What are Class D Units and why are they being awarded?

Class D Units are performance-based profits interest units in Digital Realty Trust, L.P., the company's operating partnership. They are being awarded to named executive officers to incentivize them to achieve specific company performance goals, namely Core Funds From Operation (Core FFO) per share, over a three-year period, thereby aligning executive compensation with shareholder value.

How will the executives earn these Class D Units?

The Class D Units will vest based on the company achieving certain Core FFO per share levels between January 1, 2022, and December 31, 2024. There are threshold (25% vesting), target (50% vesting), and high (100% vesting) performance levels. If performance falls between these levels, vesting will be determined using a straight-line linear interpolation. Additionally, 'distribution equivalent units' that mirror dividends will also vest.

What happens to the awards if an executive leaves the company before the performance period ends?

Generally, unvested units are forfeited upon termination. However, there are specific provisions for disability or death, certain types of terminations (by the company without cause, or by the executive for good reason), and retirement, which may allow for continued vesting or pro-rata vesting depending on the circumstances and whether the executive has a severance agreement.

Will the awards vest faster if there is a change of control at Digital Realty?

Yes, in the event of a change in control of the company, all performance-vested Class D Units, including those that become performance-vested in connection with the change in control, will become fully vested, provided the executive was employed immediately prior to the change in control.

DIGITAL REALTY TRUST, INC. 8-K: Leadership Changes

Summary

This 8-K filing by Digital Realty Trust, Inc. (DLR) details the granting of performance-based Class D profits interest units to its named executive officers. These awards are designed to incentivize executives by tying a significant portion of their compensation to the company's performance, specifically its Core Funds From Operation (Core FFO) per share, over a three-year period (January 1, 2022, to December 31, 2024). The vesting of these units is contingent upon achieving specific Core FFO per share targets: 25% vesting at a 'threshold' level, 50% at a 'target' level, and 100% at a 'high' level. Performance falling between these levels will be subject to linear interpolation. Additionally, executives will receive 'distribution equivalent units' that vest alongside the performance-based units, reflecting dividends that would have been earned on corresponding common stock. The ultimate vesting of these performance-achieved units is staggered, with 50% vesting in February 2025 and the remaining 50% in February 2026, subject to continued employment. Special provisions are outlined for vesting acceleration in the event of a change in control, and for various termination scenarios, including death, disability, retirement, and termination by the company or the executive.

Key Highlights

1Named executive officers (NEOs) received performance-based Class D profits interest units as part of their compensation.
2Awards are tied to the company's Core Funds From Operation (Core FFO) per share performance over a three-year period (2022-2024).
3Vesting is performance-based, with 0% to 100% of 'base' units eligible to vest based on achieving 'threshold', 'target', or 'high' Core FFO levels.
4Distribution equivalent units, reflecting potential dividends, will also vest along with the performance units.
5Full vesting of performance-achieved units is staggered: 50% in February 2025 and 50% in February 2026, contingent on continued service.
6Awards will fully vest upon a change in control event, subject to the executive's service until that event.
7Specific conditions are detailed for vesting upon various employee termination events (death, disability, retirement, termination by company/executive).

DIGITAL REALTY TRUST, INC. 8-K Report, Executive Changes (Mar 10, 2022)

Summary

Key Highlights

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