Digital Realty Trust, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. The company owns, develops, and operates global data centers and provides colocation and interconnection services; Digital Realty Trust, L.P. conducts the operations.
Financial and operating highlights
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $3.904 billion | $3.209 billion |
| Operating income | $557.5 million | $594.2 million |
| Net income | $362.7 million | $599.2 million |
| Net income available to common stockholders | $263.3 million | $493.0 million |
| Diluted earnings per share | $1.00 | $2.35 |
| Diluted FFO per share and unit | $5.11 | $6.66 |
| Cash provided by operating activities | $1.707 billion | $1.514 billion |
| Cash used in investing activities | $2.599 billion | $275.0 million |
| Cash provided by (used in) financing activities | $935.7 million | $(1.272) billion |
| Cash and cash equivalents at year-end | $108.5 million | $89.8 million |
| Consolidated debt at year-end | $13.4 billion | $10.1 billion |
| Common dividend per share | $4.48 | $4.32 |
Revenue increased 21.6%, substantially reflecting the March 2020 Interxion combination. Operating expenses rose 28.0%; operating margin was approximately 14.3%, compared with 18.5% in 2019 (calculated from reported revenue and operating income). Net income and per-share results were affected by disposition gains, acquisition-related costs, and debt redemption charges.
Fourth-quarter 2020 revenue was $1.063 billion and net income available to common stockholders was $44.2 million, or $0.16 per diluted share. Fourth-quarter 2019 revenue was $787.5 million and common-stockholder net income was $315.6 million, reflecting significant nonrecurring gains in that quarter.
Year-end liquidity included approximately $1.8 billion available under the global revolving credit facility, net of letters of credit, against a $2.35 billion facility. Debt was 89.8% fixed-rate or swapped, with a reported effective interest rate of 2.38%. The company targets debt to Adjusted EBITDA at or below 5.5x and fixed-charge coverage above 3.0x; actual year-end debt-to-Adjusted EBITDA is not stated in the supplied filing text.
Business context and material changes
- The portfolio grew to 291 data centers in 49 metropolitan areas and 24 countries, including 43 centers held through unconsolidated joint ventures. The portfolio was 86.3% leased, excluding space under active development and held for development.
- Interxion expanded the company’s European and African operations. The transaction’s total equity consideration was approximately $7.0 billion, including assumed cash; it contributed $691.4 million of 2020 revenue and $59.4 million of net income.
- Reported operating revenue rose, but stabilized-portfolio revenue declined 1.5%, primarily due to delayed re-leasing of space whose leases expired in late 2019 and lower utility consumption associated with vacancies.
- 2020 included $316.9 million of gains on property dispositions, $103.2 million of losses from early debt extinguishment, $106.7 million of transaction and integration expenses, and a $57.6 million equity loss from unconsolidated joint ventures. These items complicate comparisons of reported earnings.
- Development and improvement capital expenditures were approximately $2.0 billion in 2020. Year-end active development totaled approximately 5.4 million square feet, with another 2.3 million square feet held for future development.
Outlook, commentary, and risks
- Management expected average rental rates on 2021 lease expirations to be generally consistent with current rates and reported strong demand in most key markets. This is commentary, not formal earnings guidance.
- The company expected 2021 development-program capital expenditures, including land acquisitions, of approximately $2.0–$2.3 billion, subject to changes in demand, leasing, and capital availability. Construction commitments at year-end were approximately $1.1 billion.
- Management said facilities remained fully operational and 2020 rent collections were consistent with the comparable prior period. COVID-19 rent-relief requests involved customers representing approximately 3% of annualized recurring rent; management reported no material 2020 adjustments but warned of possible future impairments, lease modifications, or credit losses. Construction delays had affected some anticipated customer deliveries.
- Key risks include substantial debt and refinancing needs, reliance on external capital, development and power-supply constraints, lease expirations and customer concentration, competition, cybersecurity and service reliability, foreign currency and political risks, climate and water constraints, and the effects of COVID-19. The company reported no material legal proceedings as of year-end.
- The Interxion acquisition added $4.3 billion of goodwill. The auditor identified lease-revenue collectibility and fair-value estimates for Interxion customer relationships and buildings as critical audit matters. Management and the auditor excluded Interxion, representing $12 billion of assets and $691 million of revenue, from their respective year-end internal-control assessments; management concluded controls were effective for the scope assessed.
Important facts for investors to verify
- How much of reported revenue growth and future earnings depends on Interxion integration, and whether acquisition synergies and customer retention meet expectations.
- Whether leasing, occupancy, and renewals improve, particularly given the 1.5% decline in stabilized revenue and lease expirations through 2022.
- Whether operating cash flow can support the planned $2.0–$2.3 billion 2021 development spend, distributions, and debt service without unfavorable financing or material dilution.
- Debt maturity, refinancing, interest-rate, and covenant exposure, including the reliance on revolving facilities and the company’s leverage target.
- Progress integrating Interxion into financial controls and the assumptions underlying its goodwill, acquired customer relationships, and lease-revenue collectibility.
- The sustainability of dividends and FFO: 2020 reported earnings were affected by large disposition gains, extinguishment losses, and integration expenses.