Edgar Filing: Digital Realty Trust, Inc.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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 July 31, 2013
Common Stock, $.01 par value per share		128,428,466

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 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 June 30, 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 June 30, 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 JUNE 30, 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 June 30, 2013 (unaudited) and December 31, 2012		5

	Condensed Consolidated Income Statements for the three and six months ended June 30, 2013 and 2012 (unaudited)		6

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012 (unaudited)		7

	Condensed Consolidated Statement of Equity for the six months ended June 30, 2013 (unaudited)		8

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)		9

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

	Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012		11

	Condensed Consolidated Income Statements for the three and six months ended June 30, 2013 and 2012 (unaudited)		12

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012 (unaudited)		13

	Condensed Consolidated Statement of Capital for the six months ended June 30, 2013 (unaudited)		14

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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		51

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		80

ITEM 4.	Controls and Procedures (Digital Realty Trust, Inc.)		82

	Controls and Procedures (Digital Realty Trust, L.P.)		82

PART II.	OTHER INFORMATION		83

ITEM 1.	Legal Proceedings		83

ITEM 1A.	Risk Factors		83

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		83

ITEM 3.	Defaults Upon Senior Securities		83

ITEM 4.	Mine Safety Disclosures		83

ITEM 5.	Other Information		83

ITEM 6.	Exhibits		84

	Signatures		85

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	690,356		$	661,058
Acquired ground leases		13,216			13,658
Buildings and improvements		8,125,636			7,662,973
Tenant improvements		432,631			404,830

Total investments in properties		9,261,839			8,742,519
Accumulated depreciation and amortization		(1,377,375	)		(1,206,017	)

Net investments in properties		7,884,464			7,536,502
Investment in unconsolidated joint ventures		74,047			66,634

Net investments in real estate		7,958,511			7,603,136
Cash and cash equivalents		24,260			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $3,603 and $3,609 as of June 30, 2013 and December 31, 2012, respectively		159,847			168,286
Deferred rent		360,588			321,715
Acquired above market leases, net		56,310			65,055
Acquired in place lease value and deferred leasing costs, net		492,884			495,205
Deferred financing costs, net		31,881			30,621
Restricted cash		38,977			44,050
Other assets		61,601			34,865

Total assets	$	9,184,859		$	8,819,214

LIABILITIES AND EQUITY
Global revolving credit facility	$	610,328		$	723,729
Unsecured term loan		741,178			757,839
Unsecured senior notes, net of discount		2,342,990			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		737,352			792,376
Accounts payable and other accrued liabilities		617,766			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		137,297			148,233
Security deposits and prepaid rents		148,278			154,171

Total liabilities		5,601,589			5,320,830

Commitments and contingencies
Stockholders’ Equity:
Preferred Stock: $0.01 par value per share, 70,000,000 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 June 30, 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 June 30, 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 June 30, 2013 and December 31, 2012, respectively		176,191			176,191
Series G Cumulative Redeemable Preferred Stock, 5.875%, $250,000 and $0 liquidation preference, respectively ($25.00 per share), 10,000,000 and 0 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively		241,565			—
Common Stock: $0.01 par value, 215,000,000 shares authorized, 128,421,888 and 125,140,783 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively		1,279			1,247
Additional paid-in capital		3,681,618			3,562,642
Accumulated dividends in excess of earnings		(766,704	)		(656,104	)
Accumulated other comprehensive loss, net		(64,010	)		(12,191	)

Total stockholders’ equity		3,547,111			3,468,305

Noncontrolling Interests:
Noncontrolling interests in operating partnership		28,935			24,135
Noncontrolling interests in consolidated joint ventures		7,224			5,944

Total noncontrolling interests		36,159			30,079

Total equity		3,583,270			3,498,384

Total liabilities and equity	$	9,184,859		$	8,819,214

See accompanying notes to the 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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Operating Revenues:
Rental	$	285,953		$	234,923		$	567,352		$	457,757
Tenant reimbursements		76,681			60,422			152,598			118,284
Construction management		728			1,954			1,534			4,406
Other		140			6,405			388			6,405

Total operating revenues		363,502			303,704			721,872			586,852

Operating Expenses:
Rental property operating		106,336			87,576			213,116			167,421
Property taxes		19,374			15,769			40,416			31,811
Insurance		2,238			2,260			4,443			4,490
Construction management		294			596			678			789
Depreciation and amortization		115,867			89,000			227,490			172,995
General and administrative		17,891			15,109			33,842			29,359
Transactions		1,491			4,608			3,254			5,285
Other		17			337			53			337

Total operating expenses		263,508			215,255			523,292			412,487

Operating income		99,994			88,449			198,580			174,365
Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,330			3,493			4,665			4,882
Gain on insurance settlement		5,597			—			5,597			—
Interest and other income		(6	)		1,216			35			1,925
Interest expense		(47,583	)		(37,681	)		(95,661	)		(75,711	)
Tax expense		(210	)		(1,206	)		(1,413	)		(1,927	)
Loss from early extinguishment of debt		(501	)		(303	)		(501	)		(303	)

Net income		59,621			53,968			111,302			103,231
Net income attributable to noncontrolling interests		(1,145	)		(1,634	)		(2,115	)		(2,855	)

Net income attributable to Digital Realty Trust, Inc.		58,476			52,334			109,187			100,376
Preferred stock dividends		(11,399	)		(10,313	)		(19,453	)		(19,144	)

Net income available to common stockholders	$	47,077		$	42,021		$	89,734		$	81,232

Net income per share available to common stockholders:
Basic	$	0.37		$	0.38		$	0.70		$	0.75
Diluted	$	0.37		$	0.38		$	0.70		$	0.75

Weighted average common shares outstanding:
Basic		128,419,745			109,761,017			127,437,970			108,430,437
Diluted		128,623,076			110,166,082			127,627,496			108,809,574

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net income	$	59,621		$	53,968		$	111,302		$	103,231
Other comprehensive income (loss):
Foreign currency translation adjustments		308			(18,002	)		(62,755	)		1,301
Increase (decrease) in fair value of interest rate swaps		6,623			(1,943	)		6,499			(2,888	)
Reclassification to interest expense from interest rate swaps		1,700			686			3,441			1,790


Comprehensive income		68,252			34,709			58,487			103,434

Comprehensive income attributable to noncontrolling interests		(1,313	)		(901	)		(1,119	)		(2,879	)


Comprehensive income attributable to Digital Realty Trust, Inc.	$	66,939		$	33,808		$	57,368		$	100,555

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 common units to common stock		—			27,289		1		283			—			—			284			(284	)		—		(284	)		—
Issuance of unvested restricted stock, net of forfeitures		—			112,949		—		—			—			—			—			—			—		—			—
Common stock offering costs		—			—		—		(290	)		—			—			(290	)		—			—		—			(290	)
Exercise of stock options		—			1,252		—		50			—			—			50			—			—		—			50
Issuance of series G preferred stock, net of offering costs		241,565			—		—		—			—			—			241,565			—			—		—			241,565
Conversion of Series D preferred stock		(119,348	)		3,139,615		31		119,317			—			—			—			—			—		—			—
Amortization of unearned compensation regarding share based awards		—			—		—		8,615			—			—			8,615			—			—		—			8,615
Reclassification of vested share based awards		—			—		—		(8,999	)		—			—			(8,999	)		8,999			—		8,999			—
Dividends declared on preferred stock		—			—		—		—			(19,453	)		—			(19,453	)		—			—		—			(19,453	)
Dividends and distributions on common stock and common and incentive units		—			—		—		—			(200,334	)		—			(200,334	)		(4,679	)		—		(4,679	)		(205,013	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—		—		—			—			—			—			—			925		925			925
Net income		—			—		—		—			109,187			—			109,187			1,760			355		2,115			111,302
Other comprehensive income—foreign currency translation adjustments		—			—		—		—			—			(61,566	)		(61,566	)		(1,189	)		—		(1,189	)		(62,755	)
Other comprehensive income—fair value of interest rate swaps		—			—		—		—			—			6,372			6,372			127			—		127			6,499
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—		—		—			—			3,375			3,375			66			—		66			3,441

Balance as of June 30, 2013	$	694,928			128,421,888	$	1,279	$	3,681,618		$	(766,704	)	$	(64,010	)	$	3,547,111		$	28,935		$	7,224	$	36,159		$	3,583,270

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:

Net income	$	111,302		$	103,231
Adjustments to reconcile net income to net cash provided by operating activities:

Gain on insurance settlement		(5,597	)		—
Equity in earnings of unconsolidated joint ventures		(4,665	)		(4,882	)
Change in fair value of accrued contingent consideration		930			—
Distributions from unconsolidated joint ventures		2,875			16,498
Write-off of net assets due to early lease terminations		(53	)		337
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		189,997			142,870
Amortization of share-based unearned compensation		6,468			7,181
Allowance for (recovery of ) doubtful accounts		(6	)		188
Amortization of deferred financing costs		4,902			4,013
Write-off of deferred financing costs, included in loss on early extinguishment of debt		501			254
Amortization of debt discount/premium		340			480
Amortization of acquired in place lease value and deferred leasing costs		37,494			30,124
Amortization of acquired above market leases and acquired below market leases		(6,085	)		(5,110	)
Changes in assets and liabilities:
Restricted cash		5,138			13,225
Accounts and other receivables		4,183			(3,413	)
Deferred rent		(41,141	)		(35,551	)
Deferred leasing costs		(9,014	)		(8,520	)
Other assets		(10,065	)		(8,757	)
Accounts payable and other accrued liabilities		(10,614	)		(12,384	)
Security deposits and prepaid rents		(1,383	)		(8,584	)

Net cash provided by operating activities		275,507			231,200

Cash flows from investing activities:

Acquisitions of real estate		(117,289	)		(222,105	)
Investment in unconsolidated joint ventures		(5,654	)		(30,592	)
Investment in equity securities		(17,100	)		—
Deposits paid for acquisitions of real estate		(2,250	)		(500	)
Receipt of value added tax refund		4,740			6,793
Refundable value added tax paid		(5,002	)		(9,269	)
Change in restricted cash		(862	)		3,857
Improvements to and advances for investments in real estate		(577,075	)		(394,245	)
Improvement advances to tenants		(1,758	)		(1,798	)
Proceeds from insurance settlement		8,625			—
Collection of advances from tenants for improvements		1,377			1,427

Net cash used in investing activities		(712,248	)		(646,432	)

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)


	Six Months Ended June 30,
	2013			2012
Cash flows from financing activities:

Borrowings on revolving credit facility	$	845,592		$	869,848
Repayments on revolving credit facility		(932,225	)		(824,802	)
Borrowings on unsecured term loan		—			526,628
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Repayments on other secured loans		—			(10,500	)
Principal payments on mortgage loans		(46,700	)		(106,124	)
Earnout payment related to Sentrum acquisition		(10,009	)		—
Change in restricted cash		406			2,507
Payment of loan fees and costs		(6,720	)		(5,452	)
Capital contributions received from noncontrolling interests in joint ventures		925			2,253
Gross proceeds from the issuance of common stock		—			63,346
Gross proceeds from the issuance of preferred stock		250,000			182,500
Common stock offering costs paid		(290	)		(583	)
Preferred stock offering costs paid		(8,435	)		(6,367	)
Proceeds from exercise of stock options		50			2,005
Payment of dividends to preferred stockholders		(19,453	)		(19,144	)
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership		(298,447	)		(241,354	)
Purchase of noncontrolling interests in consolidated joint ventures		—			(12,384	)

Net cash provided by financing activities		404,720			422,378

Net (decrease) increase in cash and cash equivalents		(32,021	)		7,146
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	24,260		$	47,777


Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized	$	91,726		$	81,322
Cash paid for income taxes		1,649			1,517

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(62,755	)	$	1,301
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		6,499			(2,888	)
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock		284			3,221
Preferred stock converted to shares of common stock		119,348			124,139
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		237,933			215,456
Additional accrual of contingent purchase price for investments in real estate		5,840			—
Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate	$	105,521		$	226,855
Acquired above market leases		203			—
Acquired below market leases		(4,136	)		(36,708	)
Acquired in place lease value and deferred leasing costs		15,701			38,848
Mortgage loan assumed, net of premium		—			(6,890	)

Cash paid for acquisition of real estate	$	117,289		$	222,105

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)


	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	690,356		$	661,058
Acquired ground leases		13,216			13,658
Buildings and improvements		8,125,636			7,662,973
Tenant improvements		432,631			404,830

Total investments in properties		9,261,839			8,742,519
Accumulated depreciation and amortization		(1,377,375	)		(1,206,017	)

Net investments in properties		7,884,464			7,536,502
Investment in unconsolidated joint ventures		74,047			66,634

Net investments in real estate		7,958,511			7,603,136
Cash and cash equivalents		24,260			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $3,603 and $3,609 as of June 30, 2013 and December 31, 2012, respectively		159,847			168,286
Deferred rent		360,588			321,715
Acquired above market leases, net		56,310			65,055
Acquired in place lease value and deferred leasing costs, net		492,884			495,205
Deferred financing costs, net		31,881			30,621
Restricted cash		38,977			44,050
Other assets		61,601			34,865

Total assets	$	9,184,859		$	8,819,214

LIABILITIES AND CAPITAL
Global revolving credit facility	$	610,328		$	723,729
Unsecured term loan		741,178			757,839
Unsecured senior notes, net of discount		2,342,990			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		737,352			792,376
Accounts payable and other accrued liabilities		617,766			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		137,297			148,233
Security deposits and prepaid rents		148,278			154,171

Total liabilities		5,601,589			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 June 30, 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 June 30, 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 June 30, 2013 and December 31, 2012, respectively		176,191			176,191
Series G Cumulative Redeemable Preferred Units, 5.875%, $250,000 and $0 liquidation preference, respectively ($25.00 per unit), 10,000,000 and 0 units issued and outstanding as of June 30, 2013 and December 31, 2012, respectively		241,565			—
Common units:
128,421,888 and 125,140,783 units issued and outstanding as of June 30, 2013 and December 31, 2012, respectively		2,916,193			2,907,785
Limited partners, 1,505,814 and 1,515,814 common units, 1,093,687 and 937,208 profits interest units and 397,369 and 398,378 class C units outstanding as of June 30, 2013 and December 31, 2012, respectively		32,650			26,854

Accumulated other comprehensive loss		(67,725	)		(14,910	)

Total partners’ capital		3,576,046			3,492,440
Noncontrolling interests in consolidated joint ventures		7,224			5,944

Total capital		3,583,270			3,498,384

Total liabilities and capital	$	9,184,859		$	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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Operating Revenues:
Rental	$	285,953		$	234,923		$	567,352		$	457,757
Tenant reimbursements		76,681			60,422			152,598			118,284
Construction management		728			1,954			1,534			4,406
Other		140			6,405			388			6,405

Total operating revenues		363,502			303,704			721,872			586,852

Operating Expenses:
Rental property operating		106,336			87,576			213,116			167,421
Property taxes		19,374			15,769			40,416			31,811
Insurance		2,238			2,260			4,443			4,490
Construction management		294			596			678			789
Depreciation and amortization		115,867			89,000			227,490			172,995
General and administrative		17,891			15,109			33,842			29,359
Transactions		1,491			4,608			3,254			5,285
Other		17			337			53			337

Total operating expenses		263,508			215,255			523,292			412,487

Operating income		99,994			88,449			198,580			174,365

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,330			3,493			4,665			4,882
Gain on insurance settlement		5,597			—			5,597			—
Interest and other income		(6	)		1,216			35			1,925
Interest expense		(47,583	)		(37,681	)		(95,661	)		(75,711	)
Tax expense		(210	)		(1,206	)		(1,413	)		(1,927	)
Loss from early extinguishment of debt		(501	)		(303	)		(501	)		(303	)

Net income		59,621			53,968			111,302			103,231
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures		(209	)		27			(355	)		392

Net income attributable to Digital Realty Trust, L.P.		59,412			53,995			110,947			103,623
Preferred units distributions		(11,399	)		(10,313	)		(19,453	)		(19,144	)

Net income available to common unitholders	$	48,013		$	43,682		$	91,494		$	84,479

Net income per unit available to common unitholders:
Basic	$	0.37		$	0.38		$	0.70		$	0.75
Diluted	$	0.37		$	0.38		$	0.70		$	0.75

Weighted average common units outstanding:
Basic		130,973,952			114,100,498			129,936,759			112,766,660
Diluted		131,177,283			114,505,563			130,126,285			113,145,797

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013			2012
Net income	$	59,621	$	53,968		$	111,302		$	103,231
Other comprehensive income (loss):
Foreign currency translation adjustments		308		(18,002	)		(62,755	)		1,301
Increase (decrease) in fair value of interest rate swaps		6,623		(1,943	)		6,499			(2,888	)
Reclassification to interest expense from interest rate swaps		1,700		686			3,441			1,790

Comprehensive income	$	68,252	$	34,709		$	58,487		$	103,434

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		—			—			27,289		284			(27,289	)		(284	)		—			—		—
Issuance of unvested restricted common units, net of forfeitures		—			—			112,949		—			—			—			—			—		—
Net proceeds from issuance of common units		—			—			—		(290	)		—			—			—			—		(290	)
Issuance of common units in connection with the exercise of stock options		—			—			1,252		50			—			—			—			—		50
Issuance of common units, net of forfeitures		—			—			—		—			172,759			—			—			—		—
Net proceeds from issuance of series G preferred units		10,000,000			241,565			—		—			—			—			—			—		241,565
Conversion of series D preferred units		(4,936,505	)		(119,348	)		3,139,615		119,348			—			—			—			—		—
Amortization of unearned compensation regarding share based awards		—			—			—		8,615			—			—			—			—		8,615
Reclassification of vested share based awards		—			—			—		(8,999	)		—			8,999			—			—		—
Distributions		—			(19,453	)		—		(200,334	)		—			(4,679	)		—			—		(224,466	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—			—		—			—			—			—			925		925
Net income		—			19,453			—		89,734			—			1,760			—			355		111,302
Other comprehensive loss—foreign currency translation adjustments		—			—			—		—			—			—			(62,755	)		—		(62,755	)
Other comprehensive loss—fair value of interest rate swaps		—			—			—		—			—			—			6,499			—		6,499
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—			—		—			—			—			3,441			—		3,441

Balance as of June 30, 2013		28,800,000		$	694,928			128,421,888	$	2,916,193			2,996,870		$	32,650		$	(67,725	)	$	7,224	$	3,583,270

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:

Net income	$	111,302		$	103,231
Adjustments to reconcile net income to net cash provided by operating activities:

Gain on insurance settlement		(5,597	)		—
Equity in earnings of unconsolidated joint ventures		(4,665	)		(4,882	)
Change in fair value of accrued contingent consideration		930			—
Distributions from unconsolidated joint ventures		2,875			16,498
Write-off of net assets due to early lease terminations		(53	)		337
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		189,997			142,870
Amortization of share-based unearned compensation		6,468			7,181
Allowance for (recovery of ) doubtful accounts		(6	)		188
Amortization of deferred financing costs		4,902			4,013
Write-off of deferred financing costs, included in loss on early extinguishment of debt		501			254
Amortization of debt discount/premium		340			480
Amortization of acquired in place lease value and deferred leasing costs		37,494			30,124
Amortization of acquired above market leases and acquired below market leases		(6,085	)		(5,110	)
Changes in assets and liabilities:
Restricted cash		5,138			13,225
Accounts and other receivables		4,183			(3,413	)
Deferred rent		(41,141	)		(35,551	)
Deferred leasing costs		(9,014	)		(8,520	)
Other assets		(10,065	)		(8,757	)
Accounts payable and other accrued liabilities		(10,614	)		(12,384	)
Security deposits and prepaid rents		(1,383	)		(8,584	)

Net cash provided by operating activities		275,507			231,200

Cash flows from investing activities:

Acquisitions of real estate		(117,289	)		(222,105	)
Investment in unconsolidated joint ventures		(5,654	)		(30,592	)
Investment in equity securities		(17,100	)		—
Deposits paid for acquisitions of real estate		(2,250	)		(500	)
Receipt of value added tax refund		4,740			6,793
Refundable value added tax paid		(5,002	)		(9,269	)
Change in restricted cash		(862	)		3,857
Improvements to and advances for investments in real estate		(577,075	)		(394,245	)
Improvement advances to tenants		(1,758	)		(1,798	)
Proceeds from insurance settlement		8,625			—
Collection of advances from tenants for improvements		1,377			1,427

Net cash used in investing activities		(712,248	)		(646,432	)

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)


	Six Months Ended June 30,
	2013			2012
Cash flows from financing activities:

Borrowings on revolving credit facility	$	845,592		$	869,848
Repayments on revolving credit facility		(932,225	)		(824,802	)
Borrowings on unsecured term loan		—			526,628
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Repayments on other secured loans		—			(10,500	)
Principal payments on mortgage loans		(46,700	)		(106,124	)
Earnout payment related to Sentrum acquisition		(10,009	)		—
Change in restricted cash		406			2,507
Payment of loan fees and costs		(6,720	)		(5,452	)
Capital contributions received from noncontrolling interests in joint ventures		925			2,253
General partner contributions		241,325			240,901
Payment of distributions to preferred unitholders		(19,453	)		(19,144	)
Payment of distributions to common unitholders		(298,447	)		(241,354	)
Purchase of noncontrolling interests in consolidated joint ventures		—			(12,384	)

Net cash provided by financing activities		404,720			422,378

Net (decrease) increase in cash and cash equivalents		(32,021	)		7,146
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	24,260		$	47,777


Supplemental disclosure of cash flow information:
Cash paid for interest, including amounts capitalized	$	91,726		$	81,322
Cash paid for income taxes		1,649			1,517

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(62,755	)	$	1,301
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		6,499			(2,888	)
Preferred units converted to common units		119,348			124,139
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		237,933			215,456
Additional accrual of contingent purchase price for investments in real estate		5,840			—
Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate		105,521			226,855
Acquired above market leases		203			—
Acquired below market leases		(4,136	)		(36,708	)
Acquired in place lease value and deferred leasing costs		15,701			38,848
Mortgage loan assumed, net of premium		—			(6,890	)

Cash paid for acquisition of real estate	$	117,289		$	222,105

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 June 30, 2013, our portfolio consisted of 127 properties, including three properties held as investments in unconsolidated joint ventures and developable land, of which 100 are located throughout North America, 22 are located in Europe, three are located in Australia and two are 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 June 30, 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 a few differences between the Company and the Operating Partnership, which are reflected in these condensed consolidated financial statements. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how we operate as an interrelated consolidated company. Digital Realty Trust, Inc.’s only material asset is its ownership of partnership interests of the Operating Partnership. As a result, Digital Realty Trust, Inc. does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

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 June 30, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30, 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 and six months ended June 30, 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 June 30, 2013 and December 31, 2012, the amount included in accounts payable and other accrued liabilities on our condensed consolidated balance sheets was approximately $1.7 million.

(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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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. 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 June 30, 2013 and 2012, we capitalized interest of approximately $6.6 million and $4.6 million, respectively, and $12.0 million and $9.1 million during the six months ended June 30, 2013 and 2012, respectively. During the three months ended June 30, 2013 and 2012, we capitalized amounts relating to compensation expense of employees direct and incremental to construction and successful leasing activities of approximately $9.6 million and $7.4 million, respectively, and $19.7 million and

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

$15.3 million during the six months ended June 30, 2013 and 2012, respectively. Cash flows from capitalized leasing costs of $21.0 million and $14.7 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 six months ended June 30, 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 $276.9 million and $263.2 million and outside the United States were $86.6 million and $40.5 million for the three months ended June 30, 2013 and 2012, respectively. Operating revenues from properties in the United States were $550.9 million and $508.2 million and outside the United States were $171.0 million and $78.7 million for the six months ended June 30, 2013 and 2012, respectively. We had long-lived assets located in the United States of $5.5 billion and $5.0 billion and outside the United States of $2.4 billion and $2.5 billion as of June 30, 2013 and December 31, 2012, respectively.

Operating revenues from properties located in England were $48.6 million and $12.6 million, or 13.4% and 4.1% of total operating revenues, for the three months ended June 30, 2013 and 2012, respectively. Operating revenues from properties located in England were $95.9 million and $24.8 million, or 13.3% and 4.2% of total operating revenues, for the six months ended June 30, 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 20.0% and 22.3% of total long-lived assets, as of June 30, 2013 and December 31, 2012, respectively. No other foreign country comprised more than 10% of total long-lived assets as of June 30, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

3. Investments in Real Estate

We acquired the following real estate properties during the six months ended June 30, 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
CarTech⁽²⁾	London, England	April 2, 2013		3.6
MetCenter Business Park ⁽³⁾	Austin, Texas	May 20, 2013		31.9
Liverpoolweg 10 ⁽⁴⁾	Amsterdam, Netherlands	June 27, 2013		3.9

			$	117.3

(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.

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

(3)	MetCenter Business Park consists of three buildings at 8201 E. Riverside Drive and three buildings at 7401 E. Ben White Boulevard in the Austin metropolitan area. MetCenter Business Park is considered one property for our property count.

(4)	Acquisition of a partially-built data center in Groningen, Netherlands for a purchase price of $3.9 million. An additional $3.9 million will be paid upon completion of construction by the tenant, which is expected by October 2013.

The table below reflects the purchase price allocation for the properties acquired during the six months ended June 30, 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
CarTech		3,599		—		—		—			3,599
MetCenter Business Park		28,918		191		4,840		(2,049	)		31,900
Liverpoolweg 10		3,855		—		—		—			3,855

Total	$	105,521	$	203	$	15,701	$	(4,136	)	$	117,289

Weighted average remaining intangible amortization life (in months)				38		101		99

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30, 2013 and December 31, 2012.


	Balance as of
(Amounts in thousands)	June 30, 2013			December 31, 2012
Acquired in place lease value:
Gross amount	$	727,521		$	720,373
Accumulated amortization		(396,284	)		(367,088	)

Net	$	331,237		$	353,285

Acquired above market leases:
Gross amount	$	131,596		$	134,480
Accumulated amortization		(75,286	)		(69,425	)

Net	$	56,310		$	65,055

Acquired below market leases:
Gross amount	$	286,318		$	285,509
Accumulated amortization		(149,021	)		(137,276	)

Net	$	137,297		$	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 $2.9 million for the three months ended June 30, 2013 and 2012, respectively, and $6.1 million and $5.1 million for the six months ended June 30, 2013 and 2012, respectively. The expected average remaining lives for acquired below market leases and acquired above market leases is 6.7 years and 4.9 years, respectively, as of June 30, 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	$	10,132
2015		9,152
2016		7,941
2017		6,496
2018		3,248

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

Amortization of acquired in place lease value (a component of depreciation and amortization expense) was $15.4 million and $12.4 million for the three months ended June 30, 2013 and 2012, respectively, and $30.3 million and $24.3 million for the six months ended June 30, 2013 and 2012, respectively. The expected average amortization period for acquired in place lease value is 6.9 years as of June 30, 2013. The weighted average remaining contractual life for acquired leases excluding renewals or extensions is 5.5 years as of June 30, 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	$	55,179
2015		45,905
2016		42,880
2017		29,923
2018		27,065

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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) 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 and the Operating Partnership guarantee the obligations of Digital Stout Holding, LLC, a wholly owned subsidiary of the Operating Partnership, with respect to its 4.250% notes due 2025 (2025 Notes). The Company is also the guarantor of the Operating Partnership’s and its subsidiary borrowers’ obligations under the global revolving credit facility and unsecured term loan.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

6. Debt of the Operating Partnership

A summary of outstanding indebtedness of the Operating Partnership as of June 30, 2013 and December 31, 2012 is as follows (in thousands):


Indebtedness	Interest Rate at June 30, 2013	Maturity Date	Principal Outstanding June 30, 2013			Principal Outstanding December 31, 2012
Global revolving credit facility	Various ⁽¹⁾	Nov. 3, 2015	$	610,328	⁽²⁾	$	723,729	⁽²⁾

Unsecured term loan	Various ⁽³⁾⁽⁹⁾	Apr. 16, 2017	$	741,178	⁽⁴⁾	$	757,839	⁽⁴⁾

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		608,520	⁽¹⁰⁾		—
Unamortized discounts				(15,530	)		(11,779	)

Total senior notes, net of discount				2,167,990			1,563,221

Total unsecured senior notes, net of discount				2,342,990			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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)


Indebtedness	Interest Rate at June 30, 2013	Maturity Date	Principal Outstanding June 30, 2013			Principal Outstanding December 31, 2012

Mortgage loans:
Secured Term Debt ⁽⁶⁾⁽⁷⁾	5.65%	Nov. 11, 2014		134,490			135,991
200 Paul Avenue 1-4 ⁽⁷⁾	5.74%	Oct. 8, 2015		71,688			72,646
Mundells Roundabout	3-month GBP LIBOR + 1.20%⁽⁹⁾	Nov. 30, 2013		65,150	⁽¹⁰⁾		69,612	⁽¹⁰⁾
2045 & 2055 LaFayette Street ⁽⁷⁾	5.93%	Feb. 6, 2017		64,124			64,621
34551 Ardenwood Boulevard 1-4 ⁽⁷⁾	5.95%	Nov. 11, 2016		52,535			52,916
1100 Space Park Drive ⁽⁷⁾	5.89%	Dec. 11, 2016		52,504			52,889
600 West Seventh Street	5.80%	Mar. 15, 2016		50,373			51,174
150 South First Street ⁽⁷⁾	6.30%	Feb. 6, 2017		50,465			50,830
360 Spear Street ⁽⁷⁾	6.32%	Nov. 8, 2013		46,103			46,613
Clonshaugh Industrial Estate II ⁽⁸⁾	3-month EURIBOR + 4.50%	Sep. 4, 2014		—	⁽¹³⁾		39,579	⁽¹¹⁾
2334 Lundy Place ⁽⁷⁾	5.96%	Nov. 11, 2016		38,209			38,486
1500 Space Park Drive ^(7)(14)	6.15%	Oct. 5, 2013		34,528			35,682
Cressex 1 ⁽¹²⁾	5.68%	Oct. 16, 2014		26,496	⁽¹⁰⁾		28,560	⁽¹⁰⁾
Paul van Vlissingenstraat 16 ⁽¹⁴⁾	3-month EURIBOR + 1.60%⁽⁹⁾	Jul. 18, 2013		13,041	⁽¹¹⁾		13,336	⁽¹¹⁾
Chemin de l’Epinglier 2 ⁽¹⁴⁾	3-month EURIBOR + 1.50%⁽⁹⁾	Jul. 18, 2013		9,436	⁽¹¹⁾		9,649	⁽¹¹⁾
Gyroscoopweg 2E-2F	3-month EURIBOR + 1.50%⁽⁹⁾	Oct. 18, 2013		8,305	⁽¹¹⁾		8,492	⁽¹¹⁾
Manchester Technopark⁽¹²⁾	5.68%	Oct. 16, 2014		8,060	⁽¹⁰⁾		8,688	⁽¹⁰⁾
8025 North Interstate 35	4.09%	Mar. 6, 2016		6,439			6,561
731 East Trade Street	8.22%	Jul. 1, 2020		4,351			4,509
Unamortized net premiums				1,055			1,542

Total mortgage loans, net of premiums				737,352			792,376

Total indebtedness			$	4,698,248		$	4,278,565

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of June 30, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	320,000			1.45	%	$	49,000			2.05	%
British pound sterling (£)		—			—			433,195	(b)		1.75	%
Euro (€)		102,779	(a)		1.41	%		87,074	(b)		1.36	%
Singapore dollar (SGD)		29,971	(a)		1.56	%		26,191	(b)		1.56	%
Australian dollar (AUD)		109,724	(a)		4.10	%		93,754	(b)		4.42	%
Hong Kong dollar (HKD)		39,773	(a)		1.46	%		34,515	(b)		1.53	%
Canadian dollar (CAD)		8,081	(a)		2.38	%		—			—

Total	$	610,328			1.94	%	$	723,729			2.05	%

(a)

Based on exchange rates of $1.30 to €1.00, $0.79 to 1.00 SGD, $0.91 to 1.00 AUD, $0.13 to 1.00 HKD and $0.95 to 1.00 CAD as of June 30, 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 June 30, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of June 30, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	410,905			1.64	%	$	410,905			1.66	%
Singapore dollar (SGD)		149,460	(a)		1.70	%		155,098	(b)		1.77	%
British pound sterling (£)		85,345	(a)		1.94	%		91,191	(b)		1.94	%
Euro (€)		64,399	(a)		1.57	%		65,305	(b)		1.56	%
Australian dollar (AUD)		31,069	(a)		4.27	%		35,340	(b)		4.57	%

Total	$	741,178			1.79	%	$	757,839			1.84	%

(a)

Based on exchange rates of $0.79 to 1.00 SGD, $1.52 to £1.00, $1.30 to €1.00 and $0.91 to 1.00 AUD as of June 30, 2013.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30, 2013 and $1.63 to £1.00 as of December 31, 2012.

(11)	Based on exchange rate of $1.30 to €1.00 as of June 30, 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.

(13)	This loan was repaid in full in June 2013. Net loss from early extinguishment of debt related to writeoff of unamortized deferred loan costs on this loan amounted to $0.5 million for both the three and six months ended June 30, 2013.

(14)	These loans were repaid in full in July 2013.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30, 2013, borrowings under the global revolving credit facility bore interest at a blended rate of 1.94% comprised of 1.45% (U.S. dollars), 1.41% (Euros), 1.56% (Singapore dollars), 4.10% (Australian dollars), 1.46% (Hong Kong dollars) and 2.38% (Canadian dollars), respectively. The interest rates 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 June 30, 2013, we have capitalized approximately $11.2 million of financing costs related to the global revolving credit facility. As of June 30, 2013, approximately $610.3 million was drawn under this facility and $35.4 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 June 30, 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 June 30, 2013, the balance outstanding is approximately $741.2 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 and, as of June 30, 2013, we were in compliance with all of such covenants. As of June 30, 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

Senior Notes

4.250% Notes due 2025

On January 18, 2013, Digital Stout Holding, LLC, a wholly-owned subsidiary of the Operating Partnership, 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 June 30, 2013, we were in compliance with all of such covenants.

The table below summarizes our debt maturities and principal payments as of June 30, 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	$	—		$	—	$	182,400	$	215,400
2014		—		—		—		—			266,400		175,660		442,060
2015		610,328		—		67,000		375,000			—		75,493		1,127,821
2016		—		—		25,000		—			—		191,979		216,979
2017		—		741,178		50,000		—			—		108,395		899,573
Thereafter		—		—		—		1,808,520			—		2,370		1,810,890

Subtotal	$	610,328	$	741,178	$	175,000	$	2,183,520		$	266,400	$	736,297	$	4,712,723
Unamortized discount		—		—		—		(15,530	)		—		—		(15,530	)
Unamortized premium		—		—		—		—			—		1,055		1,055

Total	$	610,328	$	741,178	$	175,000	$	2,167,990		$	266,400	$	737,352	$	4,698,248

(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 June 30, 2013, we provided partial letter of credit support with respect to approximately $34.6 million of the outstanding mortgage indebtedness (based on exchange rates as of June 30, 2013).

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Net income available to common stockholders	$	47,077	$	42,021	$	89,734	$	81,232

Weighted average shares outstanding—basic		128,419,745		109,761,017		127,437,970		108,430,437
Potentially dilutive common shares:
Stock options		68,146		195,635		69,304		193,775
Class C Units (2007 Grant)		—		1,334		—		—
Unvested incentive units		135,185		208,096		120,222		185,362

Weighted average shares outstanding—diluted		128,623,076		110,166,082		127,627,496		108,809,574

Income per share:
Basic	$	0.37	$	0.38	$	0.70	$	0.75

Diluted	$	0.37	$	0.38	$	0.70	$	0.75

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Weighted average of Operating Partnership common units not owned by Digital Realty Trust, Inc.		2,556,095		4,339,481		2,499,738		4,336,223
Potentially dilutive 2029 Debentures		6,609,993		6,456,471		6,600,286		6,449,278
Potentially dilutive Series C Cumulative Convertible Preferred Stock		—		489,298		—		1,637,072
Potentially dilutive Series D Cumulative Convertible Preferred Stock		—		4,374,117		949,299		4,355,773
Potentially dilutive Series E Cumulative Redeemable Preferred Stock		4,929,167		3,959,975		4,655,435		3,992,679
Potentially dilutive Series F Cumulative Redeemable Preferred Stock		3,126,066		2,509,588		2,952,466		1,185,849
Potentially dilutive Series G Cumulative Redeemable Preferred Stock		3,893,598		—		1,957,555		—

		21,114,919		22,128,930		19,614,779		21,956,874

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Net income available to common unitholders	$	48,013	$	43,682	$	91,494	$	84,479

Weighted average units outstanding—basic		130,973,952		114,100,498		129,936,759		112,766,660
Potentially dilutive common units:
Stock options		68,146		195,635		69,304		193,775
Class C Units (2007 Grant)		—		1,334		—		—
Unvested incentive units		135,185		208,096		120,222		185,362

Weighted average units outstanding—diluted		131,177,283		114,505,563		130,126,285		113,145,797

Income per unit:
Basic	$	0.37	$	0.38	$	0.70	$	0.75

Diluted	$	0.37	$	0.38	$	0.70	$	0.75

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Potentially dilutive 2029 Debentures		6,609,993		6,456,471		6,600,286		6,449,278
Potentially dilutive Series C Cumulative Convertible Preferred Units		—		489,298		—		1,637,072
Potentially dilutive Series D Cumulative Convertible Preferred Units		—		4,374,117		949,299		4,355,773
Potentially dilutive Series E Cumulative Redeemable Preferred Units		4,929,167		3,959,975		4,655,435		3,992,679
Potentially dilutive Series F Cumulative Redeemable Preferred Units		3,126,066		2,509,588		2,952,466		1,185,849
Potentially dilutive Series G Cumulative Redeemable Preferred Units		3,893,598		—		1,957,555		—

		18,558,824		17,789,449		17,115,041		17,620,651

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

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 and six months ended June 30, 2013 and 2012.

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 and six months ended June 30, 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 and six months ended June 30, 2013 and 2012. As of June 30, 2013, we had a net deferred tax liability of approximately $115.2 million primarily related to our foreign properties, comprised of a $75.3 million deferred tax asset, net of a $190.5 million deferred tax liability. The majority of our net deferred tax liability relates to differences between the tax basis 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 six months ended June 30, 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 six months ended June 30, 2013. As of June 30, 2013, shares of common stock having an aggregate offering price of $53.8 million remained available for offer and sale under the program.

(b) Redeemable Preferred Stock

On April 9, 2013, Digital Realty Trust, Inc. issued an aggregate of 10,000,000 shares of its 5.875% series G cumulative redeemable preferred stock, or the series G preferred stock, for gross proceeds of $250.0 million. Dividends are cumulative on the series G preferred stock from the date of original issuance in the amount of $1.46875 per share each year, which is equivalent to 5.875% of the $25.00 liquidation preference per share. Dividends on the series G preferred stock are payable quarterly in arrears. The first dividend paid on the series G preferred stock on June 28, 2013 was a pro rata dividend from and including the original issue date to and including June 30, 2013 in the amount of $0.334550 per share. The series G preferred stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the series G preferred stock will rank senior to Digital Realty Trust, Inc. common stock and rank on parity with Digital Realty Trust, Inc.’s series E cumulative redeemable and series F cumulative redeemable preferred stock with respect to the payment of distributions and other amounts. Digital Realty Trust, Inc. is not allowed to redeem the series G preferred stock before April 9, 2018, except in limited circumstances to preserve its status as a REIT. On or after April 9, 2018, Digital Realty Trust, Inc. may, at its option, redeem the series G preferred stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

accrued and unpaid dividends on such series G preferred stock up to but excluding the redemption date. Holders of the series G preferred stock generally have no voting rights except for limited voting rights if Digital Realty Trust, Inc. fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. Upon the occurrence of specified changes of control, as a result of which neither Digital Realty Trust, Inc.’s common stock nor the common securities of the acquiring or surviving entity (or American Depositary Receipts representing such securities) is listed on the New York Stock Exchange, or NYSE, the NYSE MKT, LLC, or NYSE MKT, or the NASDAQ Stock Market or listed or quoted on a successor exchange or quotation system, each holder of series G preferred stock will have the right (unless, prior to the change of control conversion date specified in the Articles Supplementary governing the series G preferred stock, Digital Realty Trust, Inc. has provided or provides notice of its election to redeem the series G preferred stock) to convert some or all of the series G preferred stock held by it into a number of shares of Digital Realty Trust, Inc.’s common stock per share of series G preferred stock to be converted equal to the lesser of:

•

the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends to, but not including, the change of control conversion date (unless the change of control conversion date is after a record date for a series G preferred stock dividend payment and prior to the corresponding series G preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the common stock price specified in the Articles Supplementary governing the series G preferred stock; and

•

0.7532, or the share cap, subject to certain adjustments;

subject, in each case, to provisions for the receipt of alternative consideration as described in the Articles Supplementary governing the series G preferred stock. Except in connection with specified change of control transactions, the series G preferred stock is not convertible into or exchangeable for any other property or securities of Digital Realty Trust, Inc.

(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 June 30, 2013 and December 31, 2012:


	June 30, 2013					December 31, 2012
	Number of units		Percentage of total			Number of units		Percentage of total
Digital Realty Trust, Inc.		128,421,888		97.7	%		125,140,783		97.8	%
Noncontrolling interests consist of:
Common units held by third parties		1,505,814		1.2			1,515,814		1.2
Incentive units held by employees and directors (see note 12)		1,491,056		1.1			1,335,586		1.0

		131,418,758		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 $155.9 million and $161.5 million based on the closing market price of Digital Realty Trust, Inc. common stock on June 30, 2013 and December 31, 2012, respectively.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

The following table shows activity for the noncontrolling interests in the Operating Partnership for the six months ended June 30, 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)		(10,000	)		—			(10,000	)
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock (1)		—			(17,289	)		(17,289	)
Cancellation of incentive units held by employees and directors		—			(19,483	)		(19,483	)
Grant of incentive units to employees and directors		—			192,242			192,242

As of June 30, 2013		1,505,814			1,491,056			2,996,870

(1)	This redemption was recorded as a reduction to noncontrolling interests in the Operating Partnership and an increase to common stock and additional paid in capital based on the book value per unit in the accompanying condensed consolidated balance sheet of Digital Realty Trust, Inc.

Under the terms of certain third parties’ (the eXchange parties) contribution agreements signed in the third quarter of 2004, we have agreed to indemnify each eXchange party against adverse tax consequences in the event the Operating Partnership directly or indirectly sells, exchanges or otherwise disposes of (whether by way of merger, sale of assets or otherwise) in a taxable transaction any interest in 200 Paul Avenue 1-4 or 1100 Space Park Drive until the earlier of November 3, 2013 or 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

(d) Dividends

We have declared and paid the following dividends on our common and preferred stock for the six months ended June 30, 2013 (in thousands):


Date dividend declared	Dividend payable date	Series E Preferred Stock ⁽¹⁾		Series F Preferred Stock ⁽²⁾		Series G Preferred Stock ⁽³⁾			Common Stock ⁽⁴⁾
February 12, 2013	March 29, 2013	$	5,031	$	3,023	$	—		$	100,165
May 1, 2013	June 28, 2013		5,031		3,023		3,345	⁽⁵⁾		100,169

		$	10,062	$	6,046	$	3,345		$	200,334

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

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

(3)	$1.469 annual rate of dividend per share.

(4)	$3.120 annual rate of dividend per share.

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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 on an annual basis, 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		(61,566	)		6,372			(55,194	)
Reclassification to interest expense from interest rate swaps		—			3,375			3,375

Balance as of June 30, 2013	$	(64,142	)	$	132		$	(64,010	)

11. Capital and Accumulated Other Comprehensive Loss

(a) Redeemable Preferred Units

On April 9, 2013, the Operating Partnership issued a total of 10,000,000 of its 5.875% series G cumulative redeemable preferred units, or series G preferred units, to Digital Realty Trust, Inc. (the General Partner) in conjunction with the General Partner’s issuance of an equivalent number of shares of its 5.875% series G cumulative redeemable preferred stock, or the series G preferred stock. Distributions are cumulative on the series G preferred units from the date of original issuance in the amount of $1.46875 per unit each year, which is equivalent to 5.875% of the $25.00 liquidation preference per unit. Distributions on the series G preferred units are payable quarterly in arrears. The first distribution paid on the series G preferred units on June 28, 2013 was a pro rata distribution from and including the original issue date to and including June 30, 2013 in the amount of $0.334550 per unit. The series G preferred units do not have a stated maturity date and are not subject to any sinking fund. The Operating Partnership is required to redeem the series G preferred units in the event that the General Partner redeems the series G preferred stock. The General Partner is not allowed to redeem the series G preferred stock prior to April 9, 2018 except in limited circumstances to preserve the General Partner’s status as a REIT. On or after April 9, 2018, the General Partner may, at its option, redeem the series G preferred stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such series G preferred stock up to but excluding the redemption date. Upon liquidation, dissolution or winding up, the series G preferred units will rank senior to the Operating Partnership’s common units with respect to the payment of distributions and other amounts and rank on parity with the Operating Partnership’s series E cumulative redeemable preferred units and series F cumulative redeemable preferred units. Except in connection with specified change of control transactions of the General Partner, the series G preferred units are not convertible into or exchangeable for any other property or securities of the Operating Partnership.

(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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2013 and 2012

(unaudited)

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 $155.9 million and $161.5 million based on the closing market price of Digital Realty Trust, Inc.’s common stock on June 30, 2013 and December 31, 2012, respectively.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 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 six months ended June 30, 2013 (in thousands):


Date distribution declared	Distribution payable date	Series E Preferred Units ⁽¹⁾		Series F Preferred Units ⁽²⁾		Series G Preferred Units ⁽³⁾			Common Units ⁽⁴⁾
February 12, 2013	March 29, 2013	$	5,031	$	3,023	$	—		$	102,506
May 1, 2013	June 28, 2013		5,031		3,023		3,345	⁽⁵⁾		102,507

		$	10,062	$	6,046

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company