Digital Realty Trust, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone fourth-quarter report. Digital Realty is a global data-center, colocation and interconnection REIT. Its Operating Partnership owns and operates substantially all business assets; the Parent owned approximately 98% of the OP at year-end.
Business and operating context
At year-end, the portfolio comprised 287 data centers across nearly 50 metros and 25 countries, including facilities held through unconsolidated entities. The portfolio totaled approximately 45.5 million square feet, including active development and future-development space. Excluding those development spaces, occupancy was 83.6%, down from 86.3% a year earlier. The company cited ongoing demand from cloud adoption, digital transformation and interconnection needs.
Financial highlights
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Total operating revenue | $4.428 billion | $3.904 billion | Up 13.4% |
| Operating income | $694.0 million | $557.5 million | Up 24.5%; operating margin approximately 15.7%, versus 14.3% |
| Net income available to common stockholders | $1.681 billion | $263.3 million | Increase largely reflects property-sale gains |
| Diluted earnings per share | $5.94 | $1.00 | Strongly affected by disposition gains |
| Diluted FFO per share and unit | $6.36 | $5.11 | FFO available to common holders and unitholders was $1.843 billion, up from $1.382 billion |
| Cash from operating activities | $1.702 billion | $1.707 billion | Essentially flat |
| Cash used in investing activities | $1.062 billion | $2.599 billion | Lower net outflow, including higher property-sale proceeds |
| Cash used in financing activities | $590.6 million | Cash provided of $935.7 million | Reflects lower equity and debt proceeds and higher distributions |
Operating revenue growth was principally from non-stabilized properties, development completions and lease-up, and the Interxion business. Stabilized rental and services revenue grew only 0.4%. Total operating expenses rose 11.6%; property-level expenses rose 17.4%, with higher utility costs and property-tax reassessments among the drivers.
Debt and liquidity: Consolidated debt was approximately $13.56 billion at December 31, 2021, versus $13.41 billion in 2020. About 94.4% was fixed-rate or hedged; reported effective interest rate was 2.22%, and weighted average term to initial maturity was approximately 6.0 years. Cash and cash equivalents were $142.7 million, plus $8.8 million restricted cash. The company reported approximately $2.5 billion available under its revolver at year-end, net of letters of credit; later availability figures in the filing vary by date and presentation. The refinanced revolving facilities provide up to $3.3 billion, including the Yen facility, and mature in 2026 with extension options. The company reported a debt-to-enterprise-value ratio of approximately 21% and targets debt to adjusted EBITDA at or below 5.5x.
Material changes, transactions and unusual items
- Revenue increased 13.4%, but occupancy declined 2.7 percentage points year over year. Total portfolio data-center count decreased from 291 to 287.
- The December 2021 contribution of 10 operating properties to Digital Core REIT generated approximately $1.011 billion of gain on disposition; Digital Realty received $919 million cash and retained equity and direct property interests. The company reported total 2021 disposition gains of $1.381 billion.
- The March 2021 sale of 11 European data centers generated approximately $332 million of gain. The PGIM joint venture’s sale of 10 North American data centers contributed $64 million of equity-method gain; Digital Realty also received a $19 million promote fee.
- Capital expenditures, excluding indirect costs, were $2.396 billion, up from $1.963 billion. Management estimated 2022 development-program capital expenditures of $2.3–$2.5 billion. Open construction commitments were approximately $1.3 billion.
- Digital Realty issued euro and Swiss franc notes during 2021, redeemed €350 million of notes and recorded a $17.5 million debt-extinguishment loss, and redeemed Series C preferred stock, recording an $18 million gain. The company also completed a 6.25 million-share forward offering but had not received proceeds at year-end; it expected approximately $1.0 billion upon settlement by March 13, 2023.
- Management agreed to acquire approximately 55% of Teraco, valuing the transaction at approximately $3.5 billion; closing remained subject to customary conditions.
Outlook, commentary and risks
Management reported strong demand in most key metros and expected aggregate rents on leases expiring in 2022 to be generally consistent with current rates, on both GAAP and cash bases. This is commentary rather than quantified earnings guidance. Management said it believed equipment needed for 2022 development would be delivered, while acknowledging ongoing supply-chain uncertainty. It also cited acquisition opportunities, leasing results, capital availability and demand as variables affecting investment and development plans.
Key risks include power availability, cost and outages; construction delays and cost inflation; competition and leasing or renewal outcomes; customer concentration and single-tenant exposure; cybersecurity and operational outages; substantial debt, refinancing and capital-market access; foreign-exchange and international risks; climate, water and energy regulation; and REIT qualification and distribution requirements. Northern Virginia generated 19.5% of annualized rent, and the 20 largest customers accounted for 49.2%. The company said COVID-19 caused no material adjustments in 2021, but future effects remained uncertain. No material legal proceedings were reported. The financial-statement audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting for the Parent.
Most important facts for investors to verify
- How much of 2021’s net-income increase came from one-time property dispositions, and how recurring FFO and cash flow compare with the headline GAAP results.
- Whether occupancy declines, lease expirations and large-tenant concentration affect future leasing, renewals and rents.
- Actual 2022 development spending, delivery timelines, power availability and returns on the active pipeline.
- Revolver availability and debt maturity/refinancing requirements; the filing presents different availability figures by date and section.
- Closing, funding and integration terms for the proposed Teraco acquisition, and the performance and valuation of the Digital Core REIT investment.