common or preferred stockholders.its unitholders could be similarly reduced.
Forward-Looking Statements
We make statements in this report that are forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, portfolio performance, leverage policy and resultsacquisition and capital expenditure plans, as well as our discussion of operations“Factors Which May Influence Future Results of Operations,” contain forward-looking statements. Likewise, all of our statements regarding anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
the impact of the ongoingrecent deterioration in global economic, credit and market conditions;
downturn ofcurrent local economic conditions in our geographic markets;
decreases in information technology spending, including as a result of economic slowdowns or recession;
adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges);
our dependence upon significant tenants;
bankruptcy or insolvency of a major tenant or a significant number of smaller tenants;
defaults on or non-renewal of leases by tenants;
our failure to obtain necessary debt and equity financing;
increased interest rates and operating costs;
risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements;
financial market fluctuations;
changes in foreign currency exchange rates;
our inability to manage our growth effectively;
difficulty acquiring or operating properties in foreign jurisdictions;
our failure to successfully integrate and operate acquired or redeveloped properties;
risks related to joint venture investments, including as a result of our lack of control of such investments;
delays or unexpected costs in development or redevelopment of properties;
decreased rental rates or increased vacancy rates;
increased competition or available supply of data center space;
our inability to successfully develop and lease new properties and space held for redevelopment;
difficulties in identifying properties to acquire and completing acquisitions;
our inability to acquire off-market properties;
our inability to comply with the rules and regulations applicable to publicreporting companies;
ourDigital Realty Trust, Inc.’s failure to maintain ourits status as a REIT;
possible adverse changes to tax laws;
restrictions on our ability to engage in certain business activities;
environmental uncertainties and risks related to natural disasters;
losses in excess of our insurance coverage;
changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and
changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates.
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report, including under Part I, Item 1A, Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. While forward-looking statements reflect our good faith beliefs, they are not guaranties of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the sections above.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
ITEM 2. | PROPERTIES |
Our Portfolio
As of December 31, 2009,2010, we owned 8196 properties, through our operating partnership, excluding one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture.ventures. These properties are primarilymainly located throughout North America,the U.S., with 1314 properties located in Europe, one property in Asia and one property in Canada, and contain a total of approximately 14.416.8 million net rentable square feet, including 1.82.2 million square feet held for redevelopment. The following table presents an overview of our portfolio of properties, excluding the one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture,ventures, based on information as of December 31, 2009.2010. All properties are held in fee simple except as otherwise indicated. Please refer to note 67 in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of all applicable encumbrances as of December 31, 2009.2010.
Property(1) | Acquisition | Metropolitan Area | Net Rentable Square Feet Excluding Redevelopment Space(2) | Redevelopment Space(3) | Annualized Rent ($000)(4) | Percent Leased(5) | Annualized Rent per Occupied Square Foot ($)(6) | Acquisition | Metropolitan Area | Net Rentable Square Feet Excluding Redevelopment Space(2) | Redevelopment Space(3) | Annualized Rent ($000)(4) | Percent Leased(5) | Annualized Rent per Occupied Square Foot ($)(6) | |||||||||||||||||||||||||
Internet Gateways | |||||||||||||||||||||||||||||||||||||||
350 East Cermak Road | May-05 | Chicago | 1,122,749 | 10,990 | 53,922 | 92.3 | % | 52.01 | May-05 | Chicago | 1,129,226 | 4,513 | 62,780 | 96.8 | % | 57.41 | |||||||||||||||||||||||
365 Main Street | Jul-10 | San Francisco | 226,981 | — | 26,146 | 84.9 | % | 135.66 | |||||||||||||||||||||||||||||||
200 Paul Avenue 1-4 | Nov-04 | San Francisco | 436,299 | 91,381 | 24,025 | 99.9 | % | 55.11 | Nov-04 | San Francisco | 494,120 | 33,560 | 26,080 | 96.6 | % | 54.63 | |||||||||||||||||||||||
120 E. Van Buren Street | Jul-06 | Phoenix | 254,497 | 33,017 | 21,556 | 97.7 | % | 86.65 | Jul-06 | Phoenix | 254,497 | 33,017 | 21,196 | 97.3 | % | 85.59 | |||||||||||||||||||||||
111 8th Avenue(7) | Mar-07 | New York/New Jersey | 116,843 | — | 18,663 | 100.0 | % | 159.73 | |||||||||||||||||||||||||||||||
600 West Seventh Street | May-04 | Los Angeles | 482,089 | 7,633 | 17,201 | 95.3 | % | 37.44 | May-04 | Los Angeles | 482,089 | 7,633 | 18,201 | 95.8 | % | 39.41 | |||||||||||||||||||||||
114 Rue Ambroise Croizat(8) | Dec-06 | Paris, France | 300,622 | 51,524 | 15,762 | 90.1 | % | 58.17 | Dec-06 | Paris, France | 332,300 | 19,846 | 16,885 | 91.9 | % | 55.28 | |||||||||||||||||||||||
111 8th Avenue(7) | Mar-07 | New York/New Jersey | 116,843 | — | 15,381 | 100.0 | % | 131.64 | |||||||||||||||||||||||||||||||
2323 Bryan Street | Jan-02 | Dallas | 457,217 | 19,890 | 14,465 | 76.7 | % | 41.22 | Jan-02 | Dallas | 457,217 | 19,890 | 14,608 | 74.2 | % | 43.07 | |||||||||||||||||||||||
1100 Space Park Drive | Nov-04 | Silicon Valley | 165,297 | — | 7,764 | 100.0 | % | 46.97 | Nov-04 | Silicon Valley | 165,297 | — | 7,997 | 100.0 | % | 48.38 | |||||||||||||||||||||||
600-780 S. Federal | Sep-05 | Chicago | 161,547 | — | 6,408 | 64.6 | % | 61.39 | |||||||||||||||||||||||||||||||
36 NE 2nd Street | Jan-02 | Miami | 162,140 | — | 5,243 | 95.9 | % | 33.74 | Jan-02 | Miami | 162,140 | — | 4,787 | 95.9 | % | 30.80 | |||||||||||||||||||||||
600-780 S. Federal | Sep-05 | Chicago | 161,547 | — | 4,859 | 69.4 | % | 43.35 | |||||||||||||||||||||||||||||||
6 Braham Street(9) | Jul-02 | London, England | 63,233 | — | 4,602 | 100.0 | % | 72.78 | Jul-02 | London, England | 63,233 | — | 4,583 | 100.0 | % | 72.48 | |||||||||||||||||||||||
900 Walnut Street | Aug-07 | St. Louis | 112,266 | — | 3,712 | 97.3 | % | 33.98 | Aug-07 | St. Louis | 112,266 | — | 4,160 | 98.5 | % | 37.63 | |||||||||||||||||||||||
125 North Myers | Aug-05 | Charlotte | 25,402 | — | 1,244 | 100.0 | % | 48.97 | Aug-05 | Charlotte | 25,402 | — | 1,282 | 100.0 | % | 50.47 | |||||||||||||||||||||||
731 East Trade Street | Aug-05 | Charlotte | 40,879 | — | 1,200 | 100.0 | % | 29.35 | Aug-05 | Charlotte | 40,879 | — | 1,236 | 100.0 | % | 30.24 | |||||||||||||||||||||||
113 North Myers | Aug-05 | Charlotte | 20,086 | 9,132 | 678 | 100.0 | % | 33.75 | Aug-05 | Charlotte | 29,218 | — | 842 | 100.0 | % | 28.82 | |||||||||||||||||||||||
3,921,166 | 223,567 | 194,896 | 92.1 | % | 53.97 | 4,253,255 | 118,459 | 232,572 | 92.4 | % | 59.19 | ||||||||||||||||||||||||||||
Corporate Datacenters | |||||||||||||||||||||||||||||||||||||||
43881 Devin Shafron Drive | Mar-07 | Northern Virginia | 180,000 | — | 17,607 | 98.5 | % | 99.35 | |||||||||||||||||||||||||||||||
Data Centers | |||||||||||||||||||||||||||||||||||||||
2121 South Price Road | Jul-10 | Phoenix | 293,479 | — | 31,701 | 97.8 | % | 110.40 | |||||||||||||||||||||||||||||||
128 First Avenue | Jan-10 | Boston | 274,750 | — | 21,630 | 99.6 | % | 79.05 | |||||||||||||||||||||||||||||||
720 2nd Street | Jul-10 | San Francisco | 121,220 | — | 18,413 | 97.3 | % | 156.19 | |||||||||||||||||||||||||||||||
43881 Devon Shafron Drive | Mar-07 | Northern Virginia | 180,000 | — | 18,336 | 98.5 | % | 103.46 | |||||||||||||||||||||||||||||||
3 Corporate Place | Dec-05 | New York/New Jersey | 276,931 | — | 15,425 | 95.9 | % | 58.07 | Dec-05 | New York/New Jersey | 276,931 | — | 15,943 | 96.1 | % | 59.89 | |||||||||||||||||||||||
43915 Devin Shafron Drive | Jan-00 | Northern Virginia | 123,051 | 9,229 | 14,886 | 100.0 | % | 120.97 | |||||||||||||||||||||||||||||||
300 Boulevard East | Nov-02 | New York/New Jersey | 311,950 | — | 14,214 | 100.0 | % | 45.56 | Nov-02 | New York/New Jersey | 311,950 | — | 14,736 | 100.0 | % | 47.24 | |||||||||||||||||||||||
2440 Marsh Lane | Jan-03 | Dallas | 135,250 | — | 14,249 | 100.0 | % | 105.35 | |||||||||||||||||||||||||||||||
60 & 80 Merritt | Jan-10 | New York/New Jersey | 169,540 | — | 12,252 | 100.0 | % | 72.27 | |||||||||||||||||||||||||||||||
833 Chestnut Street | Mar-05 | Philadelphia | 588,770 | 65,988 | 11,366 | 86.4 | % | 22.36 | Mar-05 | Philadelphia | 588,770 | 65,988 | 11,468 | 85.5 | % | 22.77 | |||||||||||||||||||||||
2440 Marsh Lane | Jan-03 | Dallas | 135,250 | — | 11,223 | 80.7 | % | 102.85 | |||||||||||||||||||||||||||||||
2260 East El Segundo Boulevard | Jul-10 | Los Angeles | 132,240 | — | 10,849 | 100.0 | % | 82.04 | |||||||||||||||||||||||||||||||
43791 Devin Shafron Drive | Mar-07 | Northern Virginia | 132,806 | 2,194 | 9,888 | 100.0 | % | 74.45 | Mar-07 | Northern Virginia | 132,806 | 2,194 | 10,184 | 100.0 | % | 76.68 | |||||||||||||||||||||||
55 Middlesex | Jan-10 | Boston | 106,000 | — | 10,061 | 87.9 | % | 107.96 | |||||||||||||||||||||||||||||||
1350 Duane Avenue/3080 Raymond Street | Oct-09 | Silicon Valley | 185,000 | — | 9,438 | 100.0 | % | 51.01 | Oct-09 | Silicon Valley | 185,000 | — | 9,708 | 100.0 | % | 52.48 | |||||||||||||||||||||||
3011 Lafayette Street | Jan-07 | Silicon Valley | 90,780 | — | 9,376 | 100.0 | % | 103.28 | |||||||||||||||||||||||||||||||
Clonshaugh Industrial Estate II(8) | Feb-06 | Dublin, Ireland | 124,500 | — | 9,206 | 100.0 | % | 73.94 | |||||||||||||||||||||||||||||||
Unit 9, Blanchardstown Corporate Park(8) | Dec-06 | Dublin, Ireland | 120,000 | — | 8,850 | 86.2 | % | 85.55 | |||||||||||||||||||||||||||||||
1500 Space Park Drive | Sep-07 | Silicon Valley | 51,615 | — | 8,534 | 100.0 | % | 165.34 | |||||||||||||||||||||||||||||||
1525 Comstock Street | Sep-07 | Silicon Valley | 42,385 | — | 8,429 | 100.0 | % | 198.87 | |||||||||||||||||||||||||||||||
4025 Midway Road | Jan-06 | Dallas | 87,964 | 12,626 | 8,232 | 99.8 | % | 93.79 | |||||||||||||||||||||||||||||||
2055 East Technology Circle(11) | Oct-06 | Phoenix | 76,350 | — | 7,553 | 100.0 | % | 98.93 | |||||||||||||||||||||||||||||||
Mundells Roundabout(9) | Apr-07 | London, England | 113,464 | — | 7,316 | 100.0 | % | 64.48 | |||||||||||||||||||||||||||||||
150 South First Street | Sep-04 | Silicon Valley | 179,761 | — | 6,731 | 100.0 | % | 37.44 | |||||||||||||||||||||||||||||||
2045 & 2055 LaFayette Street | May-04 | Silicon Valley | 300,000 | — | 6,660 | 100.0 | % | 22.20 | |||||||||||||||||||||||||||||||
11830 Webb Chapel Road | Aug-04 | Dallas | 365,647 | — | 6,049 | 96.6 | % | 17.12 |
Property(1) Acquisition Metropolitan Area Cressex1(9) 14901 FAA Boulevard 2334 Lundy Place 375 Riverside Parkway 45901 & 45845 Nokes Boulevard 1201 Comstock Street 3 St. Anne’s Boulevard(9) 44470 Chillum Place 12001 North Freeway 115 Second Avenue 2401 Walsh Street 8534 Concord Center Drive 365 S. Randolphville Road Naritaweg 52(8)(10) 21110 Ridgetop Circle 21561 & 21571 Beaumeade Circle 1807 Michael Faraday Court 210 N. Tucker Boulevard 200 North Nash Street Paul van Vlissingenstraat 16(8) 2403 Walsh Street 4700 Old Ironsides Drive Manchester Technopark(9) 444 Toyama Drive 4650 Old Ironsides Drive Chemin de l’Epinglier 2(8) 7505 Mason King Court 3015 Winona Avenue 3065 Gold Camp Drive 251 Exchange Place 6800 Millcreek Drive Clonshaugh Industrial Estate(8) 43831 Devin Shafron Drive 1125 Energy Park Drive 3300 East Birch Street 101 Aquila Way Gyroscoopweg 2E-2F(8) Property(1) Acquisition Metropolitan Area 3011 Lafayette Street Unit 9, Blanchardstown Corporate Park(8) 1500 Space Park Drive Clonshaugh Industrial Estate II(8) 1525 Comstock Street 4025 Midway Road 365 S. Randolphville Road 2055 East Technology Circle(11) 11830 Webb Chapel Road Mundells Roundabout(9) 375 Riverside Parkway 2045 & 2055 LaFayette Street Cressex 1(9) 150 South First Street 3 St. Anne’s Boulevard(9) 4030-4050 La Fayette 14901 FAA Boulevard 2334 Lundy Place 1232 Alma Road 45901 & 45845 Nokes Boulevard 1201 Comstock Street 44470 Chillum Place 12001 North Freeway 115 Second Avenue 2401 Walsh Street 8534 Concord Center Drive 2950 Zanker Road 4849 Alpha Road 21110 Ridgetop Circle 21561 & 21571 Beaumeade Circle 1807 Michael Faraday Court Naritaweg 52(8)(10) 210 N. Tucker Boulevard
date Net
Rentable
Square Feet
Excluding
Redevelopment
Space(2) Redevelopment
Space(3) Annualized
Rent
($000)(4) Percent
Leased(5) Annualized
Rent per
Occupied
Square
Foot
($)(6) Dec-07 London, England 50,847 — 4,741 90.6 % 102.89 Jun-06 Dallas 263,700 — 4,700 100.0 % 17.82 Dec-02 Silicon Valley 130,752 — 4,600 100.0 % 35.18 Jun-03 Atlanta 220,016 30,175 4,480 100.0 % 20.36 Dec-09 Northern Virginia 167,160 — 4,221 100.0 % 25.25 Jun-08 Silicon Valley 24,000 — 4,197 100.0 % 174.88 Dec-07 London, England 19,890 76,494 4,108 100.0 % 206.54 Feb-07 Northern Virginia 95,440 — 4,103 100.0 % 42.99 Apr-06 Houston 280,483 20,222 3,815 75.4 % 18.03 Oct-05 Boston 66,730 — 3,437 100.0 % 51.51 Jun-05 Silicon Valley 167,932 — 3,407 100.0 % 20.29 Jun-05 Denver 85,660 — 3,362 100.0 % 39.25 Feb-08 New York/New Jersey 38,262 226,530 3,104 50.6 % 160.38 Dec-07 Amsterdam, Netherlands 63,260 — 2,745 100.0 % 43.39 Jan-07 Northern Virginia 135,513 — 2,660 100.0 % 19.63 Dec-09 Northern Virginia 164,453 — 2,604 100.0 % 15.83 Oct-06 Northern Virginia 19,237 — 2,476 97.1 % 132.50 Aug-07 St. Louis 139,588 62,000 2,339 78.4 % 21.37 Jun-05 Los Angeles 113,606 — 2,305 100.0 % 20.29 Aug-05 Amsterdam, Netherlands 77,472 35,000 2,258 58.8 % 49.58 Jun-05 Silicon Valley 103,940 — 2,109 100.0 % 20.29 Jun-05 Silicon Valley 90,139 — 1,829 100.0 % 20.29 Jun-08 Manchester, England 38,016 — 1,778 100.0 % 46.77 Sep-09 Silicon Valley 42,083 — 1,725 100.0 % 40.99 Jun-05 Silicon Valley 84,383 — 1,712 100.0 % 20.29 Nov-05 Geneva, Switzerland 59,190 — 1,711 100.0 % 28.91 Nov-08 Northern Virginia 109,650 — 1,694 100.0 % 15.45 Dec-04 Los Angeles 82,911 — 1,592 100.0 % 19.20 Oct-04 Sacramento 62,957 — 1,555 100.0 % 24.70 Nov-05 Northern Virginia 70,982 — 1,547 100.0 % 21.79 Apr-06 Toronto, Canada 83,758 — 1,530 100.0 % 18.27 Feb-06 Dublin, Ireland 20,000 — 1,503 100.0 % 75.15 Mar-07 Northern Virginia 117,071 — 1,439 100.0 % 12.29 Mar-05 Minneapolis/St. Paul 112,827 — 1,437 100.0 % 12.74 Aug-03 Los Angeles 68,807 — 1,415 100.0 % 20.56 Apr-06 Atlanta 313,581 — 1,411 100.0 % 4.50 Jul-06 Amsterdam, Netherlands 55,585 — 1,260 100.0 % 22.67
date Net
Rentable
Square Feet
Excluding
Redevelopment
Space(2) Redevelopment
Space(3) Annualized
Rent
($000)(4) Percent
Leased(5) Annualized
Rent per
Occupied
Square
Foot
($)(6) Jan-07 Silicon Valley 90,780 — 9,658 100.0 % 106.39 Dec-06 Dublin, Ireland 111,691 8,309 8,898 99.0 % 80.46 Sep-07 Silicon Valley 51,615 — 8,790 100.0 % 170.30 Feb-06 Dublin, Ireland 124,500 — 8,692 100.0 % 69.82 Sep-07 Silicon Valley 42,385 — 8,682 100.0 % 204.84 Jan-06 Dallas 90,058 10,532 8,497 100.0 % 94.35 Feb-08 New York/New Jersey 77,085 187,707 8,833 74.5 % 153.75 Oct-06 Phoenix 76,350 — 7,785 100.0 % 101.96 Aug-04 Dallas 365,647 — 7,367 96.6 % 20.86 Apr-07 London, England 113,464 — 7,285 100.0 % 64.21 Jun-03 Atlanta 248,268 1,923 7,209 100.0 % 29.04 May-04 Silicon Valley 300,000 — 6,840 100.0 % 22.80 Dec-07 London, England 50,847 — 6,676 100.0 % 131.30 Sep-04 Silicon Valley 179,761 — 6,650 98.3 % 37.64 Dec-07 London, England 62,143 34,241 6,208 46.9 % 212.84 Jul-10 Northern Virginia 103,029 42,374 6,121 100.0 % 59.41 Jun-06 Dallas 263,700 — 4,817 100.0 % 18.27 Dec-02 Silicon Valley 130,752 — 4,784 100.0 % 36.59 Sep-09 Dallas 88,248 17,478 4,415 81.1 % 61.68 Dec-09 Northern Virginia 167,160 — 4,347 100.0 % 26.01 Jun-08 Silicon Valley 24,000 — 4,335 100.0 % 180.63 Feb-07 Northern Virginia 95,440 — 4,206 100.0 % 44.07 Apr-06 Houston 280,483 20,222 4,019 75.4 % 18.99 Oct-05 Boston 66,730 — 3,540 100.0 % 53.05 Jun-05 Silicon Valley 167,932 — 3,509 100.0 % 20.90 Jun-05 Denver 85,660 — 3,463 100.0 % 40.43 Aug-10 Silicon Valley 69,700 — 2,884 100.0 % 41.38 Apr-04 Dallas 84,552 40,986 2,860 100.0 % 33.83 Jan-07 Northern Virginia 135,513 — 2,739 100.0 % 20.21 Dec-09 Northern Virginia 164,453 — 2,682 100.0 % 16.31 Oct-06 Northern Virginia 19,237 — 2,613 100.0 % 135.83 Dec-07 Amsterdam, Netherlands 63,260 — 2,596 100.0 % 41.04 Aug-07 St. Louis 153,588 48,000 2,420 80.0 % 19.69
Property(1) Acquisition Metropolitan Area 8100 Boone Boulevard(7) 600 Winter Street 2300 NW 89th Place 7620 Metro Center Drive 1 St. Anne’s Boulevard(9) 7500 Metro Center Drive 650 Randolph Road 904 Quality Way 905 Security Row 1232 Alma Road 900 Quality Way 1400 N. Bowser Road 1301 International Parkway Technology Manufacturing 34551 Ardenwood Boulevard 1-4 47700 Kato Road & 1055 Page Avenue 2010 East Centennial Circle(12) 2 St. Anne’s Boulevard Technology Office 100 & 200 Quannapowitt Parkway 4849 Alpha Road 1 Savvis Parkway 908 Quality Way Portfolio Total/Weighted Average Property(1) Acquisition Metropolitan Area 200 North Nash Street 1725 Comstock Street Paul van Vlissingenstraat 16(8) 2403 Walsh Street Manchester Technopark(9) 4700 Old Ironsides Drive 444 Toyama Drive 4650 Old Ironsides Drive 7505 Mason King Court 29A International Business Park(13) Chemin de l’Epinglier 2(8) 3015 Winona Avenue 251 Exchange Place 6800 Millcreek Drive 900 Dorothy Drive 43831 Devin Shafron Drive 3300 East Birch Street Clonshaugh Industrial Estate I(8) 1125 Energy Park Drive 101 Aquila Way Gyroscoopweg 2E-2F(8) 8100 Boone Boulevard(7) 600 Winter Street 2300 NW 89th Place 7620 Metro Center Drive 3065 Gold Camp Drive 1 St. Anne’s Boulevard(9) 905 Security Row 1400 N. Bowser Road 800 Central Expressway 650 Randolph Road 900 Quality Way 7500 Metro Center Drive
date Net
Rentable
Square Feet
Excluding
Redevelopment
Space(2) Redevelopment
Space(3) Annualized
Rent
($000)(4) Percent
Leased(5) Annualized
Rent per
Occupied
Square
Foot
($)(6) Oct-06 Northern Virginia 17,015 — 839 100.0 % 49.31 Sep-06 Boston 30,400 — 794 100.0 % 26.12 Sep-06 Miami 64,174 — 616 100.0 % 9.60 Dec-05 Austin 45,000 — 605 100.0 % 13.44 Dec-07 London, England 20,219 — 267 100.0 % 13.21 Dec-05 Austin — 74,962 — 0.0 % — Jun-08 New York/New Jersey — 127,790 — 0.0 % — Sep-09 Dallas — 46,750 — 0.0 % — Sep-09 Dallas — 249,657 — 0.0 % — Sep-09 Dallas — 105,726 — 0.0 % — Sep-09 Dallas — 112,253 — 0.0 % — Sep-09 Dallas — 246,940 — 0.0 % — Sep-09 Dallas — 20,500 — 0.0 % — 7,379,862 1,515,807 276,127 95.9 % 39.03 Jan-03 Silicon Valley 307,657 — 8,775 100.0 % 28.52 Sep-03 Silicon Valley 183,050 — 3,908 100.0 % 21.35 May-03 Phoenix 113,405 — 2,852 100.0 % 25.15 Dec-07 London, England — 30,612 — 0.0 % — 604,112 30,612 15,535 100.0 % 25.71 Jun-04 Boston 386,956 — 7,222 94.9 % 19.68 Apr-04 Dallas 125,538 — 2,856 100.0 % 22.75 Aug-07 St. Louis 156,000 — 2,644 100.0 % 16.95 Sep-09 Dallas — 14,400 — 0.0 % — 668,494 14,400 12,722 97.0 % 19.62 12,573,634 1,784,386 $ 499,280 95.0 % 41.82
date Net
Rentable
Square Feet
Excluding
Redevelopment
Space(2) Redevelopment
Space(3) Annualized
Rent
($000)(4) Percent
Leased(5) Annualized
Rent per
Occupied
Square
Foot
($)(6) Jun-05 Los Angeles 113,606 — 2,374 100.0 % 20.90 Jan-00 Silicon Valley 39,643 — 2,177 38.6 % 142.23 Aug-05 Amsterdam, Netherlands 77,472 35,000 2,172 58.8 % 47.69 Jun-05 Silicon Valley 103,940 — 2,172 100.0 % 20.90 Jun-08 Manchester, England 38,016 — 1,982 100.0 % 52.14 Jun-05 Silicon Valley 90,139 — 1,884 100.0 % 20.90 Sep-09 Silicon Valley 42,083 — 1,777 100.0 % 42.23 Jun-05 Silicon Valley 84,383 — 1,763 100.0 % 20.89 Nov-08 Northern Virginia 109,650 — 1,735 100.0 % 15.82 Nov-10 Singapore 61,578 308,922 1,674 16.8 % 162.01 Nov-05 Geneva, Switzerland 59,190 — 1,646 100.0 % 27.81 Dec-04 Los Angeles 82,911 — 1,640 100.0 % 19.78 Nov-05 Northern Virginia 70,982 — 1,593 100.0 % 22.44 Apr-06 Toronto, Canada 83,758 — 1,576 100.0 % 18.82 Aug-10 Dallas 56,176 — 1,475 100.0 % 26.26 Mar-07 Northern Virginia 117,071 — 1,472 100.0 % 12.57 Aug-03 Los Angeles 68,807 — 1,458 100.0 % 21.19 Feb-06 Dublin, Ireland 20,000 — 1,445 100.0 % 72.25 Mar-05 Minneapolis/St. Paul 112,827 — 1,437 100.0 % 12.74 Apr-06 Atlanta 313,581 — 1,411 100.0 % 4.50 Jul-06 Amsterdam, Netherlands 55,585 — 1,177 100.0 % 21.17 Oct-06 Northern Virginia 17,015 — 931 100.0 % 54.72 Sep-06 Boston 30,400 — 810 100.0 % 26.64 Sep-06 Miami 64,174 — 635 100.0 % 9.89 Dec-05 Austin 45,000 — 605 100.0 % 13.44 Oct-04 Sacramento 62,957 — 280 21.1 % 21.04 Dec-07 London, England 20,219 — 266 100.0 % 13.16 Sep-09 Dallas — 249,657 — 0.0 % — Sep-09 Dallas — 246,940 — 0.0 % — Aug-10 Silicon Valley — 150,000 — 0.0 % — Jun-08 New York/New Jersey — 127,790 — 0.0 % — Sep-09 Dallas — 112,253 — 0.0 % — Dec-05 Austin — 74,962 — 0.0 % —
Property(1) Acquisition Metropolitan Area Cateringweg 5(8) 3105 and 3115 Alfred Street 904 Quality Way 1301 International Parkway Technology Manufacturing 34551 Ardenwood Boulevard 1-4 47700 Kato Road & 1055 Page Avenue 2010 East Centennial Circle(12) 2 St. Anne’s Boulevard Technology Office 100 & 200 Quannapowitt Parkway 1 Savvis Parkway 908 Quality Way Portfolio Total/Weighted Average
date Net
Rentable
Square Feet
Excluding
Redevelopment
Space(2) Redevelopment
Space(3) Annualized
Rent
($000)(4) Percent
Leased(5) Annualized
Rent per
Occupied
Square
Foot
($)(6) Jun-10 Amsterdam, Netherlands — 55,972 — 0.0 % — May-10 Silicon Valley — 49,858 — 0.0 % — Sep-09 Dallas — 46,750 — 0.0 % — Sep-09 Dallas — 20,500 — 0.0 % — 9,220,181 1,967,787 438,403 95.0 % 50.07 Jan-03 Silicon Valley 307,657 — 9,077 100.0 % 29.50 Sep-03 Silicon Valley 183,050 — 4,025 100.0 % 21.99 May-03 Phoenix 113,405 — 2,852 100.0 % 25.15 Dec-07 London, England — 30,612 — 0.0 % — 604,112 30,612 15,954 100.0 % 26.41 Jun-04 Boston 336,966 49,990 6,750 100.0 % 20.03 Aug-07 St. Louis 156,000 — 2,644 100.0 % 16.95 Sep-09 Dallas 14,400 — 24 100.0 % 1.67 507,366 49,990 9,418 100.0 % 18.56 14,584,914 2,166,848 $ 696,347 94.6 % 50.48
(1) | We have categorized the properties in our portfolio by their principal use based on annualized rent. However, many of our properties support multiple uses. |
(2) | Net rentable square feet at a building represents the current square feet at that building under lease as specified in the lease agreements plus management’s estimate of space available for lease based on engineering drawings. Net rentable square feet includes tenants’ proportional share of common areas but excludes space held for redevelopment. |
(3) | Redevelopment space is unoccupied space that requires significant capital investment in order to develop datacenter facilities that are ready for use. Most often this is shell space. However, in certain circumstances this may include partially built datacenter space that was not completed by previous ownership or tenants and requires a large capital investment in order to build out the space. |
(4) | Annualized rent represents the monthly contractual rent under existing leases as of December 31, |
(5) | Excludes space held for redevelopment. Includes unoccupied space for which we are receiving rent and excludes space for which leases had been executed as of December 31, |
(6) | Annualized rent per square foot represents annualized rent as computed above, divided by the total square footage under lease as of the same date. |
(7) | 111 Eighth Avenue (2nd and 6th floors), 8100 Boone Boulevard and 111 Eighth Avenue (3rd and 7th floors) are leased by us pursuant to leases that expire in June 2014, September 2017 and February 2022, respectively. |
(8) | Rental amounts for Unit 9, Blanchardstown Corporate Park, 114 Rue Ambroise Croizat, Naritaweg 52, Paul van Vlissingenstraat 16, Chemin de l’Epinglier 2, Clonshaugh Industrial Estate |
(9) | Rental amounts for 6 Braham Street, Mundells Roundabout, Cressex 1, Manchester Technopark, 1 St. Anne’s Boulevard and 3 St. Anne’s Boulevard were calculated based on the exchange rate in effect on December 31, |
(10) | We are party to a ground sublease for this property. This is a perpetual ground sublease. Lease payments were prepaid by the prior owner of this property through December 2036. |
(11) | We are party to a ground sublease for this property. The term of the ground sublease expires in September 2083. All of the lease payments were prepaid by the prior owner of this property. |
(12) | We are party to a ground sublease for this property. The term of the ground sublease expires in the year 2082. |
(13) | Rental amounts for 29A International Business Park were calculated based on the exchange rate in effect on December 31, 2010 of $0.78 to S$1.00. 29A International Business Park is subject to a ground lease, which expires in the year 2038. Net rentable square feet excluding redevelopment space includes approximately 50,000 square feet of support space. |
Tenant Diversification
As of December 31, 20092010, our portfolio was leased to approximately 325540 companies, many of which are nationally recognized firms. The following table sets forth information regarding the 20 largest tenants in our portfolio based on annualized rent as of December 31, 2009.2010 (dollar amounts in thousands).
Tenant | Number of Locations | Total Occupied Square Feet(1) | Percentage of Net Rentable Square Feet | Annualized Rent(2) | Percentage of Annualized Rent | Weighted Average Remaining Lease Term in Months | Tenant | Number of Locations | Total Occupied Square Feet(1) | Percentage of Net Rentable Square Feet | Annualized Rent(2) | Percentage of Annualized Rent | Weighted Average Remaining Lease Term in Months | ||||||||||||||||||||||||||||||
1 | Savvis Communications | 18 | 1,868,799 | 14.9 | % | $ | 48,792 | 9.8 | % | 112 | Savvis Communications | 19 | 2,001,233 | 13.7 | % | $ | 54,813 | 7.9 | % | 101 | |||||||||||||||||||||||
2 | Equinix Operating Company, Inc. | 4 | 607,401 | 4.8 | % | 24,975 | 5.0 | % | 95 | Equinix Operating Company, Inc. | 8 | 736,950 | 5.1 | % | 29,934 | 4.3 | % | 87 | |||||||||||||||||||||||||
3 | Qwest Communications International, Inc. | 15 | 637,712 | 5.1 | % | 20,402 | 4.1 | % | 70 | Facebook, Inc. | 4 | 229,007 | 1.6 | % | 29,683 | 4.3 | % | 92 | |||||||||||||||||||||||||
4 | Facebook, Inc. | 3 | 134,999 | 1.1 | % | 17,809 | 3.6 | % | 89 | TelX Group, Inc. | 11 | 202,987 | 1.4 | % | 23,341 | 3.4 | % | 185 | |||||||||||||||||||||||||
5 | NTT Communications Company | 4 | 295,339 | 2.3 | % | 16,820 | 3.4 | % | 63 | Morgan Stanley | 5 | 155,481 | 1.1 | % | 23,099 | 3.3 | % | 43 | |||||||||||||||||||||||||
6 | TelX Group, Inc. | 10 | 126,130 | 1.0 | % | 16,148 | 3.2 | % | 203 | Qwest Communications International, Inc. | 17 | 635,584 | 4.4 | % | 21,090 | 3.0 | % | 70 | |||||||||||||||||||||||||
7 | AT & T | 14 | 553,828 | 4.4 | % | 14,533 | 2.9 | % | 106 | NTT Communications Company | 5 | 307,887 | 2.1 | % | 18,772 | 2.7 | % | 53 | |||||||||||||||||||||||||
8 | JPMorgan Chase & Co. | 3 | 149,935 | 1.2 | % | 14,437 | 2.9 | % | 120 | AT & T | 18 | 610,384 | 4.2 | % | 17,629 | 2.5 | % | 94 | |||||||||||||||||||||||||
9 | Morgan Stanley | 2 | 92,451 | 0.7 | % | 13,689 | 2.7 | % | 49 | Level 3 Communications, LLC | 25 | 327,090 | 2.2 | % | 12,204 | 1.8 | % | 117 | |||||||||||||||||||||||||
10 | Level 3 Communications, LLC(3) | 20 | 318,656 | 2.5 | % | 11,537 | 2.3 | % | 107 | Pfizer, Inc. | 1 | 87,049 | 0.6 | % | 11,201 | 1.6 | % | 84 | |||||||||||||||||||||||||
11 | Yahoo! Inc. | 2 | 110,847 | 0.9 | % | 9,763 | 1.9 | % | 94 | Yahoo! Inc. | 2 | 110,847 | 0.8 | % | 10,056 | 1.4 | % | 82 | |||||||||||||||||||||||||
12 | eircom Limited | 1 | 124,500 | 1.0 | % | 9,206 | 1.8 | % | 115 | Microsoft Corporation | 3 | 329,254 | 2.3 | % | 10,028 | 1.4 | % | 56 | |||||||||||||||||||||||||
13 | BT Americas, Inc. | 3 | 47,286 | 0.4 | % | 8,981 | 1.8 | % | 96 | TATA Communications (UK) | 2 | 105,366 | 0.7 | % | 9,925 | 1.4 | % | 84 | |||||||||||||||||||||||||
14 | Sprint Communications Co., LP | 6 | 173,319 | 1.4 | % | 8,891 | 1.8 | % | 57 | BT Americas, Inc. | 3 | 67,685 | 0.5 | % | 9,285 | 1.3 | % | 77 | |||||||||||||||||||||||||
15 | T-Systems North America, Inc. | 3 | 82,610 | 0.7 | % | 8,826 | 1.8 | % | 48 | Sprint Communications Co., LP | 6 | 173,319 | 1.2 | % | 9,159 | 1.3 | % | 45 | |||||||||||||||||||||||||
16 | Microsoft Corporation | 2 | 313,485 | 2.5 | % | 8,178 | 1.6 | % | 67 | JPMorgan Chase & Co. | 2 | 117,953 | 0.8 | % | 9,113 | 1.3 | % | 137 | |||||||||||||||||||||||||
17 | TATA Communications (UK) | 2 | 105,366 | 0.8 | % | 7,895 | 1.6 | % | 99 | eircom Limited | 1 | 124,500 | 0.9 | % | 8,692 | 1.2 | % | 103 | |||||||||||||||||||||||||
18 | Carpathia Hosting | 3 | 51,784 | 0.4 | % | 7,832 | 1.6 | % | 89 | T-Systems North America, Inc. | 2 | 77,610 | 0.5 | % | 8,145 | 1.2 | % | 39 | |||||||||||||||||||||||||
19 | HSBC Bank PLC | 1 | 113,464 | 0.9 | % | 7,316 | 1.5 | % | 168 | Internap | 4 | 56,583 | 0.4 | % | 8,099 | 1.2 | % | 33 | |||||||||||||||||||||||||
20 | Comverse Technology, Inc. | 1 | 367,033 | 2.9 | % | 7,222 | 1.4 | % | 13 | Carpathia Hosting | 3 | 51,784 | 0.4 | % | 8,068 | 1.2 | % | 77 | |||||||||||||||||||||||||
Total/Weighted Average | 6,274,944 | 49.9 | % | $ | 283,252 | 56.7 | % | 93 | Total/Weighted Average | 6,508,553 | 44.9 | % | $ | 332,336 | 47.7 | % | 89 | ||||||||||||||||||||||||||
(1) | Occupied square footage is |
(2) | Annualized rent represents the monthly contractual rent under existing leases as of December 31, |
Lease Distribution
The following table sets forth information relating to the distribution of leases in the properties in our portfolio, based on net rentable square feet (excluding spaceapproximately 2.2 million square feet held for redevelopment)redevelopment at December 31, 2010) under lease as of December 31, 2009.2010.
Square Feet Under Lease | Number of Leases(2) | Percentage of All Leases | Total Net Rentable Square Feet(3) | Percentage of Net Rentable Square Feet(3) | Annualized Rent ($000)(4) | Percentage of Annualized Rent | Number of Leases(1) | Percentage of All Leases | Total Net Rentable Square Feet(2) | Percentage of Net Rentable Square Feet(2) | Annualized Rent ($000)(3) | Percentage of Annualized Rent | ||||||||||||||||||||||||||||
Available | 634,657 | 5.0 | % | $ | — | 0.0 | % | 789,108 | 5.4 | % | $ | — | 0.0 | % | ||||||||||||||||||||||||||
2,500 or less | 577 | 59.3 | % | 305,105 | 2.4 | % | 40,249 | 8.1 | % | 1,011 | 65.6 | % | 437,892 | 3.0 | % | 53,289 | 7.6 | % | ||||||||||||||||||||||
2,501 - 10,000 | 186 | 19.1 | % | 1,062,901 | 8.5 | % | 70,103 | 14.0 | % | 262 | 17.0 | % | 1,523,162 | 10.4 | % | 127,578 | 18.3 | % | ||||||||||||||||||||||
10,001 - 20,000 | 72 | 7.4 | % | 1,303,327 | 10.4 | % | 69,531 | 13.9 | % | 107 | 7.0 | % | 1,851,657 | 12.7 | % | 132,989 | 19.1 | % | ||||||||||||||||||||||
20,001 - 40,000 | 60 | 6.2 | % | 1,809,486 | 14.4 | % | 98,692 | 19.8 | % | 78 | 5.1 | % | 2,342,021 | 16.1 | % | 140,334 | 20.2 | % | ||||||||||||||||||||||
40,001 - 100,000 | 48 | 4.9 | % | 3,071,924 | 24.4 | % | 111,233 | 22.3 | % | 54 | 3.5 | % | 3,519,913 | 24.1 | % | 136,174 | 19.6 | % | ||||||||||||||||||||||
Greater than 100,000 | 30 | 3.1 | % | 4,386,234 | 34.9 | % | 109,472 | 21.9 | % | 28 | 1.8 | % | 4,121,161 | 28.3 | % | 105,983 | 15.2 | % | ||||||||||||||||||||||
Portfolio Total | 973 | 100.0 | % | 12,573,634 | 100.0 | % | $ | 499,280 | 100.0 | % | 1,540 | 100.0 | % | 14,584,914 | 100.0 | % | $ | 696,347 | 100.0 | % | ||||||||||||||||||||
(1) |
Includes license and similar agreements that upon expiration will be automatically renewed, primarily on a month-to-month basis. Number of leases represents the leased-unit count; a lease could include multiple units. |
Annualized rent represents the monthly contractual rent under existing leases as of December 31, |
Lease Expirations
The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 20092010 plus available space for each of the next ten full calendar years at the properties in our portfolio.portfolio, excluding approximately 2.2 million square feet held for redevelopment at December 31, 2010. Unless otherwise stated in the footnotes, the information set forth in the table assumes that tenants exercise no renewal options and all early termination rights.
Year | Number of Leases Expiring(2) | Square Footage of Expiring Leases(3) | Percentage of Net Rentable Square Feet(3) | Annualized Rent ($000)(4) | Percentage of Annualized Rent | Annualized Rent Per Occupied Square Foot | Annualized Rent Per Occupied Square Foot at Expiration | Annualized Rent at Expiration ($000) | Number of Leases Expiring(1) | Square Footage of Expiring Leases(2) | Percentage of Net Rentable Square Feet(2) | Annualized Rent ($000)(3) | Percentage of Annualized Rent | Annualized Rent Per Occupied Square Foot | Annualized Rent Per Occupied Square Foot at Expiration | Annualized Rent at Expiration ($000) | ||||||||||||||||||||||||||||||||||||||
Available | 634,657 | 5.0 | % | $ | — | 0.0 | % | 789,108 | 5.4 | % | $ | — | 0.0 | % | ||||||||||||||||||||||||||||||||||||||||
2010 | 175 | 535,330 | 4.3 | % | 23,029 | 4.6 | % | $ | 43.02 | $ | 43.13 | 23,087 | ||||||||||||||||||||||||||||||||||||||||||
2011 | 99 | 1,250,698 | 9.9 | % | 30,724 | 6.1 | % | 24.57 | 25.03 | 31,307 | 416 | 1,234,914 | 8.5 | % | 55,876 | 8.0 | % | $ | 45.25 | $ | 45.05 | 55,632 | ||||||||||||||||||||||||||||||||
2012 | 108 | 167,701 | 1.3 | % | 15,478 | 3.1 | % | 92.30 | 98.09 | 16,450 | 210 | 319,327 | 2.2 | % | 31,157 | 4.5 | % | 97.57 | 101.47 | 32,403 | ||||||||||||||||||||||||||||||||||
2013 | 77 | 990,130 | 7.9 | % | 48,321 | 9.7 | % | 48.80 | 53.55 | 53,022 | 177 | 1,202,772 | 8.2 | % | 77,625 | 11.1 | % | 64.54 | 68.25 | 82,093 | ||||||||||||||||||||||||||||||||||
2014 | 114 | 1,082,664 | 8.6 | % | 58,041 | 11.6 | % | 53.61 | 58.63 | 63,475 | 138 | 1,292,801 | 8.9 | % | 83,863 | 12.0 | % | 64.87 | 71.80 | 92,821 | ||||||||||||||||||||||||||||||||||
2015 | 89 | 1,975,985 | 15.7 | % | 67,724 | 13.6 | % | 34.27 | 37.59 | 74,283 | 121 | 2,101,513 | 14.4 | % | 86,243 | 12.4 | % | 41.04 | 45.34 | 95,277 | ||||||||||||||||||||||||||||||||||
2016 | 61 | 1,003,903 | 8.0 | % | 36,779 | 7.4 | % | 36.64 | 42.39 | 42,554 | 83 | 1,147,835 | 7.9 | % | 48,433 | 7.0 | % | 42.20 | 48.76 | 55,968 | ||||||||||||||||||||||||||||||||||
2017 | 35 | 551,012 | 4.4 | % | 17,036 | 3.4 | % | 30.92 | 37.00 | 20,388 | 48 | 853,541 | 5.9 | % | 32,937 | 4.7 | % | 38.59 | 44.51 | 37,990 | ||||||||||||||||||||||||||||||||||
2018 | 49 | 576,050 | 4.6 | % | 29,237 | 5.8 | % | 50.75 | 63.88 | 36,800 | 72 | 812,978 | 5.6 | % | 41,234 | 5.9 | % | 50.72 | 64.23 | 52,215 | ||||||||||||||||||||||||||||||||||
2019 | 45 | 1,372,014 | 10.9 | % | 73,702 | 14.8 | % | 53.72 | 64.94 | 89,097 | 71 | 1,587,175 | 10.9 | % | 92,617 | 13.3 | % | 58.35 | 71.67 | 113,752 | ||||||||||||||||||||||||||||||||||
2020 | 63 | 758,263 | 5.2 | % | 47,943 | 6.9 | % | 63.23 | 84.77 | 64,276 | ||||||||||||||||||||||||||||||||||||||||||||
Thereafter | 121 | 2,433,490 | 19.4 | % | 99,209 | 19.9 | % | 40.77 | 55.53 | 135,136 | 141 | 2,484,687 | 16.9 | % | 98,419 | 14.2 | % | 39.61 | 59.38 | 147,546 | ||||||||||||||||||||||||||||||||||
Portfolio Total / Weighted Average | 973 | 12,573,634 | 100.0 | % | $ | 499,280 | 100.0 | % | $ | 41.82 | $ | 49.05 | $ | 585,599 | 1,540 | 14,584,914 | 100.0 | % | $ | 696,347 | 100.0 | % | $ | 50.48 | $ | 60.16 | $ | 829,973 | ||||||||||||||||||||||||||
(1) |
Includes license and similar agreements that upon expiration will be automatically renewed, primarily on a month-to-month basis. Number of expiring leases represents the expiring leased-unit count; a lease could include multiple units. |
(3) | Annualized rent represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. We estimate the total net rentable square feet available for lease based on a number of factors in addition to contractually leased square feet, including available power, required support space and common area. |
ITEM 3. | LEGAL PROCEEDINGS |
In the ordinary course of our business, we may become subject to tort claims, breach of contract and other claims and administrative proceedings. As of December 31, 2009,2010, we were not a party to any legal proceedings which we believe would have a material adverse effect on us.
ITEM 4. |
No matters were submitted to a vote of our stockholders during the fourth quarter of the year ended December 31, 2009.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
OurDigital Realty Trust’s common stock has been listed and is traded on the NYSE under the symbol “DLR” since October 29, 2004. The following table sets forth, for the periods indicated, the high, low and last sale prices in dollars on the NYSE for our common stock and the distributions we declared with respect to the periods indicated.
Digital Realty Trust, Inc.
High | Low | Last | Dividends Declared | |||||||||
First Quarter 2008 | $ | 39.20 | $ | 31.28 | $ | 35.50 | $ | 0.31000 | ||||
Second Quarter 2008 | $ | 43.45 | $ | 35.43 | $ | 40.91 | $ | 0.31000 | ||||
Third Quarter 2008 | $ | 51.28 | $ | 36.96 | $ | 47.25 | $ | 0.31000 | ||||
Fourth Quarter 2008 | $ | 47.62 | $ | 18.04 | $ | 32.85 | $ | 0.33000 | ||||
First Quarter 2009 | $ | 35.70 | $ | 24.96 | $ | 33.18 | $ | 0.33000 | ||||
Second Quarter 2009 | $ | 39.84 | $ | 32.14 | $ | 35.85 | $ | 0.33000 | ||||
Third Quarter 2009 | $ | 48.21 | $ | 34.27 | $ | 45.71 | $ | 0.36000 | ||||
Fourth Quarter 2009 | $ | 50.81 | $ | 42.94 | $ | 50.28 | $ | 0.45000 |
We intend
High | Low | Last | Dividends Declared | |||||||||||||
First Quarter 2009 | $ | 35.70 | $ | 24.96 | $ | 33.18 | $ | 0.33000 | ||||||||
Second Quarter 2009 | $ | 39.84 | $ | 32.14 | $ | 35.85 | $ | 0.33000 | ||||||||
Third Quarter 2009 | $ | 48.21 | $ | 34.27 | $ | 45.71 | $ | 0.36000 | ||||||||
Fourth Quarter 2009 | $ | 50.81 | $ | 42.94 | $ | 50.28 | $ | 0.45000 | ||||||||
First Quarter 2010 | $ | 56.60 | $ | 46.21 | $ | 54.20 | $ | 0.48000 | ||||||||
Second Quarter 2010 | $ | 64.17 | $ | 51.77 | $ | 57.68 | $ | 0.48000 | ||||||||
Third Quarter 2010 | $ | 64.06 | $ | 56.23 | $ | 61.70 | $ | 0.53000 | ||||||||
Fourth Quarter 2010 | $ | 62.40 | $ | 47.42 | $ | 51.54 | $ | 0.53000 |
Digital Realty Trust, Inc. intends to continue to declare quarterly dividends on ourits common stock. The actual amount, form and timing of dividends, however, will be at the discretion of ourthe board of directors and will depend upon ourDigital Realty Trust, Inc.’s financial condition in addition to the requirements for qualification as a REIT under the Code, and no assurance can be given as to the amounts, form or timing of future dividends. The exchange raterates on ourthe 2026 Debenturesdebentures and 2029 Debenturesdebentures and the conversion raterates on ourDigital Realty Trust, Inc.’s series C cumulative convertible preferred stock and our series D cumulative convertible preferred stock are each subject to adjustment for certain events, including, but not limited to, certain dividends on ourDigital Realty Trust, Inc.’s common stock in excess of $0.265 per share per quarter, $0.33 per share per quarter, $0.28625 per share per quarter and $0.31 per share per quarter, respectively. Therefore, increases to ourthe declaration and payment of quarterly dividenddividends by Digital Realty Trust, Inc. in excess of these thresholds may increase the dilutive impact of theour operating partnership’s exchangeable debentures series C cumulative convertible preferred stock and series D cumulativeDigital Realty Trust, Inc.’s convertible preferred stock on ourDigital Realty Trust, Inc.’s common stockholders. See Part I, Item 1A, Risk Factors, “Risks Related to Our Business and Operations—We have substantial debt and face risks associated with the use of debt to fund our business activities, including refinancing and interest rate risks—The exchange and repurchase rights of our exchangeable debentures may be detrimental to Digital Realty Trust, Inc.’s stockholders or Digital Realty Trust, L.P.’s unitholders” and “Risks Related to Our Business and Operations—The conversion rights of Digital Realty Trust, Inc.’s convertible preferred stock may be detrimental to holders of Digital Realty Trust, Inc.’s common stock.”
Subject to the distribution requirements applicable to REITs under the Code, we intend,Digital Realty Trust, Inc. intends, to the extent practicable, to invest substantially all of the proceeds from sales and refinancings of ourits assets in real estate-related assets and other assets. WeDigital Realty Trust, Inc. may, however, under certain circumstances, make a dividend of capital or of assets. Such dividends, if any, will be made at the discretion of ourthe board of directors.
As of February 19, 2010,18, 2011, there were 66 stockholdersapproximately 92 holders of record of ourDigital Realty Trust, Inc.’s common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.
EQUITY COMPENSATION PLAN TABLEDigital Realty Trust, L.P.
There is no established trading market for Digital Realty Trust, L.P.’s common units of limited partnership. As of February 18, 2011, there were 37 holders of record of common units, including Digital Realty Trust, L.P.’s general partner, Digital Realty Trust, Inc.
The following table provides informationsets forth, for the periods indicated, the distributions per common unit that our operating partnership declared with respect to shares of our common stock that may be issued under our existing equity compensation plan as of December 31, 2009.
Equity Compensation Plan Informationthe periods indicated.
(a) | (b) | (c) | (d) | ||||||
Plan Category | Number of shares of Common Stock to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options(1) | Number of shares of restricted Common Stock and Common Stock issuable upon redemption of outstanding long-term incentive units and class C units(2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) and (c))(3) | |||||
Equity Compensation plans approved by stockholders | 620,276 | $ | 30.63 | 1,908,465 | 4,070,534 | ||||
Equity Compensation plans not approved by stockholders | — | — | — | — |
Distributions Declared | ||||
First Quarter 2009 | $ | 0.33000 | ||
Second Quarter 2009 | $ | 0.33000 | ||
Third Quarter 2009 | $ | 0.36000 | ||
Fourth Quarter 2009 | $ | 0.45000 | ||
First Quarter 2010 | $ | 0.48000 | ||
Second Quarter 2010 | $ | 0.48000 | ||
Third Quarter 2010 | $ | 0.53000 | ||
Fourth Quarter 2010 | $ | 0.53000 |
Digital Realty Trust, L.P. currently intends to continue to make regular quarterly distributions to holders of its common units. Any future distributions will be declared at the discretion of the board of directors of Digital Realty Trust, L.P.’s general partner, Digital Realty Trust, Inc., and will depend on our actual cash flow, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code, and such other factors as the board of directors may deem relevant.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total stockholder return on ourDigital Realty Trust, Inc.’s common stock during the period from November 3, 2004 (the date of ourDigital Realty Trust, Inc.’s initial public offering) through December 31, 2009,2010, with the cumulative total return on the MSCI US REIT Index (RMS) and the S&P 500 Market Index. The comparison assumes that $100 was invested on November 3, 2004 in ourDigital Realty Trust, Inc.’s common stock and in each of these indices and assumes reinvestment of dividends, if any.
COMPARE CUMULATIVE TOTAL RETURN
AMONG DIGITAL REALTY TRUST, INC, S&P 500 INDEX AND RMS INDEX
Assumes $100 invested on November 3, 2004
Assumes dividends reinvested
Fiscal year ending December 31, 20092010
Pricing Date | DLR | S&P 500 | RMS | DLR($) | S&P 500 | RMS | ||||||||||||
November 3, 2004 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
December 31, 2004 | 113.6 | 106.3 | 107.8 | 112.2 | 106.3 | 108.0 | ||||||||||||
December 31, 2005 | 202.0 | 111.6 | 121.5 | |||||||||||||||
December 31, 2006 | 317.5 | 113.3 | 164.6 | |||||||||||||||
December 30, 2005 | 199.5 | 111.6 | 121.1 | |||||||||||||||
December 29, 2006 | 313.6 | 129.2 | 164.6 | |||||||||||||||
December 31, 2007 | 366.8 | 136.3 | 136.9 | 362.3 | 136.3 | 136.9 | ||||||||||||
December 31, 2008 | 321.6 | 85.6 | 84.9 | 321.5 | 85.9 | 84.9 | ||||||||||||
December 31, 2009 | 510.6 | 108.6 | 109.2 | 510.6 | 108.6 | 109.2 | ||||||||||||
December 31, 2010 | 541.9 | 124.9 | 140.3 |
This graph and the accompanying text are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
The stock price performance shown on the graph is not necessarily indicative of future price performance.
The hypothetical investment in ourDigital Realty Trust, Inc.’s common stock presented in the stock performance graph above is based on an initial price of $12.00 per share, the price on November 3, 2004, the date of ourDigital Realty Trust, Inc.’s initial public offering.
SALES OF UNREGISTERED EQUITY SECURITIES
Digital Realty Trust, Inc.
All sales of unregistered equity securities of Digital Realty Trust, Inc. during the year ended December 31, 2010 have previously been disclosed in filings with the SEC.
Digital Realty Trust, L.P.
During the year ended December 31, 2010, our operating partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the year ended December 31, 2010, Digital Realty Trust, Inc. issued an aggregate of 148,099 shares of its common stock upon the exercise of stock options. Digital Realty Trust, Inc. contributed the proceeds of approximately $5.6 million to our operating partnership in exchange for an aggregate of 148,099 common units, as required by our operating partnership’s partnership agreement.
During the year ended December 31, 2010, Digital Realty Trust, Inc. issued, net of forfeitures, an aggregate of 67,253 shares of its common stock in connection with restricted stock awards for no cash consideration. For each share of common stock issued by Digital Realty Trust, Inc. in connection with such an award, our operating partnership issued a restricted common unit to Digital Realty Trust, Inc. as required by its partnership agreement, for an aggregate of 67,253 units during the year ended December 31, 2010.
On June 8, 2010, Digital Realty Trust, Inc. sold 6,000,000 shares and an additional 900,000 shares pursuant to the over-allotment option to Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters. Digital Realty Trust, Inc. contributed the net proceeds from this offering of approximately $377.1 million after deducting estimated offering costs to our operating partnership in exchange for 6,900,000 common units. The shares were offered and sold under a prospectus supplement and related prospectus filed with the Securities and Exchange Commission pursuant to Digital Realty Trust, Inc.’s shelf registration statement on Form S-3 (File No. 333-158958).
On June 11, 2010, Digital Realty Trust, Inc. delivered 682 shares of its common stock to HBK Master Fund L.P., or HBK, to settle the net share amount related to the exchange by HBK of $50,000 in aggregate principal amount of our operating partnership’s 2026 debentures. Digital Realty Trust, Inc. contributed the shares to our operating partnership in exchange for 682 common units.
On June 14, 2010, Digital Realty Trust, Inc. issued 1,160,950 privately issued shares of its common stock to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $184,800 and accrued and unpaid interest equal to $503,965 in exchange for $36,960,000 in aggregate principal amount of our operating partnership’s 2026 debentures held by an institutional holder pursuant to an exchange agreement, dated June 14, 2010, by and among our operating partnership, Digital Realty Trust, Inc. and the institutional holder. Digital Realty Trust, Inc. contributed the shares to our operating partnership in exchange for 1,160,950 common units.
On November 16, 2010, Digital Realty Trust, Inc. issued 72,826 privately issued shares of its common stock to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $15,125.00 and accrued and unpaid interest equal to $23,718.75 in exchange for $ 2,300,000 in aggregate principal amount of our operating partnership’s 2026 debentures held by an institutional holder pursuant to an exchange agreement, dated November 16, 2010, by and among our operating partnership, Digital Realty Trust, Inc. and the institutional holder. Digital Realty Trust, Inc. contributed the shares to our operating partnership in exchange for 72,826 common units.
On November 19, 2010, Digital Realty Trust, Inc. issued 601,127 privately issued shares of its common stock to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $189,889.41 and accrued and unpaid interest equal to $204,484.27 in exchange for $18,985,000 in aggregate principal amount of our operating partnership’s 2026 debentures held by an institutional holder pursuant to an exchange agreement, dated November 19, 2010, by and among our operating partnership, Digital Realty Trust, Inc. and the institutional holder. Digital Realty Trust, Inc. contributed the shares to our operating partnership in exchange for 601,127 common units.
All other issuances of unregistered equity securities of our operating partnership during the year ended December 31, 2010 have previously been disclosed in filings with the SEC. For all issuances of units to Digital Realty Trust, Inc., our operating partnership relied on Digital Realty Trust, Inc.’s status as a publicly traded NYSE-listed company with over $5 billion in total consolidated assets and as our operating partnership’s majority owner and general partner as the basis for the exemption under Section 4(2) of the Securities Act.
REPURCHASES OF EQUITY SECURITIES
Digital Realty Trust, Inc.
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||
October 1-31, 2010 | — | — | — | — | ||||||||||||
November 1-30, 2010 | — | — | — | — | ||||||||||||
December 1-31, 2010 |
| 2,530,000 shares of Series B Preferred Stock |
| $ | 25.37734 | | 2,530,000 shares of Series B Preferred Stock | | 0 | |||||||
Total | 2,530,000 | $ | 25.37734 | 2,530,000 | 0 |
(1) | On November 9, 2010, Digital Realty Trust distributed a Notice of Redemption to all holders of record of its outstanding Series B Preferred Stock, announcing its redemption of all 2,530,000 outstanding shares of the Series B Preferred Stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends. The redemption was made at the option of Digital Realty Trust, Inc. pursuant to Section 5(b) of the Articles Supplementary establishing and fixing the rights and preferences of the Series B Preferred Stock. The redemption date was December 10, 2010. |
(2) | Digital Realty Trust, Inc. redeemed all outstanding shares of its Series B Preferred Stock on December 10, 2010. |
Digital Realty Trust, L.P.
None.
ITEM 6. | SELECTED FINANCIAL DATA |
SELECTED COMPANY FINANCIAL AND OTHER DATA (Digital Realty Trust, Inc.)
The following table sets forth selected consolidated financial and operating data on an historical basis for our company.Digital Realty Trust, Inc.
The following data should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included below in this Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.
Statement of Operations Data: Operating Revenues: Rental Tenant reimbursements Other Total operating revenues Operating Expenses: Rental property operating and maintenance Property taxes Insurance Depreciation and amortization General and administrative Transactions Other Total operating expenses Operating income Other Income (Expenses): Equity in earnings of unconsolidated joint ventures Interest and other income Interest expense Tax expense Loss from early extinguishment of debt Income from continuing operations Net income from discontinued operations Gain on sale of discontinued operations Net income Net income attributable to noncontrolling interests Net income attributable to Digital Realty Trust, Inc. Preferred stock dividends Costs on redemption of preferred stock Net income available to common stockholders Per Share Data: Basic income per share available to common stockholders Diluted income per share available to common stockholders Cash dividend per common share Weighted average common shares outstanding: Basic Diluted Year Ended December 31, 2010 2009 2008 2007 2006 (Amounts in thousands, except share and per share data) $ 686,949 $ 510,944 $ 405,308 $ 320,416 $ 221,713 178,081 125,136 106,754 74,190 49,998 371 1,062 15,383 641 365 865,401 637,142 527,445 395,247 272,076 251,767 176,238 151,147 109,225 59,917 44,432 36,004 31,102 27,181 26,890 8,133 6,111 4,988 5,527 3,682 263,903 198,052 172,378 134,419 86,129 47,196 39,988 37,652 30,012 18,612 7,438 2,177 739 774 1,105 226 783 1,084 431 449 623,095 459,353 399,090 307,569 196,784 242,306 177,789 128,355 87,678 75,292 5,254 2,172 2,369 449 177 616 753 2,106 2,287 1,270 (137,384 ) (88,442 ) (63,621 ) (67,054 ) (50,598 ) (1,851 ) (1,038 ) (1,109 ) (814 ) (724 ) (3,529 ) — (182 ) — (527 ) 105,412 91,234 67,918 22,546 24,890 — — — 1,395 314 — — — 18,049 18,096 105,412 91,234 67,918 41,990 43,300 (3,118 ) (3,572 ) (2,664 ) (3,753 ) (12,570 ) 102,294 87,662 65,254 38,237 30,730 (37,004 ) (40,404 ) (38,564 ) (19,330 ) (13,780 ) (6,951 ) — — — �� — $ 58,339 $ 47,258 $ 26,690 $ 18,907 $ 16,950 $ 0.69 $ 0.62 $ 0.39 $ 0.31 $ 0.47 $ 0.68 $ 0.61 $ 0.38 $ 0.30 $ 0.45 $ 2.02 $ 1.47 $ 1.26 $ 1.17 $ 1.08 84,275,498 75,950,370 68,829,267 60,527,625 36,134,983 86,013,471 77,020,890 70,435,760 62,572,937 37,442,192
Balance Sheet Data: Net investments in real estate Total assets Revolving credit facility Unsecured senior notes, net of discount Exchangeable senior debentures, net of discount Mortgages and other secured loans, net of premiums Total liabilities Total stockholders equity Noncontrolling interests in operating partnership Noncontrolling interests in consolidated joint ventures Total liabilities and equity Cash flows from (used in): Operating activities Investing activities Financing activities December 31, 2010 2009 2008 2007 2006 $ 4,584,477 $ 3,157,193 $ 2,748,220 $ 2,302,500 $ 1,736,979 5,329,483 3,745,059 3,281,045 2,809,791 2,185,783 333,534 205,547 138,579 299,731 145,452 1,066,030 83,000 58,000 — — 353,702 432,234 161,901 158,224 154,786 1,043,188 1,063,663 1,026,594 895,507 804,686 3,274,820 2,110,258 1,705,969 1,673,361 1,320,317 1,962,518 1,558,995 1,503,921 1,057,167 723,576 52,436 58,192 66,797 74,335 141,890 39,709 17,614 4,358 4,928 — $ 5,329,483 $ 3,745,059 $ 3,281,045 $ 2,809,791 $ 2,185,783 Year ended December 31, 2010 2009 2008 2007 2006 $ 359,029 $ 283,809 $ 217,808 $ 105,655 $ 99,364 (1,737,700 ) $ (519,909 ) $ (647,751 ) (537,427 ) (597,786 ) 1,318,070 $ 235,086 $ 471,925 440,863 509,753
SELECTED COMPANY FINANCIAL AND OTHER DATA (Digital Realty Trust, L.P.)
The following table sets forth selected consolidated financial and operating data on an historical basis for our operating partnership.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||
(Amounts in thousands, except share and per share data) | (Amounts in thousands, except unit and per unit data) | |||||||||||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||||||||||||
Operating Revenues: | ||||||||||||||||||||||||||||||||||||||||
Rental | $ | 510,772 | $ | 404,559 | $ | 319,603 | $ | 221,371 | $ | 150,072 | $ | 686,949 | $ | 510,944 | $ | 405,308 | $ | 320,416 | $ | 221,713 | ||||||||||||||||||||
Tenant reimbursements | 125,308 | 107,503 | 75,003 | 50,340 | 35,720 | 178,081 | 125,136 | 106,754 | 74,190 | 49,998 | ||||||||||||||||||||||||||||||
Other | 1,062 | 15,383 | 641 | 365 | 5,829 | 371 | 1,062 | 15,383 | 641 | 365 | ||||||||||||||||||||||||||||||
Total operating revenues | 637,142 | 527,445 | 395,247 | 272,076 | 191,621 | 865,401 | 637,142 | 527,445 | 395,247 | 272,076 | ||||||||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||||||||||
Rental property operating and maintenance | 176,238 | 151,147 | 109,225 | 59,917 | 39,519 | 251,767 | 176,238 | 151,147 | 109,225 | 59,917 | ||||||||||||||||||||||||||||||
Property taxes | 36,004 | 31,102 | 27,181 | 26,890 | 20,189 | 44,432 | 36,004 | 31,102 | 27,181 | 26,890 | ||||||||||||||||||||||||||||||
Insurance | 6,111 | 4,988 | 5,527 | 3,682 | 2,653 | 8,133 | 6,111 | 4,988 | 5,527 | 3,682 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 198,052 | 172,378 | 134,419 | 86,129 | 55,702 | 263,903 | 198,052 | 172,378 | 134,419 | 86,129 | ||||||||||||||||||||||||||||||
General and administrative | 42,165 | 38,391 | 30,786 | 19,717 | 12,061 | 47,196 | 39,988 | 37,652 | 30,012 | 18,612 | ||||||||||||||||||||||||||||||
Transactions | 7,438 | 2,177 | 739 | 774 | 1,105 | |||||||||||||||||||||||||||||||||||
Other | 783 | 1,084 | 431 | 449 | 1,355 | 226 | 783 | 1,084 | 431 | 449 | ||||||||||||||||||||||||||||||
Total operating expenses | 459,353 | 399,090 | 307,569 | 196,784 | 131,479 | 623,095 | 459,353 | 399,090 | 307,569 | 196,784 | ||||||||||||||||||||||||||||||
Operating income | 177,789 | 128,355 | 87,678 | 75,292 | 60,142 | 242,306 | 177,789 | 128,355 | 87,678 | 75,292 | ||||||||||||||||||||||||||||||
Other Income (Expenses): | ||||||||||||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated joint venture | 2,172 | 2,369 | 449 | 177 | — | |||||||||||||||||||||||||||||||||||
Equity in earnings of unconsolidated joint ventures | 5,254 | 2,172 | 2,369 | 449 | 177 | |||||||||||||||||||||||||||||||||||
Interest and other income | 753 | 2,106 | 2,287 | 1,270 | 1,274 | 616 | 753 | 2,106 | 2,287 | 1,270 | ||||||||||||||||||||||||||||||
Interest expense | (88,442 | ) | (63,621 | ) | (67,054 | ) | (50,598 | ) | (35,381 | ) | (137,384 | ) | (88,442 | ) | (63,621 | ) | (67,054 | ) | (50,598 | ) | ||||||||||||||||||||
Tax expense | (1,038 | ) | (1,109 | ) | (814 | ) | (724 | ) | (554 | ) | (1,851 | ) | (1,038 | ) | (1,109 | ) | (814 | ) | (724 | ) | ||||||||||||||||||||
Loss from early extinguishment of debt | — | (182 | ) | — | (527 | ) | (1,021 | ) | (3,529 | ) | �� | — | (182 | ) | — | (527 | ) | |||||||||||||||||||||||
Income from continuing operations | 91,234 | 67,918 | 22,546 | 24,890 | 24,460 | 105,412 | 91,234 | 67,918 | 22,546 | 24,890 | ||||||||||||||||||||||||||||||
Net income (loss) from discontinued operations | — | — | 1,395 | 314 | (103 | ) | ||||||||||||||||||||||||||||||||||
Net income from discontinued operations | — | — | — | 1,395 | 314 | |||||||||||||||||||||||||||||||||||
Gain on sale of discontinued operations | — | — | 18,049 | 18,096 | — | — | — | — | 18,049 | 18,096 | ||||||||||||||||||||||||||||||
Net income | 91,234 | 67,918 | 41,990 | 43,300 | 24,357 | 105,412 | 91,234 | 67,918 | 41,990 | 43,300 | ||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | (3,572 | ) | (2,664 | ) | (3,753 | ) | (12,570 | ) | (8,256 | ) | ||||||||||||||||||||||||||||||
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures | 288 | (140 | ) | (335 | ) | — | 15 | |||||||||||||||||||||||||||||||||
Net income attributable to Digital Realty Trust, Inc. | 87,662 | 65,254 | 38,237 | 30,730 | 16,101 | |||||||||||||||||||||||||||||||||||
Preferred stock dividends | (40,404 | ) | (38,564 | ) | (19,330 | ) | (13,780 | ) | (10,014 | ) | ||||||||||||||||||||||||||||||
Net income attributable to Digital Realty Trust, L.P. | 105,700 | 91,094 | 67,583 | 41,990 | 43,315 | |||||||||||||||||||||||||||||||||||
Preferred units distributions | (37,004 | ) | (40,404 | ) | (38,564 | ) | (19,330 | ) | (13,780 | ) | ||||||||||||||||||||||||||||||
Costs on redemption of preferred units | (6,951 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 47,258 | $ | 26,690 | $ | 18,907 | $ | 16,950 | $ | 6,087 | ||||||||||||||||||||||||||||||
Net income available to common unitholders | $ | 61,745 | $ | 50,690 | $ | 29,019 | $ | 22,660 | $ | 29,535 | ||||||||||||||||||||||||||||||
Per Share Data: | ||||||||||||||||||||||||||||||||||||||||
Basic income per share available to common stockholders | $ | 0.62 | $ | 0.39 | $ | 0.31 | $ | 0.47 | $ | 0.25 | ||||||||||||||||||||||||||||||
Diluted income per share available to common stockholders | $ | 0.61 | $ | 0.38 | $ | 0.30 | $ | 0.45 | $ | 0.25 | ||||||||||||||||||||||||||||||
Cash dividend per common share | $ | 1.47 | $ | 1.26 | $ | 1.17 | $ | 1.08 | $ | 1.00 | ||||||||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||||||||||
Basic | 75,950,370 | 68,829,267 | 60,527,625 | 36,134,983 | 23,986,288 | |||||||||||||||||||||||||||||||||||
Diluted | 77,020,890 | 70,435,760 | 62,572,937 | 37,442,192 | 24,221,732 |
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||
Per Unit Data: | ||||||||||||||||||||||||||||||||||||||||
Basic income per unit available to common unitholders | $ | 0.69 | $ | 0.62 | $ | 0.39 | $ | 0.33 | $ | 0.47 | ||||||||||||||||||||||||||||||
Diluted income per unit available to common unitholders | $ | 0.68 | $ | 0.61 | $ | 0.38 | $ | 0.32 | $ | 0.46 | ||||||||||||||||||||||||||||||
Cash distributions per common unit | $ | 2.02 | $ | 1.47 | $ | 1.26 | $ | 1.17 | $ | 1.08 | ||||||||||||||||||||||||||||||
Weighted average common units outstanding: | ||||||||||||||||||||||||||||||||||||||||
Basic | 89,261,172 | 81,715,226 | 75,160,263 | 68,754,024 | 62,562,820 | |||||||||||||||||||||||||||||||||||
Diluted | 90,999,145 | 82,785,746 | 76,766,756 | 70,799,336 | 63,870,029 | |||||||||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||
Net investments in real estate | $ | 3,157,193 | $ | 2,748,220 | $ | 2,302,500 | $ | 1,736,979 | $ | 1,194,106 | $ | 4,584,477 | $ | 3,157,193 | $ | 2,748,220 | $ | 2,302,500 | $ | 1,736,979 | ||||||||||||||||||||
Total assets | 3,745,059 | 3,281,045 | 2,809,791 | 2,185,783 | 1,529,170 | 5,329,483 | 3,745,059 | 3,281,045 | 2,809,791 | 2,185,783 | ||||||||||||||||||||||||||||||
Revolving credit facility | 205,547 | 138,579 | 299,731 | 145,452 | 181,000 | 333,534 | 205,547 | 138,579 | 299,731 | 145,452 | ||||||||||||||||||||||||||||||
Unsecured senior notes | 83,000 | 58,000 | — | — | — | |||||||||||||||||||||||||||||||||||
Mortgages and other secured loans | 1,063,663 | 1,026,594 | 895,507 | 804,686 | 568,067 | |||||||||||||||||||||||||||||||||||
4.125% exchangeable senior debentures due 2026, net | 165,834 | 161,901 | 158,224 | 154,786 | — | |||||||||||||||||||||||||||||||||||
5.50% exchangeable senior debentures due 2029 | 266,400 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Unsecured senior notes, net of discount | 1,066,030 | 83,000 | 58,000 | — | — | |||||||||||||||||||||||||||||||||||
Exchangeable senior debentures, net of discount | 353,702 | 432,234 | 161,901 | 158,224 | 154,786 | |||||||||||||||||||||||||||||||||||
Mortgages and other secured loans, net of premiums | 1,043,188 | 1,063,663 | 1,026,594 | 895,507 | 804,686 | |||||||||||||||||||||||||||||||||||
Total liabilities | 2,110,258 | 1,705,969 | 1,673,361 | 1,320,317 | 880,228 | 3,274,820 | 2,110,258 | 1,705,969 | 1,673,361 | 1,320,317 | ||||||||||||||||||||||||||||||
Total stockholders equity | 1,558,995 | 1,503,921 | 1,057,167 | 723,576 | 386,497 | |||||||||||||||||||||||||||||||||||
Noncontrolling interests in operating partnership | 58,192 | 66,797 | 74,335 | 141,890 | 262,239 | |||||||||||||||||||||||||||||||||||
General partner’s capital | 2,004,599 | 1,586,942 | 1,553,424 | 1,053,788 | 719,386 | |||||||||||||||||||||||||||||||||||
Limited partners’ capital | 56,215 | 60,875 | 71,041 | 74,356 | 141,890 | |||||||||||||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | (45,860 | ) | (30,630 | ) | (53,747 | ) | 3,358 | 4,190 | ||||||||||||||||||||||||||||||||
Noncontrolling interests in consolidated joint ventures | 17,614 | 4,358 | 4,928 | — | 206 | 39,709 | 17,614 | 4,358 | 4,928 | — | ||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 3,745,059 | $ | 3,281,045 | $ | 2,809,791 | $ | 2,185,783 | $ | 1,529,170 | ||||||||||||||||||||||||||||||
Total liabilities and capital | $ | 5,329,483 | $ | 3,745,059 | $ | 3,281,045 | $ | 2,809,791 | $ | 2,185,783 | ||||||||||||||||||||||||||||||
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||
Cash flows from (used in): | ||||||||||||||||||||||||||||||||||||||||
Operating activities | $ | 283,809 | $ | 217,808 | $ | 105,655 | $ | 99,364 | $ | 77,050 | $ | 359,029 | $ | 283,809 | $ | 217,808 | $ | 105,655 | $ | 99,364 | ||||||||||||||||||||
Investing activities | (519,909 | ) | (647,751 | ) | (537,427 | ) | (597,786 | ) | (474,713 | ) | (1,737,700 | ) | (519,909 | ) | (647,751 | ) | (537,427 | ) | (597,786 | ) | ||||||||||||||||||||
Financing activities | 235,086 | 471,925 | 440,863 | 509,753 | 404,036 | 1,318,070 | 235,086 | 471,925 | 440,863 | 509,753 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this report entitled “Forward-Looking Statements.” Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the sections in this report entitled “Risk Factors” and “Forward-Looking Statements.”
Occupancy percentages discussed in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.
Overview
Our company. We were formed on March 9, 2004 and weDigital Realty Trust, Inc. completed ourits initial public offering of common stock, or our IPO, on November 3, 2004. We believe that we have operated in a manner that has enabled us to qualify, and have elected to be treated, as a real estate investment trust, or a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, orCode. Our company was formed on March 9, 2004. During the Code. Any reference to “our”, “we” and “us” in this filing includesperiod from our company and our predecessor. Our predecessor is comprised of the real estate activities and holdings of Global Innovation Partners LLC, or GI Partners, which GI Partners contributed to usformation until we commenced operations in connection with the completion of our IPO.IPO, we did not have any corporate activity other than the issuance of shares of Digital Realty Trust, Inc. common stock in connection with the initial capitalization of the company. Our operating partnership was formed on July 21, 2004.
Business and strategy. Our primary business objectives are to maximize: (i) sustainable long-term growth in earnings and funds from operations per share and unit and (ii) cash flow and returns to our stockholders and our operating partnership’s unitholders, including through the payment of dividends.distributions. We expect to achieve our objectives by focusing on our core business of
investing in and redeveloping technology-related real estate. A significant component of our current and future internal growth is anticipated through the development of our existing space held for redevelopment and new properties. We target high quality, strategically located properties containing applications and operations critical to the day-to-day operations of corporate enterprise datacenter and technology industry tenants and properties that may be redeveloped for such use. Most of our properties contain fully redundant electrical supply systems, multiple power feeds, above-standard precision cooling systems, raised floor areas, extensive in-building communications cabling and high-level security systems. We focus solely on technology-related real estate because we believe that the growth in corporate datacenter adoption and the technology-related real estate industry generally will continue to be superior to that of the overall economy.
As of December 31, 2009,2010, we owned an aggregate of 8196 technology-related real estate properties, excluding one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture,ventures, with 14.4approximately 16.8 million rentable square feet including approximately 1.82.2 million square feet of space held for redevelopment. At December 31, 2009,2010, approximately 87,000532,000 square feet of our space held for redevelopment was under construction for Turn-Key Datacenter, Powered Base Building® and build-to-suit space in threeseven U.S. markets and three European markets.
We have developed detailed, standardized procedures for evaluating acquisitions to ensure that they meet our financial, technical and other criteria. We expect to continue to acquire additional assets as a part of our growth strategy. We intend to aggressively manage and lease our assets to increase their cash flow. We intend to continue to build out our redevelopment portfolio when justified by anticipated returns.
We may acquire properties subject to existing mortgage financing and other indebtedness or we may incur new indebtedness in connection with acquiring or refinancing these properties. Debt service on such indebtedness will have a priority over any cash dividends with respect to ourDigital Realty Trust, Inc.’s common stock and our preferred stock. We currently intend to limit our indebtedness to 60% of our total market capitalizationenterprise value and, based on
the closing price of ourDigital Realty Trust, Inc.’s common stock on December 31, 20092010 of $50.28,$51.54, our ratio of debt to total market capitalizationenterprise value was approximately 27%34% as of December 31, 2009.2010. Our total market capitalizationenterprise value is defined as the sum of the market value of ourDigital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total market capitalizationenterprise value ratio), excluding options issued under our company’s incentive award plan, plus the liquidation value of ourDigital Realty Trust, Inc.’s preferred stock, plus the aggregate value of theour operating partnership’s units not held by usDigital Realty Trust, Inc. (with the per unit value equal to the market value of one share of ourits common stock and excluding long-term incentive units and Class C units), plus the book value of our total consolidated indebtedness.
Revenue base. As of December 31, 2009,2010, we owned 8196 properties through our Operating Partnership,operating partnership, excluding one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture.ventures. These properties are mainly located throughout the U.S., with 1314 properties located in Europe, one property in Asia and one property in Canada. We, through our predecessor, acquired our first portfolio property in January 2002 and have added properties as follows:
Year Ended December 31: | Properties Acquired(1) | Net Rentable Square Feet(2) | Square Feet of Space Held for Redevelopment as of December 31, 2009(3) | |||
2002 | 5 | 1,125,292 | 19,890 | |||
2003 | 6 | 1,028,185 | 30,175 | |||
2004 | 10 | 2,587,455 | 99,014 | |||
2005 | 20 | 3,314,225 | 196,072 | |||
2006 | 16 | 2,104,209 | 117,389 | |||
2007 | 13 | 1,603,259 | 171,300 | |||
2008 | 5 | 209,928 | 354,320 | |||
2009 | 6 | 601,081 | 796,226 | |||
Properties owned as of December 31, 2009 | 81 | 12,573,634 | 1,784,386 | |||
Year Ended December 31: 2002 2003 2004 2005 2006 2007(4) 2008 2009 2010 Properties owned as of December 31, 2010 Properties
Acquired(1) Net Rentable
Square Feet(2) Square Feet of Space Held
for Redevelopment as of
December 31, 2010(3) 5 1,125,292 19,890 6 1,056,437 1,923 10 2,554,300 132,169 20 3,329,834 180,463 16 2,129,672 91,926 13 1,782,563 124,276 5 248,751 315,497 6 703,729 693,578 15 1,654,336 607,126 96 14,584,914 2,166,848
(1) | Excludes properties sold in 2007 and 2006: 100 Technology Center Drive (March 2007), 4055 Valley View Lane (March 2007) and 7979 East Tufts Avenue (July 2006). Also excludes a leasehold interest acquired in March 2007 related to an acquisition made in 2006. |
(2) | Current net rentable square feet as of December 31, |
(3) | Redevelopment space is unoccupied space that requires significant capital investment in order to develop datacenter facilities that are ready for use. Most often this is shell space. However, in certain circumstances this may include partially built datacenter space that was not completed by previous ownership and requires a large capital investment in order to build out the space. The amounts included in this table represent redevelopment space as of December 31, |
(4) | Includes a developed building (43915 Devin Shafron Drive) placed into service in 2010 that is being included with a property (Devin Shafron buildings) that was acquired in 2007. |
As of December 31, 2009,2010, the properties in our portfolio were approximately 95.0%94.6% leased excluding 1.82.2 million square feet held for redevelopment. Due to the capital intensivecapital-intensive and long termlong-term nature of the operations being supported, our lease terms are generally longer than standard commercial leases. As of December 31, 2009,2010, our original average lease term was in excess of 13approximately 14 years, with an average of approximately seven years remaining. The majority of our leasing since the completion of our IPO has been at lease terms shorter than 12 years. Our lease expirations through December 31, 20112012 are 14.2%10.7% of net rentable square feet excluding space held for redevelopment as of December 31, 2009. 2010.
Operating revenues from properties outside the United States were $93.7 million, $82.2 million $52.2 million and $34.2$52.2 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. For the years ended December 31, 2010, 2009, 2008, and 2007,2008, no single foreign country comprised more than 10% of total revenues.
Factors Which May Influence Future Results of Operations
Global market and economic conditions
Recent U.S., EuropeanIn the United States and other internationalglobally, market and economic conditions have been unprecedented over the past few years and challenging with significantly tighter credit conditions and recessionslower economic growth in all markets in which we own properties and conduct our operations continuing throughout 2010. Continuedoperations. The U.S. and global economies have experienced a recession and face continued concerns about the systemic impact of potential wide-spread and long-term recession,adverse economic conditions, such as high energy costs, geopolitical issues, the availability and cost of credit, unstable global financial and mortgage markets, high corporate, consumer and consumergovernmental debt levels, high unemployment and declining residential and commercial real estate markets have contributed to increased market volatility and diminished expectations for the U.S., European and other economies. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment continue to contribute to global volatility of unprecedented levels.markets.
As a result of these conditions, general economic conditions and the cost and availability of capital have been and may continue toagain be adversely affected in some or all of the markets in which we own properties and conduct our operations. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease, to provide credit to businesses and consumers. ContinuedRenewed or increased turbulence in the U.S., European and other international financial markets and economies may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. If these market and economic conditions continue, they may limit our ability, and the ability of our tenants, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may adversely affectresult in adverse effects on our, and our tenants’, financial conditionscondition and results of operations.
In addition, our access to funds under our revolving credit facility dependsand other lines of credit depend on the ability of the lenders that are parties to such facilities to meet their funding commitments to us. We cannot assure you that continuing long-term disruptions in the global economy and the continuationreturn of tighter credit conditions among, and potential failures or nationalizations of, third party financial institutions as a result of such disruptions will not have an
adverse effect on our lenders. If our lenders are not able to meet their funding commitments to us, our business, results of operation, cash flows and financial condition could be adversely affected.
If we do not have sufficient cash flow to continue operating our business and are unable to borrow additional funds, access our revolvingexisting lines of credit facility or raise equity or debt capital, we may need to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, curtailing development or redevelopment activity, disposing of one or more of our properties possibly on disadvantageous terms or entering into or renewing leases on less favorable terms than we otherwise would.
Rental income. The amount of rental income generated by the properties in our portfolio depends principally on our ability to maintain or improve the occupancy rates of currently leased space and to lease currently available space and space available from lease terminations. Excluding 1.82.2 million square feet held for redevelopment, as of December 31, 2009,2010, the occupancy rate of the properties in our portfolio was approximately 95.0%94.6% of our net rentable square feet.
The amount of rental income generated by us also depends on our ability to maintain or increase rental rates at our properties. Included in our approximately 12.614.6 million net rentable square feet, excluding redevelopment space, at December 31, 20092010 is approximately 184,000193,000 net rentable square feet of space with extensive datacenter improvements that is currently, or will shortly be, available for lease. Since our IPO, we have leased approximately 1,992,0002,362,000 square feet of similar space. These Turn-Key Datacenters® are effective solutions for tenants who lack the expertise or capital budget to provide their own extensive datacenter infrastructure and security. Our expertise in datacenter construction and operations enables us to lease space to these tenants at a significant premium over other uses. Negative trends in one or more of these factors, including as a result of the conditions described above under “Global market and economic conditions,” could adversely affect our rental income in future periods.
In addition, as of December 31, 2009,2010, we had approximately 1.82.2 million square feet of redevelopment space, or approximately 12%13% of the total rentable space in our portfolio, including fourfive vacant properties comprising approximately 1.0 million459,000 square feet. Our ability to grow earnings depends in part on our ability to redevelop space and lease redevelopment space at favorable rates, which we may not be able to obtain. Redevelopment space requires significant capital investment in order to develop datacenter
facilities that are ready for use and, in addition, we may require additional time or encounter delays in securing tenants for redevelopment space. We may purchase additional vacant properties and properties with vacant redevelopment space in the future. We will require additional capital to finance our redevelopment activities, which may not be available or may not be available on terms acceptable to us, including as a result of the conditions described above under “Global market and economic conditions.” Our ability to grow earnings depends in part on our ability to redevelop space and lease redevelopment space at favorable rates, which we may not be able to obtain. We may purchase additional vacant properties and properties with vacant redevelopment space in the future.
Economic downturns, including as a result of the conditions described above under “Global market and economic conditions,” or regional downturns affecting our sub-markets or downturns in the technology-related real estate industry that impair our ability to lease or renew or re-lease space, or otherwise reduce returns on our investments or the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. As of December 31, 2009 one tenant, Lyondell Chemical Company, or Lyondell, was2010, we had no material tenants in bankruptcy. In July 2009, Lyondell assumed the lease. As of December 31, 2009, Lyondell leased approximately 15,500 square feet of net rentable space at a property in Dallas, Texas and was current on all of its rental obligations.
Scheduled lease expirations.Our ability to re-lease expiring space at rental rates equal to or in excess of current rental rates will impact our results of operations. In addition to approximately 0.60.8 million square feet of available space in our portfolio, which excludes approximately 1.82.2 million square feet available for redevelopment as of December 31, 2009,2010, leases representing approximately 4.3%8.5% and 9.9%2.2% of the net rentable square footage of our portfolio are scheduled to expire during the years ending December 31, 20102011 and 2011,2012, respectively.
Market concentration.We depend on the market for technology basedtechnology-based real estate in specific geographic regions and significant changes in these regional markets can impact our future results. As of December 31, 20092010, our portfolio was geographically concentrated in the following metropolitan markets:
Metropolitan Market | Percentage of total annualized rent(1) | |||
Silicon Valley | ||||
| ||||
| % | |||
Northern Virginia | ||||
| ||||
| % | |||
San Francisco | 10.2 | % | ||
Chicago | 9.9 | % | ||
New York Metro | 9.6 | % | ||
Phoenix | 9.1 | % | ||
Dallas | 8.4 | % | ||
Boston | 6.2 | % | ||
Los Angeles | 5.0 | % | ||
London, England | 3.6 | % | ||
Dublin, Ireland | 2.7 | % | ||
Paris, France | 2.4 | % | ||
Other | 8.7 | % | ||
100.0 | % | |||
(1) | Annualized rent is monthly contractual rent under existing leases as of December 31, |
Operating expenses.Our operating expenses generally consist of utilities, property and ad valorem taxes, property management fees, insurance and site maintenance costs, as well as rental expenses on our ground and building leases. In particular, our buildings require significant power to support the datacenter operations contained in them. Many of our leases contain provisions under which the tenants reimburse us for a portion of property operating expenses and real estate taxes incurred by us. However, we generally are not entitled to reimbursement of property operating expenses and real estate taxes under our leases for Turn-Key Datacenters®. We also incur general and administrative expenses, including expenses relating to our asset management function, as well as significant legal, accounting and other expenses related to corporate governance, U.S. Securities and Exchange Commission SEC
reporting and compliance with the various provisions of the Sarbanes-Oxley Act. Increases or decreases in such operating expenses will impact our overall performance. We expect to incur additional operating expenses as we continue to expand.
Government authorities and various interest groups are promoting laws and regulations that could limit greenhouse gas, or GHG, emissions due to concerns over contributions to climate change. Climate change legislation.In June 2009, the U.S. House of Representatives approved comprehensive clean energy and climate change legislation that is intended to cut greenhouse gas, or GHG, emissions, create new clean energy jobs and enhance the energy independence of the United States. ThisStates, which included a cap-and-trade program for GHG emissions. The U.S. Senate did not pass similar legislation during 2009 or 2010, and following Congressional elections in November 2010 (in which control of the House of Representatives passed from the Democratic Party to the Republican Party), the likelihood that Congress will pass any climate change and/or energy legislation that would include a cap-and-trade program, or any similar type program, for GHG emissions in 2011 has diminished. As a result, action to reduce GHG emissions in the United States through an economy-wide cap-and-trade program. The U.S. Senate is preparing its own version of the legislation that would then need tolikely will be reconciled with the House bill. The State of California has adopted a climate change law and other states in which we operate are considering similar actions. Moreover,focused on regulatory agencies, primarily the U.S. Environmental Protection Agency, or EPA, isand state actions. The EPA has been moving aggressively to regulate GHG emissions from automobiles and large stationary sources, including electricity producers, using its own authority under the Clean Air Act. Some of those regulations have been finalized and currently are in litigation. States have also taken actions to regulate GHG emissions. For example, California enacted AB 32, the Global Warming Solutions Act of 2006, which established the first statewide program in the United States to limit GHG emissions and impose penalties for non-compliance. The California Air Resources Board, or CARB, has taken, and plans to take, various actions to implement AB 32, including the approval in December 2008 of an AB 32 Scoping Plan summarizing the main GHG-reduction strategies for California. CARB approved in December 2010 a GHG cap-and-trade program, which is scheduled to take effect in 2012. As another example of state action, the Western Climate Initiative, which currently includes seven states and four Canadian provinces, has developed GHG reduction strategies, among them a GHG cap-and-trade program. In addition, since 2005 the European Union (including the United Kingdom) has been operating under a cap-and-trade program, which directly affects the largest emitters of GHG,greenhouse gases, including electricity producers from whom we purchase power. Any additional taxation or regulation of energy use, including as a result of (i) thenew legislation that the U.S. Congress is currently considering, or other state regulations,may pass, (ii) the regulations that the U.S. EPA has proposed or finalized, (iii) regulations under legislation that states have passed or may propose in the future,pass, or (iii)(iv) any further reductions in the EU GHGgreenhouse gas cap could significantly increase our costs, and we may not be able to effectively pass all of these costs on to our tenants.
Interest rates. As of December 31, 2009,2010, we had approximately $475.9$274.0 million of variable rate debt, all of which approximately $270.4 million was mortgage debt subject to interest rate cap or swap agreements, and $205.5$333.5 million was outstanding on our revolving credit facility. The availability of debt and equity capital has significantly decreased as a result of the circumstances described above under “Global market and economic conditions.” The effects on commercial real estate mortgages, if available, include, but may not be limited to: higher loan spreads, tightened loan covenants, reduced loan to value ratios resulting in lower borrower proceeds and higher principal payments. Potential future increases in interest rates and credit spreads may increase our interest expense and fixed charges and negatively affect our financial condition and results of operations, potentially impacting our future access to the debt and equity capital markets. Increased interest rates may also increase the risk that the counterparties to our swap agreements will default on their obligations, which could further increase our interest expense. If we cannot obtain capital from third party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or pay the cash dividends to ourDigital Realty Trust, Inc.’s stockholders necessary to maintain ourits qualification as a REIT.
Demand for datacenter space. Our portfolio of properties consists primarily of technology-related real estate and datacenter real estate in particular. A decrease in the demand for, or increase in supply of, datacenter space, Internet gateway facilities or other technology-related real estate would have a greater adverse effect on our business and financial condition than if we owned a portfolio with a more diversified tenant base or less specialized use. Our redevelopment activities make us particularly susceptible to general economic slowdowns, including recessions and the other circumstances described above under “Global market and economic conditions,” as well as adverse developments in the corporate datacenter, Internet and data communications and
broader technology industries. Any such slowdown or adverse development could lead to reduced corporate IT spending or reduced demand for datacenter space. Reduced demand could also result from business relocations, including to markets that we do not currently serve such as Asia.serve. Changes in industry practice or in technology, such as virtualization technology, more efficient or miniaturization of computing or networking devices, or devices that require higher power densities than today’s devices, could also reduce demand for the physical datacenter space we provide or make the tenant improvements in our facilities obsolete or in need of significant upgrades to remain viable. In addition, the development of new technologies, the adoption of new industry standards or other factors could render many of our tenants’ current products and services obsolete or unmarketable and contribute to a downturn in their businesses, thereby increasing the likelihood that they default under their leases, become insolvent or file for bankruptcy. In addition, demand for datacenter space in our properties, or the rates at which we lease space, may be adversely impacted either across our portfolio or in specific submarkets as a result of an increase in the number of competitors, or the amount of space being offered in our markets and other markets by our competitors.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of our significant accounting policies in note 2 to our consolidated financial statements included elsewhere in this report. We describe below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and consolidated results of operations. Our management evaluates these estimates on an ongoing basis, based upon information currently available and on various assumptions management believes are reasonable as of the date on the front cover of this report.
Investments in Real Estate
Acquisition of real estate.The price that we pay to acquire a property is impacted by many factors including the condition of the property and improvements, the occupancy of the building, the existence of above and below market tenant leases, the creditworthiness of the tenants, favorable or unfavorable financing, above or below market ground leases and numerous other factors. Accordingly, we are required to make subjective assessments
to allocate the purchase price paid to acquire investments in real estate among the assets acquired and liabilities assumed based on our estimate of the fair values of such assets and liabilities. This includes determining the value of the property and improvements, land, any ground leases, tenant improvements, in-place tenant leases, tenant relationships, the value (or negative value) of above (or below) market leases, any debt or deferred taxes assumed from the seller or loans made by the seller to us and any building leases assumed from the seller. Each of these estimates requires a great deal of judgment and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our results of operations. For example, if we were to allocate more value to land, there would be no depreciation with respect to such amount. If we were to allocate more value to the property as opposed to allocating to the value of in-place tenant leases, this amount would be recognized as an expense over a much longer period of time. This potential effect occurs because the amounts allocated to property are depreciated over the estimated lives of the property whereas amounts allocated to in-place tenant leases are amortized over the termsestimated term (including renewal and extension assumptions) of the leases. Additionally, the amortization of the value (or negative value) assigned to above (or below) market rate leases is recorded as an adjustment to rental revenue as compared to amortization of the value of in-place tenant leases and tenant relationships, which is included in depreciation and amortization in our consolidated statements of operations.
Useful lives of assets.We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our
investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
Asset impairment evaluation.We review the carrying valueeach of our properties when circumstances,for indicators that its carrying amount may not be recoverable. Examples of such asindicators may include a significant decrease in the market price, a significant adverse market conditions, indicate potentialchange in the extent or manner the property is being used in its physical condition or expected to be used based on the underwriting at the time of acquisition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development, or a history of operating or cash flow losses. When such impairment may exist. We base ourindictors exist, we review on an estimate of the future cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition.disposition and compare to the carrying value of the property. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our undiscounted net cash flow evaluation indicates that we mayare be unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows on properties considered to be long-lived assets to be held and used are considered on an undiscounted basis to determine whether an asset has been impaired,a property is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of not being recoverable and therefore requiring the recording of an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material. If we determine that impairment has occurred,the asset fails the recoverability test, the affected assets must be reduced to their fair value. No such impairment losses have been recognized to date.
We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers.
Capitalization of Costs
We capitalize direct and indirect costs related to leasing, construction, development and redevelopment, including property taxes, insurance, financing and employee costs relating to space under development. We capitalize costs on redevelopment space until construction is substantially complete and the space is held available for occupancy. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment. We consider a construction project as substantially complete and held available for occupancy upon the completion of landlord-owned tenant improvements or when the lessee takes possession of the unimproved space for construction of its own improvements, but no later than
one year from cessation of major construction activity. We cease capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with any remaining portion under construction.
Revenue Recognition
Rental income is recognized using the straight-line method over the terms of the tenant leases. Deferred rents included in our consolidated balance sheets represent the aggregate excess of rental revenue recognized on a straight-line basis over the contractual rental payments that would be received under the remaining terms of the leases. Many of our leases contain provisions under which the tenants reimburse us for a portion of property operating expenses and real estate taxes incurred by us. However, we generally are not entitled to reimbursement of property operating expenses, other than utility expense, and real estate taxes under our leases for Turn-Key Datacenters®. Such reimbursements are recognized in the period that the expenses are incurred. Lease termination fees are recognized over the remaining term of the lease, effective as of the date the lease modification is finalized, assuming collection is not considered doubtful. As discussed above, we recognize amortization of the value of acquired above or below market tenant leases as a reduction of rental income in the case of above market leases or an increase to rental revenue in the case of below market leases.
We must make subjective estimates as to when our revenue is earned and the collectability of our accounts receivable related to minimum rent, deferred rent, expense reimbursements, lease termination fees and other income. We specifically analyze accounts receivable and historical bad debts, tenant concentrations, tenant creditworthiness and current economic trends when evaluating the adequacy of the allowance for bad debts. These estimates have a direct impact on our net income because a higher bad debt allowance would result in lower net income, and recognizing rental revenue as earned in one period versus another would result in higher or lower net income for a particular period.
Share-Based Awards
We recognize compensation expense related to share-based awards. We generally amortize this compensation expense over the vesting period of the award. The calculation of the fair value of share-based awards is subjective and requires several assumptions over such items as expected stock volatility, dividend payments and future company results. These assumptions have a direct impact on our net income because a higher share-based awards amount would result in lower net income for a particular period.
Results of Operations
The discussion below relates to our financial condition and results of operations for the years ended December 31, 2010, 2009 2008 and 2007.2008. A summary of our operating results from continuing operations for the years ended December 31, 2010, 2009 2008 and 20072008 was as follows (in thousands).
Year Ended December 31, | 2009 | 2008 | 2007 | |||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Total operating revenues | $ | 637,142 | $ | 527,445 | $ | 395,247 | $ | 865,401 | $ | 637,142 | $ | 527,445 | ||||||||||||
Total operating expenses | (459,353 | ) | (399,090 | ) | (307,569 | ) | (623,095 | ) | (459,353 | ) | (399,090 | ) | ||||||||||||
Operating income | 177,789 | 128,355 | 87,678 | 242,306 | 177,789 | 128,355 | ||||||||||||||||||
Other expenses, net | (86,555 | ) | (60,437 | ) | (65,132 | ) | (136,894 | ) | (86,555 | ) | (60,437 | ) | ||||||||||||
Income from continuing operations | $ | 91,234 | $ | 67,918 | $ | 22,546 | ||||||||||||||||||
Net income | $ | 105,412 | $ | 91,234 | $ | 67,918 | ||||||||||||||||||
Our property portfolio has experienced consistent and significant growth since the first property acquisition in January 2002. As a result of suchthis growth, aour period-to-period comparison of our financial performance focuses on the impact on our revenues and expenses resulting both from the new property additions to our portfolio, as well as on a “same store” property basis (same store properties are properties that were owned and operated for the entire current period and the entire immediate preceding year). The following table identifies each of the properties in our portfolio acquired from January 1, 20072008 through December 31, 2009.2010.
Acquired Buildings | Acquisition Date | Redevelopment Space as of December 31, 2009(1) | Net Rentable Square Feet Excluding Redevelopment Space | Square Feet including Redevelopment Space | Occupancy Rate as of December 31, 2009(2) | ||||||
As of December 31, 2006 (57 properties) | 462,540 | 10,159,366 | 10,621,906 | 94.3 | % | ||||||
Year Ended December 31, 2007 | |||||||||||
21110 Ridgetop Circle | Jan-07 | — | 135,513 | 135,513 | 100.0 | ||||||
3011 LaFayette Street | Jan-07 | — | 90,780 | 90,780 | 100.0 | ||||||
44470 Chillum Place | Feb-07 | — | 95,440 | 95,440 | 100.0 | ||||||
43791 Devin Shafron Drive(3) | Mar-07 | 2,194 | 132,806 | 135,000 | 100.0 | ||||||
43831 Devin Shafron Drive(3) | Mar-07 | — | 117,071 | 117,071 | 100.0 | ||||||
43881 Devin Shafron Drive(3) | Mar-07 | — | 180,000 | 180,000 | 98.5 | ||||||
Mundells Roundabout | Apr-07 | — | 113,464 | 113,464 | 100.0 | ||||||
210 N Tucker Boulevard | Aug-07 | 62,000 | 139,588 | 201,588 | 78.4 | ||||||
900 Walnut Street | Aug-07 | — | 112,266 | 112,266 | 97.3 | ||||||
1 Savvis Parkway | Aug-07 | — | 156,000 | 156,000 | 100.0 | ||||||
Clonshaugh Industrial Estate II(4) | Sep-07 | — | 124,500 | 124,500 | 100.0 | ||||||
1500 Space Park Drive | Sep-07 | — | 51,615 | 51,615 | 100.0 | ||||||
Cressex 1 | Dec-07 | — | 50,847 | 50,847 | 90.6 | ||||||
Naritaweg 52 | Dec-07 | — | 63,260 | 63,260 | 100.0 | ||||||
1 St. Anne’s Boulevard(5) | Dec-07 | — | 20,219 | 20,219 | 100.0 | ||||||
2 St. Anne’s Boulevard(5) | Dec-07 | 30,612 | — | 30,612 | — | ||||||
3 St. Anne’s Boulevard(5) | Dec-07 | 76,494 | 19,890 | 96,384 | 100.0 | ||||||
Subtotal | 171,300 | 1,603,259 | 1,774,559 | 97.5 | % | ||||||
Year Ended December 31, 2008 | |||||||||||
365 South Randolphville Road | Feb-08 | 226,530 | 38,262 | 264,792 | 50.6 | ||||||
650 Randolph Road | Jun-08 | 127,790 | — | 127,790 | — | ||||||
1201 Comstock Street | Jun-08 | — | 24,000 | 24,000 | 100.0 | ||||||
Manchester Technopark | Jun-08 | — | 38,016 | 38,016 | 100.0 | ||||||
7505 Mason King Court | Nov-08 | — | 109,650 | 109,650 | 100.0 | ||||||
Subtotal | 354,320 | 209,928 | 564,248 | 91.0 | % |
Acquired Buildings | Acquisition Date | Redevelopment Space as of December 31, 2010(1) | Net Rentable Square Feet Excluding Redevelopment Space(2) | Square Feet Including Redevelopment Space | Occupancy Rate as of December 31, 2010(3) | |||||||||||||||
As of December 31, 2007 (70 properties) | 541,418 | 11,855,047 | 12,396,465 | 94.8 | % | |||||||||||||||
Year Ended December 31, 2008 | ||||||||||||||||||||
365 South Randolphville Road | Feb-08 | 187,707 | 77,085 | 264,792 | 74.5 | |||||||||||||||
650 Randolph Road | Jun-08 | 127,790 | — | 127,790 | — | |||||||||||||||
1201 Comstock Street | Jun-08 | — | 24,000 | 24,000 | 100.0 | |||||||||||||||
Manchester Technopark | Jun-08 | — | 38,016 | 38,016 | 100.0 | |||||||||||||||
7505 Mason King Court | Nov-08 | — | 109,650 | 109,650 | 100.0 | |||||||||||||||
Subtotal | 315,497 | 248,751 | 564,248 | 92.1 | % | |||||||||||||||
Year Ended December 31, 2009 | ||||||||||||||||||||
1525 Comstock Street | Sep-09 | — | 42,385 | 42,385 | 100.0 | |||||||||||||||
444 Toyama Drive | Sep-09 | — | 42,083 | 42,083 | 100.0 | |||||||||||||||
904 Quality Way(4) | Sep-09 | 46,750 | — | 46,750 | — | |||||||||||||||
905 Security Row(4) | Sep-09 | 249,657 | — | 249,657 | — | |||||||||||||||
1232 Alma Road(4) | Sep-09 | 17,478 | 88,248 | 105,726 | 81.1 | |||||||||||||||
900 Quality Way(4) | Sep-09 | 112,253 | — | 112,253 | — | |||||||||||||||
1400 N. Bowser Road(4) | Sep-09 | 246,940 | — | 246,940 | — | |||||||||||||||
1301 International Parkway(4) | Sep-09 | 20,500 | — | 20,500 | — | |||||||||||||||
908 Quality Way(4) | Sep-09 | — | 14,400 | 14,400 | 100.0 | |||||||||||||||
1350 Duane Avenue/3080 Raymond Street | Oct-09 | — | 185,000 | 185,000 | 100.0 | |||||||||||||||
45901 & 45845 Nokes Boulevard | Dec-09 | — | 167,160 | 167,160 | 100.0 | |||||||||||||||
21561 & 21571 Beaumeade Circle | Dec-09 | — | 164,453 | 164,453 | 100.0 | |||||||||||||||
Subtotal | 693,578 | 703,729 | 1,397,307 | 97.6 | % | |||||||||||||||
Year Ended December 31, 2010 | ||||||||||||||||||||
128 First Avenue | Jan-10 | — | 274,750 | 274,750 | 99.6 | |||||||||||||||
55 Middlesex Turnpike | Jan-10 | — | 106,000 | 106,000 | 87.9 | |||||||||||||||
60-80 Merritt Boulevard | Jan-10 | — | 169,540 | 169,540 | 100.0 | |||||||||||||||
43915 Devin Shafron Drive(5) | Jan-10 | 9,229 | 123,051 | 132,280 | 100.0 | |||||||||||||||
1725 Comstock Street | Apr-10 | — | 39,643 | 39,643 | 38.6 | |||||||||||||||
3105 and 3115 Alfred Street | May-10 | 49,858 | — | 49,858 | — | |||||||||||||||
Cateringweg 5 | Jun-10 | 55,972 | — | 55,972 | — | |||||||||||||||
365 Main Street | Jul-10 | — | 226,981 | 226,981 | 84.9 | |||||||||||||||
720 2nd Street | Jul-10 | — | 121,220 | 121,220 | 97.3 | |||||||||||||||
2260 East El Segundo Boulevard | Jul-10 | — | 132,240 | 132,240 | 100.0 | |||||||||||||||
2121 South Price Road | Jul-10 | — | 293,479 | 293,479 | 97.8 | |||||||||||||||
4030-4050 La Fayette | Jul-10 | 42,374 | 103,029 | 145,403 | 100.0 | |||||||||||||||
800 Central Expressway | Aug-10 | 150,000 | — | 150,000 | — | |||||||||||||||
2950 Zanker Road | Aug-10 | — | 69,700 | 69,700 | 100.0 | |||||||||||||||
900 Dorothy Drive | Aug-10 | — | 56,176 | 56,176 | 100.0 | |||||||||||||||
29A International Business Park | Nov-10 | 308,922 | 61,578 | 370,500 | 16.8 | |||||||||||||||
Subtotal | 616,355 | 1,777,387 | 2,393,742 | 92.5 | % | |||||||||||||||
Total | 2,166,848 | 14,584,914 | 16,751,762 | 94.6 | % | |||||||||||||||
Acquired Buildings Year Ended December 31, 2009 1525 Comstock Street 444 Toyama Drive 904 Quality Way(6) 905 Security Row(6) 1232 Alma Road(6) 900 Quality Way(6) 1400 N. Bowser Road(6) 1301 International Parkway(6) 908 Quality Way(6) 1350 Duane Avenue/3080 Raymond Street 45901 & 45845 Nokes Boulevard 21561 & 21571 Beaumeade Circle Subtotal Total Acquisition
Date Redevelopment
Space as of
December 31,
2009(1) Net Rentable
Square Feet
Excluding
Redevelopment
Space Square Feet
including
Redevelopment
Space Occupancy
Rate as of
December 31,
2009(2) Sep-09 — 42,385 42,385 100.0 Sep-09 — 42,083 42,083 100.0 Sep-09 46,750 — 46,750 — Sep-09 249,657 — 249,657 — Sep-09 105,726 — 105,726 — Sep-09 112,253 — 112,253 — Sep-09 246,940 — 246,940 — Sep-09 20,500 — 20,500 — Sep-09 14,400 — 14,400 — Oct-09 — 185,000 185,000 100.0 Dec-09 — 167,160 167,160 100.0 Dec-09 — 164,453 164,453 100.0 796,226 601,081 1,397,307 100.0 % 1,784,386 12,573,634 14,358,020 95.0 %
(1) | Redevelopment space requires significant capital investment in order to develop datacenter facilities that are ready for use. Most often this is shell space. However, in certain circumstances this may include partially built datacenter space that was not completed by previous ownership and requires a large capital investment in order to build out the space. |
(2) |
(3) | Occupancy rates exclude redevelopment space. For some of our properties, we calculate occupancy based on factors in addition to contractually leased square feet, including available power, required support space and common area. |
The |
In May 2008, we acquired 701 & 717 Leonard Street, a parking garage adjacent to one of our properties in Dallas, Texas; however, we exclude the acquisition from our property count.
In May 2009, we acquired three parcels of land in Ashburn, Virginiacount because it is located adjacent to be developed. The parcels areour internet gateway datacenter located at 2323 Bryan Street and is not included in our property count.considered a separate property.
Comparison of the Year Ended December 31, 2010 to the Year Ended December 31, 2009 and Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008 and Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007
Portfolio
As of December 31, 2009,2010, our portfolio consisted of 8196 properties, excluding two properties held as investments in unconsolidated joint ventures, with an aggregate of 14.416.8 million net rentable square feet including 1.82.2 million square feet held for redevelopment compared to a portfolio consisting of 81 properties, excluding one property held as an investment in an unconsolidated joint venture, with an aggregate of 14.4 million rentable square feet including 1.8 million square feet held for redevelopment as of December 31, 2009 and a portfolio consisting of 75 properties, excluding one property held as an investment in an unconsolidated joint venture, with an aggregate of 13.0 million net rentable square feet including 1.6 million square feet held for redevelopment as of December 31, 2008 and a portfolio consisting of 70 properties with an aggregate of 12.3 million net rentable square feet including 1.8 million square feet held for redevelopment as of December 31, 2007.2008. The increase in our portfolio reflects the acquisition of 13 properties in 2007, 5 properties in 2008, and 6 properties in 2009. For all periods above, the number of2009 and 15 properties excludes one property held as an investment in an unconsolidated joint venture.2010.
Revenues
Total operating revenues from continuing operations for the years ended December 31, 2010, 2009 2008 and 20072008 were as follows (in thousands):
Year Ended December 31, | Change | Percentage Change | Year Ended December 31, | Change | Percentage Change | |||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 v 2008 | 2008 v 2007 | 2009 v 2008 | 2008 v 2007 | 2010 | 2009 | 2008 | 2010 v 2009 | 2009 vs 2008 | 2010 v 2009 | 2009 vs 2008 | |||||||||||||||||||||||||||||||||||||
Rental | $ | 510,772 | $ | 404,559 | $ | 319,603 | $ | 106,213 | $ | 84,956 | 26.3 | % | 26.6 | % | $ | 686,949 | $ | 510,944 | $ | 405,308 | $ | 176,005 | $ | 105,636 | 34.4 | % | 26.1 | % | ||||||||||||||||||||||
Tenant reimbursements | 125,308 | 107,503 | 75,003 | 17,805 | 32,500 | 16.6 | % | 43.3 | % | 178,081 | 125,136 | 106,754 | 52,945 | 18,382 | 42.3 | % | 17.2 | % | ||||||||||||||||||||||||||||||||
Other | 1,062 | 15,383 | 641 | (14,321 | ) | 14,742 | (93.1 | %) | 2299.8 | % | 371 | 1,062 | 15,383 | (691 | ) | (14,321 | ) | (65.1 | %) | (93.1 | %) | |||||||||||||||||||||||||||||
Total operating revenues | $ | 637,142 | $ | 527,445 | $ | 395,247 | $ | 109,697 | $ | 132,198 | 20.8 | % | 33.4 | % | $ | 865,401 | $ | 637,142 | $ | 527,445 | $ | 228,259 | $ | 109,697 | 35.8 | % | 20.8 | % | ||||||||||||||||||||||
As shown by the same store and new properties table shown below, the increases in rental revenues and tenant reimbursement revenues in the year ended December 31, 20092010 compared to 20082009 were primarily due to new leasing at our same store properties, including completed and leased redevelopment space, and acquisitions of properties. These factors also caused the increases in rental revenues and tenant reimbursements in the year ended December 31, 20082009 compared to 2007.2008. Other revenues changes in the years presented were primarily due to the timing of varying tenant termination revenues. We acquired 15, 6 5 and 135 properties during the years ended December 31, 2010, 2009 and 2008, and 2007, respectively.
The following table showstables show total operating revenues from continuing operations for same store properties and new properties (in thousands).
Same Store Year Ended December 31, | New Properties Year Ended December 31, | Same Store Year Ended December 31, | New Properties Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||||||
Rental | $ | 495,928 | $ | 402,905 | $ | 93,023 | $ | 14,844 | $ | 1,654 | $ | 13,190 | $ | 552,128 | $ | 507,212 | $ | 44,916 | $ | 134,821 | $ | 3,732 | $ | 131,089 | |||||||||||||||||||
Tenant reimbursements | 120,431 | 105,870 | 14,561 | 4,877 | 1,633 | 3,244 | 142,050 | 124,748 | 17,302 | 36,031 | 388 | 35,643 | |||||||||||||||||||||||||||||||
Other | 1,062 | 15,383 | (14,321 | ) | — | — | — | 371 | 1,062 | (691 | ) | — | — | — | |||||||||||||||||||||||||||||
Total operating revenues | $ | 617,421 | $ | 524,158 | $ | 93,263 | $ | 19,721 | $ | 3,287 | $ | 16,434 | $ | 694,549 | $ | 633,022 | $ | 61,527 | $ | 170,852 | $ | 4,120 | $ | 166,732 | |||||||||||||||||||
Same store rental revenues increased for the year ended December 31, 2010 compared to the same period in 2009 primarily as a result of new leases at our properties during 2010 due to strong demand for datacenter space, including leases of completed redevelopment space, the largest of which was for space in 350 East Cermak Road, 365 South Randolphville Road, St. Anne’s Boulevard (3 buildings) and 2440 Marsh Lane. Rental revenue included amounts earned from leases with tel(x), a related party, of approximately $26.8 million and $20.6 million for the year ended December 31, 2010 and 2009, respectively. Same store tenant reimbursement revenues increased for the year ended December 31, 2010 as compared to the same period in 2009 primarily as a result of new leasing and higher utility and operating expenses being billed to our tenants, the largest occurrences of which were at 3 Corporate Place, 350 East Cermak Road, 600 West Seventh Street and 1500 Space Park Drive.
New property increases were caused by properties acquired during the period from January 1, 2009 to December 31, 2010. For the year ended December 31, 2010, 128 First Avenue, 2121 South Price Road, 365 Main Street, 60 & 80 Merritt Boulevard, 55 Middlesex Turnpike and 720 2nd Street contributed $115.0 million, or approximately 69%, of the total new properties increase in revenues compared to the same period in 2009.
Same Store Year Ended December 31, | New Properties Year Ended December 31, | |||||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | |||||||||||||||||||
Rental | $ | 496,094 | $ | 403,654 | $ | 92,440 | $ | 14,850 | $ | 1,654 | $ | 13,196 | ||||||||||||
Tenant reimbursements | 120,265 | 105,121 | 15,144 | 4,871 | 1,633 | 3,238 | ||||||||||||||||||
Other | 1,062 | 15,383 | (14,321 | ) | — | — | — | |||||||||||||||||
Total operating revenues | $ | 617,421 | $ | 524,158 | $ | 93,263 | $ | 19,721 | $ | 3,287 | $ | 16,434 | ||||||||||||
Same store rental revenues increased for the year ended December 31, 2009 compared to the same period in 2008 primarily as a result of new leases at our properties during 2009, the largest of which were for space in Devin Shafron Drive (three buildings), 350 East Cermak Road, 114 Rue Ambroise Croizat, , 2440 Marsh Lane and Cressex 1. Same store tenant reimbursement revenues increased for the year ended December 31, 2009 compared to the same period in 2008 primarily as a result of higher utility and operating expenses being billed to our tenants in connection with new leasing, the largest occurrences of which were at 3011 Lafayette Street, Devin Shafron Drive (three buildings), 111 8th Avenue (2nd and 6th floors), 1500 Space Park Drive and 114 Rue Ambroise Croizat. The decrease in other revenue for the year ended December 31, 2009 compared to the same period in 2008 was primarily due to lease termination revenue related to an early termination of a tenant lease during the latter half of 2008.
New property increases were caused by properties acquired during the period from January 1, 2008 to December 31, 2009. For the year ended December 31, 2009, 1201 Comstock Street, Manchester Technopark, 7505 Mason King Court and 1350 Duane Avenue/3080 Raymond Street contributed $12.9 million, or approximately 78%, of the total new properties increase in revenues compared to the same period in 2008.
Rental Tenant reimbursements Other Total operating revenues Same Store
Year Ended December 31, New Properties
Year Ended December 31, 2008 2007 Change 2008 2007 Change $ 348,724 $ 302,473 $ 46,251 $ 55,835 $ 17,130 $ 38,705 97,420 73,343 24,077 10,083 1,660 8,423 15,383 641 14,742 — — — $ 461,527 $ 376,457 $ 85,070 $ 65,918 $ 18,790 $ 47,128
Same store rental revenues increased for the year ended December 31, 2008 compared to the same period in 2007 primarily as a result of new leases at our properties during 2008, the largest of which were for space in 350 East Cermak Road, 3 Corporate Place, 4025 Midway Road, and 200 Paul Avenue 1-4. Same store tenant reimbursement revenues increased for the year ended December 31, 2008 compared to the same period in 2007 primarily as a result of higher utility and operating expenses being billed to our tenants, the largest occurrences of which were at 3 Corporate Place, 350 East Cermak Road, 200 Paul Avenue 1-4, and 600 West Seventh Street. The increase in other revenue for the year ended December 31, 2008 compared to the same period in 2007 was primarily due to lease termination revenue related to an early termination of a tenant lease during the latter half of 2008.
New property increases were caused by properties acquired during the period from January 1, 2007 to December 31, 2008. For the year ended December 31, 2008, 3011 Lafayette Street, Devon Shafron Drive properties (3 buildings), 1500 Space Park Drive, 900 Walnut Street and Manchester Technopark contributed $31.9 million, or approximately 68% of the total new properties increase in revenues compared to the same period in 2007.
Expenses
Total expenses from continuing operations were as follows (in thousands):
Year Ended December 31, | Change | Percentage Change | Year Ended December 31, | Change | Percentage Change | ||||||||||||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 v 2008 | 2008 v 2007 | 2009 v 2008 | 2008 v 2007 | 2010 | 2009 | 2008 | 2010 v 2009 | 2009 vs 2008 | 2010 v 2009 | 2009 vs 2008 | ||||||||||||||||||||||||||||||||||||||
Rental property operating and maintenance | $ | 176,238 | $ | 151,147 | $ | 109,225 | $ | 25,091 | $ | 41,922 | 16.6 | % | 38.4 | % | $ | 251,767 | $ | 176,238 | $ | 151,147 | $ | 75,529 | $ | 25,091 | 42.9 | % | 16.6 | % | |||||||||||||||||||||||
Property taxes | 36,004 | 31,102 | 27,181 | 4,902 | 3,921 | 15.8 | % | 14.4 | % | 44,432 | 36,004 | 31,102 | 8,428 | 4,902 | 23.4 | % | 15.8 | % | |||||||||||||||||||||||||||||||||
Insurance | 6,111 | 4,988 | 5,527 | 1,123 | (539 | ) | 22.5 | % | (9.8 | %) | 8,133 | 6,111 | 4,988 | 2,022 | 1,123 | 33.1 | % | 22.5 | % | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 198,052 | 172,378 | 134,419 | 25,674 | 37,959 | 14.9 | % | 28.2 | % | 263,903 | 198,052 | 172,378 | 65,851 | 25,674 | 33.2 | % | 14.9 | % | |||||||||||||||||||||||||||||||||
General and administrative | 42,165 | 38,391 | 30,786 | 3,774 | 7,605 | 9.8 | % | 24.7 | % | 47,196 | 39,988 | 37,652 | 7,208 | 2,336 | 18.0 | % | 6.2 | % | |||||||||||||||||||||||||||||||||
Transactions | 7,438 | 2,177 | 739 | 5,261 | 1,438 | 241.7 | % | 194.6 | % | ||||||||||||||||||||||||||||||||||||||||||
Other | 783 | 1,084 | 431 | (301 | ) | 653 | (27.8 | %) | 151.5 | % | 226 | 783 | 1,084 | (557 | ) | (301 | ) | (71.1 | %) | (27.8 | %) | ||||||||||||||||||||||||||||||
Total operating expenses | $ | 459,353 | $ | 399,090 | $ | 307,569 | $ | 60,263 | $ | 91,521 | 15.1 | % | 29.8 | % | $ | 623,095 | $ | 459,353 | $ | 399,090 | $ | 163,742 | $ | 60,263 | 35.6 | % | 15.1 | % | |||||||||||||||||||||||
Interest expense | $ | 88,442 | $ | 63,621 | $ | 67,054 | $ | 24,821 | $ | (3,433 | ) | 39.0 | % | (5.1 | %) | $ | 137,384 | $ | 88,442 | $ | 63,621 | $ | 48,942 | $ | 24,821 | 55.3 | % | 39.0 | % | ||||||||||||||||||||||
As shown in the same store expense and new properties table below, total expenses infor the year ended December 31, 20092010 increased compared to 2008the same period in 2009 primarily as a result of higher same store utility and maintenance costs as well as increased depreciation and interest expense from additional redevelopment projects placed into service and from recently acquired properties. The following table showstables show expenses from continuing operations for same store properties and new properties (in thousands).
Same Store Year Ended December 31, | New Properties Year Ended December 31, | |||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
Rental property operating and maintenance | $ | 196,548 | $ | 175,356 | $ | 21,192 | $ | 55,219 | $ | 882 | $ | 54,337 | ||||||||||||
Property taxes | 36,638 | 35,633 | 1,005 | 7,794 | 371 | 7,423 | ||||||||||||||||||
Insurance | 6,222 | 6,000 | 222 | 1,911 | 111 | 1,800 | ||||||||||||||||||
Depreciation and amortization | 216,011 | 197,191 | 18,820 | 47,892 | 861 | 47,031 | ||||||||||||||||||
General and administrative(1) | 47,196 | 39,988 | 7,208 | — | — | — | ||||||||||||||||||
Transactions | — | — | — | 7,438 | 2,177 | 5,261 | ||||||||||||||||||
Other | 226 | 783 | (557 | ) | — | — | — | |||||||||||||||||
Total operating expenses | $ | 502,841 | $ | 454,951 | $ | 47,890 | $ | 120,254 | $ | 4,402 | $ | 115,852 | ||||||||||||
Interest expense | $ | 133,618 | $ | 87,607 | $ | 46,011 | $ | 3,766 | $ | 835 | $ | 2,931 | ||||||||||||
(1) | General and administrative expenses are included in same store as they are not allocable to specific properties. |
Same store rental property operating and maintenance expenses increased in the year ended December 31, 2010 compared to the same period in 2009 primarily as a result of higher consumption and utility rates in several of our properties along with redevelopment projects being placed into service leading to higher utility expense in 2010. We capitalized amounts relating to compensation expense of employees direct and incremental to construction and executed leasing activities of $18.0 million and $13.9 million for the years ended December 31, 2010 and 2009, respectively.
Rental property operating and maintenance Property taxes Insurance Depreciation and amortization General and administrative(1) Other Total operating expenses Interest expenseSame store depreciation and amortization expense increased in the year ended December 31, 2010 compared to the same period in 2009, principally because of depreciation of redevelopment projects that were placed into service in late 2009 and during 2010. Same Store
Year Ended December 31, New Properties
Year Ended December 31, 2009 2008 Change 2009 2008 Change $ 168,182 $ 149,120 $ 19,062 $ 8,056 $ 2,027 $ 6,029 34,847 31,019 3,828 1,157 83 1,074 5,909 4,974 935 202 14 188 192,622 171,826 20,796 5,430 552 4,878 42,165 38,391 3,774 — — — 783 1,084 (301 ) — — — $ 444,508 $ 396,414 $ 48,094 $ 14,845 $ 2,676 $ 12,169 $ 87,041 $ 63,618 $ 23,423 $ 1,401 $ 3 $ 1,398
General and administrative expenses for the year ended December 31, 2010 increased compared to the same period in 2009 primarily due to the growth of our company, which resulted in more employees, additional incentive compensation, and higher professional fees and marketing expenses.
Same store interest expense increased for the year ended December 31, 2010 as compared to the same period in 2009 primarily as a result of higher average outstanding debt balances during 2010 compared to 2009 primarily due to the issuance of our 5.875% Notes due 2020, the issuance of our 4.50% Notes due 2015, the issuance of our 5.50% Exchangeable Senior Debentures due 2029, or the 2029 Debentures, and draws on our Prudential shelf facility. During the year ended December 31, 2010 and 2009, we capitalized interest of approximately $10.2 million and $9.2 million, respectively.
New property increases were caused by properties acquired during the period from January 1, 2009 to December 31, 2010. For the year ended December 31, 2010, 128 First Avenue, 365 Main Street, 2121 South Price Road, 55 Middlesex Turnpike, 60 & 80 Merritt Boulevard and 720 2nd Street contributed $79.2 million, or approximately 68%, of the total new properties increase in total operating expenses compared to the same period in 2009.
Transactions expense increased in the year ended December 31, 2010 compared to the same period in 2009, principally because of expenses related to the acquisitions of the New England Portfolio and 365 Main Portfolio.
Same Store Year Ended December 31, | New Properties Year Ended December 31, | |||||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | |||||||||||||||||||
Rental property operating and maintenance | $ | 168,182 | $ | 149,120 | $ | 19,062 | $ | 8,056 | $ | 2,027 | $ | 6,029 | ||||||||||||
Property taxes | 34,847 | 31,019 | 3,828 | 1,157 | 83 | 1,074 | ||||||||||||||||||
Insurance | 5,909 | 4,974 | 935 | 202 | 14 | 188 | ||||||||||||||||||
Depreciation and amortization | 192,622 | 171,826 | 20,796 | 5,430 | 552 | 4,878 | ||||||||||||||||||
General and administrative(1) | 39,988 | 37,652 | 2,336 | — | — | — | ||||||||||||||||||
Transactions | — | — | — | 2,177 | 739 | 1,438 | ||||||||||||||||||
Other | 783 | 1,084 | (301 | ) | — | — | — | |||||||||||||||||
Total operating expenses | $ | 442,331 | $ | 395,675 | $ | 46,656 | $ | 17,022 | $ | 3,415 | $ | 13,607 | ||||||||||||
Interest expense | $ | 87,041 | $ | 63,618 | $ | 23,423 | $ | 1,401 | $ | 3 | $ | 1,398 | ||||||||||||
(1) | General and administrative expenses are included in same store as they are not allocable to specific properties. |
Same store rental property operating and maintenance expenses increased for the year ended December 31, 2009 compared to the same period in 2008 primarily as a result of higher utility rates in several of our properties along with redevelopment projects being placed into service leading to higher utility and operating expense in 2009. We capitalized amounts relating to compensation expense of employees directly engaged in construction and successful leasing activities of $13.9 million and $10.6 million in the years ended December 31, 2009 and 2008, respectively.
Same store property taxes increased in the year ended December 31, 2009 compared to 2008, primarily as a result of newly completed redevelopment space offset by favorable property tax reassessment at 350 East Cermak Road.
Same store insurance increased in the year ended December 31, 2009 compared to 2008, primarily as a result of an increase in insurance rates on our renewal of our insurance program.
Same store depreciation and amortization expense increased in the year ended December 31, 2009 compared to 2008, principally because of depreciation of redevelopment projects that were placed into service in late 2008 and during 2009.
General and administrative expenses for the year ended December 31, 2009 increased compared to the same period in 2008 primarily due to the growth of our company, which resulted in higher employee cost, travel
expenses and higher professional fees and marketing expenses offset by $1.6 million of compensation expense in 2008 related to the acceleration of the 2005 OPP Grant. For a further discussion of the acceleration of the 2005 OPP Grant, please refer to note 9 in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Other expenses are primarily comprised of write-offs of the carrying amounts for tenant improvements, acquired in place lease value and acquired above market lease values as a result of the early termination of tenant leases.
Same store interest expense increased for the year ended December 31, 2009 as compared to the same period in 2008 primarily as a result of higher average outstanding debt balances during 2009 compared to 2008 due to issuance of ourthe 2029 debentures, draws on our Prudential shelf facility, and secured financings on 3 Corporate Place, 1500 Space Park Drive, Mundells Roundabout, Cressex 1, Manchester Technopark and Clonshaugh Industrial Estate II, partially offset by a decrease in interest expense at 350 East Cermak Road due to a lower effective rate after considering the impact of an interest rate swap agreement and early paydown of the loan in March 2009. Interest capitalized during the years ended December 31, 2009 and 2008 was $9.2 million and $18.4 million, respectively.
New property increases were caused by properties acquired during the period from January 1, 2008 to December 31, 2009. For the year ended December 31, 2009, 1201 Comstock Street, Manchester Technopark, 365 S. Randolphville Road, 1350 Duane Avenue/3080 Raymond Street and 7505 Mason King Court contributed $10.7 million, or approximately 88%, in total operating expenses compared to the same period in 2008.
We are in the process of investigating allegations of over-billing by a vendor. Based on our investigation to date, which remains ongoing, we do not believe that the potential amount over-billed to us will have a material effect on our financial condition or results of operations. We have notified the appropriate authorities and are cooperating with their investigation.
Same Store Year Ended December 31, | New Properties Year Ended December 31, | ||||||||||||||||||
2008 | 2007 | Change | 2008 | 2007 | Change | ||||||||||||||
Rental property operating and maintenance | $ | 133,706 | $ | 104,171 | $ | 29,535 | $ | 17,441 | $ | 5,054 | $ | 12,387 | |||||||
Property taxes | 28,546 | 26,408 | 2,138 | 2,556 | 773 | 1,783 | |||||||||||||
Insurance | 4,683 | 5,490 | (807 | ) | 305 | 37 | 268 | ||||||||||||
Depreciation and amortization | 147,119 | 127,079 | 20,040 | 25,259 | 7,340 | 17,919 | |||||||||||||
General and administrative(1) | 38,391 | 30,786 | 7,605 | — | — | — | |||||||||||||
Other | 1,022 | 431 | 591 | 62 | — | 62 | |||||||||||||
Total operating expenses | $ | 353,467 | $ | 294,365 | $ | 59,102 | $ | 45,623 | $ | 13,204 | $ | 32,419 | |||||||
Interest expense | $ | 61,371 | $ | 67,049 | $ | (5,678 | ) | $ | 2,250 | $ | 5 | $ | 2,245 | ||||||
Same store rental property operating and maintenance expenses increased for the year ended December 31, 2008 compared to the same period in 2007 primarily as a result of higher utility expenses which is attributed to new leasing and increased power rates. We capitalized amounts relating to compensation expense of employees directly engaged in construction and successful leasing activities of $10.6 million and $5.0 million in the years ended December 31, 2008 and 2007, respectively.
Same store property taxes increased in the year ended December 31, 2008 compared to 2007, primarily as a result of newly completed redevelopment space offset by favorable property tax adjustments at 350 East Cermak Road and 200 Paul Avenue 1-4.
Same store insurance decreased in the year ended December 31, 2008 compared to 2007, primarily as a result of favorable insurance rates on our renewal of our insurance program in late 2007.
Same store depreciation and amortization expense increased in the year ended December 31, 2008 compared to 2007, principally because of depreciation of redevelopment projects that were placed into service in late 2007 and during 2008 along with the acceleration of depreciation on assets associated with leases which terminated earlier than previously estimated.
General and administrative expenses for the year ended December 31, 2008 increased compared to the same period in 2007 primarily due to the growth of our company, which resulted in more employees, additional incentive compensation, and higher professional fees and marketing expenses along with the $1.6 million of compensation expense related to the acceleration of the 2005 OPP Grant. For a further discussion of the acceleration of the 2005 OPP Grant, please refer to note 9 in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K
Other expenses are primarily comprised of write-offs of the carrying amounts for tenant improvements, acquired in place lease value and acquired above market lease values as a result of the early termination of tenant leases.
Same store interest expense decreased for the year ended December 31, 2008 as compared to the same period in 2007 primarily as a result of higher capitalized interest during 2008 compared to 2007 along with a decrease in interest expense at 350 East Cermak Road due to a lower variable interest rate offset by higher average outstanding debt balances during 2008 compared to 2007 due to financings on 3 Corporate Place, 2045 & 2055 LaFayette Street, 150 South First Street and 1500 Space Park Drive. Interest capitalized during the years ended December 31, 2008 and 2007 was $18.4 million and $11.9 million, respectively.
New property increases were caused by properties acquired during the period from January 1, 2007 to December 31, 2008. For the year ended December 31, 2008, 3011 Lafayette Street, Devon Shafron Drive properties (3 buildings), 1500 Space Park Drive and 900 Walnut Street contributed $20.6 million, or approximately 63% in total operating expenses compared to the same period in 2007.
Equity in earnings of unconsolidated joint venture
The equity in earnings of unconsolidated joint venture relates to a 50% investment in a joint venture that owns a datacenter property in Seattle, Washington. The investment was made in November 2006. The amount recorded in 2007 includes our portion of the write-off of net costs related to the refinance of the previously outstanding mortgage loan on the property, which amounted to approximately $0.6 million.
Discontinued operations
Discontinued operations relate to the following properties:
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Results of discontinued operations were as follows (in thousands):
Year Ended December 31, 2007 | ||||
Operating revenues | $ | 2,340 | ||
Operating expenses | (1,283 | ) | ||
Interest and other income | 5 | |||
Interest expense | (607 | ) | ||
Gain on derivative instruments | 940 | |||
1,395 | ||||
Gain on sale of assets | 18,049 | |||
Income from discontinued operations | 19,444 | |||
Income from discontinued operations attributable to noncontrolling interests | (3,264 | ) | ||
Income from discontinued operations attributable to Digital Realty Trust, Inc. | $ | 16,180 | ||
Liquidity and Capital Resources of the Parent Company
In this “Liquidity and Capital Resources of the Parent Company” section and in the “Liquidity and Capital Resources of the Operating Partnership” section below, the term, our “parent company”, refers to Digital Realty Trust, Inc. on an unconsolidated basis, excluding our operating partnership.
Analysis of Liquidity and Capital Resources
Our parent company’s business is operated primarily through our operating partnership of which our parent company is the sole general partner and which it consolidates for financial reporting purposes. Because our parent company operates on a consolidated basis with our operating partnership, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of our parent company on a consolidated basis and how our company is operated as a whole.
Our parent company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the operating partnership. Our parent company itself does not hold any indebtedness other than guarantees of indebtedness of our operating partnership, and its only material asset is its ownership of partnership interests of our operating partnership. Therefore, the consolidated assets and liabilities and the consolidated revenues and expenses of our parent company and our operating partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by our parent company. However, all debt is held directly or indirectly at the operating partnership level. Our parent company’s principal funding requirement is the payment of dividends on its common and preferred shares. Our parent company’s principal source of funding for its dividend payments is distributions it receives from our operating partnership.
As the sole general partner of December 31, 2009, we had $72.3 millionour operating partnership, our parent company has the full, exclusive and complete responsibility for our operating partnership’s day-to-day management and control. Our parent company causes our operating partnership to distribute such portion of its available cash and cash equivalents, excluding $37.8 million of restricted cash. Restricted cash primarily consists of interest bearing cash depositsas our parent company may in its
discretion determine, in the manner provided in our operating partnership’s partnership agreement. Our parent company receives proceeds from its equity issuances from time to time, but is required by our operating partnership’s partnership agreement to contribute the terms of severalproceeds from its equity issuances to our operating partnership in exchange for partnership units of our mortgage loans foroperating partnership.
Our parent company is a varietywell-known seasoned issuer with an effective shelf registration statement filed on May 1, 2009, as amended by Post-Effective Amendment No. 1 filed on November 15, 2010, that allows our parent company to register unspecified various classes of purposes, including real estate taxes, insurance, anticipated or contractually obligated tenant improvements, as well as capital expenditures.
Our short term liquidity requirements primarily consist of operating expenses, redevelopment costsequity securities. As circumstances warrant, our parent company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and other expenditures associated with our properties, dividend payments on our preferred stock, dividend paymentsavailable pricing. Any proceeds from such equity issuances would be contributed to our stockholders and distributionsoperating partnership in exchange for additional equity interests in our operating partnership. Our operating partnership may use the proceeds to our unitholders in the Operating Partnership required to maintain our REIT status, capital expenditures, debt service on our loans and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, restricted cash accounts established for certain future payments and by drawing upon our revolving credit facility.
As of December 31, 2009, our revolving credit facility had a total capacity of $750.0 million and matures in August 2010, subject to two one-year extension options exercisable by us. The bank group is obligated to grant extension options provided we give proper notice, we make certain representations and warranties and no default exists under the revolving credit facility. As of December 31, 2009, borrowings under the revolving credit facility bore interest at a blended rate of 1.34% (US Dollar), and 1.58% (Euro), which are based on 1-month US LIBOR and 1-month EURIBOR, respectively, plus a margin of 1.10%. The margin can range from 1.10% to 2.00%, depending on our Operating Partnership’s total overall leverage. The revolving credit facility has a $515.0 million sub-facility for multicurrency advances in British Pound Sterling, Canadian Dollars, Euros, and Swiss Francs. We intend to use available borrowings under the revolving credit facility to, among other things, finance the acquisition ofacquire additional properties, fund tenant improvements and capital expenditures,to fund development and redevelopment activitiesopportunities and to provide for general working capital and other corporate purposes. Aspurposes, including potentially for the repurchase, redemption or retirement of December 31, 2009, approximately $205.5 million was drawn under this facility, and $22.6 millionoutstanding debt or preferred securities.
The liquidity of letters of credit were issued, leaving approximately $521.5 million available for use.
For a discussion of the potential impact of current global economic and market conditionsour parent company is dependent on our liquidityoperating partnership’s ability to make sufficient distributions to our parent company. The primary cash requirement of our parent company is its payment of dividends to its stockholders. Our parent company also guarantees some of our operating partnership’s unsecured debt. If our operating partnership fails to fulfill its debt requirements, which trigger parent company guarantee obligations, then our parent company will be required to fulfill its cash payment commitments under such guarantees. However, our parent company’s only asset is its investment in our operating partnership.
We believe our operating partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured revolving credit facility, are adequate for it to make its distribution payments to our parent company and, in turn, for our parent company to make its dividend payments to its stockholders. However, we cannot assure you that our operating partnership’s sources of capital resources, see “—Factors Which May Influence Future Resultswill continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to our parent company. The unavailability of Operations—Global market and economic conditions” above.capital could adversely affect our operating partnership’s ability to pay its distributions to our parent company, which would in turn, adversely affect our parent company’s ability to pay cash dividends to its stockholders.
On December 31, 2009, weour parent company entered into equity distribution agreements, which we refer to as the Original Equity Distribution Agreements, with each of Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, or the Original Agents, under which weit could issue and sell shares of its common stock having an aggregate offering price of up to $400,000,000 from time to time through, at ourits discretion, any of the Original Agents as ourits sales agents. On January 22, 2010, weour parent company amended and restated each Original Equity Distribution Agreement with the applicable Original Agent, and also entered into a new equity distribution agreement with Morgan Stanley & Co. Incorporated, or collectively the Equity Distribution Agreements, under which weit may issue and sell shares of ourits common stock having an aggregate offering price of up to $400,000,000 (including the approximately 1.1 million shares of common stock having an aggregate offering price of approximately $54.3 million sold pursuant to the Original Equity Distribution Agreements as of January 22, 2010), from time to time through, at ourits discretion, any of the Original Agents or Morgan Stanley & Co. Incorporated as ourits sales agents. The sales of common stock made under the Equity Distribution Agreements will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. We intendOur parent company has used and intends to use the proceeds from the sale of shares pursuant to the Equity Distribution Agreements to temporarily repay borrowings under our operating partnership’s revolving credit facility, to acquire additional properties, to fund development and redevelopment opportunities and for general corporate purposes. Inpurposes, including potentially the fiscal quarter ended December 31, 2009, we sold no shares under our the Equity Distribution Agreements.repayment or repurchase of outstanding debt. From January 1, 2010 to February 19,through December 31, 2010, weour parent company generated net proceeds of approximately $53.5$217.1 million from the issuance of approximately 1.13.8 million common shares under our the Equity Distribution Agreements at an average price of $50.54$57.66 per share after payment of approximately $0.8$3.3 million of commissions to the sales agents.
On January 20, 2010, The proceeds from the issuances were contributed to our operating partnership closedin exchange for the saleissuance of $100.03.8 million common units to our parent company.
On June 8, 2010, our parent company completed an offering of 6,900,000 shares of its common stock for total net proceeds, after deducting discounts and estimated expenses, of approximately $377.1 million. Our parent company contributed the net proceeds from this offering to our operating partnership in exchange for 6,900,000 common units, as required by our operating partnership’s partnership agreement.
On June 14, 2010, our parent company issued 1,160,950 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $184,800 and accrued and unpaid interest equal to $503,965 in exchange for $36,960,000 in aggregate principal amount of its senior unsecured term notesthe 2026 debentures held by an institutional investor pursuant to Prudential Investment Management, Inc.an exchange agreement, dated June 14, 2010, by and certainamong our parent company, our operating partnership and such institutional investor.
On July 22, 2010, our parent company distributed a Notice of Redemption to all holders of record of its affiliates,outstanding 8.50% Series A Cumulative Redeemable Preferred Stock, or collectively, Prudential, pursuantthe Series A Preferred Stock, regarding its redemption of all 4,140,000 outstanding shares of the Series A Preferred Stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends. The redemption date was August 24, 2010. Our parent company funded the redemption with borrowings under our operating partnership’s revolving credit facility, which our operating partnership distributed to the Prudential shelf facility. The notes were issuedour parent company in two series referred to as the series D and series E notes. The series D notes have a principal amountconnection with our operating partnership’s redemption of $50.0 million, an interest-only rateall 4,140,000 of 4.57% per annum and a five-year maturity, and the series E notes have a principal amount of $50.0 million, an interest-only rate of 5.73% per annum and a seven-year maturity. its outstanding 8.50% Series A Cumulative Redeemable Preferred Units held by our parent company.
On February 3,July 27, 2010, our parent company issued 236,444 privately issued shares of its common stock, par value $0.01 per share, to our operating
partnership, closedand our operating partnership delivered the sale ofshares and paid an additional $17.0 millionincentive fee equal to $37,516 and accrued and unpaid interest equal to $138,360 in exchange for $7,500,000 in aggregate principal amount of its senior unsecured term notes, which we refer to as the series F notes, to Prudential2026 debentures held by an institutional investor pursuant to an exchange agreement, dated July 27, 2010, by and among our parent company, our operating partnership and such institutional investor.
In two settlements on August 30, 2010 and September 1, 2010, our parent company issued an aggregate of 436,539 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the Prudential shelf facility. The series F notes haveshares and paid an interest-only rate of 4.50% per annumaggregate incentive fee equal to $91,062 and a five-year maturity. We used the proceedsaggregate accrued and unpaid interest equal to $25,157 in exchange for $13,847,000 in aggregate principal amount of the series D, series E2026 debentures held by an institutional investor pursuant to an exchange agreement, dated August 30, 2010, by and series F notes to fund acquisitions, to temporarily repay borrowings underamong our revolving credit facilityparent company, our operating partnership and for working capital.such institutional investor.
On January 22,September 17, 2010, we completedour parent company issued 28,496 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the acquisitionshares and paid an incentive fee equal to $5,919 and accrued and unpaid interest equal to $3,197 in exchange for $900,000 in aggregate principal amount of the New England Portfolio,2026 debentures held by an institutional investor pursuant to an exchange agreement, dated September 17, 2010, by and among our parent company, our operating partnership and such institutional investor.
On September 24, 2010, our parent company issued 94,990 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the shares and paid an incentive fee equal to $19,500 and accrued and unpaid interest equal to $13,406 in exchange for $3,000,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated September 24, 2010, by and among our parent company, our operating partnership and such institutional investor.
On November 9, 2010, our parent company distributed a three-property datacenter portfolio located in MassachusettsNotice of Redemption to all holders of record of its outstanding 7.875% Series B Cumulative Redeemable Preferred Stock, or the Series B Preferred Stock, regarding its redemption of all 2,530,000 outstanding shares of the Series B Preferred Stock at a redemption price of $25.00 per
share, plus accrued and Connecticut, from Sentinel Properties—Needham, LLC, SP—Needham I, LLC, Sentinel Properties – Bedford LLC and Sentinel Properties—Trumbull, LLC, or, collectively,unpaid dividends. The redemption date was December 10, 2010. Our parent company funded the Sellers. The purchase price, which was determined through negotiations between us and the Sellers, was approximately $375.0 million, paid in cash fundedredemption with borrowings under our operating partnership’s revolving credit facility.
On January 28, 2010,facility, which our operating partnership closeddistributed to our parent company in connection with our operating partnership’s redemption of all 2,530,000 of its outstanding 7.875% Series B Cumulative Redeemable Preferred Units held by our parent company.
On November 16, 2010, our parent company issued 72,826 privately issued shares of its common stock, par value $0.01 per share, to our operating partnership, and our operating partnership delivered the issuance of $500.0 millionshares and paid an incentive fee equal to $15,125 and accrued and unpaid interest equal to $23,719 in exchange for $2,300,000 in aggregate principal amount of 5.875% notes due 2020. The purchase price paidthe 2026 debentures held by the initial purchasers was 98.296% of the principal amount thereof. The notes are general unsecured senior obligations ofan institutional investor pursuant to an exchange agreement, dated November 16, 2010, by and among our parent company, our operating partnership and rank equally in rightsuch institutional investor.
On November 19, 2010, our parent company issued 601,127 privately issued shares of payment with all other senior unsecured indebtedness ofits common stock, par value $0.01 per share, to our operating partnership. Interest onpartnership, and our operating partnership delivered the notes are payable on February 1shares and August 1 of each year, beginning on August 1, 2010. The net proceeds from the offering after deducting the original issue discount, underwriting commissionspaid an incentive fee equal to $189,889 and estimated expenses was approximately $487.6 million. We used the net proceeds from the offeringaccrued and unpaid interest equal to temporarily repay our borrowings under our revolving credit facility, fund development and redevelopment opportunities and$204,484 in exchange for general corporate purposes.
Construction
As of December 31, 2009 and December 31, 2008, construction$18,985,000 in progress, including the proportionate acquisition cost of land and property related to current construction projects, amounted to $154.4 million, or $185.4 million including construction accruals and certain capitalized costs, and $325.6 million, or $405.3 million including construction accruals and certain capitalized costs, respectively. Separately, our redevelopment program included the proportionate acquisition cost of land and building related to other targeted projects in theaggregate principal amount of $88.6 millionthe 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated November 19, 2010, by and $76.1 million as of December 31, 2009among our parent company, our operating partnership and December 31, 2008, respectively. Construction in progress related to non-redevelopment projects, primarily tenant and building improvements amounted to $2.1 million as of December 31, 2009 and December 31, 2008.such institutional investor.
Future Uses of Cash
Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements. As of December 31, 2009, we had approximately 1.8 million square feet of redevelopment space and we also owned approximately 184,000 net rentable square feet of datacenter space with extensive installed tenant improvements that weparent company may subdivide for Turn-Key Datacenter® use duringfrom time to time seek to retire, redeem or repurchase its preferred equity or the next two years rather than lease to large single tenants. Turn-Key Datacenter® space is move-in-ready space for the placement of computer and network equipment required to provide a datacenter environment. Depending on demand for additional Turn-Key Datacenter® space, we expect to incur significant tenant improvement costs to build out and redevelop these spaces. At December 31, 2009, approximately 87,000 square feetdebt securities of our space heldoperating partnership through cash purchases and/or exchanges for redevelopment was under construction for Turn-Key Datacenter® spaceequity securities in three U.S. and European markets. At December 31, 2009, we had commitments under construction contracts for approximately $41.1 million. We currently expect to incur approximately $440.0 million to $475.0 million of capital expenditures foropen market purchases, privately negotiated transactions or otherwise. Such repurchases, redemptions or exchanges, if any, will depend on prevailing market conditions, our redevelopment program during the year ended December 31, 2010, although this amountliquidity requirements, contractual restrictions or other factors. The amounts involved may increase or decrease, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.be material.
We are also subject to the commitments discussed below under “Commitments“Dividends and Contingencies” and “Off-Balance Sheet Arrangements”, and “Distributions” as described below.
Consistent with our growth strategy, we actively pursue opportunities for potential acquisitions, with due diligence and negotiations often at different stages at different times. We currently expect acquisitions for the year ended December 31, 2010 to be approximately $525.0 million, of which $375.0 million was incurred on the acquisition of the New England Portfolio in January 2010, though this amount may increase or decrease, potentially materially, based on numerous factors, including changes in demand, leasing results, availability of debt or equity capital or based on acquisition opportunities.Distributions.”
Properties Acquired in 2009
During the year ended December 31, 2009 we acquired or made investments in the following properties:
Location | Metropolitan Area | Date Acquired | Amount (in millions) | ||||
Loudoun Exchange II(1) | Northern Virginia | May 15, 2009 | 20.3 | ||||
Digital Realty Trust Datacenter Park—Dallas(2) | Dallas | September 11, 2009 | 33.6 | ||||
444 Toyama Drive | Silicon Valley | September 25, 2009 | 17.5 | ||||
1350 Duane Avenue/3080 Raymond Street(3) | Silicon Valley | October 30, 2009 | 90.5 | ||||
Nokes Boulevard / Beaumeade Circle(4) | Northern Virginia | December 17, 2009 | 63.3 | ||||
Total Acquisitions—Year Ended December 31, 2009 | $ | 225.2 | |||||
We financed the purchase of these properties primarily with borrowings under our revolving credit facility. We have repaid borrowings under our revolving credit facility with portions of the proceeds from our February 2009 common stock issuance, the issuance of our 2029 debentures, sales of common stock under our Equity Distribution Agreements, the issuance of notes under our Prudential shelf facility and the issuance of our 5.875% notes due 2020.
Dividends and Distributions
We areOur parent company is required to distribute 90% of our REITits taxable income (excluding capital gains) on an annual basis in order for it to continue to qualify as a REIT for federal income tax purposes. Accordingly, we intendour parent company intends to make, but areis not contractually bound to make, regular quarterly distributions to its preferred stockholders and common stockholders and unit holders from cash flow from our operating partnership’s operating activities. All such distributions are at the discretion of our parent company’s board of directors. We may be required to use borrowings under the revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. We considerOur parent company considers market factors and our operating partnership’s performance in addition to REIT requirements in determining distribution levels. We haveOur parent company has distributed 100% of ourits taxable income since inception to minimize corporate level federal income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing
securities, which are consistent with our intention to maintain our parent company’s status as a REIT. The exchange rate on our $172.5 million principal amount of our 4.125% exchangeable seniorthe 2026 debentures, due 2026, the exchange rate on our 5.50% exchangeable seniorthe 2029 debentures, due 2029, the conversion rate on our parent company’s series C cumulative convertible preferred stock and the conversion rate on our parent company’s series D cumulative convertible preferred stock are each subject to adjustment for certain events, including, but not limited to, certain dividends on our parent company’s common stock in excess of $0.265 per share per quarter, $0.33 per share per quarter, $0.28625 per share per quarter and $0.31 per share per quarter, respectively. Therefore, increases tothe declaration and payment of quarterly dividends by our quarterly dividendparent company in excess of these thresholds may increase the dilutive impact of theour operating partnership’s exchangeable debentures series C cumulative convertible preferred stock and series D cumulativeour parent company’s convertible preferred stock on our parent company’s common stockholders.
While historically our parent company has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, our parent company’s own shares. As a result of this distribution
requirement, our operating partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not REITs can. Our parent company may need to continue to raise capital in the equity markets to fund our operating partnership’s working capital needs, as well as potential developments at new or existing properties, acquisitions or investments in existing or newly created joint ventures. In 2009, 2008addition, our parent company may be required to use borrowings under our operating partnership’s revolving credit facility, if necessary, to meet REIT distribution requirements and 2007, wemaintain our parent company’s REIT status.
Our parent company has declared the following dividends on its common and distributionspreferred stock for the years ended December 31, 2010, 2009 and 2008 (in thousands):
Date dividend and distribution declared | Dividend and distribution | Series A Preferred Stock(1) | Series B Preferred Stock(2) | Series C Preferred Stock(3) | Series D Preferred Stock(4) | Common Stock and Operating Partnership Common Units | ||||||||||||||||||||||||||||||||||
February 15, 2007 | April 2, 2007 | 2,199 | 1,246 | — | — | 19,442 | (5) | |||||||||||||||||||||||||||||||||
May 2, 2007 | July 2, 2007 | 2,199 | 1,246 | 1,722 | — | 19,458 | (5) | |||||||||||||||||||||||||||||||||
August 1, 2007 | October 1, 2007 | 2,199 | 1,246 | 1,914 | — | 19,465 | (5) | |||||||||||||||||||||||||||||||||
November 1, 2007 | December 31, 2007 for Series A, B and C Preferred Stock; January 14, 2008 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | — | 22,345 | (6) | |||||||||||||||||||||||||||||||||
Total—2007 | $ | 8,796 | $ | 4,984 | $ | 5,550 | $ | — | $ | 80,710 | ||||||||||||||||||||||||||||||
Date dividend declared | Dividend payable date | Series A Preferred Stock(1) | Series B Preferred Stock(2) | Series C Preferred Stock(3) | Series D Preferred Stock(4) | Common Stock | ||||||||||||||||||||||||||||||||||
February 25, 2008 | March 31, 2008 | 2,199 | 1,246 | 1,914 | 2,899 | 22,418 | (6) | March 31, 2008 | 2,199 | 1,246 | 1,914 | 2,899 | 20,295 | (5) | ||||||||||||||||||||||||||
May 5, 2008 | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,444 | (6) | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 20,512 | (5) | ||||||||||||||||||||||||||
August 4, 2008 | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 24,258 | (6) | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,491 | (5) | ||||||||||||||||||||||||||
November 4, 2008 | December 31, 2008 for Series A, B, C and D Preferred Stock; January 7, 2009 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | 4,744 | 26,102 | (7) | December 31, 2008 for Series A, B, C and D Preferred Stock; January 7, 2009 for Common Stock | 2,199 | 1,246 | 1,914 | 4,744 | 24,150 | (6) | ||||||||||||||||||||||||||
Total—2008 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 95,222 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 87,448 | ||||||||||||||||||||
February 24, 2009 | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,053 | (7) | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 25,077 | (6) | ||||||||||||||||||||||||||
April 28, 2009 | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,064 | (7) | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 25,126 | (6) | ||||||||||||||||||||||||||
July 28, 2009 | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 29,575 | (8) | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,502 | (7) | ||||||||||||||||||||||||||
October 27, 2009 | December 31, 2009 for Series A, B, C and D Preferred Stock; January 15, 2010 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | 4,742 | 37,004 | (9) | December 31, 2009 for Series A, B, C and D Preferred Stock; January 15, 2010 for Common Stock | 2,199 | 1,246 | 1,914 | 4,742 | 34,561 | (8) | ||||||||||||||||||||||||||
Total—2009 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 120,696 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 112,266 | ||||||||||||||||||||
February 23, 2010 | March 31, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 37,512 | (9) | |||||||||||||||||||||||||||||||||
April 27, 2010 | June 30, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 41,783 | (9) | |||||||||||||||||||||||||||||||||
July 19, 2010 | September 30, 2010 | — | (10) | 1,246 | 1,914 | 4,739 | 47,024 | (11) | ||||||||||||||||||||||||||||||||
November 2, 2010 | December 31, 2010 for Series C and D Preferred Stock; January 14, 2011 for Common Stock | — | — | (12) | 1,914 | 4,739 | 48,297 | (11) | ||||||||||||||||||||||||||||||||
Total—2010 | $ | 4,398 | $ | 3,738 | $ | 7,656 | $ | 18,962 | $ | 174,616 | ||||||||||||||||||||||||||||||
(1) | $2.125 annual rate of dividend per share. |
(2) | $1.969 annual rate of dividend per share. |
(3) | $1.094 annual rate of dividend per share. |
(4) | $1.375 annual rate of dividend per share. |
(5) | $ |
$1.320 annual rate of dividend |
$1.440 annual rate of dividend |
$1.800 annual rate of dividend |
(9) | $1.920 annual rate of dividend per share. |
(10) | Redeemed on August 24, 2010 for a redemption price of $25.00 per share, plus accrued and |
(11) | $2.120 annual rate of dividend per share. |
(12) | Redeemed on December 10, 2010 for a redemption price of $25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date of approximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to common stockholders. |
Distributions out of our current or accumulated earnings and profits are generally classified as ordinary income whereas distributions in excess of our current and accumulated earnings and profits, to the extent of a stockholder’s U.S. federal income tax basis in our parent company’s stock, are generally classified as a return of capital. Distributions in excess of a stockholder’s U.S. federal income tax basis in our parent company’s stock are generally characterized as capital gain. Cash provided by operating activities has been sufficient to fund all distributions.
The tax treatment of distributions on common stock for 2009 is as follows: 100% ordinary income and 0% return of capital. The tax treatment of distributions on common stock for 2008 is as follows: approximately 100% ordinary income and 0% return of capital. The tax treatment of distributions on common stock for 2007 is as follows: approximately 78% ordinary income and 22% return of capital. All distributions paid on our parent company’s common and preferred stock in 2010, 2009 2008 and 20072008 were classified as ordinary income for income tax purposes.
Liquidity and Capital Resources of the Operating Partnership
In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we”, “our” and “us” refer to our operating partnership together with its consolidated subsidiaries or our operating partnership and our parent company together with their consolidated subsidiaries, as the text requires.
Analysis of Liquidity and Capital Resources
Our parent company is our sole general partner and consolidates our results of operations for financial reporting purposes. Because we operate on a consolidated basis with our parent company, the section entitled “Liquidity and Capital Resources of the Parent Company” should be read in conjunction with this section to understand our liquidity and capital resources on a consolidated basis.
As of December 31, 2010, we had $11.7 million of cash and cash equivalents, excluding $60.1 million of restricted cash. Restricted cash primarily consists of interest-bearing cash deposits required by the terms of several of our mortgage loans for a variety of purposes, including real estate taxes, insurance, anticipated or contractually obligated tenant improvements, as well as capital expenditures.
Our short-term liquidity requirements primarily consist of operating expenses, redevelopment costs and other expenditures associated with our properties, distributions to our parent company in order for it to make dividend payments on its preferred stock, distributions to our parent company in order for it to make dividend payments to its stockholders required to maintain its REIT status, distributions to the unitholders in our operating partnership, capital expenditures, debt service on our loans and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, restricted cash accounts established for certain future payments and by drawing upon our revolving credit facility.
As of December 31, 2010, our revolving credit facility had a total capacity of $750.0 million. Effective August 31, 2010, we exercised the first of two one-year extension options to our revolving credit facility, which extends its maturity date from August 31, 2010 to August 31, 2011. The bank group is obligated to grant extension options provided we give proper notice, we make certain representations and warranties and no default exists under the revolving credit facility. As of December 31, 2010, borrowings under the revolving credit facility bore interest at a blended rate of 1.40% (U.S) and 1.69% (GBP), which are based primarily on 1-month LIBOR and 1-month GBP LIBOR, respectively, plus a margin of 1.10%. The revolving credit facility has a $515.0 million sub-facility for multicurrency advances in British Pounds Sterling, Canadian Dollars, Euros, and Swiss Francs. We intend to use available borrowings under the revolving credit facility to, among other things, finance the acquisition of additional properties, fund tenant improvements and capital expenditures, fund
development and redevelopment activities and to provide for working capital and other corporate purposes. As of December 31, 2010, approximately $333.5 million was drawn under this facility, and $29.9 million of letters of credit were issued, leaving approximately $386.5 million available for use.
On June 28, 2010, we completed an amendment to our revolving credit facility. The amendment to the revolving credit facility provides us with the ability to add eligible unencumbered international assets to the borrowing base in support of our outstanding unsecured debt. International assets include properties located in Canada, England, Ireland, Wales, France, Spain, the Netherlands, Singapore and Australia. Under the new amendment, international assets may comprise up to 25% of the borrowing base, with assets in Spain and Singapore limited to up to 10% of the borrowing base.
On June 30, 2010, we completed an amendment to our Prudential shelf facility, the terms of which are substantially the same as the amendment to our revolving credit facility described above. On December 8, 2010, we completed a second amendment increasing the capacity of the Prudential shelf facility from $200.0 million to $250.0 million.
For a discussion of the potential impact of current global economic and market conditions on our liquidity and capital resources, see “—Factors Which May Influence Future Results of Operations—Global market and economic conditions” above.
On January 20, 2010, we closed the sale of $100.0 million aggregate principal amount of our senior unsecured term notes to Prudential Investment Management, Inc. and certain of its affiliates, or, collectively, Prudential, pursuant to the Prudential shelf facility. The notes were issued in two series referred to as the series D and series E notes. The series D notes have a principal amount of $50.0 million, an interest-only rate of 4.57% per annum and a five-year maturity, and the series E notes have a principal amount of $50.0 million, an interest-only rate of 5.73% per annum and a seven-year maturity. On February 3, 2010, we closed the sale of an additional $17.0 million aggregate principal amount of our senior unsecured term notes, which we refer to as the series F notes, to Prudential pursuant to the Prudential shelf facility. The series F notes have an interest-only rate of 4.50% per annum and a five-year maturity. We used the proceeds of the series D, series E and series F notes to fund acquisitions, to temporarily repay borrowings under our revolving credit facility, to fund working capital and for general corporate purposes.
On January 22, 2010, our parent company entered into the Equity Distribution Agreements discussed under “Liquidity and Capital Resources of the Parent Company” above. From January 1, 2010 through December 31, 2010, our parent company generated net proceeds of approximately $217.1 million from the issuance of approximately 3.8 million common shares under the Equity Distribution Agreements at an average price of $57.66 per share after payment of approximately $3.3 million of commissions to the sales agents. The proceeds from the issuances were contributed to us in exchange for the issuance of 3.8 million common units to our parent company.
On January 22, 2010, we completed the acquisition of the New England Portfolio, a three-property datacenter portfolio located in Massachusetts and Connecticut, from Sentinel Properties—Needham, LLC, SP—Needham I, LLC, Sentinel Properties—Bedford LLC and Sentinel Properties—Trumbull, LLC, or, collectively, the Sellers. The purchase price, which was determined through negotiations between us and the Sellers, was approximately $375.0 million and was paid in cash funded with borrowings under our revolving credit facility.
On January 28, 2010, we closed the issuance of $500.0 million aggregate principal amount of the 2020 notes. The purchase price paid by the initial purchasers was 98.296% of the principal amount thereof. The notes are our general unsecured senior obligations, rank equally in right of payment with all our other senior unsecured indebtedness and are fully and unconditionally guaranteed by our parent company. Interest on the notes is payable on February 1 and August 1 of each year, beginning on August 1, 2010. The net proceeds from the
offering after deducting the original issue discount, underwriting commissions and estimated expenses was approximately $487.1 million. We used the net proceeds from the offering to temporarily repay our borrowings under our revolving credit facility, fund development and redevelopment opportunities, fund working capital and for general corporate purposes.
On June 8, 2010, our parent company completed an offering of 6,900,000 shares of common stock for total net proceeds, after deducting discounts and estimated expenses, of approximately $377.1 million. Our parent company contributed the net proceeds from this offering to us in exchange for 6,900,000 common units, as required by our partnership agreement. We used a portion of the net proceeds from the offering to fund a portion of the acquisition of the 365 Main Portfolio, described below, and the balance of the proceeds to acquire additional properties, to fund development and redevelopment opportunities and for general working capital purposes.
On June 14, 2010, our parent company issued 1,160,950 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $184,800 and accrued and unpaid interest equal to $503,965 in exchange for $36,960,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated June 14, 2010, by and among us, our parent company and such institutional investor.
On July 8, 2010, we closed the issuance of $375.0 million aggregate principal amount of the 2015 notes. The purchase price paid by the initial purchasers was 99.697% of the principal amount thereof. The notes are our general unsecured senior obligations, rank equally in right of payment with all our other senior unsecured indebtedness and are fully and unconditionally guaranteed by our parent company. Interest on the notes is payable on January 15 and July 15 of each year, beginning on January 15, 2011. The net proceeds from the offering after deducting the original issue discount, underwriting commissions and estimated expenses was approximately $370.8 million. We used the net proceeds from the offering to fund a portion of the acquisition of the 365 Main Portfolio, described below.
On July 13, 2010, we completed the acquisition of a five-property datacenter portfolio located in California, Arizona and Virginia, which we refer to as the Rockwood Capital/365 Main Portfolio. The purchase price was approximately $725.0 million and was funded with proceeds from our parent company’s common stock offering in June 2010 and our notes offering in July 2010 along with borrowings under our revolving credit facility.
On July 22, 2010, our parent company distributed a Notice of Redemption to all holders of record of its outstanding 8.50% Series A Cumulative Redeemable Preferred Stock, or the Series A Preferred Stock, regarding its redemption of all 4,140,000 outstanding shares of the Series A Preferred Stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends. The redemption date was August 24, 2010. We funded the redemption with borrowings under our revolving credit facility, which we distributed to our parent company in connection with our redemption of all 4,140,000 of our outstanding 8.50% Series A Cumulative Redeemable Preferred Units held by our parent company.
On July 27, 2010, our parent company issued 236,444 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $37,516 and accrued and unpaid interest equal to $138,360 in exchange for $7,500,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated July 27, 2010, by and among us, our parent company and such institutional investor.
On August 5, 2010, we acquired a 50% controlling interest in a joint venture that owns 800 Central Expressway, a vacant 150,000 square foot shell building that was added to our inventory of space held for redevelopment. Upon obtaining control of the joint venture, we consolidated the joint venture which included a property with an estimated fair value of $27.1 million, $2.1 million of restricted cash, and $23.9 million of
secured loans which were paid down to $20.5 million in connection with our acquisition. In addition, each member subsequently contributed $8.8 million to fund a lender required impound account to be used to fund future expected redevelopment costs.
On August 5, 2010, we acquired a 50% noncontrolling common interest in a joint venture for approximately $6.0 million that owns 700 and 750 Central Expressway, two fully leased office buildings comprising approximately 300,000 square feet. The joint venture is encumbered by $29.1 million of secured loans. We made a $4.1 million preferred equity contribution to the joint venture which was used to pay down the secured loans to $25 million. We have the option to put our common interest back to the other member, subject to certain conditions, at a price equal to our initial common interest contribution of $6.0 million.
On August 19, 2010, we acquired two fully leased datacenter properties for a purchase price of $50.3 million. The first property is 2950 Zanker Road, located in San Jose, California, and totals approximately 69,700 rentable square feet. The second property is 900 Dorothy Drive, located in Richardson, Texas, and totals over 56,000 rentable square feet. The acquisition was financed with cash on hand and borrowings under our revolving credit facility.
In two settlements on August 30, 2010 and September 1, 2010, our parent company issued an aggregate of 436,539 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an aggregate incentive fee equal to $91,062 and aggregate accrued and unpaid interest equal to $25,157 in exchange for $13,847,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated August 30, 2010, by and among us, our parent company and such institutional investor.
On September 17, 2010, our parent company issued 28,496 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $5,919 and accrued and unpaid interest equal to $3,197 in exchange for $900,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated September 17, 2010, by and among us, our parent company and such institutional investor.
On September 24, 2010, our parent company issued 94,990 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $19,500 and accrued and unpaid interest equal to $13,406 in exchange for $3,000,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated September 24, 2010, by and among us, our parent company and such institutional investor.
On November 9, 2010, our parent company distributed a Notice of Redemption to all holders of record of its outstanding 7.875% Series B Cumulative Redeemable Preferred Stock, or the Series B Preferred Stock, regarding its redemption of all 2,530,000 outstanding shares of the Series B Preferred Stock at a redemption price of $25.00 per share, plus accrued and unpaid dividends. The redemption date was December 10, 2010. We funded the redemption with borrowings under our revolving credit facility, which we distributed to our parent company in connection with our redemption of all 2,530,000 of our outstanding 7.875% Series B Cumulative Redeemable Preferred Units held by our parent company.
On November 16, 2010, our parent company issued 72,826 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $15,125 and accrued and unpaid interest equal to $23,719 in exchange for $2,300,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated November 16, 2010, by and among us, our parent company and such institutional investor.
On November 19, 2010, our parent company issued 601,127 privately issued shares of its common stock, par value $0.01 per share, to us, and we delivered the shares and paid an incentive fee equal to $189,889 and
accrued and unpaid interest equal to $204,484 in exchange for $18,985,000 in aggregate principal amount of the 2026 debentures held by an institutional investor pursuant to an exchange agreement, dated November 19, 2010, by and among us, our parent company and such institutional investor.
On November 23, 2010, we completed the acquisition of a datacenter in Singapore for approximately SGD174.4 million, or approximately $132.7 million based on the exchange rate in effect on November 23, 2010. The acquisition was financed with borrowings under our revolving credit facility.
Construction
As of December 31, 2010 and December 31, 2009, work in progress, including the proportionate land and property costs related to current construction projects, amounted to $202.0 million, or $274.8 million including construction accruals and certain capitalized costs, and $156.2 million, or $187.1 million including construction accruals and certain capitalized costs, respectively. Separately, our redevelopment program included the proportionate land and building costs related to other targeted projects in the amount of $184.0 million and $88.6 million as of December 31, 2010 and December 31, 2009, respectively. Work in progress related to non-redevelopment projects, primarily tenant and building improvements, amounted to $2.0 million and $0.4 million as of December 31, 2010 and December 31, 2009, respectively.
Future Uses of Cash
Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements. As of December 31, 2010, we had approximately 2.2 million square feet of redevelopment space and we also owned approximately 193,000 net rentable square feet of datacenter space with extensive installed tenant improvements that we may subdivide for Turn-Key Datacenter® use during the next two years rather than lease to large single tenants. Turn-Key Datacenter® space is move-in-ready space for the placement of computer and network equipment required to provide a datacenter environment. Depending on demand for additional Turn-Key Datacenter® space, we expect to incur significant tenant improvement costs to build out and redevelop these types of spaces. At December 31, 2010, approximately 532,000 square feet of our space held for redevelopment was under construction for Turn-Key Datacenter, Powered Base Building® and build-to-suit space in seven U.S. markets and three European markets. At December 31, 2010, we had commitments under construction contracts for approximately $91.4 million. We currently expect to incur approximately $450.0 million to $525.0 million of capital expenditures for our redevelopment program during the year ended December 31, 2011, although this amount may increase or decrease, potentially materially, based on numerous factors, including changes in demand, leasing results and availability of debt or equity capital.
We are also subject to the commitments discussed below under “Commitments and Contingencies,” “Off-Balance Sheet Arrangements” and “Distributions.”
Consistent with our growth strategy, we actively pursue opportunities for potential acquisitions, with due diligence and negotiations often at different stages at different times. The dollar value of acquisitions for the year ending December 31, 2011 will be based on numerous factors, including tenant demand, leasing results, availability of debt or equity capital and acquisition opportunities.
We may from time to time seek to retire or repurchase our outstanding debt or the preferred equity of our parent company through cash purchases and/or exchanges for equity securities of our parent company in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions or other factors. The amounts involved may be material.
We expect to meet our short- and long-term liquidity requirements, including to pay for scheduled debt maturities and to fund property acquisitions and non-recurring capital improvements, with net cash from operations, future long-term secured and unsecured indebtedness and the issuance of equity and debt securities and the proceeds of equity issuances by our parent company. We also may fund future short- and long-term
liquidity requirements, including property acquisitions and non- recurring capital improvements using our revolving credit facility pending permanent financing. If we are not able to obtain additional financing on terms attractive to us, or at all, including as a result of the circumstances described above under “Factors Which May Influence Future Results of Operations—Global market and economic conditions”, we may be required to reduce our acquisition or capital expenditure plans, which could have a material adverse effect upon our business and results of operations.
Properties Acquired During 2010
During the year ended December 31, 2010 we acquired or made investments in the following properties:
Acquisitions
Location | Metropolitan Area | Date Acquired | Amount (in millions) | |||||
New England Portfolio(1) | Various (1) | January 22, 2010 | $ | 375.0 | ||||
1725 Comstock Street | Silicon Valley | April 30, 2010 | 14.1 | |||||
3105/3115 Alfred Street | Silicon Valley | May 24, 2010 | 10.0 | |||||
Cateringweg 5(2) | Amsterdam | June 17, 2010 | 6.4 | |||||
365 Main Portfolio(3) | Various (4) | July 13, 2010 | 725.0 | |||||
800 Central Expressway(4) | Silicon Valley | August 5, 2010 | 27.1 | |||||
2950 Zanker Road/900 Dorothy Drive | Silicon Valley/Dallas | August 19, 2010 | 50.3 | |||||
29A International Business Park(5) | Singapore | November 23, 2010 | 132.7 | |||||
$ | 1,340.6 | |||||||
Investments
Location | Metropolitan Area | Date of Investment | Amount (in millions) | |||||
700/750 Central Expressway(6) | Silicon Valley | August 5, 2010 | $ | 10.3 |
(1) | The New England Portfolio consists of 55 Middlesex Turnpike, Bedford, Massachusetts and a 100% condominium interest that represents 87.5% of the square footage of 128 First Avenue, Needham, Massachusetts, both located in the Boston metropolitan area, as well as 60-80 Merritt Boulevard, Trumbull, Connecticut, located in the New York Metro area. The New England Portfolio is considered three properties for our property count. |
(2) | A land parcel subject to a ground lease along with a vacant shell building. |
(3) | The 365 Main Portfolio consists of 365 Main Street, San Francisco, California and 720 2nd Street, Oakland, California, both located in the San Francisco metropolitan area; 2260 East El Segundo Boulevard, El Segundo, California, located in the Los Angeles metropolitan area; 2121 South Price Road, Chandler, Arizona, located in the Phoenix metropolitan area; and 4030-4050 Lafayette Center Drive, Chantilly, Virginia, located in the Northern Virginia metropolitan area. The 365 Main Portfolio is considered five properties for our property count. |
(4) | In August 2010, we acquired a 50% controlling interest in a joint venture formed to own and redevelop 800 Central Expressway. The other noncontrolling 50% member contributed land and a vacant building with a fair market value of approximately $27.1 million, lender required impound accounts of approximately $2.1 million, a mortgage loan of $13.4 million and a mezzanine loan of approximately $10.5 million. At close, the joint venture refinanced the assumed debt which included a principal paydown of approximately $3.4 million. Since we have a controlling interest in the joint venture, we have consolidated the joint venture and presented the member interest not owned by us of approximately $2.6 million as noncontrolling interest in consolidated joint venture. |
(5) | This acquisition lacked key inputs to qualify as a business combination under purchase accounting guidance, and has therefore been accounted for as an asset acquisition, not a business combination. As part of the asset |
acquisition, the seller could earn additional consideration based on future net operating income growth in excess of certain performance targets, as defined. As of December 31, 2010, construction is not complete and there have been no leases executed that would cause an amount to become probable of payment and therefore no amount is accrued as of December 31, 2010. The maximum amount that could be earned by the seller is S$50.0 million (or approximately $39.0 million based on the exchange rate as of December 31, 2010). The earnout contingency expires in November 2020. |
(6) | In August 2010, we made an initial cash contribution of approximately $6.0 million to acquire a 50% common interest in a joint venture formed to own and operate two fully leased office buildings located at 700 and 750 Central Expressway. The other 50% common member contributed the fully leased properties, mortgage loan of approximately $24.1 million and a mezzanine loan of approximately $5.0 million. At close, the joint venture refinanced the assumed debt which included a principal paydown of approximately $4.1 million. The debt paydown was funded by our preferred equity contribution which is entitled to an 11% preferred return. Each member has guaranteed their proportionate share of the remaining debt balance of $25.0 million. Subject to certain conditions in the joint venture’s operating agreement, we have the right to put our common interest in the joint venture to the other member at a price equal to our initial contribution amount of $6.0 million. We have concluded that the joint venture is a variable interest entity primarily due to the fact that we have participating voting rights through our common interest, but the common interest is not considered to be equity due to the fixed price put option. The other member explicitly and implicitly bears 100% of the common equity risk. In addition, the other member, as the manager of the joint venture has more power than the operating partnership to direct the activities that most significantly impact the joint venture’s economic performance, and therefore was determined to be the primary beneficiary. Our maximum exposure to loss in the joint venture is our common and preferred investment totaling $10.3 million and our share of the joint venture’s debt of $12.5 million. Upon our exercise of our put option, our exposure to loss will be limited to the remaining balance of our preferred interest in the joint venture. We have accounted for our variable interest in the joint venture under the equity method of accounting and it is presented as an investment in unconsolidated joint venture in the accompanying consolidated balance sheet. |
Distributions
All distributions on our units are at the discretion of our parent company’s board of directors. In 2010, 2009 and 2008, our operating partnership declared the following distributions (in thousands):
Date distribution declared | Distribution payable date | Series A Preferred Unit(1) | Series B Preferred Unit(2) | Series C Preferred Unit(3) | Series D Preferred Unit(4) | Common Units | ||||||||||||||||
February 25, 2008 | March 31, 2008 | $ | 2,199 | $ | 1,246 | $ | 1,914 | $ | 2,899 | $ | 22,418 | (5) | ||||||||||
May 5, 2008 | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,444 | (5) | |||||||||||||||
August 4, 2008 | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 24,258 | (5) | |||||||||||||||
November 4, 2008 | December 31, 2008 for Series A, B, C and D Preferred Units; January 7, 2009 for Common Units | 2,199 | 1,246 | 1,914 | 4,744 | 26,102 | (6) | |||||||||||||||
Total—2008 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 95,222 | ||||||||||||
February 24, 2009 | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,053 | (6) | |||||||||||||||
April 28, 2009 | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,064 | (6) | |||||||||||||||
July 28, 2009 | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 29,575 | (7) | |||||||||||||||
October 27, 2009 | December 31, 2009 for Series A, B, C and D Preferred Units; January 15, 2010 for Common Units | 2,199 | 1,246 | 1,914 | 4,742 | 37,004 | (8) | |||||||||||||||
Total—2009 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 120,696 | ||||||||||||
February 23, 2010 | March 31, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 40,143 | (9) | |||||||||||||||
April 27, 2010 | June 30, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 44,442 | (9) | |||||||||||||||
July 19, 2010 | September 30, 2010 | — | (10) | 1,246 | 1,914 | 4,739 | 49,960 | (11) | ||||||||||||||
November 2, 2010 | December 31, 2010 for Series C and D Preferred Units; January 14, 2011 for Common Units | — | — | (12) | 1,914 | 4,739 | 51,210 | (11) | ||||||||||||||
Total—2010 | $ | 4,398 | $ | 3,738 | $ | 7,656 | $ | 18,962 | $ | 185,755 | ||||||||||||
(1) | $2.125 annual rate of distribution per unit. |
(2) | $1.969 annual rate of distribution per unit. |
(3) | $1.094 annual rate of distribution per unit. |
(4) | $1.375 annual rate of distribution per unit. |
(5) | $1.240 annual rate of distribution per unit. |
(6) | $1.320 annual rate of distribution per unit. |
(7) | $1.440 annual rate of distribution per unit. |
(8) | $1.800 annual rate of distribution per unit. |
(9) | $1.920 annual rate of distribution per unit. |
(10) | Redeemed on August 24, 2010 for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.3 million. In connection with the redemption, the previously incurred offering costs of approximately $4.2 million were written-off and deducted in the computation of net income available to common unitholders. |
(11) | $2.120 annual rate of distribution per unit. |
(12) | Redeemed on December 10, 2010 for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to common unitholders. |
Commitments and Contingencies
We have agreed with the seller of 350 East Cermak Road to share a portion, not to exceed $135,000 per month, of rental revenue, adjusted for our costs to lease the premises, from the leaseleases of the 192,000 square feet of space held for redevelopment. This revenue sharing agreement will terminate in May 2012. We made payments of approximately $41,000,$4.7 million, $41,000 and $17,000$41,000 to the seller during the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. We have recorded approximately $2.3 million and $2.1 million for this contingent liability on our consolidated balance sheet at December 31, 2009.2010 and December 31, 2009, respectively.
As part of the acquisition of Clonshaugh Industrial Estate I, we entered into an agreement with the seller whereby the seller is entitled to receive 40% of the net rental income generated by the existing building, after we have received a 9% return on all capital invested in the property. As of February 6, 2006, the date we acquired this property, we have estimated the present value of these expected payments over the 10 year10-year lease term to be approximately $1.1 million and this value has been recorded as a component of the purchase price. Accounts payable and other accrued liabilities include $1.3 million and $1.4 million for this liability as of December 31, 20092010 and December 31, 2008, respectively.2009. During the years ended December 31, 2010, 2009 2008 and 2007,2008, we paid approximately $0.2$0.1 million, $0.2 million and $0.1$0.2 million, respectively, to the seller.
As part of the acquisition of 29A International Business Park, the seller could earn additional consideration based on future net operating income growth in excess of certain performance targets, as defined. As of December 31, 2009,2010, construction is not complete and there have been no leases executed that would cause an amount to become probable of payment and therefore no amount is accrued as of December 31, 2010. The maximum amount that could be earned by the seller is S$50.0 million (or approximately $39.0 million based on the exchange rate as of December 31, 2010). The earnout contingency expires in November 2020.
As of December 31, 2010, we were a party to interest rate cap and swap agreements which hedge variability in cash flows related to LIBOR, GBP LIBOR and EURIBOR based mortgage loans. Under these swaps, we pay variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amounts. See Item 7A, “QuantitativeQuantitative and Qualitative Disclosures about Market Risk.”Risk below.
The following table summarizes our debt, interest, lease and construction contract payments due by period as of December 31, 2010 (dollars in thousands):
Obligation | Total | 2010 | 2011-2012 | 2013-2014 | Thereafter | Total | 2011 | 2012-2013 | 2014-2015 | Thereafter | |||||||||||||||||||||||||
Long-term debt principal payments(1) | $ | 1,789,853 | $ | 236,875 | $ | 476,536 | $ | 670,866 | $ | 405,576 | $ | 2,816,278 | $ | 577,903 | $ | 357,857 | $ | 1,000,422 | $ | 880,096 | |||||||||||||||
Interest payable(2) | 401,224 | 91,739 | 151,508 | 105,924 | 52,053 | 682,118 | 137,492 | 237,311 | 160,594 | 146,721 | |||||||||||||||||||||||||
Ground leases(3) | 25,977 | 536 | 1,073 | 1,073 | 23,295 | 49,247 | 1,181 | 2,362 | 2,362 | 43,342 | |||||||||||||||||||||||||
Operating lease | 39,467 | 6,777 | 12,494 | 9,224 | 10,972 | ||||||||||||||||||||||||||||||
Operating leases | 34,095 | 6,740 | 12,107 | 6,204 | 9,044 | ||||||||||||||||||||||||||||||
Construction contracts(4) | 41,114 | 41,114 | — | — | — | 91,367 | 91,367 | — | — | — | |||||||||||||||||||||||||
$ | 2,297,635 | $ | 377,041 | $ | 641,611 | $ | 787,087 | $ | 491,896 | $ | 3,673,105 | $ | 814,683 | $ | 609,637 | $ | 1,169,582 | $ | 1,079,203 | ||||||||||||||||
(1) | Includes |
(2) | Interest payable is based on the interest rate in effect on December 31, |
2010 | $ | 84,495 | |
2011-2012 | 140,194 | ||
2013-2014 | 101,000 | ||
Thereafter | 52,053 | ||
$ | 377,742 | ||
2011 | $ | 131,560 | ||
2012-2013 | 230,317 | |||
2014-2015 | 159,782 | |||
Thereafter | 146,721 | |||
$ | 668,380 | |||
(3) | This is comprised of ground lease payments on 2010 East Centennial Circle, Chemin de l’Epinglier 2, Clonshaugh Industrial Estate I and II, Paul van Vlissingenstraat 16, Gyroscoopweg 2E-2F, Manchester Technopark and |
(4) | From time to time in the normal course of our business, we enter into various construction contracts with third parties that may obligate us to make payments. At December 31, |
Outstanding Consolidated Indebtedness
The table below summarizes our debt maturities and principal payments as of December 31, 20092010 (in thousands):
Revolving Credit Facility(1) | Unsecured Senior Notes | Mortgage Loans | Exchangeable Senior Debentures | Total Debt | Revolving Credit Facility(1) | Unsecured Senior Notes | Senior Notes | Exchangeable Senior Debentures | Mortgage Loans(2) | Other Secured Loans | Total Debt | ||||||||||||||||||||||||||||||||||
2010 | $ | 205,547 | $ | — | $ | 31,328 | $ | — | $ | 236,875 | |||||||||||||||||||||||||||||||||||
2011 | — | 25,000 | 115,266 | 172,500 | (2) | 312,766 | $ | 333,534 | $ | 25,000 | $ | — | $ | 88,758 | (3) | $ | 130,611 | $ | — | $ | 577,903 | ||||||||||||||||||||||||
2012 | — | — | 163,770 | — | 163,770 | — | — | — | — | 158,348 | — | 158,348 | |||||||||||||||||||||||||||||||||
2013 | — | 33,000 | 150,619 | — | 183,619 | — | 33,000 | — | — | 156,009 | 10,500 | 199,509 | |||||||||||||||||||||||||||||||||
2014 | — | — | 220,847 | 266,400 | (3) | 487,247 | — | — | — | 266,400 | (4) | 216,586 | — | 482,986 | |||||||||||||||||||||||||||||||
2015 | — | 67,000 | 375,000 | — | 75,436 | — | 517,436 | ||||||||||||||||||||||||||||||||||||||
Thereafter | — | 25,000 | 380,576 | — | 405,576 | — | 75,000 | 500,000 | — | 305,097 | — | 880,097 | |||||||||||||||||||||||||||||||||
Subtotal | $ | 205,547 | $ | 83,000 | $ | 1,062,406 | $ | 438,900 | $ | 1,789,853 | $ | 333,534 | $ | 200,000 | $ | 875,000 | $ | 355,158 | $ | 1,042,087 | $ | 10,500 | $ | 2,816,279 | |||||||||||||||||||||
Unamortized discount | — | — | — | (6,666 | ) | (6,666 | ) | — | — | (8,970 | ) | (1,456 | ) | — | — | (10,426 | ) | ||||||||||||||||||||||||||||
Unamortized premium | — | — | 1,257 | — | 1,257 | — | — | — | — | 1,101 | — | 1,101 | |||||||||||||||||||||||||||||||||
Total | $ | 205,547 | $ | 83,000 | $ | 1,063,663 | $ | 432,234 | $ | 1,784,444 | $ | 333,534 | $ | 200,000 | $ | 866,030 | $ | 353,702 | $ | 1,043,188 | $ | 10,500 | $ | 2,806,954 | |||||||||||||||||||||
(1) |
(2) | Our mortgage loans are generally non-recourse to us, subject to carveouts for specified prohibited actions by us or specified undisclosed environmental liabilities. As of December 31, 2010, we had provided limited recourse guarantees with respect to approximately $156.6 million principal amount of the outstanding mortgage indebtedness, and partial letter of credit support with respect to approximately an additional $45.9 million of the outstanding mortgage indebtedness. |
(3) | Assumes maturity of |
Assumes maturity of |
The table below summarizes our debt, atas of December 31, 20092010 (in millions):
Debt Summary: | ||||||||
Fixed rate | $ | 1,308.5 | $ | 2,199.5 | ||||
Variable rate debt subject to interest rate swaps and caps | 270.4 | 274.0 | ||||||
Total fixed rate debt (including interest rate swaps and caps) | 1,578.9 | 2,473.5 | ||||||
Variable rate—unhedged | 205.5 | 333.5 | ||||||
Total | $ | 1,784.4 | $ | 2,807.0 | ||||
Percent of Total Debt: | ||||||||
Fixed rate (including swapped debt) | 88.5 | % | 88.1 | % | ||||
Variable rate | 11.5 | % | 11.9 | % | ||||
Total | 100.0 | % | 100.0 | % | ||||
Effective Interest Rate as of December 31, 2009(1): | ||||||||
Effective Interest Rate as of December 31, 2010(1): | ||||||||
Fixed rate (including hedged variable rate debt) | 5.98 | % | 5.69 | % | ||||
Variable rate | 1.35 | % | 1.42 | % | ||||
Effective interest rate | 5.45 | % | 5.18 | % |
(1) | Excludes impact of deferred financing cost |
As of December 31, 2009,2010, we had approximately $1.8$2.8 billion of outstanding consolidated long-term debt as set forth in the table above. Our ratio of debt to total market capitalizationenterprise value was approximately 27%34% (based on the closing price of ourDigital Realty Trust, Inc.’s common stock on December 31, 20092010 of $50.28)$51.54). For this purpose, our total market capitalizationenterprise value is defined as the sum of the market value of ourDigital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total market capitalizationenterprise value ratio), excluding options issued under our incentive award plan, plus the liquidation value of ourDigital Realty Trust, Inc.’s preferred stock, plus the aggregate value of theour operating partnership’s units not held by usDigital Realty Trust, Inc. (with the per unit value equal to the market value of one share of ourDigital Realty Trust, Inc.’s common stock and excluding long-term incentive units and Class C Units), plus the book value of our total consolidated indebtedness.
The variable rate debt shown above bears interest at interest rates based on various LIBOR, GBP LIBOR and EURIBOR rates ranging from one to threetwelve months, depending on the respective agreement governing the debt. Assuming maturity of our 4.125% exchangeable seniorthe 2026 debentures due 2026 and 5.50% exchangeable seniorthe 2029 debentures due 2029 at their first redemption dates in August 2011 and April 2014, respectively, as of December 31, 2009,2010, our debt had a weighted average term to initial maturity of approximately 3.94.6 years (approximately 4.24.8 years assuming exercise of extension options).
We expect to meet our short- and long-term liquidity requirements, including to pay for scheduled debt maturities, dividends and distributions, to fund property acquisitions and non-recurring capital improvements with net cash provided by operations, future long-term secured and unsecured indebtedness and the issuance of equity and debt securities. We also may fund future short- and long-term liquidity requirements, including property acquisitions and non-recurring capital improvements using our revolving credit facility pending permanent financing. If we are not able to obtain additional financing on terms attractive to us, or at all, including as a result of the circumstances described above under “Factors Which May Influence Future Results of Operations—Global market and economic conditions”, we may be required to reduce our acquisition or capital expenditure plans, which could have a material adverse effect upon our business and results of operations.
Off-Balance Sheet Arrangements
As of December 31, 2009,2010, we were party to interest rate swap and cap agreements related to $270.4$274.0 million of outstanding principal on our variable rate debt. See Item 7A, “QuantitativeQuantitative and Qualitative Disclosures about Market Risk.”Risk below.
The 4.125% exchangeable senior2026 debentures due 2026 provide for excess exchange value to be paid in cash and/or shares of ourDigital Realty Trust, Inc.’s common stock if ourthe stock price exceeds a certain amount. If such debentures were exchanged in full on December 31, 2009,2010, we would owe $96.7approximately $88.8 million to the holders of such debentures, payable in cash equal to the principal balance plus $56.8 million, equal to the excess exchange value, payable in cash and/or shares of ourDigital Realty Trust, Inc.’s common stock. See note 57 to our consolidated financial statements as of December 31, 2010 included elsewhere in this report for a further description of our 4.125% exchangeable senior debentures due 2026.the 2026 debentures.
Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Comparison of Year Ended December 31, 20092010 to Year Ended December 31, 20082009 and Comparison of Year Ended December 31, 20082009 to Year Ended December 31, 20072008
The following table shows cash flows and ending cash and cash equivalent balances for the years ended December 31, 2010, 2009 and 2008, and 2007, respectively. Cash flows include the cash flows of 100 Technology Center Drive (sold in March 2007), 4055 Valley View Lane (sold in March 2007)respectively (in thousands).
Year Ended December 31, | Increase / (Decrease) | Year Ended December 31, | Increase / (Decrease) | |||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 v 2008 | 2008 v 2007 | 2010 | 2009 | 2008 | 2010 v 2009 | 2009 v 2008 | |||||||||||||||||||||||||||||||
Net cash provided by operating activities (including discontinued operations) | $ | 283,809 | $ | 217,808 | $ | 105,655 | $ | 66,001 | $ | 112,153 | ||||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 359,029 | $ | 283,809 | $ | 217,808 | $ | 75,220 | $ | 66,001 | ||||||||||||||||||||||||||||||
Net cash used in investing activities | (519,909 | ) | (647,751 | ) | (537,427 | ) | 127,842 | (110,324 | ) | (1,737,700 | ) | (519,909 | ) | (647,751 | ) | (1,217,791 | ) | 127,842 | ||||||||||||||||||||||
Net cash provided by financing activities | 235,086 | 471,925 | 440,863 | (236,839 | ) | 31,062 | 1,318,070 | 235,086 | 471,925 | 1,082,984 | (236,839 | ) | ||||||||||||||||||||||||||||
Net (decrease) increase in cash and cash equivalents | $ | (1,014 | ) | $ | 41,982 | $ | 9,091 | $ | (42,996 | ) | $ | 32,891 | $ | (60,601 | ) | $ | (1,014 | ) | $ | 41,982 | $ | (59,587 | ) | $ | (42,996 | ) | ||||||||||||||
The increases in net cash provided by operating activities from 2009 to 2010 and from 2008 to 2009 and from 2007 to 2008 were primarily due to increased cash flows from new leasing at our same store properties, completed and leased redevelopment space and our acquisition of new operating properties which was partially offset by increased operating and interest expenses. We acquired 15, 6 5 and 135 properties during the years ended December 31, 2010, 2009 and 2008, and 2007 respectively.
Net cash used in investing activities increased in 2010 as compared to 2009, as we had an increase in cash paid for acquisitions for the year ended December 31, 2010 ($1,319.0 million) as compared to the same period in 2009 ($138.0 million).
Net cash used in investing activities decreased in 2009 as compared to 2008, as we had a decrease in cash paid for capital expenditures for the year ended December 31, 2009 ($392.4 million) as compared to the same period in 2008 ($545.2 million) offset by an increase in cash paid for acquisitions for the year ended December 31, 2009 ($138.0 million) as compared to the same period in 2008 ($79.2 million).
Net cash used in investing activities increased from 2007 to 2008, as we had an increase in cash payments for our redevelopment program offset by a decrease in cash paid for acquisitions in 2008 ($79.2 million) as compared to 2007 ($359.8 million) and the receipt of proceeds from the sales of 100 Technology Center Drive and 4055 Valley View Lane in March 2007.
Net cash flows from financing activities for the company consisted of the following amounts (in thousands).
Year Ended December 31, | Increase / (Decrease) | Year Ended December 31, | Increase / (Decrease) | |||||||||||||||||||||||||||||||||||||
2009 | 2008 | 2007 | 2009 v 2008 | 2008 v 2007 | 2010 | 2009 | 2008 | 2010 v 2009 | 2009 v 2008 | |||||||||||||||||||||||||||||||
Proceeds from borrowings, net of repayments | $ | 46,657 | $ | 46,703 | $ | 216,006 | $ | (46 | ) | $ | (169,303 | ) | $ | 220,621 | $ | 46,657 | $ | 46,703 | $ | 173,964 | $ | (46 | ) | |||||||||||||||||
Net proceeds from 5.50% exchangeable senior debentures | 258,949 | — | — | 258,949 | — | |||||||||||||||||||||||||||||||||||
Net proceeds from issuance of common/preferred stock, including exercise of stock options | 89,184 | 549,210 | 320,751 | (460,026 | ) | 228,459 | 599,295 | 89,184 | 549,210 | 510,111 | (460,026 | ) | ||||||||||||||||||||||||||||
Redemption of preferred stock | (166,750 | ) | — | — | (166,750 | ) | — | |||||||||||||||||||||||||||||||||
Net proceeds from 2020 Notes | 486,601 | — | — | 486,601 | — | |||||||||||||||||||||||||||||||||||
Net proceeds from 2015 Notes | 370,943 | — | — | 370,943 | — | |||||||||||||||||||||||||||||||||||
Net proceeds from 2029 Debentures | — | 258,949 | — | (258,949 | ) | 258,949 | ||||||||||||||||||||||||||||||||||
Dividend and distribution payments | (150,188 | ) | (130,040 | ) | (97,081 | ) | (20,148 | ) | (32,959 | ) | (208,553 | ) | (150,188 | ) | (130,040 | ) | (58,365 | ) | (20,148 | ) | ||||||||||||||||||||
Other | (9,516 | ) | 6,052 | 1,187 | (15,568 | ) | 4,865 | 15,913 | (9,516 | ) | 6,052 | 25,429 | (15,568 | ) | ||||||||||||||||||||||||||
Net cash provided by financing activities | $ | 235,086 | $ | 471,925 | $ | 440,863 | $ | (236,839 | ) | $ | 31,062 | $ | 1,318,070 | $ | 235,086 | $ | 471,925 | $ | 1,082,984 | $ | (236,839 | ) | ||||||||||||||||||
Net proceeds from
The increase in net cash provided by financing activities was primarily due to the issuance of stock were primarily related to our common stock offerings in February 20092015 Notes (net proceeds of $82.9$370.9 million), July 2008 ($211.62020 Notes (net proceeds of $486.6 million) and October 2007 ($150.4common stock (net proceeds of $593.7 million in 2010) as compared to the issuance of our 2029 Debentures (net proceeds of $258.9 million) in April 2009. The increase in dividend and preferred stock offerings in February 2008 ($333.6 million) and April 2007 ($169.1 million). Proceeds from mortgage loans were approximately $122.0 million, $174.9 million and $121.3 milliondistribution payments for the yearsyear ended December 31, 2010 as compared to the same period in 2009 2008was a result of an increase in shares outstanding and 2007, respectively. We issued $266.4 million of 5.50% exchangeable senior debentures due 2029 on April 20,dividend amount per share and unit in 2010 as compared to 2009. The increase in dividend and distribution payments for the year ended December 31, 2009 as compared to the same period in 2008 was a result of an increase in shares outstanding and dividend amount per share in 2009 as compared to 2008 and dividends on our series D preferred stock being paid for a full year in 2009, whereas this series of preferred stock was outstanding for only a portion of 2008.
Net cash flows from financing activities for the operating partnership consisted of the following amounts (in thousands).
Year Ended December 31, | Increase / (Decrease) | |||||||||||||||||||
2010 | 2009 | 2008 | 2010 v 2009 | 2009 v 2008 | ||||||||||||||||
Proceeds from borrowings, net of repayments | $ | 220,621 | $ | 46,657 | $ | 46,703 | $ | 173,964 | $ | (46 | ) | |||||||||
General partner contributions, net | 432,545 | 89,184 | 549,210 | 343,361 | (460,026 | ) | ||||||||||||||
Net proceeds from 2020 Notes | 486,601 | — | — | 486,601 | — | |||||||||||||||
Net proceeds from 2015 Notes | 370,943 | — | — | 370,943 | — | |||||||||||||||
Net proceeds from 2029 Debentures | — | 258,949 | — | (258,949 | ) | 258,949 | ||||||||||||||
Distribution payments | (208,553 | ) | (150,188 | ) | (130,040 | ) | (58,365 | ) | (20,148 | ) | ||||||||||
Other | 15,913 | (9,516 | ) | 6,052 | 25,429 | (15,568 | ) | |||||||||||||
Net cash provided by financing activities | $ | 1,318,070 | $ | 235,086 | $ | 471,925 | $ | 1,082,984 | $ | (236,839 | ) | |||||||||
General partner contributions were primarily related to the issuance of our operating partnership’s units to the company in connection with the company’s common stock offerings in June 2010 (net proceeds of $370.9 million), February 2009 (net proceeds of $82.9 million) and July 2008 ($211.6 million) and preferred stock offerings in February 2008 ($333.6 million). Proceeds from mortgage loans were approximately $0, $122.0 million, and $174.9 million for the years ended December 31, 2010, 2009, and 2008, respectively. We issued $266.4 million of the 2029 debentures on April 20, 2009. The increase in dividend and distribution payments for the year ended December 31, 20082010 as compared to the same period in 20072009 was a result of an increase in sharesunits outstanding and distribution amount per unit in 20082010 as compared to 20072009. The increase in distribution payments for the year ended December 31, 2009 as compared to the same period in 2008 was a result of an increase in units outstanding in 2009 as compared to 2008 and dividendsdistributions on our series D preferred stockunits being paid for a full year in 2008,2009, whereas this series of preferred stockunits was not outstanding in 2007.for only a portion of 2008.
Noncontrolling Interests in Operating Partnership
Noncontrolling interests relate to the common units in the Operating Partnershipour operating partnership that are not owned by us, which, as of December 31, 2009,2010, amounted to 6.6%5.7% of the Operating Partnershipour operating partnership common units. In conjunction with our formation, GI Partners received common units, in exchange for contributing ownership interests in properties to the Operating Partnership.our operating partnership. Also, in connection with acquiring real estate interests owned by third parties, the Operating Partnershipour operating partnership issued common units to those sellers.third party sellers in connection with our acquisition of real estate interests from such third parties.
Limited partners who acquired common units in theconnection with our formation transactions have the right to require the Operating Partnershipour operating partnership to redeem part or all of their common units for cash based upon the fair market value of an equivalent number of shares of our common stock at the time of the redemption. Alternatively, we may elect to acquire those common units in exchange for shares of our 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. Pursuant to registration rights agreements we entered into with GI Partners and
the other third party contributors, we filed a shelf registration statement covering the issuance of the shares of our common stock issuable upon redemption of the common units, and the resale of those shares of common stock by the holders. As of March 31, 2007, GI Partners no longer had an ownership interest in the Operating Partnership.our operating partnership.
Inflation
Substantially allMany of our leases provide for separate real estate tax and operating expense escalations. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.
New Accounting Pronouncements Issued But Not Yet Adopted
In June 2009, the FASBThere are currently no accounting pronouncements issued amended guidance relatedbut not yet adopted that are expected to the consolidation of variable-interest entities. These amendments require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Additionally, they require an ongoing reconsideration of the primary beneficiary and provide a framework for the events that trigger a reassessment of whether an entity is a VIE. This guidance will be effective for financial statements issued for fiscal years beginning after November 15, 2009. Management does not believe adoption of the amended guidance will have a material effect on our consolidated financial statements.condition and results of operations in future periods.
In June 2009, the FASB issued new accounting guidance on accounting for transfers of financial assets, which was issued to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about (1) a transfer of its financial assets, (2) the effects of such a transfer on its financial position, financial performance, and cash flows, and (3) a reporting entity’s continuing involvement, if any, in the transferred financial assets. This guidance is effective for annual reporting periods beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter, with early adoption prohibited. Management does not believe adoption of the guidance will have a material effect on our consolidated financial statements.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Our future income, cash flows and fair values relevant to financial instruments depend upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors.
Analysis of debtDebt between fixedFixed and variable rate.Variable Rate
We use interest rate swap and cap agreements and fixed rate debt to reduce our exposure to interest rate movements. As of December 31, 2009,2010, our consolidated debt was as follows (in millions):
Debt Summary: | ||||
Fixed rate | $ | 1,308.5 | ||
Variable rate debt subject to interest rate swaps and caps | 270.4 | |||
Total fixed rate debt (including interest rate swaps and caps) | 1,578.9 | |||
Variable rate | 205.5 | |||
Total | $ | 1,784.4 | ||
Percent of Total Debt: | ||||
Fixed rate (including swapped debt) | 88.5 | % | ||
Variable rate | 11.5 | % | ||
Total | 100.0 | % | ||
Effective Interest Rate as of December 31, 2009(1): | ||||
Fixed rate (including hedged variable rate debt) | 5.98 | % | ||
Variable rate | 1.35 | % | ||
Effective interest rate | 5.45 | % |
Fixed rate debt Variable rate debt subject to interest rate swaps and caps Total fixed rate debt (including interest rate swaps and caps) Variable rate debt Total outstanding debt Carrying Value Estimated Fair
Value $ 2,199.5 $ 2,422.2 274.0 275.0 2,473.5 2,697.2 333.5 333.5 $ 2,807.0 $ 3,030.7
Interest rate swaps and cap included in this table and their fair values as of December 31, 20092010 and 20082009 were as follows (in thousands):
Notional Amount | Fair Value at Significant Other Observable Inputs (Level 2) | ||||||||||||||||||||
As of | As of December 31, 2008 | Type of Derivative | Strike Rate | Effective Date | Expiration Date | As of December 31, 2009 | As of December 31, 2008 | ||||||||||||||
$20,831 | (1) | $ | 19,239 | (1) | Swap | 4.944 | Jul. 10, 2006 | Apr. 10, 2011 | $ | (952 | ) | $ | (986 | ) | |||||||
69,154 | (1) | — | (1) | Swap | 2.980 | April 6, 2009 | Nov. 30, 2013 | (299 | ) | — | |||||||||||
15,208 | (2) | 15,041 | (2) | Swap | 3.981 | May 17, 2006 | Jul. 18, 2013 | (889 | ) | (559 | ) | ||||||||||
11,003 | (2) | 10,881 | (2) | Swap | 4.070 | Jun. 23, 2006 | Jul. 18, 2013 | (675 | ) | (442 | ) | ||||||||||
9,682 | (2) | 9,575 | (2) | Swap | 3.989 | Jul. 27, 2006 | Oct. 18, 2013 | (579 | ) | (365 | ) | ||||||||||
45,067 | (2) | 44,564 | (2) | Swap | 3.776 | Dec. 5, 2006 | Jan. 18, 2012 | (1,887 | ) | (1,131 | ) | ||||||||||
38,746 | (2) | 38,315 | (2) | Swap | 4.000 | Dec. 20, 2006 | Jan. 18, 2012 | (1,794 | ) | (1,207 | ) | ||||||||||
— | 96,458 | Swap | 3.167 | Oct. 15, 2008 | June 15, 2009 | — | (1,116 | ) | |||||||||||||
42,993 | — | Swap | 2.703 | Dec. 3, 2009 | Sep. 4, 2014 | (453 | ) | — | |||||||||||||
17,737 | — | Cap | 4.000 | June 24, 2009 | June 25, 2012 | 70 | — | ||||||||||||||
$270,421 | $ | 234,073 | $ | (7,458 | ) | $ | (5,806 | ) | |||||||||||||
Notional Amount | Fair Value at Significant Other Observable Inputs (Level 2) | |||||||||||||||||||||||
As of | As of December 31, 2009 | Type of | Strike Rate | Effective Date | Expiration Date | As of December 31, 2010 | As of December 31, 2009 | |||||||||||||||||
$19,515 | (1) | $ | 20,831 | (1) | Swap | 4.944 | Jul. 10, 2006 | Apr. 10, 2011 | $ | (231 | ) | $ | (952 | ) | ||||||||||
66,858 | (1) | 69,154 | (1) | Swap | 2.980 | April 6, 2009 | Nov. 30, 2013 | (2,471 | ) | (299 | ) | |||||||||||||
13,978 | (2) | 15,208 | (2) | Swap | 3.981 | May 17, 2006 | Jul. 18, 2013 | (828 | ) | (889 | ) | |||||||||||||
10,113 | (2) | 11,003 | (2) | Swap | 4.070 | Jun. 23, 2006 | Jul. 18, 2013 | (621 | ) | (675 | ) | |||||||||||||
8,900 | (2) | 9,682 | (2) | Swap | 3.989 | Jul. 27, 2006 | Oct. 18, 2013 | (557 | ) | (579 | ) | |||||||||||||
41,430 | (2) | 45,067 | (2) | Swap | 3.776 | Dec. 5, 2006 | Jan. 18, 2012 | (1,129 | ) | (1,887 | ) | |||||||||||||
35,620 | (2) | 38,746 | (2) | Swap | 4.000 | Dec. 20, 2006 | Jan. 18, 2012 | (1,054 | ) | (1,794 | ) | |||||||||||||
40,152 | (2) | 42,993 | (2) | Swap | 2.703 | Dec. 3, 2009 | Sep. 4, 2014 | (1,139 | ) | (453 | ) | |||||||||||||
16,976 | 17,737 | Cap | 4.000 | June 24, 2009 | June 25, 2012 | 3 | 70 | |||||||||||||||||
20,500 | — | Cap | 4.000 | Aug. 4, 2010 | June 15, 2013 | 30 | — | |||||||||||||||||
$274,042 | $ | 270,421 | $ | (7,997 | ) | $ | (7,458 | ) | ||||||||||||||||
(1) | Translation to U.S. dollars is based on exchange rate of $1.56 to £1.00 as of December 31, 2010 and $1.61 to £1.00 as of December 31, |
(2) | Translation to U.S. dollars is based on exchange rate of $1.34 to €1.00 as of December 31, 2010 and $1.43 to €1.00 as of December 31, |
Sensitivity to changesChanges in interest rates.Interest Rates
The following table shows the effect if assumed changes in interest rates occurred:
Assumed event | Interest rate change (basis points) | Change ($ millions) | |||||
Increase in fair value of interest rate swaps following an assumed 10% increase in interest rates | 20 | $ | 1.5 | ||||
Decrease in fair value of interest rate swaps following an assumed 10% decrease in interest rates | (20 | ) | ($ | 1.5 | ) | ||
Increase in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% increase in interest rates | 20 | 0.4 | |||||
Decrease in annual interest expense on our debt that is variable rate and not subject to swapped interest following a 10% increase in interest rates | (20 | ) | (0.4 | ) | |||
Increase in fair value of fixed rate debt following a 10% decrease in interest rates | (20 | ) | 7.0 | ||||
Decrease in fair value of fixed rate debt following a 10% increase in interest rates | 20 | (6.7 | ) |
Assumed event | Interest rate change (basis points) | Change ($ millions) | ||||||
Increase in fair value of interest rate swaps and caps following an assumed 10% increase in interest rates | 24 | $ | 1.2 | |||||
Decrease in fair value of interest rate swaps and caps following an assumed 10% decrease in interest rates | (24 | ) | ($1.2 | ) | ||||
Increase in annual interest expense on our debt that is variable rate and not subject to swapped or capped interest following a 10% increase in interest rates | 24 | 0.8 | ||||||
Decrease in annual interest expense on our debt that is variable rate and not subject to swapped or capped interest following a 10% decrease in interest rates | (24 | ) | (0.8 | ) | ||||
Increase in fair value of fixed rate debt following a 10% decrease in interest rates | (24 | ) | 21.5 | |||||
Decrease in fair value of fixed rate debt following a 10% increase in interest rates | 24 | (20.1 | ) |
Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.
Foreign currency exchange riskCurrency Exchange Risk
As ofFor the years ended December 31, 2010 and 2009, we had foreign operations in the United Kingdom, Ireland, France, The Netherlands, Switzerland, Singapore and Canada and, as such, are subject to risk from the effects of exchange rate movements of foreign currencies, which may affect future costs and cash flows. Our foreign operations are
conducted in the British Pound, Euro, Swiss Franc and the Swiss Franc,Singapore Dollar, except for our Canadian property for which the functional currency is the U.S. dollar. Our primary currency exposures are to the Euro and the British Pound. We attempt to mitigate a portion of the risk of currency fluctuation by financing our properties in the local currency denominations, although there can be no assurance that this will be effective. As a result, changes in the relation of any such foreign currency to U.S. dollars may affect our revenues, operating margins and distributions and may also affect the book value of our assets and the amount of shareholders’stockholders’ equity. For the yearyears ended December 31, 2010, 2009 and 2008, operating revenues from properties outside the United States contributed $93.7 million, $82.2 million and $52.1 million, respectively, which represented 10.8%, 12.9% and 9.9% of our operating revenues.revenues, respectively.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page No. | ||||
Management’s | 85 | |||
87 | ||||
Consolidated Financial Statements of Digital Realty Trust, Inc. | ||||
Consolidated Balance Sheets as of December 31, | 90 | |||
92 | ||||
93 | ||||
96 | ||||
Consolidated Financial Statements of Digital Realty Trust, L.P. | ||||
Consolidated Balance Sheets as of December 31, 2010 and 2009 | 99 | |||
101 | ||||
102 | ||||
105 | ||||
Consolidated Financial Statements of Digital Realty Trust, Inc. and Digital Realty Trust, L.P. | ||||
108 | ||||
Supplemental Schedule—Schedule III—Properties and Accumulated Depreciation | 159 | |||
Notes to Schedule III—Properties and Accumulated Depreciation | 163 |
Management’s Report on Internal Control over Financial Reporting
The management of Digital Realty Trust, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial and Investment Officer, we assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009.2010. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment, management concluded that as of December 31, 2009,2010, the Company’s internal control over financial reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an audit report on the Company’s internal control over financial reporting. This report appears on page 73.88.
Management’s Report on Internal Control over Financial Reporting
The management of Digital Realty Trust, L.P. (the Operating Partnership) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our internal control system was designed to provide reasonable assurance to the Operating Partnership’s management regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial and Investment Officer of our general partner, we assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2010. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment, management concluded that as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Digital Realty Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Digital Realty Trust Inc. (the Company) and subsidiaries as of December 31, 20092010 and 2008,2009, and the related consolidated income statements, statements of operations, equity and comprehensive income, (loss), and cash flows for each of the years in the three-year period ended December 31, 2009.2010. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III, properties and accumulated depreciation. These consolidated financial statements and financial statement schedule III are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule III based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above presents fairly, in all material respects, the financial position of Digital Realty Trust, Inc. and subsidiaries as of December 31, 20092010 and 2008,2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009,2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, properties and accumulated depreciation, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’sDigital Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2009,2010, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 201025, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
San Francisco, California
February 26, 201025, 2011
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Digital Realty Trust, Inc.:
We have audited Digital Realty Trust Inc.’s (the Company) internal control over financial reporting as of December 31, 2009,2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Digital Realty Trust, Inc., maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2010, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the CompanyDigital Realty Trust, Inc. and subsidiaries as of December 31, 20092010 and 2008,2009, and the related consolidated income statements, statements of operations, equity and comprehensive income, (loss), and cash flows for each of the years in the three-year period ended December 31, 20092010 and the financial statement schedule III, and our report dated February 26, 201025, 2011 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule III.
/s/ KPMG LLP
San Francisco, California
February 26,25, 2011
Report of Independent Registered Public Accounting Firm
The Board of Directors of the General Partner and Partners
Digital Realty Trust, L.P.:
We have audited the accompanying consolidated balance sheets of Digital Realty Trust, L.P. (the Operating Partnership) and subsidiaries as of December 31, 2010 and 2009, and the related consolidated income statements, statements of capital and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule III, properties and accumulated depreciation. These consolidated financial statements and financial statement schedule III are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule III based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Digital Realty Trust, L.P. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, properties and accumulated depreciation, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
/s/ KPMG LLP
San Francisco, California
February 25, 2011
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31, 2009 | December 31, 2008 | December 31, 2010 | December 31, 2009 | |||||||||||||
ASSETS | ||||||||||||||||
Investments in real estate: | ||||||||||||||||
Properties: | ||||||||||||||||
Land | $ | 382,763 | $ | 316,318 | $ | 478,629 | $ | 382,763 | ||||||||
Acquired ground leases | 2,767 | 2,733 | 6,374 | 2,767 | ||||||||||||
Buildings and improvements | 2,952,330 | 2,467,830 | 4,459,047 | 2,952,330 | ||||||||||||
Tenant improvements | 272,462 | 255,818 | 283,492 | 272,462 | ||||||||||||
Total investments in properties | 3,610,322 | 3,042,699 | 5,227,542 | 3,610,322 | ||||||||||||
Accumulated depreciation and amortization | (459,521 | ) | (302,960 | ) | (660,700 | ) | (459,521 | ) | ||||||||
Net investments in properties | 3,150,801 | 2,739,739 | 4,566,842 | 3,150,801 | ||||||||||||
Investment in unconsolidated joint venture | 6,392 | 8,481 | ||||||||||||||
Investment in unconsolidated joint ventures | 17,635 | 6,392 | ||||||||||||||
Net investments in real estate | 3,157,193 | 2,748,220 | 4,584,477 | 3,157,193 | ||||||||||||
Cash and cash equivalents | 72,320 | 73,334 | 11,719 | 72,320 | ||||||||||||
Accounts and other receivables, net of allowance for doubtful accounts of $2,691 and $2,109 as of December 31, 2009 and December 31, 2008, respectively | 46,086 | 39,108 | ||||||||||||||
Accounts and other receivables, net of allowance for doubtful accounts of $3,250 and $2,691 as of December 31, 2010 and December 31, 2009, respectively | 70,337 | 46,086 | ||||||||||||||
Deferred rent | 145,550 | 99,957 | 190,067 | 145,550 | ||||||||||||
Acquired above market leases, net of accumulated amortization of $36,896 and $31,128 as of December 31, 2009 and December 31, 2008, respectively | 25,861 | 31,352 | ||||||||||||||
Acquired in place lease value and deferred leasing costs, net of accumulated amortization of $229,852 and $188,348 as of December 31, 2009 and December 31, 2008, respectively | 224,216 | 222,389 | ||||||||||||||
Deferred financing costs, net of accumulated amortization of $20,934 and $14,344 as of December 31, 2009 and December 31, 2008, respectively | 21,073 | 16,275 | ||||||||||||||
Acquired above market leases, net of accumulated amortization of $47,083 and $36,896 as of December 31, 2010 and December 31, 2009, respectively | 40,539 | 25,861 | ||||||||||||||
Acquired in place lease value and deferred leasing costs, net of accumulated amortization of $285,438 and $229,852 as of December 31, 2010 and December 31, 2009, respectively | 334,366 | 224,216 | ||||||||||||||
Deferred financing costs, net of accumulated amortization of $28,936 and $20,934 as of December 31, 2010 and December 31, 2009, respectively | 22,825 | 21,073 | ||||||||||||||
Restricted cash | 37,810 | 45,470 | 60,062 | 37,810 | ||||||||||||
Other assets | 14,950 | 4,940 | 15,091 | 14,950 | ||||||||||||
Total assets | $ | 3,745,059 | $ | 3,281,045 | $ | 5,329,483 | $ | 3,745,059 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Revolving credit facility | $ | 205,547 | $ | 138,579 | $ | 333,534 | $ | 205,547 | ||||||||
Unsecured senior notes | 83,000 | 58,000 | ||||||||||||||
Mortgage loans | 1,063,663 | 1,026,594 | ||||||||||||||
4.125% exchangeable senior debentures due 2026, net of discount | 165,834 | 161,901 | ||||||||||||||
5.50% exchangeable senior debentures due 2029 | 266,400 | — | ||||||||||||||
Unsecured senior notes, net of discount | 1,066,030 | 83,000 | ||||||||||||||
Exchangeable senior debentures, net of discount | 353,702 | 432,234 | ||||||||||||||
Mortgage loans, net of premiums | 1,043,188 | 1,063,663 | ||||||||||||||
Other secured loans | 10,500 | — | ||||||||||||||
Accounts payable and other accrued liabilities | 151,229 | 171,176 | 237,631 | 151,229 | ||||||||||||
Accrued dividends and distributions | 37,004 | 26,092 | 51,210 | 37,004 | ||||||||||||
Acquired below market leases, net of accumulated amortization of $78,627 and $64,706 as of December 31, 2009 and December 31, 2008, respectively | 69,311 | 76,660 | ||||||||||||||
Acquired below market leases, net of accumulated amortization of $96,740 and $78,627 as of December 31, 2010 and December 31, 2009, respectively | 93,250 | 69,311 | ||||||||||||||
Security deposits and prepaid rents | 68,270 | 46,967 | 85,775 | 68,270 | ||||||||||||
Total liabilities | 2,110,258 | 1,705,969 | 3,274,820 | 2,110,258 |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share data)
December 31, 2009 | December 31, 2008 | |||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Stockholders’ Equity: | ||||||||
Preferred Stock: $0.01 par value, 30,000,000 authorized: | ||||||||
Series A Cumulative Redeemable Preferred Stock, 8.50%, $103,500,000 liquidation preference ($25.00 per share), 4,140,000 issued and outstanding | 99,297 | 99,297 | ||||||
Series B Cumulative Redeemable Preferred Stock, 7.875%, $63,250,000 liquidation preference ($25.00 per share), 2,530,000 issued and outstanding | 60,502 | 60,502 | ||||||
Series C Cumulative Convertible Preferred Stock, 4.375%, $174,998,875 liquidation preference ($25.00 per share), 6,999,955 and 7,000,000 issued and outstanding as of December 31, 2009 and December 31, 2008, respectively | 169,067 | 169,068 | ||||||
Series D Cumulative Convertible Preferred Stock, 5.500%, $344,887,500 liquidation preference ($25.00 per share), 13,795,500 and 13,800,000 issued and outstanding as of December 31, 2009 and December 31, 2008, respectively | 333,472 | 333,581 | ||||||
Common Stock; $0.01 par value: 125,000,000 authorized, 76,812,783 and 73,306,703 shares issued and outstanding as of December 31, 2009 and December 31, 2008, respectively | 766 | 732 | ||||||
Additional paid-in capital | 1,155,709 | 1,057,107 | ||||||
Dividends in excess of earnings | (231,871 | ) | (166,863 | ) | ||||
Accumulated other comprehensive loss, net | (27,947 | ) | (49,503 | ) | ||||
Total stockholders’ equity | 1,558,995 | 1,503,921 | ||||||
Noncontrolling Interests: | ||||||||
Noncontrolling interests in operating partnership | 58,192 | 66,797 | ||||||
Noncontrolling interests in consolidated joint ventures | 17,614 | 4,358 | ||||||
Total noncontrolling interests | 75,806 | 71,155 | ||||||
Total equity | 1,634,801 | 1,575,076 | ||||||
Total liabilities and equity | $ | 3,745,059 | $ | 3,281,045 | ||||
December 31, 2010 | December 31, 2009 | |||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Stockholders’ Equity: | ||||||||
Preferred Stock: $0.01 par value, 30,000,000 authorized: | ||||||||
Series A Cumulative Redeemable Preferred Stock, 8.50%, $0 and $103,500 liquidation preference ($25.00 per share), none and 4,140,000 issued and outstanding | — | 99,297 | ||||||
Series B Cumulative Redeemable Preferred Stock, 7.875%, $0 and $63,250 liquidation preference ($25.00 per share), none and 2,530,000 issued and outstanding | — | 60,502 | ||||||
Series C Cumulative Convertible Preferred Stock, 4.375%, $174,999 liquidation preference ($25.00 per share), 6,999,955 issued and outstanding | 169,067 | 169,067 | ||||||
Series D Cumulative Convertible Preferred Stock, 5.500%, $344,683 and $344,888 liquidation preference, respectively ($25.00 per share), 13,787,300 and 13,795,500 issued and outstanding, respectively | 333,274 | 333,472 | ||||||
Common Stock: $0.01 par value, 145,000,000 authorized, 91,159,221 and 76,812,783 shares issued and outstanding as of December 31, 2010 and December 31, 2009, respectively | 909 | 766 | ||||||
Additional paid-in capital | 1,849,497 | 1,155,709 | ||||||
Dividends in excess of earnings | (348,148 | ) | (231,871 | ) | ||||
Accumulated other comprehensive loss, net | (42,081 | ) | (27,947 | ) | ||||
Total stockholders’ equity | 1,962,518 | 1,558,995 | ||||||
Noncontrolling Interests: | ||||||||
Noncontrolling interests in operating partnership | 52,436 | 58,192 | ||||||
Noncontrolling interests in consolidated joint ventures | 39,709 | 17,614 | ||||||
Total noncontrolling interests | 92,145 | 75,806 | ||||||
Total equity | 2,054,663 | 1,634,801 | ||||||
Total liabilities and equity | $ | 5,329,483 | $ | 3,745,059 | ||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands, except share and per share data)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Operating Revenues: | ||||||||||||
Rental | $ | 686,949 | $ | 510,944 | $ | 405,308 | ||||||
Tenant reimbursements | 178,081 | 125,136 | 106,754 | |||||||||
Other | 371 | 1,062 | 15,383 | |||||||||
Total operating revenues | 865,401 | 637,142 | 527,445 | |||||||||
Operating Expenses: | ||||||||||||
Rental property operating and maintenance | 251,767 | 176,238 | 151,147 | |||||||||
Property taxes | 44,432 | 36,004 | 31,102 | |||||||||
Insurance | 8,133 | 6,111 | 4,988 | |||||||||
Depreciation and amortization | 263,903 | 198,052 | 172,378 | |||||||||
General and administrative | 47,196 | 39,988 | 37,652 | |||||||||
Transactions | 7,438 | 2,177 | 739 | |||||||||
Other | 226 | 783 | 1,084 | |||||||||
Total operating expenses | 623,095 | 459,353 | 399,090 | |||||||||
Operating income | 242,306 | 177,789 | 128,355 | |||||||||
Other Income (Expenses): | ||||||||||||
Equity in earnings of unconsolidated joint venture | 5,254 | 2,172 | 2,369 | |||||||||
Interest and other income | 616 | 753 | 2,106 | |||||||||
Interest expense | (137,384 | ) | (88,442 | ) | (63,621 | ) | ||||||
Tax expense | (1,851 | ) | (1,038 | ) | (1,109 | ) | ||||||
Loss from early extinguishment of debt | (3,529 | ) | — | (182 | ) | |||||||
Net income | 105,412 | 91,234 | 67,918 | |||||||||
Net income attributable to noncontrolling interests | (3,118 | ) | (3,572 | ) | (2,664 | ) | ||||||
Net income attributable to Digital Realty Trust, Inc. | 102,294 | 87,662 | 65,254 | |||||||||
Preferred stock dividends | (37,004 | ) | (40,404 | ) | (38,564 | ) | ||||||
Costs on redemption of preferred stock | (6,951 | ) | — | — | ||||||||
Net income available to common stockholders | $ | 58,339 | $ | 47,258 | $ | 26,690 | ||||||
Net income per share available to common stockholders: | ||||||||||||
Basic | $ | 0.69 | $ | 0.62 | $ | 0.39 | ||||||
Diluted | $ | 0.68 | $ | 0.61 | $ | 0.38 | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 84,275,498 | 75,950,370 | 68,829,267 | |||||||||
Diluted | 86,013,471 | 77,020,890 | 70,435,760 |
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSEQUITY AND COMPREHENSIVE INCOME
(in thousands, except share data)
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Operating Revenues: | ||||||||||||
Rental | $ | 510,772 | $ | 404,559 | $ | 319,603 | ||||||
Tenant reimbursements | 125,308 | 107,503 | 75,003 | |||||||||
Other | 1,062 | 15,383 | 641 | |||||||||
Total operating revenues | 637,142 | 527,445 | 395,247 | |||||||||
Operating Expenses: | ||||||||||||
Rental property operating and maintenance | 176,238 | 151,147 | 109,225 | |||||||||
Property taxes | 36,004 | 31,102 | 27,181 | |||||||||
Insurance | 6,111 | 4,988 | 5,527 | |||||||||
Depreciation and amortization | 198,052 | 172,378 | 134,419 | |||||||||
General and administrative | 42,165 | 38,391 | 30,786 | |||||||||
Other | 783 | 1,084 | 431 | |||||||||
Total operating expenses | 459,353 | 399,090 | 307,569 | |||||||||
Operating income | 177,789 | 128,355 | 87,678 | |||||||||
Other Income (Expenses): | ||||||||||||
Equity in earnings of unconsolidated joint venture | 2,172 | 2,369 | 449 | |||||||||
Interest and other income | 753 | 2,106 | 2,287 | |||||||||
Interest expense | (88,442 | ) | (63,621 | ) | (67,054 | ) | ||||||
Tax expense | (1,038 | ) | (1,109 | ) | (814 | ) | ||||||
Loss from early extinguishment of debt | — | (182 | ) | — | ||||||||
Income from continuing operations | 91,234 | 67,918 | 22,546 | |||||||||
Income from discontinued operations before gain on sale of assets | — | — | 1,395 | |||||||||
Gain on sale of assets | — | — | 18,049 | |||||||||
Income from discontinued operations | — | — | 19,444 | |||||||||
Net income | 91,234 | 67,918 | 41,990 | |||||||||
Net income attributable to noncontrolling interests | (3,572 | ) | (2,664 | ) | (3,753 | ) | ||||||
Net income attributable to Digital Realty Trust, Inc. | 87,662 | 65,254 | 38,237 | |||||||||
Preferred stock dividends | (40,404 | ) | (38,564 | ) | (19,330 | ) | ||||||
Net income available to common stockholders | $ | 47,258 | $ | 26,690 | $ | 18,907 | ||||||
Income per share from continuing operations available to common stockholders: | ||||||||||||
Basic | $ | 0.62 | $ | 0.39 | $ | 0.04 | ||||||
Diluted | $ | 0.61 | $ | 0.38 | $ | 0.04 | ||||||
Income per share from discontinued operations available to common stockholders: | ||||||||||||
Basic | $ | — | $ | — | $ | 0.27 | ||||||
Diluted | $ | — | $ | — | $ | 0.26 | ||||||
Net income per share available to common stockholders: | ||||||||||||
Basic | $ | 0.62 | $ | 0.39 | $ | 0.31 | ||||||
Diluted | $ | 0.61 | $ | 0.38 | $ | 0.30 | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 75,950,370 | 68,829,267 | 60,527,625 | |||||||||
Diluted | 77,020,890 | 70,435,760 | 62,572,937 |
See accompanying notes to the consolidated financial statements.
Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Loss, net | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Venture | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2007 | $ | 328,867 | 65,406,240 | $ | 654 | $ | 830,373 | $ | (106,106 | ) | $ | 3,379 | $ | 1,057,167 | $ | 74,335 | $ | 4,928 | $ | 79,263 | $ | 1,136,430 | ||||||||||||||||||||||
Conversion of units to common stock | — | 1,825,157 | 19 | 20,341 | — | — | 20,360 | (20,360 | ) | — | (20,360 | ) | — | |||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | — | 116,603 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Net proceeds from sale of common stock | — | 5,750,000 | 57 | 211,554 | — | — | 211,611 | — | — | — | 211,611 | |||||||||||||||||||||||||||||||||
Exercise of stock options | — | 208,703 | 2 | 4,203 | — | — | 4,205 | — | — | — | 4,205 | |||||||||||||||||||||||||||||||||
Issuance of series D preferred stock, net of offering costs | 333,581 | — | — | — | — | — | 333,581 | — | — | — | 333,581 | |||||||||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | 9,805 | — | — | 9,805 | — | — | — | 9,805 | |||||||||||||||||||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | (38,564 | ) | — | (38,564 | ) | — | — | — | (38,564 | ) | ||||||||||||||||||||||||||||||
Dividends and distributions on common stock and common and incentive units | — | — | — | — | (87,447 | ) | — | (87,447 | ) | (7,775 | ) | — | (7,775 | ) | (95,222 | ) | ||||||||||||||||||||||||||||
Reallocation of noncontrolling interests | — | — | — | (22,491 | ) | — | — | (22,491 | ) | 22,491 | — | 22,491 | — | |||||||||||||||||||||||||||||||
Acquisition of consolidated joint venture interest | — | — | — | — | — | — | — | — | 1,887 | 1,887 | 1,887 | |||||||||||||||||||||||||||||||||
Contributions from noncontrolling members | — | — | — | — | — | — | — | — | 16,452 | 16,452 | 16,452 | |||||||||||||||||||||||||||||||||
Distributions from noncontrolling members | — | — | — | — | — | — | — | — | (8,276 | ) | (8,276 | ) | (8,276 | ) | ||||||||||||||||||||||||||||||
Adjustments due to purchase of noncontrolling interests | — | — | — | 3,322 | — | — | 3,322 | — | (10,968 | ) | (10,968 | ) | (7,646 | ) | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | 65,254 | — | 65,254 | 2,329 | 335 | 2,664 | 67,918 | |||||||||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | (44,813 | ) | (44,813 | ) | (3,578 | ) | — | (3,578 | ) | (48,391 | ) | ||||||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | (7,325 | ) | (7,325 | ) | (579 | ) | — | (579 | ) | (7,904 | ) | ||||||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | (744 | ) | (744 | ) | (66 | ) | — | (66 | ) | (810 | ) | ||||||||||||||||||||||||||||
Comprehensive income | 12,372 | (1,559 | ) | 10,813 | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | $ | 662,448 | 73,306,703 | $ | 732 | $ | 1,057,107 | $ | (166,863 | ) | $ | (49,503 | ) | $ | 1,503,921 | $ | 66,797 | $ | 4,358 | $ | 71,155 | $ | 1,575,076 | |||||||||||||||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS)(continued)
(in thousands, except share data)
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Ventures | Total Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2006 | $ | 99,297 | $ | 60,502 | $ | — | $ | — | 54,257,691 | $ | 542 | $ | 611,799 | $ | (52,754 | ) | $ | 4,190 | $ | 723,576 | $ | 141,890 | $ | — | $ | 141,890 | $ | 865,466 | ||||||||||||||||||||
Conversion of units to common stock | — | — | — | — | 7,042,054 | 70 | 71,082 | — | — | 71,152 | (71,152 | ) | (71,152 | ) | — | |||||||||||||||||||||||||||||||||
Net proceeds from sale of common stock | — | — | — | — | 4,025,000 | 40 | 150,407 | — | — | 150,447 | — | — | — | 150,447 | ||||||||||||||||||||||||||||||||||
Issuance of series C preferred stock, net of offering costs | — | — | 169,068 | — | — | — | — | — | — | 169,068 | — | — | — | 169,068 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | 81,495 | 2 | 1,034 | — | — | 1,036 | — | — | — | 1,036 | ||||||||||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | — | — | — | 4,367 | — | — | 4,367 | — | — | — | 4,367 | ||||||||||||||||||||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | — | — | (19,330 | ) | — | (19,330 | ) | — | — | — | (19,330 | ) | |||||||||||||||||||||||||||||||
Dividends and distributions on common stock and common and incentive units | — | — | — | — | — | — | — | (72,259 | ) | — | (72,259 | ) | (8,451 | ) | — | (8,451 | ) | (80,710 | ) | |||||||||||||||||||||||||||||
Adjustment for noncontrolling interests | — | — | — | — | — | — | (8,316 | ) | — | — | (8,316 | ) | 8,316 | — | 8,316 | — | ||||||||||||||||||||||||||||||||
Contributions from noncontrolling members | — | — | — | — | — | — | — | — | — | — | — | 4,928 | 4,928 | 4,928 | ||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 38,237 | 38,237 | 3,753 | — | 3,753 | 41,990 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income—foreign currency translation adjustments | — | — | — | — | — | — | — | — | (222 | ) | (222 | ) | 93 | — | 93 | (129 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income—fair value of interest rate swaps | — | — | — | — | — | — | — | — | 1,631 | 1,631 | 241 | — | 241 | 1,872 | ||||||||||||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | — | — | (2,220 | ) | (2,220 | ) | (355 | ) | — | (355 | ) | (2,575 | ) | |||||||||||||||||||||||||||||
Comprehensive income | 37,426 | 3,732 | 41,158 | |||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2007 | $ | 99,297 | $ | 60,502 | $ | 169,068 | $ | — | 65,406,240 | $ | 654 | $ | 830,373 | $ | (106,106 | ) | $ | 3,379 | $ | 1,057,167 | $ | 74,335 | $ | 4,928 | $ | 79,263 | $ | 1,136,430 | ||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Loss, net | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Venture | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
Conversion of units to common stock | — | 650,511 | 6 | 7,626 | — | — | 7,632 | (7,632 | ) | — | (7,632 | ) | — | |||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | — | 103,700 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Net proceeds from sale of common stock | — | 2,500,000 | 25 | 82,834 | — | — | 82,859 | — | — | — | 82,859 | |||||||||||||||||||||||||||||||||
Exercise of stock options | — | 249,167 | 3 | 6,322 | — | — | 6,325 | — | — | — | 6,325 | |||||||||||||||||||||||||||||||||
Conversion of series C and D preferred stock | (110 | ) | 2,702 | — | 110 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | 9,829 | — | — | 9,829 | — | — | — | 9,829 | |||||||||||||||||||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | (40,404 | ) | — | (40,404 | ) | — | — | — | (40,404 | ) | ||||||||||||||||||||||||||||||
Dividends and distributions on common stock and common and incentive units | — | — | — | — | (112,266 | ) | — | (112,266 | ) | (8,430 | ) | — | (8,430 | ) | (120,696 | ) | ||||||||||||||||||||||||||||
Reclassification of vested share based awards | — | — | — | (2,464 | ) | — | — | (2,464 | ) | 2,464 | — | 2,464 | — | |||||||||||||||||||||||||||||||
Contributions from noncontrolling interests in consolidated joint ventures | — | — | — | — | — | — | — | — | 33,787 | 33,787 | 33,787 | |||||||||||||||||||||||||||||||||
Adjustments due to purchase of joint venture interests | — | — | — | (5,655 | ) | — | — | (5,655 | ) | — | (20,671 | ) | (20,671 | ) | (26,326 | ) | ||||||||||||||||||||||||||||
Net income | — | — | — | — | 87,662 | — | 87,662 | 3,432 | 140 | 3,572 | 91,234 | |||||||||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | 22,816 | 22,816 | 1,660 | — | 1,660 | 24,476 | |||||||||||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | (5,047 | ) | (5,047 | ) | (372 | ) | — | (372 | ) | (5,419 | ) | ||||||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | 3,787 | 3,787 | 273 | — | 273 | 4,060 | |||||||||||||||||||||||||||||||||
Comprehensive income | 109,218 | 5,133 | 114,351 | |||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2009 | $ | 662,338 | 76,812,783 | $ | 766 | $ | 1,155,709 | $ | (231,871 | ) | $ | (27,947 | ) | $ | 1,558,995 | $ | 58,192 | $ | 17,614 | $ | 75,806 | $ | 1,634,801 | |||||||||||||||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) (continued)
(in thousands, except share data)
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Ventures | Total Noncontrolling Interests | Total Equity | Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Loss, net | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Venture | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of units to common stock | — | — | — | — | 1,825,157 | 19 | 20,341 | — | — | 20,360 | (20,360 | ) | (20,360 | ) | — | — | 770,988 | 7 | 8,227 | — | — | 8,234 | (8,234 | ) | — | (8,234 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | — | 67,253 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net proceeds from sale of common stock | — | — | — | — | 5,750,000 | 57 | 211,554 | — | — | 211,611 | — | — | — | 211,611 | — | 10,723,108 | 108 | 593,602 | — | — | 593,710 | — | — | — | 593,710 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of series D preferred stock, net of offering costs | — | — | — | 333,581 | — | — | — | — | — | 333,581 | — | — | — | 333,581 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | 208,703 | 2 | 4,203 | — | — | 4,205 | — | — | — | 4,205 | — | 148,099 | 1 | 5,584 | — | — | 5,585 | — | — | — | 5,585 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | — | — | — | — | 116,603 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in exchange for debentures | — | 2,632,054 | 27 | 83,936 | — | — | 83,963 | — | — | — | 83,963 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of series D preferred stock | (198 | ) | 4,936 | — | 198 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redemption of preferred stock | (159,799 | ) | — | — | — | (6,951 | ) | — | (166,750 | ) | — | — | — | (166,750 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | — | — | — | 9,805 | — | — | 9,805 | — | — | — | 9,805 | — | — | — | 13,548 | — | — | 13,548 | — | — | — | 13,548 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | — | — | (38,564 | ) | — | (38,564 | ) | — | — | — | (38,564 | ) | — | — | — | — | (37,004 | ) | — | (37,004 | ) | — | — | — | (37,004 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends and distributions on common stock and common and incentive units | — | — | — | — | — | — | — | (87,447 | ) | — | (87,447 | ) | (7,775 | ) | — | (7,775 | ) | (95,222 | ) | — | — | — | — | (174,616 | ) | — | (174,616 | ) | (11,139 | ) | — | (11,139 | ) | (185,755 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Adjustment for noncontrolling interests | — | — | — | — | — | — | (22,491 | ) | — | — | (22,491 | ) | 22,491 | — | 22,491 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of consolidated joint venture interest | — | — | — | — | — | — | — | — | — | — | — | 1,887 | 1,887 | 1,887 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling members | — | — | — | — | — | — | — | — | — | — | — | 16,452 | 16,452 | 16,452 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions from noncontrolling members | — | — | — | — | — | — | — | — | — | — | — | (8,276 | ) | (8,276 | ) | (8,276 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments due to purchase of noncontrolling interests | — | — | — | — | — | — | 3,322 | — | — | 3,322 | — | (10,968 | ) | (10,968 | ) | (7,646 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of vested share based awards | — | — | — | (11,307 | ) | — | — | (11,307 | ) | 11,307 | — | 11,307 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests in consolidated joint ventures | — | — | — | — | — | — | — | — | 22,383 | 22,383 | 22,383 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 65,254 | — | 65,254 | 2,329 | 335 | 2,664 | 67,918 | — | — | — | — | 102,294 | — | 102,294 | 3,406 | (288 | ) | 3,118 | 105,412 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income—foreign currency translation adjustments | — | — | — | — | — | — | — | — | (44,813 | ) | (44,813 | ) | (3,578 | ) | — | (3,578 | ) | (48,391 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income—fair value of interest rate swaps | — | — | — | — | — | — | — | — | (7,325 | ) | (7,325 | ) | (579 | ) | — | (579 | ) | (7,904 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | (13,674 | ) | (13,674 | ) | (1,040 | ) | — | (1,040 | ) | (14,714 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | (6,732 | ) | (6,732 | ) | (428 | ) | — | (428 | ) | (7,160 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | — | — | (744 | ) | (744 | ) | (66 | ) | — | (66 | ) | (810 | ) | — | — | — | — | — | 6,272 | 6,272 | 372 | — | 372 | 6,644 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | 12,372 | (1,559 | ) | 10,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income | 88,160 | 2,022 | 90,182 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | $ | 502,341 | 91,159,221 | $ | 909 | $ | 1,849,497 | $ | (348,148 | ) | $ | (42,081 | ) | $ | 1,962,518 | $ | 52,436 | $ | 39,709 | $ | 92,145 | $ | 2,054,663 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME (LOSS) (continued)
(in thousands, except share data)
Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Number of Common Shares | Common Stock | Additional Paid-in Capital | Accumulated Dividends in Excess of Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interests in Operating Partnership | Noncontrolling Interests in Consolidated Joint Ventures | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | $ | 99,297 | $ | 60,502 | $ | 169,068 | $ | 333,581 | 73,306,703 | $ | 732 | $ | 1,057,107 | $ | (166,863 | ) | $ | (49,503 | ) | $ | 1,503,921 | $ | 66,797 | $ | 4,358 | $ | 71,155 | $ | 1,575,076 | ||||||||||||||||||||||
Conversion of units to common stock | — | — | — | — | 650,511 | 6 | 7,626 | — | — | 7,632 | (7,632 | ) | — | (7,632 | ) | — | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | — | — | — | — | 103,700 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Net proceeds from sale of common stock | — | — | — | — | 2,500,000 | 25 | 82,834 | — | — | 82,859 | — | — | — | 82,859 | |||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | 249,167 | 3 | 6,322 | — | — | 6,325 | — | — | — | 6,325 | |||||||||||||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | — | — | — | 9,829 | — | — | 9,829 | — | — | — | 9,829 | |||||||||||||||||||||||||||||||||||||
Conversion of series C and D preferred stock | — | — | (1 | ) | (109 | ) | 2,702 | — | 110 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Dividends declared on preferred stock | — | — | — | — | — | — | — | (40,404 | ) | — | (40,404 | ) | — | — | — | (40,404 | ) | ||||||||||||||||||||||||||||||||||
Dividends and distributions on common stock and common and incentive units | — | — | — | — | — | — | — | (112,266 | ) | — | (112,266 | ) | (8,430 | ) | — | (8,430 | ) | (120,696 | ) | ||||||||||||||||||||||||||||||||
Reclassification of vested share based awards | — | — | — | — | — | — | (2,464 | ) | — | — | (2,464 | ) | 2,464 | — | 2,464 | — | |||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests in consolidated joint ventures | — | — | — | — | — | — | — | — | — | — | — | 33,787 | 33,787 | 33,787 | |||||||||||||||||||||||||||||||||||||
Adjustments due to purchase of joint venture interests | — | — | — | — | — | — | (5,655 | ) | — | — | (5,655 | ) | — | (20,671 | ) | (20,671 | ) | (26,326 | ) | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 87,662 | — | 87,662 | 3,432 | 140 | 3,572 | 91,234 | |||||||||||||||||||||||||||||||||||||
Other comprehensive income—foreign currency translation adjustments | — | — | — | — | — | — | — | — | 22,816 | 22,816 | 1,660 | — | 1,660 | 24,476 | |||||||||||||||||||||||||||||||||||||
Other comprehensive income—fair value of interest rate swaps | — | — | — | — | — | — | — | — | (5,047 | ) | (5,047 | ) | (372 | ) | — | (372 | ) | (5,419 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | — | — | 3,787 | 3,787 | 273 | — | 273 | 4,060 | |||||||||||||||||||||||||||||||||||||
Comprehensive income | 109,218 | 5,133 | 114,351 | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2009 | $ | 99,297 | $ | 60,502 | $ | 169,067 | $ | 333,472 | 76,812,783 | $ | 766 | $ | 1,155,709 | $ | (231,871 | ) | $ | (27,947 | ) | $ | 1,558,995 | $ | 58,192 | $ | 17,614 | $ | 75,806 | $ | 1,634,801 | ||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, | ||||||||||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | 2010 | 2009 | 2008 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income | $ | 91,234 | $ | 67,918 | $ | 41,990 | $ | 105,412 | $ | 91,234 | $ | 67,918 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||||||||||||
Gain on sale of assets | — | — | (18,049 | ) | ||||||||||||||||||||
Loss on early extinguishment of debt-non cash portion | 2,164 | — | — | |||||||||||||||||||||
Equity in earnings of unconsolidated joint venture | (2,172 | ) | (2,369 | ) | (449 | ) | (5,254 | ) | (2,172 | ) | (2,369 | ) | ||||||||||||
Distributions from unconsolidated joint venture | 4,350 | 3,019 | 1,383 | 4,500 | 4,350 | 3,019 | ||||||||||||||||||
Write-off of net assets due to early lease terminations | 783 | 1,085 | 430 | 227 | 783 | 1,085 | ||||||||||||||||||
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases | 156,828 | 118,364 | 81,305 | 206,775 | 156,828 | 118,364 | ||||||||||||||||||
Amortization of share-based unearned compensation | 9,829 | 9,805 | 4,367 | 11,362 | 9,829 | 9,805 | ||||||||||||||||||
Allowance for doubtful accounts | 582 | (1,058 | ) | 1,135 | ||||||||||||||||||||
Allowance for (recovery of) doubtful accounts | 558 | 582 | (1,058 | ) | ||||||||||||||||||||
Amortization of deferred financing costs | 7,925 | 5,579 | 5,161 | 10,460 | 7,925 | 5,579 | ||||||||||||||||||
Write-off of deferred financing costs, included in net loss on early extinguishment of debt | — | 182 | — | 635 | — | 182 | ||||||||||||||||||
Amortization of debt discount/premium | 3,550 | 2,435 | 2,553 | 4,047 | 3,550 | 2,435 | ||||||||||||||||||
Amortization of acquired in place lease value and deferred leasing costs | 41,224 | 54,014 | 53,493 | 57,128 | 41,224 | 54,014 | ||||||||||||||||||
Amortization of acquired above market leases and acquired below market leases, net | (8,040 | ) | (9,689 | ) | (10,412 | ) | (8,317 | ) | (8,040 | ) | (9,689 | ) | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||
Restricted cash | 7,723 | (1,640 | ) | (12,716 | ) | (2,877 | ) | 7,723 | (1,640 | ) | ||||||||||||||
Accounts and other receivables | (16,173 | ) | 4,878 | 5,134 | (24,486 | ) | (16,173 | ) | 4,878 | |||||||||||||||
Deferred rent | (45,342 | ) | (36,006 | ) | (23,376 | ) | (45,467 | ) | (45,342 | ) | (36,006 | ) | ||||||||||||
Deferred leasing costs | (10,606 | ) | (10,776 | ) | (14,417 | ) | (5,884 | ) | (10,606 | ) | (10,776 | ) | ||||||||||||
Other assets | (4,936 | ) | 4,064 | (138 | ) | (1,892 | ) | (4,936 | ) | 4,064 | ||||||||||||||
Accounts payable and other accrued liabilities | 26,229 | (8,004 | ) | (19,129 | ) | 35,433 | 26,229 | (8,004 | ) | |||||||||||||||
Security deposits and prepaid rents | 20,821 | 16,007 | 7,390 | 14,505 | 20,821 | 16,007 | ||||||||||||||||||
Net cash provided by operating activities | 283,809 | 217,808 | 105,655 | 359,029 | 283,809 | 217,808 | ||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Acquisitions of properties | (137,996 | ) | (79,243 | ) | (359,849 | ) | (1,318,995 | ) | (137,996 | ) | (79,243 | ) | ||||||||||||
Purchase of prepaid ground lease | — | — | (1,192 | ) | ||||||||||||||||||||
Proceeds from sale of assets, net of sales costs | — | — | 78,191 | |||||||||||||||||||||
Investment in unconsolidated joint venture | (10,577 | ) | — | — | ||||||||||||||||||||
Deposits paid for acquisitions of properties | — | (760 | ) | (459 | ) | — | — | (760 | ) | |||||||||||||||
Receipt of value added tax refund | 14,095 | 20,241 | 6,800 | 5,402 | 14,095 | 20,241 | ||||||||||||||||||
Refundable value added tax paid | (5,208 | ) | (20,337 | ) | (11,059 | ) | (6,800 | ) | (5,208 | ) | (20,337 | ) | ||||||||||||
Change in restricted cash | 358 | (2,340 | ) | 427 | (17,216 | ) | 358 | (2,340 | ) | |||||||||||||||
Improvements to investments in real estate | (392,386 | ) | (545,223 | ) | (265,682 | ) | (389,741 | ) | (392,386 | ) | (545,223 | ) | ||||||||||||
Improvement advances to tenants | (2,964 | ) | (20,182 | ) | (27,256 | ) | (4,342 | ) | (2,964 | ) | (20,182 | ) | ||||||||||||
Collection of advances from tenants for improvements | 4,192 | 21,315 | 25,836 | 4,569 | 4,192 | 21,315 | ||||||||||||||||||
Return of investment in unconsolidated joint venture | — | — | 20,500 | |||||||||||||||||||||
Purchase of joint venture partners’ interests | — | (21,222 | ) | (3,684 | ) | — | — | (21,222 | ) | |||||||||||||||
Net cash used in investing activities | (519,909 | ) | (647,751 | ) | (537,427 | ) | (1,737,700 | ) | (519,909 | ) | (647,751 | ) | ||||||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(continued)
(in thousands)
Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Borrowings on revolving credit facility | $ | 574,563 | $ | 1,142,555 | $ | 612,472 | ||||||
Repayments on revolving credit facility | (506,732 | ) | (1,296,610 | ) | (463,980 | ) | ||||||
Borrowings on unsecured senior notes | 25,000 | 58,000 | — | |||||||||
Proceeds from mortgage loans | 121,994 | 174,900 | 121,288 | |||||||||
Principal payments on mortgage loans | (163,242 | ) | (26,719 | ) | (48,238 | ) | ||||||
Proceeds from 5.5% exchangeable senior debentures | 266,400 | — | — | |||||||||
Change in restricted cash | (421 | ) | (188 | ) | (869 | ) | ||||||
Payment of loan fees and costs | (12,377 | ) | (5,423 | ) | (5,536 | ) | ||||||
Capital distributions to noncontrolling interests in joint venture | — | (11,358 | ) | — | ||||||||
Capital contributions received from noncontrolling interests in joint venture | 17,231 | 17,598 | 2,056 | |||||||||
Gross proceeds from the sale of common stock | 83,750 | 220,915 | 158,545 | |||||||||
Gross proceeds from the sale of preferred stock | — | 334,650 | 175,000 | |||||||||
Common stock offering costs paid | (891 | ) | (9,304 | ) | (8,098 | ) | ||||||
Preferred stock offering costs paid | — | (1,027 | ) | (5,932 | ) | |||||||
Proceeds from exercise of stock options | 6,325 | 3,976 | 1,236 | |||||||||
Payment of dividends to preferred stockholders | (40,404 | ) | (38,564 | ) | (19,329 | ) | ||||||
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership | (109,784 | ) | (91,476 | ) | (77,752 | ) | ||||||
Purchase of noncontrolling interests | (26,326 | ) | — | — | ||||||||
Net cash provided by financing activities | 235,086 | 471,925 | 440,863 | |||||||||
Net (decrease) increase in cash and cash equivalents | (1,014 | ) | 41,982 | 9,091 | ||||||||
Cash and cash equivalents at beginning of period | 73,334 | 31,352 | 22,261 | |||||||||
Cash and cash equivalents at end of period | $ | 72,320 | $ | 73,334 | $ | 31,352 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest, including amounts capitalized | $ | 81,820 | $ | 72,339 | $ | 69,028 | ||||||
Cash paid for taxes | 785 | 1,099 | 604 | |||||||||
Supplementary disclosure of noncash investing and financing activities: | ||||||||||||
Change in net assets related to foreign currency translation adjustments | $ | 24,476 | $ | (48,391 | ) | $ | (129 | ) | ||||
Accrual of dividends and distributions | 37,004 | 26,092 | 22,345 | |||||||||
(Decrease) Increase in accounts payable and other accrued liabilities and other assets, respectively, related to increase in fair value of interest rate swaps | (5,419 | ) | (7,904 | ) | 1,872 | |||||||
Reclassification of owner’s equity to noncontrolling interest in the Operating Partnership | — | (22,491 | ) | (8,316 | ) | |||||||
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock | 7,632 | 20,360 | 71,152 | |||||||||
Non-cash allocation of investment in partnership to: | ||||||||||||
Land | 17,632 | 2,093 | 6,732 | |||||||||
Building | 15,924 | 1,607 | 6,325 | |||||||||
Accounts and other receivables | — | 46 | 38 | |||||||||
Other assets | — | 10 | — | |||||||||
Mortgage loans | (17,000 | ) | (2,836 | ) | (5,541 | ) | ||||||
Accounts payable and other accrued liabilities | — | — | (998 | ) | ||||||||
Change to noncontrolling interest in consolidated joint venture | (16,556 | ) | (920 | ) | (6,556 | ) | ||||||
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses | 57,292 | 103,277 | 97,512 |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Borrowings on revolving credit facility | $ | 795,483 | $ | 574,563 | $ | 1,142,555 | ||||||
Repayments on revolving credit facility | (668,232 | ) | (506,732 | ) | (1,296,610 | ) | ||||||
Borrowings on unsecured senior notes | 117,000 | 25,000 | 58,000 | |||||||||
Borrowings on 5.875% unsecured senior notes due 2020 | 491,480 | — | — | |||||||||
Borrowings on 4.5% unsecured senior notes due 2015 | 373,864 | — | — | |||||||||
Proceeds from mortgage loans | — | 121,994 | 174,900 | |||||||||
Principal payments on mortgage loans | (18,305 | ) | (163,242 | ) | (26,719 | ) | ||||||
Proceeds from 2029 exchangeable senior debentures | — | 266,400 | — | |||||||||
Principal repayments on 2026 exchangeable senior debentures | (250 | ) | — | — | ||||||||
Redemption of preferred stock | (166,750 | ) | — | — | ||||||||
Change in restricted cash | (804 | ) | (421 | ) | (188 | ) | ||||||
Payment of loan fees and costs | (13,125 | ) | (12,377 | ) | (5,423 | ) | ||||||
Capital distributions to noncontrolling interests in joint venture | — | — | (11,358 | ) | ||||||||
Capital contributions received from noncontrolling interests in joint venture | 16,967 | 17,231 | 17,598 | |||||||||
Gross proceeds from the sale of common stock | 613,854 | 83,750 | 220,915 | |||||||||
Gross proceeds from the sale of preferred stock | — | — | 334,650 | |||||||||
Common stock offering costs paid | (20,144 | ) | (891 | ) | (9,304 | ) | ||||||
Preferred stock offering costs paid | — | — | (1,027 | ) | ||||||||
Proceeds from exercise of stock options | 5,585 | 6,325 | 3,976 | |||||||||
Payment of dividends to preferred stockholders | (37,004 | ) | (40,404 | ) | (38,564 | ) | ||||||
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership | (171,549 | ) | (109,784 | ) | (91,476 | ) | ||||||
Purchase of noncontrolling interests | — | (26,326 | ) | — | ||||||||
Net cash provided by financing activities | 1,318,070 | 235,086 | 471,925 | |||||||||
Net (decrease) increase in cash and cash equivalents | (60,601 | ) | (1,014 | ) | 41,982 | |||||||
Cash and cash equivalents at beginning of period | 72,320 | 73,334 | 31,352 | |||||||||
Cash and cash equivalents at end of period | $ | 11,719 | $ | 72,320 | $ | 73,334 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest, including amounts capitalized | $ | 113,548 | $ | 81,820 | $ | 72,339 | ||||||
Cash paid for taxes | 1,079 | 785 | 1,099 | |||||||||
Supplementary disclosure of noncash investing and financing activities: | ||||||||||||
Change in net assets related to foreign currency translation adjustments | $ | (14,714 | ) | $ | 24,476 | $ | (48,391 | ) | ||||
Accrual of dividends and distributions | 51,210 | 37,004 | 26,092 | |||||||||
Increase in accounts payable and other accrued liabilities and decrease in other assets, respectively, related to change in fair value of interest rate swaps | (7,160 | ) | (5,419 | ) | (7,904 | ) | ||||||
Reallocation of owner’s equity to noncontrolling interest in the Operating Partnership | — | — | (22,491 | ) | ||||||||
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock | 8,234 | 7,632 | 20,360 | |||||||||
Non-cash allocation of investment in consolidated joint ventures to: | ||||||||||||
Land | 8,976 | 17,632 | 2,093 | |||||||||
Building | 18,155 | 15,924 | 1,607 | |||||||||
Accounts and other receivables | — | — | 46 | |||||||||
Other assets | — | — | 10 | |||||||||
Restricted cash | 2,160 | — | — | |||||||||
Mortgage loans | (13,375 | ) | (17,000 | ) | (2,836 | ) | ||||||
Other secured loans | (10,500 | ) | — | — | ||||||||
Noncontrolling interest in consolidated joint venture | (2,616 | ) | (16,556 | ) | (920 | ) | ||||||
Noncontrolling interest contribution to consolidated joint venture | 2,800 | — | — | |||||||||
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses | 89,049 | 57,292 | 103,277 | |||||||||
Accrual of contingent purchase price for investments in real estate | 2,295 | — | — | |||||||||
Issuance of common stock in exchange of 2026 exchangeable senior debentures, net | 83,963 | — | — |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(continued)
(in thousands)
Year Ended December 31, | ||||||||||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | 2010 | 2009 | 2008 | |||||||||||||||||||
Allocation of purchase price of properties/investment in partnership to: | ||||||||||||||||||||||||
Investments in real estate | 180,110 | 78,516 | 329,999 | 1,202,407 | 180,110 | 78,516 | ||||||||||||||||||
Accounts and other receivables | — | — | 3,486 | |||||||||||||||||||||
Other assets | 2 | — | 952 | — | 2 | — | ||||||||||||||||||
Acquired above market leases | 100 | 440 | 335 | 25,339 | 100 | 440 | ||||||||||||||||||
Acquired below market leases | (5,859 | ) | (3,104 | ) | (22,214 | ) | (43,869 | ) | (5,859 | ) | (3,104 | ) | ||||||||||||
Acquired in place lease value and deferred leasing costs | 15,712 | 3,493 | 50,876 | 139,252 | 15,712 | 3,493 | ||||||||||||||||||
Mortgage loan assumed, net of discount | (51,985 | ) | — | — | — | (51,985 | ) | — | ||||||||||||||||
Accounts payable and other accrued liabilities | — | (38 | ) | (2,146 | ) | — | — | (38 | ) | |||||||||||||||
Security deposits and prepaid rents | (84 | ) | (64 | ) | (247 | ) | ||||||||||||||||||
Security Deposits | (4,134 | ) | (84 | ) | (64 | ) | ||||||||||||||||||
Cash paid for acquisition of properties | $ | 137,996 | $ | 79,243 | $ | 361,041 | $ | 1,318,995 | $ | 137,996 | $ | 79,243 | ||||||||||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit data)
December 31, 2010 | December 31, 2009 | |||||||
ASSETS | ||||||||
Investments in real estate: | ||||||||
Properties: | ||||||||
Land | $ | 478,629 | $ | 382,763 | ||||
Acquired ground leases | 6,374 | 2,767 | ||||||
Buildings and improvements | 4,459,047 | 2,952,330 | ||||||
Tenant improvements | 283,492 | 272,462 | ||||||
Total investments in properties | 5,227,542 | 3,610,322 | ||||||
Accumulated depreciation and amortization | (660,700 | ) | (459,521 | ) | ||||
Net investments in properties | 4,566,842 | 3,150,801 | ||||||
Investment in unconsolidated joint ventures | 17,635 | 6,392 | ||||||
Net investments in real estate | 4,584,477 | 3,157,193 | ||||||
Cash and cash equivalents | 11,719 | 72,320 | ||||||
Accounts and other receivables, net of allowance for doubtful accounts of $3,250 and $2,691 as of December 31, 2010 and December 31, 2009, respectively | 70,337 | 46,086 | ||||||
Deferred rent | 190,067 | 145,550 | ||||||
Acquired above market leases, net of accumulated amortization of $47,083 and $36,896 as of December 31, 2010 and December 31, 2009, respectively | 40,539 | 25,861 | ||||||
Acquired in place lease value and deferred leasing costs, net of accumulated amortization of $285,438 and $229,852 as of December 31, 2010 and December 31, 2009, respectively | 334,366 | 224,216 | ||||||
Deferred financing costs, net of accumulated amortization of $28,936 and $20,934 as of December 31, 2010 and December 31, 2009, respectively | 22,825 | 21,073 | ||||||
Restricted cash | 60,062 | 37,810 | ||||||
Other assets | 15,091 | 14,950 | ||||||
Total assets | $ | 5,329,483 | $ | 3,745,059 | ||||
LIABILITIES AND CAPITAL | ||||||||
Revolving credit facility | $ | 333,534 | $ | 205,547 | ||||
Unsecured senior notes, net of discount | 1,066,030 | 83,000 | ||||||
Exchangeable senior debentures, net of discount | 353,702 | 432,234 | ||||||
Mortgage loans, net of premiums | 1,043,188 | 1,063,663 | ||||||
Other secured loans | 10,500 | — | ||||||
Accounts payable and other accrued liabilities | 237,631 | 151,229 | ||||||
Accrued dividends and distributions | 51,210 | 37,004 | ||||||
Acquired below market leases, net of accumulated amortization of $96,740 and $78,627 as of December 31, 2010 and December 31, 2009, respectively | 93,250 | 69,311 | ||||||
Security deposits and prepaid rents | 85,775 | 68,270 | ||||||
Total liabilities | 3,274,820 | 2,110,258 |
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except unit and per unit data)
December 31, 2010 | December 31, 2009 | |||||||
Commitments and contingencies | ||||||||
Capital: | ||||||||
Partners’ capital: | ||||||||
General Partner: | ||||||||
Cumulative Redeemable preferred units issued and outstanding, 6,999,955 Series C Cumulative Convertible preferred units issued and outstanding, 13,787,300 and 13,795,500 Series D Cumulative Convertible preferred units issued and outstanding as of December 31, 2010 and 2009, respectively, all with a $25.00 liquidation preference per preferred unit (liquidation preference of $519,681 and $686,636, respectively) | 502,341 | 662,338 | ||||||
91,159,221 and 76,812,783 common units issued and outstanding, respectively | 1,502,258 | 924,604 | ||||||
Limited partners, 3,937,827 and 4,360,549 common units, 982,618 and 842,096 profits interest units and 543,004 and 216,452 class C units outstanding as of December 31, 2010 and 2009, respectively | 56,215 | 60,875 | ||||||
Accumulated other comprehensive loss | (45,860 | ) | (30,630 | ) | ||||
Total partners’ capital | 2,014,954 | 1,617,187 | ||||||
Noncontrolling interests in consolidated joint ventures | 39,709 | 17,614 | ||||||
Total capital | 2,054,663 | 1,634,801 | ||||||
Total liabilities and capital | $ | 5,329,483 | $ | 3,745,059 | ||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands, except unit and per unit data)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Operating Revenues: | ||||||||||||
Rental | $ | 686,949 | $ | 510,944 | $ | 405,308 | ||||||
Tenant reimbursements | 178,081 | 125,136 | 106,754 | |||||||||
Other | 371 | 1,062 | 15,383 | |||||||||
Total operating revenues | 865,401 | 637,142 | 527,445 | |||||||||
Operating Expenses: | ||||||||||||
Rental property operating and maintenance | 251,767 | 176,238 | 151,147 | |||||||||
Property taxes | 44,432 | 36,004 | 31,102 | |||||||||
Insurance | 8,133 | 6,111 | 4,988 | |||||||||
Depreciation and amortization | 263,903 | 198,052 | 172,378 | |||||||||
General and administrative | 47,196 | 39,988 | 37,652 | |||||||||
Transactions | 7,438 | 2,177 | 739 | |||||||||
Other | 226 | 783 | 1,084 | |||||||||
Total operating expenses | 623,095 | 459,353 | 399,090 | |||||||||
Operating income | 242,306 | 177,789 | 128,355 | |||||||||
Other Income (Expenses): | ||||||||||||
Equity in earnings of unconsolidated joint venture | 5,254 | 2,172 | 2,369 | |||||||||
Interest and other income | 616 | 753 | 2,106 | |||||||||
Interest expense | (137,384 | ) | (88,442 | ) | (63,621 | ) | ||||||
Tax expense | (1,851 | ) | (1,038 | ) | (1,109 | ) | ||||||
Loss from early extinguishment of debt | (3,529 | ) | — | (182 | ) | |||||||
Net income | 105,412 | 91,234 | 67,918 | |||||||||
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures | 288 | (140 | ) | (335 | ) | |||||||
Net income attributable to Digital Realty Trust, L.P. | 105,700 | 91,094 | 67,583 | |||||||||
Preferred units distributions | (37,004 | ) | (40,404 | ) | (38,564 | ) | ||||||
Costs on redemption of preferred units | (6,951 | ) | — | — | ||||||||
Net income available to common unitholders | $ | 61,745 | $ | 50,690 | $ | 29,019 | ||||||
Net income per unit available to common unitholders: | ||||||||||||
Basic | $ | 0.69 | $ | 0.62 | $ | 0.39 | ||||||
Diluted | $ | 0.68 | $ | 0.61 | $ | 0.38 | ||||||
Weighted average common units outstanding: | ||||||||||||
Basic | 89,261,172 | 81,715,226 | 75,160,263 | |||||||||
Diluted | 90,999,145 | 82,785,746 | 76,766,756 |
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL AND COMPREHENSIVE INCOME
(in thousands, except unit data)
General Partner | Limited Partners | Accumulated Other Comprehensive Loss | Noncontrolling Interests in Consolidated Joint Ventures | Total Capital | ||||||||||||||||||||||||||||||||
Preferred Units | Common Units | Common Units | ||||||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||
Balance as of December 31, 2007 | 13,670,000 | $ | 328,867 | 65,406,240 | $ | 724,921 | 6,675,794 | $ | 74,356 | $ | 3,358 | $ | 4,928 | $ | 1,136,430 | |||||||||||||||||||||
Conversion of limited partner common units to general partner common units | — | — | 1,825,157 | 20,360 | (1,825,157 | ) | (20,360 | ) | — | — | — | |||||||||||||||||||||||||
Issuance of restricted common units, net of forfeitures | — | — | 116,603 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Net proceeds from issuance of common units | — | — | 5,750,000 | 211,611 | — | — | — | — | 211,611 | |||||||||||||||||||||||||||
Issuance of series D preferred units, net of offering costs | 13,800,000 | 333,581 | — | — | — | — | — | — | 333,581 | |||||||||||||||||||||||||||
Issuance of common units in connection with the exercise of stock options | — | — | 208,703 | 4,205 | — | — | — | — | 4,205 | |||||||||||||||||||||||||||
Issuance of common units, net of forfeitures | — | — | — | — | 968,493 | — | — | — | — | |||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | 9,805 | — | — | — | — | 9,805 | |||||||||||||||||||||||||||
Distributions | — | (38,564 | ) | — | (87,447 | ) | — | (7,775 | ) | — | — | (133,786 | ) | |||||||||||||||||||||||
Reallocation of interests | — | — | — | (22,491 | ) | — | 22,491 | — | — | — | ||||||||||||||||||||||||||
Acquisition of consolidated joint venture noncontrolling interest | — | — | — | — | — | — | — | 1,887 | 1,887 | |||||||||||||||||||||||||||
Contributions from noncontrolling interests in consolidated joint venture | — | — | — | — | — | — | — | 16,452 | 16,452 | |||||||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated joint venture | — | — | — | — | — | — | — | (8,276 | ) | (8,276 | ) | |||||||||||||||||||||||||
Adjustments due to purchase of noncontrolling interests | — | — | — | 3,322 | — | — | — | (10,968 | ) | (7,646 | ) | |||||||||||||||||||||||||
Net income | — | 38,564 | — | 26,690 | — | 2,329 | — | 335 | 67,918 | |||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | — | (48,391 | ) | — | (48,391 | ) | |||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | — | (7,904 | ) | — | (7,904 | ) | |||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | (810 | ) | — | (810 | ) | |||||||||||||||||||||||||
Comprehensive income | 10,813 | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | 27,470,000 | $ | 662,448 | 73,306,703 | $ | 890,976 | 5,819,130 | $ | 71,041 | $ | (53,747 | ) | $ | 4,358 | $ | 1,575,076 | ||||||||||||||||||||
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL AND COMPREHENSIVE INCOME (continued)
(in thousands, except unit data)
General Partner | Limited Partners | Accumulated Other Comprehensive Loss | Noncontrolling Interests in Consolidated Joint Ventures | Total Capital | ||||||||||||||||||||||||||||||||
Preferred Units | Common Units | Common Units | ||||||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||
Conversion of limited partner common units to general partner common units | — | — | 650,511 | 7,632 | (650,511 | ) | (7,632 | ) | — | — | — | |||||||||||||||||||||||||
Issuance of restricted common units, net of forfeitures | — | — | 103,700 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Net proceeds from issuance of common units | — | — | 2,500,000 | 82,859 | — | — | — | — | 82,859 | |||||||||||||||||||||||||||
Issuance of common units in connection with the exercise of stock options | — | — | 249,167 | 6,325 | — | — | — | — | 6,325 | |||||||||||||||||||||||||||
Issuance of common units, net of forfeitures | — | — | — | — | 250,478 | — | — | — | — | |||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | 9,829 | — | — | — | — | 9,829 | |||||||||||||||||||||||||||
Conversion of series D preferred units | (4,545 | ) | (110 | ) | 2,702 | 110 | — | — | — | — | — | |||||||||||||||||||||||||
Distributions | — | (40,404 | ) | — | (112,266 | ) | — | (8,430 | ) | — | — | (161,100 | ) | |||||||||||||||||||||||
Reclassification of vested share based awards | — | — | — | (2,464 | ) | — | 2,464 | — | — | — | ||||||||||||||||||||||||||
Contributions from noncontrolling interest in consolidated joint venture | — | — | — | — | — | — | — | 33,787 | 33,787 | |||||||||||||||||||||||||||
Adjustments due to purchase of noncontrolling interests in consolidated joint venture | — | — | — | (5,655 | ) | — | — | — | (20,671 | ) | (26,326 | ) | ||||||||||||||||||||||||
Net income | — | 40,404 | — | 47,258 | — | 3,432 | — | 140 | 91,234 | |||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | — | 24,476 | — | 24,476 | |||||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | — | (5,419 | ) | — | (5,419 | ) | |||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | 4,060 | — | 4,060 | |||||||||||||||||||||||||||
Comprehensive income | 114,351 | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2009 | 27,465,455 | $ | 662,338 | 76,812,783 | $ | 924,604 | 5,419,097 | $ | 60,875 | $ | (30,630 | ) | $ | 17,614 | $ | 1,634,801 | ||||||||||||||||||||
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL AND COMPREHENSIVE INCOME (continued)
(in thousands, except unit data)
General Partner | Limited Partners | Accumulated Other Comprehensive Loss | Noncontrolling Interests in Consolidated Joint Ventures | Total Capital | ||||||||||||||||||||||||||||||||
Preferred Units | Common Units | Common Units | ||||||||||||||||||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||
Conversion of limited partner common units to general partner common units | — | — | 770,988 | 8,234 | (770,988 | ) | (8,234 | ) | — | — | — | |||||||||||||||||||||||||
Issuance of restricted common units, net of forfeitures | — | — | 67,253 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Net proceeds from issuance of common units | — | — | 10,723,108 | 593,710 | — | — | — | — | 593,710 | |||||||||||||||||||||||||||
Issuance of common units in connection with the exercise of stock options | — | — | 148,099 | 5,585 | — | — | — | — | 5,585 | |||||||||||||||||||||||||||
Issuance of common units, net of forfeitures | �� | — | — | — | — | 815,340 | — | — | — | — | ||||||||||||||||||||||||||
Amortization of unearned compensation regarding share based awards | — | — | — | 13,548 | — | — | — | — | 13,548 | |||||||||||||||||||||||||||
Issuance of common units in exchange for debentures | — | — | 2,632,054 | 83,963 | — | — | — | — | 83,963 | |||||||||||||||||||||||||||
Conversion of series D preferred units | (8,200 | ) | (198 | ) | 4,936 | 198 | — | — | — | — | — | |||||||||||||||||||||||||
Redemption of preferred units | (6,670,000 | ) | (159,799 | ) | — | (6,951 | ) | — | — | — | — | (166,750 | ) | |||||||||||||||||||||||
Distributions | — | (37,004 | ) | — | (174,616 | ) | — | (11,139 | ) | — | — | (222,759 | ) | |||||||||||||||||||||||
Reclassification of vested share based awards | — | — | — | (11,307 | ) | — | 11,307 | — | — | — | ||||||||||||||||||||||||||
Contributions from noncontrolling interest in consolidated joint ventures | — | — | — | — | — | — | — | 22,383 | 22,383 | |||||||||||||||||||||||||||
Net income | — | 37,004 | — | 65,290 | — | 3,406 | — | (288 | ) | 105,412 | ||||||||||||||||||||||||||
Other comprehensive loss—foreign currency translation adjustments | — | — | — | — | — | — | (14,714 | ) | — | (14,714 | ) | |||||||||||||||||||||||||
Other comprehensive loss—fair value of interest rate swaps | — | — | — | — | — | — | (7,160 | ) | — | (7,160 | ) | |||||||||||||||||||||||||
Other comprehensive income—reclassification of other comprehensive income to interest expense | — | — | — | — | — | — | 6,644 | — | 6,644 | |||||||||||||||||||||||||||
Comprehensive income | 90,182 | |||||||||||||||||||||||||||||||||||
Balance as of December 31, 2010 | 20,787,255 | $ | 502,341 | 91,159,221 | $ | 1,502,258 | 5,463,449 | $ | 56,215 | $ | (45,860 | ) | $ | 39,709 | $ | 2,054,663 | ||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 105,412 | $ | 91,234 | $ | 67,918 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||
Loss on early extinguishment of debt-non cash portion | 2,164 | — | — | |||||||||
Equity in earnings of unconsolidated joint venture | (5,254 | ) | (2,172 | ) | (2,369 | ) | ||||||
Distributions from unconsolidated joint venture | 4,500 | 4,350 | 3,019 | |||||||||
Write-off of net assets due to early lease terminations | 227 | 783 | 1,085 | |||||||||
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases | 206,775 | 156,828 | 118,364 | |||||||||
Amortization of share-based unearned compensation | 11,362 | 9,829 | 9,805 | |||||||||
Allowance for (recovery of) doubtful accounts | 558 | 582 | (1,058 | ) | ||||||||
Amortization of deferred financing costs | 10,460 | 7,925 | 5,579 | |||||||||
Write-off of deferred financing costs, included in net loss on early extinguishment of debt | 635 | — | 182 | |||||||||
Amortization of debt discount/premium | 4,047 | 3,550 | 2,435 | |||||||||
Amortization of acquired in place lease value and deferred leasing costs | 57,128 | 41,224 | 54,014 | |||||||||
Amortization of acquired above market leases and acquired below market leases, net | (8,317 | ) | (8,040 | ) | (9,689 | ) | ||||||
Changes in assets and liabilities: | ||||||||||||
Restricted cash | (2,877 | ) | 7,723 | (1,640 | ) | |||||||
Accounts and other receivables | (24,486 | ) | (16,173 | ) | 4,878 | |||||||
Deferred rent | (45,467 | ) | (45,342 | ) | (36,006 | ) | ||||||
Deferred leasing costs | (5,884 | ) | (10,606 | ) | (10,776 | ) | ||||||
Other assets | (1,892 | ) | (4,936 | ) | 4,064 | |||||||
Accounts payable and other accrued liabilities | 35,433 | 26,229 | (8,004 | ) | ||||||||
Security deposits and prepaid rents | 14,505 | 20,821 | 16,007 | |||||||||
Net cash provided by operating activities | 359,029 | 283,809 | 217,808 | |||||||||
Cash flows from investing activities: | ||||||||||||
Acquisitions of properties | (1,318,995 | ) | (137,996 | ) | (79,243 | ) | ||||||
Investment in unconsolidated joint venture | (10,577 | ) | — | — | ||||||||
Deposits paid for acquisitions of properties | — | — | (760 | ) | ||||||||
Receipt of value added tax refund | 5,402 | 14,095 | 20,241 | |||||||||
Refundable value added tax paid | (6,800 | ) | (5,208 | ) | (20,337 | ) | ||||||
Change in restricted cash | (17,216 | ) | 358 | (2,340 | ) | |||||||
Improvements to investments in real estate | (389,741 | ) | (392,386 | ) | (545,223 | ) | ||||||
Improvement advances to tenants | (4,342 | ) | (2,964 | ) | (20,182 | ) | ||||||
Collection of advances from tenants for improvements | 4,569 | 4,192 | 21,315 | |||||||||
Purchase of joint venture partners’ interests | — | — | (21,222 | ) | ||||||||
Net cash used in investing activities | (1,737,700 | ) | (519,909 | ) | (647,751 | ) | ||||||
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Borrowings on revolving credit facility | $ | 795,483 | $ | 574,563 | $ | 1,142,555 | ||||||
Repayments on revolving credit facility | (668,232 | ) | (506,732 | ) | (1,296,610 | ) | ||||||
Borrowings on unsecured senior notes | 117,000 | 25,000 | 58,000 | |||||||||
Borrowings on 5.875% unsecured senior notes due 2020 | 491,480 | — | — | |||||||||
Borrowings on 4.5% unsecured senior notes due 2015 | 373,864 | — | — | |||||||||
Proceeds from mortgage loans | — | 121,994 | 174,900 | |||||||||
Principal payments on mortgage loans | (18,305 | ) | (163,242 | ) | (26,719 | ) | ||||||
Proceeds from 2029 exchangeable senior debentures | — | 266,400 | — | |||||||||
Principal repayments on 2026 exchangeable senior debentures | (250 | ) | — | — | ||||||||
Redemption of preferred stock | (166,750 | ) | — | — | ||||||||
Change in restricted cash | (804 | ) | (421 | ) | (188 | ) | ||||||
Payment of loan fees and costs | (13,125 | ) | (12,377 | ) | (5,423 | ) | ||||||
Capital distributions to noncontrolling interests in joint venture | — | — | (11,358 | ) | ||||||||
Capital contributions received from noncontrolling interests in joint venture | 16,967 | 17,231 | 17,598 | |||||||||
General partner contributions | 599,295 | 89,184 | 549,210 | |||||||||
Payment of distributions to preferred unitholders | (37,004 | ) | (40,404 | ) | (38,564 | ) | ||||||
Payment of distributions to common unitholders | (171,549 | ) | (109,784 | ) | (91,476 | ) | ||||||
Purchase of noncontrolling interests | — | (26,326 | ) | — | ||||||||
Net cash provided by financing activities | 1,318,070 | 235,086 | 471,925 | |||||||||
Net (decrease) increase in cash and cash equivalents | (60,601 | ) | (1,014 | ) | 41,982 | |||||||
Cash and cash equivalents at beginning of period | 72,320 | 73,334 | 31,352 | |||||||||
Cash and cash equivalents at end of period | $ | 11,719 | $ | 72,320 | $ | 73,334 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest, including amounts capitalized | $ | 113,548 | $ | 81,820 | $ | 72,339 | ||||||
Cash paid for taxes | 1,079 | 785 | 1,099 | |||||||||
Supplementary disclosure of noncash investing and financing activities: | ||||||||||||
Change in net assets related to foreign currency translation adjustments | $ | (14,714 | ) | $ | 24,476 | $ | (48,391 | ) | ||||
Accrual of dividends and distributions | 51,210 | 37,004 | 26,092 | |||||||||
Increase in accounts payable and other accrued liabilities and decrease in other assets, respectively, related to change in fair value of interest rate swaps | (7,160 | ) | (5,419 | ) | (7,904 | ) | ||||||
Reallocation of general partner interests to limited partner interests | — | — | �� | (22,491 | ) | |||||||
Conversion of limited partner common units to general partner common units | 8,234 | 7,632 | 20,360 |
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Non-cash allocation of investment in consolidated joint ventures to: | ||||||||||||
Land | 8,976 | 17,632 | 2,093 | |||||||||
Building | 18,155 | 15,924 | 1,607 | |||||||||
Accounts and other receivables | — | — | 46 | |||||||||
Other assets | — | — | 10 | |||||||||
Restricted cash | 2,160 | — | — | |||||||||
Mortgage loans | (13,375 | ) | (17,000 | ) | (2,836 | ) | ||||||
Other secured loans | (10,500 | ) | — | |||||||||
Noncontrolling interest in consolidated joint venture | (2,616 | ) | (16,556 | ) | (920 | ) | ||||||
Noncontrolling interest contribution to consolidated joint venture | 2,800 | — | — | |||||||||
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses | 89,049 | 57,292 | 103,277 | |||||||||
Accrual of contingent purchase price for investments in real estate | 2,295 | — | — | |||||||||
Issuance of common stock in exchange of 2026 exchangeable senior debentures, net | 83,963 | — | — | |||||||||
Allocation of purchase price of properties/investment in partnership to: | ||||||||||||
Investments in real estate | 1,202,407 | 180,110 | 78,516 | |||||||||
Other assets | — | 2 | — | |||||||||
Acquired above market leases | 25,339 | 100 | 440 | |||||||||
Acquired below market leases | (43,869 | ) | (5,859 | ) | (3,104 | ) | ||||||
Acquired in place lease value and deferred leasing costs | 139,252 | 15,712 | 3,493 | |||||||||
Mortgage loan assumed, net of discount | — | (51,985 | ) | — | ||||||||
Accounts payable and other accrued liabilities | — | — | (38 | ) | ||||||||
Security Deposits | (4,134 | ) | (84 | ) | (64 | ) | ||||||
Cash paid for acquisition of properties | $ | 1,318,995 | $ | 137,996 | $ | 79,243 | ||||||
See accompanying notes to the consolidated financial statements.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
1. Organization and Description of Business
Digital Realty Trust, Inc. through its controlling interest in Digital Realty Trust, L.P. (the Operating Partnership) and the subsidiaries of the Operating Partnership (collectively, we, our, us or the Company) is engaged in the business of owning, acquiring, developing, redeveloping and managing technology-related real estate. The Company is focused on providing Turn-Key Datacenter® and Powered Base Building® datacenter solutions for domestic and international tenants across a variety of industry verticals ranging from information technology and Internet enterprises, to manufacturing and financial services. As of December 31, 2009,2010, our portfolio consisted of 8196 properties, excluding one propertytwo properties held as an investmentinvestments in an unconsolidated joint venture,ventures, of which 6881 are located throughout North America, and 1314 are located in Europe.Europe and one is located in Asia. Our properties are diversified in major markets where corporate datacenter and technology tenants are concentrated, including the Boston, Chicago, Dallas, Los Angeles, New York/New Jersey,York Metro, Northern Virginia, Phoenix, San Francisco and Silicon Valley metropolitan areas in the U.S. and, the Amsterdam, Dublin, London and Paris markets in Europe.Europe and Singapore in Asia. The portfolio consists of Internet gateway and corporate datacenter properties, technology manufacturing properties and regional or national headquarters of technology companies.
The Operating Partnership was formed on July 21, 2004 in anticipation of our initial public offering (IPO) on November 3, 2004 and commenced operations on that date. As of December 31, 2009,2010, we own a 93.4%94.3% common interest and a 100% preferred interest in the Operating Partnership. As sole general partner, we have control over the Operating Partnership. The limited partners of the Operating Partnership do not have rights to replace us as the general partner nor do they have participating rights, although they do have certain protective rights.
We continue to operate and expand the business of our predecessor (the Predecessor). The Predecessor is not a legal entity; rather it is a combination of certain of the real estate subsidiaries of Global Innovation Partners LLC, or GI Partners, contributed to us in connection with the IPO, along with an allocation of certain assets, liabilities, revenues and expenses of GI Partners related to the real estate owned by such subsidiaries.
Pursuant to a contribution agreement among GI Partners, the owner of the Predecessor, and the Operating Partnership, certain of GI Partners’ properties were contributed to the Operating Partnership in exchange for limited partnership interests in the Operating Partnership (Units) and the assumption of debt and other specified liabilities. Additionally, pursuant to contribution agreements between the Operating Partnership and third parties, which were also executed in July 2004, the Operating Partnership received contributions of interests in certain additional real estate properties in exchange for Units and the assumption of specified liabilities.
We have operated in a manner that we believe has enabled us to qualify to be treated, as a Real Estate Investment Trust (REIT) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code).
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include all of the accounts of Digital Realty Trust, Inc., the Operating Partnership and the subsidiaries of the Operating Partnership. Intercompany balances and transactions have been eliminated.
The notes to the consolidated financial statements of Digital Realty Trust, Inc. and the Operating Partnership have been combined to provide the following benefits:
enhancing investors’ understanding of the Company and the Operating Partnership 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 Company and the Operating Partnership; and
creating time and cost efficiencies through the preparation of one set of footnotes instead of two separate sets of notes.
There are few differences between the Company and the Operating Partnership, which are reflected in these consolidated financial statements. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how Digital Realty Trust, Inc. and the Operating Partnership operate as an interrelated consolidated company. Digital Realty Trust, Inc.’s only material asset is its ownership of partnership interests of the Operating Partnership. As a result, Digital Realty Trust, Inc. does not conduct
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain unsecured debt of the Operating Partnership. Digital Realty Trust, Inc. itself does not hold any indebtedness but guarantees some of the unsecured debt of the Operating Partnership, as disclosed in these footnotes. The Operating Partnership holds substantially all the assets of the Company and holds the ownership interests in the Company’s joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by Digital Realty Trust, Inc., which are generally contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.
The presentation of noncontrolling interests in operating partnership, stockholder’s equity and partners’ capital are the main areas of difference between the consolidated financial statements of Digital Realty Trust, Inc. and those of the Operating Partnership. The common limited partnership interests held by the limited partners in the Operating Partnership are presented as limited partners’ capital within partners’ capital in the Operating Partnership’s consolidated financial statements and as noncontrolling interests in operating partnership within equity in Digital Realty Trust, Inc.’s consolidated financial statements. The common and preferred partnership interests held by Digital Realty Trust, Inc. in the Operating Partnership are presented as general partner’s capital within partners’ capital in the Operating Partnership’s consolidated financial statements and as preferred stock, common stock, additional paid-in capital and accumulated dividends in excess of earnings within stockholders’ equity in Digital Realty Trust, Inc.’s consolidated financial statements. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity issued at the Digital Realty Trust, Inc. and the Operating Partnership levels.
To help investors understand the significant differences between the Company and the Operating Partnership, these financial statements present the following separate sections for each of the Company and the Operating Partnership:
consolidated face financial statements; and
the following notes to the consolidated financial statements:
Debt;
Equity of the Company and Capital of the Operating Partnership;
Income per Share and Income per Unit; and
Quarterly Financial Information.
In the sections that combine disclosure of Digital Realty Trust, Inc. and the Operating Partnership, these notes refer to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.
(b) Cash Equivalents
For the purpose of the consolidated statements of cash flows, we consider short-term investments with original maturities of 90 days or less to be cash equivalents. As of December 31, 20092010 and 2008,2009, cash equivalents consist of investments in money market instruments.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(c) Investments in Real Estate
Investments in real estate are stated at cost, less accumulated depreciation and amortization. Land is not depreciated. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:
Acquired ground leases | Terms of the related lease | |
Buildings and improvements | 5-39 years | |
Tenant improvements | Shorter of the estimated useful lives or the terms of the related leases |
Improvements and replacements are capitalized when they extend the useful life, increase capacity, or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.
(d) Investment in Unconsolidated Joint VentureVentures
The Company’s investment in unconsolidated joint ventureventures is accounted for using the equity method, whereby the investment is increased for capital contributed and our share of the joint venture’s net income and decreased by distributions we receive and our share of any losses of the joint venture.ventures.
(e) Impairment of Long-Lived Assets
We assess whether there has been impairment in the valuereview each of our long-lived assets whenever events or changes in circumstances indicate theproperties for indicators that its carrying amount of an asset may not be recoverable. RecoverabilityExamples of assets to be held andsuch indicators may include a significant decrease in the market price, a significant adverse change in the extent or manner the property is being used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest,in its physical condition or expected to be generated byused based on the asset. If such assets are considered to be impaired,underwriting at the impairment to be recognized is measured bytime of acquisition, an accumulation of costs significantly in excess of the amount by whichoriginally expected for the acquisition or development, or a history of operating or cash flow losses. When such impairment indictors exist, we review an estimate of the future cash flows (undiscounted and without interest) expected to result from the real estate investment’s use and eventual disposition and compare to the carrying amountvalue of the assetsproperty. We consider factors such as future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If our undiscounted net cash flow evaluation indicates that we are be unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the assets. Assetsproperty. If we determine that the asset fails the recoverability test, the affected assets are written down to be disposed of are reported at the lower of the carrying amount ortheir fair value, less costs to sell.value. Management believes no impairment in the net carrying value of the investments in real estate has occurred.
(f) Purchase Accounting for Acquisition of Investments in Real Estate
Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties. In accordance with current accounting guidance,the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, value of tenant relationships and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above market rate loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.
The fair values of the tangible assets of an acquired property are determined based on comparable land sales for land and replacement costs adjusted for physical and market obsolescence for the improvements. The fair values of the
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
tangible assets of an acquired property are also determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methodsbased on assumptions that a market participant would use, which is similar to thosemethods used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate ofestimated fair market lease rates from the perspective of a market participant for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease and, for below-market leases, over a period equal to the initial term plus any below market fixed rate renewal periods. The leases do not currently include any below market fixed rate renewal periods. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values, also referred to as acquired lease obligations, are amortized as an increase to rental income over the initial terms of the respective leases and any below market fixed rate renewal periods.
In addition to the intangible value for above market leases and the intangible negative value for below market leases, there is intangible value related to having tenants leasing space in the purchased property, which is referred to as in-place lease value and tenant relationship value. Such value results primarily from the buyer of a leased property avoiding the costs associated with leasing the property and also avoiding rent losses and unreimbursed operating expenses during the lease up period. The estimated avoided costs and avoided revenue losses are calculated and this aggregate value is allocated between in-place lease value and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value for our real estate because such value and its consequence to amortization expense is immaterial for these particular acquisitions. The value of in-place leases exclusive of the value of above-market in-place leases is amortized to expense over the remaining non-cancelable periodsestimated term (including renewal and extension assumptions) of the respective leases. If a lease were to be terminated prior to its stated expiration,estimated term, all unamortized amounts relating to that lease would be written off.
The fair value of intangible assets and liabilities acquired during the years ended December 31, 2009 and 2008 were as follows (in thousands):
2009 | 2008 | |||||||
Acquired in place lease value | $ | 15,712 | $ | 3,493 | ||||
Acquired above market lease value | 100 | 440 | ||||||
Acquired below market lease value | (5,859 | ) | (3,104 | ) |
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The estimated future amortization of intangible assets and liabilities (assuming no early termination of leases acquired) at December 31, 2009 is as follows (in thousands):
Acquired in place lease value | Acquired above market lease value | Acquired below market lease value | ||||||||
2010 | $ | 32,987 | $ | 5,365 | $ | (13,229 | ) | |||
2011 | 26,331 | 4,215 | (11,838 | ) | ||||||
2012 | 21,999 | 3,665 | (8,225 | ) | ||||||
2013 | 21,255 | 3,582 | (8,122 | ) | ||||||
2014 | 18,438 | 3,482 | (7,157 | ) | ||||||
Thereafter | 41,296 | 5,552 | (20,740 | ) | ||||||
$ | 162,306 | $ | 25,861 | $ | (69,311 | ) | ||||
On January 1, 2009, we adopted new accounting guidance for the accounting for business combinations. The accounting guidance provides for recognizing and measuring assets acquired and liabilities assumed in an acquisition at fair value. This accounting guidance also requires that transaction costs in an acquisition be expensed as incurred. The guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption did not have a material impact on our consolidated financial statements for the year ended December 31, 2009. In April 2009, the FASB issued revised guidance for recognizing and measuring pre-acquisition contingencies in a business combination. Under the revised guidance, pre-acquisition contingencies are recognized at their acquisition-date fair value if a fair value can be determined during the measurement period. If the acquisition-date fair value cannot be determined during the measurement period, a contingency (best estimate) is to be recognized if it is probable that an asset existed or liability had been incurred at the acquisition date and the amount can be reasonably estimated. The revised guidance does not prescribe specific accounting for subsequent measurement and accounting for contingencies. The revised guidance is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We expect the revised guidance will have an impact on our consolidated financial statements, but the nature and magnitude of the specific effects will depend upon the nature, term and size of the acquired contingencies.
(g) Capitalization of costsCosts
We capitalize direct and indirect costs related to construction and development, including property taxes, insurance and financing costs relating to space under development. Interest capitalized during the years ended
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
December 31, 2010 and 2009 and 2008 was $9.2$10.2 million and $18.4$9.2 million, respectively. We capitalized amounts relating to compensation expense of employees directly engaged indirect and incremental to construction and successful leasing activities of $13.9$18.0 million and $10.6$13.9 million for the years ended December 31, 20092010 and 2008,2009, respectively.
(h) Deferred Leasing Costs
Deferred leasing commissions and other direct and indirect costs associated with the acquisition of tenants are capitalized and amortized on a straight line basis over the terms of the related leases.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(i) Foreign Currency Translation
Assets and liabilities of the subsidiaries outside the United States with non-U.S. dollar functional currencies are translated into U.S. dollars using exchange rates as of the balance sheet dates. Income and expenses are translated using the average exchange rates for the reporting period. TranslationForeign currency translation adjustments are recorded as a component of accumulated other comprehensive income.
(j) Deferred Financing Costs
Loan fees and costs are capitalized and amortized over the life of the related loans on a straight-line basis, which approximates the effective interest method. Such amortization is included as a component of interest expense.
(k) Restricted Cash
Restricted cash consists of deposits for real estate taxes and insurance and other amounts as required by our loan agreements including funds for leasing costs and improvements related to unoccupied space.
(l) Offering Costs
Underwriting commissions and other offering costs are reflected as a reduction in additional paid-in capital, or in the case of preferred stock, as a reduction of the carrying value of preferred stock.
(m) Share Based Compensation
We account for share based compensation using the fair value method of accounting. The estimated fair value of the stock options granted by us is being amortized on a straight-line basis over the vesting period of the stock options. The estimated fair value of the long-term incentive units and Class C Units (discussed in note 9)13(b)) granted by us is being amortized on a straight-line basis over the expected service period.
For share based compensation awards with performance conditions, we estimate the fair value of the award for each of the possible performance condition outcomes and amortize the compensation cost based on management’s projected performance outcome. In the instance management’s projected performance outcome changes prior to the final measurement date, compensation cost is adjusted accordingly.
(n) Accounting for Derivative Instruments and Hedging Activities
We account for our derivative instruments and hedging activities in accordance with the accounting standard for derivative and hedging activities. The accounting standard requires us to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
balance sheet as either an asset or liability. See disclosures below related to our adoption of the accounting standard for fair value measurements and disclosures.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively, there were no ineffective portions to our interest rate swaps.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We actively manage our ratio of fixed-to-floating rate debt. To manage our fixed and floating rate debt in a cost-effective manner, we, from time to time, enter into interest rate swap agreements as cash flow hedges, under which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. We do not enter into derivative instruments for trading purposes.
(o) Income Taxes
Digital Realty Trust, Inc. (the Parent Company) has elected to be treated and believes that it has been organized and has operated in a manner that has enabled the Parent Company to qualify as a REIT for federal income tax purposes. As a REIT, the Parent Company generally is not required to pay federal corporate income taxes on its taxable income to the extent it is currently distributed to its stockholders.
However, qualification and taxation as a REIT depend upon the Parent Company’s ability to meet the various qualification tests imposed under the Internal Revenue Code of 1986, as amended (the Code), including tests related to annual operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that the Parent Company has been organized or has operated or will continue to operate in a manner so as to qualify or remain qualified as a REIT. If the Parent Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.
The Operating Partnership is a partnership and is not required to pay federal income tax. Instead, taxable income is allocated to its partners, who include such amounts on their federal income tax returns. As such, no provision for federal income taxes has been included in the Operating Partnership’s accompanying consolidated financial statements.
Even if the Parent Company and the Operating Partnership are not subject to federal income taxes, they are taxed in certain states in which they operate. The Company is also taxed in non-U.S. countries where it operates that do not recognize U.S. REITs under their respective tax laws. The Company’s consolidated taxable REIT subsidiary is subject to both federal and state income taxes to the extent there is taxable income. Accordingly, the Company recognizes and accrues income taxes for its taxable REIT subsidiary, certain states and non-U.S. jurisdictions, as appropriate.
We assess our significant tax positions in accordance with U.S. GAAP for all open tax years and determine whether we have any material unrecognized liabilities from uncertain tax benefits. If a tax position is not considered “more-likely-than-not” to be sustained solely on its technical merits, no benefits of the tax position are to be recognized (for financial statement purposes). As of December 31, 2010 and 2009, we have no assets or liabilities for uncertain tax positions. We classify interest and penalties from significant uncertain tax positions as interest expense and operating expense, respectively, in our consolidated statements of operations. For the years ended December 31, 2010, 2009 and 2008, we had no such interest or penalties. The tax years 2007 through 2010 remain open to examination by the major taxing jurisdictions with which the Parent Company and its subsidiaries file tax returns.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
See Note 10 for further discussion on income taxes.
(p) Presentation of Transactional-based Taxes
We account for transactional-based taxes, such as value added tax, or VAT, for our international properties on a net basis.
(q) Revenue Recognition
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rent in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts and other receivables.
Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying statements of operations, are recognized over the new remaining term of the lease, effective as of the date the lease modification is finalized, and assuming collection is probable.
A provision for loss is made if the collection of the receivable balances related to contractual rent, rent recorded on a straight-line basis, tenant reimbursements and lease termination fees are considered to be doubtful.
(r) Asset Retirement Obligations
We record accruals for estimated retirement obligations as required by current accounting guidance. The amount of asset retirement obligations relates primarily to estimated asbestos removal costs at the end of the economic life of properties that were built before 1984. As of December 31, 2010 and 2009, the amount included in accounts payable and other accrued liabilities on our consolidated balance sheets was approximately $1.3 million.
(s) Assets and Liabilities Measured at Fair Value
On January 1, 2008, we adopted new accounting guidance establishing a framework for measuring fair-value and expanding disclosures regarding fair-value measurements related to financial instruments. The guidance applies to reported balances that are required or permitted to be measured at fair-valueFair value under existing accounting pronouncements; accordingly, the guidance does not require any new fair-value measurements of reported balances. On January 1, 2009, we adopted this guidance for non-financial instruments subject to this pronouncement.
The guidance emphasizes that fair-valueU.S. GAAP is a market-based measurement, not an entity-specific measurement. Therefore, a fair-value measurement should beour fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair-value measurements, we use a fair-value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
determination of the fair-value measurement is based on inputs from different levels of the fair-value hierarchy, the level in the fair-value hierarchy within which the entire fair-value measurement falls is based on the lowest level input that is significant to the fair-value measurement in its entirety. Our assessment of the significance of a particular input to the fair-value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
(p) Income Taxes(t) Transactions Expense
We have elected to be treatedTransactions expense includes acquisition-related expenses and believe that we have operated in a manner that has enabled us to qualifyother business development expenses, which are expensed as a REIT for federal income tax purposes. As a REIT, we generally are not required to pay federal corporate incomeincurred. Acquisition-related expenses include closing costs, broker commissions and excise taxes on our taxable income to the extent it is currently distributed to our stockholders.
However, qualificationother professional fees, including legal and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including testsaccounting fees related to annual operating results, asset composition, distribution levelsacquisitions and diversity of stock ownership. Accordingly, no assurance can be given that we have been organized or have operated or will continue to operate in a manner so as to qualify or remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate tax rates.
Even if we qualify for taxation as a REIT, we are taxed in certain states in which we operate. Our consolidated taxable REIT subsidiaries are subject to both federal and state income taxes to the extent there is
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
taxable income. We are also taxed in non-U.S. countries where we operate that do not recognize U.S. REITs under their respective tax laws. Accordingly, we recognize and accrue income taxes for taxable REIT subsidiaries, certain states and non-U.S. jurisdictions, as appropriate.
We assess our significant tax positions in accordance with U.S. GAAP for all open tax years and determine whether we have any material unrecognized liabilities from uncertain tax benefits. If a tax position is not considered “more-likely-than-not” to be sustained solely on its technical merits, no benefits of the tax position are to be recognized (for financial statement purposes). As of December 31, 2009, we have no liabilities for uncertain tax positions. We classify interest and penalties on tax liabilities from significant uncertain tax positions as interest expense and operating expense, respectively, in our consolidated statements of operations. For the years ended December 31, 2009, 2008 and 2007, we had no such interest or penalties.
See Note 7 for further discussion on income taxes.
(q) Presentation of Transactional-based Taxes
We account for transactional-based taxes, such as value added tax, or VAT, for our international properties on a net basis.
(r) Revenue Recognition
All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rent in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts and other receivables.
Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying statements of operations, are recognized over the new remaining term of the lease, effective as of the date the lease modification is finalized, and assuming collection is probable.
A provision for loss is made if the collection of the receivable balances related to contractual rent, rent recorded on a straight-line basis, tenant reimbursements and lease termination fees are considered to be doubtful.
(s) Asset Retirement Obligations
We record accruals for estimated retirement obligations as required by current accounting guidance. The amount of asset retirement obligations relates primarily to estimated asbestos removal costs at the end of the economic life of properties that were built before 1984. As of December 31, 2009 and 2008, the amount included in accounts payable and other accrued liabilities on our consolidated balance sheets was approximately $1.3 million and $1.5 million, respectively, and the equivalent asset is recorded at $1.2 million and $1.3 million, respectively, net of accumulated depreciation.
(t) Discontinued Operations
Discontinued operations represent a component of an entity that has either been disposed of or is classified as held for sale if both the operations and cash flows of the component have been or will be eliminated from ongoing operations of the entity as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. Current accounting guidance provides that the assets and liabilities of the component of the entity that has been classified as
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
discontinued operations be presented separately in the entity’s balance sheet. The results of operations of the component of the entity that has been classified as discontinued operations are also reported as discontinued operations for all periods presented. A property is classified as held for sale when certain criteria, as outlined in the current accounting guidance, are met. At such time, depreciation is no longer recognized. Assets held for sale are reported at the lower of their carrying amount or their estimated fair value less the estimated costs to sell the assets. The results of operations of assets held for sale are reported as discontinued operations. As of December 31, 2009 and 2008, no assets were held for sale. During 2007, we sold 100 Technology Center Drive and 4055 Valley View Lane and accounted for these properties as discontinued operations in the accompanying consolidated statements of operations.potential acquisitions.
(u) Management’s Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates made. On an on-going basis, we evaluate our estimates, including those related to acquiring, developing and assessing the carrying values of our real estate properties, accrued liabilities, performance-based equity compensation plans, and Digital Realty Trust, Inc.’s qualification as a REIT. We base our estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could vary under different assumptions or conditions.
(v) Other Newly Adopted Significant Accounting Policies
On January 1, 2009,2010, we adopted new accountingamended guidance whichrelated to the consolidation of variable-interest entities. This amended guidance requires an enterprise to qualitatively assess the issuerdetermination of certain convertible debt instrumentsthe primary beneficiary of a variable interest entity (“VIE”) based on whether the entity (1) has the power to direct matters that maymost significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be settled in cash (or other assets) on conversionsignificant to separately accountthe VIE. Additionally, they require an ongoing reconsideration of the primary beneficiary and provide a framework for the liability (debt)events that trigger a reassessment of whether an entity is a VIE. This guidance is effective for financial statements issued for fiscal years beginning after November 15, 2009 and equity (conversion option) componentsfor subsequent interim and annual reporting periods.
In December 2010, the Financial Accounting Standards Board issued new guidance clarifying that the disclosure of supplementary proforma information for business combinations should be presented such that revenues and earnings of the instrument in a mannercombined entity are calculated as though the relevant business combinations that reflectsoccurred during the issuer’s nonconvertible debt borrowing rate. The equity componentcurrent reporting period had occurred as of the convertible debt is included in the additional paid-in capital section of stockholders’ equity and the valuebeginning of the equity component is treated as original issue discount for purposes of accounting forcomparable prior annual reporting period. The guidance also improves the debt componentusefulness of the debt security. The resulting debt discount will be accreted as additional interest expense over the non-cancellable termsupplementary proforma information by requiring a description of the instrument. Retrospective application was requirednature and has been reflected in all periods presented herein and was previously reported in a previous filing on Form 8-K in 2009.
Our 2006 Debentures were impactedamount of material, non-recurring proforma adjustments that are directly attributable to the business combinations. As permitted by the new accounting guidance. Upon the original issuance of this debt instrument in 2006, the Company recorded the debentures as a liability in accordance with applicable accounting standards at that time. To adopt the new accounting guidance, effective January 1, 2009, the Company estimated the fair value, as of the date of issuance, of its exchangeable senior debentures as if the instrument was issued without the exchange option. The difference between the fair valuewe early adopted these provisions and the principal amount of the debt instrument was $18.9 million. This amount was retrospectively recorded as a debt discount and as a component of equity as of the issuance date in August 2006. The discount is being amortized over the expected five-year life of the debentures resulting in non-cash increase to interest expense in historical and future periods.
On January 1, 2009, we adopted new accounting guidance which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a separate component of equity in the consolidated financial statements. The new guidance also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributableapplied them to the parent and to the noncontrolling interest. In addition, it establishes a single method of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accountingsupplementary proforma disclosures for changesour business combinations in a parent’s ownership interest in a subsidiary that does not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. As a result of the issuance of the new guidance, if noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity. The new guidance on noncontrolling interests was required to be applied prospectively after adoption, with the exception of the presentation and disclosure requirements, which were applied retrospectively for all periods presented. As a result, we reclassified noncontrolling interests to permanent equity in the accompanying consolidated balance sheets for all periods presented. In subsequent periods, the Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the consolidated balance sheets. Any noncontrolling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made.
In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification) which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of its financial statements that are presented in conformity with GAAP. Effective September 30, 2009, we have adopted the Codification, which did not have a material impact on our consolidated financial statements.Note 3.
(w) Segment Information
All of our properties generate similar revenues and expenses related to tenant rent and reimbursements and operating expenses. The delivery of our products is consistent across all properties and although services are
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
provided to a wide range of customers, the types of services provided to them are limited to a few core principles. As such, the properties in our portfolio have similar economic characteristics and the nature of the products and services provided to itsour customers and the method to distribute such services are consistent throughout the portfolio. Consequently, our properties qualify for aggregation into one reporting segment.
(x) Reclassifications
Certain reclassifications to prior year amounts have been made to conform to the current year presentation. During the years ended December 31, 2009 and 2008, $2.2 million and $0.7 million, respectively, were reclassifed from general and administrative expense to transactions expense.
3. InvestmentInvestments in Real Estate
As of December 31, 2009 | |||||||||||||||||||
Property Type | Land | Ground Lease | Building and Improvements(1) | Tenant Improvements | Accumulated Depreciation and Amortization | Net Investment in Properties | |||||||||||||
Internet Gateway Datacenters | $ | 84,603 | $ | — | $ | 1,007,658 | $ | 81,981 | $ | (188,880 | ) | $ | 985,362 | ||||||
Corporate Datacenters | 245,753 | 1,290 | 1,786,799 | 176,575 | (241,818 | ) | 1,968,599 | ||||||||||||
Technology Manufacturing | 24,811 | 1,477 | 70,166 | 5,938 | (16,097 | ) | 86,295 | ||||||||||||
Technology Office | 25,431 | — | 58,156 | 7,968 | (12,214 | ) | 79,341 | ||||||||||||
Other | 2,165 | — | 29,551 | — | (512 | ) | 31,204 | ||||||||||||
$ | 382,763 | $ | 2,767 | $ | 2,952,330 | $ | 272,462 | $ | (459,521 | ) | $ | 3,150,801 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2010 | ||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Property Type | Land | | Ground Lease | | | Building and Improvements (1) | | | Tenant Improvements | | | Accumulated Depreciation and Amortization | | | Net Investment in Properties | | ||||||||
Internet Gateway Datacenters | $ | 107,235 | $ | — | $ | 1,221,736 | $ | 84,346 | $ | (253,914 | ) | $ | 1,159,403 | |||||||||||
Corporate Datacenters | 322,401 | 5,052 | 3,043,894 | 183,045 | (371,274 | ) | 3,183,118 | |||||||||||||||||
Technology Manufacturing | 21,398 | 1,322 | 73,207 | 5,938 | (18,254 | ) | 83,611 | |||||||||||||||||
Technology Office | 25,430 | — | 92,578 | 10,163 | (16,175 | ) | 111,996 | |||||||||||||||||
Other | 2,165 | — | 27,632 | — | (1,083 | ) | 28,714 | |||||||||||||||||
$ | 478,629 | $ | 6,374 | $ | 4,459,047 | $ | 283,492 | $ | (660,700 | ) | $ | 4,566,842 | ||||||||||||
As of December 31, 2009 | |||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2008 | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||
Property Type | Land | Ground Lease | Building and Improvements(1) | Tenant Improvements | Accumulated Depreciation and Amortization | Net Investment in Properties | Land | Ground Lease | Building and Improvements(1) | Tenant Improvements | Accumulated Depreciation and Amortization | Net Investment in Properties | |||||||||||||||||||||||||||||||
Internet Gateway Datacenters | $ | 84,663 | $ | — | $ | 876,148 | $ | 78,525 | $ | (130,737 | ) | $ | 908,599 | $ | 84,603 | $ | — | $ | 1,007,658 | $ | 81,981 | $ | (188,880 | ) | $ | 985,362 | |||||||||||||||||
Corporate Datacenters | 186,388 | 1,256 | 1,429,808 | 163,387 | (148,688 | ) | 1,632,151 | 245,753 | 1,290 | 1,786,799 | 176,575 | (241,818 | ) | 1,968,599 | |||||||||||||||||||||||||||||
Technology Manufacturing | 24,401 | 1,477 | 67,670 | 5,938 | (13,599 | ) | 85,887 | 24,811 | 1,477 | 70,166 | 5,938 | (16,097 | ) | 86,295 | |||||||||||||||||||||||||||||
Technology Office | 18,701 | — | 51,183 | 7,968 | (9,480 | ) | 68,372 | 25,431 | — | 58,156 | 7,968 | (12,214 | ) | 79,341 | |||||||||||||||||||||||||||||
Other | 2,165 | — | 43,021 | — | (456 | ) | 44,730 | 2,165 | — | 29,551 | — | (512 | ) | 31,204 | |||||||||||||||||||||||||||||
$ | 316,318 | $ | 2,733 | $ | 2,467,830 | $ | 255,818 | $ | (302,960 | ) | $ | 2,739,739 | $ | 382,763 | $ | 2,767 | $ | 2,952,330 | $ | 272,462 | $ | (459,521 | ) | $ | 3,150,801 | ||||||||||||||||||
(1) | Balances related to construction in progress, without the proportionate acquisition cost of land and property, the construction cost amounted to |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
We acquired the following real estate properties and made the following acquisitions of real estate propertiesinvestments during the years ended December 31, 20092010 and 2008:2009:
Acquisitions
Location | Metropolitan Area | Date Acquired | Amount (in millions) | ||||
Loudoun Exchange II(1) | Northern Virginia | May 15, 2009 | 20.3 | ||||
Digital Realty Trust Datacenter Park—Dallas(2) | Dallas | September 11, 2009 | 33.6 | ||||
444 Toyama Drive | Silicon Valley | September 25, 2009 | 17.5 | ||||
1350 Duane Avenue/3080 Raymond Street(3) | Silicon Valley | October 30, 2009 | 90.5 | ||||
Nokes Boulevard / Beaumeade Circle(4) | Northern Virginia | December 17, 2009 | 63.3 | ||||
Total Acquisitions—Year Ended December 31, 2009 | $ | 225.2 | |||||
365 South Randolphville Road | New York | February 14, 2008 | $ | 20.2 | |||
701 & 717 Leonard Street(5) | Dallas | May 13, 2008 | 12.0 | ||||
650 Randolph Road | New York | June 13, 2008 | 10.7 | ||||
Manchester Technopark Plot C1, Birley Fields | Manchester | June 20, 2008 | 23.3 | ||||
1201 Comstock Street(6) | Silicon Valley | June 30, 2008 | 1.9 | ||||
7505 Mason King Court | Northern Virginia | November 20, 2008 | 10.5 | ||||
Total Acquisitions—Year Ended December 31, 2008 | $ | 78.6 | |||||
Location | Metropolitan Area | Date Acquired | Amount (in millions) | |||||
New England Portfolio(1) | Various(1) | January 22, 2010 | $ | 375.0 | ||||
1725 Comstock Street(2) | Silicon Valley | April 30, 2010 | 14.1 | |||||
3105/3115 Alfred Street | Silicon Valley | May 24, 2010 | 10.0 | |||||
Cateringweg 5(3) | Amsterdam | June 17, 2010 | 6.4 | |||||
365 Main Portfolio(4) | Various(4) | July 13, 2010 | 725.0 | |||||
800 Central Expressway(5) | Silicon Valley | August 5, 2010 | 27.1 | |||||
2950 Zanker Road / 900 Dorothy Drive | Silicon Valley / Dallas | August 19, 2010 | 50.3 | |||||
29A International Business Park(6) | Singapore | November 23, 2010 | 132.7 | |||||
Total Acquisitions—Year Ended December 31, 2010 | $ | 1,340.6 | ||||||
Location | Metropolitan Area | Date Acquired | Amount (in millions) | |||||||||
Loudoun Exchange II(7) | Northern Virginia | May 15, 2009 | 20.3 | |||||||||
Digital Realty Trust Datacenter Park—Dallas(8) | Dallas | September 11, 2009 | 33.6 | |||||||||
444 Toyama Drive | Silicon Valley | September 25, 2009 | 17.5 | |||||||||
1350 Duane Avenue/3080 Raymond Street(9) | Silicon Valley | October 30, 2009 | 90.5 | |||||||||
Nokes Boulevard / Beaumeade Circle(10) | Northern Virginia | December 17, 2009 | 63.3 | |||||||||
Total Acquisitions—Year Ended December 31, 2009 | $ | 225.2 | ||||||||||
Investments
Location | Metropolitan Area | Date of Investment | Amount (in millions) | |||||
700 / 750 Central Expressway(11) | Silicon Valley | August 5, 2010 | $ | 10.3 |
(1) | The New England Portfolio consists of 55 Middlesex Turnpike, Bedford, Massachusetts and a 100% condominium interest that represents 87.5% of the square footage of 128 First Avenue, Needham, Massachusetts, both located in the Boston metropolitan area, as well as 60-80 Merritt Boulevard, Trumbull, Connecticut, located in the New York Metro area. The New England Portfolio is considered three properties for our property count. |
(2) | As part of the acquisition, we have agreed with the seller to remit an earnout payment based on leasing activities in the building. The purchase price includes an accrual of $4.3 million, which is the estimated fair value of the contingent purchase price per the agreement. As of June 30, 2010, the entire building was leased. The final payment to the seller of approximately $4.3 million was made in July 2010 to fully settle the contingent purchase price amount. |
(3) | A land parcel subject to a ground lease along with a vacant shell building. |
(4) | The 365 Main Portfolio consists of 365 Main Street, San Francisco, California and 720 2nd Street, Oakland, California, both located in the San Francisco metropolitan area; 2260 East El Segundo Boulevard, |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
El Segundo, California, located in the Los Angeles metropolitan area; 2121 South Price Road, Chandler, Arizona, located in the Phoenix metropolitan area; and 4030-4050 Lafayette Center Drive, Chantilly, Virginia, located in the Northern Virginia metropolitan area. The 365 Main Portfolio is considered five properties for our property count. |
(5) | In August 2010, we acquired a 50% controlling interest in a joint venture formed to own and redevelop 800 Central Expressway. The other noncontrolling 50% member contributed land and a vacant building with a fair market value of approximately $27.1 million, lender required impound accounts of approximately $2.1 million, a mortgage loan of $13.4 million and a mezzanine loan of approximately $10.5 million. At close, the joint venture refinanced the assumed debt which included a principal paydown of approximately $3.4 million. Since we have a controlling interest in the joint venture, we have consolidated the joint venture and presented the member interest not owned by us of approximately $2.6 million as noncontrolling interest in consolidated joint venture. |
(6) | This acquisition lacked key inputs to qualify as a business combination under purchase accounting guidance, and has therefore been accounted for as an asset acquisition, not a business combination. As part of the asset acquisition, the seller could earn additional consideration based on future net operating income growth in excess of certain performance targets, as defined. As of December 31, 2010, construction is not complete and there has been no leases executed that would cause an amount to become probable of payment and therefore no amount is accrued as of December 31, 2010. The maximum amount that could be earned by the seller is S$50.0 million (or approximately $39.0 million based on the exchange rate as of December 31, 2010). The earnout contingency expires in November 2020. |
(7) | Represents vacant land which is not included in our operating property count. |
In September 2009, we made an initial cash contribution of $1.9 million to a joint venture formed to own and redevelop Digital Realty Trust Datacenter |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
venture and presented the member interests not owned by us of $16.6 million as noncontrolling interests in consolidated joint venture. For operating property count purposes, we consider this to be one property. |
Includes the assumption of a $52.8 million loan. |
A two-property data center portfolio consisting of four buildings located at 21561 and 21571 Beaumeade Circle in Ashburn, Virginia and 45901 and 45905 Nokes Boulevard in Sterling, Virginia, as well as certain vacant real property located at 21551 Beaumeade Circle in Ashburn, Virginia. |
In August 2010, we made an initial cash contribution of |
On January 22, 2010, we completed the acquisition of a three-property datacenter portfolio located in Massachusetts and Connecticut, which we refer to as the New England Portfolio. The purchase price was approximately $375.0 million and was funded with borrowings under our revolving credit facility. The New England Portfolio comprises a total of approximately 550,290 square feet.
We will account for this acquisition under current purchase accounting guidance, and will include the New England Portfolio’s results of operations in our consolidated financial statements beginning on January 22, 2010, the acquisition date. Under current purchase accounting guidance, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, value of tenant relationships and acquired ground leases, based in each case on their fair values. Given the recent date on which we acquired the New England Portfolio, we are unable to provide the acquisition date fair value of assets acquired. Accordingly, we are also unable to provide a qualitative description of the factors that make up identified intangible assets and liabilities to be recognized, if any, such as above-market and below-market lease values, in-place lease value and tenant relationship value. The presentation of supplemental pro forma financial information requires an assessment of pro forma adjustments to arrive at a fair presentation of the combined entity. Given the date we acquired the New England Portfolio, we have not yet completed our assessment of these pro forma adjustments. As such, we have not provided supplemental pro forma financial information required under current purchase accounting guidance as it is impracticable to do so.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
has more power than the Operating Partnership to direct the activities that most significantly impact the joint venture’s economic performance, and therefore was determined to be the primary beneficiary. Our maximum exposure to loss in the joint venture is our common and preferred investment totaling $10.3 million and our share of the joint venture’s debt of $12.5 million. Upon our exercise of our put option, our exposure to loss will be limited to the remaining balance of our preferred interest in the joint venture. We have accounted for our variable interest in the joint venture under the equity method of accounting and is presented as an investment in unconsolidated joint venture in the accompanying consolidated balance sheet. |
The New England Portfolio’s aggregate acquisition amounts were allocated as follows: $21.2 million to land, $323.0 million to buildings and improvements, $2.2 million to tenant improvements, $55.0 million to identified intangible assets and $26.4 million to identified intangible liabilities. There was no contingent consideration associated with the acquisition. Operating revenues of $67.2 million and operating income of $24.6 million for the New England Portfolio are included in the consolidated income statement for the year ended December 31, 2010.
The 365 Main Portfolio’s aggregate acquisition amounts were allocated as follows: $50.1 million to land, $588.8 million to buildings and improvements, $2.2 million to tenant improvements, $101.3 million to identified intangible assets and $17.4 million to identified intangible liabilities. There was no contingent consideration associated with the acquisition. Operating revenues of $59.6 million and operating income of $12.6 million for the 365 Main Portfolio are included in the consolidated income statement for the year ended December 31, 2010.
The following summarizes the expected weighted average remaining lives of acquired intangible assets and liabilities for the New England Portfolio and the 365 Main Portfolio as of December 31, 2010:
New England Portfolio | 365 Main Portfolio | |||||||
Acquired in place lease value | 9.8 years | 4.9 years | ||||||
Acquired above market leases | 8.3 years | 2.6 years | ||||||
Acquired below market leases | 9.0 years | 5.7 years |
The pro forma operating revenues and operating income of the combined entity, including the New England Portfolio and the 365 Main Portfolio had the acquisitions taken place as of the beginning of the comparable prior annual reporting period (January 1, 2009) are as follows:
Year ended | ||||||||
Operating Revenues | Operating Income | |||||||
(in millions) | ||||||||
Supplemental pro forma for the year ended December 31, 2010(1) | $ | 925.0 | $ | 246.1 | ||||
Supplemental pro forma for the year ended December 31, 2009(1) | 821.4 | 218.5 |
(1) | These unaudited pro forma results do not purport to be indicative of what operating results would have been had the acquisitions occurred on January 1, 2009, and may not be indicative of future operating results. |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
4. Investment in Unconsolidated Joint VentureVentures
As of December 31, 2009,2010, the investment in unconsolidated joint ventureventures consists of an effective 50% interest in a joint venture that owns a datacenter property in Seattle, Washington. Cash distributions from the joint venture are allocated pro rata among the partners based on the respective ownership interests.Washington or 2001 Sixth Avenue and two office buildings in Santa Clara, California, or 700 / 750 Central Expressway. Following is the condensed balance sheet information for the joint ventureventures as of December 31, 20092010 and 20082009 (in thousands):
2001 Sixth Avenue
December 31, | ||||||||
2009 | 2008 | |||||||
Assets | ||||||||
Investments in real estate, net | $ | 36,409 | $ | 38,824 | ||||
Other assets | 8,877 | 6,199 | ||||||
Total assets | $ | 45,286 | $ | 45,023 | ||||
Liabilities and Equity | ||||||||
Mortgage loans | $ | 110,000 | $ | 110,000 | ||||
Other liabilities | 7,118 | 6,947 | ||||||
Our equity | (35,696 | ) | (35,275 | ) | ||||
Other equity | (36,136 | ) | (36,649 | ) | ||||
Total liabilities and equity | $ | 45,286 | $ | 45,023 | ||||
December 31, | ||||||||
2010 | 2009 | |||||||
Assets | ||||||||
Investments in real estate, net | $ | 36,302 | $ | 36,643 | ||||
Other assets | 6,053 | 8,840 | ||||||
Total assets | $ | 42,355 | $ | 45,483 | ||||
Liabilities and Equity (Deficit) | ||||||||
Mortgage loans | $ | 109,716 | $ | 110,020 | ||||
Other liabilities | 5,195 | 7,332 | ||||||
Our equity (deficit) | (36,040 | ) | (35,696 | ) | ||||
Other equity (deficit) | (36,516 | ) | (36,173 | ) | ||||
Total liabilities and equity (deficit) | $ | 42,355 | $ | 45,483 | ||||
700 / 750 Central Expressway
December 31, 2010 | ||||
Assets | ||||
Investments in real estate, net | $ | 41,993 | ||
Other assets | 4,255 | |||
Total assets | $ | 46,248 | ||
Liabilities and Equity | ||||
Mortgage loans | $ | 25,000 | ||
Other liabilities | 12,973 | |||
Our equity | | 4,025 | | |
Other equity | 4,250 | |||
Total liabilities and equity | $ | 46,248 | ||
Our investment in unconsolidated joint ventureventures included in our consolidated balance sheet exceeds our equity presented in the joint venture’sventures’ balance sheet since our purchase accounting adjustments are not pushed down to the joint venture.venture and the classification of our common interest in 700 / 750 Central Expressway. The difference between our investment in unconsolidated joint ventureventures and the owners’ equity account in the joint ventureventures is principally due to the purchase accounting adjustments of $42.1 million not pushed down to the 2001 Sixth Avenue joint venture and 700 / 750 Central Expressway joint venture. In addition, as it relates to our investment in 700/750 Central Expressway, our $6.0 million common interest has been classified within other liabilities above as a result of our fixed price put option which precludes equity classification.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Following is the condensed statement of operations information for the joint ventureventures for the years ended December 31, 2010, 2009 2008 and 20072008 (in thousands):
2001 Sixth Avenue
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Statements of Operations: | ||||||||||||
Revenues | $ | 28,841 | $ | 23,950 | $ | 20,396 | ||||||
Operating expenses | (8,700 | ) | (8,124 | ) | (7,039 | ) | ||||||
Net operating income | 20,141 | 15,826 | 13,357 | |||||||||
Interest and other income | 11 | 142 | 418 | |||||||||
Interest expense | (7,082 | ) | (6,846 | ) | (4,786 | ) | ||||||
Other expense | (76 | ) | — | — | ||||||||
Loss from early extinguishment of debt | — | — | (4,346 | ) | ||||||||
Depreciation and amortization | (6,301 | ) | (5,405 | ) | (3,802 | ) | ||||||
Net income | $ | 6,693 | $ | 3,717 | $ | 841 | ||||||
Add: Historical depreciation and amortization | 6,301 | 5,405 | 3,802 | |||||||||
Net income before purchase accounting adjustments | $ | 12,994 | $ | 9,122 | $ | 4,643 | ||||||
Company share of historical net income | 6,497 | 4,561 | 2,275 | |||||||||
Debt premium writeoff related to loss from early extinguishment of debt | — | — | 1,544 | |||||||||
Purchase accounting adjustments | (4,325 | ) | (2,192 | ) | (3,370 | ) | ||||||
Equity in earnings of unconsolidated joint venture | $ | 2,172 | $ | 2,369 | $ | 449 | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Statements of Operations: | ||||||||||||
Revenues | $ | 30,468 | $ | 28,841 | $ | 23,950 | ||||||
Operating expenses | (9,103 | ) | (8,700 | ) | (8,124 | ) | ||||||
Net operating income | 21,365 | 20,141 | 15,826 | |||||||||
Interest and other income | 2,096 | 11 | 142 | |||||||||
Interest expense | (6,979 | ) | (7,082 | ) | (6,846 | ) | ||||||
Other expense | — | (76 | ) | — | ||||||||
Depreciation and amortization | (6,210 | ) | (6,301 | ) | (5,405 | ) | ||||||
Net income | $ | 10,272 | $ | 6,693 | $ | 3,717 | ||||||
Add: Historical depreciation and amortization | $ | 6,210 | $ | 6,301 | $ | 5,405 | ||||||
Net income before purchase accounting adjustments | 16,482 | 12,994 | 9,122 | |||||||||
Company share of historical net income | 8,241 | 6,497 | 4,561 | |||||||||
Effect of purchase accounting adjustments | (2,860 | ) | (4,325 | ) | (2,192 | ) | ||||||
Equity in earnings of unconsolidated joint venture | $ | 5,381 | $ | 2,172 | $ | 2,369 | ||||||
700 / 750 Central Expressway
Five Months Ended December 31, 2010 | ||||
Statements of Operations: | ||||
Revenues | $ | 1,857 | ||
Operating expenses | (432 | ) | ||
Net operating income | 1,425 | |||
Interest expense | (864 | ) | ||
Other expense | (79 | ) | ||
Depreciation and amortization | (478 | ) | ||
Net income | $ | 4 | ||
Add: Historical depreciation and amortization | $ | 478 | ||
Net income before purchase accounting adjustments | 482 | |||
Company share of historical net income | 241 | |||
Effect of purchase accounting adjustments | (368 | ) | ||
Equity in loss from unconsolidated joint venture | $ | (127 | ) | |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
5. DebtAcquired Intangible Assets and Liabilities
A summary of outstanding indebtednessThe following summarizes our acquired intangible assets (acquired in place lease value and acquired above-market lease value) and intangible liabilities (acquired below-market lease value) as of December 31, 2010 and 2009.
Balance as of | ||||||||
(Amounts in thousands) | December 31, 2010 | December 31, 2009 | ||||||
Acquired in place lease value: | ||||||||
Gross amount | $ | 515,958 | $ | 377,336 | ||||
Accumulated amortization | (261,978 | ) | (215,030 | ) | ||||
Net | $ | 253,980 | $ | 162,306 | ||||
Acquired above market leases: | ||||||||
Gross amount | $ | 87,622 | $ | 62,757 | ||||
Accumulated amortization | (47,083 | ) | (36,896 | ) | ||||
Net | $ | 40,539 | $ | 25,861 | ||||
Acquired below market leases: | ||||||||
Gross amount | $ | 189,990 | $ | 147,938 | ||||
Accumulated amortization | (96,740 | ) | (78,627 | ) | ||||
Net | $ | 93,250 | $ | 69,311 | ||||
Amortization of acquired below-market lease value, net of acquired above-market lease value, resulted in an increase to rental revenues of $8.3 million and $8.0 million for the years ended December 31, 2010 and 2009, respectively. The expected average remaining lives for acquired below market leases and 2008acquired above market leases is 5.2 years and 4.0 years, respectively, as of December 31, 2010. Estimated annual amortization of acquired below-market lease value, net of acquired above-market lease value, for each of the five succeeding years, commencing January 1, 2011 is as follows (in thousands):follows:
Properties | Interest Rate at December 31, 2009 | Maturity Date | Principal Outstanding December 31, 2009 | Principal Outstanding December 31, 2008 | ||||||||||
Mortgage loans: | ||||||||||||||
Secured Term Debt(1)(2) | 5.65 | % | Nov. 11, 2014 | $ | 144,078 | $ | 146,486 | |||||||
350 East Cermak Road(2) | 1-month LIBOR + 2.20 | %(3)(7) | Jun. 9, 2009 | — | 96,573 | |||||||||
3 Corporate Place(2) | 6.72 | % | Aug. 1, 2011 | (4) | 80,000 | 80,000 | ||||||||
200 Paul Avenue 1-4(2) | 5.74 | % | Oct. 8, 2015 | 77,803 | 79,336 | |||||||||
2045 & 2055 LaFayette Street(2) | 5.93 | % | Feb. 6, 2017 | 67,271 | 68,000 | |||||||||
Mundells Roundabout | 3-month GBP LIBOR + 1.20 | %(7) | Nov. 30, 2013 | 69,154 | (9) | — | ||||||||
600 West Seventh Street | 5.80 | % | Mar. 15, 2016 | 55,524 | 56,814 | |||||||||
2323 Bryan Street(2) | 6.04 | % | Nov. 6, 2009 | — | (5) | 55,048 | ||||||||
34551 Ardenwood Boulevard 1-4(2) | 5.95 | % | Nov. 11, 2016 | 54,945 | 55,000 | |||||||||
1100 Space Park Drive(2) | 5.89 | % | Dec. 11, 2016 | 54,944 | 55,000 | |||||||||
1350 Duane Avenue/3080 Raymond Street | 5.42 | % | Oct. 1, 2012 | 52,800 | — | |||||||||
150 South First Street(2) | 6.30 | % | Feb. 6, 2017 | 52,760 | 53,288 | |||||||||
114 Rue Ambroise Croizat(6) | 3-month EURIBOR + 1.35 | %(7) | Jan. 18, 2012 | 45,067 | (8) | 44,564 | (8) | |||||||
Clonshaugh Industrial Estate II | 3-month EURIBOR + 4.50 | % | Sep. 4, 2014 | 42,993 | (8) | — | ||||||||
1500 Space Park Drive(2) | 6.15 | % | Oct. 5, 2013 | 41,883 | 43,708 | |||||||||
2334 Lundy Place(2) | 5.96 | % | Nov. 11, 2016 | 39,960 | 40,000 | |||||||||
Unit 9, Blanchardstown Corporate Park(6) | 3-month EURIBOR + 1.35 | %(7) | Jan. 18, 2012 | 38,746 | (8) | 38,315 | (8) | |||||||
Cressex 1(10) | 5.68 | % | Oct. 16, 2014 | 29,486 | (9) | — | ||||||||
6 Braham Street | 3-month GBP LIBOR + 0.90 | %(7) | Apr. 10, 2011 | 20,831 | (9) | 19,239 | (9) | |||||||
1201 Comstock Street | 1-month LIBOR + 3.50 | %(7) | Jun. 24, 2012 | (4) | 17,737 | — | ||||||||
Datacenter Park—Dallas | 5.00 | % | Sep. 15, 2010 | (4) | 17,000 | — | ||||||||
Paul van Vlissingenstraat 16 | 3-month EURIBOR + 1.60 | %(7) | Jul. 18, 2013 | 15,208 | (8) | 15,041 | (8) | |||||||
Chemin de l’Epinglier 2 | 3-month EURIBOR + 1.50 | %(7) | Jul. 18, 2013 | 11,046 | (8) | 10,923 | (8) | |||||||
Gyroscoopweg 2E-2F(11) | 3-month EURIBOR + 1.50 | %(7) | Oct. 18, 2013 | 9,682 | (8) | 9,575 | (8) | |||||||
1125 Energy Park Drive | 7.62 | %(12) | Mar. 1, 2032 | 9,203 | 9,335 | |||||||||
Manchester Technopark(10) | 5.68 | % | Oct. 16, 2014 | 8,970 | (9) | — | ||||||||
731 East Trade Street | 8.22 | % | Jul. 1, 2020 | 5,315 | 5,520 | |||||||||
1,062,406 | 981,765 | |||||||||||||
Revolving credit facility | Various | (12) | Aug. 31, 2010 | (4)(13) | 205,547 | (14) | 138,579 | (14) | ||||||
Unsecured senior notes—Series A | 7.00 | % | Jul. 24, 2011 | 25,000 | 25,000 | |||||||||
Unsecured senior notes—Series B | 9.32 | % | Nov. 5, 2013 | 33,000 | 33,000 | |||||||||
Unsecured senior notes—Series C | 9.68 | % | Jan. 6, 2016 | 25,000 | — | |||||||||
4.125% exchangeable senior debentures due 2026 | 4.125 | % | Aug. 15, 2026 | (15) | 172,500 | 172,500 | ||||||||
5.50% exchangeable senior debentures due 2029 | 5.50 | % | Apr. 15, 2029 | (16) | 266,400 | — | ||||||||
Mundells Roundabout construction loan | 1-month GBP LIBOR + 1.75 | % | Nov. 30, 2013 | — | 42,374 | (9) | ||||||||
Total principal outstanding | 1,789,853 | 1,393,218 | ||||||||||||
Unamortized discount on 4.125% exchangeable senior debentures due 2026 | (6,666 | ) | (10,599 | ) | ||||||||||
Unamortized premium—1125 Energy Park Drive, 731 East Trade Street, 1500 Space Park Drive and 1350 Duane Avenue/3080 Raymond Street mortgages | 1,257 | 2,455 | ||||||||||||
Total indebtedness | $ | 1,784,444 | $ | 1,385,074 | ||||||||||
(Amounts in thousands) | ||||
2011 | $ | 7,882 | ||
2012 | 6,455 | |||
2013 | 7,024 | |||
2014 | 5,664 | |||
2015 | 4,993 |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Costs associated with extending or renewing acquired leases are capitalized as exercised and classified as deferred leasing cost. Amortization of acquired in place lease value (a component of depreciation and amortization expense) was $49.7 million and $35.3 million for the years ended December 31, 2010 and 2009, respectively. The expected average amortization period for acquired in place lease value is 4.6 years as of December 31, 2010. The weighted average period prior to the next renewal of extension related to remaining contractual life for acquired leases is 4.4 years as of December 31, 2010. Estimated annual amortization of acquired in place lease value for each of the five succeeding years, commencing January 1, 2011 is as follows:
(Amounts in thousands) | ||||
2011 | $ | 51,671 | ||
2012 | 42,109 | |||
2013 | 38,008 | |||
2014 | 33,565 | |||
2015 | 25,531 |
6. Debt of the Company
In this Note 6, the “Company” refers only to Digital Realty Trust, Inc. and not to any of its subsidiaries.
The Company itself does not have any indebtedness. All debt is held directly or indirectly by the Operating Partnership.
Guarantee of Debt
The Company has guaranteed some of the Operating Partnership’s debt. The Company guarantees the Operating Partnership’s obligations with respect to the 2026 Debentures, the 2029 Debentures, the 2020 Notes, the 2015 Notes (each, as defined in Note 7) and its unsecured senior notes sold to Prudential pursuant to the Prudential shelf facility. The Company is also the guarantor of the Operating Partnership’s obligations under its revolving credit facility.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
7. Debt of the Operating Partnership
A summary of outstanding indebtedness of the Operating Partnership as of December 31, 2010 and 2009, respectively, is as follows (in thousands):
Indebtedness | Interest Rate at December 31, 2010 | Maturity Date | Principal Outstanding December 31, 2010 | Principal Outstanding December 31, 2009 | ||||||||||||
Revolving credit facility | Various | (1) | Aug. 31, 2011 | (2) | $ | 333,534 | (3) | $ | 205,547 | (3) | ||||||
Unsecured senior notes: | ||||||||||||||||
Prudential Shelf Facility: | ||||||||||||||||
Series A | 7.000 | % | Jul. 24, 2011 | 25,000 | 25,000 | |||||||||||
Series B | 9.320 | % | Nov. 5, 2013 | 33,000 | 33,000 | |||||||||||
Series C | 9.680 | % | Jan. 6, 2016 | 25,000 | 25,000 | |||||||||||
Series D | 4.570 | % | Jan. 20, 2015 | 50,000 | — | |||||||||||
Series E | 5.730 | % | Jan. 20, 2017 | 50,000 | — | |||||||||||
Series F | 4.500 | % | Feb. 3, 2015 | 17,000 | — | |||||||||||
Total Prudential Shelf Facility | 200,000 | 83,000 | ||||||||||||||
Senior Notes: | ||||||||||||||||
5.875% notes due 2020 | 5.875 | % | Feb. 1, 2020 | 500,000 | — | |||||||||||
4.50% notes due 2015 | 4.500 | % | Jul. 15, 2015 | 375,000 | — | |||||||||||
Unamortized discounts | (8,970 | ) | — | |||||||||||||
Total senior notes | 866,030 | — | ||||||||||||||
Total unsecured senior notes, net of discount | 1,066,030 | 83,000 | ||||||||||||||
Exchangeable senior debentures: | ||||||||||||||||
4.125% exchangeable senior debentures due 2026 | 4.125 | % | Aug. 15, 2026 | (4) | 88,758 | 172,500 | ||||||||||
5.50% exchangeable senior debentures due 2029 | 5.50 | % | Apr. 15, 2029 | (5) | 266,400 | 266,400 | ||||||||||
Unamortized discount | (1,456 | ) | (6,666 | ) | ||||||||||||
Total exchangeable senior debentures, net of discount | 353,702 | 432,234 | ||||||||||||||
Mortgage loans: | ||||||||||||||||
Secured Term Debt(6)(7) | 5.65 | % | Nov. 11, 2014 | 141,465 | 144,078 | |||||||||||
3 Corporate Place(7)(8) | 6.72 | % | Aug. 1, 2011 | (9) | 80,000 | 80,000 | ||||||||||
200 Paul Avenue 1-4(7) | 5.74 | % | Oct. 8, 2015 | 76,179 | 77,803 | |||||||||||
2045 & 2055 LaFayette Street(7) | 5.93 | % | Feb. 6, 2017 | 66,437 | 67,271 | |||||||||||
Mundells Roundabout | 3-month GBP LIBOR + 1.20 | %(10) | Nov. 30, 2013 | 66,858 | (11) | 69,154 | (11) | |||||||||
600 West Seventh Street | 5.80 | % | Mar. 15, 2016 | 54,157 | 55,524 | |||||||||||
34551 Ardenwood Boulevard 1-4(7) | 5.95 | % | Nov. 11, 2016 | 54,306 | 54,945 | |||||||||||
1100 Space Park Drive(7) | 5.89 | % | Dec. 11, 2016 | 54,296 | 54,944 | |||||||||||
1350 Duane Avenue/3080 Raymond Street(7) | 5.42 | % | Oct. 1, 2012 | 52,800 | 52,800 | |||||||||||
150 South First Street(7) | 6.30 | % | Feb. 6, 2017 | 52,154 | 52,760 | |||||||||||
114 Rue Ambroise Croizat | 3-month EURIBOR + 1.35 | %(10) | Jan. 18, 2012 | 41,430 | (12) | 45,067 | (12) | |||||||||
Clonshaugh Industrial Estate II(8) | 3-month EURIBOR + 4.50 | %(10) | Sep. 4, 2014 | 40,152 | (12) | 42,993 | (12) | |||||||||
1500 Space Park Drive(7) | 6.15 | % | Oct. 5, 2013 | 39,941 | 41,883 | |||||||||||
2334 Lundy Place (7) | 5.96 | % | Nov. 11, 2016 | 39,496 | 39,960 | |||||||||||
Unit 9, Blanchardstown Corporate Park | 3-month EURIBOR + 1.35 | %(10) | Jan. 18, 2012 | 35,620 | (12) | 38,746 | (12) | |||||||||
Cressex 1(14) | 5.68 | % | Oct. 16, 2014 | 28,388 | (11) | 29,486 | (11) | |||||||||
6 Braham Street(8) | 3-month GBP LIBOR + 0.90 | %(10) | Apr. 10, 2011 | 19,515 | (11) | 20,831 | (11) | |||||||||
1201 Comstock Street(7)(8) | 1-month LIBOR + 3.50 | %(10) | Jun. 24, 2012 | (2) | 16,976 | 17,737 | ||||||||||
Datacenter Park—Dallas | 5.00 | % | Sep. 15, 2011 | (2) | 16,150 | 17,000 | ||||||||||
Paul van Vlissingenstraat 16 | 3-month EURIBOR + 1.60 | %(10) | Jul. 18, 2013 | 13,978 | (12) | 15,208 | (12) | |||||||||
Chemin de l’Epinglier 2 | 3-month EURIBOR + 1.50 | %(10) | Jul. 18, 2013 | 10,113 | (12) | 11,046 | (12) | |||||||||
800 Central Expressway(7) | 1-month LIBOR + 4.75 | % | Jun. 9, 2013 | 10,000 | — | |||||||||||
Gyroscoopweg 2E-2F(13) | 3-month EURIBOR + 1.50 | %(10) | Oct. 18, 2013 | 8,900 | (12) | 9,682 | (12) | |||||||||
1125 Energy Park Drive(7) | 7.62 | %(15) | Mar. 1, 2032 | 9,060 | 9,203 | |||||||||||
Manchester Technopark(14) | 5.68 | % | Oct. 16, 2014 | 8,636 | (11) | 8,970 | (11) | |||||||||
731 East Trade Street | 8.22 | % | Jul. 1, 2020 | 5,080 | 5,315 | |||||||||||
Unamortized net premiums | 1,101 | 1,257 | ||||||||||||||
Total mortgage loans, net of premiums | 1,043,188 | 1,063,663 | ||||||||||||||
Other secured loans: | ||||||||||||||||
800 Central Expressway Mezzanine(7) | 1-month LIBOR + 8.50 | % | Jun. 9, 2013 | 10,500 | — | |||||||||||
Total other secured loans | �� | 10,500 | — | |||||||||||||
Total indebtedness | $ | 2,806,954 | $ | 1,784,444 | ||||||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(1) |
The interest rate under our revolving credit facility equals either (i) US LIBOR, EURIBOR and GBP LIBOR (ranging from 1- to 6-month maturities) plus a margin of between 1.10% and 2.00% or (ii) the greater of (x) the base rate announced by the lender and (y) 1/2 of 1% per annum above the federal funds rate, plus a margin of between 0.100% |
A one-year extension is available, which we may exercise if certain conditions are met. |
(3) | Balances as of December 31, |
Denomination of Draw | Balance as of December 31, 2009 | Weighted-average interest rate | Balance as of December 31, 2008 | Weighted- average interest rate | Balance as of December 31, 2010 | Weighted-average interest rate | Balance as of December 31, 2009 | Weighted-average interest rate | ||||||||||||||||||||||
US ($) | $ | 195,500 | 1.34 | % | $ | 92,000 | 1.79 | % | $ | 312,500 | 1.40 | % | $ | 195,500 | 1.34 | % | ||||||||||||||
Euro (€) | 10,047 | (a) | 1.58 | % | 8,701 | (a) | 4.05 | % | — | — | 10,047 | (a) | 1.58 | % | ||||||||||||||||
British Sterling (£) | — | — | 37,878 | (b) | 3.55 | % | 21,034 | (b) | 1.69 | % | — | — | ||||||||||||||||||
Total | $ | 205,547 | 1.35 | % | $ | 138,579 | 2.41 | % | $ | 333,534 | 1.42 | % | $ | 205,547 | 1.35 | % | ||||||||||||||
(a) | Based on exchange rate of $1.43 to €1.00 as of December 31, |
(b) | Based on exchange rate of |
The holders of the debentures have the right to require the Operating Partnership to repurchase the debentures in cash in whole or in part for a price of 100% of the principal amount plus accrued and unpaid |
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
interest on each of August 15, 2011, August 15, 2016 and August 15, 2021. We have the right to redeem the debentures in cash for a price of 100% of the principal amount plus accrued and unpaid interest commencing on August 18, 2011. |
The holders of the debentures have the right to require the Operating Partnership to repurchase the debentures in cash in whole or in part for a price of 100% of the principal amount plus accrued and unpaid interest on each of April 15, 2014, April 15, 2019 and April 15, 2024. We have the right to redeem the debentures in cash for a price of 100% of the principal amount plus accrued and unpaid interest commencing on April 18, 2014. |
(6) | This amount represents six mortgage loans secured by our interests in 36 NE 2nd Street, 3300 East Birch Street, 100 & 200 Quannapowitt Parkway, 300 Boulevard East, 4849 Alpha Road, and 11830 Webb Chapel Road. Each of these loans is cross-collateralized by the six properties. |
(7) | The respective borrower’s assets and credit are not available to satisfy the debts and other obligations of affiliates or any other person. |
(8) | The Operating Partnership or its subsidiary provides a limited recourse guarantee with respect to this loan. |
(9) | Two one-year extensions are available, which we may exercise if certain conditions are met. |
(10) | We have entered into interest rate swap or interest rate cap agreements as a cash flow hedge for interest generated by these US LIBOR, EURIBOR and GBP LIBOR based loans. See note 14 for further information. |
(11) | Based on exchange rate of $1.56 to £1.00 as of December 31, 2010 and $1.61 to £1.00 as of December 31, 2009. |
(12) | Based on exchange rate of $1.34 to €1.00 as of December 31, 2010 and $1.43 to €1.00 as of December 31, 2009. |
(13) | This loan is also secured by a €1.3 million letter of credit. |
(14) | These loans are also secured by a £7.8 million letter of credit. These loans are cross-collateralized by the two properties. |
Net loss from early extinguishment of debt related to prepayment costs
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and unamortized deferred financing costs written off when we prepaid the related loans or terminated the related loan facility. In 2008, we terminated the construction facility related to 3 Corporate Place.2009
(15) | If the loan is not repaid by March 1, 2012, the interest rate increases to the greater of 9.62% or the treasury rate then in effect plus 2%. Subject to a prepayment lock-out period through December 2011. |
Revolving Credit Facility
As of December 31, 2009, principal payments due for our borrowings are as follows (in thousands):
2010 | $ | 236,875 | |
2011 | 312,766 | ||
2012 | 163,770 | ||
2013 | 183,619 | ||
2014 | 487,247 | ||
Thereafter | 405,576 | ||
Total | $ | 1,789,853 | |
As of December 31, 2009,2010, our revolving credit facility had a total capacity of $750.0 million and matures inmillion. Effective August 31, 2010, subject towe exercised the first of two one-year extension options exercisable by us.to our revolving credit facility, which extends its maturity date from August 31, 2010 to August 31, 2011. The bank group is obligated to grant extension options provided we give proper notice, we make certain representations and warranties and no default exists under the revolving credit facility. On June 28, 2010, we completed an amendment to our revolving credit facility. The amendment to the revolving credit facility provides us with the ability to add eligible unencumbered international assets to the borrowing base in support of our outstanding unsecured debt. International assets include properties located in Canada, England, Ireland, Wales, France, Spain, the Netherlands, Singapore and Australia. Under the new amendment, international assets may comprise up to 25% of the borrowing base, with assets in Spain and Singapore limited to up to 10% of the borrowing base. As of December 31, 2009,2010, borrowings under the revolving credit facility bore interest at a blended rate of 1.34% (US Dollar),1.40% (U.S) and 1.58% (Euro)1.69% (GBP), which are based primarily on 1-month US LIBOR and 1-month EURIBOR,GBP LIBOR, respectively, plus a margin of 1.10%. The margin can range from 1.10% to 2.00%, depending on our Operating Partnership’s total overall leverage. The revolving credit facility has a $515.0 million sub-facility for multicurrency advances in British Pound,Pounds Sterling, Canadian Dollars, Euros, and Swiss Francs. We intend to use available borrowings under the revolving credit facility to, among other things, finance the acquisition of additional properties, fund tenant improvements and capital expenditures, fund development and redevelopment activities and to provide for working capital and other corporate purposes. As of December 31, 2009,2010, approximately $205.5$333.5 million was drawn under this facility and $22.6$29.9 million of letters of credit were issued.
The credit facility contains various restrictive covenants, including limitations on our ability to incur additional indebtedness, make certain investments or merge with another company, and requirements to maintain financial coverage ratios as well as a pool of unencumbered assets. In addition, a downgrade in Digital Realty Trust, Inc.’s credit rating below investment grade may trigger additional payments or other consequences under our credit facility. In addition, except to enable usDigital Realty Trust, Inc. to maintain ourits status as a REIT for federal income tax purposes or as may otherwise be required to avoid the imposition of income or excise taxes on Digital Reality Trust, Inc., we are not permitted during any four consecutive fiscal quarters to make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 95% of Funds From Operations, as defined, for such period, subject to certain other adjustments. As of December 31, 2009,2010, we were in compliance with all of such covenants.
SomeDuring the years ended December 31, 2010, 2009 and 2008, we capitalized interest of our mortgage loans are subjectapproximately $10.2 million $9.2 million and $18.4 million, respectively.
Unsecured Senior Notes
Prudential Shelf Facility
On January 20, 2010, the Operating Partnership closed the sale of $100.0 million aggregate principal amount of its senior unsecured term notes to prepayment lock-out periods.Prudential Investment Management, Inc. and certain of its affiliates, or, collectively, Prudential, pursuant to the Prudential shelf facility. The termsnotes were issued in two series referred to as the series D and series E notes. The series D notes have a principal amount of $50.0 million, an interest-only rate of 4.57% per annum and a five-year maturity, and the following mortgage loans contain prepayment lock-out periods throughseries E notes have a principal amount of $50.0 million, an interest-only rate of 5.73% per annum and a seven-year maturity. On February 3, 2010, the dates listed below:
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DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
notes, which we refer to as the series F notes, to Prudential pursuant to the Prudential shelf facility. The series F notes have an interest-only rate of 4.50% per annum and a five-year maturity. We used the proceeds of the series D, series E and series F notes to fund acquisitions, to temporarily repay borrowings under our revolving credit facility, to fund working capital and for general corporate purposes. As of December 31, 2010 and 2009, there was $200.0 million and $83.0 million of unsecured senior notes outstanding, respectively. On December 8, 2010, our operating partnership and Prudential entered into an amendment to the Note Purchase and Private Shelf Agreement, increasing the capacity of the Prudential shelf facility from $200.0 million to $250.0 million.
5.875% Notes due 2020
On January 28, 2010, the Operating Partnership issued $500.0 million aggregate principal amount of notes, maturing on February 1, 2020 with an interest rate of 5.875% per annum (the 2020 Notes). The purchase price paid by the initial purchasers was 98.296% of the principal amount. The 2020 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Digital Realty Trust, Inc. Interest on the 2020 Notes is payable on February 1 and August 1 of each year, beginning on August 1, 2010. The net proceeds from the offering after deducting the original issue discount of approximately $8.5 million and underwriting commissions and expenses of approximately $4.4 million was approximately $487.1 million. We used the net proceeds from the offering to temporarily repay our borrowings under our revolving credit facility, fund development and redevelopment opportunities and for general corporate purposes. The 2020 Notes have been reflected net of discount in the consolidated balance sheet.
The indenture governing the 2020 Notes contains certain covenants, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40% and (3) an interest coverage ratio of greater than 1.50, and also requires us to maintain total unencumbered assets of not less than 150% of the aggregate principal amount of unsecured debt. At December 31, 2010, we were in compliance with each of these financial covenants.
We entered into a registration rights agreement whereby the Operating Partnership agreed to conduct an offer to exchange the 2020 Notes for a new series of publicly registered notes with substantially identical terms. If the Operating Partnership did not fulfill certain of its obligations under the registration rights agreement, it would have been required to pay liquidated damages to the holders of the 2020 Notes. No separate contingent obligation was recorded as no liquidated damages became probable. We filed a registration statement with the U.S. Securities and Exchange Commission in June 2010 in connection with the exchange offer, which was declared effective in September 2010. We completed the exchange offer on November 5, 2010.
4.500% Notes due 2015
On July 8, 2010, the Operating Partnership issued $375.0 million aggregate principal amount of notes, maturing on July 15, 2015 with an interest rate of 4.500% per annum (the 2015 Notes). The purchase price paid by the initial purchasers was 99.697% of the principal amount. The 2015 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Digital Realty Trust, Inc. Interest on the 2015 Notes is payable on January 15 and July 15 of each year, beginning on January 15, 2011. The net proceeds from the offering after deducting the original issue discount of approximately $1.1 million and underwriting commissions and expenses of approximately $3.1 million was approximately $370.8 million. We used the net proceeds from the offering to fund a portion of the purchase price of the 365 Main Portfolio. The 2015 Notes have been reflected net of discount in the consolidated balance sheet.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
The indenture governing the 2015 Notes contains certain covenants, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 40% and (3) an interest coverage ratio of greater than 1.50, and also requires us to maintain total unencumbered assets of not less than 150% of the aggregate principal amount of unsecured debt. At December 31, 2010, we were in compliance with each of these financial covenants.
We have entered into a registration rights agreement whereby the Operating Partnership agreed to conduct an offer to exchange the 2015 Notes for a new series of publicly registered notes with substantially identical terms. If the Operating Partnership does not fulfill certain of its obligations under the registration rights agreement, it will be required to pay liquidated damages to the holders of the 2015 Notes. No separate contingent obligation has been recorded as no liquidated damages have become probable. We filed a registration statement with the U.S. Securities and Exchange Commission in October 2010 in connection with the exchange offer, which was declared effective in December 2010. We completed the exchange offer on January 19, 2011.
Exchangeable Senior Debentures
4.125% Exchangeable Senior Debentures due 2026
On August 15, 2006, the Operating Partnership issued $172.5 million of its 4.125% exchangeable senior debentures due August 15, 2026 (the 20062026 Debentures). Costs incurred to issue the 20062026 Debentures were approximately $5.4 million, net of the amount allocated to the equity component of the debentures. These costs are being amortized over a period of five years, which represents the estimated term of the 20062026 Debentures, and are included in deferred financing costs, net in the consolidated balance sheet. The 20062026 Debentures are general unsecured senior obligations of the Operating Partnership, and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership.Partnership and are fully and unconditionally guaranteed by Digital Realty Trust, Inc.
Interest is payable on August 15 and February 15 of each year beginning February 15, 2007 until the maturity date of August 15, 2026. The 20062026 Debentures bear interest at 4.125% per annum and contain an exchange settlement feature, which provides that the 20062026 Debentures may, under certain circumstances, be exchangeable for cash (up to the principal amount of the 20062026 Debentures) and, with respect to any excess exchange value, into cash, shares of ourDigital Realty Trust, Inc. common stock or a combination of cash and shares of ourDigital Realty Trust, Inc. common stock at an exchange rate that was initially 30.6828 shares per $1,000 principal amount of 20062026 Debentures. The exchange rate on the 20062026 Debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on ourDigital Realty Trust, Inc. common stock in excess of $0.265 per share per quarter (the “reference dividend”). Effective March 12, 2009,December 13, 2010, the exchange rate has been adjusted to 31.037031.8250 shares per $1,000 principal amount of 20062026 Debentures as a result of the aggregate dividends in excess of the reference dividend that weDigital Realty Trust, Inc. declared and paid on ourits common stock beginning with the quarter ended December 31, 2006 and through the quarter ended MarchDecember 31, 2009.2010.
Prior to August 18, 2011, the Operating Partnership may not redeem the 20062026 Debentures except to preserve itsDigital Realty Trust, Inc.’s status as a REIT for U.S. federal income tax purposes. On or after August 18, 2011, at the Operating Partnership’s option, the 20062026 Debentures are redeemable in cash in whole or in part at 100% of the principal amount plus unpaid interest, if any, accrued to, but excluding, the redemption date, upon at least 30 days’ but not more than 60 days’ prior written notice to holders of the 20062026 Debentures.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
The holders of the 20062026 Debentures have the right to require the Operating Partnership to repurchase the 20062026 Debentures in cash in whole or in part on each of August 15, 2011, August 15, 2016 and August 15, 2021, and in the event of a designated event, for a repurchase price equal to 100% of the principal amount of the 20062026 Debentures plus unpaid interest, if any, accrued to, but excluding, the repurchase date. Designated events include certain merger or combination transactions, non-affiliates becoming the beneficial owner of more than 50% of the total voting power of ourDigital Realty Trust, Inc.’s capital stock, a substantial turnover of our company’sDigital Realty Trust, Inc.’s directors within a 12- month period and ourDigital Realty Trust, Inc. ceasing to be the general partner of the Operating Partnership. Certain events are considered “Events of Default,” which may result in the accelerated maturity of the 20062026 Debentures, including a default for 30 days in payment of any installment of interest under the 20062026 Debentures, a default in the payment of the principal amount or any repurchase price or redemption price due with respect to the 20062026 Debentures and the Operating Partnership’s failure to deliver cash or any shares of ourDigital Realty Trust, Inc. common stock within 15 days after the due date upon an exchange of the 20062026 Debentures, together with any cash due in lieu of fractional shares of our common stock.
In addition, the 20062026 Debentures are exchangeable (i) prior to July 15, 2026, during any fiscal quarter after the fiscal quarter ended September 30, 2006, if the closing sale price of the Company’sDigital Realty Trust, Inc. common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the exchange price in effect on the last trading day of the immediately preceding fiscal quarter, (ii) prior to July 15, 2026, during the five business day period after any five consecutive trading day period in which the average trading price per $1,000 principal amount of 20062026 Debentures was equal
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
to or less than 98% of the product of the closing sale price of the common stock during such period, multiplied by the applicable exchange rate, (iii) if we call the 20062026 Debentures for redemption and (iv) any time on or after July 15, 2026.
In July 2010, we gave notice to the holders of the 2026 Debentures that the 2026 Debentures shall be exchangeable during the calendar quarter ending September 30, 2010 pursuant to (i) above. The exchange price in effect as of December 31, 2010 was $31.42 per share. We have entered into a registration rights agreement whereby we agreed to register the shares of common stock which could be issued in the future upon exchange of the 20062026 Debentures. We filed the shelf registration statement with the U.S. Securities and Exchange Commission in April 2007.
During the year ended December 31, 2010, we entered into agreements with institutional holders of approximately $83.7 million aggregate principal amount of our 2026 Debentures to exchange such debentures held by such holders for a combination of cash (approximately $1.9 million including accrued interest) and 2,632,054 privately issued shares of Digital Realty Trust, Inc. common stock. As of December 31, 2010, the remaining $88.8 million face amount of the 2026 Debentures remains outstanding under the original terms. We recorded a loss on exchange of approximately $3.5 million for the year ended December 31, 2010, determined based on the amount of the inducement paid of approximately $0.5 million for the year ended December 31, 2010, plus the excess of the fair value of the 2026 Debentures at the exchange date over the carrying value of the exchanged 2026 Debentures along with a write off of a pro rata portion of the associated debt discount on the 2026 Debentures and deferred financing costs. This loss is reported as a loss on early extinguishment of debt in the consolidated income statements.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
The following table provides additional information about the 20062026 Debentures as of the date presented pursuant to requirements under new accounting guidance onU.S. GAAP for convertible debt instruments that requiresrequire the principal amount to be settled in cash upon conversion:
4.125% Exchangeable Senior Debentures due 2026 | 4.125% Exchangeable Senior Debentures due 2026 | |||||||||||||||
($ and shares in thousands, except exchange price) | December 31, 2009 | December 31, 2008 | December 31, 2010 | December 31, 2009 | ||||||||||||
Carrying amount of the equity component | $ | 18,280 | $ | 18,280 | $ | 9,406 | $ | 18,280 | ||||||||
Principal amount of the liability component | $ | 172,500 | $ | 172,500 | $ | 88,758 | $ | 172,500 | ||||||||
Unamortized discount of the liability component | $ | 6,666 | $ | 10,599 | $ | 1,456 | $ | 6,666 | ||||||||
Net carrying amount of the liability component | $ | 165,834 | $ | 161,901 | $ | 87,302 | $ | 165,834 | ||||||||
Remaining amortization period of discount | 19 months | (a | ) | 7 months | 19 months | |||||||||||
Exchange price | $ | 32.22 | (a | ) | $ | 31.42 | $ | 32.22 | ||||||||
Number of shares to be issued upon exchange | 1,923 | (a | ) | 1,103 | 1,923 | |||||||||||
The amount by which the if-exchanged value exceeds the principal amount | $ | 96,693 | (a | ) | $ | 56,828 | $ | 96,693 | ||||||||
Effective interest rate on liability component | 6.75 | % | (a | ) | 6.75 | % | 6.75 | % | ||||||||
Non-cash interest cost recognized for the year ended | $ | 3,933 | (a | ) | $ | 3,517 | $ | 3,933 | ||||||||
Coupon rate interest cost recognized for the year ended | $ | 7,116 | (a | ) | $ | 5,815 | $ | 7,116 |
(a) |
In accordance with |
5.50% Exchangeable Senior Debentures due 2029
On April 20, 2009, the Operating Partnership issued $266.4 million of its 5.50% exchangeable senior debentures due April 15, 2029 (the 20092029 Debentures). Costs incurred to issue the 20092029 Debentures were approximately $7.8 million. These costs are being amortized over a period of five years, which represents the estimated term of the 20092029 Debentures, and are included in deferred financing costs, net in the consolidated balance sheet. The 20092029 Debentures are general unsecured senior obligations of the Operating Partnership, and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Partnership and are fully and unconditionally guaranteed by Digital Realty Trust, Inc.
Interest is payable on October 15 and April 15 of each year beginning October 15, 2009 until the maturity date of April 15, 2029. The 20092029 Debentures bear interest at 5.50% per annum and may be exchanged for shares of ourDigital Realty Trust, Inc. common stock at an exchange rate that was initially 23.2558 shares per $1,000 principal amount of 20092029 Debentures. The exchange rate on the 20092029 Debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on ourDigital Realty Trust, Inc. common stock in excess of $0.33 per share per quarter (the “reference dividend”). Effective September 13, 2010, the exchange rate has been adjusted to 23.5360 shares per $1,000 principal amount of 2029 Debentures as a result of the aggregate
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
dividends in excess of the reference dividend that Digital Realty Trust, Inc. declared and paid on its common stock beginning with the quarter ended June 30, 2009 and through the quarter ended September 30, 2010. Due to the fact that the exchange feature for the 20092029 Debentures must be settled in the common stock of the Company,Digital Realty Trust, Inc., new accounting guidance on convertible debt instruments that requires the principal amount to be settled in cash upon conversion does not apply.
Prior to April 18, 2014, the Operating Partnership may not redeem the 20092029 Debentures except to preserve itsDigital Realty Trust, Inc.’s status as a REIT for U.S. federal income tax purposes. On or after April 18, 2014, at the Operating Partnership’s option, the 20092029 Debentures are redeemable in cash in whole or in part at 100% of the principal amount plus unpaid interest, if any, accrued to, but excluding, the redemption date, upon at least 30 days’ but not more than 60 days’ prior written notice to holders of the 20092029 Debentures.
The holders of the 20092029 Debentures have the right to require the Operating Partnership to repurchase the 20092029 Debentures in cash in whole or in part on each of April 15, 2014, April 15, 2019 and April 15, 2024, and in the event of a designated event, for a repurchase price equal to 100% of the principal amount of the 20092029 Debentures plus unpaid interest, if any, accrued to, but excluding, the repurchase date. Designated events include certain merger or combination transactions, non-affiliates becoming the beneficial owner of more than 50% of the total voting power of ourDigital Realty Trust, Inc.’s capital stock, a substantial turnover of our company’sDigital Realty Trust, Inc.’s directors within a 12-month period without the approval of existing members and ourDigital Realty Trust, Inc. ceasing to be the general partner of the Operating Partnership. Certain events are considered “Events of Default,” which may result in the accelerated maturity of the 20092029 Debentures, including a default for 30 days in payment of any installment of interest under the 20092029 Debentures, a default in the payment of the principal amount or any repurchase price or redemption price due with respect to the 20092029 Debentures and the Operating Partnership’s failure to deliver shares of ourDigital Realty Trust, Inc. common stock within 15 days after the due date upon an exchange of the 20092029 Debentures, together with any cash due in lieu of fractional shares of our common stock.
We have entered into a registration rights agreement whereby we must register the shares of common stock which could be issued in the future upon exchange of the 20092029 Debentures. We filed the shelf registration statement with the U.S. Securities and Exchange Commission in December 2009.
The table below summarizes our debt maturities and principal payments as of December 31, 2010 (in thousands):
Revolving Credit Facility(1) | Unsecured Senior Notes | Senior Notes | Exchangeable Senior Debentures | Mortgage Loans(2) | Other Secured Loans | Total Debt | ||||||||||||||||||||||
2011 | $ | 333,534 | $ | 25,000 | $ | — | $ | 88,758 | (3) | $ | 130,611 | $ | — | $ | 577,903 | |||||||||||||
2012 | — | — | — | — | 158,348 | — | 158,348 | |||||||||||||||||||||
2013 | — | 33,000 | — | — | 156,009 | 10,500 | 199,509 | |||||||||||||||||||||
2014 | — | — | — | 266,400 | (4) | 216,586 | — | 482,986 | ||||||||||||||||||||
2015 | — | 67,000 | 375,000 | — | 75,436 | — | 517,436 | |||||||||||||||||||||
Thereafter | — | 75,000 | 500,000 | — | 305,097 | — | 880,097 | |||||||||||||||||||||
Subtotal | $ | 333,534 | $ | 200,000 | $ | 875,000 | $ | 355,158 | $ | 1,042,087 | $ | 10,500 | $ | 2,816,279 | ||||||||||||||
Unamortized discount | — | — | (8,970 | ) | (1,456 | ) | — | — | (10,426 | ) | ||||||||||||||||||
Unamortized premium | — | — | — | — | 1,101 | — | 1,101 | |||||||||||||||||||||
Total | $ | 333,534 | $ | 200,000 | $ | 866,030 | $ | 353,702 | $ | 1,043,188 | $ | 10,500 | $ | 2,806,954 | ||||||||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(1) | Subject to a one-year extension option exercisable by us. The bank group is obligated to grant the extension option provided we give proper notice, we make certain representations and warranties and no default exists under the revolving credit facility. |
(2) | Our mortgage loans are generally non-recourse to us, subject to carve outs for specified actions by us or specified undisclosed environmental liabilities. As of December 31, 2010, we had provided limited recourse guarantees with respect to approximately $156.6 million principal amount of the outstanding mortgage indebtedness, and partial letter of credit support with respect to approximately an additional $45.9 million of the outstanding mortgage indebtedness. |
(3) | Assumes maturity of the 2026 Debentures at first redemption date in August 2011. |
(4) | Assumes maturity of the 2029 Debentures at first redemption date in April 2014. |
6.8. Income per Share
The following is a summary of the elements used in calculating basic and diluted income per share (in thousands, except share and per share amounts):
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Income from continuing operations | $ | 91,234 | $ | 67,918 | $ | 22,546 | ||||||
Income from continuing operations attributable to noncontrolling interests | (3,572 | ) | (2,664 | ) | (489 | ) | ||||||
Preferred stock dividends | (40,404 | ) | (38,564 | ) | (19,330 | ) | ||||||
Income from continuing operations available to common stockholders | 47,258 | 26,690 | 2,727 | |||||||||
Income from discontinued operations | — | — | 19,444 | |||||||||
Discontinued operations attributable to noncontrolling interests | — | — | (3,264 | ) | ||||||||
Net income available to common stockholders | $ | 47,258 | $ | 26,690 | $ | 18,907 | ||||||
Weighted average shares outstanding—basic | 75,950,370 | 68,829,267 | 60,527,625 | |||||||||
Potentially dilutive common shares: | ||||||||||||
Stock options | 138,944 | 219,993 | 317,354 | |||||||||
Class C Units (2005 Grant) | — | 673,192 | 903,482 | |||||||||
Excess exchange value of 2006 Debentures | 931,576 | 713,308 | 824,476 | |||||||||
Weighted average shares outstanding—diluted | 77,020,890 | 70,435,760 | 62,572,937 | |||||||||
Income per share—basic: | ||||||||||||
Income per share from continuing operations available to common stockholders | $ | 0.62 | $ | 0.39 | $ | 0.04 | ||||||
Income per share from discontinued operations | — | — | $ | 0.27 | ||||||||
Net income per share available to common stockholders | $ | 0.62 | $ | 0.39 | $ | 0.31 | ||||||
Income per share—diluted: | ||||||||||||
Income per share from continuing operations available to common stockholders | $ | 0.61 | $ | 0.38 | $ | 0.04 | ||||||
Income per share from discontinued operations | — | — | 0.26 | |||||||||
Net income per share available to common stockholders | $ | 0.61 | $ | 0.38 | $ | 0.30 | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net income available to common stockholders | $ | 58,339 | $ | 47,258 | $ | 26,690 | ||||||
Weighted average shares outstanding—basic | 84,275,498 | 75,950,370 | 68,829,267 | |||||||||
Potentially dilutive common shares: | ||||||||||||
Stock options | 201,704 | 138,944 | 219,993 | |||||||||
Class C Units (2005 Grant) | — | — | 673,192 | |||||||||
Class C Units (2007 Grant) | 97,761 | — | — | |||||||||
Unvested incentive units | 186,691 | — | — | |||||||||
Excess exchange value of the 2026 Debentures | 1,251,817 | 931,576 | 713,308 | |||||||||
Weighted average shares outstanding—diluted | 86,013,471 | 77,020,890 | 70,435,760 | |||||||||
Income per share: | ||||||||||||
Basic | $ | 0.69 | $ | 0.62 | $ | 0.39 | ||||||
Diluted | $ | 0.68 | $ | 0.61 | $ | 0.38 | ||||||
On or after July 15, 2026, the 20062026 Debentures may be exchanged at the then applicablethen-applicable exchange rate for cash (up to the principal amount of the 2026 Debentures) and, with respect to any excess exchange value, into cash, shares of ourDigital Realty Trust, Inc. common stock or a combination of cash and shares of ourDigital Realty Trust, Inc. common stock at an initial exchange rate of 30.6828 shares per $1,000 principal amount of 2006 Debentures.stock. The 20062026 Debentures are also exchangeable prior to July 15, 2026, but only upon the occurrence of certain specified events. ForDuring the year ended December 31, 2010, the weighted average common stock price exceeded the strike price as of December 31, 2010 of $31.42, for the year ended December 31, 2009, the weighted average common stock price exceeded the current strike price of $32.22 per share and for the yearsyear ended December 31, 2008, and 2007, the weighted average common stock price exceeded the strike price of $32.59 per share. Therefore, using the treasury method, 1,251,817, 931,576 and 713,308 and 824,476 shares of common stock contingently issuable upon settlement of the excess exchange value were included as potentially dilutive common shares in determining diluted earnings per share for the years ended December 31, 2010, 2009 and 2008, and 2007, respectively.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
We have excluded the following potentially dilutive securities in the calculations above as they would be antidilutive or not dilutive:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||
2009 | 2008 | 2007 | 2010 | 2009 | 2008 | |||||||||||||
Weighted average of common Operating Partnership units not owned by us | 5,764,856 | 6,330,996 | 8,226,399 | |||||||||||||||
Weighted average of Operating Partnership common units not owned by us | 4,985,674 | 5,764,856 | 6,330,996 | |||||||||||||||
Potentially dilutive outstanding stock options | 389,016 | 554,294 | 616,168 | — | 389,016 | 554,294 | ||||||||||||
Potentially dilutive 2009 Debentures | 4,345,228 | — | — | |||||||||||||||
Potentially dilutive 2029 Debentures | 6,217,841 | 4,345,228 | — | |||||||||||||||
Potentially dilutive outstanding Class C Units (2007 Grant) | 685,036 | 750,724 | 750,724 | — | 685,036 | 750,724 | ||||||||||||
Potentially dilutive Series C Cumulative Convertible Preferred Stock | 3,617,214 | 3,614,800 | 3,614,800 | 3,671,190 | 3,617,214 | 3,614,800 | ||||||||||||
Potentially dilutive Series D Cumulative Convertible Preferred Stock | 8,215,220 | 7,429,882 | — | 8,271,022 | 8,215,220 | 7,429,882 | ||||||||||||
23,016,570 | 18,680,696 | 13,208,091 | 23,145,727 | 23,016,570 | 18,680,696 | |||||||||||||
7.9. Income per Unit
The following is a summary of basic and diluted income per unit (in thousands, except unit and per unit amounts):
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Net income available to common unitholders | $ | 61,745 | $ | 50,690 | $ | 29,019 | ||||||
Weighted average units outstanding—basic | 89,261,172 | 81,715,226 | 75,160,263 | |||||||||
Potentially dilutive common units: | ||||||||||||
Stock options | 201,704 | 138,944 | 219,993 | |||||||||
Class C Units (2005 Grant) | — | — | 673,192 | |||||||||
Class C Units (2007 Grant) | 97,761 | — | — | |||||||||
Unvested incentive units | 186,691 | — | — | |||||||||
Excess exchange value of the 2026 Debentures | 1,251,817 | 931,576 | 713,308 | |||||||||
Weighted average units outstanding—diluted | 90,999,145 | 82,785,746 | 76,766,756 | |||||||||
Income per unit: | ||||||||||||
Basic | $ | 0.69 | $ | 0.62 | $ | 0.39 | ||||||
Diluted | $ | 0.68 | $ | 0.61 | $ | 0.38 | ||||||
On or after July 15, 2026, the 2026 Debentures may be exchanged at the then-applicable exchange rate for cash (up to the principal amount of the 2026 Debentures) and, with respect to any excess exchange value, into cash, shares of Digital Realty Trust, Inc. common stock or a combination of cash and shares of Digital Realty Trust, Inc. common stock. Pursuant to the terms of the Operating Partnership’s agreement of limited partnership, the Operating Partnership will deliver to Digital Realty Trust, Inc. one common unit for each share of common stock issuable upon exchange of the 2026 Debentures. The 2026 Debentures are also exchangeable prior to July 15, 2026, but only upon the occurrence of certain specified events. During the year ended December 31, 2010, the weighted average common stock price exceeded the strike price as of December 31, 2010 of $31.42, for the year ended December 31, 2009, the weighted average common stock price exceeded the current strike price of $32.22 per share and for the year ended December 31, 2008, the weighted average common stock price
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
exceeded the strike price of $32.59 per share. Therefore, using the treasury method, 1,251,817, 931,576 and 713,308 common units contingently issuable upon settlement of the excess exchange value were included as potentially dilutive common units in determining diluted earnings per unit for the years ended December 31, 2010, 2009 and 2008, respectively.
We have excluded the following potentially dilutive securities in the calculations above as they would be antidilutive or not dilutive:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Potentially dilutive outstanding stock options | — | 389,016 | 554,294 | |||||||||
Potentially dilutive 2029 Debentures | 6,217,841 | 4,345,228 | — | |||||||||
Potentially dilutive outstanding Class C Units (2007 Grant) | — | 685,036 | 750,724 | |||||||||
Potentially dilutive Series C Cumulative Convertible Preferred Units | 3,671,190 | 3,617,214 | 3,614,800 | |||||||||
Potentially dilutive Series D Cumulative Convertible Preferred Units | 8,271,022 | 8,215,220 | 7,429,882 | |||||||||
18,160,053 | 17,251,714 | 12,349,700 | ||||||||||
10. Income Taxes
We haveDigital Realty Trust, Inc. (the Parent Company) elected to be taxed as a REIT and believebelieves that we haveit has complied with the REIT requirements of the Code. As a REIT, we arethe Parent Company is generally not subject to corporate level federal income and excise taxes on taxable income to the extent it is currently distributed to ourits stockholders. Since inception, we havethe Parent Company has distributed 100% of ourits taxable income includingand intends to do so for the tax year endedending December 31, 2009.2010. As such, no provision for federal income taxes has been included in the accompanying consolidated financial statements for the years ended December 31, 2010, 2009 2008 and 2007.
As a REIT, we are subject to local and state taxes in certain states where we operate. We are also subject to foreign income taxes in countries that do not recognize U.S. REITs under their respective tax laws. Income taxes for these jurisdictions are accrued, as necessary, for the years ended December 31, 2009, 2008 and 2007.2008.
We have elected taxable REIT subsidiary (TRS) status for some of our consolidated subsidiaries. In general, a TRS may provide services that would otherwise be considered impermissible for REITs and hold assets that weREITs cannot hold directly. A TRS is subject to federal income tax as a regular C corporation. Income taxes for TRS entities are accrued, as necessary, for the yearyears ended December 31, 2010, 2009 and 2008. No
For our TRS entities and foreign subsidiaries that are subject to U.S. federal, state and foreign income taxes, deferred tax provisionassets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if we believe it is more likely than not that the deferred tax asset may not be realized, based on available evidence at the time the determination is made. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change in our judgment about the realizability of the related deferred tax asset is included in income. Deferred tax assets (net of valuation allowance) and liabilities for our TRS entities and foreign subsidiaries are accrued, as necessary, for the yearyears ended December 31, 2007 due to taxable losses incurred.2010, 2009 and 2008.
8. Stockholders11. Equity and Accumulated Other Comprehensive Loss, Net
(a) Equity Distribution Agreements
On December 31, 2009, Digital Realty Trust, Inc. entered into equity distribution agreements, which we refer to as the Original Equity Distribution Agreements, with each of Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC, or the Original Agents,
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
under which it could issue and sell shares of its common stock having an aggregate offering price of up to $400,000,000 from time to time through, at its discretion, any of the Original Agents as its sales agents. On January 22, 2010, Digital Realty Trust, Inc. amended and restated each Original Equity Distribution Agreement with the applicable Original Agent, and also entered into a new equity distribution agreement with Morgan Stanley & Co. Incorporated, or collectively the Equity Distribution Agreements, under which it may issue and sell shares of its common stock having an aggregate offering price of up to $400,000,000 (including the approximately 1.1 million shares of common stock having an aggregate offering price of approximately $54.3 million sold pursuant to the Original Equity Distribution Agreements as of January 22, 2010), from time to time through, at its discretion, any of the Original Agents or Morgan Stanley & Co. Incorporated as its sales agents. The sales of common stock made under the Equity Distribution Agreements will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. From January 1, 2010 through December 31, 2010, Digital Realty Trust, Inc. generated net proceeds of approximately $217.1 million from the issuance of approximately 3.8 million common shares under the Equity Distribution Agreements at an average price of $57.66 per share after payment of approximately $3.3 million of commissions to the sales agents.
(b) Redeemable Preferred Stock
8.50% Series A Cumulative Redeemable Preferred Stock
We currently have outstanding 4,140,000 shares of ourOn August 24, 2010, the 8.50% series A cumulative redeemable preferred stock or series A preferred stock. Dividends are cumulative on our series A preferred stock from the date of original issuance in the amount of $2.125 per share each year, which is equivalent to 8.50% of the $25.00 liquidation preference per share. Dividends on our series A preferred stock are payable quarterly in arrears. Our series A preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, our series A preferred stock will rank senior to our common stock with respect to the payment of distributions and other amounts and rank on parity with our series B preferred stock, series C preferred stock and series D preferred stock. We are not allowed to redeem our series A preferred stock before February 9, 2010, except in limited circumstances to preserve our status as a REIT. On or after February 9, 2010, we may, at our option, redeem our series A preferred stock, in whole or in
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
part, at any time or from time to time,was redeemed for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such series A preferred stock up to but excludingnot including the redemption date. Holdersdate of our series A preferred stock generally have no voting rights except for limited voting rights if we failapproximately $1.3 million. In connection with the redemption, the previously incurred offering costs of approximately $4.2 million were written-off and deducted in the computation of net income available to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. Our series A preferred stock is not convertible into or exchangeable for any other property or securities of our company.common stockholders.
7.875% Series B Cumulative Redeemable Preferred Stock
We currently have outstanding 2,530,000 shares of ourOn December 10, 2010, the 7.875% series B cumulative redeemable preferred stock or series B preferred stock. Dividends are cumulative on our series B preferred stock from the date of original issuance in the amount of $1.96875 per share each year, which is equivalent to 7.875% of the $25.00 liquidation preference per share. Dividends on our series B preferred stock are payable quarterly in arrears. Our series B preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, our series B preferred stock will rank senior to our common stock with respect to the payment of distributions and other amounts and rank on parity with our series A preferred stock, series C preferred stock and series D preferred stock. We are not allowed to redeem our series B preferred stock before July 26, 2010, except in limited circumstances to preserve our status as a REIT. On or after July 26, 2010, we may, at our option, redeem our series B preferred stock, in whole or in part, at any time or from time to time,was redeemed for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such series B preferred stock up to but excludingnot including the redemption date. Holdersdate of our series B preferred stock generally have no voting rights except for limited voting rights if we failapproximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. Our series B preferred stock is not convertible into or exchangeable for any other property or securities of our company.common stockholders.
(b)(c) Convertible Preferred Stock
4.375% Series C Cumulative Convertible Preferred Stock
On April 10, 2007, we issued 7,000,000 shares of our 4.375% series C cumulative convertible preferred stock, or series C preferred stock. Dividends are cumulative on our series C preferred stock from the date of original issuance in the amount of $1.09375 per share each year, which is equivalent to 4.375% of the $25.00 liquidation preference per share. Dividends on our series C preferred stock are payable quarterly in arrears. Our series C preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, our series C preferred stock will rank senior to our common stock with respect to the payment of distributions and other amounts and rank on parity with our series A preferred stock, series B preferred stock and series D preferred stock. We are not allowed to redeem our series C preferred stock, except in limited circumstances to preserve our status as a REIT. Holders of our series C preferred stock generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Holders of shares of series C preferred stock may convert some or all of their outstanding shares of series C preferred stock initially at a conversion rate of 0.5164 shares of common stock per $25.00 liquidation preference. Effective December 11, 2009,September 13, 2010, the conversion rate has been adjusted to 0.52250.5290 shares of common stock per $25.00 liquidation preference as a result of the aggregate dividends in excess of the reference dividend that we declared and paid on our common beginning with the quarter ended June 30, 2007March 31, 2010 and through the quarter ended December 31, 2009.September 30, 2010. Except as otherwise provided, shares of our series C preferred stock will be convertible only into shares of our common stock. On or after April 10, 2012, we may, at our option, convert some or all of our series C preferred stock into that number of shares of common stock that are issuable at the then-applicable conversion rate. We may exercise this conversion option only if (1) the closing sale price per share of our common stock equals or exceeds 130% of the then-applicable conversion price of our series C preferred stock for
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
at least 20 trading days in a period of 30 consecutive trading days (including the last trading day of such period) ending on the trading day immediately prior to our issuance of a press release announcing the exercise of our conversion option; and (2) on or prior to the effective date of our conversion option, we have either declared and paid, or declared and set apart for payment, any unpaid dividends that are in arrears on our series C preferred stock. The conversion rate on the series C preferred stock is subject to adjustment, including, but not limited to, for certain dividends on our common stock in excess of $0.28625 per share per quarter, subject to adjustment. If holders of shares of the series C preferred stock elect to convert their shares of the series C preferred stock in connection with a fundamental change that occurs on or prior to April 10, 2014, we will increase the conversion rate for shares of the series C preferred stock surrendered for conversion by a number of additional shares determined based on the stock price at the time of such fundamental change and the effective date of such fundamental change. The aggregate number of shares of our common stock issuable in connection with the exercise of the fundamental change conversion right may not exceed 7.3 million shares.
5.500% Series D Cumulative Convertible Preferred Stock
On February 6, 2008, we issued 13,800,000 shares of our 5.500% series D cumulative convertible preferred stock, or series D preferred stock. Dividends are cumulative on our series D preferred stock from the date of original issuance in the amount of $1.375 per share each year, which is equivalent to 5.500% of the $25.00 liquidation preference per share. Dividends on our series D preferred stock are payable quarterly in arrears. Our series D preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, our series D preferred stock will rank senior to our common stock with respect to the payment of distributions and other amounts and rank on parity with our series A preferred stock, series B preferred stock and series C preferred stock. We are not allowed to redeem our series D preferred stock, except in limited circumstances to preserve our status as a REIT. Holders of our series D preferred stock generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.
Holders of shares of series D preferred stock may convert some or all of their outstanding shares of series D preferred stock initially at a conversion rate of 0.5955 shares of common stock per $25.00 liquidation preference. Effective June 11, 2010, the conversion rate has been adjusted to 0.6030 shares of common stock per $25.00 liquidation preference as a result of the aggregate dividends in excess of the reference dividend that we declared and paid on our common beginning with the quarter ended December 31, 2008 and through the quarter ended June 30, 2010. Except as otherwise provided, shares of our series D preferred stock will be convertible only into shares of our common stock. On or after February 6, 2013, we may, at our option, convert some or all of our series D preferred stock into that number of shares of common stock that are issuable at the then-applicable conversion rate. We may exercise this conversion option only if (1) the closing sale price per share of our
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
common stock equals or exceeds 130% of the then-applicable conversion price of our series D preferred stock for at least 20 trading days in a period of 30 consecutive trading days (including the last trading day of such period) ending on the trading day immediately prior to our issuance of a press release announcing the exercise of our conversion option; and (2) on or prior to the effective date of our conversion option, we have either declared and paid, or declared and set apart for payment, any unpaid dividends that are in arrears on our series D preferred stock. The conversion rate on the series D preferred stock is subject to adjustment, including, but not limited to, for certain dividends on our common stock in excess of $0.31 per share per quarter, subject to adjustment. If holders of shares of the series D preferred stock elect to convert their shares of the series D preferred stock in connection with a fundamental change that occurs on or prior to February 6, 2015, we will increase the conversion rate for shares of the series D preferred stock surrendered for conversion by a number of additional shares determined based on the stock price at the time of such fundamental change and the effective date of such fundamental change. The aggregate number of shares of our common stock issuable in connection with the exercise of the fundamental change conversion right may not exceed 16.4 million shares.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(c)(d) Noncontrolling Interests in Operating Partnership
Noncontrolling interests in the Operating Partnership relate to the interests that are not owned by us.Digital Realty Trust, Inc. The following table shows the ownership interest in the Operating Partnership as of December 31, 20092010 and December 31, 2008:2009:
December 31, 2009 | December 31, 2008 | |||||||||
Number of units | Percentage of total | Number of units | Percentage of total | |||||||
The Company | 76,812,783 | 93.4 | % | 73,306,703 | 92.6 | % | ||||
Noncontrolling interests consist of: | ||||||||||
Common units held by third-parties | 4,360,549 | 5.3 | 4,530,549 | 5.7 | ||||||
Incentive units held by employees and directors (see note 9) | 1,058,548 | 1.3 | 1,288,581 | 1.7 | ||||||
82,231,880 | 100.0 | % | 79,125,833 | 100.0 | % | |||||
December 31, 2010 | December 31, 2009 | |||||||||||||||
Number of units | Percentage of total | Number of units | Percentage of total | |||||||||||||
Digital Realty Trust, Inc. | 91,159,221 | 94.3 | % | 76,812,783 | 93.4 | % | ||||||||||
Noncontrolling interests consist of: | ||||||||||||||||
Common units held by third parties | 3,937,827 | 4.1 | 4,360,549 | 5.3 | ||||||||||||
Incentive units held by employees and directors (see note 13) | 1,525,592 | 1.6 | 1,058,548 | 1.3 | ||||||||||||
96,622,640 | 100.0 | % | 82,231,880 | 100.0 | % | |||||||||||
Limited partners have the right to require the Operating Partnership to redeem part or all of their common units for cash based on the fair market value of an equivalent number of shares of ourDigital Realty Trust, Inc. common stock at the time of redemption. Alternatively, weDigital Realty Trust, Inc. may elect to acquire those common units in exchange for shares of ourDigital Realty Trust, Inc. 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. Pursuant to authoritative accounting guidance, weDigital Realty Trust, Inc. evaluated whether we controlit controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the share settlement of the noncontrolling Operating Partnership common and incentive units. Based on the results of this analysis, we concluded that the common and incentive Operating Partnership units met the criteria to be classified within equity. As a result, as of December 31, 2008, we have reclassified the noncontrolling Operating Partnership common and incentive units totaling approximately $65.9 million from the mezzanine section to equity section of our consolidated balance sheet.
The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $249.5$244.5 million and $181.9$249.5 million based on the closing market price of the Company’sDigital Realty Trust, Inc. common stock on December 31, 2010 and 2009, and 2008, respectively.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
The following table shows activity for the noncontrolling interests in the Operating Partnership for the years ended December 31, 2010, 2009 2008 and 2007:2008:
Common Units | Incentive Units | Total | |||||||||||||||||||
As of December 31, 2006 | 12,025,322 | 1,630,142 | 13,655,464 | ||||||||||||||||||
Distributions of GI Partners’ founder common units to its investors who redeemed units for our common stock(1) | (6,160,641 | ) | — | (6,160,641 | ) | ||||||||||||||||
Redemption of common units for shares of our common stock(1) | (265,776 | ) | — | (265,776 | ) | ||||||||||||||||
Distributions of GI Partners’ founder common units to its investors who are employees of the Company | (308,835 | ) | 308,835 | — | |||||||||||||||||
Redemption of common units for shares of our common stock by an employee of the Company(1) | — | (6,002 | ) | (6,002 | ) | ||||||||||||||||
Conversion of incentive units held by employees and directors for shares of our common stock(1) | — | (609,635 | ) | (609,635 | ) | ||||||||||||||||
Grant of incentive units to employees and directors | — | 62,384 | 62,384 | ||||||||||||||||||
Common Units | Incentive Units | Total | |||||||||||||||||||
As of December 31, 2007 | 5,290,070 | 1,385,724 | 6,675,794 | 5,290,070 | 1,385,724 | 6,675,794 | |||||||||||||||
Redemption of common units for shares of our common stock(1) | (760,128 | ) | — | (760,128 | ) | (760,128 | ) | — | (760,128 | ) | |||||||||||
Redemption of common units for shares of our common stock by employees of the Company(1) | — | (302,226 | ) | (302,226 | ) | — | (302,226 | ) | (302,226 | ) | |||||||||||
Conversion of incentive units held by employees and directors for shares of our common stock(1) | — | (762,803 | ) | (762,803 | ) | — | (762,803 | ) | (762,803 | ) | |||||||||||
Transfer of common units to a third party by an employee of the Company(1) | 607 | (607 | ) | — | 607 | (607 | ) | — | |||||||||||||
Vesting of 2005 OPP Grant | — | 781,395 | 781,395 | — | 781,395 | 781,395 | |||||||||||||||
Grant of incentive units to employees and directors | — | 187,098 | 187,098 | — | 187,098 | 187,098 | |||||||||||||||
As of December 31, 2008 | 4,530,549 | 1,288,581 | 5,819,130 | 4,530,549 | 1,288,581 | 5,819,130 | |||||||||||||||
Redemption of common units for shares of our common stock(1) | (170,000 | ) | — | (170,000 | ) | (170,000 | ) | — | (170,000 | ) | |||||||||||
Conversion of incentive units held by employees and directors for shares of our common stock(1) | — | (480,511 | ) | (480,511 | ) | — | (480,511 | ) | (480,511 | ) | |||||||||||
Cancellation of incentive units held by employees and directors | — | (20,252 | ) | (20,252 | ) | — | (20,252 | ) | (20,252 | ) | |||||||||||
Grant of incentive units to employees and directors | — | 270,730 | 270,730 | — | 270,730 | 270,730 | |||||||||||||||
As of December 31, 2009 | 4,360,549 | 1,058,548 | 5,419,097 | 4,360,549 | 1,058,548 | 5,419,097 | |||||||||||||||
Redemption of common units for shares of our common stock(1) | (422,722 | ) | — | (422,722 | ) | ||||||||||||||||
Conversion of incentive units held by employees and directors for shares of our common stock(1) | — | (348,266 | ) | (348,266 | ) | ||||||||||||||||
Vesting of Class C Units (2007 Grant) | — | 593,316 | 593,316 | ||||||||||||||||||
Grant of incentive units to employees and directors | — | 222,024 | 222,024 | ||||||||||||||||||
As of December 31, 2010 | 3,937,827 | 1,525,622 | 5,463,449 | ||||||||||||||||||
�� |
(1) | This redemption was 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 |
Under the terms of certain third parties’ (the eXchange parties) contribution agreements signed in the third quarter of 2004, we have agreed to indemnify each eXchange party against adverse tax consequences in the event the Operating Partnership directly or indirectly sells, exchanges or otherwise disposes of (whether by way of merger, sale of assets or otherwise) in a taxable transaction any interest in 200 Paul Avenue 1-4 or 1100 Space Park Drive until the earlier of November 3, 2013 and the date on which these contributors or certain transferees hold less than 25% of the Operating Partnership common units issued to them in the formation transactions consummated concurrently with the IPO. Under the eXchange parties’ amended contribution agreement, the Operating Partnership has agreed to make approximately $17.8 million of indebtedness available for guaranty by the eXchange parties until the earlier of November 3, 2013 and the date on which these contributors or certain transferees hold less than 25% of the Operating Partnership common units issued to them in the formation transactions consummated concurrently with the IPO, and we have agreed to indemnify each eXchange party against adverse tax consequences if the Operating Partnership does not provide such indebtedness to guarantee.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(d) Noncontrolling Interests in Consolidated Joint Ventures
In September 2009, we acquired the remaining noncontrolling ownership interest in 1525 Comstock Street from our former joint venture partner for approximately $26.4 million.
In December 2008, we acquired the remaining noncontrolling ownership interest in 1500 Space Park Drive and 1201 Comstock Street from our former joint venture partner for approximately $20.6 million.
(e) Dividends and Distributions
We have declared the following dividends on our common and preferred stock and equivalent distributions on common units in our Operating Partnership for the years ended December 31, 2010, 2009 2008 and 20072008 (in thousands):
Date dividend and | Dividend and distribution payable date | Series A Preferred Stock(1) | Series B Preferred Stock(2) | Series C Preferred Stock(3) | Series D Preferred Stock(4) | Common Stock and Operating Partnership Common Units | ||||||||||||||||||||||||||||||||||
February 15, 2007 | April 2, 2007 | 2,199 | 1,246 | — | — | 19,442 | (5) | |||||||||||||||||||||||||||||||||
May 2, 2007 | July 2, 2007 | 2,199 | 1,246 | 1,722 | — | 19,458 | (5) | |||||||||||||||||||||||||||||||||
August 1, 2007 | October 1, 2007 | 2,199 | 1,246 | 1,914 | — | 19,465 | (5) | |||||||||||||||||||||||||||||||||
November 1, 2007 | December 31, 2007 for Series A, B and C Preferred Stock; January 14, 2008 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | — | 22,345 | (6) | |||||||||||||||||||||||||||||||||
Total—2007 | $ | 8,796 | $ | 4,984 | $ | 5,550 | $ | — | $ | 80,710 | ||||||||||||||||||||||||||||||
Date dividend declared | Dividend payable date | Series A Preferred Stock(1) | Series B Preferred Stock(2) | Series C Preferred Stock(3) | Series D Preferred Stock(4) | Common Stock | ||||||||||||||||||||||||||||||||||
February 25, 2008 | March 31, 2008 | 2,199 | 1,246 | 1,914 | 2,899 | 22,418 | (6) | March 31, 2008 | 2,199 | 1,246 | 1,914 | 2,899 | 20,295 | (5) | ||||||||||||||||||||||||||
May 5, 2008 | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,444 | (6) | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 20,512 | (5) | ||||||||||||||||||||||||||
August 4, 2008 | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 24,258 | (6) | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,491 | (5) | ||||||||||||||||||||||||||
November 4, 2008 | December 31, 2008 for Series A, B, C and D Preferred Stock; January 7, 2009 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | 4,744 | 26,102 | (7) | December 31, 2008 for Series A, B, C and D Preferred Stock; January 7, 2009 for Common Stock | 2,199 | 1,246 | 1,914 | 4,744 | 24,150 | (6) | ||||||||||||||||||||||||||
Total—2008 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 95,222 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 87,448 | ||||||||||||||||||||
February 24, 2009 | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,053 | (7) | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 25,077 | (6) | ||||||||||||||||||||||||||
April 28, 2009 | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,064 | (7) | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 25,126 | (6) | ||||||||||||||||||||||||||
July 28, 2009 | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 29,575 | (8) | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,502 | (7) | ||||||||||||||||||||||||||
October 27, 2009 | December 31, 2009 for Series A, B, C and D Preferred Stock; January 15, 2010 for Common Stock and Operating Partnership Common Units | 2,199 | 1,246 | 1,914 | 4,742 | 37,004 | (9) | December 31, 2009 for Series A, B, C and D Preferred Stock; January 15, 2010 for Common Stock | 2,199 | 1,246 | 1,914 | 4,742 | 34,561 | (8) | ||||||||||||||||||||||||||
Total—2009 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 120,696 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 112,266 | ||||||||||||||||||||
February 23, 2010 | March 31, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 37,512 | (9) | |||||||||||||||||||||||||||||||||
April 27, 2010 | June 30, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 41,783 | (9) | |||||||||||||||||||||||||||||||||
July 19, 2010 | September 30, 2010 | — | (10) | 1,246 | 1,914 | 4,739 | 47,024 | (11) | ||||||||||||||||||||||||||||||||
November 2, 2010 | December 31, 2010 for Series C and D Preferred Stock; January 14, 2011 for Common Stock | — | — | (12) | 1,914 | 4,739 | 48,297 | (11) | ||||||||||||||||||||||||||||||||
Total—2010 | $ | 4,398 | $ | 3,738 | $ | 7,656 | $ | 18,962 | $ | 174,616 | ||||||||||||||||||||||||||||||
(1) | $2.125 annual rate of dividend per share. |
(2) | $1.969 annual rate of dividend per share. |
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(3) | $1.094 annual rate of dividend per share. |
(4) | $1.375 annual rate of dividend per share. |
(5) | $ |
$1.320 annual rate of dividend |
$1.440 annual rate of dividend |
$1.800 annual rate of dividend |
(9) | $1.920 annual rate of dividend per share. |
(10) | Redeemed on August 24, 2010 for a redemption price of $25.00 per share, plus accrued and |
The tax treatment of distributions on common stock for
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009 is as follows: 100% ordinary income and 0% return of capital. The tax treatment of distributions on common stock for 2008 is as follows: 100% ordinary income and 0% return of capital. The tax treatment of distributions on common stock for 2007 is as follows: approximately 78% ordinary income and 22% return of capital. All distributions paid on our preferred stock in 2009, 2008 and 2007 were classified as ordinary income for income tax purposes.
(11) | $2.120 annual rate of dividend per share. |
(12) | Redeemed on December 10, 2010 for a redemption price of $25.00 per share, plus accrued and unpaid dividends up to but not including the redemption date of approximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to common stockholders. |
Distributions out of ourDigital Realty Trust, Inc.’s current or accumulated earnings and profits are generally classified as ordinary incomedividends whereas distributions in excess of ourits current and accumulated earnings and profits, to the extent of a stockholder’s adjustedU.S. federal income tax basis in ourDigital Realty Trust, Inc.’s stock, are generally classified as a return of capital. Distributions in excess of a stockholder’s adjustedU.S. federal income tax basis in ourDigital Realty Trust, Inc.’s stock are generally characterized as capital gain. Cash provided by operating activities has been sufficient to fund all distributions.
9.(f) Accumulated Other Comprehensive Loss, Net
The accumulated balances for each classification of other comprehensive loss are as follows (in thousands):
Foreign currency translation adjustments | Cash flow hedge adjustments | Accumulated other comprehensive loss, net | ||||||||||||||||||||||
Balance as of December 31, 2008 | $ | (42,317 | ) | $ | (7,186 | ) | $ | (49,503 | ) | |||||||||||||||
Net current period change | 22,816 | (5,047 | ) | 17,769 | ||||||||||||||||||||
Reclassification to interest expense from interest rate swaps | — | 3,787 | 3,787 | |||||||||||||||||||||
Balance as of December 31, 2009 | $ | (19,501 | ) | $ | (8,446 | ) | $ | (27,947 | ) | |||||||||||||||
Net current period change | (13,674 | ) | (6,732 | ) | (20,406 | ) | ||||||||||||||||||
Reclassification to interest expense from interest rate swaps | — | 6,272 | 6,272 | |||||||||||||||||||||
Balance as of December 31, 2010 | $ | (33,175 | ) | $ | (8,906 | ) | $ | (42,081 | ) | |||||||||||||||
12. Capital and Accumulated Other Comprehensive Loss
(a) Redeemable Preferred Units
8.50% Series A Cumulative Redeemable Preferred Units
On August 24, 2010, the 8.50% series A cumulative redeemable preferred units were redeemed for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.3 million. In connection with the redemption, the previously incurred offering costs of approximately $4.2 million were written-off and deducted in the computation of net income available to common unitholders.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
7.875% Series B Cumulative Redeemable Preferred Units
On December 10, 2010, the 7.875% series B cumulative redeemable preferred units were redeemed for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to common unitholders.
(b) Convertible Preferred Units
4.375% Series C Cumulative Convertible Preferred Units
On April 10, 2007, the Operating Partnership issued 7,000,000 of its 4.375% series C cumulative convertible preferred units, or the series C preferred units, to the General Partner in conjunction with the General Partner’s issuance of an equivalent number of shares of its 4.375% series C cumulative convertible preferred stock, or the series C preferred stock. Distributions are cumulative on the series C preferred units from the date of original issuance in the amount of $1.09375 per unit each year, which is equivalent to 4.375% of the $25.00 liquidation preference per unit. Distributions on the series C preferred units are payable quarterly in arrears. The series C preferred units do not have a stated maturity date and are not subject to any sinking fund. The Operating Partnership is required to redeem the series C preferred units in the event that the General Partner redeems the series C preferred stock. The General Partner is not allowed to redeem the series C preferred stock except in limited circumstances to preserve the General Partner’s status as a REIT. Upon liquidation, dissolution or winding up, the series C preferred units will rank senior to the common units with respect to the payment of distributions and other amounts and rank on parity with the Operating Partnership’s series D preferred units. The General Partner has no voting rights with respect to the series C preferred units.
The series C preferred units convert into common units based upon conversions by the holders of an equivalent number of shares of the series C preferred stock. The initial conversion rate on the series C preferred units was equal to 0.5164 common units per $25.00 liquidation preference. Effective September 13, 2010, the conversion rate was adjusted to 0.5290 common units per $25.00 liquidation preference as a result of an equivalent adjustment to the conversion rate of the series D preferred stock effective on that date. Except as otherwise provided, series C preferred units will be convertible only into common units. The conversion rate on the series C preferred units is subject to adjustment based on adjustments to the conversion rate of the series C preferred stock. The conversion rate on the series C preferred stock is subject to adjustment including, but not limited to, for certain dividends on the General Partner’s common stock in excess of $0.28625 per share per quarter, subject to adjustment. If holders of the series C preferred stock elect to convert their series C preferred stock in connection with a fundamental change that occurs on or prior to April 10, 2014, the General Partner will increase the conversion rate for the series C preferred stock surrendered for conversion by a number of additional shares of common stock determined based on the common stock price at the time of such fundamental change and the effective date of such fundamental change, and an equivalent change will be made to the conversion rate of the series C preferred units.
5.500% Series D Cumulative Convertible Preferred Units
On February 6, 2008, the Operating Partnership issued 13,800,000 of its 5.500% series D cumulative convertible preferred units, or the series D preferred units, to the General Partner in conjunction with the General Partner’s issuance of an equivalent number of shares of its 5.500% series D cumulative convertible preferred
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
stock, or the series D preferred stock. Distributions are cumulative on the series D preferred units from the date of original issuance in the amount of $1.375 per unit each year, which is equivalent to 5.500% of the $25.00 liquidation preference per unit. Distributions on the series D preferred units are payable quarterly in arrears. The series D preferred units do not have a stated maturity date and are not subject to any sinking fund. The Operating Partnership is required to redeem the series D preferred units in the event that the General Partner redeems the series D preferred stock. The General Partner is not allowed to redeem the series D preferred stock except in limited circumstances to preserve the General Partner’s status as a REIT. Upon liquidation, dissolution or winding up, the series D preferred units will rank senior to the common units with respect to the payment of distributions and other amounts and rank on parity with the Operating Partnership’s series C preferred units. The General Partner has no voting rights with respect to the series D preferred units.
The series D preferred units convert into common units based upon conversions by the holders of an equivalent number of shares of the series D preferred stock. The initial conversion rate on the series D preferred units was equal to 0.5955 common units per $25.00 liquidation preference. Effective June 11, 2010, the conversion rate was adjusted to 0.6030 common units per $25.00 liquidation preference as a result of an equivalent adjustment to the conversion rate of the series D preferred stock effective on that date. Except as otherwise provided, series D preferred units will be convertible only into common units. The conversion rate on the series D preferred units is subject to adjustment based on adjustments to the conversion rate of the series D preferred stock. The conversion rate on the series D preferred stock is subject to adjustment including, but not limited to, for certain dividends on the General Partner’s common stock in excess of $0.31 per share per quarter, subject to adjustment. If holders of the series D preferred stock elect to convert their series D preferred stock in connection with a fundamental change that occurs on or prior to February 6, 2015, the General Partner will increase the conversion rate for the series D preferred stock surrendered for conversion by a number of additional shares of common stock determined based on the common stock price at the time of such fundamental change and the effective date of such fundamental change, and an equivalent change will be made to the conversion rate of the series D preferred units
(c) Allocations of Net Income and Net Losses to Partners
Except for special allocations to holders of profits interest units described below in note 13(a) under the heading “Incentive Plans-Long-Term Incentive Units,” the Operating Partnership’s net income will generally be allocated to Digital Realty Trust, Inc. (the General Partner) to the extent of the accrued preferred return on its preferred units, and then to the General Partner and the Operating Partnership’s limited partners in accordance with the respective percentage interests in the common units issued by the Operating Partnership. Net loss will generally be allocated to the General Partner and the Operating Partnership’s limited partners in accordance with the respective common percentage interests in the Operating Partnership until the limited partner’s capital is reduced to zero and any remaining net loss would be allocated to the General Partner. However, in some cases, losses may be disproportionately allocated to partners who have guaranteed our debt. The allocations described above are subject to special allocations relating to depreciation deductions and to compliance with the provisions of Sections 704(b) and 704(c) of the Code, and the associated Treasury Regulations.
(d) Partnership Units
Limited partners have the right to require the Operating Partnership to redeem part or all of their common units for cash based on the fair market value of an equivalent number of shares of the General Partner’s common stock at the time of redemption. Alternatively, the General Partner may elect to acquire those common units in
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
exchange for shares of the General Partner’s 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. Pursuant to authoritative accounting guidance, the Operating Partnership evaluated whether it controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the share settlement of the limited partners’ common units and the vested incentive units. Based on the results of this analysis, the Operating Partnership concluded that the common and vested incentive Operating Partnership units met the criteria to be classified within capital.
The redemption value of the limited partners’ common units and the vested incentive units was approximately $244.5 million and $249.5 million based on the closing market price of Digital Realty Trust, Inc.’s common stock on December 31, 2010 and 2009, respectively.
(e) Distributions
Date distribution declared | Distribution payable date | Series A Preferred Unit(1) | Series B Preferred Unit(2) | Series C Preferred Unit(3) | Series D Preferred Unit(4) | Common Units | ||||||||||||||||
February 25, 2008 | March 31, 2008 | $ | 2,199 | $ | 1,246 | $ | 1,914 | $ | 2,899 | $ | 22,418 | (5) | ||||||||||
May 5, 2008 | June 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 22,444 | (5) | |||||||||||||||
August 4, 2008 | September 30, 2008 | 2,199 | 1,246 | 1,914 | 4,744 | 24,258 | (5) | |||||||||||||||
November 4, 2008 | December 31, 2008 for Series A, B, C and D Preferred Units; January 7, 2009 for Common Units | 2,199 | 1,246 | 1,914 | 4,744 | 26,102 | (6) | |||||||||||||||
Total—2008 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 17,131 | $ | 95,222 | ||||||||||||
February 24, 2009 | March 31, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,053 | (6) | |||||||||||||||
April 28, 2009 | June 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 27,064 | (6) | |||||||||||||||
July 28, 2009 | September 30, 2009 | 2,199 | 1,246 | 1,914 | 4,742 | 29,575 | (7) | |||||||||||||||
October 27, 2009 | December 31, 2009 for Series A, B, C and D Preferred Units; January 15, 2010 for Common Units | 2,199 | 1,246 | 1,914 | 4,742 | 37,004 | (8) | |||||||||||||||
Total—2009 | $ | 8,796 | $ | 4,984 | $ | 7,656 | $ | 18,968 | $ | 120,696 | ||||||||||||
February 23, 2010 | March 31, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 40,143 | (9) | |||||||||||||||
April 27, 2010 | June 30, 2010 | 2,199 | 1,246 | 1,914 | 4,742 | 44,442 | (9) | |||||||||||||||
July 19, 2010 | September 30, 2010 | — | (10) | 1,246 | 1,914 | 4,739 | 49,960 | (11) | ||||||||||||||
November 2, 2010 | December 31, 2010 for Series C and D Preferred Units; January 14, 2011 for Common Units | — | — | (12) | 1,914 | 4,739 | 51,210 | (11) | ||||||||||||||
Total—2010 | $ | 4,398 | $ | 3,738 | $ | 7,656 | $ | 18,962 | $ | 185,755 | ||||||||||||
(1) | $2.125 annual rate of distribution per unit. |
(2) | $1.969 annual rate of distribution per unit. |
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(3) | $1.094 annual rate of distribution per unit. |
(4) | $1.375 annual rate of distribution per unit. |
(5) | $1.240 annual rate of distribution per unit. |
(6) | $1.320 annual rate of distribution per unit. |
(7) | $1.440 annual rate of distribution per unit. |
(8) | $1.800 annual rate of distribution per unit. |
(9) | $1.920 annual rate of distribution per unit. |
(10) | Redeemed on August 24, 2010 for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.3 million. In connection with the redemption, the previously incurred offering costs of approximately $4.2 million were written-off and deducted in the computation of net income available to common unitholders. |
(11) | $2.120 annual rate of dividend per unit. |
(12) | Redeemed on December 10, 2010 for a redemption price of $25.00 per unit, plus accrued and unpaid distributions up to but not including the redemption date of approximately $1.0 million. In connection with the redemption, the previously incurred offering costs of approximately $2.7 million were written-off and deducted in the computation of net income available to common unitholders. |
(f) Accumulated Other Comprehensive Loss
The accumulated balances for each classification of other comprehensive loss are as follows (in thousands):
Foreign currency translation adjustments | Cash flow hedge adjustments | Accumulated other comprehensive loss | ||||||||||||||||||||||
Balance as of December 31, 2008 | $ | (45,813 | ) | $ | (7,934 | ) | $ | (53,747 | ) | |||||||||||||||
Net current period change | 24,476 | (5,419 | ) | 19,057 | ||||||||||||||||||||
Reclassification to interest expense from interest rate swaps | — | 4,060 | 4,060 | |||||||||||||||||||||
Balance as of December 31, 2009 | $ | (21,337 | ) | $ | (9,293 | ) | $ | (30,630 | ) | |||||||||||||||
Net current period change | (14,714 | ) | (7,160 | ) | (21,874 | ) | ||||||||||||||||||
Reclassification to interest expense from interest rate swaps | — | 6,644 | 6,644 | |||||||||||||||||||||
Balance as of December 31, 2010 | $ | (36,051 | ) | $ | (9,809 | ) | $ | (45,860 | ) | |||||||||||||||
13. Incentive Plan
Our 2004 Incentive Award Plan provides for the grant of incentive awards to employees, directors and consultants. Awards issuable under the 2004 Incentive Award Plan include stock options, restricted stock, dividend equivalents, stock appreciation rights, long-term incentive units, cash performance bonuses and other incentive awards. Only employees are eligible to receive incentive stock options under the 2004 Incentive Award Plan. Initially, we had reserved a total of 4,474,102 shares of common stock for issuance pursuant to the 2004 Incentive Award Plan, subject to certain adjustments set forth in the 2004 Incentive Award Plan. On May 2, 2007, ourDigital Realty Trust, Inc.’s stockholders approved the First Amended and Restated Digital Realty Trust,
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Inc., Digital Realty Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (the Amended and Restated 2004 Incentive Award Plan). The Amended and Restated 2004 Incentive Award Plan increases the aggregate number of shares of stock which may be issued or transferred under the plan by 5,000,000 shares to a total of 9,474,102 shares, and provides that the maximum number of shares of stock with respect to awards granted to any one participant during a calendar year will be 1,500,000 and the maximum amount that may be paid in cash during any calendar year with respect to any performance-based award not denominated in stock or otherwise for which the foregoing limitation would not be an effective limitation for purposes of Section 162(m) of the Code will be $10.0 million.
As of December 31, 2009, 4,070,5342010, 3,940,578 shares of common stock or awards convertible into or exchangeable for common stock remained available for future issuance under the Amended and Restated 2004 Incentive Award Plan. Each long-term incentive and Class C Unit issued under the Amended and Restated 2004 Incentive Award Plan will count as one share of common stock for purposes of calculating the limit on shares that may be issued under the Amended and Restated 2004 Incentive Award Plan and the individual award limit discussed above.
(a) Long TermLong-Term Incentive Units
Long-term incentive units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. Long-term incentive units, whether vested or not, will receive the same quarterly per unit distributions as Operating Partnership common units, which equal per share distributions on ourDigital Realty Trust, Inc. common stock. Initially, long-term
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
incentive units do not have full parity with common units with respect to liquidating distributions. If such parity is reached, vested long-term incentive units may be converted into an equal number of common units of ourthe Operating Partnership at any time, and thereafter enjoy all the rights of common units of ourthe Operating Partnership, including redemption rights.
In order to achieve full parity with common units, long-term incentive units must be fully vested and the holder’s capital account balance in respect of such long-term incentive units must be equal to the capital account balance of a holder of an equivalent number of common units. The capital account balance attributable to each common unit is generally expected to be the same, in part because of the amount credited to a partner’s capital account upon theirthe partner’s contribution of property to the Operating Partnership, and in part because the partnership agreement provides, in most cases, that allocations of income, gain, loss and deduction (which will adjust the partners’partner’s capital accounts) are to be made to the common units on a proportionate basis. As a result, with respect to a number of long-term incentive units, it is possible to determine the capital account balance of an equivalent number of common units by multiplying the number of long-term incentive units by the capital account balance with respect to a common unit.
A partner’s initial capital account balance is equal to the amount the partner paid (or contributed to the Operating Partnership) for itsthe partner’s units and is subject to subsequent adjustments, including with respect to the partner’s share of income, gain or loss of the Operating Partnership. Because a holder of long-term incentive units generally will not pay for the long-term incentive units, the initial capital account balance attributable to such long-term incentive units will be zero. However, the Operating Partnership is required to allocate income, gain, loss and deduction to the partners’partner’s capital accounts in accordance with the terms of the partnership agreement, subject to applicable Treasury Regulations. The partnership agreement provides that holders of long-term incentive units will receive special allocations of gain in the event of a sale or “hypothetical sale” of assets
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
of ourthe Operating Partnership prior to the allocation of gain to the CompanyDigital Realty Trust, Inc. or other limited partners with respect to their common units. The amount of such allocation will, to the extent of any such gain, be equal to the difference between the capital account balance of a holder of long-term incentive units attributable to such units and the capital account balance attributable to an equivalent number of common units. If and when such gain allocation is fully made, a holder of long-term incentive units will have achieved full parity with holders of common units. To the extent that, upon an actual sale or a “hypothetical sale” of the Operating Partnership’s assets as described above, there is not sufficient gain to allocate to a holder’s capital account with respect to long-term incentive units, or if such sale or “hypothetical sale” does not occur, such units will not achieve parity with common units.
The term “hypothetical sale” refers to circumstances that are not actual sales of the Company’sOperating Partnership’s assets but that require certain adjustments to the value of the Operating Partnership’s assets and the partners’ capital account balances. Specifically, the partnership agreement provides that, from time to time, in accordance with applicable Treasury Regulations, the Operating Partnership will adjust the value of its assets to equal their respective fair market values, and adjust the partners’ capital accounts, in accordance with the terms of the partnership agreement, as if the Operating Partnership sold its assets for an amount equal to their value. Times for making such adjustments generally include the liquidation of the Operating Partnership, the acquisition of an additional interest in the Operating Partnership by a new or existing partner in exchange for more than a de minimis capital contribution, the distribution by the Operating Partnership to a partner of more than a de minimis amount of partnership property as consideration for an interest in the Operating Partnership, in connection with the grant of an interest in the Operating Partnership (other than a de minimis interest) as consideration for the performance of services to or for the benefit of the Operating Partnership (including the grant of a long-term incentive unit), and at such other times as may be desirable or required to comply with the Treasury Regulations.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the years ended December 31, 20092010 and 2008,2009, certain employees were granted an aggregate of 148,310107,993 and 95,652148,310 long-term incentive units, respectively, which, in addition to a service condition, are subject to a performance condition that impacts the number of units in which the employee ultimately granted to the employee.vests. The performance condition is based upon our achievement of the respective fiscal years’ Funds From Operations per share targets. Upon evaluating the results of the performance condition, the final number of units is determined and such units vest based on achievementsatisfaction of the service conditions. The service conditions of the awards provide for 20% vesting on each of the first and second anniversaries of the original grant date and 30% vesting on each of the third and fourth anniversaries of the original grant date, provided the grantee continues employment on each anniversary date. Based on our 20082009 and 20092010 FFO per diluted share and unit, as adjusted by our compensation committee, all of the 20082009 and 20092010 long-term incentive units satisfied the performance condition. The grant date fair values, which equal the market price of our common stock, are being expensed on a straight-line basis over the vesting period of the long-term incentive units, which ranges from four to five years.
The expense recorded for the years ended December 31, 2010, 2009 2008 and 20072008 related to long-term incentive units was approximately $7.1 million, $4.5 million $2.7 million and $0.9$2.7 million, respectively. We capitalized amounts relating to compensation expense of employees directly engaged indirect and incremental to construction and successful leasing activities of approximately $0.6$0.8 million, $0.4$0.6 million and $0.4 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. Unearned compensation representing the unvested portion of the long-term incentive units totaled $9.3$12.9 million and $7.8$9.3 million as of December 31, 20092010 and 2008,2009, respectively. We expect to recognize this unearned compensation over the next 2.72.6 years on a weighted average basis.
(b) Class C Profits Interests Units
2005 Grant
During the fourth quarter of 2005, we granted to each of our named executive officers and certain other employees an award of Class C Units under our 2004 Incentive Award Plan (2005 Grant).
The award agreements provide that the Class C Units subject to this award will vest based on the achievement of a 10% or greater compound annual total shareholder return, as defined, for the period from the grant date through the earlier of September 30, 2008 and the date of a change of control of our Company (the market condition) combined with the employee’s continued service with our company or the Operating Partnership through September 30, 2010. Upon achievement of the market condition, the Class C units will receive the same quarterly per unit distribution as common units in the Operating Partnership.
The aggregate amount of the 2005 Grant award pool will be equal to 7% of the excess shareholder value, as defined, created during the applicable performance period, but in no event will the amount of the pool exceed the lesser of $40.0 million or the value of 2.5% of the total number of shares of our common stock and limited partnership units of the Operating Partnership at the end of the performance period.
On August 4, 2008, our board of directors approved amendments to the outperformance award agreements that we entered into with our executive officers in 2005. As a result of the amendment, approximately 95% of the Class C Units granted pursuant to the outperformance award agreements that satisfied the market condition (summarized above) were fully vested as of September 30, 2008 and the remainder of the units were fully vested as of October 30, 2008. Prior to the amendment, 60 percent of the Class C Units that satisfied the market condition would have vested on September 30, 2008, with the remaining 40 percent of such Class C Units vesting ratably each month for 24 months. As a result of the acceleration, we expensed the remaining $1.6 million of deferred compensation related to these Class C Units during the three months ended September 30, 2008.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
2007 Grant(b) Class C Profits Interest Units
On May 2, 2007, we granted awards of Class C Profits Interest Units of the Operating Partnership or similar stock-based performance awards, which we refer to collectively as the Class C Units, under the Amended and Restated 2004 Incentive Award Plan (2007 Grant) to each of our named executive officers and certain other officers and employees an award of Class C Units of the Operating Partnership under the First Amended and Restated 2004 Incentive Award Plan (2007 Grant).employees.
The Class C Units subject to this award will vestwere subject to vesting based on the achievement of a total shareholderstockholder return (which we refer to as the market condition) as measured on November 1, 2008 (which we refer to as the first measurement date) and May 1, 2010 (which we refer to as the second measurement date). If:
with respect to the first measurement date, we achieve a total shareholderstockholder return equal to at least 18% over athe period commencing on May 2, 2007 and ending on November 1, 2008; and
with respect to the second measurement date, we achieve a total shareholderstockholder return equal to at least 36% over a period commencing on May 2, 2007 and ending on the earlier of May 1, 2010 and the date of a change in control of our company,
the aggregate amount of the 2007 Grant award pool will bewas equal to 8% of the excess shareholderstockholder value as(as defined in the award agreement) created during the applicable performance period, but in no event will the amount of the pool exceed:in excess of:
$17 million for the first measurement date; or
$40 million (less the amount of the award pool as of the first measurement date) for the second measurement date.
The first and second measurement dates may be accelerated as follows:
in the eventWe previously determined that during any 60 consecutive days ending prior to November 1, 2008, the 2007 Grant award pool, if calculated on each day during such period, equals or exceeds $17.0 million on each such day, the first measurement date will be accelerated to the last day of the 60-day period; and
in the event that during any 60 consecutive days ending prior to May 1, 2010, the 2007 Grant award pool, if calculated on each day during such period, equals or exceeds $40.0 million on each such day, the second measurement date will be accelerated to the last day of the 60-day period; and
upon a change in control of the Company.
Except in the event of a change in control of our company, 60% of the Class C Units that satisfy the applicable market condition will vest at the end of the three year period subsequent to grant and an additional 1/60th of such Class C Units will vest on the date of each monthly anniversary thereafter, provided that the employee’s service has not terminated prior to the applicable vesting date. As of December 31, 2009, the market condition with respect to the first measurement date was not achieved.
Common Provisions for the 2005 and 2007 Grant
If the market condition and the other service conditions, as described above, are satisfied with respect to a Class C Unit, On May 1, 2010, we determined that 613,485 of the Class C Unit will be treated inUnits subject to the same manner as the existing long-term incentive units issued by the Operating Partnership.
To the extent that any Class C Units fail to satisfy2007 Grant satisfied the market condition on the second measurement dates discussed above, such Class C Units will automatically be cancelled and forfeited by the employee. In addition, any Class C Units which are not eligible for pro rata vesting in the event of a termination of the employee’s employment due to death or disability or without cause (or for good reason, if applicable) will automatically be cancelled and forfeited upon a termination of the employee’s employment.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the event thatdate (May 1, 2010), with the value of these units equal to the employee’s allocated portionmaximum amount of the award pool that satisfiespayable pursuant to the market condition equates to a number of2007 Grant on the second measurement date. Of the Class C Units that is greater thansatisfied the number of Class C Units awarded to the executive, we will make an additional payment to the executive in the form of a number of shares of our restricted stock equal to the difference subject to the same vesting requirements as the Class C Units.
On September 30, 2008 we accelerated the vesting of all Class C Units related to the 2005 Grant. The grant date fair value of these awards was approximately $4.0 million, withmarket condition on May 1, 2010, 60% vested on May 1, 2010 and the remaining $2.2 million recognized as compensation expense during the year ended December 31, 2008. We recognized compensation expense related to these Class C Units of $2.2 million and $0.8 million40% will vest ratably each month thereafter for the years ended December 31, 2008 and 2007, respectively.24 months.
As of December 31, 2009 and 2008, approximately 685,000 and 751,000 Class C Units related to the 2007 Grant had been awarded to our executive officers and other employees, respectively. The fair value of the 2007 Grant was measured on the grant date using a Monte Carlo simulation to estimate the probability of the multiple market conditions being satisfied. The Monte Carlo simulation uses a statistical formula underlying the Black-Scholes and binomial formulas, and such simulation was run approximately 100,000 times. For each simulation, the value of the payoff was calculated at the settlement date and was then discounted to the grant date at a risk-free interest rate. The expected value of the Class C units on the grant date was determined by multiplying the average of the values over all simulations by the number of outstanding shares of Digital Realty Trust, Inc. common stock and Operating Partnership units. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. Other significant assumptions used in the valuation included an expected term of 36 months, expected stock price volatility of 23%, a risk-free interest rate of 4.6%, and a dividend growth rate of 5.0 percent. The fixed award limit under the plan is $17 million for the first market condition and $40 million for the second market condition, and there were 69.2 million shares of Digital Realty Trust, Inc. common stock and Operating Partnership units outstanding as of the 2007 grant date. The grant date fair value of these awards of approximately $11.8 million will be recognized as compensation expense on a straight linestraight-line basis over the expected service period of five years. The unearned compensation as of December 31, 2010 and 2009 and 2008 was $5.0$2.9 million and $7.8$5.0 million, respectively. As of December 31, 2010 and 2009, 439,653 and 2008, none, respectively, of the above awardsClass C Units subject to
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
the 2007 Grant had vested. We recognized compensation expense related to thesethe Class C Units subject to the 2007 Grant of $1.9 million, $1.6 million $2.0 million and $1.1$2.0 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. We capitalized amounts relating to compensation expense of employees directly engaged indirect and incremental to construction and successful leasing activities of $0.3 million, $0.2 million $0.4 million and $0.5$0.4 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively.
(c) Stock Options
The fair value of each option granted under the 2004 Incentive Award Plan is estimated on the date of the grant using the Black-Scholes option-pricing model withmodel. For the weighted-average assumptions listed below for grants in 2007. There wereyears ended December 31, 2010, 2009 and 2008, no stock options granted in 2008 and 2009.were granted. The fair values are being expensed on a straight-line basis over the vesting period of the options, which ranges from four to five years. The expense recorded for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively was approximately $0.9 million, $1.1$0.9 million and $0.9$1.1 million, respectively. We capitalized amounts relating to compensation expense of employees directly engaged indirect and incremental to construction and successful leasing activities of approximately $0.2 million, $0.2 million and $0.1$0.2 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. Unearned compensation representing the unvested portion of the stock options totaled $2.5$1.3 million and $3.6$2.5 million for the years ended December 31, 20092010 and 2008,2009, respectively. We expect to recognize this unearned compensation over the next 2.11.2 years on a weighted average basis.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the weighted-average assumptions used to calculate the fair value of the stock options granted during the years ended December 31, 2009, 2008 and 2007:
Year Ended December 31, | ||||||||
2009 | 2008 | 2007 | ||||||
Dividend yield | — | — | 2.76 | % | ||||
Expected life of option | — | — | 80 months | |||||
Risk-free interest rate | — | — | 4.65 | % | ||||
Expected stock price volatility | — | — | 22.82 | % | ||||
Weighted-average fair value of options | — | — | $ | 9.70 | ||||
The following table summarizes the 2004 Incentive Award Plan’s stock option activity for the year ended December 31, 2009:2010:
Year ended December 31, 2009 | Year ended December 31, 2010 | |||||||||||||
Shares | Weighted average exercise price | Shares | Weighted average exercise price | |||||||||||
Options outstanding, beginning of period | 929,011 | $ | 29.70 | 620,276 | $ | 30.63 | ||||||||
Exercised | (249,167 | ) | 25.38 | (148,099 | ) | 37.71 | ||||||||
Cancelled / Forfeited | (59,568 | ) | 38.05 | (1,913 | ) | 41.73 | ||||||||
Options outstanding, end of period | 620,276 | $ | 30.63 | 470,264 | $ | 28.35 | ||||||||
Exercisable, end of period | 371,686 | $ | 25.15 | 351,649 | $ | 24.16 | ||||||||
We issued new common shares for the common stock options exercised during the years ended December 31, 2010, 2009 2008 and 2007.2008. The intrinsic value of options exercised in the years ended December 31, 2010, 2009 2008 and 20072008 was approximately $3.0 million, $4.6 million and $4.5 million, respectively.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and $2.0 million, respectively.2009
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2009:2010:
Options outstanding | Options outstanding | Options exercisable | Options outstanding | Options exercisable | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise price | Number outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price | Aggregate Intrinsic Value | Number exercisable | Weighted average remaining contractual life (years) | Weighted average exercise price | Aggregate Intrinsic Value | Number outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price | Aggregate intrinsic value | Number exercisable | Weighted average remaining contractual life (years) | Weighted average exercise price | Aggregate intrinsic value | ||||||||||||||||||||||||||||||||||||
$12.00-13.02 | 182,369 | 4.83 | $ | 12.01 | $ | 6,979,810 | 182,369 | 4.83 | $ | 12.01 | $ | 6,979,810 | 182,369 | 3.83 | $ | 12.01 | $ | 7,209,595 | 182,369 | 3.83 | $ | 12.01 | $ | 7,209,595 | ||||||||||||||||||||||||||||
$20.37-28.09 | 45,558 | 6.01 | 23.81 | 1,206,140 | 22,720 | 5.98 | $ | 23.64 | 605,267 | 30,558 | 4.99 | 23.43 | 859,004 | 28,638 | 4.96 | 23.14 | 813,209 | |||||||||||||||||||||||||||||||||||
$33.18-41.73 | 392,349 | 7.24 | 40.08 | 4,002,525 | 166,597 | 7.22 | 39.74 | 1,755,560 | 257,337 | 6.26 | 40.53 | 2,834,520 | 140,642 | 6.24 | 40.12 | 1,606,455 | ||||||||||||||||||||||||||||||||||||
620,276 | 6.44 | $ | 30.63 | $ | 12,188,475 | 371,686 | 5.97 | �� | $ | 25.15 | $ | 9,340,637 | 470,264 | 5.24 | $ | 28.35 | $ | 10,903,119 | 351,649 | 4.88 | $ | 24.16 | $ | 9,629,259 | ||||||||||||||||||||||||||||
(d) Restricted Stock
During the years ended December 31, 2010, 2009 and 2008, certain employees were granted an aggregate of 41,853, 53,651 and 39,939 shares of restricted stock, respectively. The grant date fair values, which equal the market price of ourDigital Realty Trust, Inc. common stock, are being expensed on a straight-line basis over the vesting period of the restricted stock, which isranges from three to four years. During the years ended December 31, 2010, 2009 and 2008, certain employees were also granted an aggregate of
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
37,914, 53,909 and 34,822 shares of restricted stock, respectively, which, in addition to a service condition, are subject to a performance condition that impacts the number of shares in which the employee ultimately granted to the employee.vests. The performance condition is based upon our achievement of the respective year’s FFO per share targets. Upon evaluating the results of the performance condition, the final number of shares is determined and such shares vest based on achievementsatisfaction of the service conditions. The service conditions of the awards provide for 20% vesting on each of the first and second anniversaries of the original grant date and 30% vesting on each of the third and fourth anniversaries of the original grant date provided the grantee continues employment on each anniversary date. Based on our 2008, 2009 and 20092010 FFO per diluted share and unit, as adjusted by our compensation committee, all of the 2008, 2009 and 20092010 restricted stock satisfied the performance condition.
The expense recorded for the years ended December 31, 2010, 2009 and 2008 related to grants of restricted stock was approximately $1.5 million, $1.0 million and $0.5 million, respectively. We capitalized amounts relating to compensation expense of employees directly engaged indirect and incremental to construction and successful leasing activities of approximately $0.8 million, $0.7 million and $0.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. Unearned compensation representing the unvested portion of the restricted stock totaled $3.3$4.2 million and $2.2$3.3 million as of December 31, 20092010 and 2008,2009, respectively. We expect to recognize this unearned compensation over the next 2.8 years on a weighted average basis.
(e) 401(k) Plan
We have a 401(k) plan whereby our employees may contribute a portion of their compensation to their respective retirement accounts, in an amount not to exceed the maximum allowed under the Code. The 401(k) Plan complies with Internal Revenue Service requirements as a 401(k) Safe Harbor Plan whereby discretionary contributions made by us are 100% vested. The aggregate cost of our contributions to the 401(k) Plan was approximately $1.1 million, $0.8 million, $0.7 million, and $0.6$0.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.
10. Fair Value of Financial Instruments
We disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.
Current accounting guidance requires the Company to disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value. The Company’s disclosures of estimated fair value of financial instruments at December 31,2010, 2009 and 2008, respectively, were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
The carrying amounts for cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other accrued liabilities, security deposits and prepaid rents approximate fair value because of the short-term nature of these instruments. As described in note 11, the interest rate cap and interest rate swaps are recorded at fair value.
We calculate the fair value of our mortgage loans, unsecured senior notes and exchangeable senior debentures based on currently available market rates assuming the loans are outstanding through maturity and considering the collateral and other loan terms, including excess exchange value which exists related to our 2006 Debentures. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to debt. The carrying value of our revolving credit facility approximates fair value, due to the short-term nature of this instrument along with the variability of interest rates.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 20092010 and 2008, the aggregate estimated fair value and carrying value of our revolving credit facility, mortgage loans, unsecured senior notes and exchangeable senior debentures were as follows (in thousands):2009
As of December 31, 2009 | As of December 31, 2008 | |||||||||||
Estimated Fair Value | Carrying Value | Estimated Fair Value | Carrying Value | |||||||||
Revolving credit facility(1) | $ | 205,547 | $ | 205,547 | $ | 138,579 | $ | 138,579 | ||||
Unsecured senior notes(2) | 94,470 | 83,000 | 58,801 | 58,000 | ||||||||
Mortgage loans(2) | 1,054,293 | 1,063,663 | 918,040 | 1,026,594 | ||||||||
Exchangeable senior debentures(2)(3) | 624,618 | 432,234 | 181,861 | 161,901 | ||||||||
$ | 1,978,928 | $ | 1,784,444 | $ | 1,297,281 | $ | 1,385,074 | |||||
11.14. Derivative Instruments
Currently, we use interest rate caps and swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
To comply with the provisions of fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of December 31, 2009,2010, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements related to US LIBOR, GBP LIBOR and EURIBOR based mortgage loans. To accomplish this objective, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Under an interest rate cap, if the reference interest rate, such as one-month LIBOR, increases above the cap rate, the holder of the instrument receives a payment based on the notional value of the instrument, the length of the period, and the difference between the current reference rate and the cap rate. If the reference rate increases above the cap rate, the payment received under the interest rate cap will offset the increase in the payments due under the variable rate notes payable.
We record all our interest rate swaps and caps on the consolidated balance sheet at fair value. In determining the fair value of our interest rate swaps and caps, we consider the credit risk of our counterparties. These counterparties are generally larger financial institutions engaged in providing a variety of financial services. These institutions generally face similar risks regarding adverse changes in market and economic conditions, including, but not limited to, fluctuations in interest rates, exchange rates, equity and commodity prices and credit spreads. The current and pervasive disruptions in the financial markets have heightened the risks to these institutions.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Interest rate caps are viewed as a series of call options or caplets which exist for each period the cap agreement is in existence. As each caplet expires, the related cost of the expired caplet is amortized to interest expense with the remaining caplets carried at fair value. The value of interest rate caps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero. The purchase price of an interest rate cap is amortized to interest expense over the contractual life of the instrument. For interest rate caps that are designated as cash flow hedges under accounting guidance as it relates to derivative instruments, the change in the fair value of an effective interest rate cap is recorded to accumulated other comprehensive income in equity. Amounts we are entitled to under interest rate caps, if any, are recognized on an accrual basis, and are recorded to as a reduction against interest expense in the accompanying consolidated statements of operations.
Our agreements with some of our derivative counterparties provide either that (1) we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness or that (2) we could be declared in default on our derivative obligations if we default on any of our indebtedness, including a default where repayment of the underlying indebtedness has not been accelerated by the lender.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009,2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The fair value of these derivatives was ($7.5)8.0) million and ($5.8)7.5) million at December 31, 20092010 and 2008,2009, respectively. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2010, 2009 and 2008, respectively, there were no ineffective portions to our interest rate swaps.
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts reported in accumulated other comprehensive loss related to interest rate swaps will be reclassified to interest expense as interest payments are made on our debt. As of December 31, 2009,2010, we estimate that an additional $6.2$5.4 million will be reclassified as an increase to interest expense during the twelve months ending December 31, 2010,2011, when the hedged forecasted transactions impact earnings.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
As of December 31, 20092010 and 2008,2009, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands):
Notional Amount | Type of | Strike Rate | Effective Date | Expiration Date | Fair Value at Significant Other Observable Inputs (Level 2) | |||||||||||||
As of | As of December 31, 2008 | As of December 31, 2009 | As of December 31, 2008 | |||||||||||||||
$20,831(1) | $19,239(1) | Swap | 4.944 | Jul. 10, 2006 | Apr. 10, 2011 | $ | (952 | ) | $ | (986 | ) | |||||||
69,154(1) | — (1) | Swap | 2.980 | April 6, 2009 | Nov. 30, 2013 | (299 | ) | — | ||||||||||
15,208(2) | 15,041(2) | Swap | 3.981 | May 17, 2006 | Jul. 18, 2013 | (889 | ) | (559 | ) | |||||||||
11,003(2) | 10,881(2) | Swap | 4.070 | Jun. 23, 2006 | Jul. 18, 2013 | (675 | ) | (442 | ) | |||||||||
9,682(2) | 9,575(2) | Swap | 3.989 | Jul. 27, 2006 | Oct. 18, 2013 | (579 | ) | (365 | ) | |||||||||
45,067(2) | 44,564(2) | Swap | 3.776 | Dec. 5, 2006 | Jan. 18, 2012 | (1,887 | ) | (1,131 | ) | |||||||||
38,746(2) | 38,315(2) | Swap | 4.000 | Dec. 20, 2006 | Jan. 18, 2012 | (1,794 | ) | (1,207 | ) | |||||||||
— | 96,458 | Swap | 3.167 | Oct. 15, 2008 | June 15, 2009 | — | (1,116 | ) | ||||||||||
42,993 | — | Swap | 2.703 | Dec. 3, 2009 | Sep. 4, 2014 | (453 | ) | — | ||||||||||
17,737 | — | Cap | 4.000 | June 24, 2009 | June 25, 2012 | 70 | — | |||||||||||
$270,421 | $234,073
| $
| (7,458
| )
| $
| (5,806
| )
| |||||||||||
Notional Amount | Type of | Strike Rate | Effective Date | Expiration Date | Fair Value at Significant Other Observable Inputs (Level 2) | |||||||||||||
As of | As of December 31, 2009 | As of December 31, 2010 | As of December 31, 2009 | |||||||||||||||
$19,515(1) | $20,831(1) | Swap | 4.944 | Jul. 10, 2006 | Apr. 10, 2011 | $ | (231 | ) | $ | (952 | ) | |||||||
66,858(1) | 69,154(1) | Swap | 2.980 | April 6, 2009 | Nov. 30, 2013 | (2,471 | ) | (299 | ) | |||||||||
13,978(2) | 15,208(2) | Swap | 3.981 | May 17, 2006 | Jul. 18, 2013 | (828 | ) | (889 | ) | |||||||||
10,113(2) | 11,003(2) | Swap | 4.070 | Jun. 23, 2006 | Jul. 18, 2013 | (621 | ) | (675 | ) | |||||||||
8,900(2) | 9,682(2) | Swap | 3.989 | Jul. 27, 2006 | Oct. 18, 2013 | (557 | ) | (579 | ) | |||||||||
41,430(2) | 45,067(2) | Swap | 3.776 | Dec. 5, 2006 | Jan. 18, 2012 | (1,129 | ) | (1,887 | ) | |||||||||
35,620(2) | 38,746(2) | Swap | 4.000 | Dec. 20, 2006 | Jan. 18, 2012 | (1,054 | ) | (1,794 | ) | |||||||||
40,152(2) | 42,993(2) | Swap | 2.703 | Dec. 3, 2009 | Sep. 4, 2014 | (1,139 | ) | (453 | ) | |||||||||
16,976 | 17,737 | Cap | 4.000 | June 24, 2009 | June 25, 2012 | 3 | 70 | |||||||||||
20,500 | — | Cap | 4.000 | Aug. 4, 2010 | June 15, 2013 | 30 | — | |||||||||||
$274,042 | $270,421 | $ | (7,997 | ) | $ | (7,458 | ) | |||||||||||
(1) | Translation to U.S. dollars is based on exchange rate of $1.56 to £1.00 as of December 31, 2010 and $1.61 to £1.00 as of December 31, |
(2) | Translation to U.S. dollars is based on exchange rate of $1.34 to €1.00 as of December 31, 2010 and $1.43 to €1.00 as of December 31, |
We do not have any fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2009.2010.
12.15. Fair Value of Instruments
We disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.
Current accounting guidance requires the Company to disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value. The Company’s disclosures of estimated fair value of financial instruments at December 31, 2010 and 2009 were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.
The carrying amounts for cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other accrued liabilities, security deposits and prepaid rents approximate fair value because of the short-term nature of these instruments. As described in note 14, the interest rate cap and interest rate swaps are recorded at fair value.
We calculate the fair value of our mortgage loans, unsecured senior notes and exchangeable senior debentures based on currently available market rates assuming the loans are outstanding through maturity and
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
considering the collateral and other loan terms, including excess exchange value which exists related to our 2026 Debentures. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to debt. The carrying value of our revolving credit facility approximates fair value, due to the short-term nature of this instrument along with the variability of interest rates.
As of December 31, 2010 and 2009, the aggregate estimated fair value and carrying value of our revolving credit facility, unsecured senior notes, exchangeable senior debentures, mortgage loans and other secured loans were as follows (in thousands):
As of December 31, 2010 | As of December 31, 2009 | |||||||||||||||
Estimated Fair Value | Carrying Value | Estimated Fair Value | Carrying Value | |||||||||||||
Revolving credit facility(1) | $ | 333,534 | $ | 333,534 | $ | 205,547 | $ | 205,547 | ||||||||
Unsecured senior notes(2)(3) | 1,103,983 | 1,066,030 | 94,470 | 83,000 | ||||||||||||
Exchangeable senior debentures(2)(3) | 504,241 | 353,702 | 624,618 | 432,234 | ||||||||||||
Mortgage loans(2) | 1,078,220 | 1,043,188 | 1,054,293 | 1,063,663 | ||||||||||||
Other secured loans | 10,720 | 10,500 | — | — | ||||||||||||
$ | 3,030,698 | $ | 2,806,954 | $ | 1,978,928 | $ | 1,784,444 | |||||||||
(1) | The carrying value of our revolving credit facility approximates estimated fair value, due to the short-term nature of this instrument along with the variability of interest rates. |
(2) | Valuations for our unsecured senior notes and mortgage loans are determined based on the expected future payments discounted at risk-adjusted rates. The 2015 Notes and 2020 Notes and exchangeable senior debentures are valued based on quoted market prices. |
(3) | The carrying value of the 2015 Notes and 2020 Notes are net of discount of $8,970 in the aggregate as of December 31, 2010. The carrying values of our exchangeable senior debentures are net of discount of $1,456 and $6,666 as of December 31, 2010 and December 31, 2009, respectively, related to our 2026 Debentures. |
16. Tenant Leases
The future minimum lease payments to be received (excluding operating expense reimbursements) by us as of December 31, 2009,2010, under non-cancelable operating leases are as follows (in thousands):
2010 | $ | 509,506 | |
2011 | 493,388 | ||
2012 | 488,669 | ||
2013 | 471,435 | ||
2014 | 416,803 | ||
Thereafter | 1,499,833 | ||
Total | $ | 3,879,634 | |
2011 | $ | 702,727 | ||
2012 | 690,131 | |||
2013 | 653,961 | |||
2014 | 582,033 | |||
2015 | 502,697 | |||
Thereafter | 2,091,439 | |||
Total | $ | 5,222,988 | ||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Included in the above amounts are minimum lease payments to be received from The tel(x) Group, Inc., or tel(x), aand SoftLayer Technologies, Inc., or SoftLayer, related partyparties further discussed in note 13.17. The future minimum lease payments to be received (excluding operating expense reimbursements) by us from tel(x) and SoftLayer as of December 31, 2009,2010, under non-cancelable operating leases are as follows (in thousands):
2010 | $ | 16,682 | |||||
2011 | 17,448 | $ | 29,953 | ||||
2012 | 17,955 | 38,890 | |||||
2013 | 18,477 | 36,954 | |||||
2014 | 19,015 | 38,202 | |||||
2015 | 40,425 | ||||||
Thereafter | 269,940 | 459,019 | |||||
Total | $ | 359,517 | $ | 643,443 | |||
Operating revenues from properties outside the United States were $93.7 million, $82.2 million $52.2 million and $34.2$52.1 million for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. For the years ended December 31, 2010, 2009, 2008, and 20072008 no single foreign country comprised more than 10% of total revenues.
For the years ended December 31, 2010, 2009 2008 and 2007,2008, revenues recognized from Savvis Communications comprised approximately 9.6%8.5%, 11.0%9.6%, and 11.6%11.0% of total revenues, respectively. Other than noted here, for the years ended December 31, 2010, 2009, 2008, and 20072008 no single tenant comprised more than 10% of total revenues.
13.17. Related Party Transactions
In December 2006, we entered into ten leases with tel(x), pursuant to which tel(x) provides enhanced meet-me-room services to our customers. The initial terms of these leases expire in 2026, and tel(x) has options to extend them through 2046. tel(x) was acquired by GI Partners Fund II, LLP in November 2006. Richard Magnuson, our Chairman, is also the chief executive officer of the advisor to GI Partners Fund II, LLP. Our consolidated statements of operations include rental revenues of approximately $26.8 million, $20.6 million $16.1 million and $13.9$16.1 million from tel(x) for the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. In connection with the lease agreements, we entered into an operating agreement with tel(x), effective as of December 1, 2006, with respect to joint sales and marketing efforts, designation of representatives to manage the national relationship between us and tel(x) and future meet-me-room facilities. Under the operating agreement, tel(x) has a sixty-day option to enter into a meet-me-room lease for certain future meet-me-room buildings acquired by us or any buildings currently owned by us that are converted into a meet-me-room building. As of December 31, 2010 and 2009, tel(x) leases 202,987 square feet from us under 31 lease agreements and 126,130 square feet from us under 26 lease agreements.agreements, respectively.
We also entered into a referralan agreement with tel(x), effective as of December 1, 2006, with respect to referral feespercentage rent arising out of potential future lease agreements for rentable space in buildings covered by the meet-me-room lease agreements. Referral feesPercentage rent earned during the years ended December 31, 2010, 2009 2008 and 20072008 amounted to approximately $2.5 million, $1.5 million and $0.8 million, and $0.1 million, respectively. Additionally,
In addition, in connection with the lease agreements, we had the rightentered into a management agreement with tel(x), effective as of December 1, 2007, pursuant to purchase approximately 10%which tel(x) agreed to provide us with certain management services in exchange for a management fee of tel(x) preferred stock. The purchase price would have been calculated as GI Partners Fund II, LLP’s initial cost plus a 12% per annum return. We had the right to purchase, at market, a pro-rata shareone percent of any follow onrents actually collected by tel(x) equity transactions to prevent dilution to our option to acquire approximately 10%. The option to purchase the preferred stock expired in October 2008 and we did not exercise the option.
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
We are party to six leases with SoftLayer, of which four have commenced during the year ended December 31, 2010 and the remaining two will commence in future periods. The initial terms of these leases expire from 2013 to 2025, and SoftLayer has options to extend them from 2018 through 2035. On August 3, 2010, GI Partners Fund III, L.P. acquired a controlling interest in SoftLayer. Richard Magnuson, our Chairman, is also a manager of the general partner to GI Partners Fund III, L.P. Our consolidated statements of operations include rental revenues of approximately $4.2 million from SoftLayer for the year ended December 31, 2010, respectively. No rental revenues were earned from SoftLayer for the years ended December 31, 2009 and 2008.
14.18. Commitments and Contingencies
(a) Operating Leases
We have a ground lease obligation on 2010 East Centennial Circle that expires in 2082. After February 2036, rent for the remaining term of the 2010 East Centennial Circle ground lease will be determined based on a fair market value appraisal of the property and, as result, rent after February 2036 is excluded from the minimum commitment information below.
We have ground leases on Paul van Vlissingenstraat 16 that expires in 2054, Chemin de l’Epinglier 2 that expires in July 2074, Clonshaugh Industrial Estate I and II that expires in 2981, Manchester Technopark that expires in 2125, 29A International Business Park that expires in 2038, Gyroscoopweg 2E-2F, which has a continuous ground lease and will be adjusted on January 1, 2042 and Naritaweg 52, which has a continuous ground lease. We have an operating lease for our current headquarters, which we occupied in June 2005 and expires in May 2012 with an option to extend the lease until September 2017. We also have operating leases at 111 8th8th Avenue (2nd and 6th floors), 8100 Boone Boulevard and 111 8th Avenue (3rd and 7th floors), which expire in June 2014, September 2017 and February 2022, respectively. The lease at 111 8th Avenue (2nd and 6thfloors) has an option to extend the lease until June 2019 and the lease at 111 8th8th Avenue (3rd and 7th floors) has an option to extend the lease until February 2032. The lease at 8100 Boone Boulevard has no extension option.
We have a fully prepaid ground lease on 2055 E. Technology Circle that expires in 2083. We have a fully prepaid ground lease on Cateringweg 5 that expires in 2059. The ground lease at Naritaweg 52 has been prepaid through December 2036.
Rental expense for these leases was approximately $7.9$7.8 million, $7.9 million, and $5.9$7.9 million for the years ended December 31, 2010, 2009 2008 and 20072008 respectively.
The minimum commitment under these leases, excluding the fully prepaid ground lease, as of December 31, 20092010 was as follows (in thousands):
2010 | $ | 7,313 | |||||
2011 | 7,019 | $ | 7,921 | ||||
2012 | 6,548 | 7,492 | |||||
2013 | 6,033 | 6,977 | |||||
2014 | 4,264 | 5,208 | |||||
2015 | 3,358 | ||||||
Thereafter | 34,267 | 52,386 | |||||
$ | 65,444 | $ | 83,342 | ||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
(b) Contingent liabilities
We have agreed with the seller of 350 East Cermak Road to share a portion, not to exceed $135,000 per month, of rental revenue, adjusted for our costs to lease the premises, from the leaseleases of the 192,000 square feet of space held for redevelopment. This revenue sharing agreement will terminate in May 2012. We made payments of approximately $41,000,$4.7 million $41,000 and $17,000$41,000 to the seller during the years ended December 31, 2010, 2009 2008 and 2007,2008, respectively. We have recorded approximately $2.3 million and $2.1 million for this contingent liability on our consolidated balance sheet at December 31, 2009.2010 and December 31, 2009, respectively.
As part of the acquisition of Clonshaugh Industrial Estate I, we entered into an agreement with the seller whereby the seller is entitled to receive 40% of the net rental income generated by the existing building, after we have received a 9% return on all capital invested in the property. As of February 6, 2006, the date we acquired this property, we have estimated the present value of these expected payments over the 10 year lease term to be
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
approximately $1.1 million and this value has been recorded as a component of the purchase price. Accounts payable and other accrued liabilities include $1.3 million and $1.4 million for this liability as of December 31, 20092010 and December 31, 2008, respectively.2009. During the years ended December 31, 2010, 2009 2008 and 2007,2008, we paid approximately $0.2$0.1 million, $0.2 million and $0.1$0.2 million, respectively, to the seller.
Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements and from time to time in the normal course of our business, we enter into various construction contracts with third parties that may obligate us to make payments. At December 31, 2009,2010, we had open commitments related to construction contracts of $41.1approximately $91.4 million.
15. Discontinued Operations
In 2007, we sold the following properties:
Property | Date of Sale | Proceeds (in millions) | Gain on Sale (in millions) | |||||
4055 Valley View Lane | March 30, 2007 | $ | 33.0 | $ | 6.2 | |||
100 Technology Center Drive | March 20, 2007 | 45.5 | 11.8 |
The results of operationsAs part of the properties above are reportedacquisition of 29A International Business Park, the seller could earn additional consideration based on future net operating income growth in excess of certain performance targets, as discontinued operations for all periods presented in the accompanying consolidated financial statements. The following table summarizes the income and expense components that comprise income (loss) from discontinued operations for the year endeddefined. As of December 31, 2007 (in thousands):
Year Ended December 31, 2007 | ||||
Operating Revenues: | ||||
Rental | $ | 1,940 | ||
Tenant reimbursements | 400 | |||
Other | — | |||
Total operating revenues | 2,340 | |||
Operating Expenses: | ||||
Rental property operating and maintenance | 567 | |||
Property taxes | 310 | |||
Insurance | 27 | |||
Depreciation and amortization | 379 | |||
Other | — | |||
Total operating expenses | 1,283 | |||
Operating income | 1,057 | |||
Other Income (Expenses): | ||||
Interest and other income | 5 | |||
Interest expense | 333 | |||
Income from discontinued operations before gain on sale of assets and noncontrolling interests | 1,395 | |||
Gain on sale of assets | 18,049 | |||
Income from discontinued operations | 19,444 | |||
Income from discontinued operations attributable to noncontrolling interests | (3,264 | ) | ||
Income from discontinued operations attributable to Digital Realty Trust, Inc. | $ | 16,180 | ||
DIGITAL REALTY TRUST, INC.2010, construction is not complete and there has been no leases executed that would cause an amount to become probable of payment and therefore no amount is accrued as of December 31, 2010. The maximum amount that could be earned by the seller is S$50.0 million (or approximately $39.0 million based on the exchange rate as of December 31, 2010). The earnout contingency expires in November 2020.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16.19. Quarterly Financial Information (Digital Realty Trust, Inc.) (unaudited)
The tables below reflect selected quarterly information for the years ended December 31, 20092010 and 2008.2009. Certain amounts have been reclassified to conform to the current year presentation (in thousands except share amounts).
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||||||||||
Total operating revenues | $ | 169,774 | $ | 163,227 | $ | 155,007 | $ | 149,134 | $ | 238,672 | $ | 237,486 | $ | 197,464 | $ | 191,779 | ||||||||||||
Net income | 24,897 | 23,945 | 21,203 | 21,189 | 36,298 | 23,626 | 19,902 | 25,586 | ||||||||||||||||||||
Net income attributable to Digital Realty Trust, Inc. | 24,387 | 22,507 | 20,372 | 20,396 | 35,221 | 23,036 | 19,192 | 24,845 | ||||||||||||||||||||
Preferred stock dividends | 10,101 | 10,101 | 10,101 | 10,101 | 7,608 | 9,194 | 10,101 | 10,101 | ||||||||||||||||||||
Net income available to common stockholders | 14,286 | 12,406 | 10,271 | 10,295 | 24,865 | 9,639 | 9,091 | 14,744 | ||||||||||||||||||||
Basic net income per share available to common stockholders | $ | 0.19 | $ | 0.16 | $ | 0.13 | $ | 0.14 | $ | 0.27 | $ | 0.11 | $ | 0.11 | $ | 0.19 | ||||||||||||
Diluted net income per share available to common stockholders | $ | 0.18 | $ | 0.16 | $ | 0.13 | $ | 0.14 | $ | 0.27 | $ | 0.11 | $ | 0.11 | $ | 0.18 | ||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||
December 31, 2008 | September 30, 2008 | June 30, 2008 | March 31, 2008 | |||||||||||||||||||||||||
Total operating revenues | $ | 147,106 | $ | 142,016 | $ | 123,776 | $ | 114,547 | ||||||||||||||||||||
Net income | 25,133 | 18,419 | 13,550 | 10,816 | ||||||||||||||||||||||||
Net income attributable to Digital Realty Trust, Inc. | 23,895 | 17,586 | 13,196 | 10,577 | ||||||||||||||||||||||||
Preferred stock dividends | 10,102 | 10,102 | 10,102 | 8,258 | ||||||||||||||||||||||||
Net income available to common stockholders | 13,793 | 7,484 | 3,094 | 2,319 | ||||||||||||||||||||||||
Basic net income per share available to common stockholders | $ | 0.19 | $ | 0.11 | $ | 0.05 | $ | 0.04 | ||||||||||||||||||||
Diluted net income per share available to common stockholders | $ | 0.19 | $ | 0.10 | $ | 0.05 | $ | 0.03 | ||||||||||||||||||||
17.DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
Three Months Ended | ||||||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Total operating revenues | $ | 169,774 | $ | 163,227 | $ | 155,007 | $ | 149,134 | ||||||||
Net income | 24,897 | 23,945 | 21,203 | 21,189 | ||||||||||||
Net income attributable to Digital Realty Trust, Inc. | 24,387 | 22,507 | 20,372 | 20,396 | ||||||||||||
Preferred stock dividends | 10,101 | 10,101 | 10,101 | 10,101 | ||||||||||||
Net income available to common stockholders | 14,286 | 12,406 | 10,271 | 10,295 | ||||||||||||
Basic net income per share available to common stockholders | $ | 0.19 | $ | 0.16 | $ | 0.13 | $ | 0.14 | ||||||||
Diluted net income per share available to common stockholders | $ | 0.18 | $ | 0.16 | $ | 0.13 | $ | 0.14 | ||||||||
20. Quarterly Financial Information (Digital Realty Trust, L.P.) (unaudited)
The tables below reflect selected quarterly information for the years ended December 31, 2010 and 2009. Certain amounts have been reclassified to conform to the current year presentation (in thousands except unit amounts).
Three Months Ended | ||||||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Total operating revenues | $ | 238,672 | $ | 237,486 | $ | 197,464 | $ | 191,779 | ||||||||
Net income | 36,298 | 23,626 | 19,902 | 25,586 | ||||||||||||
Net income attributable to Digital Realty Trust, L.P. | 36,557 | 23,573 | 19,752 | 25,818 | ||||||||||||
Preferred unit distributions | 7,608 | 9,194 | 10,101 | 10,101 | ||||||||||||
Net income available to common unitholders | 26,201 | 10,176 | 9,651 | 15,717 | ||||||||||||
Basic net income per unit available to common unitholders | $ | 0.27 | $ | 0.11 | $ | 0.11 | $ | 0.19 | ||||||||
Diluted net income per unit available to common unitholders | $ | 0.27 | $ | 0.11 | $ | 0.11 | $ | 0.18 | ||||||||
Three Months Ended | ||||||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Total operating revenues | $ | 169,774 | $ | 163,227 | $ | 155,007 | $ | 149,134 | ||||||||
Net income | 24,897 | 23,945 | 21,203 | 21,189 | ||||||||||||
Net income attributable to Digital Realty Trust, L.P. | 25,371 | 23,405 | 21,129 | 21,189 | ||||||||||||
Preferred unit distributions | 10,101 | 10,101 | 10,101 | 10,101 | ||||||||||||
Net income available to common unitholders | 15,270 | 13,304 | 11,028 | 11,088 | ||||||||||||
Basic net income per unit available to common unitholders | $ | 0.19 | $ | 0.16 | $ | 0.13 | $ | 0.14 | ||||||||
Diluted net income per unit available to common unitholders | $ | 0.18 | $ | 0.16 | $ | 0.13 | $ | 0.14 | ||||||||
DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010 and 2009
21. Subsequent Events
On February 23, 2010, our board of directors approved an amendment to our charter increasing the number of authorized shares of our common stock, par value $.01 per share, available for issuance from 125,000,000 to 145,000,000. No changes were made to the number of authorized shares of our preferred stock, par value $.01 per share, available for issuance (currently 30,000,000).
On February 23, 2010,10, 2011, we declared the following distributionsdividends per share and the Operating Partnership declared an equivalent distribution per unit.unit:
Share Class | Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Common stock and common unit | ||||||||||
Dividend and distribution amount | $ | 0.531250 | $ | 0.492188 | $ | 0.273438 | $ | 0.343750 | $ | 0.480000 | |||||
Dividend and distribution payable date | March 31, 2010 | March 31, 2010 | March 31, 2010 | March 31, 2010 | March 31, 2010 | ||||||||||
Dividend payable to shareholders of record on | March 15, 2010 | March 15, 2010 | March 15, 2010 | March 15, 2010 | March 15, 2010 | ||||||||||
Annual equivalent rate of dividend and distribution | $ | 2.125 | $ | 1.969 | $ | 1.094 | $ | 1.375 | $ | 1.920 |
In December 2009 and January 2010, we entered into equity distribution agreements, under which we could issue up to $400.0 million from time to time, at our discretion. From January 1, 2010 through February 19, 2010,
DIGITAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
we generated net proceeds of $53.5 million from the issuance of approximately 1.1 million common shares under our equity distribution agreements at an average price of $50.54 per share after payment of approximately $0.8 million of commissions.
On February 3, 2010, we closed the sale of $17.0 million aggregate principal amount of our senior unsecured term notes under our Prudential shelf facility. The series F notes have an interest-only rate of 4.50% per annum and a five-year maturity. We used the proceeds of the series F to temporarily repay borrowings under our revolving credit facility, fund development and redevelopment opportunities, fund acquisitions and for working capital. The series F notes are subject to the covenants set forth in the Prudential shelf facility.
On January 28, 2010, the Operating Partnership issued $500.0 million aggregate principal amount of notes, maturing on February 1, 2020 with an interest rate of 5.875% per annum. The purchase price paid by the initial purchasers was 98.296% of the principal amount. The notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by us. Interest on the notes are payable on February 1 and August 1 of each year, beginning on August 1, 2010. The net proceeds from the offering after deducting the original issue discount, underwriting commissions and estimated expenses was approximately $487.6 million. We used the net proceeds from the offering to temporarily repay our borrowings under our revolving credit facility, fund development and redevelopment opportunities and for general corporate purposes.
On January 22, 2010, we completed the acquisition of a three-property datacenter portfolio located in Massachusetts and Connecticut, which we refer to as the New England Portfolio. The purchase price was approximately $375.0 million and was funded with borrowings under our revolving credit facility. The New England Portfolio comprises a total of approximately 550,290 square feet.
On January 20, 2010, we closed the sale of $100.0 million aggregate principal amount of our senior unsecured term notes under our Prudential shelf facility. The notes were issued in two series referred to as the series D and series E notes. The series D notes have a principal amount of $50.0 million, an interest-only rate of 4.57% per annum and a five-year maturity, and the series E notes have a principal amount of $50.0 million, an interest-only rate of 5.73% per annum and a seven-year maturity. We used the proceeds of the series D and series E notes to fund acquisitions, to temporarily repay borrowings under our revolving credit facility and for working capital. The series D and series E notes are subject to the covenants set forth in the Prudential shelf facility.
Share Class | Series C Preferred Stock | Series D Preferred Stock | Common stock and common unit | |||||||||
Dividend and distribution amount | $ | 0.273438 | $ | 0.343750 | $ | 0.680000 | ||||||
Dividend and distribution payable date | March 31, 2011 | March 31, 2011 | March 31, 2011 | |||||||||
Dividend payable to shareholders of record on | March 15, 2011 | March 15, 2011 | March 15, 2011 | |||||||||
Annual equivalent rate of dividend and distribution | $ | 1.094 | $ | 1.375 | $ | 2.720 |
DIGITAL REALTY TRUST, L.P.
SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 20092010
(In thousands)
Initial costs | Costs capitalized subsequent to acquisition | Total costs | Initial costs | Costs capitalized subsequent to acquisition | Total costs | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Land | Acquired ground lease | Buildings and improvements | Total | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Improvements | Carrying costs | Land | Acquired ground lease | Buildings and improvements | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTIES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
36 NE 2nd Street | Miami | 16,964 | 1,942 | — | 24,184 | 2,540 | 1,942 | — | 26,724 | 28,666 | (6,921 | ) | 2002 | (A) | Miami | $ | 16,601 | $ | 1,942 | $ | — | $ | 24,184 | $ | 2,783 | $ | — | $ | 1,942 | $ | — | $ | 26,967 | $ | 28,909 | $ | (8,034 | ) | 2002 | (A) | |||||||||||||||||||||||||||||||||||||
2323 Bryan Street | Dallas | — | 1,838 | — | 77,604 | 18,727 | 1,838 | — | 96,331 | 98,169 | (26,201 | ) | 2002 | (A) | Dallas | — | 1,838 | — | 77,604 | 25,263 | — | 1,838 | — | 102,867 | 104,705 | (30,328 | ) | 2002 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
6 Braham Street | London, England | 20,831 | 3,776 | — | 28,166 | 1,748 | 3,309 | — | 30,381 | 33,690 | (5,833 | ) | 2002 | (A) | London, England | 19,515 | 3,776 | — | 28,166 | 828 | — | 3,917 | — | 28,853 | 32,770 | (6,579 | ) | 2002 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
300 Boulevard East | New York / New Jersey | 43,502 | 5,140 | — | 48,526 | 26,132 | 5,140 | — | 74,658 | 79,798 | (25,334 | ) | 2002 | (A) | New York /New Jersey | 42,732 | 5,140 | — | 48,526 | 36,501 | — | 5,140 | — | 85,027 | 90,167 | (29,085 | ) | 2002 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2334 Lundy Place | Silicon Valley | 39,960 | 3,607 | — | 23,008 | 72 | 3,607 | — | 23,080 | 26,687 | (5,839 | ) | 2002 | (A) | Silicon Valley | 39,496 | 3,607 | — | 23,008 | 72 | — | 3,607 | — | 23,080 | 26,687 | (6,506 | ) | 2002 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
34551 Ardenwood Boulevard 1-4 | Silicon Valley | 54,945 | 15,330 | — | 32,419 | 2,201 | 15,330 | — | 34,620 | 49,950 | (9,386 | ) | 2003 | (A) | Silicon Valley | 54,306 | 15,330 | — | 32,419 | 2,200 | — | 15,330 | — | 34,619 | 49,949 | (10,624 | ) | 2003 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2440 Marsh Lane | Dallas | — | 1,477 | — | 10,330 | 68,822 | 1,477 | — | 79,152 | 80,629 | (7,952 | ) | 2003 | (A) | Dallas | — | 1,477 | — | 10,330 | 70,608 | — | 1,477 | — | 80,938 | 82,415 | (14,661 | ) | 2003 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2010 East Centennial Circle | Phoenix | — | — | 1,477 | 16,472 | 34 | — | 1,477 | 16,506 | 17,983 | (3,358 | ) | 2003 | (A) | Phoenix | — | — | 1,477 | 16,472 | (121 | ) | — | — | 1,322 | 16,506 | 17,828 | (3,858 | ) | 2003 | (A) | |||||||||||||||||||||||||||||||||||||||||||||||
375 Riverside Parkway | Atlanta | — | 1,250 | — | 11,578 | 14,303 | 1,250 | — | 25,881 | 27,131 | (5,354 | ) | 2003 | (A) | Atlanta | — | 1,250 | — | 11,578 | 23,877 | — | 1,250 | — | 35,455 | 36,705 | (7,475 | ) | 2003 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
3300 East Birch Street | Los Angeles | 7,390 | 3,777 | — | 4,611 | 434 | 3,777 | — | 5,045 | 8,822 | (2,225 | ) | 2003 | (A) | Los Angeles | 7,259 | 3,777 | — | 4,611 | 434 | — | 3,777 | — | 5,045 | 8,822 | (2,316 | ) | 2003 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
47700 Kato Road & 1055 Page Avenue | Silicon Valley | — | 5,272 | — | 20,166 | 20 | 5,272 | — | 20,186 | 25,458 | (3,237 | ) | 2003 | (A) | Silicon Valley | — | 5,272 | — | 20,166 | 20 | — | 5,272 | — | 20,186 | 25,458 | (3,758 | ) | 2003 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
4849 Alpha Road | Dallas | 10,411 | 2,983 | — | 10,650 | 56 | 2,983 | — | 10,706 | 13,689 | (2,706 | ) | 2004 | (A) | Dallas | 10,227 | 2,983 | — | 10,650 | 19,827 | — | 2,983 | — | 30,477 | 33,460 | (3,600 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
600 West Seventh Street | Los Angeles | 55,524 | 18,478 | — | 50,824 | 32,083 | 18,478 | — | 82,907 | 101,385 | (19,876 | ) | 2004 | (A) | Los Angeles | 54,157 | 18,478 | — | 50,824 | 33,496 | — | 18,478 | — | 84,320 | 102,798 | (25,416 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2045 & 2055 LaFayette Street | Silicon Valley | 67,271 | 6,065 | — | 43,817 | 19 | 6,065 | — | 43,836 | 49,901 | (7,853 | ) | 2004 | (A) | Silicon Valley | 66,437 | 6,065 | — | 43,817 | 20 | — | 6,065 | — | 43,837 | 49,902 | (9,261 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
100 & 200 Quannapowitt Parkway | Boston | 33,742 | 12,416 | — | 26,154 | 2,088 | 12,416 | — | 28,242 | 40,658 | (7,904 | ) | 2004 | (A) | Boston | 33,145 | 12,416 | — | 26,154 | 10,945 | — | 12,416 | — | 37,099 | 49,515 | (9,557 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
11830 Webb Chapel Road | Dallas | 32,069 | 5,881 | — | 34,473 | 883 | 5,881 | — | 35,356 | 41,237 | (7,828 | ) | 2004 | (A) | Dallas | 31,501 | 5,881 | — | 34,473 | 1,003 | — | 5,881 | — | 35,476 | 41,357 | (9,260 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
150 South First Street | Silicon Valley | 52,760 | 2,068 | — | 29,214 | 837 | 2,068 | — | 30,051 | 32,119 | (4,818 | ) | 2004 | (A) | Silicon Valley | 52,154 | 2,068 | — | 29,214 | 858 | — | 2,068 | — | 30,072 | 32,140 | (5,827 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
3065 Gold Camp Drive | Sacramento | — | 1,886 | — | 10,686 | 134 | 1,886 | — | 10,820 | 12,706 | (2,201 | ) | 2004 | (A) | Sacramento | — | 1,886 | — | 10,686 | 303 | — | 1,886 | — | 10,989 | 12,875 | (2,510 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
200 Paul Avenue 1-4 | San Francisco | 77,803 | 14,427 | — | 75,777 | 28,256 | 14,427 | — | 104,033 | 118,460 | (21,534 | ) | 2004 | (A) | San Francisco | 76,179 | 14,427 | — | 75,777 | 45,649 | — | 14,427 | — | 121,426 | 135,853 | (27,565 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
1100 Space Park Drive | Silicon Valley | 54,944 | 5,130 | — | 18,206 | 11,730 | 5,130 | — | 29,936 | 35,066 | (8,994 | ) | 2004 | (A) | Silicon Valley | 54,296 | 5,130 | — | 18,206 | 11,849 | — | 5,130 | — | 30,055 | 35,185 | (11,320 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
3015 Winona Avenue | Los Angeles | — | 6,534 | — | 8,356 | 5 | 6,534 | — | 8,361 | 14,895 | (2,002 | ) | 2004 | (A) | Los Angeles | — | 6,534 | — | 8,356 | 7 | — | 6,534 | — | 8,363 | 14,897 | (2,371 | ) | 2004 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
833 Chestnut Street | Philadelphia | — | 5,738 | — | 42,249 | 36,855 | 5,738 | — | 79,104 | 84,842 | (19,602 | ) | 2005 | (A) | Philadelphia | — | 5,738 | — | 42,249 | 37,697 | — | 5,738 | — | 79,946 | 85,684 | (25,494 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
1125 Energy Park Drive | Minneapolis/St. Paul | 9,497 | (1) | 2,775 | — | 10,761 | 21 | 2,775 | — | 10,782 | 13,557 | (1,982 | ) | 2005 | (A) | Minneapolis/St. Paul | 9,218 | (1) | 2,775 | — | 10,761 | 35 | — | 2,775 | — | 10,796 | 13,571 | (2,393 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||
350 East Cermak Road | Chicago | — | 8,466 | — | 103,232 | 178,687 | 8,620 | — | 281,765 | 290,385 | (41,186 | ) | 2005 | (A) | Chicago | — | 8,466 | — | 103,232 | 188,569 | — | 8,620 | — | 291,647 | 300,267 | (62,120 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
8534 Concord Center Drive | Denver | — | 2,181 | — | 11,561 | 75 | 2,181 | — | 11,636 | 13,817 | (2,492 | ) | 2005 | (A) | Denver | — | 2,181 | — | 11,561 | 75 | — | 2,181 | — | 11,636 | 13,817 | (3,040 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2401 Walsh Street | Silicon Valley | — | 5,775 | — | 19,267 | 34 | 5,775 | — | 19,301 | 25,076 | (2,973 | ) | 2005 | (A) | Silicon Valley | — | 5,775 | — | 19,267 | 34 | — | 5,775 | — | 19,301 | 25,076 | (3,634 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
2403 Walsh Street | Silicon Valley | — | 5,514 | — | 11,695 | 19 | 5,514 | — | 11,714 | 17,228 | (1,927 | ) | 2005 | (A) | Silicon Valley | — | 5,514 | — | 11,695 | 19 | — | 5,514 | — | 11,714 | 17,228 | (2,355 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
4700 Old Ironsides Drive | Silicon Valley | — | 5,504 | — | 9,727 | 17 | 5,504 | — | 9,744 | 15,248 | (1,747 | ) | 2005 | (A) | Silicon Valley | — | 5,504 | — | 9,727 | 17 | — | 5,504 | — | 9,744 | 15,248 | (2,136 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
4650 Old Ironsides Drive | Silicon Valley | — | 2,865 | — | 4,540 | 866 | 2,865 | — | 5,406 | 8,271 | (1,369 | ) | 2005 | (A) | Silicon Valley | — | 2,865 | — | 4,540 | 865 | — | 2,865 | — | 5,405 | 8,270 | (1,641 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
200 North Nash Street | Los Angeles | — | 4,562 | — | 12,503 | 16 | 4,562 | — | 12,519 | 17,081 | (2,223 | ) | 2005 | (A) | Los Angeles | — | 4,562 | — | 12,503 | 17 | — | 4,562 | — | 12,520 | 17,082 | (2,717 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||
731 East Trade Street | Charlotte | 5,973 | (2) | 1,748 | — | 5,727 | 201 | — | 1,748 | — | 5,928 | 7,676 | (1,044 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
113 North Myers | Charlotte | — | 1,098 | — | 3,127 | 1,753 | — | 1,098 | — | 4,880 | 5,978 | (1,066 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
125 North Myers | Charlotte | — | 1,271 | — | 3,738 | 5,967 | — | 1,271 | — | 9,705 | 10,976 | (2,952 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paul van Vlissingenstraat 16 | Amsterdam, Netherlands | 13,978 | — | — | 15,255 | 5,207 | — | — | — | 20,462 | 20,462 | (3,359 | ) | 2005 | (A) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
600-780 S. Federal | Chicago | — | 7,801 | — | 27,718 | 3,077 | — | 7,849 | — | 30,747 | 38,596 | (5,976 | ) | 2005 | (A) |
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION—(Continued)
DECEMBER 31, 20092010
(In thousands)
Initial costs | Costs capitalized subsequent to acquisition | Total costs | |||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Land | Acquired ground lease | Buildings and improvements | Total | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | |||||||||||||||||
731 East Trade Street | Charlotte | 6,301 | (2) | 1,748 | — | 5,727 | 201 | 1,748 | — | 5,928 | 7,676 | (848 | ) | 2005 | (A) | ||||||||||||
113 North Myers | Charlotte | — | 1,098 | — | 3,127 | 679 | 1,098 | — | 3,806 | 4,904 | (873 | ) | 2005 | (A) | |||||||||||||
125 North Myers | Charlotte | — | 1,271 | — | 3,738 | 5,963 | 1,271 | — | 9,701 | 10,972 | (2,176 | ) | 2005 | (A) | |||||||||||||
Paul van Vlissingenstraat 16 | Amsterdam, Netherlands | 15,208 | — | — | 15,255 | 5,444 | — | — | 20,699 | 20,699 | (2,926 | ) | 2005 | (A) | |||||||||||||
600-780 S. Federal | Chicago | — | 7,801 | — | 27,718 | 2,246 | 7,849 | — | 29,916 | 37,765 | (4,811 | ) | 2005 | (A) | |||||||||||||
115 Second Avenue | Boston | — | 1,691 | — | 12,569 | 10,520 | 1,691 | — | 23,089 | 24,780 | (5,258 | ) | 2005 | (A) | |||||||||||||
Chemin de l’Epinglier 2 | Geneva, Switzerland | 11,046 | — | — | 20,071 | 4,320 | — | — | 24,391 | 24,391 | (3,484 | ) | 2005 | (A) | |||||||||||||
251 Exchange Place | Northern Virginia | — | 1,622 | — | 10,425 | 152 | 1,622 | — | 10,577 | 12,199 | (1,887 | ) | 2005 | (A) | |||||||||||||
7500 Metro Center Drive | Austin | — | 1,177 | — | 4,877 | 2,105 | 1,177 | — | 6,982 | 8,159 | (1,183 | ) | 2005 | (A) | |||||||||||||
7620 Metro Center Drive | Austin | — | 510 | — | 6,760 | 9 | 510 | — | 6,769 | 7,279 | (1,150 | ) | 2005 | (A) | |||||||||||||
3 Corporate Place | New York/New Jersey | 80,000 | 2,124 | — | 12,678 | 77,280 | 2,124 | — | 89,958 | 92,082 | (18,219 | ) | 2005 | (A) | |||||||||||||
4025 Midway Road | Dallas | — | 2,196 | — | 14,037 | 17,575 | 2,196 | — | 31,612 | 33,808 | (7,085 | ) | 2006 | (A) | |||||||||||||
Clonshaugh Industrial Estate | Dublin | — | — | 1,444 | 5,569 | 3,373 | — | 119 | 10,267 | 10,386 | (1,335 | ) | 2006 | (A) | |||||||||||||
6800 Millcreek Drive | Toronto | — | 1,657 | — | 11,352 | 2,289 | 1,657 | — | 13,641 | 15,298 | (1,767 | ) | 2006 | (A) | |||||||||||||
101 Aquila Way | Atlanta | — | 1,480 | — | 34,797 | 41 | 1,480 | — | 34,838 | 36,318 | (5,473 | ) | 2006 | (A) | |||||||||||||
12001 North Freeway | Houston | — | 6,965 | — | 23,492 | 108 | 6,965 | — | 23,600 | 30,565 | (3,289 | ) | 2006 | (A) | |||||||||||||
14901 FAA Boulevard | Dallas | — | 3,303 | — | 40,799 | 117 | 3,303 | — | 40,916 | 44,219 | (4,634 | ) | 2006 | (A) | |||||||||||||
120 E Van Buren | Phoenix | — | 4,524 | — | 157,822 | 55,403 | 4,524 | — | 213,225 | 217,749 | (30,694 | ) | 2006 | (A) | |||||||||||||
Gyroscoopweg 2E-2F | Amsterdam, Netherlands | 9,682 | — | — | 13,450 | 1,319 | — | — | 14,769 | 14,769 | (1,848 | ) | 2006 | (A) | |||||||||||||
Clonshaugh Industrial Estate II | Dublin | 42,993 | — | — | — | 86,449 | — | — | 86,449 | 86,449 | (8,107 | ) | 2006 | (A) | |||||||||||||
600 Winter Street | Boston | — | 1,429 | — | 6,228 | 47 | 1,429 | — | 6,275 | 7,704 | (676 | ) | 2006 | (A) | |||||||||||||
2300 NW 89th Place | Miami | — | 1,022 | — | 3,767 | 18 | 1,022 | — | 3,785 | 4,807 | (536 | ) | 2006 | (A) | |||||||||||||
2055 East Technology Circle | Phoenix | — | — | — | 8,519 | 26,511 | — | — | 35,030 | 35,030 | (4,112 | ) | 2006 | (A) | |||||||||||||
114 Rue Ambroise Croizat | Paris, France | 45,067 | 12,261 | — | 34,051 | 80,634 | 12,578 | — | 114,368 | 126,946 | (6,584 | ) | 2006 | (A) | |||||||||||||
Unit 9, Blanchardstown Corporate Park | Dublin, Ireland | 38,746 | 1,927 | — | 40,024 | 6,838 | 2,075 | — | 46,714 | 48,789 | (5,382 | ) | 2006 | (A) | |||||||||||||
111 8th Avenue | New York / New Jersey | — | — | — | 17,688 | 10,911 | — | — | 28,599 | 28,599 | (9,848 | ) | 2006 | (A) | |||||||||||||
1807 Michael Faraday Court | Northern Virginia | — | 1,499 | — | 4,578 | 1,150 | 1,499 | — | 5,728 | 7,227 | (933 | ) | 2006 | (A) |
Initial costs | Costs capitalized subsequent to acquisition | Total costs | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | ||||||||||||||||||||||||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Improvements | Carrying costs | Land | Acquired ground lease | Buildings and improvements | Total | ||||||||||||||||||||||||||||||||||||||||
115 Second Avenue | Boston | — | 1,691 | — | 12,569 | 10,161 | — | 1,691 | — | 22,730 | 24,421 | (6,838 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
Chemin de l’Epinglier 2 | Geneva, Switzerland | 10,113 | — | — | 20,071 | 2,708 | — | — | — | 22,779 | 22,779 | (4,038 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
251 Exchange Place | Northern Virginia | — | 1,622 | — | 10,425 | 153 | — | 1,622 | — | 10,578 | 12,200 | (2,357 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
7500 Metro Center Drive | Austin | — | 1,177 | — | 4,877 | 2,114 | — | 1,177 | — | 6,991 | 8,168 | (1,351 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
7620 Metro Center Drive | Austin | — | 510 | — | 6,760 | 9 | — | 510 | — | 6,769 | 7,279 | (1,376 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
3 Corporate Place | New York / New Jersey | 80,000 | 2,124 | — | 12,678 | 77,641 | — | 2,124 | — | 90,319 | 92,443 | (26,573 | ) | 2005 | (A) | |||||||||||||||||||||||||||||||||||
4025 Midway Road | Dallas | — | 2,196 | — | 14,037 | 19,287 | — | 2,196 | — | 33,324 | 35,520 | (9,898 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
Clonshaugh Industrial Estate I | Dublin | — | — | 1,444 | 5,569 | 3,043 | — | — | 111 | 9,945 | 10,056 | (1,877 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
6800 Millcreek Drive | Toronto | — | 1,657 | — | 11,352 | 2,289 | — | 1,657 | — | 13,641 | 15,298 | (2,397 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
101 Aquila Way | Atlanta | — | 1,480 | — | 34,797 | 41 | — | 1,480 | — | 34,838 | 36,318 | (6,967 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
12001 North Freeway | Houston | — | 6,965 | — | 23,492 | 256 | — | 6,965 | — | 23,748 | 30,713 | (4,129 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
14901 FAA Boulevard | Dallas | — | 3,303 | — | 40,799 | 117 | — | 3,303 | — | 40,916 | 44,219 | (5,959 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
120 E Van Buren | Phoenix | — | 4,524 | — | 157,822 | 76,340 | — | 4,524 | — | 234,162 | 238,686 | (40,984 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
Gyroscoopweg 2E-2F | Amsterdam, Netherlands | 8,900 | — | — | 13,450 | 344 | — | — | — | 13,794 | 13,794 | (2,233 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
Clonshaugh Industrial Estate II | Dublin | 40,152 | — | — | — | 80,966 | — | — | — | 80,966 | 80,966 | (12,932 | ) | 2006 | (C) | |||||||||||||||||||||||||||||||||||
600 Winter Street | Boston | — | 1,429 | — | 6,228 | 47 | — | 1,429 | — | 6,275 | 7,704 | (856 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
2300 NW 89th Place | Miami | — | 1,022 | — | 3,767 | 18 | — | 1,022 | — | 3,785 | 4,807 | (702 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
2055 East Technology Circle | Phoenix | — | — | — | 8,519 | 26,536 | — | — | — | 35,055 | 35,055 | (7,044 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
114 Rue Ambroise Croizat | Paris, France | 41,430 | 12,261 | — | 34,051 | 79,246 | — | 11,747 | — | 113,811 | 125,558 | (11,307 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
Unit 9, Blanchardstown Corporate Park | Dublin, Ireland | 35,620 | 1,927 | — | 40,024 | 16,544 | — | 1,938 | — | 56,557 | 58,495 | (8,119 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
111 8th Avenue | New York /New Jersey | — | — | — | 17,688 | 12,089 | — | — | — | 29,777 | 29,777 | (13,473 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
1807 Michael Faraday Court | Northern Virginia | — | 1,499 | — | 4,578 | 1,217 | — | 1,499 | — | 5,795 | 7,294 | (1,288 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
8100 Boone Boulevard | Northern Virginia | — | — | — | 158 | 915 | — | — | — | 1,073 | 1,073 | (592 | ) | 2006 | (A) | |||||||||||||||||||||||||||||||||||
21110 Ridgetop Circle | Northern Virginia | — | 2,934 | — | 14,311 | 985 | — | 2,934 | — | 15,296 | 18,230 | (2,078 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
3011 Lafayette Street | Silicon Valley | — | 3,354 | — | 10,305 | 46,040 | — | 3,354 | — | 56,345 | 59,699 | (13,898 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
44470 Chilum Place | Northern Virginia | — | 3,351 | — | 37,360 | 183 | — | 3,531 | — | 37,363 | 40,894 | (3,936 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
43881 Devin Shafron Drive | Northern Virginia | — | 4,653 | — | 23,631 | 87,883 | — | 4,653 | — | 111,514 | 116,167 | (23,044 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
43831 Devin Shafron Drive | Northern Virginia | — | 3,027 | — | 16,247 | 511 | — | 3,027 | — | 16,758 | 19,785 | (1,993 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
43791 Devin Shafron Drive | Northern Virginia | — | 3,490 | — | 17,444 | 45,076 | — | 3,490 | — | 62,520 | 66,010 | (9,761 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
Mundells Roundabout | London, England | 66,858 | 31,354 | — | — | 58,856 | — | 24,885 | — | 65,325 | 90,210 | (3,473 | ) | 2007 | (C) | |||||||||||||||||||||||||||||||||||
210 N Tucker | St. Louis | — | 2,042 | — | 17,223 | 3,895 | — | 2,042 | — | 21,118 | 23,160 | (2,700 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
900 Walnut Street | St. Louis | — | 1,791 | — | 29,516 | 2,483 | — | 1,791 | — | 31,999 | 33,790 | (3,572 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
1 Savvis Parkway | St. Louis | — | 3,301 | — | 20,639 | 18 | — | 3,301 | — | 20,657 | 23,958 | (2,196 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
1500 Space Park Drive | Silicon Valley | 40,489 | (3) | 6,732 | — | 6,325 | 45,982 | — | 4,106 | — | 54,933 | 59,039 | (13,357 | ) | 2007 | (A) | ||||||||||||||||||||||||||||||||||
Cressex 1 | London, England | 28,388 | 3,629 | — | 9,036 | 24,922 | — | 3,001 | — | 34,586 | 37,587 | (4,911 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
Naritaweg 52 | Amsterdam, Netherlands | — | — | 1,192 | 23,441 | (1,833 | ) | — | — | 1,094 | 21,706 | 22,800 | (2,017 | ) | 2007 | (A) | ||||||||||||||||||||||||||||||||||
1 St. Anne’s Boulevard | London, England | — | 2,732 | — | 5,969 | (6,617 | ) | — | 1,194 | — | 890 | 2,084 | (71 | ) | 2007 | (A) | ||||||||||||||||||||||||||||||||||
2 St. Anne’s Boulevard | London, England | — | 5,190 | — | 3,193 | 247 | — | 796 | — | 7,834 | 8,630 | (14 | ) | 2007 | (A) |
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION—(Continued)
DECEMBER 31, 20092010
(In thousands)
Initial costs | Costs capitalized subsequent to acquisition | Total costs | ||||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Land | Acquired ground lease | Buildings and improvements | Total | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | ||||||||||||||||||
8100 Boone Boulevard | Northern Virginia | — | — | — | 158 | 837 | — | — | 995 | 995 | (434 | ) | 2006 | (A) | ||||||||||||||
21110 Ridgetop Circle | Northern Virginia | — | 2,934 | — | 14,311 | 843 | 2,934 | — | 15,154 | 18,088 | (1,528 | ) | 2007 | (A) | ||||||||||||||
3011 Lafayette Street | Silicon Valley | — | 3,354 | — | 10,305 | 44,829 | 3,354 | — | 55,134 | 58,488 | (9,062 | ) | 2007 | (A) | ||||||||||||||
44470 Chilum Place | Northern Virginia | — | 3,351 | — | 37,360 | 184 | 3,531 | — | 37,364 | 40,895 | (2,909 | ) | 2007 | (A) | ||||||||||||||
43881 Devin Shafron Drive | Northern Virginia | — | 4,653 | — | 23,631 | 87,795 | 4,653 | — | 111,426 | 116,079 | (13,797 | ) | 2007 | (A) | ||||||||||||||
43831 Devin Shafron Drive | Northern Virginia | — | 3,027 | — | 16,247 | 980 | 3,027 | — | 17,227 | 20,254 | (1,424 | ) | 2007 | (A) | ||||||||||||||
43791 Devin Shafron Drive | Northern Virginia | — | 3,490 | — | 17,444 | 44,997 | 3,490 | — | 62,441 | 65,931 | (5,320 | ) | 2007 | (A) | ||||||||||||||
Mundells Roundabout | London, England | 69,154 | 31,354 | — | — | 59,167 | 25,742 | — | 64,779 | 90,521 | (1,712 | ) | 2007 | (A) | ||||||||||||||
210 N Tucker | St. Louis | — | 2,042 | — | 17,223 | 1,544 | 2,042 | — | 18,767 | 20,809 | (1,819 | ) | 2007 | (A) | ||||||||||||||
900 Walnut Street | St. Louis | — | 1,791 | — | 29,516 | 2,504 | 1,791 | — | 32,020 | 33,811 | (2,502 | ) | 2007 | (A) | ||||||||||||||
1 Savvis Parkway | St. Louis | — | 3,301 | — | 20,639 | 17 | 3,301 | — | 20,656 | 23,957 | (1,552 | ) | 2007 | (A) | ||||||||||||||
1500 Space Park Drive | Silicon Valley | 42,630 | (3) | 6,732 | — | 6,325 | 45,466 | 4,106 | — | 54,417 | 58,523 | (8,012 | ) | 2007 | (A) | |||||||||||||
Cressex 1 | London, England | 29,486 | 3,629 | — | 9,036 | 25,923 | 3,104 | — | 35,484 | 38,588 | (2,499 | ) | 2007 | (A) | ||||||||||||||
Naritaweg 52 | Amsterdam, Netherlands | — | — | 1,192 | 23,441 | (411 | ) | — | 1,171 | 23,051 | 24,222 | (1,457 | ) | 2007 | (A) | |||||||||||||
1 St. Anne’s Boulevard | London, England | — | 2,732 | — | 5,969 | (788 | ) | 2,697 | — | 5,216 | 7,913 | (279 | ) | 2007 | (A) | |||||||||||||
2 St. Anne’s Boulevard | London, England | — | 5,190 | — | 3,193 | 619 | 4,209 | — | 4,793 | 9,002 | (116 | ) | 2007 | (A) | ||||||||||||||
3 St. Anne’s Boulevard | London, England | — | 16,401 | — | 8,844 | 45,300 | 13,302 | — | 57,243 | 70,545 | (201 | ) | 2007 | (A) | ||||||||||||||
365 South Randolphville Road | New York / New Jersey | — | 3,019 | — | 17,404 | 59,052 | 3,019 | — | 76,456 | 79,475 | (691 | ) | 2008 | (A) | ||||||||||||||
701 & 717 Leonard Street | Dallas | — | 2,165 | — | 9,934 | 68 | 2,165 | — | 10,002 | 12,167 | (385 | ) | 2008 | (A) | ||||||||||||||
650 Randolph Road | New York / New Jersey | — | 3,986 | — | 6,883 | 3,539 | 3,986 | — | 10,422 | 14,408 | (1 | ) | 2008 | (A) | ||||||||||||||
Manchester Technopark | Manchester, England | 8,970 | — | — | 23,918 | (4,504 | ) | — | — | 19,414 | 19,414 | (840 | ) | 2008 | (A) | |||||||||||||
1201 Comstock Street | Silicon Valley | 17,737 | 2,093 | — | 1,606 | 25,773 | 3,398 | — | 26,074 | 29,472 | (1,953 | ) | 2008 | (A) | ||||||||||||||
7505 Mason King Court | Northern Virginia | — | 2,390 | — | 8,257 | 6,863 | 2,390 | — | 15,120 | 17,510 | (659 | ) | 2008 | (A) | ||||||||||||||
1550 Space Park Drive | Silicon Valley | — | 2,301 | — | 766 | 528 | 1,926 | — | 1,669 | 3,595 | (1 | ) | 2008 | (A) | ||||||||||||||
1525 Comstock Street | Silicon Valley | — | 2,293 | — | 16,216 | 28,899 | 2,061 | — | 45,347 | 47,408 | (1,839 | ) | 2008 | (A) | ||||||||||||||
22150 Shellhorn Road Parcel 2 | Northern Virginia | — | 6,927 | — | — | 23,395 | 6,927 | — | 23,395 | 30,322 | (6 | ) | 2009 | (A) | ||||||||||||||
22150 Shellhorn Road Parcel 4E | Northern Virginia | — | 8,168 | — | — | 272 | 8,168 | — | 272 | 8,440 | — | 2009 | (A) | |||||||||||||||
22150 Shellhorn Road Parcel 4F | Northern Virginia | — | 5,509 | — | — | 175 | 5,509 | — | 175 | 5,684 | — | 2009 | (A) |
Initial costs | Costs capitalized subsequent to acquisition | Total costs | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | ||||||||||||||||||||||||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Improvements | Carrying costs | Land | Acquired ground lease | Buildings and improvements | Total | ||||||||||||||||||||||||||||||||||||||||
3 St. Anne’s Boulevard | London, England | — | 16,401 | — | 8,844 | 92,303 | — | 17,548 | — | 100,000 | 117,548 | (3,797 | ) | 2007 | (A) | |||||||||||||||||||||||||||||||||||
365 South Randolphville Road | New York /New Jersey | — | 3,019 | — | 17,404 | 87,422 | — | 3,019 | — | 104,826 | 107,845 | (4,733 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
701 & 717 Leonard Street | Dallas | — | 2,165 | — | 9,934 | 110 | — | 2,165 | — | 10,044 | 12,209 | (657 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
650 Randolph Road | New York /New Jersey | — | 3,986 | — | 6,883 | 3,617 | — | 3,986 | — | 10,500 | 14,486 | (259 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
Manchester Technopark | Manchester, England | 8,636 | — | — | 23,918 | (4,744 | ) | — | — | — | 19,174 | 19,174 | (1,354 | ) | 2008 | (A) | ||||||||||||||||||||||||||||||||||
1201 Comstock Street | Silicon Valley | 16,976 | 2,093 | — | 1,606 | 25,812 | — | 3,398 | — | 26,113 | 29,511 | (3,948 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
7505 Mason King Court | Northern Virginia | — | 2,390 | — | 8,257 | 6,929 | — | 2,390 | — | 15,186 | 17,576 | (1,340 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
1550 Space Park Drive | Silicon Valley | — | 2,301 | — | 766 | 727 | — | 1,926 | — | 1,868 | 3,794 | (1 | ) | 2008 | (C) | |||||||||||||||||||||||||||||||||||
1525 Comstock Street | Silicon Valley | — | 2,293 | — | 16,216 | 28,821 | — �� | 2,061 | — | 45,269 | 47,330 | (5,388 | ) | 2008 | (A) | |||||||||||||||||||||||||||||||||||
43915 Devin Shafron Drive | Northern Virginia | — | 6,927 | — | — | 83,692 | — | 6,927 | — | 83,692 | 90,619 | (3,652 | ) | 2009 | (C) | |||||||||||||||||||||||||||||||||||
43790 Devin Shafron Drive | Northern Virginia | — | 8,168 | — | — | 9,068 | — | 8,168 | — | 9,068 | 17,236 | — | 2009 | (C) | ||||||||||||||||||||||||||||||||||||
43830 Devin Shafron Drive | Northern Virginia | — | 5,509 | — | — | 16,727 | — | 5,509 | — | 16,727 | 22,236 | — | 2009 | (C) | ||||||||||||||||||||||||||||||||||||
1232 Alma Road | Dallas | 5,700 | 2,267 | — | 3,740 | 50,199 | — | 2,266 | — | 53,940 | 56,206 | (1,692 | ) | 2009 | (A) | |||||||||||||||||||||||||||||||||||
900 Quality Way | Dallas | 1,900 | 1,446 | — | 1,659 | 644 | — | 1,446 | — | 2,303 | 3,749 | — | 2009 | (A) | ||||||||||||||||||||||||||||||||||||
1400 N. Bowser Road | Dallas | 3,800 | 2,041 | — | 3,389 | 8 | — | 2,042 | — | 3,396 | 5,438 | — | 2009 | (A) | ||||||||||||||||||||||||||||||||||||
1301 International Parkway | Dallas | — | 333 | — | 344 | 1 | — | 333 | — | 345 | 678 | — | 2009 | (A) | ||||||||||||||||||||||||||||||||||||
908 Quality Way | Dallas | 4,750 | 6,730 | — | 4,493 | 10,015 | — | 6,730 | — | 14,508 | 21,238 | (822 | ) | 2009 | (A) | |||||||||||||||||||||||||||||||||||
904 Quality Way | Dallas | — | 760 | — | 744 | 1 | — | 759 | — | 746 | 1,505 | — | 2009 | (A) | ||||||||||||||||||||||||||||||||||||
905 Security Row | Dallas | — | 4,056 | — | 1,553 | 7 | — | 4,056 | — | 1,560 | 5,616 | — | 2009 | (A) | ||||||||||||||||||||||||||||||||||||
444 Toyama Drive | Silicon Valley | — | 6,213 | — | 10,954 | (461 | ) | — | 6,046 | — | 10,660 | 16,706 | (342 | ) | 2009 | (A) | ||||||||||||||||||||||||||||||||||
1350 Duane | Silicon Valley | 52,302 | (4) | 7,081 | — | 69,817 | 60 | — | 7,081 | — | 69,877 | 76,958 | (2,107 | ) | 2009 | (A) | ||||||||||||||||||||||||||||||||||
45901 & 45845 Nokes Boulevard | Northern Virginia | — | 3,579 | — | 29,998 | (959 | ) | — | 3,437 | — | 29,181 | 32,618 | (803 | ) | 2009 | (A) | ||||||||||||||||||||||||||||||||||
21561 & 21571 Beaumeade Circle | Northern Virginia | — | 4,131 | — | 25,218 | (1,127 | ) | — | 3,966 | — | 24,256 | 28,222 | (621 | ) | 2009 | (A) | ||||||||||||||||||||||||||||||||||
21551 Beaumeade Circle | Northern Virginia | — | 3,132 | — | — | (11 | ) | — | 3,007 | — | 114 | 3,121 | — | 2009 | (C) | |||||||||||||||||||||||||||||||||||
60 & 80 Merritt | New York /New Jersey | — | 3,418 | — | 71,477 | 255 | — | 3,418 | — | 71,732 | 75,150 | (2,055 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
55 Middlesex | Boston | — | 9,975 | — | 68,363 | 1,575 | — | 9,975 | — | 69,938 | 79,913 | (2,043 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
128 First Avenue | Boston | — | 7,851 | — | 185,348 | 2,203 | — | 7,851 | — | 187,551 | 195,402 | (6,228 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
Cateringweg 5 | Amsterdam, Netherlands | — | — | 3,518 | 3,517 | 5,627 | — | 3,847 | 8,815 | 12,662 | (62 | ) | 2010 | (A) | ||||||||||||||||||||||||||||||||||||
1725 Comstock Street | Silicon Valley | — | 3,274 | — | 6,567 | 35,349 | — | 3,274 | — | 41,916 | 45,190 | — | 2010 | (A) | ||||||||||||||||||||||||||||||||||||
3105 and 3115 Alfred Street | Silicon Valley | — | 6,533 | — | 3,725 | 15,958 | — | 6,533 | — | 19,683 | 26,216 | — | 2010 | (A) | ||||||||||||||||||||||||||||||||||||
365 Main Street | San Francisco | — | 22,854 | — | 158,709 | 73 | — | 22,854 | — | 158,782 | 181,636 | (2,178 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
720 2nd Street | San Francisco | — | 3,884 | — | 116,861 | 39 | — | 3,884 | — | 116,900 | 120,784 | (1,576 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
2260 East El Segundo | Los Angeles | — | 11,053 | — | 51,397 | 52 | — | 11,053 | — | 51,449 | 62,502 | (700 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
2121 South Price Road | Phoenix | — | 7,335 | — | 238,452 | 5,651 | — | 7,335 | — | 244,103 | 251,438 | (3,008 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
4030 La Fayette | Northern Virginia | — | 4,984 | — | 25,550 | 10,418 | — | 4,985 | — | 35,967 | 40,952 | (324 | ) | 2010 | (A) |
DIGITAL REALTY TRUST, INC.
DIGITAL REALTY TRUST, L.P.
SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION (continued)DEPRECIATION—(Continued)
DECEMBER 31, 20092010
(In thousands)
Initial costs | Costs capitalized subsequent to acquisition | Total costs | |||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Land | Acquired ground lease | Buildings and improvements | Total | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | |||||||||||||||||
1232 Alma Road | Dallas | 6,464 | 2,267 | — | 3,740 | 6,358 | 2,267 | — | 10,098 | 12,365 | — | 2009 | (A) | ||||||||||||||
900 Quality Way | Dallas | 655 | 1,446 | — | 1,659 | 5 | 1,446 | — | 1,664 | 3,110 | — | 2009 | (A) | ||||||||||||||
1400 N. Bowser Road | Dallas | 1,366 | 2,041 | — | 3,389 | 7 | 2,041 | — | 3,396 | 5,437 | — | 2009 | (A) | ||||||||||||||
1301 International Parkway | Dallas | 178 | 333 | — | 344 | 1 | 333 | — | 345 | 678 | — | 2009 | (A) | ||||||||||||||
908 Quality Way | Dallas | 5,758 | 6,730 | — | 4,493 | 2,026 | 6,730 | — | 6,519 | 13,249 | (53 | ) | 2009 | (A) | |||||||||||||
904 Quality Way | Dallas | 407 | 760 | — | 744 | 1 | 760 | — | 745 | 1,505 | — | 2009 | (A) | ||||||||||||||
905 Security Row | Dallas | 2,172 | 4,056 | — | 1,553 | 7 | 4,056 | — | 1,560 | 5,616 | — | 2009 | (A) | ||||||||||||||
444 Toyama Drive | Silicon Valley | — | 6,213 | — | 10,954 | — | 6,213 | — | 10,954 | 17,167 | (70 | ) | 2009 | (A) | |||||||||||||
1350 Duane | Silicon Valley | 52,030 | (4) | 7,081 | — | 69,817 | — | 7,081 | — | 69,817 | 76,898 | (300 | ) | 2009 | (A) | ||||||||||||
45901 & 45845 Nokes Boulevard | Northern Virginia | — | 3,579 | — | 29,998 | — | 3,579 | — | 29,998 | 33,577 | — | 2009 | (A) | ||||||||||||||
21561 & 21571 Beaumeade Circle | Northern Virginia | — | 4,131 | — | 25,218 | — | 4,131 | — | 25,218 | 29,349 | — | 2009 | (A) | ||||||||||||||
21551 Beaumeade Circle | Northern Virginia | — | 3,132 | — | — | — | 3,132 | — | — | 3,132 | — | 2009 | (A) | ||||||||||||||
Other | — | — | — | 8,298 | 11,252 | — | — | 19,550 | 19,550 | (125 | ) | ||||||||||||||||
1,063,663 | 394,563 | 4,113 | 1,858,707 | 1,352,939 | 382,763 | 2,767 | 3,224,792 | 3,610,322 | (459,521 | ) | |||||||||||||||||
Initial costs | Costs capitalized subsequent to acquisition | Total costs | Accumulated depreciation and amortization | Date of acquisition (A) or construction (C) | ||||||||||||||||||||||||||||||||||||||||||||||
Metropolitan Area | Encumbrances | Land | Acquired ground lease | Buildings and improvements | Improvements | Carrying costs | Land | Acquired ground lease | Buildings and improvements | Total | ||||||||||||||||||||||||||||||||||||||||
800 Central Expressway | Silicon Valley | 10,000 | 8,976 | — | 18,155 | 962 | — | 8,976 | — | 19,117 | 28,093 | — | 2010 | (A) | ||||||||||||||||||||||||||||||||||||
2950 Zanker Road | Silicon Valley | — | 6,903 | — | 20,885 | — | — | 6,903 | — | 20,885 | 27,788 | (223 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
900 Dorothy Street | Dallas | — | 1,415 | — | 13,799 | — | — | 1,415 | — | 13,799 | 15,214 | (154 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
29A International Business Park | Singapore | — | — | — | 137,545 | — | — | — | — | 137,545 | 137,545 | (66 | ) | 2010 | (A) | |||||||||||||||||||||||||||||||||||
Other | — | — | — | 8,298 | 10,146 | — | — | — | 18,444 | 18,444 | (418 | ) | ||||||||||||||||||||||||||||||||||||||
$ | 1,043,188 | $ | 493,018 | $ | 7,631 | $ | 2,979,057 | $ | 1,747,836 | $ | — | $ | 478,629 | $ | 6,374 | $ | 4,742,539 | $ | 5,227,542 | $ | (660,700 | ) | ||||||||||||||||||||||||||||
(1) | The balance shown includes an unamortized premium of |
(2) | The balance shown includes an unamortized premium of |
(3) | The balance shown includes an unamortized premium of |
(4) | The balance shown includes an unamortized discount of |
See accompanying report of independent registered public accounting firm.
DIGITAL REALTY TRUST, L.P.
NOTES TO SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
December 31, 20092010
(In thousands)
(1) Tax Cost
The aggregate gross cost of Digital Realty Trust, Inc.’s properties for federal income tax purposes approximated $3,550.9$5,496.0 million (unaudited) as of December 31, 2009.2010.
(2) Historical Cost and Accumulated Depreciation and Amortization
The following table reconciles the historical cost of the Company’s properties for financial reporting purposes for each of the years in the three-year period ended December 31, 2009.2010.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2010 | 2009 | 2008 | |||||||||||||||||||
Balance, beginning of year | $ | 3,042,699 | $ | 2,482,104 | $ | 1,819,503 | $ | 3,610,322 | $ | 3,042,699 | $ | 2,482,104 | ||||||||||||
Additions during period (acquisitions and improvements) | 568,003 | 561,293 | 714,990 | 1,617,299 | 568,003 | 561,293 | ||||||||||||||||||
Deductions during period (dispositions and write-off of tenant improvements) | (380 | ) | (698 | ) | (52,389 | ) | (79 | ) | (380 | ) | (698 | ) | ||||||||||||
Balance, end of year | $ | 3,610,322 | $ | 3,042,699 | $ | 2,482,104 | $ | 5,227,542 | $ | 3,610,322 | $ | 3,042,699 | ||||||||||||
The following table reconciles accumulated depreciation and amortization of the Company’s properties for financial reporting purposes for each of the years in the three-year period ended December 31, 2009.2010.
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2009 | 2008 | 2007 | 2010 | 2009 | 2008 | |||||||||||||||||||
Balance, beginning of year | $ | 302,960 | $ | 188,125 | $ | 112,479 | $ | 459,521 | $ | 302,960 | $ | 188,125 | ||||||||||||
Additions during period (depreciation and amortization expense) | 156,786 | 115,256 | 81,344 | 201,190 | 156,786 | 115,256 | ||||||||||||||||||
Deductions during period (dispositions and write-off of tenant improvements) | (225 | ) | (421 | ) | (5,698 | ) | (11 | ) | (225 | ) | (421 | ) | ||||||||||||
Balance, end of year | $ | 459,521 | $ | 302,960 | $ | 188,125 | $ | 660,700 | $ | 459,521 | $ | 302,960 | ||||||||||||
Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not Applicable.
ITEM 9A. | CONTROLS AND PROCEDURES |
Our Management’s Report on Internal Control over Financial Reporting isfor Digital Realty Trust, Inc. and Digital Realty Trust, L.P. are included in Part II, Item 8, Financial Statements and Supplementary Data on page 71.pages 85 and 86.
Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, Inc.)
We have adopted and maintainThe company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in ourits reports filed under the Securities Exchange Act reportsof 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to ourits management, including our Chief Executive Officerits chief executive officer and Chief Financial Officer,chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the company has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the company does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by SEC Rule 13a-15(b), we have or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the company carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officerits chief executive officer and Chief Financial Officer,chief financial officer, of the effectiveness of the design and operation of ourits disclosure controls and procedures that were in effect as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officerthe company’s management concluded that ourits disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There hashave been no changechanges in ourthe company’s internal control over financial reporting that has occurred during theits most recent fiscal quarter ended December 31, 2009 that hashave materially affected, or isare reasonably likely to materially affect, ourits internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures (Digital Realty Trust, L.P.)
The operating partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the operating partnership’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and its management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, the operating partnership has investments in certain unconsolidated entities, which are accounted for using the equity method of accounting. As the operating partnership does not control or manage these entities, its disclosure controls and procedures with respect to such entities may be substantially more limited than those it maintains with respect to its consolidated subsidiaries.
As required by Rule 13a-15(b) or Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, management of the operating partnership carried out an evaluation, under the supervision and with participation of the chief executive officer and chief financial officer of its general partner, of the effectiveness of the design and operation of its disclosure controls and procedures that were in effect as of the end of the quarter covered by this report. Based on the foregoing, the operating partnership’s management concluded that its disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in the operating partnership’s internal control over financial reporting during its most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information concerning our directors and executive officers required by Item 10 will be included in the Proxy Statement to be filed relating to our 20102011 Annual Meeting of Stockholders and is incorporated herein by reference.
We have filed, as exhibits to this Annual Report on Form 10-K, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes Oxley Act to be filed with the Securities and Exchange Commission regarding the quality of our public disclosure. We have furnished to the Securities and Exchange Commission as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2009,2010, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 906 of the Sarbanes Oxley Act. In addition, as required by Section 303A.12 of the NYSE Listed Company Manual, our Chief Executive Officer made his annual certification to the NYSE stating that he was not aware of any violation by the Company of the corporate governance listing standards of the NYSE.
ITEM 11. | EXECUTIVE COMPENSATION |
The information concerning our executive compensation required by Item 11 will be included in the Proxy Statement to be filed relating to our 20102011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information concerning our security ownership of certain beneficial owners and management and equity compensation plan information required by Item 12 will be included in the Proxy Statement to be filed relating to our 20102011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information concerning certain relationships, related transactions and director independence required by Item 13 will be included in the Proxy Statement to be filed relating to our 20102011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information concerning our principal accounting fees and services required by Item 14 will be included in the Proxy Statement to be filed relating to our 20102011 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a)(1) and (2) Financial Statements and Schedules:
Please refer to the Index to the Consolidated Financial Statements included under Part II, Item 8, Financial Statements and Supplementary Data.
(a)(3)Exhibits:
Exhibit | Description | |
2.1 | Purchase and Sale Agreement, dated as of December 24, 2009, by and among Sentinel Properties—Needham, LLC, SP—Needham I, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.1 to | |
2.2 | Purchase and Sale Agreement, dated as of December 24, 2009, by and between Sentinel Properties—Bedford, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.2 to | |
2.3 | Purchase and Sale Agreement, dated as of December 24, 2009, by and between Sentinel Properties—Trumbull, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.3 to | |
2.4 | Asset Purchase Agreement, dated as of June 1, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on June 2, 2010). | |
2.5 | First Amendment to Asset Purchase Agreement, dated as of June 16, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.5 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
2.6 | Second Amendment to Asset Purchase Agreement, dated as of June 17, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.6 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
2.7 | Third Amendment to Asset Purchase Agreement, dated as of June 18, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.7 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
3.1 | Articles of Amendment and Restatement of Digital Realty Trust, Inc., as |
Exhibit | Description | |
3.2 | Second Amended and Restated Bylaws of Digital Realty Trust, Inc. (incorporated by reference to Exhibit 3.1 to | |
3.3 | Certificate of Limited Partnership of Digital Realty Trust, L.P. (incorporated by reference to Exhibit 3.1 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
3.4 | Eighth Amended and Restated Agreement of Limited Partnership of Digital Realty Trust, L.P. (incorporated by reference to Exhibit 10.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on April 13, 2009). | |
4.1 | Specimen Certificate for Common Stock for Digital Realty Trust, Inc. (incorporated by reference to Exhibit 4.1 to | |
4.2 | Specimen Certificate for Series | |
| Specimen Certificate for Series D Preferred Stock of Digital Realty Trust, Inc. (incorporated by reference to Exhibit 4.1 to | |
| Registration Rights Agreement, dated as of October 27, 2004, by and among Digital Realty Trust, Inc., Digital Realty Trust, L.P. and the Unit Holders, as defined therein (incorporated by reference to Exhibit 10.2 to Digital Realty Trust, Inc.’s Quarterly Report on Form 10-Q filed on December 13, 2004). | |
4.5 | Indenture, dated as of August 15, 2006, among Digital Realty Trust, L.P., as issuer, Digital Realty Trust, Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, including the form of 4.125% Exchangeable Senior Debentures due 2026 (incorporated by reference to Exhibit 4.1 to | |
4.6 | Registration Rights Agreement, dated August 15, 2006, among Digital Realty Trust, L.P., Digital Realty Trust, Inc. and Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 10.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on August 21, 2006). | |
4.7 | Indenture, dated as of April 20, 2009, among Digital Realty Trust, L.P., as issuer, Digital Realty Trust, Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, including the form of 5.50% Exchangeable Senior Debentures due 2029 (incorporated by reference to Exhibit 4.1 to | |
4.8 |
|
| |
Registration Rights Agreement, dated April 20, 2009, among Digital Realty Trust, L.P., Digital Realty Trust, Inc. and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and Credit Suisse Securities (USA) LLC (incorporated by reference to Exhibit 10.1 to | ||
|
Exhibit | Description | |
| ||
| ||
| Registration Rights Agreement, dated July 8, 2010, among Digital Realty Trust, L.P., Digital Realty Trust, Inc., Citigroup Global Markets Inc., Banc of America Securities LLC, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated (incorporated by reference to Exhibit 4.2 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on July 12, 2010). | |
10.1† | Form of Indemnification Agreement by and between Digital Realty Trust, Inc. and its directors and officers (incorporated by reference to Exhibit 10.4 to | |
| Non-competition Agreement, dated as of October 28, 2004, by and between Digital Realty Trust, Inc. and Global Innovation Partners, LLC (incorporated by reference to Exhibit 10.10 to | |
| Contribution Agreement, dated as of July 31, 2004, by and among Digital Realty Trust, L.P., San Francisco Wave eXchange, LLC, Santa Clara Wave eXchange, LLC and eXchange colocation, LLC (incorporated by reference to Exhibit 10.12 to | |
| ||
Revolving Credit Agreement, dated as of August 31, 2007, among Digital Realty Trust, L.P., as borrower, Digital Realty Trust, Inc., as parent guarantor, the subsidiary guarantors named therein, Citicorp North America, Inc., as administrative agent, KeyBank National Association, as syndication agent, Citigroup Global Markets Inc. and KeyBanc Capital Markets, as joint lead arrangers and joint book running managers, and the other agents and lenders named therein (incorporated by reference to Exhibit |
|
| |
| Form of | |
| ||
Form of Digital Realty Trust, Inc. Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.45 to | ||
| ||
Form of 2008 Class C Profits Interest Units Agreement (incorporated by reference to Exhibit 10.1 to |
|
| |
| First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Appendix A to | |
| Amendment No. 1 to the Revolving Credit Agreement, dated as of February 6, 2008, among Digital Realty Trust, L.P., Citicorp North America, Inc., as administrative agent, the financial institutions named therein, KeyBank National Association, as syndication agent, and Citigroup Global Markets Inc. and KeyBanc Capital Markets, as the arrangers (incorporated by reference to Exhibit |
Exhibit | Description | |
| Form of 2008 Performance-Based Profits Interest Units Agreement (incorporated by reference to Exhibit 10.3 to | |
| First Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.4 to | |
| Amendment No. 2 to the Revolving Credit Agreement, dated as of June 13, 2008, among Digital Realty Trust, L.P., Citicorp North America, Inc., as administrative agent, the financial institutions named therein, KeyBank National Association, as syndication agent, and Citigroup Global Markets Inc. and KeyBanc Capital Markets, as the arrangers (incorporated by reference to Exhibit 10.1 to | |
| Note Purchase and Private Shelf Agreement, dated as of July 24, 2008, among Digital Realty Trust, L.P., Prudential Investment Management, Inc. and the Prudential Affiliates named therein (incorporated by reference to Exhibit 10.2 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Michael F. Foust (incorporated by reference to Exhibit 10.1 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Richard A. Magnuson (incorporated by reference to Exhibit 10.2 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and A. William Stein (incorporated by reference to Exhibit 10.3 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Christopher J. Crosby (incorporated by reference to Exhibit 10.4 to | |
| Form of Amendment to Employment Agreement (incorporated by reference to Exhibit 10.44 to | |
| Amended and Restated Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Scott E. Peterson (incorporated by reference to Exhibit 10.45 to | |
| First Amendment to Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Michael F. Foust (incorporated by reference to Exhibit 10.46 to |
|
| |
| First Amendment to Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Richard A. Magnuson (incorporated by reference to Exhibit 10.47 to | |
| Second Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.4 to |
Exhibit | Description | |
| Third Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to | |
10.24† | Second Amendment to Employment Agreement, dated as of June 9, 2010, among Digital Realty Trust, Inc., DLR, LLC and A. William Stein (incorporated by reference to Exhibit 10.21 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.25† | Second Amendment to Employment Agreement, dated as of June 9, 2010, among Digital Realty Trust, Inc., DLR, LLC and Christopher J. Crosby (incorporated by reference to Exhibit 10.23 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.26 | Amendment No. 3 to the Revolving Credit Agreement, dated as of June 28, 2010, among Digital Realty Trust, L.P., Citicorp North America, Inc., and the financial institutions party to the Credit Agreement (incorporated by reference to Exhibit 10.26 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.27 | Amendment No. 1 to the Note Purchase and Private Shelf Agreement, dated as of June 30, 2010, between Digital Realty Trust, L.P. and Prudential Investment Management, Inc. and the other Purchasers party to the Note Agreement (incorporated by reference to Exhibit 10.27 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.28 | Amendment No. 2 to the Note Purchase and Private Shelf Agreement, dated as of December 8, 2010, between Digital Realty Trust, L.P. and Prudential Investment Management, Inc. and the other Purchasers party to the Note Agreement. | |
10.29† | Third Amendment to Employment Agreement, dated as of November 12, 2010, among Digital Realty Trust, Inc., DLR, LLC and A. William Stein. | |
12.1 | Statement of Computation of Ratios. | |
21.1 | List of Subsidiaries of | |
21.2 | List of Subsidiaries of Digital Realty Trust, L.P. | |
23.1 | Consent of Independent Registered Public Accounting Firm. | |
31.1 | ||
31.2 | ||
31.3 | Rule 13a-14(a)/15d-14(a) Certifications of | |
31.4 | Rule 13a-14(a)/15d-14(a) Certifications of | |
32.1 | ||
32.2 | ||
32.3 | 18 U.S.C. § 1350 Certifications of Chief Executive Officer for Digital Realty Trust, L.P. | |
32.4 | 18 U.S.C. § 1350 Certifications of Chief Financial Officer for Digital Realty Trust, L.P. |
Exhibit | Description | |
101** | The following financial statements will be furnished in an amendment to |
Management contract or compensatory plan or arrangement. |
* | Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission. |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIGITAL REALTY TRUST, INC. | ||
By: | /s/ MICHAEL F. FOUST | |
Michael F. Foust Chief Executive Officer | ||
Date: February |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael F. Foust, A. William Stein and Joshua A. Mills, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/S/ RICHARD A. MAGNUSON Richard A. Magnuson | Chairman of the Board | February | ||
/S/ MICHAEL F. FOUST Michael F. Foust | Chief Executive Officer and Director (Principal Executive Officer) | February | ||
/S/ A. WILLIAM STEIN A. William Stein | Chief Financial Officer & Chief Investment Officer (Principal Financial Officer) | February | ||
/S/ EDWARD F. SHAM Edward F. Sham | Sr. Vice President and Controller (Principal Accounting Officer) | February | ||
/S/ LAURENCE A. CHAPMAN Laurence A. Chapman | Director | February | ||
/S/ RUANN F. ERNST Ruann F. Ernst, Ph.D. | Director | February |
Signature | Title | Date | ||
/S/ KATHLEEN EARLEY Kathleen Earley | Director | February | ||
/S/ DENNIS E. SINGLETON | Director | February | ||
Dennis E. Singleton | ||||
/S/ ROBERT H. ZERBST | Director | February | ||
Robert H. Zerbst |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIGITAL REALTY TRUST, L.P. | ||
By: | Digital Realty Trust, Inc., Its General Partner | |
By: | /s/ MICHAEL F. FOUST | |
Michael F. Foust Chief Executive Officer | ||
Date: February 25, 2011 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael F. Foust, A. William Stein and Joshua A. Mills, and each of them, with full power to act without the other, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Form 10-K and any and all amendments thereto, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/S/ RICHARD A. MAGNUSON Richard A. Magnuson | Chairman of the Board | February 25, 2011 | ||
/S/ MICHAEL F. FOUST Michael F. Foust | Chief Executive Officer and Director (Principal Executive Officer) | February 25, 2011 | ||
/S/ A. WILLIAM STEIN A. William Stein | Chief Financial Officer & Chief Investment Officer (Principal Financial Officer) | February 25, 2011 | ||
/S/ EDWARD F. SHAM Edward F. Sham | Sr. Vice President and Controller (Principal Accounting Officer) | February 25, 2011 | ||
/S/ LAURENCE A. CHAPMAN Laurence A. Chapman | Director | February��25, 2011 |
Signature | Title | Date | ||
/S/ RUANN F. ERNST Ruann F. Ernst, Ph.D. | Director | February 25, 2011 | ||
/S/ KATHLEEN EARLEY Kathleen Earley | Director | February 25, 2011 | ||
/S/ DENNIS E. SINGLETON | Director | February 25, 2011 | ||
Dennis E. Singleton | ||||
/S/ ROBERT H. ZERBST | Director | February 25, 2011 | ||
Robert H. Zerbst |
Exhibit | Description | |
2.1 | Purchase and Sale Agreement, dated as of December 24, 2009, by and among Sentinel Properties—Needham, LLC, SP—Needham I, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.1 to | |
2.2 | Purchase and Sale Agreement, dated as of December 24, 2009, by and between Sentinel Properties—Bedford, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.2 to | |
2.3 | Purchase and Sale Agreement, dated as of December 24, 2009, by and between Sentinel Properties—Trumbull, LLC and Digital Realty Trust, L.P. (incorporated by reference to Exhibit 2.3 to | |
2.4 | Asset Purchase Agreement, dated as of June 1, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on June 2, 2010). | |
2.5 | First Amendment to Asset Purchase Agreement, dated as of June 16, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.5 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
2.6 | Second Amendment to Asset Purchase Agreement, dated as of June 17, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.6 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
2.7 | Third Amendment to Asset Purchase Agreement, dated as of June 18, 2010, by and among MainRock II Chandler, LLC, MainRock II Chantilly, LLC, MainRock, LLC, 365 Jack London Square, LLC and Rincon 365 Borrower, LLC, collectively, as the Sellers, and Digital Realty Trust, L.P., as the Purchaser (incorporated by reference to Exhibit 2.7 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). | |
3.1 | Articles of Amendment and Restatement of Digital Realty Trust, Inc., as | |
3.2 | Second Amended and Restated Bylaws of Digital Realty Trust, Inc. (incorporated by reference to Exhibit 3.1 to | |
3.3 | Certificate of Limited Partnership of Digital Realty Trust, L.P. (incorporated by reference to Exhibit 3.1 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on June 25, 2010 (File No. 000-54023)). |
Exhibit | Description | |
3.4 | Eighth Amended and Restated Agreement of Limited Partnership of Digital Realty Trust, L.P. (incorporated by reference to Exhibit 10.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on April 13, 2009). | |
4.1 | Specimen Certificate for Common Stock for Digital Realty Trust, Inc. (incorporated by reference to Exhibit 4.1 to | |
4.2 | Specimen Certificate for Series | |
| Specimen Certificate for Series D Preferred Stock of Digital Realty Trust, Inc. (incorporated by reference to Exhibit 4.1 to | |
| Registration Rights Agreement, dated as of October 27, 2004, by and among Digital Realty Trust, Inc., Digital Realty Trust, L.P. and the Unit Holders, as defined therein (incorporated by reference to Exhibit 10.2 to Digital Realty Trust, Inc.’s Quarterly Report on Form 10-Q filed on December 13, 2004). | |
4.5 | Indenture, dated as of August 15, 2006, among Digital Realty Trust, L.P., as issuer, Digital Realty Trust, Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, including the form of 4.125% Exchangeable Senior Debentures due 2026 (incorporated by reference to Exhibit 4.1 to | |
4.6 | Registration Rights Agreement, dated August 15, 2006, among Digital Realty Trust, L.P., Digital Realty Trust, Inc. and Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 10.1 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on August 21, 2006). | |
4.7 | Indenture, dated as of April 20, 2009, among Digital Realty Trust, L.P., as issuer, Digital Realty Trust, Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, including the form of 5.50% Exchangeable Senior Debentures due 2029 (incorporated by reference to Exhibit 4.1 to | |
4.8 | ||
|
| |
Registration Rights Agreement, dated April 20, 2009, among Digital Realty Trust, L.P., Digital Realty Trust, Inc. and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and Credit Suisse Securities (USA) LLC (incorporated by reference to Exhibit 10.1 to | ||
| ||
| ||
|
Exhibit | Description | |
4.12 | Registration Rights Agreement, dated July 8, 2010, among Digital Realty Trust, L.P., Digital Realty Trust, Inc., Citigroup Global Markets Inc., Banc of America Securities LLC, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated (incorporated by reference to Exhibit 4.2 to Digital Realty Trust, Inc.’s Current Report on Form 8-K filed on July 12, 2010). | |
| Form of Indemnification Agreement by and between Digital Realty Trust, Inc. and its directors and officers (incorporated by reference to Exhibit 10.4 to | |
| Non-competition Agreement, dated as of October 28, 2004, by and between Digital Realty Trust, Inc. and Global Innovation Partners, LLC (incorporated by reference to Exhibit 10.10 to | |
| Contribution Agreement, dated as of July 31, 2004, by and among Digital Realty Trust, L.P., San Francisco Wave eXchange, LLC, Santa Clara Wave eXchange, LLC and eXchange colocation, LLC (incorporated by reference to Exhibit 10.12 to | |
| ||
Revolving Credit Agreement, dated as of August 31, 2007, among Digital Realty Trust, L.P., as borrower, Digital Realty Trust, Inc., as parent guarantor, the subsidiary guarantors named therein, Citicorp North America, Inc., as administrative agent, KeyBank National Association, as syndication agent, Citigroup Global Markets Inc. and KeyBanc Capital Markets, as joint lead arrangers and joint book running managers, and the other agents and lenders named therein (incorporated by reference to Exhibit | ||
| ||
Form of |
|
| |
| ||
Form of Digital Realty Trust, Inc. Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.45 to | ||
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Form of 2008 Class C Profits Interest Units Agreement (incorporated by reference to Exhibit 10.1 to | ||
| First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Appendix A to | |
| Amendment No. 1 to the Revolving Credit Agreement, dated as of February 6, 2008, among Digital Realty Trust, L.P., Citicorp North America, Inc., as administrative agent, the financial |
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institutions named therein, KeyBank National Association, as syndication agent, and Citigroup Global Markets Inc. and KeyBanc Capital Markets, as the arrangers (incorporated by reference to Exhibit | ||
| Form of 2008 Performance-Based Profits Interest Units Agreement (incorporated by reference to Exhibit 10.3 to | |
| First Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.4 to |
Exhibit | Description | |
| Amendment No. 2 to the Revolving Credit Agreement, dated as of June 13, 2008, among Digital Realty Trust, L.P., Citicorp North America, Inc., as administrative agent, the financial institutions named therein, KeyBank National Association, as syndication agent, and Citigroup Global Markets Inc. and KeyBanc Capital Markets, as the arrangers (incorporated by reference to Exhibit 10.1 to | |
| Note Purchase and Private Shelf Agreement, dated as of July 24, 2008, among Digital Realty Trust, L.P., Prudential Investment Management, Inc. and the Prudential Affiliates named therein (incorporated by reference to Exhibit 10.2 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Michael F. Foust (incorporated by reference to Exhibit 10.1 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Richard A. Magnuson (incorporated by reference to Exhibit 10.2 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and A. William Stein (incorporated by reference to Exhibit 10.3 to | |
| Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Christopher J. Crosby (incorporated by reference to Exhibit 10.4 to | |
| Form of Amendment to Employment Agreement (incorporated by reference to Exhibit 10.44 to | |
| Amended and Restated Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Scott E. Peterson (incorporated by reference to Exhibit 10.45 to | |
| First Amendment to Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Michael F. Foust (incorporated by reference to Exhibit 10.46 to | |
| First Amendment to Employment Agreement among Digital Realty Trust, Inc., DLR, LLC and Richard A. Magnuson (incorporated by reference to Exhibit 10.47 to | |
| Second Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.4 to |
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| Third Amendment to First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to | |
10.24† | Second Amendment to Employment Agreement, dated as of June 9, 2010, among Digital Realty Trust, Inc., DLR, LLC and A. William Stein (incorporated by reference to Exhibit 10.21 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). |
Exhibit | Description | |
10.25† | Second Amendment to Employment Agreement, dated as of June 9, 2010, among Digital Realty Trust, Inc., DLR, LLC and Christopher J. Crosby (incorporated by reference to Exhibit 10.23 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.26 | Amendment No. 3 to the Revolving Credit Agreement, dated as of June 28, 2010, among Digital Realty Trust, L.P., Citicorp North America, Inc., and the financial institutions party to the Credit Agreement (incorporated by reference to Exhibit 10.26 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.27 | Amendment No. 1 to the Note Purchase and Private Shelf Agreement, dated as of June 30, 2010, between Digital Realty Trust, L.P. and Prudential Investment Management, Inc. and the other Purchasers party to the Note Agreement (incorporated by reference to Exhibit 10.27 to Digital Realty Trust, L.P.’s General Form for Registration of Securities on Form 10 filed on August 4, 2010 (File No. 000-54023)). | |
10.28 | Amendment No. 2 to the Note Purchase and Private Shelf Agreement, dated as of December 8, 2010, between Digital Realty Trust, L.P. and Prudential Investment Management, Inc. and the other Purchasers party to the Note Agreement. | |
10.29† | Third Amendment to Employment Agreement, dated as of November 12, 2010, among Digital Realty Trust, Inc., DLR, LLC and A. William Stein. | |
12.1 | Statement of Computation of Ratios. | |
21.1 | List of Subsidiaries of | |
21.2 | List of Subsidiaries of Digital Realty Trust, L.P. | |
23.1 | Consent of Independent Registered Public Accounting Firm. | |
31.1 | ||
31.2 | ||
31.3 | Rule 13a-14(a)/15d-14(a) Certifications of | |
31.4 | Rule 13a-14(a)/15d-14(a) Certifications of | |
32.1 | ||
32.2 | ||
32.3 | 18 U.S.C. § 1350 Certifications of Chief Executive Officer for Digital Realty Trust, L.P. | |
32.4 | 18 U.S.C. § 1350 Certifications of Chief Financial Officer for Digital Realty Trust, L.P. | |
101** | The following financial statements will be furnished in an amendment to |
Management contract or compensatory plan or arrangement. |
* | Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission. |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. |
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