Edgar Filing: Digital Realty Trust, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 March 31, 2013

¨	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)

Four Embarcadero Center, Suite 3200 San Francisco, CA		94111
(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 May 1, 2013
Common Stock, $.01 par value per share		128,414,542

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2013 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 March 31, 2013, Digital Realty Trust, Inc. owned an approximate 97.7% common general partnership interest in Digital Realty Trust, L.P. The remaining approximate 2.3% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of Digital Realty Trust, Inc. As of March 31, 2013, 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. and certain of its subsidiaries. Digital Realty Trust, Inc. itself does not issue any indebtedness but guarantees the unsecured debt of Digital Realty Trust, L.P. and certain of its subsidiaries, 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 MARCH 31, 2013

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 March 31, 2013 (unaudited) and December 31, 2012		5

	Condensed Consolidated Income Statements for the three months ended March 31, 2013 and 2012 (unaudited)		6

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012 (unaudited)		7

	Condensed Consolidated Statement of Equity for the three months ended March 31, 2013 (unaudited)		8

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)		9

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

	Condensed Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012		11

	Condensed Consolidated Income Statements for the three months ended March 31, 2013 and 2012 (unaudited)		12

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2013 and 2012 (unaudited)		13

	Condensed Consolidated Statement of Capital for the three months ended March 31, 2013 (unaudited)		14

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (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		52

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		77

ITEM 4.	Controls and Procedures (Digital Realty Trust, Inc.)		79

	Controls and Procedures (Digital Realty Trust, L.P.)		79

PART II.	OTHER INFORMATION		80

ITEM 1.	Legal Proceedings		80

ITEM 1A.	Risk Factors		80

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		80

ITEM 3.	Defaults Upon Senior Securities		80

ITEM 4.	Mine Safety Disclosures		80

ITEM 5.	Other Information		80

ITEM 6.	Exhibits		81

	Signatures		82

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	679,803		$	661,058
Acquired ground leases		13,137			13,658
Buildings and improvements		7,826,501			7,662,973
Tenant improvements		419,062			404,830

Total investments in properties		8,938,503			8,742,519
Accumulated depreciation and amortization		(1,288,440	)		(1,206,017	)

Net investments in properties		7,650,063			7,536,502
Investment in unconsolidated joint ventures		72,930			66,634

Net investments in real estate		7,722,993			7,603,136
Cash and cash equivalents		42,130			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $4,709 and $3,609 as of March 31, 2013 and December 31, 2012, respectively		177,951			168,286
Deferred rent		340,753			321,715
Acquired above market leases, net		59,079			65,055
Acquired in place lease value and deferred leasing costs, net		494,384			495,205
Deferred financing costs, net		33,393			30,621
Restricted cash		43,929			44,050
Other assets		56,880			34,865

Total assets	$	8,971,492		$	8,819,214

LIABILITIES AND EQUITY
Global revolving credit facility	$	546,649		$	723,729
Unsecured term loan		747,830			757,839
Unsecured senior notes, net of discount		2,341,972			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		779,273			792,376
Accounts payable and other accrued liabilities		613,537			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		141,257			148,233
Security deposits and prepaid rents		152,626			154,171

Total liabilities		5,589,544			5,320,830

Commitments and contingencies
Stockholders’ Equity:
Preferred Stock: $0.01 par value per share, 30,000,000 shares authorized:
Series D Cumulative Convertible Preferred Stock, 5.500%, $0 and $123,413 liquidation preference, respectively ($25.00 per share), 0 and 4,936,505 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		—			119,348
Series E Cumulative Redeemable Preferred Stock, 7.000%, $287,500 and $287,500 liquidation preference, respectively ($25.00 per share), 11,500,000 and 11,500,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		277,172			277,172
Series F Cumulative Redeemable Preferred Stock, 6.625%, $182,500 and $182,500 liquidation preference, respectively ($25.00 per share), 7,300,000 and 7,300,000 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		176,191			176,191
Common Stock: $0.01 par value, 165,000,000 shares authorized, 128,413,791 and 125,140,783 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		1,279			1,247
Additional paid-in capital		3,677,070			3,562,642
Accumulated dividends in excess of earnings		(713,612	)		(656,104	)
Accumulated other comprehensive loss, net		(72,473	)		(12,191	)

Total stockholders’ equity		3,345,627			3,468,305

Noncontrolling Interests:
Noncontrolling interests in operating partnership		30,186			24,135
Noncontrolling interests in consolidated joint ventures		6,135			5,944

Total noncontrolling interests		36,321			30,079

Total equity		3,381,948			3,498,384

Total liabilities and equity	$	8,971,492		$	8,819,214

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 March 31,
	2013			2012
Operating Revenues:
Rental	$	281,399		$	222,834
Tenant reimbursements		75,917			57,862
Construction management		806			2,452
Other		248			—

Total operating revenues		358,370			283,148

Operating Expenses:
Rental property operating and maintenance		106,780			79,845
Property taxes		21,042			16,042
Insurance		2,205			2,230
Construction management		384			193
Depreciation and amortization		111,623			83,995
General and administrative		15,951			14,250
Transactions		1,763			677
Other		36			—

Total operating expenses		259,784			197,232

Operating income		98,586			85,916

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,335			1,389
Interest and other income		41			709
Interest expense		(48,078	)		(38,030	)
Tax expense		(1,203	)		(721	)

Net income		51,681			49,263
Net income attributable to noncontrolling interests		(970	)		(1,221	)

Net income attributable to Digital Realty Trust, Inc.		50,711			48,042
Preferred stock dividends		(8,054	)		(8,831	)

Net income available to common stockholders	$	42,657		$	39,211

Net income per share available to common stockholders:
Basic	$	0.34		$	0.37
Diluted	$	0.34		$	0.36

Weighted average common shares outstanding:
Basic		126,445,285			107,099,856
Diluted		126,738,339			107,584,856

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	Three Months Ended March 31,
	2013			2012
Net income	$	51,681		$	49,263

Other comprehensive income (loss):
Foreign currency translation adjustments		(63,063	)		19,303
Decrease in fair value of interest rate swaps		(124	)		(945	)
Reclassification to interest expense from interest rate swaps		1,741			1,104


Comprehensive (loss) income		(9,765	)		68,725

Comprehensive (income) loss attributable to noncontrolling interests		194			(1,978	)


Comprehensive (loss) income attributable to Digital Realty Trust, Inc.	$	(9,571	)	$	66,747

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, 2012	$	572,711			125,140,783	$	1,247	$	3,562,642		$	(656,104	)	$	(12,191	)	$	3,468,305		$	24,135		$	5,944	$	30,079		$	3,498,384
Conversion of units to common stock		—			23,104		1		233			—			—			234			(234	)		—		(234	)		—
Issuance of restricted stock, net of forfeitures		—			110,039		—		—			—			—			—			—			—		—			—
Common stock offering costs		—			—		—		(95	)		—			—			(95	)		—			—		—			(95	)
Exercise of stock options		—			250		—		8			—			—			8			—			—		—			8
Conversion of preferred stock		(119,348	)		3,139,615		31		119,317			—			—			—			—			—		—			—
Amortization of unearned compensation regarding share based awards		—			—		—		3,931			—			—			3,931			—			—		—			3,931
Reclassification of vested share based awards		—			—		—		(8,966	)		—			—			(8,966	)		8,966			—		8,966			—
Dividends declared on preferred stock		—			—		—		—			(8,054	)		—			(8,054	)		—			—		—			(8,054	)
Dividends and distributions on common stock and common and incentive units		—			—		—		—			(100,165	)		—			(100,165	)		(2,341	)		—		(2,341	)		(102,506	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—		—		—			—			—			—			—			45		45			45
Net income		—			—		—		—			50,711			—			50,711			824			146		970			51,681
Other comprehensive loss—foreign currency translation adjustments		—			—		—		—			—			(61,868	)		(61,868	)		(1,195	)		—		(1,195	)		(63,063	)
Other comprehensive loss—fair value of interest rate swaps		—			—		—		—			—			(122	)		(122	)		(2	)		—		(2	)		(124	)
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—		—		—			—			1,708			1,708			33			—		33			1,741

Balance as of March 31, 2013	$	453,363			128,413,791	$	1,279	$	3,677,070		$	(713,612	)	$	(72,473	)	$	3,345,627		$	30,186		$	6,135	$	36,321		$	3,381,948

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:

Net income	$	51,681		$	49,263
Adjustments to reconcile net income to net cash provided by operating activities:

Equity in earnings of unconsolidated joint ventures		(2,335	)		(1,389	)
Change in fair value of accrued contingent consideration		1,300			—
Distributions from unconsolidated joint ventures		1,625			1,500
Write-off of net assets due to early lease terminations		(36	)		—
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		93,286			69,216
Amortization of share-based unearned compensation		2,887			3,407
Allowance for doubtful accounts		1,100			1,025
Amortization of deferred financing costs		2,431			2,214
Amortization of debt discount/premium		160			242
Amortization of acquired in place lease value and deferred leasing costs		18,338			14,779
Amortization of acquired above market leases and acquired below market leases, net		(3,045	)		(2,239	)
Changes in assets and liabilities:
Restricted cash		(62	)		9,272
Accounts and other receivables		(15,584	)		1,484
Deferred rent		(21,249	)		(15,902	)
Deferred leasing costs		(4,922	)		(2,922	)
Other assets		(10,858	)		(11,473	)
Accounts payable and other accrued liabilities		(28,858	)		(36,159	)
Security deposits and prepaid rents		3,182			(11,781	)

Net cash provided by operating activities		89,041			70,537

Cash flows from investing activities:

Acquisitions of real estate		(77,935	)		(119,069	)
Investment in unconsolidated joint ventures		(5,647	)		(3,796	)
Investment in equity securities		(12,549	)		—
Deposits paid for acquisitions of real estate		(250	)		(7,132	)
Receipt of value added tax refund		1,990			892
Refundable value added tax paid		(1,914	)		(2,986	)
Change in restricted cash		(359	)		1,101
Improvements to and advances for investments in real estate		(258,731	)		(185,964	)
Improvement advances to tenants		(1,010	)		(437	)
Collection of advances from tenants for improvements		767			562

Net cash used in investing activities		(355,638	)		(316,829	)

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)


	Three Months Ended March 31,
	2013			2012
Cash flows from financing activities:

Borrowings on revolving credit facilities	$	492,643		$	525,037
Repayments on revolving credit facilities		(657,095	)		(122,367	)
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Principal payments on mortgage loans		(3,896	)		(76,643	)
Change in restricted cash		76			1,603
Payment of loan fees and costs		(5,272	)		18
Capital contributions received from noncontrolling interests in joint ventures		45			6,570
Gross proceeds from the issuance of common stock		—			63,346
Common stock offering costs paid		(95	)		(634	)
Preferred stock offering costs paid		—			(120	)
Proceeds from exercise of stock options		8			1,298
Payment of dividends to preferred stockholders		(8,054	)		(8,831	)
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership		(195,940	)		(157,373	)

Net cash provided by financing activities		252,446			231,904

Net decrease in cash and cash equivalents		(14,151	)		(14,388	)
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	42,130		$	26,243


Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized	$	56,163		$	53,876
Cash paid for income taxes		60			259

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(63,063	)	$	19,303
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		(124	)		(945	)
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock		234			2,284
Preferred stock converted to shares of common stock		119,348			4
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		244,284			180,499
Additional accrual of contingent purchase price for investments in real estate		7,130			—
Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate	$	69,149		$	122,433
Acquired above market leases		12		$	—
Acquired below market leases		(2,087	)	$	(26,450	)
Acquired in place lease value and deferred leasing costs		10,861			23,086

Cash paid for acquisition of real estate	$	77,935		$	119,069

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)


	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	679,803		$	661,058
Acquired ground leases		13,137			13,658
Buildings and improvements		7,826,501			7,662,973
Tenant improvements		419,062			404,830

Total investments in properties		8,938,503			8,742,519
Accumulated depreciation and amortization		(1,288,440	)		(1,206,017	)

Net investments in properties		7,650,063			7,536,502
Investment in unconsolidated joint ventures		72,930			66,634

Net investments in real estate		7,722,993			7,603,136
Cash and cash equivalents		42,130			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $4,709 and $3,609 as of March 31, 2013 and December 31, 2012, respectively		177,951			168,286
Deferred rent		340,753			321,715
Acquired above market leases, net		59,079			65,055
Acquired in place lease value and deferred leasing costs, net		494,384			495,205
Deferred financing costs, net		33,393			30,621
Restricted cash		43,929			44,050
Other assets		56,880			34,865

Total assets	$	8,971,492		$	8,819,214

LIABILITIES AND CAPITAL
Global revolving credit facility	$	546,649		$	723,729
Unsecured term loan		747,830			757,839
Unsecured senior notes, net of discount		2,341,972			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		779,273			792,376
Accounts payable and other accrued liabilities		613,537			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		141,257			148,233
Security deposits and prepaid rents		152,626			154,171

Total liabilities		5,589,544			5,320,830
Commitments and contingencies
Capital:
Partners’ capital:
General Partner:
Series D Cumulative Convertible Preferred Units, 5.500%, $0 and $123,413 liquidation preference, respectively ($25.00 per unit), 0 and 4,936,505 units issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		—			119,348
Series E Cumulative Redeemable Preferred Units, 7.000%, $287,500 and $287,500 liquidation preference, respectively ($25.00 per unit), 11,500,000 and 11,500,000 units issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		277,172			277,172
Series F Cumulative Redeemable Preferred Units, 6.625%, $182,500 and $182,500 liquidation preference, respectively ($25.00 per unit), 7,300,000 and 7,300,000 units issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		176,191			176,191
Common Units:
128,413,791 and 125,140,783 units issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		2,964,737			2,907,785
Limited partners, 1,509,814 and 1,515,814 common units, 1,089,531 and 937,208 profits interest units and 397,369 and 398,378 class C units outstanding as of March 31, 2013 and December 31, 2012, respectively		34,069			26,854
Accumulated other comprehensive loss		(76,356	)		(14,910	)

Total partners’ capital		3,375,813			3,492,440
Noncontrolling interests in consolidated joint ventures		6,135			5,944

Total capital		3,381,948			3,498,384

Total liabilities and capital	$	8,971,492		$	8,819,214

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 March 31,
	2013			2012
Operating Revenues:
Rental	$	281,399		$	222,834
Tenant reimbursements		75,917			57,862
Construction management		806			2,452
Other		248			—

Total operating revenues		358,370			283,148

Operating Expenses:
Rental property operating and maintenance		106,780			79,845
Property taxes		21,042			16,042
Insurance		2,205			2,230
Construction management		384			193
Depreciation and amortization		111,623			83,995
General and administrative		15,951			14,250
Transactions		1,763			677
Other		36			—

Total operating expenses		259,784			197,232

Operating income		98,586			85,916

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,335			1,389
Interest and other income		41			709
Interest expense		(48,078	)		(38,030	)
Tax expense		(1,203	)		(721	)

Net income		51,681			49,263
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures		(146	)		365

Net income attributable to Digital Realty Trust, L.P.		51,535			49,628
Preferred units distributions		(8,054	)		(8,831	)

Net income available to common unitholders	$	43,481		$	40,797

Net income per unit available to common unitholders:
Basic	$	0.34		$	0.37
Diluted	$	0.34		$	0.36

Weighted average common units outstanding:
Basic		128,888,041			111,432,822
Diluted		129,181,095			111,917,822

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	Three Months Ended March 31,
	2013			2012
Net income	$	51,681		$	49,263
Other comprehensive income (loss):
Foreign currency translation adjustments		(63,063	)		19,303
Decrease in fair value of interest rate swaps		(124	)		(945	)
Reclassification to interest expense from interest rate swaps		1,741			1,104

Comprehensive (loss) income	$	(9,765	)	$	68,725

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

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					Common Units
	Units			Amount			Units		Amount			Units			Amount
Balance as of December 31, 2012		23,736,505		$	572,711			125,140,783	$	2,907,785			2,851,400		$	26,854		$	(14,910	)	$	5,944	$	3,498,384
Conversion of limited partner common units to general partner common units		—			—			23,104		234			(23,104	)		(234	)		—			—		—
Issuance of restricted common units, net of forfeitures		—			—			110,039		—			—			—			—			—		—
Net proceeds from issuance of common units		—			—			—		(95	)		—			—			—			—		(95	)
Issuance of common units in connection with the exercise of stock options		—			—			250		8			—			—			—			—		8
Issuance of common units, net of forfeitures		—			—			—		—			168,418			—			—			—		—
Conversion of series D preferred units		(4,936,505	)		(119,348	)		3,139,615		119,348			—			—			—			—		—
Amortization of unearned compensation regarding share based awards		—			—			—		3,931			—			—			—			—		3,931
Reclassification of vested share based awards		—			—			—		(8,966	)		—			8,966			—			—		—
Distributions		—			(8,054	)		—		(100,165	)		—			(2,341	)		—			—		(110,560	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—			—		—			—			—			—			45		45
Net income		—			8,054			—		42,657			—			824			—			146		51,681
Other comprehensive loss—foreign currency translation adjustments		—			—			—		—			—			—			(63,063	)		—		(63,063	)
Other comprehensive loss—fair value of interest rate swaps		—			—			—		—			—			—			(124	)		—		(124	)
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—			—		—			—			—			1,741			—		1,741

Balance as of March 31, 2013		18,800,000		$	453,363			128,413,791	$	2,964,737			2,996,714		$	34,069		$	(76,356	)	$	6,135	$	3,381,948

See accompanying notes to the consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:

Net income	$	51,681		$	49,263
Adjustments to reconcile net income to net cash provided by operating activities:

Equity in earnings of unconsolidated joint ventures		(2,335	)		(1,389	)
Change in fair value of accrued contingent consideration		1,300			—
Distributions from unconsolidated joint ventures		1,625			1,500
Write-off of net assets due to early lease terminations		(36	)		—
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		93,286			69,216
Amortization of share-based unearned compensation		2,887			3,407
Allowance for doubtful accounts		1,100			1,025
Amortization of deferred financing costs		2,431			2,214
Amortization of debt discount/premium		160			242
Amortization of acquired in place lease value and deferred leasing costs		18,338			14,779
Amortization of acquired above market leases and acquired below market leases, net		(3,045	)		(2,239	)
Changes in assets and liabilities:
Restricted cash		(62	)		9,272
Accounts and other receivables		(15,584	)		1,484
Deferred rent		(21,249	)		(15,902	)
Deferred leasing costs		(4,922	)		(2,922	)
Other assets		(10,858	)		(11,473	)
Accounts payable and other accrued liabilities		(28,858	)		(36,159	)
Security deposits and prepaid rents		3,182			(11,781	)

Net cash provided by operating activities		89,041			70,537

Cash flows from investing activities:

Acquisitions of real estate		(77,935	)		(119,069	)
Investment in unconsolidated joint ventures		(5,647	)		(3,796	)
Investment in equity securities		(12,549	)		—
Deposits paid for acquisitions of real estate		(250	)		(7,132	)
Receipt of value added tax refund		1,990			892
Refundable value added tax paid		(1,914	)		(2,986	)
Change in restricted cash		(359	)		1,101
Improvements to and advances for investments in real estate		(258,731	)		(185,964	)
Improvement advances to tenants		(1,010	)		(437	)
Collection of advances from tenants for improvements		767			562

Net cash used in investing activities		(355,638	)		(316,829	)

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)


	Three Months Ended March 31,
	2013			2012
Borrowings on revolving credit facilities	$	492,643		$	525,037
Repayments on revolving credit facilities		(657,095	)		(122,367	)
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Principal payments on mortgage loans		(3,896	)		(76,643	)
Change in restricted cash		76			1,603
Payment of loan fees and costs		(5,272	)		18
Capital contributions received from noncontrolling interests in joint ventures		45			6,570
General partner contributions		(87	)		63,890
Payment of distributions to preferred unitholders		(8,054	)		(8,831	)
Payment of distributions to common unitholders		(195,940	)		(157,373	)

Net cash provided by financing activities		252,446			231,904

Net decrease in cash and cash equivalents		(14,151	)		(14,388	)
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	42,130		$	26,243

Cash paid for interest, including amounts capitalized	$	56,163		$	53,876
Cash paid for income taxes		60			259

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments		(63,063	)		19,303
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		(124	)		(945	)
Preferred units converted to common units		119,348			4
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		244,284			180,499
Additional accrual of contingent purchase price for investments in real estate		7,130			—

Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate	$	69,149		$	122,433
Acquired above market leases		12			—
Acquired below market leases		(2,087	)		(26,450	)
Acquired in place lease value and deferred leasing costs		10,861			23,086

Cash paid for acquisition of real estate	$	77,935		$	119,069

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013 and 2012

(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, the General Partner or the Company) is engaged in the business of owning, acquiring, developing and managing technology-related real estate. The Company is focused on providing customer driven 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 March 31, 2013, our portfolio consisted of 122 properties, excluding three properties held as investments in unconsolidated joint ventures and developable land, of which 97 are located throughout North America, 21 are located in Europe, three are located in Australia 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., Amsterdam, Dublin, London and Paris markets in Europe and 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 Digital Realty Trust, Inc.’s initial public offering (IPO) on November 3, 2004 and commenced operations on that date. As of March 31, 2013, Digital Realty Trust, Inc. owns a 97.7% common interest and a 100% preferred interest in the Operating Partnership. As sole general partner of the Operating Partnership, Digital Realty Trust, Inc. has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. The limited partners of the Operating Partnership do not have rights to replace Digital Realty Trust, Inc. 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, 2012.

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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain unsecured debt of the Operating Partnership and certain of its subsidiaries. Digital Realty Trust, Inc. itself does not hold any indebtedness but guarantees the unsecured debt of the Operating Partnership and certain of its subsidiaries, 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, 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 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 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 March 31, 2013, 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 restricted stock granted by us is being amortized on a straight-line basis over the vesting period. The estimated fair value of the long-term incentive units and Class C Units (discussed in note 12) 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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(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.

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 March 31, 2013 and December 31, 2012, 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 income statements. For the three months ended March 31, 2013 and 2012, we had no such interest or penalties. The tax years 2009 through 2012 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 March 31, 2013 and December 31, 2012, the amount included in accounts payable and other accrued liabilities on our condensed consolidated balance sheets was approximately $1.8 million and $1.7 million, respectively.

(g) Construction Management Revenue

Construction management revenue for long-term contracts 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. Third party costs are included in construction management expense and their reimbursements are included in construction management revenue to the extent that the Company is the primary obligor for the third party costs. Otherwise, construction management revenue and expense is reflected net of third party costs. 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

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 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 other 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.

(h) 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.

(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 of properties are capitalized as incurred. Project costs include all costs directly associated with the development 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 are not capitalized and are charged to expense as incurred.

Capitalization of costs begins when the activities necessary to get the development project ready for its intended use begins, which include costs incurred before the beginning of construction. Capitalization of costs ceases when the development project is substantially complete and ready for its intended use. Determining when a development project commences, and when it is substantially complete and ready for its intended use involves a degree of judgment. We generally consider a development project to be substantially complete and ready for its intended use upon receipt of a certificate of occupancy or certificate of substantial completion, or other end of job indicators such as a receipt of commissioning report. We cease cost capitalization if activities necessary for the development of the property have been suspended. Capitalized costs are allocated to the specific components of a project that are benefited.

During the three months ended March 31, 2013 and 2012, we capitalized interest of approximately $5.3 million and $4.5 million, respectively. During the three months ended March 31, 2013 and 2012, we capitalized amounts relating to compensation expense of employees direct and incremental to construction and successful leasing activities of approximately $10.1 million and $7.9 million,

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

respectively. Cash flows from capitalized leasing costs of $10.8 million and $6.2 million are included in improvements to and advances for investments in real estate in cash flows from investing activities in the consolidated statements of cash flows for the three months ended March 31, 2013 and 2012, respectively.

(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, contingent consideration, 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 and Geographic 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 real estate services provided to them are standardized throughout the portfolio. 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.

Operating revenues from properties in the United States were $274.0 million and $246.5 million and outside the United States were $84.4 million and $36.6 million for the three months ended March 31, 2013 and 2012, respectively. We had long-lived assets located in the United States of $5.2 billion and $5.0 billion and outside the United States of $2.5 billion and $2.5 billion as of March 31, 2013 and December 31, 2012, respectively.

Operating revenues from properties located in England were $47.3 million and $12.2 million, or 13.2% and 4.3% of total operating revenues, for the three months ended March 31, 2013 and 2012, respectively. No other foreign country comprised more than 10% of total operating revenues for each of these periods. We had long-lived assets located in England of $1.6 billion and $1.7 billion, or 20.7% and 22.3% of total long-lived assets, as of March 31, 2013 and December 31, 2012, respectively. No other foreign country comprised more than 10% of total long-lived assets as of March 31, 2013 and December 31, 2012.

(m) Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). The amendments in this update require an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in the notes, significant amounts reclassified from accumulated other comprehensive income by the net income line item. ASU 2013-02 was effective and adopted by the Company in the first quarter of 2013. ASU 2013-02 has impacted the Company’s disclosures, but otherwise did not impact the Company’s condensed consolidated financial position, results of operations or cash flows.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

3. Investments in Real Estate

We acquired the following real estate properties during the three months ended March 31, 2013:


Location	Metropolitan Area	Date Acquired	Amount (in millions) ⁽¹⁾
17201 Waterview Parkway	Dallas, Texas	January 31, 2013	$	8.5
1900 S. Price Road	Phoenix, Arizona	January 31, 2013		24.0
371 Gough Road	Toronto, Canada	March 12, 2013		8.4
1500 Towerview Road	Minneapolis, Minnesota	March 27, 2013		37.0

			$	77.9

(1)	Purchase prices are all in U.S. dollars. Purchase prices for acquisitions outside the United States are based on the exchange rate at the date of acquisition.

The table below reflects the purchase price allocation for the properties acquired during the three months ended March 31, 2013 (in thousands):


Location	Investments in Real Estate		Above-Market Lease		In-Place Lease		Below-Market Lease			Acquisition Date Fair-Value
17201 Waterview Parkway	$	8,479	$	—	$	2,108	$	(2,087	)	$	8,500
1900 S. Price Road		22,354		—		1,646		—			24,000
371 Gough Road		8,072		12		351		—			8,435
1500 Towerview Road		30,244		—		6,756		—			37,000

Total	$	69,149	$	12	$	10,861	$	(2,087	)	$	77,935

Weighted average remaining intangible amortization life (in months)				12		102		112

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

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 March 31, 2013 and December 31, 2012.


	Balance as of
(Amounts in thousands)	March 31, 2013			December 31, 2012
Acquired in place lease value:
Gross amount	$	722,434		$	720,373
Accumulated amortization		(380,730	)		(367,088	)

Net	$	341,704		$	353,285

Acquired above market leases:
Gross amount	$	131,278		$	134,480
Accumulated amortization		(72,199	)		(69,425	)

Net	$	59,079		$	65,055

Acquired below market leases:
Gross amount	$	284,061		$	285,509
Accumulated amortization		(142,804	)		(137,276	)

Net	$	141,257		$	148,233

Amortization of acquired below-market lease value, net of acquired above-market lease value, resulted in an increase to rental revenues of $3.0 million and $2.2 million for the three months ended March 31, 2013 and 2012, respectively. The expected average remaining lives for acquired below market leases and acquired above market leases is 7.0 years and 5.2 years, respectively, as of March 31, 2013. 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, 2014 is as follows:


(Amounts in thousands)
2014	$	9,925
2015		8,933
2016		7,671
2017		6,268
2018		2,998

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

Amortization of acquired in place lease value (a component of depreciation and amortization expense) was $14.9 million and $12.0 million for the three months ended March 31, 2013 and 2012, respectively. The expected average amortization period for acquired in place lease value is 7.1 years as of March 31, 2013. The weighted average remaining contractual life for acquired leases excluding renewals or extensions is 5.6 years as of March 31, 2013. Estimated annual amortization of acquired in place lease value for each of the five succeeding years, commencing January 1, 2014 is as follows:


(Amounts in thousands)
2014	$	54,529
2015		45,256
2016		42,247
2017		29,298
2018		26,547

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

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 its 5.50% exchangeable senior debentures due 2029 (2029 Debentures), 4.50% notes due 2015 (2015 Notes), 5.875% notes due 2020 (2020 Notes), 5.250% notes due 2021 (2021 Notes), 3.625% notes due 2022 (2022 Notes), 4.250% notes due 2025 (2025 Notes) and its unsecured senior notes sold to Prudential Investment Management, Inc. and certain of its affiliates pursuant to the Amended and Restated Note Purchase and Private Shelf Agreement, which we refer to as the Prudential shelf facility. The Company is also the guarantor of the Operating Partnership’s and its subsidiary borrowers’ obligations under its global revolving credit facility and unsecured term loan.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

6. Debt of the Operating Partnership

A summary of outstanding indebtedness of the Operating Partnership as of March 31, 2013 and December 31, 2012 is as follows (in thousands):


Indebtedness	Interest Rate at March 31, 2013	Maturity Date	Principal Outstanding March 31, 2013			Principal Outstanding December 31, 2012
Global revolving credit facility	Various (1)	Nov. 3, 2015	$	546,649	(2)	$	723,729	(2)

Unsecured term loan	Various (3)(9)	Apr. 16, 2017	$	747,830	(4)	$	757,839

Unsecured senior notes:
Prudential Shelf Facility:
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			175,000
Senior Notes:
4.50% notes due 2015	4.500%	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			400,000
3.625% notes due 2022	3.625%	Oct. 1, 2022		300,000			300,000
4.250% notes due 2025	4.250%	Jan. 17, 2025		607,920	(10)		—
Unamortized discounts				(15,948	)		(11,779	)

Total senior notes, net of discount				2,166,972			1,563,221

Total unsecured senior notes, net of discount				2,341,972			1,738,221

Exchangeable senior debentures:
5.50% exchangeable senior debentures due 2029	5.500%	Apr. 15, 2029 (5)		266,400			266,400

Total exchangeable senior debentures				266,400			266,400

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)


Indebtedness	Interest Rate at March 31, 2013	Maturity Date	Principal Outstanding March 31, 2013			Principal Outstanding December 31, 2012

Mortgage loans:
Secured Term Debt (6)(7)	5.65%	Nov. 11, 2014		135,225			135,991
200 Paul Avenue 1-4 (7)	5.74%	Oct. 8, 2015		72,159			72,646
Mundells Roundabout	3-month GBP LIBOR + 1.20% (9)	Nov. 30, 2013		65,085	(10)		69,612	(10)
2045 & 2055 LaFayette Street (7)	5.93%	Feb. 6, 2017		64,364			64,621
34551 Ardenwood Boulevard 1-4 (7)	5.95%	Nov. 11, 2016		52,718			52,916
1100 Space Park Drive (7)	5.89%	Dec. 11, 2016		52,689			52,889
600 West Seventh Street	5.80%	Mar. 15, 2016		50,777			51,174
150 South First Street (7)	6.30%	Feb. 6, 2017		50,640			50,830
360 Spear Street (7)	6.32%	Nov. 8, 2013		46,352			46,613
2334 Lundy Place (7)	5.96%	Nov. 11, 2016		38,342			38,486
Clonshaugh Industrial Estate II (8)	3-month EURIBOR + 4.50% (9)	Sep. 4, 2014		38,457	(11)		39,579	(11)
1500 Space Park Drive (7)	6.15%	Oct. 5, 2013		35,104			35,682
Cressex 1 (12)	5.68%	Oct. 16, 2014		26,586	(10)		28,560	(10)
Paul van Vlissingenstraat 16	3-month EURIBOR + 1.60% (9)	Jul. 18, 2013		12,904	(11)		13,336	(11)
Chemin de l’Epinglier 2	3-month EURIBOR + 1.50% (9)	Jul. 18, 2013		9,337	(11)		9,649	(11)
Gyroscoopweg 2E-2F	3-month EURIBOR + 1.50% (9)	Oct. 18, 2013		8,217	(11)		8,492	(11)
Manchester Technopark (12)	5.68%	Oct. 16, 2014		8,088	(10)		8,688	(10)
8025 North Interstate 35	4.09%	Mar. 6, 2016		6,500			6,561
731 East Trade Street	8.22%	Jul. 1, 2020		4,431			4,509
Unamortized net premiums				1,298			1,542

Total mortgage loans, net of premiums				779,273			792,376

Total indebtedness			$	4,682,124		$	4,278,565

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(1)

The interest rate for borrowings under the global revolving credit facility equals the applicable index plus a margin of 125 basis points which is based on the credit rating of our long-term debt. An annual facility fee of 25 basis points, which is based on the credit rating of our long-term debt, is due and payable quarterly on the total commitment amount of the facility.

(2)	Balances as of March 31, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of March 31, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	283,000			1.46	%	$	49,000			2.05	%
British pound sterling (£)		—			—			433,195	(b)		1.75	%
Euro (€)		84,606	(a)		1.37	%		87,074	(b)		1.36	%
Singapore dollar (SGD)		29,025	(a)		1.56	%		26,191	(b)		1.56	%
Australian dollar (AUD)		102,184	(a)		4.32	%		93,754	(b)		4.42	%
Hong Kong dollar (HKD)		39,479	(a)		1.46	%		34,515	(b)		1.53	%
Canadian dollar (CAD)		8,355	(a)		2.30	%		—			—

Total	$	546,649			2.00	%	$	723,729			2.05	%

(a)

Based on exchange rates of $1.28 to €1.00, $0.81 to 1.00 SGD, $1.04 to 1.00 AUD, $0.13 to 1.00 HKD and $0.98 to 1.00 CAD as of March 31, 2013.

(b)

Based on exchange rates of $1.63 to £1.00, $1.32 to €1.00, $0.82 to 1.00 SGD, $1.04 to 1.00 AUD and $0.13 to 1.00 HKD as of December 31, 2012.

(3)	Interest rates are based on our senior unsecured debt ratings and are currently 145 basis points over the applicable index for floating rate advances.

(4)	Balances as of March 31, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of March 31, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	410,905			1.65	%	$	410,905			1.66	%
Singapore dollar (SGD)		152,785	(a)		1.78	%		155,098	(b)		1.77	%
British pound sterling (£)		85,261	(a)		1.94	%		91,191	(b)		1.94	%
Euro (€)		63,454	(a)		1.57	%		65,305	(b)		1.56	%
Australian dollar (AUD)		35,425	(a)		4.51	%		35,340	(b)		4.57	%

Total	$	747,830			1.84	%	$	757,839			1.84	%

(a)

Based on exchange rates of $0.81 to 1.00 SGD, $1.52 to £1.00, $1.28 to €1.00 and $1.04 to 1.00 AUD as of March 31, 2013.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(b)

Based on exchange rates of $0.82 to 1.00 SGD, $1.63 to £1.00, $1.32 to €1.00 and $1.04 to 1.00 AUD as of December 31, 2012.

(5)

The holders of the debentures have the right to require the Operating Partnership to repurchase the debentures in cash in whole or in part for a price of 100% of the principal amount plus accrued and unpaid interest on each of April 15, 2014, April 15, 2019 and April 15, 2024. We have the right to redeem the debentures in cash for a price of 100% of the principal amount plus accrued and unpaid interest commencing on April 18, 2014.

(6)	This amount represents six mortgage loans secured by our interests in 36 NE 2nd Street, 3300 East Birch Street, 100 & 200 Quannapowitt Parkway, 300 Boulevard East, 4849 Alpha Road, and 11830 Webb Chapel Road. Each of these loans is cross-collateralized by the six properties.

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

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

(9)	We have entered into interest rate swap agreements as a cash flow hedge for interest generated by these US LIBOR, EURIBOR and GBP LIBOR based loans as well as the U.S. dollar and Singapore dollar tranches of the unsecured term loan. See note 13, “Derivative Instruments” for further information.

(10)	Based on exchange rate of $1.52 to £1.00 as of March 31, 2013 and $1.63 to £1.00 as of December 31, 2012.

(11)	Based on exchange rate of $1.28 to €1.00 as of March 31, 2013 and $1.32 to €1.00 as of December 31, 2012.

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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

Global Revolving Credit Facility

On November 3, 2011, the Operating Partnership replaced its corporate and Asia Pacific revolving credit facilities with an expanded revolving credit facility, which we refer to as the global revolving credit facility, increasing its total borrowing capacity to $1.5 billion from $850 million. The global revolving credit facility has an accordion feature that would enable us to increase the borrowing capacity of the credit facility to $2.25 billion, subject to the receipt of lender commitments. On August 10, 2012, we increased the aggregate commitments under our global revolving credit facility from $1.5 billion to $1.8 billion, pursuant to the partial exercise of the accordion feature. The renewed facility matures on November 3, 2015, with a one-year extension option. The interest rate for borrowings under the expanded facility equals the applicable index plus a margin which is based on the credit rating of our long-term debt and is currently 125 basis points. An annual facility fee on the total commitment amount of the facility, based on the credit rating of our long-term debt and currently 25 basis points, is payable quarterly. Funds may be drawn in U.S., Canadian, Singapore, Australian and Hong Kong dollars, as well as Euro, British pound sterling, Swiss franc and Japanese yen denominations. As of March 31, 2013, borrowings under the global revolving credit facility bore interest at a blended rate of 2.00% comprised of 1.46% (U.S. dollars), 1.37% (Euros), 1.56% (Singapore dollars), 4.32% (Australian dollars), 1.46% (Hong Kong dollars) and 2.30% (Canadian dollars), which are based on 1-month LIBOR, 1-month EURIBOR,1-month SIBOR, 1-month BBR, 1-month HIBOR and 1-month CAD LIBOR, respectively, plus a margin of 1.25%. We have used and intend to use available borrowings under the global revolving credit facility to acquire additional properties, fund development 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 March 31, 2013, we have capitalized approximately $11.2 million of financing costs related to the global revolving credit facility. As of March 31, 2013, approximately $546.6 million was drawn under this facility and $31.9 million of letters of credit were issued.

The global 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, including with respect to unencumbered assets. In addition, the global revolving credit facility restricts Digital Realty Trust, Inc. from making distributions to its stockholders, or redeeming or otherwise repurchasing shares of its capital stock, after the occurrence and during the continuance of an event of default, except in limited circumstances including as necessary to enable Digital Realty Trust, Inc. to maintain its qualification as a REIT and to minimize the payment of income or excise tax. As of March 31, 2013, we were in compliance with all of such covenants.

Unsecured Term Loan

On April 17, 2012, we closed a $750.0 million senior unsecured multi-currency term loan facility. The facility matures on April 16, 2017. Interest rates are based on our senior unsecured debt ratings and are currently 145 basis points over the applicable index for floating rate advances. Funds may be drawn in U.S, Singapore and Australian dollars, as well as Euro and British pound sterling denominations with the option to add Hong Kong dollars and Japanese yen upon an accordion exercise, subject to the receipt of lender commitments. We had the ability to delay draw up to $250.0 million for up to 90 days from the date of closing. As of June 30, 2012, we had drawn approximately $525 million of the available facility based on exchange rates in effect at the time of each draw. An additional $225 million was drawn against the facility during July 2012 based on exchange rates in effect at the time of the draws. Based on exchange rates in effect at March 31, 2013, the balance outstanding is approximately $747.8 million. We have used borrowings under the term loan for acquisitions, repayment of indebtedness, development, working capital and general corporate purposes. The covenants under this loan are consistent with our global revolving credit facility. As of March 31, 2013, we have capitalized approximately $5.3 million of financing costs related to the unsecured term loan.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

Senior Notes

4.250% Notes due 2025

On January 18, 2013, Digital Stout Holding, LLC, a wholly-owned subsidiary of Digital Realty Trust, L.P., issued £400.0 million (or approximately $634.8 million based on the exchange rate of £1.00 to $1.59 on January 18, 2013) aggregate principal amount of its 4.250% Guaranteed Notes due 2025, or the 2025 notes. The 2025 Notes are senior unsecured obligations of Digital Stout Holding, LLC and are fully and unconditionally guaranteed by the Company and the Operating Partnership. Interest on the 2025 notes is payable semiannually in arrears at a rate of 4.250% per annum. The net proceeds from the offering after deducting the original issue discount of approximately $4.8 million and underwriting commissions and estimated expenses of approximately $5.8 million was approximately $624.2 million. We used the net proceeds from this offering to temporarily repay borrowings under our global revolving credit facility. The 2025 Notes have been reflected net of discount in the condensed consolidated balance sheet. The indenture governing the 2025 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 the unsecured debt. At March 31, 2013, we were in compliance with each of these financial covenants.

The table below summarizes our debt maturities and principal payments as of March 31, 2013 (in thousands):


	Global Revolving Credit Facility ⁽¹⁾		Unsecured Term Loan		Prudential Shelf Facility		Senior Notes			Exchangeable Senior Debentures ⁽²⁾		Mortgage Loans ⁽³⁾		Total Debt
Remainder of 2013	$	—	$	—	$	33,000	$	—		$	—	$	185,654	$	218,654
2014		—		—		—		—			266,400		214,084		480,484
2015		546,649		—		67,000		375,000			—		75,493		1,064,142
2016		—		—		25,000		—			—		191,979		216,979
2017		—		747,830		50,000		—			—		108,395		906,225
Thereafter		—		—		—		1,807,920			—		2,370		1,810,290

Subtotal	$	546,649	$	747,830	$	175,000	$	2,182,920		$	266,400	$	777,975	$	4,696,774
Unamortized discount		—		—		—		(15,948	)		—		—		(15,948	)
Unamortized premium		—		—		—		—			—		1,298		1,298

Total	$	546,649	$	747,830	$	175,000	$	2,166,972		$	266,400	$	779,273	$	4,682,124

(1)	Subject to a one-year extension option exercisable by us. The bank group is obligated to grant the extension option provided we give proper notice, we make certain representations and warranties and no default exists under the global revolving credit facility.

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

(3)

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 March 31, 2013, we provided limited recourse guarantees with respect to approximately $38.5 million of the outstanding mortgage indebtedness, and partial letter of credit support with respect to approximately an additional $34.7 million of the outstanding mortgage indebtedness (based on exchange rates as of March 31, 2013).

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(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 March 31,
	2013		2012
Net income available to common stockholders	$	42,657	$	39,211

Weighted average shares outstanding—basic		126,445,285		107,099,856
Potentially dilutive common shares:
Stock options		70,877		205,830
Class C Units (2007 Grant)		—		16,358
Unvested incentive units		222,177		262,812

Weighted average shares outstanding—diluted		126,738,339		107,584,856

Income per share:
Basic	$	0.34	$	0.37

Diluted	$	0.34	$	0.36

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


	Three Months Ended March 31,
	2013		2012
Weighted average of Operating Partnership common units not owned by Digital Realty Trust, Inc.		2,442,756		4,332,966
Potentially dilutive 2029 Debentures		6,590,470		6,442,085
Potentially dilutive Series C Cumulative Convertible Preferred Stock		—		2,784,845
Potentially dilutive Series D Cumulative Convertible Preferred Stock		1,909,146		4,337,429
Potentially dilutive Series E Cumulative Redeemable Preferred Stock		4,381,703		4,025,863
Potentially dilutive Series F Cumulative Redeemable Preferred Stock		2,778,866		—

		18,102,941		21,923,188

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(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 March 31,
	2013		2012
Net income available to common unitholders	$	43,481	$	40,797

Weighted average units outstanding—basic		128,888,041		111,432,822
Potentially dilutive common units:
Stock options		70,877		205,830
Class C Units (2007 Grant)		—		16,358
Unvested incentive units		222,177		262,812

Weighted average units outstanding—diluted		129,181,095		111,917,822

Income per unit:
Basic	$	0.34	$	0.37

Diluted	$	0.34	$	0.36

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


	Three Months Ended March 31,
	2013		2012
Potentially dilutive 2029 Debentures		6,590,470		6,442,085
Potentially dilutive Series C Cumulative Convertible Preferred Units		—		2,784,845
Potentially dilutive Series D Cumulative Convertible Preferred Units		1,909,146		4,337,429
Potentially dilutive Series E Cumulative Redeemable Preferred Units		4,381,703		4,025,863
Potentially dilutive Series F Cumulative Redeemable Preferred Units		2,778,866		—

		15,660,185		17,590,222

9. Income Taxes

Digital Realty Trust, Inc. (the Parent Company) has 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 at least 100% of its taxable income annually and intends to do so for the tax year ending December 31, 2013. As such, no provision for federal income taxes has been included in the accompanying condensed consolidated financial statements for the three months ended March 31, 2013 and 2012.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

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. Income taxes for TRS entities were accrued, as necessary, for the three months ended March 31, 2013 and 2012.

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 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 were accrued, as necessary, for the three months ended March 31, 2013 and 2012. As of March 31, 2013, we had a net deferred tax liability of approximately $116.3 million primarily related to our foreign properties, comprised of a $71.6 million deferred tax asset, net of a $187.9 million deferred tax liability. The majority of our net deferred tax liability relates to differences between tax and book basis of the assets acquired in the Sentrum Portfolio acquisition during 2012.

10. Equity and Accumulated Other Comprehensive Loss, Net

(a) Equity Distribution Agreements

On June 29, 2011, Digital Realty Trust, Inc. entered into new 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 March 31, 2012, Digital Realty Trust, Inc. generated net proceeds of approximately $62.7 million from the issuance of approximately 1.0 million common shares under the 2011 Equity Distribution Agreements at an average price of $66.19 per share after payment of approximately $0.6 million of commissions to the sales agents and before offering expenses. No sales were made under the program during the three months ended March 31, 2013.

(b) Convertible Preferred Stock

5.500% Series D Cumulative Convertible Preferred Stock

On February 6, 2008, Digital Realty Trust, Inc. issued 13,800,000 shares of its 5.500% series D cumulative convertible preferred stock, or the series D preferred stock. Dividends were cumulative on the series D preferred stock from the date of original issuance in the amount of $1.375 per share each year, which is equivalent to 5.500% of the $25.00 liquidation preference per share. Dividends on the series D preferred stock were payable quarterly in arrears. The series D preferred stock did not have a stated maturity date and was not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the series D preferred stock ranked senior to Digital Realty Trust, Inc. common stock with respect to the payment of distributions and other amounts and ranked on parity with Digital Realty Trust, Inc. series E preferred stock and series F preferred stock. Digital Realty Trust, Inc. was not allowed to redeem the series D preferred stock, except in limited circumstances to preserve its status as a REIT. Holders of the series D preferred stock generally had no voting rights except for limited voting rights if Digital Realty Trust, Inc. failed to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.

Effective February 26, 2013, Digital Realty Trust, Inc. converted all outstanding shares of its series D preferred stock, into shares of its common stock in accordance with the terms of the series D preferred stock. Each share of series D preferred stock was converted into 0.6360 shares of Digital Realty Trust, Inc. common stock. Digital Realty Trust, Inc. converted 4,802,180 shares of its series D preferred stock into 3,054,186 shares of Digital Realty Trust, Inc.’s common stock. In connection with this conversion, the Operating Partnership issued 3,054,186 common units to Digital Realty Trust, Inc. upon conversion of 4,802,180 series D cumulative convertible preferred units.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(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 March 31, 2013 and December 31, 2012:


	March 31, 2013					December 31, 2012
	Number of units		Percentage of total			Number of units		Percentage of total
Digital Realty Trust, Inc.		128,413,791		97.7	%		125,140,783		97.8	%
Noncontrolling interests consist of:
Common units held by third parties		1,509,814		1.2			1,515,814		1.2
Incentive units held by employees and directors (see note 12)		1,486,900		1.1			1,335,586		1.0

		131,410,505		100.0	%		127,992,183		100.0	%

Limited partners have the right to require the Operating Partnership to redeem part or all of their common units for cash based on the fair market value of an equivalent number of shares of 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 $170.6 million and $161.5 million based on the closing market price of Digital Realty Trust, Inc. common stock on March 31, 2013 and December 31, 2012, respectively.

The following table shows activity for the noncontrolling interests in the Operating Partnership for the three months ended March 31, 2013:


	Common Units			Incentive Units			Total
As of December 31, 2012		1,515,814			1,335,586			2,851,400

Redemption of common units for shares of Digital Realty Trust, Inc. common stock ⁽¹⁾		(6,000	)		—			(6,000	)
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock ⁽¹⁾		—			(17,104	)		(17,104	)
Cancellation of incentive units held by employees and directors		—			(6,650	)		(6,650	)
Grant of incentive units to employees and directors		—			175,068			175,068

As of March 31, 2013		1,509,814			1,486,900			2,996,714

(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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

Under the terms of certain third parties’ (the eXchange parties) contribution agreements signed in the third quarter of 2004, we have agreed to indemnify each eXchange party against adverse tax consequences in the event the Operating Partnership directly or indirectly sells, exchanges or otherwise disposes of (whether by way of merger, sale of assets or otherwise) in a taxable transaction any interest in 200 Paul Avenue 1-4 or 1100 Space Park Drive until the earlier of November 3, 2013 and the date on which these contributors or certain transferees hold less than 25% of the Operating Partnership common units issued to them in the formation transactions consummated concurrently with the IPO. Under the eXchange parties’ amended contribution agreement, the Operating Partnership has agreed to make approximately $17.8 million of indebtedness available for guaranty by the eXchange parties until the earlier of November 3, 2013 and the date on which these contributors or certain transferees hold less than 25% of the Operating Partnership common units issued to them in the formation transactions consummated concurrently with the IPO, and we have agreed to indemnify each eXchange party against adverse tax consequences if the Operating Partnership does not provide such indebtedness to guarantee.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(d) Dividends

We have declared and paid the following dividends on our common and preferred stock for the three months ended March 31, 2013 (in thousands):


Date dividend declared	Dividend payable date	Series E Preferred Stock ⁽¹⁾		Series F Preferred Stock ⁽²⁾		Common Stock ⁽³⁾
February 12, 2013	March 29, 2013	$	5,031	$	3,023	$	100,165

(1)	$1.750 annual rate of dividend per share.

(2)	$1.656 annual rate of dividend per share.

(3)	$3.120 annual rate of dividend per share.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

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 generally been sufficient to fund all distributions, however, in the future we may also need to utilize borrowings under the global revolving credit facility to fund all distributions.

(e) Accumulated Other Comprehensive Loss, Net

The accumulated balances for each item within other comprehensive loss are as follows (in thousands):


	Foreign currency translation adjustments			Cash flow hedge adjustments			Accumulated other comprehensive loss, net
Balance as of December 31, 2012	$	(2,576	)	$	(9,615	)	$	(12,191	)
Net current period change		(61,868	)		(122	)		(61,990	)
Reclassification to interest expense from interest rate swaps		—			1,708			1,708

Balance as of March 31, 2013	$	(64,444	)	$	(8,029	)	$	(72,473	)

11. Capital and Accumulated Other Comprehensive Loss

(a) Convertible Preferred Units

5.500% Series D Cumulative Convertible Preferred Units

On February 6, 2008, the Operating Partnership issued 13,800,000 of its 5.500% series D cumulative convertible preferred units, or the series D preferred units, to the General Partner in conjunction with the General Partner’s issuance of an equivalent number of shares of its 5.500% series D cumulative convertible preferred stock, or the series D preferred stock. Distributions were cumulative on the series D preferred units from the date of original issuance in the amount of $1.375 per unit each year, which was equivalent to 5.500% of the $25.00 liquidation preference per unit. Distributions on the series D preferred units were payable quarterly in arrears. The series D preferred units did not have a stated maturity date and were not subject to any sinking fund. The Operating Partnership was required to redeem the series D units in the event that the General Partner redeemed the series D preferred stock. The General Partner was not allowed to redeem the series D preferred stock except in limited circumstances to preserve the General Partner’s status as a REIT. Upon liquidation, dissolution or winding up, the series D preferred units ranked senior to the common units with respect to the payment of distributions and other amounts and ranked on parity with the Operating Partnership’s series E preferred units and series F preferred units.

Effective February 26, 2013, the General Partner converted all outstanding shares of its series D preferred stock, into shares of its common stock in accordance with the terms of the series D preferred stock. Each share of series D preferred stock was converted into 0.6360 shares of the General Partner’s common stock. In connection with this conversion, the Operating Partnership issued 3,054,186 common units to the General Partner upon conversion of 4,802,180 series D cumulative convertible preferred units.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(b) Allocations of Net Income and Net Losses to Partners

Except for special allocations to holders of profits interest units described below in note 12(a) under the heading “Incentive Plan-Long-Term Incentive Units,” the Operating Partnership’s net income will generally be allocated to the General Partner to the extent of the accrued preferred return on its preferred units, and then to the General Partner and the Operating Partnership’s limited partners in accordance with the respective percentage interests in the common units issued by the Operating Partnership. Net loss will generally be allocated to the General Partner and the Operating Partnership’s limited partners in accordance with the respective common percentage interests in the Operating Partnership until the limited partner’s capital is reduced to zero and any remaining net loss would be allocated to the General Partner. However, in some cases, losses may be disproportionately allocated to partners who have guaranteed our debt. The allocations described above are subject to special allocations relating to depreciation deductions and to compliance with the provisions of Sections 704(b) and 704(c) of the Code, and the associated Treasury Regulations.

(c) Partnership Units

Limited partners have the right to require the Operating Partnership to redeem part or all of their common units for cash based on the fair market value of an equivalent number of shares of the General Partner’s common stock at the time of redemption. Alternatively, the General Partner may elect to acquire those common units in exchange for shares of the General Partner’s common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events. Pursuant to authoritative accounting guidance, the Operating Partnership evaluated whether it controls the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the share settlement of the limited partners’ common units and the vested incentive units. Based on the results of this analysis, the Operating Partnership concluded that the common and vested incentive Operating Partnership units met the criteria to be classified within capital.

The redemption value of the limited partners’ common units and the vested incentive units was approximately $170.6 million and $161.5 million based on the closing market price of Digital Realty Trust, Inc.’s common stock on March 31, 2013 and December 31, 2012, respectively.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(d) Distributions

All distributions on the Operating Partnership’s units are at the discretion of Digital Realty Trust, Inc.’s board of directors. The Operating Partnership has declared and paid the following distributions on its common and preferred units for the three months ended March 31, 2013 (in thousands):


Date distribution declared	Distribution payable date		Series E Preferred Units ⁽¹⁾		Series F Preferred Units ⁽²⁾		Common Units ⁽³⁾
February 12, 2013		March 29, 2013	$	5,031	$	3,023	$	102,506

(1)	$1.750 annual rate of distribution per unit.

(2)	$1.656 annual rate of distribution per unit.

(3)	$3.120 annual rate of distribution per unit.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(e) Accumulated Other Comprehensive Loss

The accumulated balances for each item within other comprehensive loss are as follows (in thousands):


	Foreign currency translation adjustments			Cash flow hedge adjustments			Accumulated other comprehensive loss
Balance as of December 31, 2012	$	(4,401	)	$	(10,509	)	$	(14,910	)
Net current period change		(63,063	)		(124	)		(63,187	)
Reclassification to interest expense from interest rate swaps		—			1,741			1,741

Balance as of March 31, 2013	$	(67,464	)	$	(8,892	)	$	(76,356	)

12. Incentive Plan

Our Amended and Restated 2004 Incentive Award Plan (as defined below) provides for the grant of incentive awards to employees, directors and consultants. Awards issuable under the Amended and Restated 2004 Incentive Award Plan include stock options, restricted stock, dividend equivalents, stock appreciation rights, long-term incentive units, cash performance bonuses and other incentive awards. Only employees are eligible to receive incentive stock options under the Amended and Restated 2004 Incentive Award Plan. Initially, we had reserved a total of 4,474,102 shares of common stock for issuance pursuant to the 2004 Incentive Award Plan, subject to certain adjustments set forth in the 2004 Incentive Award Plan. On May 2, 2007, Digital Realty Trust, Inc.’s stockholders approved the First Amended and Restated Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2004 Incentive Award Plan (as amended, the Amended and Restated 2004 Incentive Award Plan). The Amended and Restated 2004 Incentive Award Plan increases the aggregate number of shares of stock which may be issued or transferred under the plan by 5,000,000 shares to a total of 9,474,102 shares, and provides that the maximum number of shares of stock with respect to awards granted to any one participant during a calendar year will be 1,500,000 and the maximum amount that may be paid in cash during any calendar year with respect to any performance-based award not denominated in stock or otherwise for which the foregoing limitation would not be an effective limitation for purposes of Section 162(m) of the Code will be $10.0 million.

As of March 31, 2013, 3,215,787 shares of common stock or awards convertible into or exchangeable for common stock remained available for future issuance under the Amended and Restated 2004 Incentive Award Plan. Each long-term incentive unit and Class C Unit issued under the Amended and Restated 2004 Incentive Award Plan will count as one share of common stock for purposes of calculating the limit on shares that may be issued under the Amended and Restated 2004 Incentive Award Plan and the individual award limit discussed above.

(a) Long-Term Incentive Units

Long-term incentive units, which are also referred to as profits interest units, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. Long-term incentive units, whether vested or not, will receive the same quarterly per unit distributions as Operating Partnership common units, which equal per share distributions on Digital Realty Trust, Inc. common stock. Initially, long-term incentive units do not have full parity with common units with respect to liquidating distributions. If such parity is reached, vested long-term incentive units may be converted into an equal number of common units of the Operating Partnership at any time, and thereafter enjoy all the rights of common units of the Operating Partnership, including redemption rights.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

In order to achieve full parity with common units, long-term incentive units must be fully vested and the holder’s capital account balance in respect of such long-term incentive units must be equal to the capital account balance of a holder of an equivalent number of common units. The capital account balance attributable to each common unit is generally expected to be the same, in part because of the amount credited to a partner’s capital account upon the partner’s contribution of property to the Operating Partnership, and in part because the partnership agreement provides, in most cases, that allocations of income, gain, loss and deduction (which will adjust the partner’s capital accounts) are to be made to the common units on a proportionate basis. As a result, with respect to a number of long-term incentive units, it is possible to determine the capital account balance of an equivalent number of common units by multiplying the number of long-term incentive units by the capital account balance with respect to a common unit.

A partner’s initial capital account balance is equal to the amount the partner paid (or contributed to the Operating Partnership) for the partner’s units and is subject to subsequent adjustments, including with respect to the partner’s share of income, gain or loss of the Operating Partnership. Because a holder of long-term incentive units generally will not pay for the long-term incentive units, the initial capital account balance attributable to such long-term incentive units will be zero. However, the Operating Partnership is required to allocate income, gain, loss and deduction to the partner’s capital accounts in accordance with the terms of the partnership agreement, subject to applicable Treasury Regulations. The partnership agreement provides that holders of long-term incentive units will receive special allocations of gain in the event of a sale or “hypothetical sale” of assets of the Operating Partnership prior to the allocation of gain to Digital Realty Trust, Inc. or other limited partners with respect to their common units. The amount of such allocation will, to the extent of any such gain, be equal to the difference between the capital account balance of a holder of long-term incentive units attributable to such units and the capital account balance attributable to an equivalent number of common units. If and when such gain allocation is fully made, a holder of long-term incentive units will have achieved full parity with holders of common units. To the extent that, upon an actual sale or a “hypothetical sale” of the Operating Partnership’s assets as described above, there is not sufficient gain to allocate to a holder’s capital account with respect to long-term incentive units, or if such sale or “hypothetical sale” does not occur, such units will not achieve parity with common units.

The term “hypothetical sale” refers to circumstances that are not actual sales of the Operating Partnership’s assets but that require certain adjustments to the value of the Operating Partnership’s assets and the partners’ capital account balances. Specifically, the partnership agreement provides that, from time to time, in accordance with applicable Treasury Regulations, the Operating Partnership will adjust the value of its assets to equal their respective fair market values, and adjust the partners’ capital accounts, in accordance with the terms of the partnership agreement, as if the Operating Partnership sold its assets for an amount equal to their value. Times for making such adjustments generally include the liquidation of the Operating Partnership, the acquisition of an additional interest in the Operating Partnership by a new or existing partner in exchange for more than a de minimis capital contribution, the distribution by the Operating Partnership to a partner of more than a de minimis amount of partnership property as consideration for an interest in the Operating Partnership, in connection with the grant of an interest in the Operating Partnership (other than a de minimis interest) as consideration for the performance of services to or for the benefit of the Operating Partnership (including the grant of a long-term incentive unit), and at such other times as may be desirable or required to comply with the Treasury Regulations.

During the three months ended March 31, 2013 and 2012, certain employees were granted an aggregate of 79,260 and 72,377 long-term incentive units, respectively. During the three months ended March 31, 2013 and 2012, certain employees were also granted an aggregate of 95,316 and 86,843 long-term incentive units, respectively, which, in addition to a service condition, are subject to a performance condition that impacts the number of units which ultimately vests. The performance condition is based upon our achievement of the respective fiscal years’ Funds From Operations, or FFO, per share targets. Upon evaluating the results of the performance condition, the final number of units is determined and such units vest based on satisfaction of the service conditions. The service conditions of the awards provide for 20% vesting on each of the first and second anniversaries of the grant date and 30% vesting on each of the third and fourth anniversaries of the grant date, provided the grantee continues employment on each anniversary date. Based on our 2012 FFO per diluted share and unit, 78,118 of the 2012 long-term incentive units, net of forfeitures, satisfied the performance condition. The grant date fair values, which equal the market price of Digital Realty Trust, Inc. common stock, are being expensed on a straight-line basis for service awards over the vesting period of the long-term incentive units, which ranges from three to five years. For performance based awards, we expense the fair value using an accelerated method with each vesting tranche valued as a separate award.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

The expense recorded for each of the three months ended March 31, 2013 and 2012 related to long-term incentive units was approximately $2.2 million. We capitalized amounts relating to compensation expense of employees direct and incremental to construction and successful leasing activities of approximately $0.4 million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively. Unearned compensation representing the unvested portion of the long-term incentive units totaled $21.8 million and $13.3 million as of March 31, 2013 and December 31, 2012, respectively. We expect to recognize this unearned compensation over the next 3.1 years on a weighted average basis.

(b) Class C Profits Interest Units

On May 2, 2007, we granted awards of Class C Profits Interest Units of the Operating Partnership or similar stock-based performance awards, which we refer to collectively as the Class C Units, under the Amended and Restated 2004 Incentive Award Plan (2007 Grant) to each of our named executive officers and certain other officers and employees.

The Class C Units subject to this award were subject to vesting based on the achievement of a total stockholder return (which we refer to as the market condition) as measured on November 1, 2008 (which we refer to as the first measurement date) and May 1, 2010 (which we refer to as the second measurement date).

We previously determined that the market condition with respect to the first measurement date was not achieved. On May 1, 2010, we determined that 593,316 of the Class C Units and 20,169 shares of restricted stock subject to the 2007 Grant satisfied the market condition on the second measurement date (May 1, 2010), with the value of these units equal to the maximum amount of the award pool payable pursuant to the 2007 Grant on the second measurement date. Of the Class C Units that satisfied the market condition on May 1, 2010, 60% vested on May 1, 2010 and the remaining 40% vested ratably each month through June 30, 2012.

The fair value of the 2007 Grant was measured on the grant date using a Monte Carlo simulation to estimate the probability of the multiple market conditions being satisfied. The Monte Carlo simulation uses a statistical formula underlying the Black-Scholes and binomial formulas, and such simulation was run approximately 100,000 times. For each simulation, the value of the payoff was calculated at the settlement date and was then discounted to the grant date at a risk-free interest rate. The expected value of the Class C Units on the grant date was determined by multiplying the average of the values over all simulations by the number of outstanding shares of Digital Realty Trust, Inc. common stock and Operating Partnership units. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. Other significant assumptions used in the valuation included an expected term of 36 months, expected stock price volatility of 23%, a risk-free interest rate of 4.6%, and a dividend growth rate of 5.0%. The fixed award limit under the plan was $17 million for the first market condition and $40 million for the second market condition, and there were 69.2 million shares of Digital Realty Trust, Inc. common stock and Operating Partnership units outstanding as of the 2007 grant date. The grant date fair value of these awards of approximately $11.8 million was recognized as compensation expense on a straight-line basis over the expected service period of five years, which ended during the three months ended June 30, 2012.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(c) Stock Options

The following table summarizes the Amended and Restated 2004 Incentive Award Plan’s stock option activity for the three months ended March 31, 2013:


	Three months ended March 31, 2013
	Shares			Weighted average exercise price
Options outstanding, beginning of period		129,259		$	30.61
Exercised		(250	)		33.18
Cancelled / Forfeited		—			—

Options outstanding, end of period		129,009		$	30.60

Exercisable, end of period		129,009		$	30.60


Options outstanding and exercisable
Exercise price	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value
$12.00-13.02		34,870		1.58	$	12.00	$	1,914,712
$20.37-28.09		17,000		2.64		21.28		775,740
$33.18-41.73		77,139		4.05		41.07		1,993,600

		129,009		3.20	$	30.60	$	4,684,052

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

(d) Restricted Stock

During the three months ended March 31, 2013 and 2012, certain employees were granted an aggregate of 61,290 and 42,720 shares of restricted stock, respectively. During the three months ended March 31, 2013 and 2012, certain employees were also granted an aggregate of 69,995 and 52,947 shares of restricted stock, respectively, which, in addition to a service condition, are subject to a performance condition that impacts the number of shares which ultimately vests. The performance condition is based upon our achievement of the respective year’s FFO per share targets. Upon evaluating the results of the performance condition, the final number of shares is determined and such shares vest based on satisfaction of the service conditions. The service conditions of the awards provide for 20% vesting on each of the first and second anniversaries of the grant date and 30% vesting on each of the third and fourth anniversaries of the grant date provided the grantee continues employment on each anniversary date. Based on our 2012 FFO per diluted share and unit, 49,325 of the 2012 restricted stock, net of forfeitures, satisfied the performance condition.

The grant date fair values, which equal the market price of Digital Realty Trust, Inc. common stock, are being expensed on a straight-line basis for service awards over the vesting period of the restricted stock, which ranges from three to four years. For performance based awards, we expense the fair value using an accelerated method with each vesting tranche valued as a separate award.

The expense recorded for each of the three months ended March 31, 2013 and 2012 related to grants of restricted stock was approximately $0.7 million. We capitalized amounts relating to compensation expense of employees direct and incremental to construction and successful leasing activities of approximately $0.6 million and $0.4 million for the three months ended March 31, 2013 and 2012, respectively. Unearned compensation representing the unvested portion of the restricted stock totaled $13.4 million and $7.4 million as of March 31, 2013 and December 31, 2012, respectively. We expect to recognize this unearned compensation over the next 3.3 years on a weighted average basis.

13. Derivative Instruments

Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of December 31, 2012, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2013 or December 31, 2012.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements related to US LIBOR, GBP LIBOR and EURIBOR based mortgage loans as well as the U.S. LIBOR and SGD-SOR based tranches of the unsecured term loan. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

We record all our interest rate swaps on the condensed consolidated balance sheet at fair value. In determining the fair value of our interest rate swaps, we consider the credit risk of our counterparties. These counterparties are generally larger financial institutions engaged in providing a variety of financial services. These institutions generally face similar risks regarding adverse changes in market and economic conditions, including, but not limited to, fluctuations in interest rates, exchange rates, equity and commodity prices and credit spreads. The current and pervasive disruptions in the financial markets have heightened the risks to these institutions.

Our agreements with some of our derivative counterparties provide that (1) we could be declared in default on our derivative obligations if repayment of any of our indebtedness over $75.0 million is accelerated by the lender due to our default on the indebtedness and (2) we could be declared in default on a certain derivative obligation if we default on any of our indebtedness, including a default where repayment of underlying indebtedness has not been accelerated by the lender.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2013 and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The fair value of these derivatives was ($7.1) million and ($8.7) million at March 31, 2013 and December 31, 2012, respectively. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2013 and 2012, there were no ineffective portions to our interest rate swaps.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

Amounts reported in accumulated other comprehensive loss related to interest rate swaps will be reclassified to interest expense as interest payments are made on our debt. As of March 31, 2013, we estimate that an additional $5.2 million will be reclassified as an increase to interest expense during the twelve months ending March 31, 2014, as the hedged forecasted transactions impact earnings.

As of March 31, 2013 and December 31, 2012, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands):


Notional Amount														Fair Value at Significant Other Observable Inputs (Level 2)
As of March 31, 2013			As of December 31, 2012			Type of Derivative		Strike Rate		Effective Date		Expiration Date		As of March 31, 2013			As of December 31, 2012
	$65,085	⁽¹⁾	$	69,612	⁽¹⁾		Swap		2.980		April 6, 2009		Nov. 30, 2013	$	(1,068	)	$	(1,552	)
	12,904	⁽²⁾		13,335	⁽²⁾		Swap		3.981		May 17, 2006		Jul. 18, 2013		(144	)		(275	)
	9,337	⁽²⁾		9,649	⁽²⁾		Swap		4.070		Jun. 23, 2006		Jul. 18, 2013		(107	)		(203	)
	8,217	⁽²⁾		8,492	⁽²⁾		Swap		3.989		Jul. 27, 2006		Oct. 18, 2013		(168	)		(255	)
	38,457	⁽²⁾		39,579	⁽²⁾		Swap		2.703		Dec. 3, 2009		Sep. 4, 2014		(1,295	)		(1,617	)
	410,905	⁽³⁾		410,905	⁽³⁾		Swap		0.717		Various		Various		(3,293	)		(3,642	)
	152,786	⁽⁴⁾		155,099	⁽⁴⁾		Swap		0.925		Jul. 6, 2012		Apr. 18, 2017		(984	)		(1,131	)

	$697,691		$	706,671										$	(7,059	)	$	(8,675	)

(1)	Translation to U.S. dollars is based on exchange rate of $1.52 to £1.00 as of March 31, 2013 and $1.63 to £1.00 as of December 31, 2012.

(2)	Translation to U.S. dollars is based on exchange rate of $1.28 to €1.00 as of March 31, 2013 and $1.32 to €1.00 as of December 31, 2012.

(3)	Represents the U.S. dollar tranche of the unsecured term loan.

(4)	Represents the Singapore dollar tranche of the unsecured term loan. Translation to U.S. dollars is based on exchange rate of $0.81 to 1.00 SGD as of March 31, 2013 and $0.82 to 1.00 SGD as of December 31, 2012.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

14. Fair Value of Instruments

We disclose fair value information about all financial instruments, whether or not recognized in the condensed consolidated balance sheets, for which it is practicable to estimate fair value. Current accounting guidance requires the Company to disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.

The Company’s disclosures of estimated fair value of financial instruments at March 31, 2013 and December 31, 2012 were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other accrued liabilities, accrued dividends and distributions, security deposits and prepaid rents approximate fair value because of the short-term nature of these instruments. As described in note 13, the interest rate swaps are recorded at fair value.

We calculate the fair value of our mortgage loans, unsecured term loan, unsecured senior notes and exchangeable senior debentures based on currently available market rates assuming the loans are outstanding through maturity and considering the collateral and other loan terms. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar maturity dates to debt. The carrying value of our global revolving credit facility approximates fair value, due to the variability of interest rates.

As of March 31, 2013 and December 31, 2012, the aggregate estimated fair value and carrying value of our global revolving credit facility, unsecured term loan, unsecured senior notes, exchangeable senior debentures and mortgage loans were as follows (in thousands):


	Categorization under the fair value hierarchy		As of March 31, 2013				As of December 31, 2012
	Categorization under the fair value hierarchy		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value
Global revolving credit facility⁽¹⁾		Level 2	$	546,649	$	546,649	$	723,729	$	723,729
Unsecured term loan ⁽²⁾		Level 2		747,830		747,830		757,839		757,839
Unsecured senior notes ⁽³⁾⁽⁴⁾		Level 2		2,530,708		2,341,972		1,907,188		1,738,221
Exchangeable senior debentures ⁽³⁾		Level 2		442,139		266,400		446,476		266,400
Mortgage loans ⁽³⁾		Level 2		837,520		779,273		845,125		792,376

			$	5,104,846	$	4,682,124	$	4,680,357	$	4,278,565

(1)	The carrying value of our global revolving credit facility approximates estimated fair value, due to the variability of interest rates and the stability of our credit rating.

(2)	The carrying value of our unsecured term loan approximates estimated fair value, due to the variability of interest rates and the stability of our credit rating.

(3)

Valuations for our unsecured senior notes, mortgage loans and other secured loan are determined based on the expected future payments discounted at risk-adjusted rates. The 2015 Notes, 2020 Notes, 2021 Notes, 2022 Notes and 2025 Notes and exchangeable senior debentures are valued based on quoted market prices.

(4)	The carrying value of the 2015 Notes, 2020 Notes, 2021 Notes, 2022 Notes and 2025 Notes are net of discount of $15,948 and $11,779 in the aggregate as of March 31, 2013 and December 31, 2012, respectively.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

15. Related Party Transactions

In December 2006, we entered into ten leases with tel(x) pursuant to which tel(x) provides enhanced meet-me-room services to our customers. The initial terms of these leases expire in 2026, and tel(x) has options to extend them through 2046. tel(x) was acquired by GI Partners Fund II, LLP in November 2006, which, collectively with GI Partners Side Fund II, L.P., owned the majority of the outstanding stock of tel(x). Richard Magnuson, our former director and Chairman who served until our 2012 Annual Meeting of Stockholders, or the Annual Meeting, is the chief executive officer of the advisor to GI Partners Fund II, LLP and GI Partners Side Fund II, L.P. During the year ended December 31, 2011, GI Partners Fund II, LLP and GI Partners Side Fund II, L.P completed the sale of tel(x) to an unrelated third party. Our condensed consolidated income statements include rental revenues of approximately $16.0 million and $10.4 million from tel(x) for the three months ended March 31, 2013 and 2012, respectively. In connection with the lease agreements, we entered into an operating agreement with tel(x), effective as of December 1, 2006, with respect to joint sales and marketing efforts, designation of representatives to manage the national relationship between us and tel(x) and future meet-me-room facilities. As of March 31, 2013 and December 31, 2012, tel(x) leased from us 323,626 square feet under 50 lease agreements and 288,940 square feet under 44 lease agreements, respectively; all but nine leases for 69,312 square feet were entered into prior to the sale of tel(x) to an unrelated third party in September 2011.

We also entered into an agreement with tel(x), effective as of December 1, 2006, with respect to percentage rent arising out of potential future lease agreements for rentable space in buildings covered by the meet-me-room lease agreements. Percentage rent earned during the three months ended March 31, 2013 and 2012 amounted to approximately $0.5 million and $0.3 million, respectively. In addition, in connection with the lease agreements, we entered into a management agreement with tel(x), effective as of December 1, 2007, pursuant to which tel(x) agreed to provide us with certain management services in exchange for a management fee of one percent of rents actually collected by tel(x).

We are party to nine leases with SoftLayer, all of which are in place as of March 31, 2013. The initial terms of these leases expire from 2013 to 2025, and SoftLayer has options to extend them from 2018 through 2035. On August 3, 2010, GI Partners Fund III, L.P. acquired a controlling interest in SoftLayer. Richard Magnuson, our former director and Chairman who served until our Annual Meeting, is also a manager of the general partner to GI Partners Fund III, L.P. Our condensed consolidated income statements include rental revenues of approximately $10.9 million and $7.3 million from SoftLayer for the three months ended March 31, 2013 and 2012, respectively.

Mr. Magnuson did not stand for re-election to our Board of Directors at our Annual Meeting. His term as a member of our Board of Directors and our Chairman ended effective April 23, 2012, the date of the Annual Meeting.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

16. Commitments and Contingencies

(a) Contingent liabilities

As part of the acquisition of 29A International Business Park, the seller could earn additional consideration based on future net operating income growth in excess of certain performance targets, as defined. As of March 31, 2013, construction is not complete and none of the leases executed subsequent to purchase would cause an amount to become probable of payment and therefore no amount is accrued as of March 31, 2013. The maximum amount that could be earned by the seller is $50.0 million SGD (or approximately $40.3 million based on the exchange rate as of March 31, 2013). The earnout contingency expires in November 2020.

One of the tenants at our Convergence Business Park property has an option to expand as part of their lease agreement, which expires in April 2017. As part of this option, development activities are not permitted on specifically identified expansion space within the property until April 2014. If the tenant elects to take this option, we can elect one of two options. The first option is to construct and develop an additional shell building on the expansion space. Concurrent with this obligation, the tenant would execute an amendment to the existing lease to reflect the expansion of the space and include the additional shell building. The second option is to sell the existing building and the expansion space to the tenant for a price of approximately $24.0 million and $225,000 per square acre, respectively, plus additional adjustments as provided in the lease.

As part of the acquisition of the noncontrolling interest in the entity that owns 2805 Lafayette Street from our joint venture partner, the partner could earn additional consideration if between May 4, 2012 and January 31, 2013, we entered into a qualifying lease for this property, as defined in the agreement. As of March 31, 2013, no leases were executed for this property and therefore, the earnout period expired with no additional payment required.

As part of the acquisition of the Sentrum Portfolio, the seller could earn additional consideration based on future net returns on vacant space to be developed, but not currently leased, as defined in the purchase agreement for the acquisition. The initial estimate of fair value of contingent consideration was approximately £56.5 million (or approximately $87.6 million based on the exchange rate as of July 11, 2012, the acquisition date). During the three months ended March 31, 2013, we made certain immaterial corrections to the initial measurement of the accrued contingent consideration that resulted in an additional $5.8 million of purchase price allocated to investments in real estate. These corrections had no impact on reported net income for the period. We have adjusted the contingent consideration to fair value at each reporting date with changes in fair value recognized in operating income. At March 31, 2013, the fair value of the contingent consideration for Sentrum was £60.5 million (or approximately $91.9 million based on the exchange rate as of March 31, 2013) and is currently accrued in accounts payable and other accrued expenses in the condensed consolidated balance sheet. Change in fair value of contingent consideration for Sentrum was a reduction to operating income of approximately $1.3 million for the three months ended March 31, 2013. The earn-out contingency expires in July 2015. This amount will be reassessed on a quarterly basis, with any changes being recognized in earnings. Increases or decreases in the fair value of the contingent consideration can result from changes in discount periods, discount rates and probabilities that contingencies will be met.

(b) Construction Commitments

Our properties require periodic investments of capital for tenant-related capital expenditures and for general capital improvements and from time to time in the normal course of our business, we enter into various construction contracts with third parties that may obligate us to make payments. At March 31, 2013, we had open commitments related to construction contracts of approximately $261.4 million.

(c) Legal Proceedings

Although the Company is involved in legal proceedings arising in the ordinary course of business, as of March 31, 2013, the Company is not currently a party to any legal proceedings nor, to its knowledge, is any legal proceeding threatened against it that it believes would have a material adverse effect on its financial position, results of operations or liquidity.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

March 31, 2013 and 2012

(unaudited)

17. Subsequent Events

On April 9, 2013, Digital Realty Trust, Inc. issued an aggregate of 10.0 million shares of its 5.875% Series G Cumulative Redeemable Preferred Stock for total net proceeds, after underwriting discounts and estimated offering expenses, of $241.5 million, including the proceeds from the partial exercise of the underwriters’ over-allotment option. We have used and intend to use the net proceeds from the offering to temporarily repay borrowings under our global revolving credit facility, to acquire additional properties, to fund development opportunities and for general working capital purposes including potentially for the repurchase, redemption or retirement of outstanding debt or preferred equity securities.

On May 1, 2013, our board of directors approved an amendment to Digital Realty Trust, Inc.’s charter increasing the number of authorized shares of its common stock, par value $.01 per share, available for issuance from 165,000,000 to 215,000,000 and increasing the number of authorized shares of its preferred stock, par value $.01 per share, available for issuance from 30,000,000 to 70,000,000. We filed the amendment with the Maryland State Department of Assessments and Taxation on May 6, 2013 and it became effective on that date.

On May 1, 2013, we declared the following dividends per share and the Operating Partnership declared an equivalent distribution per unit:


Share/Unit Class	Series E Preferred Stock and Unit		Series F Preferred Stock and Unit		Series G Preferred Stock and Unit			Common stock and common unit
Dividend and distribution amount	$	0.437500	$	0.414063	$	0.334550	⁽¹⁾	$	0.780000
Dividend and distribution payable date		June 28, 2013		June 28, 2013		June 28, 2013			June 28, 2013
Dividend and distribution payable to holders of record on		June 14, 2013		June 14, 2013		June 14, 2013			June 14, 2013
Annual equivalent rate of dividend and distribution	$	1.750	$	1.656	$	1.46875		$	3.120

(1)	Represents a pro rata dividend from and including the original issue date to and including June 30, 2013.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. This report contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, expected use of proceeds from our equity distribution program and other securities offerings, expected use of borrowings under our credit facilities, portfolio performance, leverage policy, acquisition and capital expenditure plans, supply and demand for data center space, capitalization rates and expected rental rates on new or renewed data center space, as well as our discussion of “Factors Which May Influence Future Results of Operations,” contain forward-looking statements. Likewise, all of our statements regarding anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and discussions which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and that we may not be able to realize. We do not guarantee that the transactions and events described will happen as described or that they will happen at all. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: the impact of the recent deterioration in global economic, credit and market conditions, including the downgrade of the U.S. government’s credit rating; current local economic conditions in our geographic markets; decreases in information technology spending, including as a result of economic slowdowns or recession; adverse economic or real estate developments in our industry or the industry sectors that we sell to (including risks relating to decreasing real estate valuations and impairment charges); our dependence upon significant tenants; bankruptcy or insolvency of a major tenant or a significant number of smaller tenants; defaults on or non-renewal of leases by tenants; our failure to obtain necessary debt and equity financing; increased interest rates and operating costs; risks associated with using debt to fund our business activities, including re-financing and interest rate risks, our failure to repay debt when due, adverse changes in our credit ratings or our breach of covenants or other terms contained in our loan facilities and agreements; financial market fluctuations; changes in foreign currency exchange rates; our inability to manage our growth effectively; difficulty acquiring or operating properties in foreign jurisdictions; the suitability of our properties and data center infrastructure, delays or disruptions in connectivity, failure of our physical infrastructure or services or availability of power; our failure to successfully integrate and operate acquired or developed properties or businesses; risks related to joint venture investments, including as a result of our lack of control of such investments; delays or unexpected costs in development of properties; decreased rental rates or increased vacancy rates; increased competition or available supply of data center space; our inability to successfully develop and lease new properties and space held for development; difficulties in identifying properties to acquire and completing acquisitions; our inability to acquire off-market properties; our inability to comply with the rules and regulations applicable to reporting companies; Digital Realty Trust, Inc.’s failure to maintain its status as a REIT for federal income tax purposes; possible adverse changes to tax laws; restrictions on our ability to engage in certain business activities; environmental uncertainties and risks related to natural disasters; losses in excess of our insurance coverage; changes in foreign laws and regulations, including those related to taxation and real estate ownership and operation; and changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws and increases in real property tax rates.

While forward-looking statements reflect our good faith beliefs, they are not guaranties of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report, including under Part II, Item 1A, Risk Factors. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

Occupancy percentages included in the following discussion, for some of our properties, are calculated based on factors in addition to contractually leased square feet, including available power, required support space and common area.

Overview

Our company. Digital Realty Trust, Inc. completed its initial public offering of common stock, or our IPO, on November 3, 2004. We believe that we have operated in a manner that has enabled us to qualify, and have elected to be treated, as a REIT under Sections 856 through 860 of the Code. Our company was formed on March 9, 2004. During the period from our formation until we commenced operations in connection with the completion of our IPO, we did not have any corporate activity other than the issuance of shares of Digital Realty Trust, Inc. common stock in connection with the initial capitalization of the company. Our operating partnership was formed on July 21, 2004.

Business and strategy. Our primary business objectives are to maximize: (i) sustainable long-term growth in earnings and funds from operations per share and unit and (ii) cash flow and returns to our stockholders and our operating partnership’s unitholders through the payment of distributions. We expect to achieve our objectives by focusing on our core business of investing in and developing technology-related real estate. A significant component of our current and future internal growth is anticipated through the development of our existing space held for development and new properties. We target high quality, strategically located properties containing applications and operations critical to the day-to-day operations of corporate enterprise datacenter and technology industry tenants and properties that may be developed for such use. Most of our properties contain fully redundant electrical supply systems, multiple power feeds, above-standard precision cooling systems, raised floor areas, extensive in-building communications cabling and high-level security systems. We focus solely on technology-related real estate because we believe that the growth in corporate datacenter adoption and the technology-related real estate industry generally will continue to be superior to that of the overall economy.

As of March 31, 2013, we owned an aggregate of 122 technology-related real estate properties, excluding three properties held as investments in unconsolidated joint ventures and developable land, with approximately 22.7 million rentable square feet including approximately 2.6 million square feet of space held for development. At March 31, 2013, approximately 1,390,000 square feet was under construction for Turn-Key Flex^SM, Powered Base Building^® and Custom Solutions (formerly referred to as Build-to-Suit) product, all of which are expected to be income producing on or after completion, in 11 U.S. domestic markets, one European market and one Australian market, consisting of approximately 500,000 square feet of space under development projects and 890,000 square feet of land under development projects.

We have developed detailed, standardized procedures for evaluating acquisitions to ensure that they meet our financial, technical and other criteria. We expect to continue to acquire additional assets as a part of our growth strategy. We intend to aggressively manage and lease our assets to increase their cash flow. We intend to continue to build out our development portfolio when justified by anticipated returns.

We may acquire properties subject to existing mortgage financing and other indebtedness or we may incur new indebtedness in connection with acquiring or refinancing these properties. Debt service on such indebtedness will have a priority over any cash dividends with respect to Digital Realty Trust, Inc.’s common stock and preferred stock. We currently intend to limit our indebtedness to 60% of our total enterprise value and, based on the closing price of Digital Realty Trust, Inc. common stock on March 31, 2013 of $66.91, our ratio of debt to total enterprise value was approximately 34%. Our total enterprise value is defined as the sum of the market value of Digital Realty Trust, Inc.’s outstanding common stock (which may decrease, thereby increasing our debt to total enterprise value ratio), excluding options issued under our company’s incentive award plan, plus the liquidation value of Digital Realty Trust, Inc.’s preferred stock, plus the aggregate value of our operating partnership’s units not held by Digital Realty Trust, Inc. (with the per unit value equal to the market value of one share of its common stock and excluding long-term incentive units and Class C units), plus the book value of our total consolidated indebtedness.

Revenue base. As of March 31, 2013, we owned 122 properties through our operating partnership, excluding three properties held as investments in unconsolidated joint ventures and developable land. These properties are mainly located throughout the U.S., with 21 properties located in Europe, three properties in Australia, two properties in Canada and one property in Asia. We, through our predecessor, acquired our first portfolio property in January 2002 and have added properties as follows:


Year Ended December 31:	Properties Acquired ⁽¹⁾		Net Rentable Square Feet ⁽²⁾		Square Feet of Space Held for Development as of March 31, 2013 ⁽³⁾
2002		5		1,156,483		46,530
2003		6		1,074,662		—
2004		10		2,529,940		157,363
2005		20		3,367,710		182,587
2006		16		2,184,025		37,573
2007 ⁽⁴⁾		13		2,129,363		178,455
2008		5		360,420		203,828
2009 ⁽⁵⁾