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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, 2014
 
¨
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.:
Large accelerated filer
x
  
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
¨
Digital Realty Trust, L.P.:
Large accelerated filer
¨
  
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
x  (Do not check if a smaller reporting company)
  
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Digital Realty Trust, Inc.
  
Yes  ¨   No   x
Digital Realty Trust, L.P.
  
Yes  ¨   No   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Digital Realty Trust, Inc.:
Class
  
Outstanding at November 3, 2014
Common Stock, $.01 par value per share
  
135,512,464




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2014 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, 2014, 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, 2014, 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;


2


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 Income, Net and Capital and Accumulated Other Comprehensive Income;

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 Interim 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.

3


DIGITAL REALTY TRUST, INC. AND DIGITAL REALTY TRUST, L.P.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
 
 
 
Page
 Number
PART I.
FINANCIAL INFORMATION




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

























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




























ITEM 2.



ITEM 3.



ITEM 4.







PART II.



ITEM 1.



ITEM 1A. 



ITEM 2.



ITEM 3.



ITEM 4.



ITEM 5.



ITEM 6.






4


DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
September 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in real estate:
 
 
 
Properties:
 
 
 
Land
$
694,237

 
$
693,791

Acquired ground leases
14,030

 
14,618

Buildings and improvements
9,032,432

 
8,680,677

Tenant improvements
496,018

 
490,492

Total investments in properties
10,236,717

 
9,879,578

Accumulated depreciation and amortization
(1,840,379
)
 
(1,565,996
)
Net investments in properties
8,396,338

 
8,313,582

Investment in unconsolidated joint ventures
94,497

 
70,504

Net investments in real estate
8,490,835

 
8,384,086

Cash and cash equivalents
36,528

 
56,808

Accounts and other receivables, net of allowance for doubtful accounts of $7,652 and $5,576 as of September 30, 2014 and December 31, 2013, respectively
140,463

 
122,248

Deferred rent
442,358

 
393,504

Acquired above-market leases, net
42,477

 
52,264

Acquired in-place lease value and deferred leasing costs, net
461,243

 
489,456

Deferred financing costs, net
33,761

 
36,475

Restricted cash
13,986

 
40,362

Other assets
60,356

 
51,627

Total assets
$
9,722,007

 
$
9,626,830

LIABILITIES AND EQUITY
 
 
 
Global revolving credit facility
$
485,023

 
$
724,668

Unsecured term loan
1,002,186

 
1,020,984

Unsecured senior notes, net of discount
2,835,478

 
2,364,232

Exchangeable senior debentures

 
266,400

Mortgage loans, net of premiums
417,042

 
585,608

Accounts payable and other accrued liabilities
648,314

 
662,687

Accrued dividends and distributions

 
102,509

Acquired below-market leases, net
110,708

 
130,269

Security deposits and prepaid rents
119,696

 
122,961

Total liabilities
5,618,447

 
5,980,318

Commitments and contingencies

 

Equity:
 
 
 
Stockholders’ Equity:
 
 
 
Preferred Stock: $0.01 par value per share, 70,000,000 shares authorized:
 
 
 
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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013, respectively
176,191

 
176,191

Series G Cumulative Redeemable Preferred Stock, 5.875%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per share), 10,000,000 and 10,000,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
241,468

 
241,468

Series H Cumulative Redeemable Preferred Stock, 7.375%, $365,000 and $0 liquidation preference, respectively ($25.00 per share), 14,600,000 and 0 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
353,300

 

Common Stock: $0.01 par value, 215,000,000 shares authorized, 135,503,184 and 128,455,350 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
1,348

 
1,279

Additional paid-in capital
3,964,876

 
3,688,937

Accumulated dividends in excess of earnings
(931,777
)
 
(785,222
)
Accumulated other comprehensive income, net
(20,470
)
 
10,691

Total stockholders’ equity
4,062,108

 
3,610,516

Noncontrolling Interests:
 
 
 
Noncontrolling interests in operating partnership
34,632

 
29,027

Noncontrolling interests in consolidated joint ventures
6,820

 
6,969

Total noncontrolling interests
41,452

 
35,996

Total equity
4,103,560

 
3,646,512

Total liabilities and equity
$
9,722,007

 
$
9,626,830

See accompanying notes to the condensed consolidated financial statements.

5


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,
 
2014
 
2013
 
2014
 
2013
Operating Revenues:
 
 
 
 
 
 
 
Rental
$
317,064

 
$
290,712

 
$
936,270

 
$
858,064

Tenant reimbursements
92,209

 
88,059

 
261,517

 
240,657

Fee income
2,748

 
671

 
5,397

 
2,205

Other
165

 
14

 
1,038

 
402

Total operating revenues
412,186


379,456


1,204,222


1,101,328

Operating Expenses:
 
 
 
 

 

Rental property operating and maintenance
130,894

 
129,234

 
375,586

 
341,420

Property taxes
25,765

 
26,074

 
68,485

 
66,490

Insurance
2,145

 
2,144

 
6,463

 
6,587

Construction management
60

 
51

 
345

 
729

Change in fair value of contingent consideration
(1,465
)
 
(943
)
 
(4,102
)
 
(13
)
Depreciation and amortization
137,474

 
121,198

 
405,186

 
348,688

General and administrative
20,709

 
16,275

 
71,708

 
50,117

Transactions
144

 
243

 
980

 
3,497

Impairment of investments in real estate
12,500




12,500



Other
1,588

 
3

 
2,239

 
56

Total operating expenses
329,814


294,279


939,390


817,571

Operating income
82,372

 
85,177

 
264,832

 
283,757

Other Income (Expenses):

 
 
 

 
 
Equity in earnings of unconsolidated joint ventures
3,455

 
2,174

 
9,513

 
6,839

Gain on insurance settlement

 

 

 
5,597

Gain on sale of property

 

 
15,945

 

Gain on contribution of properties to unconsolidated joint ventures
93,498

 
115,054

 
95,404

 
115,054

Interest and other income (expense)
378

 
(127
)
 
2,022

 
(92
)
Interest expense
(48,169
)
 
(47,742
)
 
(144,689
)
 
(143,403
)
Tax expense
(1,178
)
 
(352
)
 
(4,037
)
 
(1,765
)
Loss from early extinguishment of debt
(195
)
 
(704
)
 
(780
)
 
(1,205
)
Net income
130,161


153,480


238,210


264,782

Net income attributable to noncontrolling interests
(2,392
)
 
(2,882
)
 
(4,190
)
 
(4,997
)
Net income attributable to Digital Realty Trust, Inc.
127,769


150,598


234,020


259,785

Preferred stock dividends
(18,455
)
 
(11,726
)
 
(49,010
)
 
(31,179
)
Net income available to common stockholders
$
109,314


$
138,872


$
185,010


$
228,606

Net income per share available to common stockholders:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
1.08

 
$
1.39

 
$
1.79

Diluted
$
0.80

 
$
1.06

 
$
1.39

 
$
1.79

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
135,492,618

 
128,427,444

 
132,635,894

 
127,771,419

Diluted
135,946,533

 
135,301,765

 
132,852,966

 
127,955,769

See accompanying notes to the condensed consolidated financial statements.

6


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,
 
2014
 
2013
 
2014
 
2013
Net income
$
130,161

 
$
153,480

 
$
238,210

 
$
264,782

Other comprehensive income:

 

 

 

Foreign currency translation adjustments
(39,470
)
 
56,565

 
(30,730
)
 
(6,190
)
Increase (decrease) in fair value of interest rate swaps
2,435

 
(3,324
)
 
(3,647
)
 
3,175

Reclassification to interest expense from interest rate swaps
867

 
1,508

 
2,567

 
4,949

Comprehensive income
93,993

 
208,229

 
206,400

 
266,716

Comprehensive income attributable to noncontrolling interests
(1,656
)
 
(3,948
)
 
(3,541
)
 
(5,067
)
Comprehensive income attributable to Digital Realty Trust, Inc.
$
92,337

 
$
204,281

 
$
202,859

 
$
261,649

See accompanying notes to the condensed consolidated financial statements.


7


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
Income, 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, 2013
$
694,831

 
128,455,350

 
$
1,279

 
$
3,688,937

 
$
(785,222
)
 
$
10,691

 
$
3,610,516

 
$
29,027

 
$
6,969

 
$
35,996

 
$
3,646,512

Conversion of units to common stock

 
17,941

 

 
229

 

 

 
229

 
(229
)
 

 
(229
)
 

Issuance of unvested restricted stock, net of forfeitures

 
143,847

 

 

 

 

 

 

 

 

 

Common stock offering costs

 

 

 
(221
)
 

 

 
(221
)
 

 

 

 
(221
)
Exercise of stock options

 
16,134

 

 
237

 

 

 
237

 

 

 

 
237

Issuance of common stock in exchange for cash and debentures

 
6,869,912

 
69

 
266,331

 

 

 
266,400

 

 

 

 
266,400

Issuance of series H preferred stock, net of offering costs
353,300

 

 

 

 

 

 
353,300

 

 

 

 
353,300

Amortization of unearned compensation on share-based awards

 

 

 
19,669

 

 

 
19,669

 

 

 

 
19,669

Reclassification of vested share-based awards

 

 

 
(10,306
)
 

 

 
(10,306
)
 
10,306

 

 
10,306

 

Dividends declared on preferred stock

 

 

 

 
(49,010
)
 

 
(49,010
)
 

 

 

 
(49,010
)
Dividends and distributions on common stock and common and incentive units

 

 

 

 
(331,565
)
 

 
(331,565
)
 
(7,661
)
 

 
(7,661
)
 
(339,226
)
Distributions to noncontrolling interests in consolidated joint ventures, net of contributions

 

 

 

 

 

 

 

 
(501
)
 
(501
)
 
(501
)
Net income

 

 

 

 
234,020

 

 
234,020

 
3,838

 
352

 
4,190

 
238,210

Other comprehensive income—foreign currency translation adjustments

 

 

 

 

 
(30,104
)
 
(30,104
)
 
(626
)
 

 
(626
)
 
(30,730
)
Other comprehensive loss—fair value of interest rate swaps

 

 

 

 

 
(3,572
)
 
(3,572
)
 
(75
)
 

 
(75
)
 
(3,647
)
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense

 

 

 

 

 
2,515

 
2,515

 
52

 

 
52

 
2,567

Balance as of September 30, 2014
$
1,048,131

 
135,503,184

 
$
1,348

 
$
3,964,876

 
$
(931,777
)
 
$
(20,470
)
 
$
4,062,108

 
$
34,632

 
$
6,820

 
$
41,452

 
$
4,103,560

See accompanying notes to the condensed consolidated financial statements.

8


DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
238,210

 
$
264,782

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of property
(15,945
)
 

Gain on contribution of investment properties to unconsolidated joint ventures
(95,404
)
 
(115,054
)
Gain on insurance settlement

 
(5,597
)
Impairment of investments in real estate
12,500

 

Equity in earnings of unconsolidated joint ventures
(9,513
)
 
(6,839
)
Change in fair value of accrued contingent consideration
(4,102
)
 
(13
)
Distributions from unconsolidated joint ventures
6,032

 
27,675

Write-off of net assets due to early lease terminations
2,239

 
56

Depreciation and amortization of buildings and improvements, tenant improvements
   and acquired ground leases
340,645

 
291,707

Amortization of share-based unearned compensation
15,489

 
9,344

Allowance for doubtful accounts
2,076

 
1,660

Amortization of deferred financing costs
6,762

 
7,733

Loss on early extinguishment of debt
780

 
1,205

Amortization of debt discount/premium
1,352

 
530

Amortization of acquired in-place lease value and deferred leasing costs
64,541

 
56,981

Amortization of acquired above-market leases and acquired below-market leases
(7,710
)
 
(8,831
)
Changes in assets and liabilities:
 
 
 
Restricted cash
11,060

 
2,487

Accounts and other receivables
(16,377
)
 
(11,601
)
Deferred rent
(58,874
)
 
(60,802
)
Deferred leasing costs
(15,178
)
 
(16,604
)
Other assets
(12,895
)
 
(9,355
)
Accounts payable and other accrued liabilities
3,668

 
13,304

Security deposits and prepaid rents
3,211

 
11,312

Net cash provided by operating activities
472,567

 
454,080

Cash flows from investing activities:
 
 
 
Acquisitions of real estate
(24,305
)
 
(154,801
)
Proceeds from sale of property, net
37,945

 

Proceeds from contribution of investment properties to unconsolidated joint ventures
178,933

 
328,569

Investment in unconsolidated joint ventures
(20,627
)
 
(7,297
)
Investment in equity securities
(2
)
 
(17,100
)
Deposits paid for acquisitions of real estate

 
(2,250
)
Receipt of value added tax refund
8,457

 
8,326

Refundable value added tax paid
(13,882
)
 
(11,805
)
Change in restricted cash
15,237

 
(1,292
)
Improvements to and advances for investments in real estate
(644,637
)
 
(882,346
)
Improvement advances to tenants
(15,505
)
 
(5,108
)
Collection of advances from tenants for improvements
13,500

 
3,978

Proceeds from insurance settlement

 
8,625

Net cash used in investing activities
(464,886
)
 
(732,501
)
 See accompanying notes to the condensed consolidated financial statements.


9



DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited, in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facility
$
952,590

 
$
1,292,146

Repayments on revolving credit facility
(1,182,341
)
 
(1,497,317
)
Borrowings on unsecured term loan

 
195,335

Borrowings on 4.250% unsecured senior notes due 2025


630,026

Borrowings on 4.750% unsecured senior notes due 2023
495,872



Principal payments on mortgage loans
(139,974
)
 
(109,661
)
Earnout payment related to the acquisition of the Sentrum Portfolio
(11,011
)

(25,783
)
Change in restricted cash
42


498

Payment of loan fees and costs
(5,209
)
 
(17,441
)
Capital (distributions paid to) contributions received from noncontrolling
    interests in consolidated joint ventures, net
(501
)

399

Gross proceeds from the issuance of preferred stock
365,000


250,000

Common stock offering costs paid
(221
)

(553
)
Preferred stock offering costs paid
(11,700
)

(8,489
)
Proceeds from exercise of stock options
237


230

Payment of dividends to preferred stockholders
(49,010
)

(31,179
)
Payment of dividends to common stockholders and distributions to
    noncontrolling interests in operating partnership
(441,735
)

(400,953
)
Net cash (used in) provided by financing activities
(27,961
)
 
277,258

Net decrease in cash and cash equivalents
(20,280
)
 
(1,163
)
Cash and cash equivalents at beginning of period
56,808

 
56,281

Cash and cash equivalents at end of period
$
36,528

 
$
55,118

 
See accompanying notes to the condensed consolidated financial statements.

10


DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited, in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, including amounts capitalized
$
165,818

 
$
159,746

Cash paid for income taxes
3,012

 
1,947

Supplementary disclosure of noncash investing and financing activities:
 
 
 
Change in net assets related to foreign currency translation adjustments
$
(30,104
)
 
$
(6,190
)
(Decrease) increase in accounts payable and other accrued liabilities related to change in
   fair value of interest rate swaps
(3,572
)
 
3,175

Acquisition measurement period adjustment included in accounts payable and
other accrued liabilities
 
 
 
Noncontrolling interests in operating partnership redeemed for or converted to
   shares of common stock
229

 
452

Preferred stock converted to shares of common stock

 
119,348

Accrual for additions to investments in real estate and tenant improvement advances
   included in accounts payable and accrued expenses
199,916

 
224,902

Additional accrual of contingent purchase price for investments in real estate

 
6,214

Accrual for potential earnout contingency
12,816

 

Issuance of common units associated with exchange of exchangeable senior debentures
261,166

 

Allocation of purchase price of real estate/investment in partnership to:
 
 
 
   Investments in real estate
24,305

 
143,033

   Acquired above-market leases

 
203

   Acquired below-market leases

 
(4,136
)
   Acquired in-place lease value and deferred leasing costs

 
15,701

Cash paid for acquisition of real estate
$
24,305

 
$
154,801

See accompanying notes to the condensed consolidated financial statements.


11


DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except unit and per unit data)
 
September 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Investments in real estate:
 
 
 
Properties:
 
 
 
Land
$
694,237

 
$
693,791

Acquired ground leases
14,030

 
14,618

Buildings and improvements
9,032,432

 
8,680,677

Tenant improvements
496,018

 
490,492

Total investments in properties
10,236,717

 
9,879,578

Accumulated depreciation and amortization
(1,840,379
)
 
(1,565,996
)
Net investments in properties
8,396,338

 
8,313,582

Investment in unconsolidated joint ventures
94,497

 
70,504

Net investments in real estate
8,490,835

 
8,384,086

Cash and cash equivalents
36,528

 
56,808

Accounts and other receivables, net of allowance for doubtful accounts of $7,652 and $5,576 as of September 30, 2014 and December 31, 2013, respectively
140,463

 
122,248

Deferred rent
442,358

 
393,504

Acquired above-market leases, net
42,477

 
52,264

Acquired in-place lease value and deferred leasing costs, net
461,243

 
489,456

Deferred financing costs, net
33,761

 
36,475

Restricted cash
13,986

 
40,362

Other assets
60,356

 
51,627

Total assets
$
9,722,007

 
$
9,626,830

LIABILITIES AND CAPITAL

 

Global revolving credit facility
$
485,023

 
$
724,668

Unsecured term loan
1,002,186

 
1,020,984

Unsecured senior notes, net of discount
2,835,478

 
2,364,232

Exchangeable senior debentures

 
266,400

Mortgage loans, net of premiums
417,042

 
585,608

Accounts payable and other accrued liabilities
648,314

 
662,687

Accrued dividends and distributions

 
102,509

Acquired below-market leases, net
110,708

 
130,269

Security deposits and prepaid rents
119,696

 
122,961

Total liabilities
5,618,447

 
5,980,318

Commitments and contingencies

 

Capital:
 
 
 
Partners’ capital:
 
 
 
General Partner:
 
 
 
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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013, respectively
176,191

 
176,191

Series G Cumulative Redeemable Preferred Units, 5.875%, $250,000 and $250,000 liquidation preference, respectively ($25.00 per unit), 10,000,000 and 10,000,000 units issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
241,468

 
241,468

Series H Cumulative Redeemable Preferred Units, 7.375%, $365,000 and $0 liquidation preference, respectively ($25.00 per unit), 14,600,000 and 0 units issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
353,300

 

Common units:


 


135,503,184 and 128,455,350 units issued and outstanding as of September 30, 2014 and December 31, 2013, respectively
3,034,447

 
2,904,994

Limited partners, 1,478,814 and 1,491,814 common units, 1,248,003 and 1,077,838 profits interest units and 397,369 and 397,369 class C units outstanding as of September 30, 2014 and December 31, 2013, respectively
37,515

 
31,261

Accumulated other comprehensive (loss) income
(23,353
)
 
8,457

Total partners’ capital
4,096,740

 
3,639,543

Noncontrolling interests in consolidated joint ventures
6,820

 
6,969

Total capital
4,103,560

 
3,646,512

Total liabilities and capital
$
9,722,007

 
$
9,626,830

See accompanying notes to the condensed consolidated financial statements.


12


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,
 
2014
 
2013
 
2014
 
2013
Operating Revenues:
 
 
 
 
 
 
 
Rental
$
317,064

 
$
290,712

 
$
936,270

 
$
858,064

Tenant reimbursements
92,209

 
88,059

 
261,517

 
240,657

Fee income
2,748

 
671

 
5,397

 
2,205

Other
165

 
14

 
1,038

 
402

Total operating revenues
412,186

 
379,456

 
1,204,222

 
1,101,328

Operating Expenses:
 
 
 
 
 
 
 
Rental property operating and maintenance
130,894

 
129,234

 
375,586

 
341,420

Property taxes
25,765

 
26,074

 
68,485

 
66,490

Insurance
2,145

 
2,144

 
6,463

 
6,587

Construction management
60

 
51

 
345

 
729

Change in fair value of contingent consideration
(1,465
)
 
(943
)
 
(4,102
)
 
(13
)
Depreciation and amortization
137,474

 
121,198

 
405,186

 
348,688

General and administrative
20,709

 
16,275

 
71,708

 
50,117

Transactions
144

 
243

 
980

 
3,497

Impairment of investments in real estate
12,500

 

 
12,500

 

Other
1,588

 
3

 
2,239

 
56

Total operating expenses
329,814

 
294,279

 
939,390

 
817,571

Operating income
82,372

 
85,177

 
264,832

 
283,757

Other Income (Expenses):
 
 
 
 
 
 
 
Equity in earnings of unconsolidated joint ventures
3,455

 
2,174

 
9,513

 
6,839

Gain on insurance settlement

 

 

 
5,597

Gain on sale of property

 

 
15,945

 

Gain on contribution of properties to unconsolidated joint ventures
93,498

 
115,054

 
95,404

 
115,054

Interest and other income (expense)
378

 
(127
)
 
2,022

 
(92
)
Interest expense
(48,169
)
 
(47,742
)
 
(144,689
)
 
(143,403
)
Tax expense
(1,178
)
 
(352
)
 
(4,037
)
 
(1,765
)
Loss from early extinguishment of debt
(195
)
 
(704
)
 
(780
)
 
(1,205
)
Net income
130,161

 
153,480

 
238,210

 
264,782

Net income attributable to noncontrolling interests in consolidated joint ventures
(120
)
 
(125
)
 
(352
)
 
(480
)
Net income attributable to Digital Realty Trust, L.P.
130,041

 
153,355

 
237,858

 
264,302

Preferred units distributions
(18,455
)
 
(11,726
)
 
(49,010
)
 
(31,179
)
Net income available to common unitholders
$
111,586

 
$
141,629

 
$
188,848

 
$
233,123

Net income per unit available to common unitholders:
 
 
 
 
 
 
 
Basic
$
0.81

 
$
1.08

 
$
1.39

 
$
1.79

Diluted
$
0.80

 
$
1.06

 
$
1.39

 
$
1.79

Weighted average common units outstanding:
 
 
 
 
 
 
 
Basic
138,308,130

 
130,977,193

 
135,381,624

 
130,287,383

Diluted
138,762,045

 
137,851,514

 
135,598,696

 
130,471,733

See accompanying notes to the condensed consolidated financial statements.


13


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,
 
2014
 
2013
 
2014
 
2013
Net income
$
130,161

 
$
153,480

 
$
238,210

 
$
264,782

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(39,470
)
 
56,565

 
(30,730
)
 
(6,190
)
(Decrease) increase in fair value of interest rate swaps
2,435

 
(3,324
)
 
(3,647
)
 
3,175

Reclassification to interest expense from interest rate swaps
867

 
1,508

 
2,567

 
4,949

Comprehensive income
$
93,993


$
208,229


$
206,400


$
266,716

See accompanying notes to the condensed consolidated financial statements.


14


DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
(unaudited, in thousands, except unit data)
 
General Partner
 
Limited Partners
 
Accumulated
Other
Comprehensive
Income
 
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, 2013
28,800,000

 
$
694,831

 
128,455,350

 
$
2,904,994

 
2,967,021

 
$
31,261

 
$
8,457

 
$
6,969

 
$
3,646,512

Conversion of limited partner common units to general partner common units

 

 
17,941

 
229

 
(17,941
)
 
(229
)
 

 

 

Issuance of unvested restricted common units, net of forfeitures

 

 
143,847

 

 

 

 

 

 

Common unit offering costs

 

 

 
(221
)
 

 

 

 

 
(221
)
Issuance of common units in connection with the exercise of stock options

 

 
16,134

 
237

 

 

 

 

 
237

Issuance of common units, net of forfeitures

 

 

 

 
175,106

 

 

 

 

Issuance of common units in connection with exchange for cash and debentures


 


 
6,869,912

 
266,400

 

 

 

 

 
266,400

Net proceeds from issuance of series H preferred units
14,600,000

 
353,300

 

 

 

 

 

 

 
353,300

Amortization of unearned compensation on share-based awards

 

 

 
19,669

 

 

 

 

 
19,669

Reclassification of vested share-based awards

 

 

 
(10,306
)
 

 
10,306

 

 

 

Distributions

 
(49,010
)
 

 
(331,565
)
 

 
(7,661
)
 

 

 
(388,236
)
Distributions to noncontrolling interests in consolidated joint ventures, net of contributions

 

 

 

 

 

 

 
(501
)
 
(501
)
Net income

 
49,010

 

 
185,010

 

 
3,838

 

 
352

 
238,210

Other comprehensive income—foreign currency translation adjustments

 

 

 

 

 

 
(30,730
)
 

 
(30,730
)
Other comprehensive loss—fair value of interest rate swaps

 

 

 

 

 

 
(3,647
)
 

 
(3,647
)
Other comprehensive income—reclassification of accumulated other comprehensive loss to interest expense

 

 

 

 

 

 
2,567

 

 
2,567

Balance as of September 30, 2014
43,400,000

 
$
1,048,131

 
135,503,184

 
$
3,034,447

 
3,124,186

 
$
37,515

 
$
(23,353
)
 
$
6,820

 
$
4,103,560


See accompanying notes to the condensed consolidated financial statements.

15


DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
238,210

 
$
264,782

Adjustments to reconcile net income to net cash provided by operating activities:

 

Gain on sale of property
(15,945
)
 

Gain on contribution of investment properties to unconsolidated joint ventures
(95,404
)
 
(115,054
)
Gain on insurance settlement

 
(5,597
)
Impairment of investments in real estate
12,500

 

Equity in earnings of unconsolidated joint ventures
(9,513
)
 
(6,839
)
Change in fair value of accrued contingent consideration
(4,102
)
 
(13
)
Distributions from unconsolidated joint ventures
6,032

 
27,675

Write-off of net assets due to early lease terminations
2,239

 
56

Depreciation and amortization of buildings and improvements, tenant improvements and acquired ground leases
340,645

 
291,707

Amortization of share-based unearned compensation
15,489

 
9,344

Allowance for doubtful accounts
2,076

 
1,660

Amortization of deferred financing costs
6,762

 
7,733

Loss on early extinguishment of debt
780

 
1,205

Amortization of debt discount/premium
1,352

 
530

Amortization of acquired in-place lease value and deferred leasing costs
64,541

 
56,981

Amortization of acquired above-market leases and acquired below-market leases
(7,710
)
 
(8,831
)
Changes in assets and liabilities:

 

Restricted cash
11,060

 
2,487

Accounts and other receivables
(16,377
)
 
(11,601
)
Deferred rent
(58,874
)
 
(60,802
)
Deferred leasing costs
(15,178
)
 
(16,604
)
Other assets
(12,895
)
 
(9,355
)
Accounts payable and other accrued liabilities
3,668

 
13,304

Security deposits and prepaid rents
3,211

 
11,312

Net cash provided by operating activities
472,567

 
454,080

Cash flows from investing activities:
 
 
 
Acquisitions of real estate
(24,305
)
 
(154,801
)
Proceeds from sale of property, net
37,945

 

Proceeds from contribution of investment properties to unconsolidated joint ventures
178,933

 
328,569

Investment in unconsolidated joint ventures
(20,627
)
 
(7,297
)
Investment in equity securities
(2
)
 
(17,100
)
Deposits paid for acquisitions of real estate

 
(2,250
)
Receipt of value added tax refund
8,457

 
8,326

Refundable value added tax paid
(13,882
)
 
(11,805
)
Change in restricted cash
15,237

 
(1,292
)
Improvements to and advances for investments in real estate
(644,637
)
 
(882,346
)
Improvement advances to tenants
(15,505
)
 
(5,108
)
Collection of advances from tenants for improvements
13,500

 
3,978

Proceeds from insurance settlement

 
8,625

Net cash used in investing activities
(464,886
)
 
(732,501
)
 See accompanying notes to the condensed consolidated financial statements.

16


DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited, in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facility
$
952,590

 
$
1,292,146

Repayments on revolving credit facility
(1,182,341
)
 
(1,497,317
)
Borrowings on unsecured term loan

 
195,335

Borrowings on 4.250% unsecured senior notes due 2025

 
630,026

Borrowings on 4.750% unsecured senior notes due 2023
495,872

 

Principal payments on mortgage loans
(139,974
)
 
(109,661
)
Earnout payment related to the acquisition of the Sentrum Portfolio
(11,011
)
 
(25,783
)
Change in restricted cash
42

 
498

Payment of loan fees and costs
(5,209
)
 
(17,441
)
Capital (distributions paid to) contributions received from noncontrolling
    interests in consolidated joint ventures, net
(501
)
 
399

General partner contributions
353,316

 
241,188

Payment of distributions to preferred unitholders
(49,010
)
 
(31,179
)
Payment of distributions to common unitholders
(441,735
)
 
(400,953
)
Net cash (used in) provided by financing activities
(27,961
)
 
277,258

Net decrease in cash and cash equivalents
(20,280
)
 
(1,163
)
Cash and cash equivalents at beginning of period
56,808

 
56,281

Cash and cash equivalents at end of period
$
36,528

 
$
55,118

 
See accompanying notes to the condensed consolidated financial statements.

17


DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited, in thousands)
 
 
Nine Months Ended September 30,
 
2014
 
2013
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest, including amounts capitalized
$
165,818

 
$
159,746

Cash paid for income taxes
3,012

 
1,947

Supplementary disclosure of noncash investing and financing activities:
 
 
 
Change in net assets related to foreign currency translation adjustments
(30,104
)
 
(6,190
)
(Decrease) increase in accounts payable and other accrued liabilities related to change in
   fair value of interest rate swaps
(3,572
)
 
3,175

Acquisition measurement period adjustment included in accounts payable and
other accrued liabilities

 
21,893

Preferred units converted to common units

 
119,348

Accrual for additions to investments in real estate and tenant improvement advances
   included in accounts payable and accrued expenses
199,916

 
224,902

Additional accrual of contingent purchase price for investments in real estate

 
6,214

Accrual for potential earnout contingency
12,816

 

Issuance of common units associated with exchange of exchangeable senior debentures
261,166

 

Allocation of purchase price of real estate/investment in partnership to:
 
 
 
   Investments in real estate
24,305

 
143,033

   Acquired above-market leases

 
203

   Acquired below-market leases

 
(4,136
)
   Acquired in-place lease value and deferred leasing costs

 
15,701

Cash paid for acquisition of real estate
$
24,305

 
$
154,801

See accompanying notes to the condensed consolidated financial statements.
 

18

DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014 and 2013


1. Organization and Description of Business
Digital Realty Trust, Inc. through its controlling interest in Digital Realty Trust, L.P. (the Operating Partnership) and the subsidiaries of the Operating Partnership (collectively, we, our, us or the Company) is engaged in the business of owning, acquiring, developing 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, 2014, our portfolio consisted of 131 properties, including 14 properties held as investments in unconsolidated joint ventures and developable land, of which 105 are located throughout North America, 21 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 United States, Amsterdam, Dublin, London and Paris markets in Europe and Singapore, Sydney, Melbourne, Hong Kong 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 offices 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, 2014, Digital Realty Trust, Inc. owns a 97.7% common interest and a 100.0% 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, as amended, for the year ended December 31, 2013.
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 unsecured debt of the Operating Partnership and certain of its subsidiaries. Digital

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DIGITAL REALTY TRUST, INC. AND SUBSIDIARIES
DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2014 and 2013


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: