Unconsolidated Joint Venture

9 Months Ended

Sep. 30, 2013

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 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.

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, L.P. [Member]

Unconsolidated Joint Venture

4. Unconsolidated Joint Venture

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


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)

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

+ References+ Details