Edgar Filing: Digital Realty Trust, Inc.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2011

¨	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 (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 incorporation or organization)		(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)

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.


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).


Digital Realty Trust, Inc.		Yes x No ¨
Digital Realty Trust, L.P.		Yes x No ¨

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.:

Digital Realty Trust, L.P.:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Digital Realty Trust, Inc.		Yes ¨ No x
Digital Realty Trust, L.P.		Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Digital Realty Trust, Inc.:


Class		Outstanding at November 1, 2011
Common Stock, $.01 par value per share		104,954,380

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2011 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 September 30, 2011, Digital Realty Trust, Inc. owned an approximate 95.4% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 4.6% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of Digital Realty Trust, Inc. As of September 30, 2011, 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 quarterly reports on Form 10-Q 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 a 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 we 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 condensed 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 condensed consolidated financial statements and as noncontrolling interests in operating partnership within equity in Digital Realty Trust, Inc.’s condensed 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 condensed 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 condensed 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:

•

condensed consolidated financial statements;

•

the following notes to the condensed consolidated financial statements:

•

Debt of the Company and Debt of the Operating Partnership;

•

Income per Share and Income per Unit; and

•

Equity and Accumulated Other Comprehensive Loss, Net of the Company and Capital and Accumulated Other Comprehensive Loss of the Operating Partnership;

•

Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations; and

•

Unregistered Sales of Equity Securities and Use of Proceeds.

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 condensed 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-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS


		Page Number
PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements of Digital Realty Trust, Inc.:

	Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010		5

	Condensed Consolidated Income Statements for the three and nine months ended September 30, 2011 and 2010 (unaudited)		6

	Condensed Consolidated Statement of Equity for the nine months ended September 30, 2011 (unaudited)		7

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)		8

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)		9

	Condensed Consolidated Financial Statements of Digital Realty Trust, L.P.:

	Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010		11

	Condensed Consolidated Income Statements for the three and nine months ended September 30, 2011 and 2010 (unaudited)		12

	Condensed Consolidated Statement of Capital for the nine months ended September 30, 2011 (unaudited)		13

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)		14

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)		15

	Notes to Condensed Consolidated Financial Statements of Digital Realty Trust, Inc. and Digital Realty Trust, L.P.		17

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		48

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		73

ITEM 4.	Controls and Procedures (Digital Realty Trust, Inc.)		76

	Controls and Procedures (Digital Realty Trust, L.P.)		76

PART II.	OTHER INFORMATION		77

ITEM 1.	Legal Proceedings		77

ITEM 1A.	Risk Factors		77

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		77

ITEM 3.	Defaults Upon Senior Securities		77

ITEM 4.	Removed and Reserved		77

ITEM 5.	Other Information		77

ITEM 6.	Exhibits		78

	Signatures		79

	Exhibit Index		80

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	September 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	522,309		$	478,629
Acquired ground leases		6,375			6,374
Buildings and improvements		5,001,137			4,459,047
Tenant improvements		291,452			283,492

Total investments in properties		5,821,273			5,227,542
Accumulated depreciation and amortization		(838,034	)		(660,700	)

Net investments in properties		4,983,239			4,566,842
Investment in unconsolidated joint ventures		18,423			17,635

Net investments in real estate		5,001,662			4,584,477
Cash and cash equivalents		38,732			11,719
Accounts and other receivables, net of allowance for doubtful accounts of $2,160 and $3,250 as of September 30, 2011 and December 31, 2010, respectively		90,647			70,337
Deferred rent		231,825			190,067
Acquired above market leases, net		31,822			40,539
Acquired in place lease value and deferred leasing costs, net		315,963			334,366
Deferred financing costs, net		22,084			22,825
Restricted cash		55,230			60,062
Other assets		38,447			15,091

Total assets	$	5,826,412		$	5,329,483

LIABILITIES AND EQUITY
Revolving credit facilities	$	163,113		$	333,534
Unsecured senior notes, net of discount		1,440,828			1,066,030
Exchangeable senior debentures		266,400			353,702
Mortgage loans, net of premiums		916,199			1,043,188
Other secured loan		10,500			10,500
Accounts payable and other accrued liabilities		289,560			237,631
Accrued dividends and distributions		—			51,210
Acquired below market leases, net		78,724			93,250
Security deposits and prepaid rents		84,208			85,775

Total liabilities		3,249,532			3,274,820
Commitments and contingencies
Equity:
Stockholders’ Equity:
Preferred Stock: $0.01 par value, 30,000,000 authorized:
Series C Cumulative Convertible Preferred Stock, 4.375%, $128,159 and $174,999 liquidation preference, respectively ($25.00 per share), 5,126,364 and 6,999,955 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		123,820			169,067
Series D Cumulative Convertible Preferred Stock, 5.500%, $220,653 and $344,683 liquidation preference, respectively ($25.00 per share), 8,826,115 and 13,787,300 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		213,361			333,274
Series E Cumulative Redeemable Preferred Stock, 7.000%, $287,500 and $0 liquidation preference, respectively ($25.00 per share), 11,500,000 and 0 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		277,402			—
Common Stock: $0.01 par value, 145,000,000 authorized, 104,102,878 and 91,159,221 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively		1,038			909
Additional paid-in capital		2,404,305			1,849,497
Accumulated dividends in excess of earnings		(452,590	)		(348,148	)
Accumulated other comprehensive loss, net		(50,993	)		(42,081	)

Total stockholders’ equity		2,516,343			1,962,518

Noncontrolling Interests:
Noncontrolling interests in operating partnership		47,504			52,436
Noncontrolling interests in consolidated joint ventures		13,033			39,709

Total noncontrolling interests		60,537			92,145

Total equity		2,576,880			2,054,663

Total liabilities and equity	$	5,826,412		$	5,329,483

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except share and per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Operating Revenues:
Rental	$	206,846		$	184,204		$	606,447		$	492,342
Tenant reimbursements		56,656			52,975			159,801			131,630
Construction management		9,372			307			24,948			2,757
Other		602			—			902			—

Total operating revenues		273,476			237,486			792,098			626,729

Operating Expenses:
Rental property operating and maintenance		82,164			73,863			226,224			180,393
Property taxes		13,055			14,030			40,488			39,499
Insurance		1,961			2,168			6,010			5,749
Construction management		7,391			293			20,327			1,411
Depreciation and amortization		79,047			70,128			229,813			187,520
General and administrative		14,600			11,878			41,082			34,971
Transactions		3,632			4,666			5,053			7,214
Other		—			59			90			226

Total operating expenses		201,850			177,085			569,087			456,983

Operating income		71,626			60,401			223,011			169,746

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		1,390			1,061			3,656			3,994
Interest and other income		2,218			327			2,862			392
Interest expense		(37,078	)		(36,737	)		(112,494	)		(100,801	)
Tax expense		(461	)		(343	)		(1,122	)		(1,593	)
Loss from early extinguishment of debt		(6	)		(1,083	)		(984	)		(2,624	)

Net income		37,689			23,626			114,929			69,114

Net income attributable to noncontrolling interests		(1,345	)		(590	)		(4,380	)		(2,041	)

Net income attributable to Digital Realty Trust, Inc.		36,344			23,036			110,549			67,073

Preferred stock dividends		(4,436	)		(9,194	)		(15,671	)		(29,396	)
Costs on redemption of preferred stock		—			(4,203	)		—			(4,203	)

Net income available to common stockholders	$	31,908		$	9,639		$	94,878		$	33,474

Net income per share available to common stockholders:
Basic	$	0.32		$	0.11		$	0.99		$	0.41
Diluted	$	0.31		$	0.11		$	0.97		$	0.40

Weighted average common shares outstanding:
Basic		100,588,235			87,908,953			96,137,611			82,111,128
Diluted		101,912,342			90,136,912			97,316,650			84,137,205

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(unaudited, in thousands, except share data)


	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 Ventures			Total Noncontrolling Interests			Total Equity
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
Conversion of units to common stock		—			570,181		7		6,553			—			—			6,560			(6,560	)		—			(6,560	)		—
Issuance of restricted stock, net of forfeitures		—			79,481		—		—			—			—			—			—			—			—			—
Net proceeds from sale of common stock		—			7,078,687		70		413,522			—			—			413,592			—			—			—			413,592
Exercise of stock options		—			90,171		1		3,415			—			—			3,416			—			—			—			3,416
Issuance of common stock in exchange for debentures		—			1,087,820		11		(11,461	)		—			—			(11,450	)		—			—			—			(11,450	)
Issuance of series E preferred stock, net of offering costs		277,402			—		—		—			—			—			277,402			—			—			—			277,402
Conversion of preferred stock		(165,160	)		4,037,317		40		165,120			—			—			—			—			—			—			—
Amortization of unearned compensation regarding share based awards		—			—		—		12,308			—			—			12,308			—			—			—			12,308
Reclassification of vested share based awards		—			—		—		(7,929	)		—			—			(7,929	)		7,929			—			7,929			—
Dividends declared on preferred stock		—			—		—		—			(15,671	)		—			(15,671	)		—			—			—			(15,671	)
Dividends and distributions on common stock and common and incentive units		—			—		—		—			(199,320	)		—			(199,320	)		(10,756	)		—			(10,756	)		(210,076	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—		—		—			—			—			—			—			119			119			119
Purchase of noncontrolling interests of a consolidated joint venture		—			—		—		(26,720	)		—			—			(26,720	)		—			(26,520	)		(26,520	)		(53,240	)
Net income		—			—		—		—			110,549			—			110,549			4,655			(275	)		4,380			114,929
Other comprehensive loss - foreign currency translation adjustments		—			—		—		—			—			(10,262	)		(10,262	)		(281	)		—			(281	)		(10,543	)
Other comprehensive loss - fair value of interest rate swaps		—			—		—		—			—			(2,907	)		(2,907	)		(129	)		—			(129	)		(3,036	)
Other comprehensive income - reclassification of accumulated other comprehensive loss to interest expense		—			—		—		—			—			4,257			4,257			210			—			210			4,467

Balance as of September 30, 2011	$	614,583			104,102,878	$	1,038	$	2,404,305		$	(452,590	)	$	(50,993	)	$	2,516,343		$	47,504		$	13,033		$	60,537		$	2,576,880

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010

Net income	$	37,689		$	23,626		$	114,929		$	69,114

Other comprehensive income (loss):
Foreign currency translation adjustments		(35,580	)		25,907			(10,543	)		(11,612	)
Decrease in fair value of interest rate swaps		(2,089	)		(2,036	)		(3,036	)		(8,132	)
Reclassification to interest expense from interest rate swaps		1,293			1,631			4,467			5,031


Comprehensive income		1,313			49,128			105,817			54,401

Comprehensive loss (income) attributable to noncontrolling interests		207			(1,935	)		(4,180	)		(971	)


Comprehensive income attributable to Digital Realty Trust, Inc.	$	1,520		$	47,193		$	101,637		$	53,430

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:

Net income	$	114,929		$	69,114
Adjustments to reconcile net income to net cash provided by operating activities

Loss on early extinguishment of debt-non cash portion		558			2,119
Equity in earnings of unconsolidated joint ventures		(3,656	)		(3,994	)
Distributions from unconsolidated joint venture		3,250			3,000
Write-off of net assets due to early lease terminations		81			227
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		181,499			148,263
Amortization of share-based unearned compensation		10,263			10,175
Recovery of doubtful accounts		(1,090	)		(290	)
Amortization of deferred financing costs		7,246			8,050
Write-off of deferred financing costs, included in net loss on early extinguishment of debt		85			—
Amortization of debt discount/premium		1,813			3,205
Amortization of acquired in place lease value and deferred leasing costs		48,313			39,258
Amortization of acquired above market leases and acquired below market leases, net		(5,663	)		(6,504	)
Changes in assets and liabilities:
Restricted cash		288			(3,285	)
Accounts and other receivables		(9,610	)		(37,305	)
Deferred rent		(41,220	)		(33,707	)
Deferred leasing costs		(7,200	)		(7,454	)
Other assets		(11,389	)		(3,629	)
Accounts payable and other accrued liabilities		(6,859	)		44,171
Security deposits and prepaid rents		(1,540	)		8,907

Net cash provided by operating activities		280,098			240,321

Cash flows from investing activities:

Acquisitions of real estate		(86,567	)		(1,181,889	)
Investment in unconsolidated joint ventures		(382	)		(10,354	)
Deposits paid for acquisitions of real estate		(10,066	)		—
Receipt of value added tax refund		9,253			3,499
Refundable value added tax paid		(17,859	)		(4,052	)
Change in restricted cash		4,604			(17,826	)
Improvements to and advances for investments in real estate		(489,709	)		(248,737	)
Improvement advances to tenants		(7,705	)		(1,529	)
Collection of advances from tenants for improvements		6,746			1,516

Net cash used in investing activities		(591,685	)		(1,459,372	)

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited, in thousands)


	Nine Months Ended September 30,
	2011			2010
Cash flows from financing activities:

Borrowings on revolving credit facilities	$	883,247		$	554,622
Repayments on revolving credit facilities		(1,049,182	)		(540,547	)
Borrowings on unsecured senior notes		—			117,000
Borrowings on 5.875% unsecured senior notes due 2020		—			491,480
Borrowings on 4.50% unsecured senior notes due 2015		—			373,864
Borrowings on 5.250% unsecured senior notes due 2021		399,100			—
Principal payments on mortgage loans		(127,341	)		(14,507	)
Principal repayments on 2026 exchangeable senior debentures		(88,758	)		(250	)
Principal payments on unsecured notes		(25,000	)		—
Equity component settled associated with exchange of 2026 exchangeable senior debentures		(11,783	)		—
Redemption of Series A preferred stock		—			(103,500	)
Change in restricted cash		(73	)		(1,071	)
Payment of loan fees and costs		(6,593	)		(11,985	)
Capital contributions received from noncontrolling interests in joint ventures		119			12,682
Gross proceeds from the sale of common stock		419,619			550,107
Gross proceeds from the sale of preferred stock		287,500			—
Common stock offering costs paid		(6,027	)		(18,905	)
Preferred stock offering costs paid		(9,447	)		—
Proceeds from exercise of stock options		3,416			5,179
Payment of dividends to preferred stockholders		(15,671	)		(29,396	)
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership		(261,286	)		(171,549	)
Purchase of noncontrolling interests in consolidated joint venture		(53,240	)		—

Net cash provided by financing activities		338,600			1,213,224

Net increase (decrease) in cash and cash equivalents		27,013			(5,827	)

Cash and cash equivalents at beginning of period		11,719			72,320

Cash and cash equivalents at end of period	$	38,732		$	66,493

Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized	$	126,664		$	86,144
Cash paid for taxes		1,568			998

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(10,543	)	$	(11,612	)
Decrease in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		(3,036	)		(8,132	)
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock		6,560			7,850
Non-cash allocation of investment in consolidated joint ventures to:
Land		—			8,976
Building		—			18,155
Restricted cash		—			2,160
Mortgage loans		—			(13,375	)
Other secured loans		—			(10,500	)
Noncontrolling interest in consolidated joint ventures		—			(2,616	)
Noncontrolling interest contribution to consolidated joint ventures		—			2,800
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		136,840			78,743
Accrual of contingent purchase price for investments in real estate		—			2,700
Issuance of common stock in exchange of 2026 exchangeable senior debentures, net		221			62,454

Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate		79,424			1,066,241
Acquired above market leases		178			25,339
Acquired below market leases		—			(43,869	)
Acquired in place lease value and deferred leasing costs		6,965			138,312
Security deposits		—			(4,134	)

Cash paid for acquisition of real estate	$	86,567		$	1,181,889

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit and per unit data)


	September 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	522,309		$	478,629
Acquired ground leases		6,375			6,374
Buildings and improvements		5,001,137			4,459,047
Tenant improvements		291,452			283,492

Total investments in properties		5,821,273			5,227,542
Accumulated depreciation and amortization		(838,034	)		(660,700	)

Net investments in properties		4,983,239			4,566,842
Investment in unconsolidated joint ventures		18,423			17,635

Net investments in real estate		5,001,662			4,584,477
Cash and cash equivalents		38,732			11,719
Accounts and other receivables, net of allowance for doubtful accounts of $2,160 and $3,250 as of September 30, 2011 and December 31, 2010, respectively		90,647			70,337
Deferred rent		231,825			190,067
Acquired above market leases, net		31,822			40,539
Acquired in place lease value and deferred leasing costs, net		315,963			334,366
Deferred financing costs, net		22,084			22,825
Restricted cash		55,230			60,062
Other assets		38,447			15,091

Total assets	$	5,826,412		$	5,329,483

LIABILITIES AND CAPITAL
Revolving credit facilities	$	163,113		$	333,534
Unsecured senior notes, net of discount		1,440,828			1,066,030
Exchangeable senior debentures		266,400			353,702
Mortgage loans, net of premiums		916,199			1,043,188
Other secured loan		10,500			10,500
Accounts payable and other accrued liabilities		289,560			237,631
Accrued dividends and distributions		—			51,210
Acquired below market leases, net		78,724			93,250
Security deposits and prepaid rents		84,208			85,775

Total liabilities		3,249,532			3,274,820
Commitments and contingencies
Capital:
Partners’ capital:
General Partner:
5,126,364 and 6,999,955 Series C Cumulative Convertible Preferred Units issued and outstanding, 8,826,115 and 13,787,300 Series D Cumulative Convertible Preferred Units issued and outstanding, 11,500,000 and 0 Series E Cumulative Redeemable Preferred Units issued and outstanding, respectively, as of September 30, 2011 and December 31, 2010, all with a $25.00 liquidation preference per preferred unit (liquidation preference of $636,312 and $519,681, respectively)		614,583			502,341
104,102,878 and 91,159,221 common units issued and outstanding, respectively		1,952,753			1,502,258
Limited partners, 3,420,814 and 3,937,827 common units, 1,093,221 and 982,618 profits interest units and 510,637 and 543,004 class C units outstanding as of September 30, 2011 and December 31, 2010, respectively		51,483			56,215
Accumulated other comprehensive loss		(54,972	)		(45,860	)

Total partners’ capital		2,563,847			2,014,954
Noncontrolling interests in consolidated joint ventures		13,033			39,709

Total capital		2,576,880			2,054,663

Total liabilities and capital	$	5,826,412		$	5,329,483

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(unaudited, in thousands, except unit and per unit data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Operating Revenues:
Rental	$	206,846		$	184,204		$	606,447		$	492,342
Tenant reimbursements		56,656			52,975			159,801			131,630
Construction management		9,372			307			24,948			2,757
Other		602			—			902			—

Total operating revenues		273,476			237,486			792,098			626,729

Operating Expenses:
Rental property operating and maintenance		82,164			73,863			226,224			180,393
Property taxes		13,055			14,030			40,488			39,499
Insurance		1,961			2,168			6,010			5,749
Construction management		7,391			293			20,327			1,411
Depreciation and amortization		79,047			70,128			229,813			187,520
General and administrative		14,600			11,878			41,082			34,971
Transactions		3,632			4,666			5,053			7,214
Other		—			59			90			226

Total operating expenses		201,850			177,085			569,087			456,983

Operating income		71,626			60,401			223,011			169,746

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		1,390			1,061			3,656			3,994
Interest and other income		2,218			327			2,862			392
Interest expense		(37,078	)		(36,737	)		(112,494	)		(100,801	)
Tax expense		(461	)		(343	)		(1,122	)		(1,593	)
Loss from early extinguishment of debt		(6	)		(1,083	)		(984	)		(2,624	)

Net income		37,689			23,626			114,929			69,114
Net loss (income) attributable to noncontrolling interests in consolidated joint ventures		76			(53	)		275			29

Net income attributable to Digital Realty Trust, L.P.		37,765			23,573			115,204			69,143

Preferred units distributions		(4,436	)		(9,194	)		(15,671	)		(29,396	)
Costs on redemption of preferred units		—			(4,203	)		—			(4,203	)

Net income available to common unitholders	$	33,329		$	10,176		$	99,533		$	35,544

Net income per unit available to common unitholders:
Basic	$	0.32		$	0.11		$	0.99		$	0.41
Diluted	$	0.31		$	0.11		$	0.97		$	0.40

Weighted average common units outstanding:
Basic		105,069,280			92,815,152			100,845,740			87,138,978
Diluted		106,393,387			95,043,111			102,024,779			89,165,055

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CAPITAL

(unaudited, 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					Units
	Units			Amount			Units		Amount			Units			Amount
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

Conversion of limited partner common units to general partner common units		—			—			570,181		6,560			(570,181	)		(6,560	)		—			—			—
Issuance of restricted common units, net of forfeitures		—			—			79,481		—			—			—			—			—			—
Net proceeds from issuance of common units		—			—			7,078,687		413,592			—			—			—			—			413,592
Issuance of common units in connection with the exercise of stock options		—			—			90,171		3,416			—			—			—			—			3,416
Issuance of common units, net of forfeitures		—			—			—		—			131,404			—			—			—			—
Issuance of common units in exchange for debentures		—			—			1,087,820		(11,450	)		—			—			—			—			(11,450	)
Net proceeds from issuance of preferred units		11,500,000			277,402			—		—			—			—			—			—			277,402
Conversion of preferred units		(6,834,776	)		(165,160	)		4,037,317		165,160			—			—			—			—			—
Amortization of unearned compensation regarding share based awards		—			—			—		12,308			—			—			—			—			12,308
Reclassification of vested share based awards		—			—			—		(7,929	)		—			7,929			—			—			—
Distributions		—			(15,671	)		—		(199,320	)		—			(10,756	)		—			—			(225,747	)
Purchase of noncontrolling interests of a consolidated joint venture		—			—			—		(26,720	)		—			—			—			(26,520	)		(53,240	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—			—		—			—			—			—			119			119
Net income		—			15,671			—		94,878			—			4,655			—			(275	)		114,929
Other comprehensive loss - foreign currency translation adjustments		—			—			—		—			—			—			(10,543	)		—			(10,543	)
Other comprehensive loss - fair value of interest rate swaps		—			—			—		—			—			—			(3,036	)		—			(3,036	)
Other comprehensive income - reclassification of accumulated other comprehensive loss to interest expense		—			—			—		—			—			—			4,467			—			4,467

Balance as of September 30, 2011		25,452,479		$	614,583			104,102,878	$	1,952,753			5,024,672		$	51,483		$	(54,972	)	$	13,033		$	2,576,880

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Net income	$	37,689		$	23,626		$	114,929		$	69,114

Other comprehensive income (loss):
Foreign currency translation adjustments		(35,580	)		25,907			(10,543	)		(11,612	)
Decrease in fair value of interest rate swaps		(2,089	)		(2,036	)		(3,036	)		(8,132	)
Reclassification to interest expense from interest rate swaps		1,293			1,631			4,467			5,031


Comprehensive income	$	1,313		$	49,128		$	105,817		$	54,401

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities:

Net income	$	114,929		$	69,114
Adjustments to reconcile net income to net cash provided by operating activities

Loss on early extinguishment of debt-non cash portion		558			2,119
Equity in earnings of unconsolidated joint ventures		(3,656	)		(3,994	)
Distributions from unconsolidated joint venture		3,250			3,000
Write-off of net assets due to early lease terminations		81			227
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		181,499			148,263
Amortization of share-based unearned compensation		10,263			10,175
Recovery of doubtful accounts		(1,090	)		(290	)
Amortization of deferred financing costs		7,246			8,050
Write-off of deferred financing costs, included in net loss on early extinguishment of debt		85			—
Amortization of debt discount/premium		1,813			3,205
Amortization of acquired in place lease value and deferred leasing costs		48,313			39,258
Amortization of acquired above market leases and acquired below market leases, net		(5,663	)		(6,504	)
Changes in assets and liabilities:
Restricted cash		288			(3,285	)
Accounts and other receivables		(9,610	)		(37,305	)
Deferred rent		(41,220	)		(33,707	)
Deferred leasing costs		(7,200	)		(7,454	)
Other assets		(11,389	)		(3,629	)
Accounts payable and other accrued liabilities		(6,859	)		44,171
Security deposits and prepaid rents		(1,540	)		8,907

Net cash provided by operating activities		280,098			240,321

Cash flows from investing activities:

Acquisitions of real estate		(86,567	)		(1,181,889	)
Investment in unconsolidated joint ventures		(382	)		(10,354	)
Deposits paid for acquisitions of real estate		(10,066	)		—
Receipt of value added tax refund		9,253			3,499
Refundable value added tax paid		(17,859	)		(4,052	)
Change in restricted cash		4,604			(17,826	)
Improvements to and advances for investments in real estate		(489,709	)		(248,737	)
Improvement advances to tenants		(7,705	)		(1,529	)
Collection of advances from tenants for improvements		6,746			1,516

Net cash used in investing activities		(591,685	)		(1,459,372	)

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited, in thousands)


	Nine Months Ended September 30,
	2011			2010
Cash flows from financing activities:

Borrowings on revolving credit facilities	$	883,247		$	554,622
Repayments on revolving credit facilities		(1,049,182	)		(540,547	)
Borrowings on unsecured senior notes		—			117,000
Borrowings on 5.875% unsecured senior notes due 2020		—			491,480
Borrowings on 4.50% unsecured senior notes due 2015		—			373,864
Borrowings on 5.250% unsecured senior notes due 2021		399,100			—
Principal payments on mortgage loans		(127,341	)		(14,507	)
Principal repayments on 2026 exchangeable senior debentures		(88,758	)		(250	)
Principal payments on unsecured loans		(25,000	)		—
Capital component settled associated with exchange of 2026 exchangeable senior debentures		(11,783	)		—
Redemption of Series A preferred units		—			(103,500	)
Change in restricted cash		(73	)		(1,071	)
Payment of loan fees and costs		(6,593	)		(11,985	)
Capital contributions received from noncontrolling interests in joint ventures		119			12,682
General partner contributions		695,061			536,381
Payment of distributions to preferred unitholders		(15,671	)		(29,396	)
Payment of distributions to common unitholders		(261,286	)		(171,549	)
Purchase of noncontrolling interests in consolidated joint venture		(53,240	)		—

Net cash provided by financing activities		338,600			1,213,224

Net increase (decrease) in cash and cash equivalents		27,013			(5,827	)

Cash and cash equivalents at beginning of period		11,719			72,320

Cash and cash equivalents at end of period	$	38,732		$	66,493

Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized	$	126,664		$	86,144
Cash paid for taxes		1,568			998

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(10,543	)	$	(11,612	)
Decrease in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		(3,036	)		(8,132	)
Non-cash allocation of investment in consolidated joint ventures to:
Land		—			8,976
Building		—			18,155
Restricted cash		—			2,160
Mortgage loans		—			(13,375	)
Other secured loans		—			(10,500	)
Noncontrolling interest in consolidated joint ventures		—			(2,616	)
Noncontrolling interest contribution to consolidated joint ventures		—			2,800
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		136,840			78,743
Accrual of contingent purchase price for investments in real estate		—			2,700
Issuance of common units associated with exchange of 2026 exchangeable senior debentures, net		221			62,454

Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate		79,424			1,066,241
Acquired above market leases		178			25,339
Acquired below market leases		—			(43,869	)
Acquired in place lease value and deferred leasing costs		6,965			138,312
Security deposits		—			(4,134	)

Cash paid for acquisition of real estate	$	86,567		$	1,181,889

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

(unaudited)

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 September 30, 2011, our portfolio consisted of 98 properties, excluding two properties held as investments in unconsolidated joint ventures, of which 82 are located throughout North America, 15 are located in Europe and one is located in Asia. We are diversified in major markets where corporate datacenter and technology tenants are concentrated, including the Boston, Chicago, Dallas, Los Angeles, New 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 Singapore, Sydney and Melbourne markets in the Asia Pacific region. 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 September 30, 2011, we own a 95.4% 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.

2. Summary of Significant Accounting Policies

(a) Principles of Consolidation and Basis of Presentation

The accompanying interim condensed 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 accompanying interim condensed consolidated financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and in compliance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included. All such adjustments are considered to be of a normal recurring nature, except as otherwise indicated. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2010.

The notes to the condensed 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 notes instead of two separate sets of notes.

There are few differences between the Company and the Operating Partnership, which are reflected in these condensed consolidated financial statements. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how we 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 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 notes. 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 condensed 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 condensed consolidated financial statements and as noncontrolling interests in operating partnership within equity in Digital Realty Trust, Inc.’s condensed 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 condensed 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 condensed 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 condensed consolidated financial statements present the following separate sections for each of the Company and the Operating Partnership:

•

condensed consolidated face financial statements; and

•

the following notes to the condensed consolidated financial statements:

•

Debt of the Company and Debt of the Operating Partnership;

•

Income per Share and Income per Unit; and

•

Equity and Accumulated Other Comprehensive Loss, Net of the Company and Capital and Accumulated Other Comprehensive Loss of the Operating Partnership.

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 condensed consolidated statements of cash flows, we consider short-term investments with original maturities of 90 days or less to be cash equivalents. As of September 30, 2011, cash equivalents consist of investments in money market instruments.

(c) 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 12(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.

(d) 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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 condensed 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 September 30, 2011 and December 31, 2010, 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 condensed consolidated statements of operations. For the three and nine months ended September 30, 2011 and 2010, we had no such interest or penalties. The tax years 2008 through 2010 remain open to examination by the major taxing jurisdictions with which the Parent Company and its subsidiaries file tax returns.

See Note 9 for further discussion on income taxes.

(e) 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.

(f) 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 September 30, 2011 and December 31, 2010, the amount included in accounts payable and other accrued liabilities on our condensed consolidated balance sheets was approximately $1.3 million.

(g) Assets and Liabilities Measured at Fair Value

Fair value under U.S. GAAP is a market-based measurement, not an entity-specific measurement. Therefore, our 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 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 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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

(h) Construction Management Revenue

Construction management revenue is recognized under the percentage-of-completion method of accounting. Revenues are determined by measuring the percentage of total costs incurred to date to estimated total costs for each construction management contract based on current estimates of costs to complete. Contract costs include all labor and benefits, materials, subcontracts, and an allocation of indirect costs related to contract performance. Indirect costs are allocated to projects based upon labor hours charged. As long-term design-build projects extend over one or more years, revisions in cost and estimated earnings during the course of the work are reflected in the accounting period in which the facts which require the revision become known. At the time a loss on a design-build project becomes known, the entire amount of the estimated ultimate loss is recognized in the condensed consolidated financial statements. Change orders are recognized when they are approved by the client.

Costs and estimated earnings in excess of billings on uncompleted construction management projects are included in other assets in the condensed consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted construction management projects are included in accounts payable and accrued liabilities in the condensed consolidated balance sheets. Customers are billed on a monthly basis at the end of each month, which can be in advance of work performed.

(i) Transactions Expense

Transactions expense includes acquisition-related expenses and other business development expenses, which are expensed as incurred. Acquisition-related expenses include closing costs, broker commissions and other professional fees, including legal and accounting fees related to acquisitions and potential acquisitions.

(j) Capitalization of Costs

Direct and indirect project costs that are clearly associated with the development and redevelopment of properties are capitalized as incurred. Project costs include all costs directly associated with the development or redevelopment of a property, including construction costs, interest, property taxes, insurance, legal fees and costs of personnel working on the project. Indirect costs that do not clearly relate to the projects under development/redevelopment are not capitalized and are charged to expense as incurred.

Capitalization of costs begins when the activities necessary to get the development/redevelopment project ready for its intended use begins, which include costs incurred before the beginning of construction. Capitalization of costs ceases when the development/redevelopment project is substantially complete and ready for its intended use. Determining when a development/redevelopment project commences, and when it is substantially complete and ready for its intended use involves a degree of judgment. We generally consider a development/redevelopment project to be substantially complete and ready for its intended use upon recommissioning, which is when the redeveloped/developed project has been tested at full load, or receipt of a certificate of occupancy. We cease cost capitalization if activities necessary for the development/redevelopment of the property have been suspended. Capitalized costs are allocated to the specific components of a project that are benefited.

(k) 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 condensed 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 the valuation of our real estate properties, accounts receivable and deferred rent receivable, performance-based equity compensation plans, the completeness of accrued liabilities 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.

(l) 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 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 our customers and the method to distribute such services are consistent throughout the portfolio. Consequently, our properties qualify for aggregation into one reporting segment.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

(m) Reclassifications

Certain reclassifications to prior year amounts have been made to conform to the current year presentation. During the three and nine months ended September 30, 2010, $0.3 million and $2.8 million was reclassified from rental revenue to construction management revenue, respectively, and $0.3 million and $1.4 million was reclassified from rental property operating and maintenance expense to construction management expense, respectively.

3. Acquisitions

We acquired the following real estate properties during the nine months ended September 30, 2011:


Location	Metropolitan Area	Date Acquired	Amount (in millions)
Loudoun Parkway North⁽¹⁾	Northern Virginia	April 15, 2011	$	17.3
Erskine Park⁽¹⁾	Sydney, Australia	July 21, 2011		10.9
Fountain Court, Chessington	London, England	July 26, 2011		21.1
162/163 Radnor Drive⁽¹⁾	Melbourne, Australia	August 19, 2011		4.3
3825 NW Aloclek⁽¹⁾	Portland, Oregon	August 26, 2011		1.6
11085 Sun Center Drive	Sacramento, California	September 23, 2011		30.0

			$	85.2

(1)	Represents vacant land which is not included in our operating property count.

4. Acquired Intangible Assets and Liabilities

The 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 September 30, 2011 and December 31, 2010.


	Balance as of
(Amounts in thousands)	September 30, 2011			December 31, 2010
Acquired in place lease value:
Gross amount	$	522,769		$	515,958
Accumulated amortization		(303,014	)		(261,978	)

Net	$	219,755		$	253,980

Acquired above-market lease value:
Gross amount	$	87,800		$	87,622
Accumulated amortization		(55,978	)		(47,083	)

Net	$	31,822		$	40,539

Acquired below-market lease value:
Gross amount	$	189,975		$	189,990
Accumulated amortization		(111,251	)		(96,740	)

Net	$	78,724		$	93,250

Amortization of acquired below-market lease value, net of acquired above-market lease value, resulted in an increase to rental revenues of $2.0 million and $1.8 million for the three months ended September 30, 2011 and 2010, respectively, and $5.7 million and $6.5 million for the nine months ended September 30, 2011 and 2010, respectively. The expected weighted average remaining lives for acquired below-market leases and acquired above-market leases is 5.7 years and 4.8 years, respectively, as of September 30, 2011. 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, 2012 is as follows:


(Amounts in thousands)
2012	$	6,441
2013		7,010
2014		5,650
2015		4,979
2016		4,102

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 $13.5 million and $13.8 million for the three months ended September 30, 2011 and 2010, respectively, and $41.3 million and $33.9 million for the nine months ended September 30, 2011 and 2010, respectively. The expected weighted average amortization period for acquired in place lease value is 6.0 years as of September 30, 2011. The weighted average period prior to the next renewal or extension related to remaining contractual life for acquired leases is 5.3 years as of September 30, 2011. Estimated annual amortization of acquired in place lease value for each of the five succeeding years, commencing January 1, 2012 is as follows:


(Amounts in thousands)
2012	$	42,568
2013		37,931
2014		33,279
2015		25,124
2016		16,779

5. Debt of the Company

In this Note 5, 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 guarantees the Operating Partnership’s obligations with respect to the 2029 Debentures, the 2015 Notes, the 2020 Notes, the 2021 Notes (each, as defined in Note 6) and its unsecured senior notes sold to Prudential (as defined in Note 6) pursuant to the Prudential shelf facility. The Company is also the guarantor of the Operating Partnership’s obligations under its revolving credit facilities.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

6. Debt of the Operating Partnership

A summary of outstanding indebtedness of the Operating Partnership as of September 30, 2011 and December 31, 2010, respectively, is as follows (in thousands):


Indebtedness	Interest Rate at September 30, 2011	Maturity Date	Principal Outstanding September 30, 2011			Principal Outstanding December 31, 2010
Revolving credit facilities:
Corporate revolving credit facility	Various (1)	Aug. 31, 2012	$	148,760	(3)	$	333,534	(3)
Asia Pacific revolving credit facility	Various (1)	Aug. 17, 2012	$	14,353	(4)		—

Total revolving credit facilities				163,113			333,534
Unsecured senior notes:
Prudential Shelf Facility:
Series A	7.000%	Jul. 24, 2011		—			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			50,000
Series E	5.730%	Jan. 20, 2017		50,000			50,000
Series F	4.500%	Feb. 3, 2015		17,000			17,000

Total Prudential Shelf Facility				175,000			200,000
Senior Notes:
4.50% notes due 2015	4.50%	Jul. 15, 2015		375,000			375,000
5.875% notes due 2020	5.875%	Feb. 1, 2020		500,000			500,000
5.250% notes due 2021	5.250%	Mar. 15, 2021		400,000			—
Unamortized discounts				(9,172	)		(8,970	)

Total senior notes, net of discount				1,265,828			866,030

Total unsecured senior notes, net of discount				1,440,828			1,066,030

Exchangeable senior debentures:
4.125% exchangeable senior debentures due 2026	4.125%	Aug. 15, 2026		—	(5)		88,758
5.50% exchangeable senior debentures due 2029	5.50%	Apr. 15, 2029 (6)		266,400			266,400
Unamortized discount				—			(1,456	)

Total exchangeable senior debentures, net of discount				266,400			353,702

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)


Indebtedness	Interest Rate at September 30, 2011	Maturity Date	Principal Outstanding September 30, 2011			Principal Outstanding December 31, 2010

Mortgage loans:
Secured Term Debt (7)(8)	5.65%	Nov. 11, 2014		139,522			141,465
3 Corporate Place	6.72%	Aug. 1, 2011		—	(16)		80,000
200 Paul Avenue 1-4 (8)	5.74%	Oct. 8, 2015		74,900			76,179
2045 & 2055 LaFayette Street (8)	5.93%	Feb. 6, 2017		65,780			66,437
Mundells Roundabout	3-month GBP LIBOR + 1.20% (10)	Nov. 30, 2013		66,738	(11)		66,858	(11)
600 West Seventh Street	5.80%	Mar. 15, 2016		53,079			54,157
34551 Ardenwood Boulevard 1-4 (8)	5.95%	Nov. 11, 2016		53,803			54,306
1100 Space Park Drive (8)	5.89%	Dec. 11, 2016		53,787			54,296
1350 Duane Avenue/3080 Raymond Street (8)	5.42%	Oct. 1, 2012		52,800			52,800
150 South First Street (8)	6.30%	Feb. 6, 2017		51,676			52,154
114 Rue Ambroise Croizat (15)	3-month EURIBOR + 1.35% (10)	Jan. 18, 2012		40,945	(12)		41,430	(12)
Clonshaugh Industrial Estate II (9)	3-month EURIBOR + 4.50% (10)	Sep. 4, 2014		40,161	(12)		40,152	(12)
1500 Space Park Drive (8)	6.15%	Oct. 5, 2013		38,405			39,941
2334 Lundy Place (8)	5.96%	Nov. 11, 2016		39,130			39,496
Unit 9, Blanchardstown Corporate Park (15)	3-month EURIBOR + 1.35% (10)	Jan. 18, 2012		35,203	(12)		35,620	(12)
Cressex 1 (13)	5.68%	Oct. 16, 2014		27,978	(11)		28,388	(11)
6 Braham Street	3-month GBP LIBOR + 0.90% (10)	Apr. 10, 2011		—	(16)		19,515	(11)
1201 Comstock Street (8)(9)	1-month LIBOR + 3.50% (10)	Jun. 24, 2012 (2)		16,372			16,976
Datacenter Park—Dallas	5.00%	Sep. 15, 2011		—	(16)		16,150
Paul van Vlissingenstraat 16	3-month EURIBOR + 1.60% (10)	Jul. 18, 2013		13,813	(12)		13,978	(12)
Chemin de l’Epinglier 2	3-month EURIBOR + 1.50% (10)	Jul. 18, 2013		9,994	(12)		10,113	(12)
800 Central Expressway (8)	1-month LIBOR + 4.75% (10)	Jun. 9, 2013		10,000			10,000
Gyroscoopweg 2E-2F	3-month EURIBOR + 1.50% (10)	Oct. 18, 2013		8,795	(12)		8,900	(12)
1125 Energy Park Drive (8)	7.62%	Mar. 1, 2032 (14)		8,946			9,060
Manchester Technopark (13)	5.68%	Oct. 16, 2014		8,512	(11)		8,636	(11)
731 East Trade Street	8.22%	Jul. 1, 2020		4,877			5,080
Unamortized net premiums				983			1,101

Total mortgage loans, net of premiums				916,199			1,043,188
Other secured loan:
800 Central Expressway Mezzanine (8)	1-month LIBOR + 8.50% (10)	Jun. 9, 2013		10,500			10,500

Total other secured loan				10,500			10,500

Total indebtedness			$	2,797,040		$	2,806,954

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

(1)

The interest rate for borrowings under our corporate revolving credit facility equals, at our election, 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%—1.000%. In each case, the margin is based on our total leverage ratio. We incur a fee ranging from 0.125% to 0.20% for the unused portion of our corporate revolving credit facility. The interest rate for borrowings under our Asia Pacific revolving credit facility equals, at our election, either (i) SIBOR and BBR (ranging from 1- to 6-month maturities) plus a margin of between 1.20% and 1.75%. We incur a fee ranging from 0.25% to 0.50% for the unused portion of our Asia Pacific revolving credit facility.

(2)	A one-year extension is available, which we may exercise if certain conditions are met.

(3)	Balances as of September 30, 2011 and December 31, 2010 are as follows (balances, in thousands):


Denomination of Draw	Balance as of September 30, 2011			Weighted-average interest rate			Balance as of December 31, 2010			Weighted-average interest rate
US ($)	$	65,000			1.44	%	$	312,500			1.40	%
Euro (€)		33,735	(a)		2.55	%		—			—
British Sterling (£)		50,025	(b)		1.88	%		21,034	(b)		1.69	%

Total	$	148,760			1.84	%	$	333,534			1.42	%

(a)

Based on exchange rate of $1.34 to €1.00 as of September 30, 2011.

(b)

Based on exchange rate of $1.56 to £1.00 as of September 30, 2011 and December 31, 2010.

(4)	Balances as of September 30, 2011 are as follows (balances, in thousands):


Denomination of Draw	Balance as of September 30, 2011			Weighted-average interest rate
Singapore Dollar (S$)	$	13,387	(a)		1.42	%
Australian Dollar (A$)		966	(b)		6.07	%

Total	$	14,353			1.73	%

(a)

Based on exchange rate of $0.76 to S$1.00 as of September 30, 2011.

(b)

Based on exchange rate of $0.97 to A$1.00 as of September 30, 2011.

(5)	During the three months ended September 30, 2011, we exchanged the remaining 2026 Debentures for shares of our common stock and cash pursuant to the terms of the indenture governing the debentures.

(6)

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.

(7)	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.

(8)	The respective borrower’s assets and credit are not available to satisfy the debts and other obligations of affiliates or any other person.

(9)	The Operating Partnership or its subsidiary provides a limited recourse guarantee with respect to this loan.

(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 13 for further information.

(11)	Based on exchange rate of $1.56 to £1.00 as of September 30, 2011 and December 31, 2010.

(12)	Based on exchange rate of $1.34 to €1.00 as of September 30, 2011 and December 31, 2010.

(13)	These loans are also secured by a £7.8 million letter of credit. These loans are cross-collateralized by the two properties.

(14)	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.

(15)	These loans are cross-collateralized by the two properties.

(16)

These mortgage loans were repaid in full; 6 Braham Street (April 2011), 3 Corporate Place (May 2011) and Datacenter Park—Dallas (June 2011). Net loss from early extinguishment of debt related to prepayment costs on 3 Corporate Place amounted to $0.3 million for both the three and nine months ended September 30, 2011.

Revolving Credit Facilities

Corporate Revolving Credit Facility

As of September 30, 2011, the Operating Partnership’s revolving credit facility, which we refer to as the corporate revolving credit facility, had a total capacity of $750.0 million. Effective August 31, 2011, we exercised the second and final one-year extension option to our corporate revolving credit facility, which extended its maturity date from August 31, 2011 to August 31, 2012. As of September 30, 2011, borrowings under the corporate revolving credit facility bore interest at a blended rate of 1.44% (U.S), 2.55% (Euro) and 1.88% (GBP), which are based on 1-month LIBOR, 1-month EURIBOR and 1-month GBP LIBOR, respectively, plus a margin of 1.20%. The corporate revolving credit facility has a $515.0 million sub-facility for multicurrency advances in British Pounds Sterling, Canadian Dollars, Euros, and Swiss Francs. We have used and intend to use available borrowings under the corporate revolving credit facility to acquire additional properties, fund development and redevelopment opportunities and to provide for working capital and other corporate purposes, including potentially for the repurchase, redemption or retirement of outstanding debt or preferred equity securities. As of September 30, 2011, approximately $148.8 million was drawn under this facility and $30.0 million of letters of credit were issued.

The corporate revolving 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 to below investment grade may trigger additional payments or other consequences under our corporate revolving credit facility. In addition, except to enable Digital Realty Trust, Inc. to maintain its 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 in the credit agreement, for such period, subject to certain other adjustments. As of September 30, 2011, we were in compliance with all of such covenants.

During the three months ended September 30, 2011 and 2010, we capitalized interest of approximately $4.8 million and $2.7 million, respectively, and $13.6 million and $7.1 million during the nine months ended September 30, 2011 and 2010, respectively.

Asia Pacific Revolving Credit Facility

On August 18, 2011, Digital Singapore Jurong East Pte. Ltd., Digital Realty Datafirm, LLC and Digital Realty Datafirm 2, LLC, each a subsidiary of the Operating Partnership, as the initial borrowers, with the Operating Partnership, the Company and the subsidiary guarantors named therein, as guarantors, the initial lenders and each swing line bank named therein, Citicorp International Ltd., as administrative agent, and Citigroup Global Markets Inc., Citigroup Global Markets Singapore Pte Ltd., Bank of America, N.A., Sumitomo Mitsui Banking Corporation and The Hong Kong and Shanghai Banking Corporation Limited, collectively as the coordinating banks entered into a revolving credit agreement, which we refer to as the Asia Pacific revolving credit facility. The Asia Pacific revolving credit facility provides for a revolving credit facility in an aggregate amount of up to $55.6 million Australian Dollars (A$) and $50.0 million Singapore Dollars (S$) (an aggregate equivalent of approximately $100 million based on the August 18, 2011 exchange rate) and matures in August 2012. In addition, we have the ability from time to time to increase the size of the Asia Pacific revolving credit facility to up to an aggregate amount of S$245.0 million (an equivalent of approximately $200 million based on the August 18, 2011 exchange rate), subject to receipt of lender commitments and other conditions precedent. Borrowings under the Asia Pacific revolving credit facility are guaranteed by the Company, the Operating Partnership and certain of the Operating Partnership’s subsidiaries. We have used and intend to use available borrowings under the Asia Pacific revolving credit facility to, among other things, acquire additional properties, fund development opportunities and to provide for working capital and other general corporate purposes. As of September 30, 2011, borrowings under the Asia Pacific revolving credit facility bore interest at a blended rate of 1.42% (Singapore) and 6.07% (Australia), which are based on 1-month SIBOR and 1-month BBR, respectively, plus a margin of 1.20%. As of September 30, 2011, S$17.5 million and A$1.0 million (an equivalent of approximately $14.4 million based on the September 30, 2011 exchange rate) was drawn under this facility.

The Asia Pacific revolving 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 to below investment grade may trigger additional payments or other consequences under this credit facility. In addition, except to enable Digital Realty Trust, Inc. to maintain its 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 in the credit agreement, for such period, subject to certain other adjustments. As of September 30, 2011, we were in compliance with all of such covenants.

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 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, the Operating Partnership closed the sale of an additional $17.0 million aggregate principal amount of its 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 December 8, 2010, the 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. Our ability to make additional issuances of notes under the Prudential shelf facility expired on July 24, 2011, with $50.0 million remaining unissued under the shelf facility. On July 25, 2011, we repaid the $25.0 million of 7.0% Series A unsecured notes under the Prudential shelf facility at maturity. As of September 30, 2011 and December 31, 2010, there was $175.0 million and $200.0 million of unsecured senior notes outstanding, respectively. The Prudential shelf facility contains restrictive covenants that are identical to those in our corporate revolving credit facility.

4.50% 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 4.50% 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 condensed consolidated balance sheet.

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 September 30, 2011, we were in compliance with each of these financial covenants.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

We 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 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 2015 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 October 2010 in connection with the exchange offer, which was declared effective in December 2010. We completed the exchange offer on January 19, 2011.

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 condensed 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 September 30, 2011, 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.

5.250% Notes due 2021

On March 8, 2011, the Operating Partnership issued $400.0 million aggregate principal amount of notes, maturing on March 15, 2021 with an interest rate of 5.250% per annum (the 2021 Notes). The purchase price paid by the initial purchasers was 99.775% of the principal amount. The 2021 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 2021 Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2011. The net proceeds from the offering after deducting the original issue discount of approximately $0.9 million and underwriting commissions and expenses of approximately $3.6 million was approximately $395.5 million. We used the net proceeds from this offering to temporarily repay borrowings under our revolving credit facility, to acquire additional properties, to fund development and redevelopment opportunities and for general working capital purposes, including potentially for the repurchase, redemption or retirement of outstanding debt securities. The 2021 Notes have been reflected net of discount in the condensed consolidated balance sheet.

The indenture governing the 2021 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 September 30, 2011, we were in compliance with each of these financial covenants.

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 2026 Debentures). Costs incurred to issue the 2026 Debentures were approximately $5.4 million, net of the amount allocated to the equity component of the debentures. These costs were being amortized over a period of five years,

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

which represented the estimated term of the 2026 Debentures, and were included in deferred financing costs, net in the condensed consolidated balance sheet. The 2026 Debentures were general unsecured senior obligations of the Operating Partnership, ranked equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and were fully and unconditionally guaranteed by Digital Realty Trust, Inc.

Interest was payable on August 15 and February 15 of each year beginning February 15, 2007 until the maturity date of August 15, 2026. The 2026 Debentures bore interest at 4.125% per annum and contained an exchange settlement feature, which provided that the 2026 Debentures, under certain circumstances, could have been exchangeable 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 at an exchange rate that was initially 30.6828 shares per $1,000 principal amount of 2026 Debentures. The exchange rate on the 2026 Debentures was subject to adjustment for certain events, including, but not limited to, certain dividends on Digital Realty Trust, Inc. common stock in excess of $0.265 per share per quarter (the “reference dividend”). Effective June 13, 2011, the exchange rate was adjusted to 32.2730 shares per $1,000 principal amount of 2026 Debentures 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, 2006 and through the quarter ended June 30, 2011.

Prior to August 18, 2011, the Operating Partnership could not redeem the 2026 Debentures except to preserve Digital 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 2026 Debentures were 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 2026 Debentures.

The holders of the 2026 Debentures had the right to require the Operating Partnership to repurchase the 2026 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 2026 Debentures plus unpaid interest, if any, accrued to, but excluding, the repurchase date. Designated events included certain merger or combination transactions, non-affiliates becoming the beneficial owner of more than 50% of the total voting power of Digital Realty Trust, Inc.’s capital stock, a substantial turnover of Digital Realty Trust, Inc.’s directors within a 12- month period and Digital Realty Trust, Inc. ceasing to be the general partner of the Operating Partnership. Certain events were considered “Events of Default,” which could have resulted in the accelerated maturity of the 2026 Debentures, including a default for 30 days in payment of any installment of interest under the 2026 Debentures, a default in the payment of the principal amount or any repurchase price or redemption price due with respect to the 2026 Debentures and the Operating Partnership’s failure to deliver cash or any shares of Digital Realty Trust, Inc. common stock within 15 days after the due date upon an exchange of the 2026 Debentures, together with any cash due in lieu of fractional shares of common stock.

In addition, the 2026 Debentures were 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 Digital 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 exceeded 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 2026 Debentures was equal 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 called the 2026 Debentures for redemption and (iv) any time on or after July 15, 2026. In July 2011, we gave notice to the holders of the 2026 Debentures that the 2026 Debentures were exchangeable during the calendar quarter ending September 30, 2011 pursuant to (i) above. The exchange price in effect as of June 30, 2011 was $30.99 per share.

We 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 2026 Debentures. If we do not fulfill certain of our obligations under the registration rights agreement, we will be required to pay liquidated damages to the holders of the 2026 Debentures. No separate contingent obligation has been recorded as no liquidated damages have become probable. We filed the shelf registration statement with the U.S. Securities and Exchange Commission in April 2007, which was automatically effective upon filing.

On August 18, 2011, the Operating Partnership redeemed $1,000 in aggregate principal amount of the 2026 Debentures pursuant to its option under the indenture governing the 2026 Debentures at a price of $1,000.34, which was equal to 100% of the principal amount plus accrued and unpaid interest thereon to, but excluding, August 18, 2011. In connection with the redemption, on September 6, 2011, we issued 715,752 restricted shares of Digital Realty Trust, Inc. common stock and the Operating Partnership paid approximately $48.3 million in cash to holders of the 2026 Debentures in exchange for approximately $48.3 million in aggregate principal amount of the 2026 Debentures, which consisted of all the 2026 Debentures that remained outstanding, at the request of holders pursuant to the terms of the indenture governing the 2026 Debentures. During the nine months ended September 30, 2011, we exchanged

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

approximately $88.8 million aggregate principal amount of our 2026 Debentures for a combination of cash (approximately $100.5 million) and 1,087,820 restricted shares of Digital Realty Trust, Inc. common stock at the request of holders pursuant to the terms of the indenture governing our 2026 Debentures. We recorded a loss on exchange of approximately $0.0 million and $1.1 million for the three months ended September 30, 2011 and 2010, respectively, and approximately $0.7 million and $2.6 million for the nine months ended September 30, 2011 and 2010, respectively, determined based on 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 condensed consolidated income statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

The following table provides additional information about the 2026 Debentures as of the date presented pursuant to requirements under U.S. GAAP for convertible debt instruments that require the principal amount to be settled in cash upon conversion:


	4.125% Exchangeable Senior Debentures due 2026
($ and shares in thousands, except exchange price)	September 30, 2011			December 31, 2010
Carrying amount of the equity component	$	—		$	9,406
Principal amount of the liability component	$	—		$	88,758
Unamortized discount of the liability component	$	—		$	1,456
Net carrying amount of the liability component	$	—		$	87,302
Effective interest rate on liability component		6.75	%		6.75	%
Non-cash interest cost recognized for the period ended	$	1,230		$	2,849	(a)
Coupon rate interest cost recognized for the period ended	$	1,450		$	4,777	(a)

(a)	Amounts are for the nine months ended September 30, 2010.

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 2029 Debentures). Costs incurred to issue the 2029 Debentures were approximately $7.8 million. These costs are being amortized over a period of five years, which represents the estimated term of the 2029 Debentures, and are included in deferred financing costs, net in the condensed consolidated balance sheet. The 2029 Debentures 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 is payable on October 15 and April 15 of each year beginning October 15, 2009 until the maturity date of April 15, 2029. The 2029 Debentures bear interest at 5.50% per annum and may be exchanged for shares of Digital Realty Trust, Inc. common stock at an exchange rate that was initially 23.2558 shares per $1,000 principal amount of 2029 Debentures. The exchange rate on the 2029 Debentures is subject to adjustment for certain events, including, but not limited to, certain dividends on Digital Realty Trust, Inc. common stock in excess of $0.33 per share per quarter (the “reference dividend”). Effective June 13, 2011, the exchange rate has been adjusted to 23.9050 shares per $1,000 principal amount of 2029 Debentures 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 June 30, 2009 and through the quarter ended June 30, 2011. Due to the fact that the exchange feature for the 2029 Debentures must be settled in the common stock of 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 2029 Debentures except to preserve Digital 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 2029 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 2029 Debentures.

The holders of the 2029 Debentures have the right to require the Operating Partnership to repurchase the 2029 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 2029 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 Digital Realty Trust, Inc.’s capital stock, a substantial turnover of Digital Realty Trust, Inc.’s directors within a 12-month period without the approval of existing members and Digital 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 2029 Debentures, including a default for 30 days in payment of any installment of interest under the 2029 Debentures, a default in the payment of the principal amount or any repurchase price or redemption price due with respect to the 2029 Debentures and the Operating Partnership’s failure to deliver shares of Digital Realty Trust, Inc. common stock within 15 days after the due date upon an exchange of the 2029 Debentures, together with any cash due in lieu of fractional shares of common stock.

We 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 2029 Debentures. If we do not fulfill certain of our obligations under the registration rights agreement, we will be required to pay liquidated damages to the holders of the 2029 Debentures. No separate contingent obligation has been recorded as no liquidated damages have become probable. We filed the shelf registration statement with the U.S. Securities and Exchange Commission in December 2009, which was automatically effective upon filing.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

The table below summarizes our debt maturities and principal payments as of September 30, 2011 (in thousands):


	Revolving Credit Facilities ⁽¹⁾		Unsecured Senior Notes		Senior Notes			Exchangeable Senior Debentures			Mortgage Loans ⁽²⁾		Other Secured Loan		Total Debt
Remainder of 2011	$	—	$	—	$	—		$	—		$	3,829	$	—	$	3,829
2012		163,113		—		—			—			158,364		—		321,477
2013		—		33,000		—			—			155,895		10,500		199,395
2014		—		—		—			266,400	⁽³⁾		216,595		—		482,995
2015		—		67,000		375,000			—			75,436		—		517,436
Thereafter		—		75,000		900,000			—			305,097		—		1,280,097

Subtotal	$	163,113	$	175,000	$	1,275,000		$	266,400		$	915,216	$	10,500	$	2,805,229
Unamortized discount		—		—		(9,172	)		—			—		—		(9,172	)
Unamortized premium		—		—		—			—			983		—		983

Total	$	163,113	$	175,000	$	1,265,828		$	266,400		$	916,199	$	10,500	$	2,797,040

⁽¹⁾	Effective August 31, 2011, we exercised the second and final one-year extension option to our corporate revolving credit facility, which extended its maturity date from August 31, 2011 to August 31, 2012.

⁽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 September 30, 2011, we had provided limited recourse guarantees with respect to approximately $56.5 million principal amount of the outstanding mortgage indebtedness, and partial letter of credit support with respect to approximately an additional $36.5 million of the outstanding mortgage indebtedness.

⁽³⁾	Assumes maturity of the 2029 Debentures at first redemption date in April 2014.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

7. Income per Share

The following is a summary of basic and diluted income per share (in thousands, except share and per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Net income available to common stockholders	$	31,908	$	9,639	$	94,878	$	33,474

Weighted average shares outstanding—basic		100,588,235		87,908,953		96,137,611		82,111,128
Potentially dilutive common shares:
Stock options		197,632		228,135		192,885		206,039
Class C Units (2007 Grant)		49,163		139,386		38,654		122,590
Unvested incentive units		162,832		213,130		145,032		176,247
Series E preferred stock		914,480		—		308,176		—
Excess exchange value of the 2026 Debentures		—		1,647,308		494,292		1,521,201

Weighted average shares outstanding—diluted		101,912,342		90,136,912		97,316,650		84,137,205

Income per share:
Basic	$	0.32	$	0.11	$	0.99	$	0.41

Diluted	$	0.31	$	0.11	$	0.97	$	0.40

On or after July 15, 2026, the 2026 Debentures would have been exchangeable 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. The 2026 Debentures also would have been exchangeable prior to July 15, 2026, but only upon the occurrence of certain specified events, including if the weighted average common stock price exceeded a specified strike price as of the end of a fiscal quarter. During the three months ended September 30, 2011, the remaining 2026 Debentures were redeemed and exchanged. Using the treasury stock method, 494,292 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 nine months ended September 30, 2011. During the three and nine months ended September 30, 2010, the weighted average common stock price exceeded the strike price as of September 30, 2010 of $31.84. Therefore, using the treasury method, 1,647,308 and 1,521,201 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 three and nine months ended September 30, 2010, respectively.

We have excluded the following potentially dilutive securities in the calculations above as they would be antidilutive or not dilutive:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Weighted average of Operating Partnership common units not owned by us		4,481,045		4,906,199		4,708,129		5,027,850
Potentially dilutive 2029 Debentures		6,368,292		6,209,949		6,309,599		6,200,267
Potentially dilutive Series C Cumulative Convertible Preferred Stock		2,783,811		3,666,380		3,097,084		3,660,478
Potentially dilutive Series D Cumulative Convertible Preferred Stock		5,603,998		8,316,008		6,775,337		8,256,625

		19,237,146		23,098,536		20,890,149		23,145,220

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

8. Income per Unit

The following is a summary of basic and diluted income per unit (in thousands, except unit and per unit amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Net income available to common unitholders	$	33,329	$	10,176	$	99,533	$	35,544

Weighted average units outstanding—basic		105,069,280		92,815,152		100,845,740		87,138,978
Potentially dilutive common units:
Stock options		197,632		228,135		192,885		206,039
Class C Units (2007 Grant)		49,163		139,386		38,654		122,590
Unvested incentive units		162,832		213,130		145,032		176,247
Series E preferred units		914,480		—		308,176		—
Excess exchange value of the 2026 Debentures		—		1,647,308		494,292		1,521,201

Weighted average units outstanding—diluted		106,393,387		95,043,111		102,024,779		89,165,055

Income per unit:
Basic	$	0.32	$	0.11	$	0.99	$	0.41

Diluted	$	0.31	$	0.11	$	0.97	$	0.40

On or after July 15, 2026, the 2026 Debentures would have been exchangeable 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 would have delivered to Digital Realty Trust, Inc. one common unit for each share of common stock issuable upon exchange of the 2026 Debentures. The 2026 Debentures also would have been exchangeable prior to July 15, 2026, but only upon the occurrence of certain specified events, including if the weighted average common stock price exceeded a specified strike price as of the end of a fiscal quarter. During the three months ended September 30, 2011, the remaining 2026 Debentures were redeemed and exchanged. Using the treasury method, 494,292 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 nine months ended September 30, 2011. During the three and nine months ended September 30, 2010, the weighted average common stock price exceeded the strike price as of September 30, 2010 of $31.84. Therefore, using the treasury method, 1,647,308 and 1,521,201 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 three and nine months ended September 30, 2010, respectively.

We have excluded the following potentially dilutive securities in the calculations above as they would be antidilutive or not dilutive:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Potentially dilutive 2029 Debentures		6,368,292		6,209,949		6,309,599		6,200,267
Potentially dilutive Series C Cumulative Convertible Preferred Units		2,783,811		3,666,380		3,097,084		3,660,478
Potentially dilutive Series D Cumulative Convertible Preferred Units		5,603,998		8,316,008		6,775,337		8,256,625

		14,756,101		18,192,337		16,182,020		18,117,370

9. Income Taxes

Digital Realty Trust, Inc. (the Parent Company) elected to be taxed as a REIT and believes that it has complied with the REIT requirements of the Code. As a REIT, the Parent Company is generally not subject to corporate level federal income taxes on taxable income to the extent it is currently distributed to its stockholders. Since inception, the Parent Company has distributed 100% of its taxable income and intends to do so for the tax year ending December 31, 2011. As such, no provision for federal income taxes has been included in the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2011 and 2010.

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 REITs 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 three and nine months ended September 30, 2011 and 2010.

For our TRS entities and foreign subsidiaries that are subject to U.S. federal, state and foreign income taxes, deferred tax assets 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 three and nine months ended September 30, 2011 and 2010.

10. 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, under which it could issue and sell shares of its common stock having an aggregate offering price of up to $400.0 million 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 could issue and sell shares of its common stock having an aggregate offering price of up to $400.0 million (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. On March 2, 2011, the Equity Distribution Agreements were amended to amend certain representations. The sales of common stock made under the Equity Distribution Agreements were made in “at the market” offerings as defined in Rule 415 of the Securities Act. In June 2011, we completed the equity distribution program. For the nine months ended September 30, 2011, Digital Realty Trust, Inc. generated net proceeds of approximately $176.9 million from the issuance of approximately 3.0 million common shares under the Equity Distribution Agreements at an average price of $60.51 per share after payment of approximately $2.7 million of commissions to the sales agents and before offering expenses. Pursuant to the program, we sold 6.8 million shares of common stock for gross proceeds of $400.0 million, resulting in net proceeds of approximately $394.0 million after deducting commissions.

On June 29, 2011, Digital Realty Trust, Inc. entered into equity distribution agreements, which we refer to as the 2011 Equity Distribution Agreements, with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC, or the Agents, under which it could issue and sell shares of its common stock having an aggregate offering price of up to $400.0 million from time to time through, at its discretion, any of the Agents as its sales agents. The sales of common stock made under the 2011 Equity Distribution Agreements will be made in “at the market” offerings as defined in Rule 415 of the Securities Act. For the three months ended September 30, 2011, Digital Realty Trust, Inc. generated net proceeds of approximately $237.6 million from the issuance of approximately 4.1 million common shares under the 2011 Equity Distribution Agreements at an average price of $58.38 per share after payment of approximately $2.4 million of commissions to the sales agents and before offering expenses.

(b) Redeemable Preferred Stock

On September 15, 2011, Digital Realty Trust, Inc. issued 11,500,000 shares of its 7.000% series E cumulative redeemable preferred stock, or the series E preferred stock for gross proceeds of $287.5 million. Dividends are cumulative on the series E preferred stock from the date of original issuance in the amount of $1.750 per share each year, which is equivalent to 7.000% of the $25.00 liquidation preference per share. Dividends on the series E preferred stock are payable quarterly in arrears. The first dividend payable on the series E preferred stock on December 30, 2011 will be a pro rata dividend from and including the original issue date to and including December 31, 2011 in the amount of $0.515278 per share. The series E 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, the series E preferred stock will rank senior to Digital Realty Trust, Inc. common stock with respect to the payment of distributions and other amounts and rank on parity with Digital Realty Trust, Inc. series C preferred stock and series D preferred stock. Digital Realty Trust, Inc. is not allowed to redeem the series E preferred stock before September 15, 2016, except in limited circumstances to preserve its status as a REIT. On or after September 15, 2016, Digital Realty Trust, Inc. may, at its option, redeem the series E preferred stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such series E preferred stock up to but excluding the redemption date. Holders of the series E preferred stock generally have no voting rights except for limited voting rights if Digital Realty Trust, Inc. fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. Except in connection with specified change of control transactions, the series E preferred stock is not convertible into or exchangeable for any other property or securities of Digital Realty Trust, Inc.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

(c) Noncontrolling Interests in Operating Partnership

Noncontrolling interests in the Operating Partnership relate to the interests that are not owned by Digital Realty Trust, Inc. The following table shows the ownership interest in the Operating Partnership as of September 30, 2011 and December 31, 2010:


	September 30, 2011					December 31, 2010
	Number of units		Percentage of total			Number of units		Percentage of total
Digital Realty Trust, Inc.		104,102,878		95.4	%		91,159,221		94.3	%
Noncontrolling interests consist of:
Common units held by third parties		3,420,814		3.1			3,937,827		4.1
Incentive units held by employees and directors (see note 12)		1,603,858		1.5			1,525,622		1.6

		109,127,550		100.0	%		96,622,670		100.0	%

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

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 Digital Realty Trust, Inc. common stock at the time of redemption. Alternatively, Digital Realty Trust, Inc. may elect to acquire those common units in exchange for shares of Digital 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, Digital Realty Trust, Inc. 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 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.

The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $244.8 million and $244.5 million based on the closing market price of Digital Realty Trust, Inc. common stock on September 30, 2011 and December 31, 2010, respectively.

The following table shows activity for the noncontrolling interests in the Operating Partnership for the nine months ended September 30, 2011:


	Common Units			Incentive Units			Total
As of December 31, 2010		3,937,827			1,525,622			5,463,449

Redemption of common units for shares of Digital Realty Trust, Inc. common stock ⁽¹⁾		(517,013	)		—			(517,013	)
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock ⁽¹⁾		—			(53,168	)		(53,168	)
Cancellation of incentive units held by employees and directors		—			(53,138	)		(53,138	)
Grant of incentive units to employees and directors		—			184,542			184,542

As of September 30, 2011		3,420,814			1,603,858			5,024,672

(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 condensed consolidated balance sheet of Digital Realty Trust, Inc.

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.

(d) Dividends

We have declared the following dividends on our common and preferred stock for the nine months ended September 30, 2011 (in thousands):


Date dividend declared	Dividend payable date		Series C Preferred Stock ⁽¹⁾		Series D Preferred Stock ⁽²⁾		Common Stock ⁽³⁾
February 10, 2011		March 31, 2011	$	1,832	$	4,690	$	62,459
April 25, 2011		June 30, 2011	$	1,441	$	3,272	$	67,031
July 25, 2011		September 30, 2011	$	1,402	$	3,034	$	69,830

			$	4,675	$	10,996	$	199,320

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2011 and 2010

(unaudited)

(1)	$1.094 annual rate of dividend per share.

(2)	$1.375 annual rate of dividend per share.

(3)	$2.720 annual rate of dividend per share.

Distributions out of Digital Realty Trust, Inc.’s current or accumulated earnings and profits are generally classified as dividends whereas distributions in excess of its current and accumulated earnings and profits, to the extent of a stockholder’s U.S. federal income tax basis in Digital Realty Trust, Inc.’s stock, are generally classified as a return of capital. Distributions in excess of a stockholder’s U.S. federal income tax basis in Digital Realty Trust, Inc.’s stock are generally characterized as capital gain. Cash provided by operating activities has been sufficient to fund all distributions.

(e) Accumulated Other Comprehensive Loss, Net

The accumulated balances for each classification of other comprehensive loss, net as of September 30, 2011 are as follows (in thousands):


	Foreign currency translation adjustments			Cash flow hedge adjustments			Accumulated other comprehensive loss, net
Balance as of December 31, 2010	$	(33,175	)	$	(8,906	)	$	(42,081	)
Net current period change		(10,262	)		(2,907	)		(13,169	)
Reclassification to interest expense from interest rate swaps		—			4,257			4,257

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company