Edgar Filing: Digital Realty Trust, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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 October 31, 2013
Common Stock, $.01 par value per share		128,437,294

EXPLANATORY NOTE

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

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

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

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

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

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

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

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

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

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

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 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		52

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		81

ITEM 4.	Controls and Procedures (Digital Realty Trust, Inc.)		83

	Controls and Procedures (Digital Realty Trust, L.P.)		83

PART II.	OTHER INFORMATION		84

ITEM 1.	Legal Proceedings		84

ITEM 1A.	Risk Factors		84

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		84

ITEM 3.	Defaults Upon Senior Securities		84

ITEM 4.	Mine Safety Disclosures		84

ITEM 5.	Other Information		84

ITEM 6.	Exhibits		85

	Signatures		86

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	684,644		$	661,058
Acquired ground leases		14,355			13,658
Buildings and improvements		8,357,786			7,662,973
Tenant improvements		466,616			404,830

Total investments in properties		9,523,401			8,742,519
Accumulated depreciation and amortization		(1,459,055	)		(1,206,017	)

Net investments in properties		8,064,346			7,536,502
Land held for sale		11,015			—
Investment in unconsolidated joint ventures		53,066			66,634

Net investments in real estate		8,128,427			7,603,136
Cash and cash equivalents		55,118			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $5,269 and $3,609 as of September 30, 2013 and December 31, 2012, respectively		191,715			168,286
Deferred rent		369,979			321,715
Acquired above market leases, net		54,446			65,055
Acquired in place lease value and deferred leasing costs, net		484,445			495,205
Deferred financing costs, net		39,132			30,621
Restricted cash		42,457			44,050
Other assets		60,322			34,865

Total assets	$	9,426,041		$	8,819,214

LIABILITIES AND EQUITY
Global revolving credit facility	$	498,082		$	723,729
Unsecured term loan		950,205			757,839
Unsecured senior notes, net of discount		2,382,059			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		683,651			792,376
Accounts payable and other accrued liabilities		652,720			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		133,625			148,233
Security deposits and prepaid rents		178,730			154,171

Total liabilities		5,745,472			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 September 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 September 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 September 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 September 30, 2013 and December 31, 2012, respectively		241,511			—
Common Stock: $0.01 par value, 215,000,000 shares authorized, 128,438,970 and 125,140,783 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively		1,279			1,247
Additional paid-in capital		3,685,668			3,562,642
Accumulated dividends in excess of earnings		(728,012	)		(656,104	)
Accumulated other comprehensive loss, net		(10,327	)		(12,191	)

Total stockholders’ equity		3,643,482			3,468,305

Noncontrolling Interests:
Noncontrolling interests in operating partnership		30,264			24,135
Noncontrolling interests in consolidated joint ventures		6,823			5,944

Total noncontrolling interests		37,087			30,079

Total equity		3,680,569			3,498,384

Total liabilities and equity	$	9,426,041		$	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 September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Operating Revenues:
Rental	$	290,712		$	260,052		$	858,064		$	717,809
Tenant reimbursements		88,059			78,878			240,657			197,162
Construction management		671			2,497			2,205			6,903
Other		14			1,052			402			7,457

Total operating revenues		379,456			342,479			1,101,328			929,331

Operating Expenses:
Rental property operating		128,291			106,660			341,407			274,081
Property taxes		26,074			17,982			66,490			49,793
Insurance		2,144			2,463			6,587			6,953
Construction management		51			623			729			1,412
Depreciation and amortization		121,198			101,840			348,688			274,835
General and administrative		16,275			14,409			50,117			43,768
Transactions		243			504			3,497			5,789
Other		3			923			56			1,260

Total operating expenses		294,279			245,404			817,571			657,891

Operating income		85,177			97,075			283,757			271,440

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,174			1,520			6,839			6,402
Gain on insurance settlement		—			—			5,597			—
Gain on contribution of investment properties to unconsolidated joint venture		115,054			—			115,054			—
Interest and other income		(127	)		83			(92	)		2,008
Interest expense		(47,742	)		(41,047	)		(143,403	)		(116,758	)
Tax expense		(352	)		(710	)		(1,765	)		(2,637	)
Loss from early extinguishment of debt		(704	)		—			(1,205	)		(303	)

Net income		153,480			56,921			264,782			160,152
Net income attributable to noncontrolling interests		(2,882	)		(1,529	)		(4,997	)		(4,384	)

Net income attributable to Digital Realty Trust, Inc.		150,598			55,392			259,785			155,768
Preferred stock dividends		(11,726	)		(9,777	)		(31,179	)		(28,921	)

Net income available to common stockholders	$	138,872		$	45,615		$	228,606		$	126,847

Net income per share available to common stockholders:
Basic	$	1.08		$	0.37		$	1.79		$	1.12
Diluted	$	1.06		$	0.37		$	1.79		$	1.12

Weighted average common shares outstanding:
Basic		128,427,444			122,026,421			127,771,419			112,995,512
Diluted		135,301,765			122,353,511			127,955,769			113,275,221

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income	$	153,480		$	56,921		$	264,782		$	160,152

Other comprehensive income (loss):
Foreign currency translation adjustments		56,565			34,985			(6,190	)		36,286
Increase (decrease) in fair value of interest rate swaps		(3,324	)		(3,906	)		3,175			(6,794	)
Reclassification to interest expense from interest rate swaps		1,508			1,174			4,949			2,964


Comprehensive income		208,229			89,174			266,716			192,608

Comprehensive income attributable to noncontrolling interests		(3,948	)		(2,605	)		(5,067	)		(5,484	)

Comprehensive income attributable to Digital Realty Trust, Inc.	$	204,281		$	86,569		$	261,649		$	187,124

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(unaudited, in thousands, except share data)


	Preferred Stock			Number of Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Dividends in Excess of Earnings			Accumulated Other Comprehensive Loss, net			Total Stockholders’ Equity			Noncontrolling Interests in Operating Partnership			Noncontrolling Interests in Consolidated Joint Ventures		Total Noncontrolling Interests			Total Equity
Balance as of December 31, 2012	$	572,711			125,140,783	$	1,247	$	3,562,642		$	(656,104	)	$	(12,191	)	$	3,468,305		$	24,135		$	5,944	$	30,079		$	3,498,384
Conversion of units to common stock		—			42,128		1		451			—			—			452			(452	)		—		(452	)		—
Issuance of unvested restricted stock, net of forfeitures		—			110,875		—		—			—			—			—			—			—		—			—
Common stock offering costs		—			—		—		(553	)		—			—			(553	)		—			—		—			(553	)
Exercise of stock options		—			5,569		—		230			—			—			230			—			—		—			230
Issuance of series G preferred stock, net of offering costs		241,511			—		—		—			—			—			241,511			—			—		—			241,511
Conversion of series D preferred stock		(119,348	)		3,139,615		31		119,317			—			—			—			—			—		—			—
Amortization of unearned compensation regarding share based awards		—			—		—		12,580			—			—			12,580			—			—		—			12,580
Reclassification of vested share based awards		—			—		—		(8,999	)		—			—			(8,999	)		8,999			—		8,999			—
Dividends declared on preferred stock		—			—		—		—			(31,179	)		—			(31,179	)		—			—		—			(31,179	)
Dividends and distributions on common stock and common and incentive units		—			—		—		—			(300,514	)		—			(300,514	)		(7,005	)		—		(7,005	)		(307,519	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—		—		—			—			—			—			—			399		399			399
Net income		—			—		—		—			259,785			—			259,785			4,517			480		4,997			264,782
Other comprehensive income—foreign currency translation adjustments		—			—		—		—			—			(6,102	)		(6,102	)		(88	)		—		(88	)		(6,190	)
Other comprehensive income—fair value of interest rate swaps		—			—		—		—			—			3,112			3,112			63			—		63			3,175
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—		—		—			—			4,854			4,854			95			—		95			4,949

Balance as of September 30, 2013	$	694,874			128,438,970	$	1,279	$	3,685,668		$	(728,012	)	$	(10,327	)	$	3,643,482		$	30,264		$	6,823	$	37,087		$	3,680,569

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:

Net income	$	264,782		$	160,152
Adjustments to reconcile net income to net cash provided by operating activities:

Gain on insurance settlement		(5,597	)		—
Gain on contribution of investment properties to unconsolidated joint venture		(115,054	)		—
Equity in earnings of unconsolidated joint ventures		(6,839	)		(6,402	)
Change in fair value of accrued contingent consideration		(13	)		—
Distributions from unconsolidated joint ventures		27,675			18,573
Write-off of net assets due to early lease terminations		56			1,260
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		291,707			226,739
Amortization of share-based unearned compensation		9,344			9,922
Allowance for (recovery of ) doubtful accounts		1,660			(74	)
Amortization of deferred financing costs		7,733			6,341
Write-off of deferred financing costs, included in loss on early extinguishment of debt		1,205			254
Amortization of debt discount/premium		530			748
Amortization of acquired in place lease value and deferred leasing costs		56,981			48,096
Amortization of acquired above market leases and acquired below market leases		(8,831	)		(7,443	)
Changes in assets and liabilities:
Restricted cash		2,487			6,866
Accounts and other receivables		(11,601	)		(52,851	)
Deferred rent		(60,802	)		(55,772	)
Deferred leasing costs		(16,604	)		(13,206	)
Other assets		(9,355	)		(13,107	)
Accounts payable and other accrued liabilities		13,304			(7,194	)
Security deposits and prepaid rents		11,312			33,634

Net cash provided by operating activities		454,080			356,536

Cash flows from investing activities:

Acquisitions of real estate		(154,801	)		(1,451,598	)
Proceeds from contribution of investment properties to unconsolidated joint venture		328,569			—
Investment in unconsolidated joint ventures		(7,297	)		(37,069	)
Investment in equity securities		(17,100	)		—
Deposits paid for acquisitions of real estate		(2,250	)		(500	)
Receipt of value added tax refund		8,326			15,272
Refundable value added tax paid		(11,805	)		(17,611	)
Change in restricted cash		(1,292	)		3,227
Improvements to and advances for investments in real estate		(882,346	)		(596,644	)
Improvement advances to tenants		(5,108	)		(2,384	)
Proceeds from insurance settlement		8,625			—
Collection of advances from tenants for improvements		3,978			2,379

Net cash used in investing activities		(732,501	)		(2,084,928	)

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited, in thousands)


	Nine Months Ended September 30,
	2013			2012
Cash flows from financing activities:

Borrowings on revolving credit facility	$	1,292,146		$	1,500,520
Repayments on revolving credit facility		(1,497,317	)		(1,271,528	)
Borrowings on unsecured term loan		195,335			751,985
Borrowings on 3.625% unsecured senior notes due 2022		—			296,052
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Repayments on other secured loans		—			(10,500	)
Principal payments on mortgage loans		(109,661	)		(162,548	)
Earnout payment related to Sentrum acquisition		(25,783	)		—
Change in restricted cash		498			2,011
Payment of loan fees and costs		(17,441	)		(8,859	)
Capital contributions received from noncontrolling interests in consolidated joint ventures		399			2,323
Gross proceeds from the issuance of common stock		—			894,221
Gross proceeds from the issuance of preferred stock		250,000			182,500
Common stock offering costs paid		(553	)		(34,310	)
Preferred stock offering costs paid		(8,489	)		(6,429	)
Proceeds from exercise of stock options		230			4,173
Payment of dividends to preferred stockholders		(31,179	)		(28,921	)
Payment of dividends to common stockholders and distributions to noncontrolling interests in operating partnership		(400,953	)		(334,430	)
Purchase of noncontrolling interests in consolidated joint ventures		—			(12,384	)

Net cash provided by financing activities		277,258			1,763,876

Net (decrease) increase in cash and cash equivalents		(1,163	)		35,484
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	55,118		$	76,115


Supplemental disclosure of cash flow information:

Cash paid for interest, including amounts capitalized	$	159,746		$	135,840
Cash paid for income taxes		1,947			2,045

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(6,190	)	$	36,286
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		3,175			(6,794	)
Acquisition measurement period adjustment included in accounts payable and other accrued liabilities		21,893			—
Noncontrolling interests in operating partnership redeemed for or converted to shares of common stock		452			4,898
Preferred stock converted to shares of common stock		119,348			169,239
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		224,902			240,310
Additional accrual of contingent purchase price for investments in real estate		6,214			87,532
Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate	$	143,033		$	1,336,127
Acquired above market leases		203			44,402
Acquired below market leases		(4,136	)		(80,604	)
Acquired in place lease value and deferred leasing costs		15,701			158,563
Mortgage loan assumed, net of premium		—			(6,890	)

Cash paid for acquisition of real estate	$	154,801		$	1,451,598

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit and per unit data)


	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Investments in real estate:
Properties:
Land	$	684,644		$	661,058
Acquired ground leases		14,355			13,658
Buildings and improvements		8,357,786			7,662,973
Tenant improvements		466,616			404,830

Total investments in properties		9,523,401			8,742,519
Accumulated depreciation and amortization		(1,459,055	)		(1,206,017	)

Net investments in properties		8,064,346			7,536,502
Land held for sale		11,015			—
Investment in unconsolidated joint ventures		53,066			66,634

Net investments in real estate		8,128,427			7,603,136
Cash and cash equivalents		55,118			56,281
Accounts and other receivables, net of allowance for doubtful accounts of $5,269 and $3,609 as of September 30, 2013 and December 31, 2012, respectively		191,715			168,286
Deferred rent		369,979			321,715
Acquired above market leases, net		54,446			65,055
Acquired in place lease value and deferred leasing costs, net		484,445			495,205
Deferred financing costs, net		39,132			30,621
Restricted cash		42,457			44,050
Other assets		60,322			34,865

Total assets	$	9,426,041		$	8,819,214

LIABILITIES AND CAPITAL
Global revolving credit facility	$	498,082		$	723,729
Unsecured term loan		950,205			757,839
Unsecured senior notes, net of discount		2,382,059			1,738,221
Exchangeable senior debentures		266,400			266,400
Mortgage loans, net of premiums		683,651			792,376
Accounts payable and other accrued liabilities		652,720			646,427
Accrued dividends and distributions		—			93,434
Acquired below market leases, net		133,625			148,233
Security deposits and prepaid rents		178,730			154,171

Total liabilities		5,745,472			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 September 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 September 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 September 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 September 30, 2013 and December 31, 2012, respectively		241,511			—
Common units:
128,438,970 and 125,140,783 units issued and outstanding as of September 30, 2013 and December 31, 2012, respectively		2,958,935			2,907,785
Limited partners, 1,500,814 and 1,515,814 common units, 1,083,848 and 937,208 profits interest units and 397,369 and 398,378 class C units outstanding as of September 30, 2013 and December 31, 2012, respectively		32,913			26,854
Accumulated other comprehensive loss		(12,976	)		(14,910	)

Total partners’ capital		3,673,746			3,492,440

Noncontrolling interests in consolidated joint ventures		6,823			5,944

Total capital		3,680,569			3,498,384

Total liabilities and capital	$	9,426,041		$	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 September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Operating Revenues:
Rental	$	290,712		$	260,052		$	858,064		$	717,809
Tenant reimbursements		88,059			78,878			240,657			197,162
Construction management		671			2,497			2,205			6,903
Other		14			1,052			402			7,457

Total operating revenues		379,456			342,479			1,101,328			929,331

Operating Expenses:
Rental property operating		128,291			106,660			341,407			274,081
Property taxes		26,074			17,982			66,490			49,793
Insurance		2,144			2,463			6,587			6,953
Construction management		51			623			729			1,412
Depreciation and amortization		121,198			101,840			348,688			274,835
General and administrative		16,275			14,409			50,117			43,768
Transactions		243			504			3,497			5,789
Other		3			923			56			1,260

Total operating expenses		294,279			245,404			817,571			657,891

Operating income		85,177			97,075			283,757			271,440

Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		2,174			1,520			6,839			6,402
Gain on insurance settlement		—			—			5,597			—
Gain on contribution of investment properties to unconsolidated joint venture		115,054			—			115,054			—
Interest and other income		(127	)		83			(92	)		2,008
Interest expense		(47,742	)		(41,047	)		(143,403	)		(116,758	)
Tax expense		(352	)		(710	)		(1,765	)		(2,637	)
Loss from early extinguishment of debt		(704	)		—			(1,205	)		(303	)

Net income		153,480			56,921			264,782			160,152
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures		(125	)		45			(480	)		437

Net income attributable to Digital Realty Trust, L.P.		153,355			56,966			264,302			160,589
Preferred units distributions		(11,726	)		(9,777	)		(31,179	)		(28,921	)

Net income available to common unitholders	$	141,629		$	47,189		$	233,123		$	131,668

Net income per unit available to common unitholders:
Basic	$	1.08		$	0.37		$	1.79		$	1.12
Diluted	$	1.03		$	0.37		$	1.79		$	1.12

Weighted average common units outstanding:
Basic		130,977,193			126,242,751			130,287,383			117,291,480
Diluted		137,851,514			126,569,841			130,471,733			117,571,189

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income	$	153,480		$	56,921		$	264,782		$	160,152
Other comprehensive income (loss):
Foreign currency translation adjustments		56,565			34,985			(6,190	)		36,286
Increase (decrease) in fair value of interest rate swaps		(3,324	)		(3,906	)		3,175			(6,794	)
Reclassification to interest expense from interest rate swaps		1,508			1,174			4,949			2,964

Comprehensive income	$	208,229		$	89,174		$	266,716		$	192,608

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		—			—			42,128		452			(42,128	)		(452	)		—			—		—
Issuance of unvested restricted common units, net of forfeitures		—			—			110,875		—			—			—			—			—		—
Net proceeds from issuance of common units		—			—			—		(553	)		—			—			—			—		(553	)
Issuance of common units in connection with the exercise of stock options		—			—			5,569		230			—			—			—			—		230
Issuance of common units, net of forfeitures		—			—			—		—			172,759			—			—			—		—
Net proceeds from issuance of series G preferred units		10,000,000			241,511			—		—			—			—			—			—		241,511
Conversion of series D preferred units		(4,936,505	)		(119,348	)		3,139,615		119,348			—			—			—			—		—
Amortization of unearned compensation regarding share based awards		—			—			—		12,580			—			—			—			—		12,580
Reclassification of vested share based awards		—			—			—		(8,999	)		—			8,999			—			—		—
Distributions		—			(31,179	)		—		(300,514	)		—			(7,005	)		—			—		(338,698	)
Contributions from noncontrolling interests in consolidated joint ventures		—			—			—		—			—			—			—			399		399
Net income		—			31,179			—		228,606			—			4,517			—			480		264,782
Other comprehensive loss—foreign currency translation adjustments		—			—			—		—			—			—			(6,190	)		—		(6,190	)
Other comprehensive loss—fair value of interest rate swaps		—			—			—		—			—			—			3,175			—		3,175
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense		—			—			—		—			—			—			4,949			—		4,949

Balance as of September 30, 2013		28,800,000		$	694,874			128,438,970	$	2,958,935			2,982,031		$	32,913		$	(12,976	)	$	6,823	$	3,680,569

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:

Net income	$	264,782		$	160,152
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on insurance settlement		(5,597	)		—
Gain on contribution of investment properties to unconsolidated joint venture		(115,054	)		—

Equity in earnings of unconsolidated joint ventures		(6,839	)		(6,402	)
Change in fair value of accrued contingent consideration		(13	)		—
Distributions from unconsolidated joint ventures		27,675			18,573
Write-off of net assets due to early lease terminations		56			1,260
Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases		291,707			226,739
Amortization of share-based unearned compensation		9,344			9,922
Allowance for (recovery of ) doubtful accounts		1,660			(74	)
Amortization of deferred financing costs		7,733			6,341
Write-off of deferred financing costs, included in loss on early extinguishment of debt		1,205			254
Amortization of debt discount/premium		530			748
Amortization of acquired in place lease value and deferred leasing costs		56,981			48,096
Amortization of acquired above market leases and acquired below market leases		(8,831	)		(7,443	)
Changes in assets and liabilities:
Restricted cash		2,487			6,866
Accounts and other receivables		(11,601	)		(52,851	)
Deferred rent		(60,802	)		(55,772	)
Deferred leasing costs		(16,604	)		(13,206	)
Other assets		(9,355	)		(13,107	)
Accounts payable and other accrued liabilities		13,304			(7,194	)
Security deposits and prepaid rents		11,312			33,634

Net cash provided by operating activities		454,080			356,536

Cash flows from investing activities:

Acquisitions of real estate		(154,801	)		(1,451,598	)
Proceeds from contribution of investment properties to unconsolidated joint venture		328,569			—
Investment in unconsolidated joint ventures		(7,297	)		(37,069	)
Investment in equity securities		(17,100	)		—
Deposits paid for acquisitions of real estate		(2,250	)		(500	)
Receipt of value added tax refund		8,326			15,272
Refundable value added tax paid		(11,805	)		(17,611	)
Change in restricted cash		(1,292	)		3,227
Improvements to and advances for investments in real estate		(882,346	)		(596,644	)
Improvement advances to tenants		(5,108	)		(2,384	)
Proceeds from insurance settlement		8,625			—
Collection of advances from tenants for improvements		3,978			2,379

Net cash used in investing activities		(732,501	)		(2,084,928	)

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(unaudited, in thousands)


	Nine Months Ended September 30,
	2013			2012
Cash flows from financing activities:
Borrowings on revolving credit facility	$	1,292,146		$	1,500,520
Repayments on revolving credit facility		(1,497,317	)		(1,271,528	)
Borrowings on unsecured term loan		195,335			751,985
Borrowings on 3.625% unsecured senior notes due 2022		—			296,052
Borrowings on 4.250% unsecured senior notes due 2025		630,026			—
Repayments on other secured loans		—			(10,500	)
Principal payments on mortgage loans		(109,661	)		(162,548	)
Earnout payment related to Sentrum acquisition		(25,783	)		—
Change in restricted cash		498			2,011
Payment of loan fees and costs		(17,441	)		(8,859	)
Capital contributions received from noncontrolling interests in consolidated joint ventures		399			2,323
General partner contributions		241,188			1,040,155
Payment of distributions to preferred unitholders		(31,179	)		(28,921	)
Payment of distributions to common unitholders		(400,953	)		(334,430	)
Purchase of noncontrolling interests in consolidated joint ventures		—			(12,384	)

Net cash provided by financing activities		277,258			1,763,876

Net (decrease) increase in cash and cash equivalents		(1,163	)		35,484
Cash and cash equivalents at beginning of period		56,281			40,631

Cash and cash equivalents at end of period	$	55,118		$	76,115


Supplemental disclosure of cash flow information:

Cash paid for interest, including amounts capitalized	$	159,746		$	135,840
Cash paid for income taxes		1,947			2,045

Supplementary disclosure of noncash investing and financing activities:

Change in net assets related to foreign currency translation adjustments	$	(6,190	)	$	36,286
Increase in accounts payable and other accrued liabilities related to change in fair value of interest rate swaps		3,175			(6,794	)
Acquisition measurement period adjustment included in accounts payable and other accrued liabilities		21,893			—
Preferred units converted to common units		119,348			169,239
Accrual for additions to investments in real estate and tenant improvement advances included in accounts payable and accrued expenses		224,902			240,310
Additional accrual of contingent purchase price for investments in real estate		6,214			87,532

Allocation of purchase price of real estate/investment in partnership to:
Investments in real estate		143,033			1,336,127
Acquired above market leases		203			44,402
Acquired below market leases		(4,136	)		(80,604	)
Acquired in place lease value and deferred leasing costs		15,701			158,563
Mortgage loan assumed, net of premium		—			(6,890	)

Cash paid for acquisition of real estate	$	154,801		$	1,451,598

See accompanying notes to the condensed consolidated financial statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 financial services, cloud and information technology services, to manufacturing, energy, health care and consumer products. As of September 30, 2013, our portfolio consisted of 130 properties, including 12 properties held as investments in unconsolidated joint ventures and developable land, of which 103 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, Melbourne and Osaka 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 September 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)

September 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 September 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 13) 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)

September 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, the Company is subject to foreign, state and local income taxes in the jurisdictions in which it conducts business. The Company’s US 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 subsidiaries, certain states and non-U.S. jurisdictions, as appropriate.

We assess our significant tax positions in accordance with U.S. GAAP for all open tax years and determine whether we have any material unrecognized liabilities from uncertain tax benefits. If a tax position is not considered “more-likely-than-not” to be sustained solely on its technical merits, no benefits of the tax position are to be recognized (for financial statement purposes). As of September 30, 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 nine months ended September 30, 2013 and 2012, we had no such interest or penalties. The tax years 2010 through 2012 remain open to examination by the major taxing jurisdictions with which the Parent Company and its subsidiaries file tax returns.

See Note 10 for further discussion on income taxes.

(e) Presentation of Transactional-Based Taxes

We account for transactional-based taxes, such as value added tax, or VAT, for our international properties on a net basis.

(f) Asset Retirement Obligations

We record accruals for estimated retirement obligations as required by current accounting guidance. The amount of asset retirement obligations relates primarily to estimated asbestos removal costs at the end of the economic life of properties that were built before 1984. As of September 30, 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

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 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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

During the three months ended September 30, 2013 and 2012, we capitalized interest of approximately $6.9 million and $4.5 million, respectively, and $18.8 million and $13.6 million during the nine months ended September 30, 2013 and 2012, respectively. During the three months ended September 30, 2013 and 2012, we capitalized amounts relating to compensation expense of employees direct and incremental to construction and successful leasing activities of approximately $9.7 million and $8.0 million, respectively, and $29.4 million and $23.3 million during the nine months ended September 30, 2013 and 2012, respectively. Cash flows from capitalized leasing costs of $36.4 million and $26.5 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 nine months ended September 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 $294.1 million and $270.2 million and outside the United States were $85.4 million and $72.3 million for the three months ended September 30, 2013 and 2012, respectively. Operating revenues from properties in the United States were $845.0 million and $778.3 million and outside the United States were $256.3 million and $151.0 million for the nine months ended September 30, 2013 and 2012, respectively. We had long-lived assets located in the United States of $5.4 billion and $5.0 billion and outside the United States of $2.6 billion and $2.5 billion as of September 30, 2013 and December 31, 2012, respectively.

Operating revenues from properties located in England were $48.0 million and $43.1 million, or 12.7% and 12.6% of total operating revenues, for the three months ended September 30, 2013 and 2012, respectively. Operating revenues from properties located in England were $144.0 million and $67.9 million, or 13.1% and 7.3% of total operating revenues, for the nine months ended September 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 $1.7 billion and $1.7 billion, or 21.2% and 22.3% of total long-lived assets, as of September 30, 2013 and December 31, 2012, respectively. No other foreign country comprised more than 10% of total long-lived assets as of September 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)

September 30, 2013 and 2012

(unaudited)

(n) Leasehold Interest Adjustment

During the three months ended September 30, 2013, a $10.0 million non-cash straight-line rent expense adjustment related to the Company’s leasehold interest at 111 8th Avenue in New York was recorded. In September 2010, the Company executed an extension and modification of this leasehold interest, which had been previously scheduled to expire in June 2014, and extended the expiration of the leasehold for another 10 years to June 2024. The Company determined that it should have adjusted the straight-line rent expense recorded on this leasehold interest when the modification was executed in September 2010. The $10.0 million adjustment recorded during the third quarter of 2013 represents a catch-up of the non-cash straight-line rent expense that should have been recorded from the fourth quarter of 2010 through the third quarter of 2013 at a run-rate of approximately $830,000 per quarter. The cumulative effect of the adjustment was deemed to be immaterial to the consolidated financial statements in the current period and the effect in the prior periods was deemed to be immaterial to the prior years impacted.

3. Investments in Real Estate

We acquired the following real estate properties during the nine months ended September 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⁾⁽⁵⁾	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
Saito Industrial Park ⁽²⁾	Osaka, Japan	August 9, 2013		9.6
Principal Park ⁽²⁾⁽⁵⁾	London, England	September 23, 2013		19.3
De President, Hoofddorp⁽²⁾	Amsterdam, Netherlands	September 24, 2013		6.7

			$	152.9

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

(2)	Represents currently 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. We paid an additional $2.6 million in October 2013 upon completion of construction by the tenant, with a final payment of $1.3 million expected to be paid in November 2013.

(5)	Portions of each land parcel were sold or are to be sold during the three months ended December 31, 2013. The cost basis of the land held for sale was approximately $11.0 million and is disclosed separately on the condensed consolidated balance sheet.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

The table below reflects the purchase price allocation for the properties acquired during the nine months ended September 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
Saito Industrial Park		9,649		—		—		—			9,649
Principal Park		19,253		—		—		—			19,253
De President, Hoofddorp		6,737		—		—		—			6,737

Total	$	141,160	$	203	$	15,701	$	(4,136	)	$	152,928

Weighted average remaining intangible amortization life (in months)				35		98		96

4. Unconsolidated Joint Venture

On September 27, 2013, we formed a joint venture with an investment fund managed by Prudential Real Estate Investors (PREI^®). We contributed nine Powered Base Building^® data centers valued at approximately $366.4 million plus 20% of $2.8 million of closing costs. The PREI^®-managed fund contributed cash equal to their 80% interest in the joint venture assets at fair value and we retained a 20% interest. The joint venture is structured to provide a current annual preferred return from cash flow first to the PREI^®-managed interest, then to our interest, after which a portion of any excess cash flows is shared by the partners based on their respective interests and the remaining portion is paid to us as a promote interest. We will perform the day-to-day accounting and property management functions for the joint venture and, as such, will earn a management fee. Although we are the managing member of the joint venture and manage the day-to-day activities, all significant decisions, including approval of annual budgets, require approval of the PREI-managed member. Thus, we concluded we do not own a controlling interest and will account for our interest in the joint venture as an equity method investment.

The joint venture has arranged a $185.0 million five-year unsecured bank loan at LIBOR plus 180 basis points, representing a loan-to-value ratio of approximately 50%. Proceeds from the debt offset the contribution amounts required of the partners. The transaction generated approximately $328.6 million of net proceeds to us, comprised of our share of the initial draw-down on the bank loan in addition to the PREI^® fund’s equity contribution, less our share of closing costs and accordingly we recognized a gain of approximately $115.1 million on the sale of the 80% interest in the nine properties during the three months ended September 30, 2013.

The operations of properties that we contributed to the joint venture are not recorded as discontinued operations because of our continuing involvement with these investment properties. Differences between the Company’s investment in the joint venture and the amount of the underlying equity in net assets of the joint venture are due to basis differences resulting from the Company’s equity investment recorded at its historical basis versus the fair value of certain of the Company’s contributions to the joint venture. Our proportionate share of the earnings or losses related to this unconsolidated joint venture is reflected as equity in earnings of unconsolidated joint ventures on the accompanying condensed consolidated income statements.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

The table below presents properties contributed to the joint venture at their fair value as of the contribution date (dollars in thousands).


Date	Property	Metropolitan Area	Square Feet		Gross Value
9/27/2013	4700 Old Ironsides Drive	Silicon Valley		90,139	$	29,064
9/27/2013	4650 Old Ironsides Drive	Silicon Valley		124,383		56,258
9/27/2013	7505 Mason King Court	Northern Virginia		109,650		25,475
9/27/2013	43790 Devin Shafron Drive	Northern Virginia		152,138		45,505
9/27/2013	444 Toyama Drive	Silicon Valley		42,083		28,310
9/27/2013	21551 Beaumeade Circle	Northern Virginia		152,504		30,700
9/27/2013	2950 Zanker Road	Silicon Valley		69,700		45,669
9/27/2013	900 Dorothy Drive	Dallas		56,176		25,383
9/27/2013	14901 FAA Boulevard	Dallas		263,700		80,056

				1,060,473	$	366,420

As properties are contributed to the joint venture with PREI^®, the net assets are removed from the condensed consolidated financial statements. The table below reflects the carrying values of properties contributed to the joint venture as of the contribution date (in thousands).


Net investment in properties	$	(181,032	)
Acquired above market leases, net		(1,207	)
Acquired in place lease value and deferred leasing costs, net		(11,459	)
Acquired below market leases, net		483

Net assets contributed	$	(193,215	)

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

5. Acquired Intangible Assets and Liabilities

The following summarizes our acquired intangible assets (acquired in place lease value and acquired above-market lease value) and intangible liabilities (acquired below-market lease value) as of September 30, 2013 and December 31, 2012.


	Balance as of
(Amounts in thousands)	September 30, 2013			December 31, 2012
Acquired in place lease value:
Gross amount	$	717,158		$	720,373
Accumulated amortization		(405,993	)		(367,088	)

Net	$	311,165		$	353,285

Acquired above market leases:
Gross amount	$	131,585		$	134,480
Accumulated amortization		(77,139	)		(69,425	)

Net	$	54,446		$	65,055

Acquired below market leases:
Gross amount	$	288,658		$	285,509
Accumulated amortization		(155,033	)		(137,276	)

Net	$	133,625		$	148,233

Amortization of acquired below-market lease value, net of acquired above-market lease value, resulted in an increase to rental revenues of $2.7 million and $2.3 million for the three months ended September 30, 2013 and 2012, respectively, and $8.8 million and $7.4 million for the nine months ended September 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 4.7 years, respectively, as of September 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	$	10,203
2015		9,222
2016		8,002
2017		6,518
2018		3,353

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

Amortization of acquired in place lease value (a component of depreciation and amortization expense) was $15.7 million and $14.5 million for the three months ended September 30, 2013 and 2012, respectively, and $46.0 million and $38.9 million for the nine months ended September 30, 2013 and 2012, respectively. The expected average amortization period for acquired in place lease value is 6.7 years as of September 30, 2013. The weighted average remaining contractual life for acquired leases excluding renewals or extensions is 5.3 years as of September 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	$	54,656
2015		45,370
2016		42,298
2017		29,304
2018		26,380

6. Debt of the Company

In this Note 6, 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, as amended, 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)

September 30, 2013 and 2012

(unaudited)

7. Debt of the Operating Partnership

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


Indebtedness	Interest Rate at September 30, 2013	Maturity Date	Principal Outstanding September 30, 2013			Principal Outstanding December 31, 2012
Global revolving credit facility	Various (1)	Nov. 3, 2017 (1)	$	498,082	(2)	$	723,729	(2)

Unsecured term loan	Various (3)(9)	Apr. 16, 2017 (3)	$	950,205	(4)	$	757,839	(4)

Unsecured senior notes:
Prudential Shelf Facility:
Series B	9.320%	Nov. 5, 2013		33,000	(16)		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
5.25% 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
4.25% notes due 2025	4.250%	Jan. 17, 2025		647,440	(10)		—
Unamortized discounts				(15,381	)		(11,779	)

Total senior notes, net of discount				2,207,059			1,563,221

Total unsecured senior notes, net of discount				2,382,059			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)

September 30, 2013 and 2012

(unaudited)


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

Mortgage loans:
Secured Term Debt (6)(7)	5.65%	Nov. 11, 2014		133,744			135,991
200 Paul Avenue 1-4 (7)	5.74%	Oct. 8, 2015		71,210			72,646
Mundells Roundabout	3-month GBP LIBOR + 1.20% (9)	Nov. 30, 2013		69,317	(10)(15)		69,612	(10)
2045 & 2055 LaFayette Street (7)	5.93%	Feb. 6, 2017		63,880			64,621
34551 Ardenwood Boulevard 1-4 (7)	5.95%	Nov. 11, 2016		52,349			52,916
1100 Space Park Drive (7)	5.89%	Dec. 11, 2016		52,315			52,889
600 West Seventh Street	5.80%	Mar. 15, 2016		49,964			51,174
150 South First Street (7)	6.30%	Feb. 6, 2017		50,287			50,830
360 Spear Street (7)	6.32%	Nov. 8, 2013		45,850	(17)		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		38,074			38,486
1500 Space Park Drive (7)	6.15%	Oct. 5, 2013		—	(14)		35,682
Cressex 1 (12)	5.68%	Oct. 16, 2014		28,066	(10)		28,560	(10)
Paul van Vlissingenstraat 16	3-month EURIBOR + 1.60% (9)	Jul. 18, 2013		—	(14)		13,336	(11)
Chemin de l’Epinglier 2	3-month EURIBOR + 1.50% (9)	Jul. 18, 2013		—	(14)		9,649	(11)
Gyroscoopweg 2E-2F	3-month EURIBOR + 1.50% (9)	Oct. 18, 2013		8,598	(11)(15)		8,492	(11)
Manchester Technopark (12)	5.68%	Oct. 16, 2014		8,538	(10)		8,688	(10)
8025 North Interstate 35	4.09%	Mar. 6, 2016		6,377			6,561
731 East Trade Street	8.22%	Jul. 1, 2020		4,269			4,509
Unamortized net premiums				813			1,542

Total mortgage loans, net of premiums				683,651			792,376

Total indebtedness			$	4,780,397		$	4,278,565

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 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 110 basis points, which is based on the credit rating of our long-term debt. An annual facility fee of 20 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. Two six-month extensions are available, which we may exercise if certain conditions are met.

(2)	Balances as of September 30, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of September 30, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	277,000			1.36	%	$	49,000			2.05	%
British pound sterling (£)		32,372	(a)		1.60	%		433,195	(b)		1.75	%
Euro (€)		63,577	(a)		1.23	%		87,074	(b)		1.36	%
Singapore dollar (SGD)		—			—			26,191	(b)		1.56	%
Australian dollar (AUD)		62,866	(a)		3.66	%		93,754	(b)		4.42	%
Hong Kong dollar (HKD)		40,034	(a)		1.31	%		34,515	(b)		1.53	%
Japanese yen (JPY)		12,048	(a)		1.22	%		—			—
Canadian dollar (CAD)		10,185	(a)		2.32	%		—			—

Total	$	498,082			1.66	%	$	723,729			2.05	%

(a)

Based on exchange rates of $1.62 to £1.00, $1.35 to €1.00, $0.93 to 1.00 AUD, $0.13 to 1.00 HKD, $0.01 to 1.00 JPY and $0.97 to 1.00 CAD as of September 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 120 basis points over the applicable index for floating rate advances. Two six-month extensions are available, which we may exercise if certain conditions are met.

(4)	Balances as of September 30, 2013 and December 31, 2012 are as follows (balances, in thousands):


Denomination of Draw	Balance as of September 30, 2013			Weighted-average interest rate			Balance as of December 31, 2012			Weighted-average interest rate
U.S. dollar ($)	$	410,905			1.38	%	$	410,905			1.66	%
Singapore dollar (SGD)		181,956	(a)		1.42	%		155,098	(b)		1.77	%
British pound sterling (£)		126,413	(a)		1.70	%		91,191	(b)		1.94	%
Euro (€)		134,593	(a)		1.38	%		65,305	(b)		1.56	%
Australian dollar (AUD)		96,338	(a)		3.80	%		35,340	(b)		4.57	%

Total	$	950,205			1.68	%	$	757,839			1.84	%

(a)

Based on exchange rates of $0.80 to 1.00 SGD, $1.62 to £1.00, $1.35 to €1.00 and $0.93 to 1.00 AUD as of September 30, 2013.

(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 14, “Derivative Instruments” for further information.

(10)	Based on exchange rate of $1.62 to £1.00 as of September 30, 2013 and $1.63 to £1.00 as of December 31, 2012.

(11)	Based on exchange rate of $1.35 to €1.00 as of September 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 nine months ended September 30, 2013.

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

(15)	These loans were repaid in full in October 2013.

(16)	This senior note was repaid in full in November 2013.

(17)	This loan was repaid in full in November 2013.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

Global Revolving Credit Facility

On August 15, 2013, the Operating Partnership refinanced its revolving credit facility, which we refer to as the global revolving credit facility, increasing its total borrowing capacity to $2.0 billion from $1.8 billion. The global revolving credit facility has an accordion feature that would enable us to increase the borrowing capacity of the credit facility to $2.55 billion, subject to the receipt of lender commitments and other conditions precedent. The refinanced facility matures on November 3, 2017, with two six-month extension options. 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 110 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 20 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 September 30, 2013, borrowings under the global revolving credit facility bore interest at a blended rate of 1.66% comprised of 1.36% (U.S. dollars), 1.60% (British pound sterling), 1.23% (Euros), 3.66% (Australian dollars), 1.31% (Hong Kong dollars), 1.22% (Japanese yen) and 2.32% (Canadian dollars). The interest rates are based on 1-month LIBOR, 1-month GBP LIBOR, 1-month EURIBOR, 1-month BBR, 1-month HIBOR, 1-month JPY LIBOR and 1-month CAD LIBOR, respectively, plus a margin of 1.10%. 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 September 30, 2013, we have capitalized approximately $17.6 million of financing costs related to the global revolving credit facility. As of September 30, 2013, approximately $498.1 million was drawn under this facility and $20.3 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 September 30, 2013, we were in compliance with all of such covenants.

Unsecured Term Loan

On August 15, 2013, we refinanced the senior unsecured multi-currency term loan facility, increasing its total borrowing capacity to $1.0 billion from $750.0 million, and pursuant to the accordion feature total commitments can be increased up to $1.1 billion, subject to the receipt of lender commitments and other conditions precedent. The facility matures on April 16, 2017, with two six-month extension options. Interest rates are based on our senior unsecured debt ratings and are currently 120 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. Based on exchange rates in effect at September 30, 2013, the balance outstanding is approximately $950.2 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 September 30, 2013, we were in compliance with all of such covenants. As of September 30, 2013, we have capitalized approximately $8.4 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)

September 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 September 30, 2013, we were in compliance with all of such covenants.

The table below summarizes our debt maturities and principal payments as of September 30, 2013 (in thousands):


	Global Revolving Credit Facility ⁽¹⁾		Unsecured Term Loan ⁽¹⁾		Prudential Shelf Facility		Senior Notes			Exchangeable Senior Debentures ⁽²⁾		Mortgage Loans ⁽³⁾		Total Debt
Remainder of 2013	$	—	$	—	$	33,000	$	—		$	—	$	126,751	$	159,751
2014		—		—		—		—			266,400		177,851		444,251
2015		—		—		67,000		375,000			—		75,493		517,493
2016		—		—		25,000		—			—		191,979		216,979
2017		498,082		950,205		50,000		—			—		108,395		1,606,682
Thereafter		—		—		—		1,847,440			—		2,369		1,849,809

Subtotal	$	498,082	$	950,205	$	175,000	$	2,222,440		$	266,400	$	682,838	$	4,794,965
Unamortized discount		—		—		—		(15,381	)		—		—		(15,381	)
Unamortized premium		—		—		—		—			—		813		813

Total	$	498,082	$	950,205	$	175,000	$	2,207,059		$	266,400	$	683,651	$	4,780,397

(1)

Subject to two six-month extension options exercisable by us. The bank group is obligated to grant the extension options provided we give proper notice, we make certain representations and warranties and no default exists under the global revolving credit facility and the unsecured term loan, as applicable.

(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 September 30, 2013, we provided partial letter of credit support with respect to approximately $36.6 million of the outstanding mortgage indebtedness (based on exchange rates as of September 30, 2013).

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

8. Income per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income available to common stockholders—basic	$	138,872	$	45,615	$	228,606	$	126,847
Add: Interest and amortization of debt issuance costs on 2029 Debentures		4,050		—		—		—

Net income available to common stockholders—diluted	$	142,922	$	45,615	$	228,606	$	126,847

Weighted average shares outstanding—basic		128,427,444		122,026,421		127,771,419		112,995,512
Potentially dilutive common shares:
Stock options		58,150		76,774		64,767		74,462
Unvested incentive units		132,195		250,316		119,583		205,247
Effect of dilutive 2029 Debentures		6,683,976		—		—		—

Weighted average shares outstanding—diluted		135,301,765		122,353,511		127,955,769		113,275,221

Income per share:
Basic	$	1.08	$	0.37	$	1.79	$	1.12

Diluted	$	1.06	$	0.37	$	1.79	$	1.12

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Weighted average of Operating Partnership common units not owned by Digital Realty Trust, Inc.		2,549,749		4,345,574		2,515,964		4,346,586
Potentially dilutive 2029 Debentures		—		6,514,812		6,628,489		6,471,282
Potentially dilutive Series C Cumulative Convertible Preferred Stock		—		—		—		1,087,398
Potentially dilutive Series D Cumulative Convertible Preferred Stock		—		4,219,384		629,389		4,309,978
Potentially dilutive Series E Cumulative Redeemable Preferred Stock		5,251,059		4,151,146		4,853,976		4,045,501
Potentially dilutive Series F Cumulative Redeemable Preferred Stock		3,330,210		2,632,647		3,078,381		1,243,998
Potentially dilutive Series G Cumulative Redeemable Preferred Stock		4,553,517		—		2,918,921		—

		15,684,535		21,863,563		20,625,120		21,504,743

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

9. Income per Unit

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income available to common unitholders—basic	$	141,629	$	47,189	$	233,123	$	131,668
Add: Interest and amortization of debt issuance costs on 2029 Debentures		4,050		—		—		—

Net income available to common unitholders—diluted	$	145,679	$	47,189	$	233,123	$	131,668

Weighted average units outstanding—basic		130,977,193		126,242,751		130,287,383		117,291,480
Potentially dilutive common units:
Stock options		58,150		76,774		64,767		74,462
Unvested incentive units		132,195		250,316		119,583		205,247
Effect of dilutive 2029 Debentures		6,683,976		—		—		—

Weighted average units outstanding—diluted		137,851,514		126,569,841		130,471,733		117,571,189

Income per unit:
Basic	$	1.08	$	0.37	$	1.79	$	1.12

Diluted	$	1.06	$	0.37	$	1.79	$	1.12

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Potentially dilutive 2029 Debentures		—		6,514,812		6,628,489		6,471,282
Potentially dilutive Series C Cumulative Convertible Preferred Units		—		—		—		1,087,398
Potentially dilutive Series D Cumulative Convertible Preferred Units		—		4,219,384		629,389		4,309,978
Potentially dilutive Series E Cumulative Redeemable Preferred Units		5,251,059		4,151,146		4,853,976		4,045,501
Potentially dilutive Series F Cumulative Redeemable Preferred Units		3,330,210		2,632,647		3,078,381		1,243,998
Potentially dilutive Series G Cumulative Redeemable Preferred Units		4,553,517		—		2,918,921		—

		13,134,786		17,517,989		18,109,156		17,158,157

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

10. 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2013 and 2012. As of September 30, 2013, we had a net deferred tax liability of approximately $144.8 million primarily related to our foreign properties, comprised of a $87.8 million deferred tax asset, net of a $232.6 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. In July 2013, we made certain immaterial measurement period adjustments to the provisional amounts initially recorded for the net deferred tax liability recorded as part of the Sentrum acquisition, which closed in July 2012.

11. 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 can 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 nine months ended September 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 nine months ended September 30, 2013. As of September 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 September 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

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

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 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 September 30, 2013 and December 31, 2012:


	September 30, 2013					December 31, 2012
	Number of units		Percentage of total			Number of units		Percentage of total
Digital Realty Trust, Inc.		128,438,970		97.7	%		125,140,783		97.8	%
Noncontrolling interests consist of:
Common units held by third parties		1,500,814		1.2			1,515,814		1.2
Incentive units held by employees and directors (see note 13)		1,481,217		1.1			1,335,586		1.0

		131,421,001		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.

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

September 30, 2013 and 2012

(unaudited)

The redemption value of the noncontrolling Operating Partnership common units and the vested incentive units was approximately $134.9 million and $161.5 million based on the closing market price of Digital Realty Trust, Inc. common stock on September 30, 2013 and December 31, 2012, respectively.

The following table shows activity for the noncontrolling interests in the Operating Partnership for the nine months ended September 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⁾		(15,000	)		—			(15,000	)
Conversion of incentive units held by employees and directors for shares of Digital Realty Trust, Inc. common stock ⁽¹⁾		—			(27,128	)		(27,128	)
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 o

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Accelerated filer

Non-accelerated filer

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Smaller reporting company