DIGITAL REALTY TRUST, INC. - FORM 8-K - EX-99.4

Attached files

file	filename
EX-99.3 - EX-99.3 - DIGITAL REALTY TRUST, INC.	d408238dex993.htm
EX-99.2 - EX-99.2 - DIGITAL REALTY TRUST, INC.	d408238dex992.htm
EX-99.1 - EX-99.1 - DIGITAL REALTY TRUST, INC.	d408238dex991.htm
EX-23.1 - EX-23.1 - DIGITAL REALTY TRUST, INC.	d408238dex231.htm
8-K - 8-K - DIGITAL REALTY TRUST, INC.	d408238d8k.htm

Exhibit 99.4

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Introduction

Penguins REIT Sub, LLC, which we refer to as Merger Sub, a wholly owned subsidiary of Digital Realty Trust, Inc., which we refer to as Digital Realty or DLR, plans to engage in a series of transactions pursuant to which DuPont Fabros Technology, Inc., which we refer to as DuPont Fabros or DFT, will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation and a wholly owned subsidiary of Digital Realty. In addition, a subsidiary of DLR’s operating partnership, Digital Realty Trust, L.P., which we refer to as DLR OP, plans to merge with and into DFT’s operating partnership, DuPont Fabros Technology, L.P., which we refer to as DFT OP, with DuPont Fabros Technology, L.P. as the surviving partnership and a wholly owned subsidiary of Digital Realty Trust, L.P. We refer to these mergers collectively as the mergers. The mergers are part of the transactions contemplated by the Agreement and Plan of Merger entered into on June 8, 2017, which we refer to as the merger agreement, among Digital Realty, DuPont Fabros and certain of their subsidiaries. In addition, on June 8, 2017, in connection with the execution of the merger agreement, DLR entered into two separate commitment letters, pursuant to which the initial commitment parties agreed to (i) provide a senior unsecured bridge loan facility, which we refer to as the bridge facility, in the original principal amount of $1.4 billion and (ii) provide a mortgage loan facility of up to $104 million to one or more wholly-owned subsidiaries of DLR OP, which we refer to as the mortgage loan facility, in each case to potentially fund the repayment of DFT debt and transaction costs in connection with the mergers. We refer to the bridge facility and the mortgage loan facility collectively as the committed facilities.

The consummation of the mergers is subject to certain customary closing conditions, including, among others, approval by the holders of a majority of the outstanding shares of DFT common stock, approval of the issuance of DLR common stock by a majority of the votes cast by the holders of DLR common stock at a special meeting of Digital Realty’s stockholders, the absence of certain legal impediments to the consummation of the mergers, the effectiveness of a registration statement on Form S-4 filed by Digital Realty in connection with the mergers, approval for listing on the New York Stock Exchange of the shares of DLR common stock to be issued in connection with the mergers, the absence of a material adverse effect on either Digital Realty or DuPont Fabros and compliance by the parties to the merger agreement with their respective obligations under the merger agreement. The obligations of the parties to consummate the mergers are not subject to any financing condition or the receipt of any financing by Digital Realty. As of the date of this Current Report on Form 8-K, the mergers are expected to be completed during the second half of 2017.

Pursuant to the terms and conditions in the merger agreement, at the effective time of the mergers, (i) each share of DFT common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive 0.545 shares of DLR common stock, which we refer to as the common consideration, and (ii) each share of 6.625% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value per share, of Dupont Fabros, which we refer to as the DFT series C preferred stock, will be converted into the right to receive one validly issued, fully paid and nonassessable share of 6.625% Series C Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, of Digital Realty, which we refer to as the DLR series C preferred stock, having substantially similar rights, privileges, preferences and interests as the DFT series C preferred stock. In addition, (i) each outstanding share of restricted DFT common stock will vest and all restrictions thereon will lapse, and each such restricted share will be cancelled in exchange for the right to receive the common consideration, (ii) each outstanding award of performance stock units granted by DFT, which we refer to as DFT performance stock units, will vest and be cancelled and converted into the right to receive the common consideration and (iii) each outstanding and unexercised option to purchase shares of DFT common stock will be automatically converted into an option covering a number of shares of DLR common stock equal to the number of shares of DFT common stock subject to such option immediately prior to the effective time of the mergers multiplied by 0.545, rounded down to the nearest whole share, with an exercise price per share equal to the exercise price per share of such option immediately prior to the effective time of the merger, divided by 0.545, rounded up to the nearest whole cent.

At the effective time of the mergers, each common unit of limited partnership interest in the DFT OP, or DFT OP common units, issued and outstanding immediately prior to the effective time held by a limited partner of the DFT OP will be converted into the right to receive 0.545 common units of limited partnership interest in DLR OP, or the DLR OP common units. In the alternative, limited partners in the DFT OP may elect to redeem their DFT OP common units in order to receive the common consideration. In addition, each Series C preferred partnership unit in DFT OP, or DFT OP series C preferred units, will be converted into the right to receive one validly issued Series C preferred partnership unit in DLR OP, or DLR OP series C preferred units. DFT is the only holder of DFT OP series C preferred units.

These unaudited pro forma condensed combined financial statements, which we refer to as the pro forma financial statements, were prepared using the acquisition method of accounting with DLR OP considered the accounting acquirer of DFT OP. Under the acquisition method of accounting, the purchase price is allocated to the underlying DFT OP tangible and intangible assets acquired and liabilities assumed based on their respective fair values with the excess purchase price, if any, allocated to goodwill.

The pro forma adjustments and the purchase price allocation as presented are based on estimates and certain information that is available as of the date of this Current Report on Form 8-K. The total consideration for the mergers and the assignment of fair values to DFT OP’s assets acquired and liabilities assumed has not been finalized, is subject to change, could vary materially from the actual amounts at the time the mergers are completed and may not have identified all adjustments necessary to conform DFT OP’s accounting policies to DLR OP’s accounting policies. A final determination of the fair value of DFT OP’s assets and liabilities, including intangible assets, will be based on the actual net tangible and intangible assets and liabilities of DFT OP that exist as of the closing date of the mergers and, therefore, cannot be made prior to the completion of the mergers. In addition, the value of the consideration to be paid by DLR and therefore the consideration to be issued by DLR OP for DFT OP upon the consummation of the mergers will be determined based on the closing price of DLR’s common stock on the closing date of the mergers. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and additional analyses are performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the pro forma financial statements presented below. DLR OP estimated the fair value of DFT OP’s assets and liabilities based on discussions with DFT OP’s management, preliminary valuation studies, due diligence and information presented in DFT OP’s public filings. Upon completion of the mergers, final valuations will be performed. Any increases or decreases in the fair value of relevant balance sheet amounts upon completion of the final valuations will result in adjustments to the pro forma balance sheet and/or statements of income. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.

The aggregate purchase price for financial statement purposes will be based on the actual closing price per share of DLR common stock on the closing date consistent with the requirements of Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations, which could differ materially from the assumed price per share of $112.95 (the last reported sales price of DLR’s common stock on the New York Stock Exchange on June 30, 2017) used in the pro forma financial statements. If the actual closing price per share of DLR common stock on the closing date is higher than the assumed amount, the final purchase price will be higher; conversely, if the actual closing price is lower, the final purchase price will be lower.

Assumptions and estimates underlying the unaudited adjustments to the pro forma financial statements are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the pro forma financial statements to give effect to pro forma events that are: (1) directly attributable to the mergers, (2) factually supportable and (3) expected to have a continuing impact on the results of income of DLR OP following the mergers. The pro forma condensed consolidated statements of income for the three months ended March 31, 2017 and the year ended December 31, 2016 consolidate the historical consolidated statements of income of DLR OP and DFT OP, giving effect to the mergers as if they had been consummated on January 1, 2016, the beginning of the earliest period presented. The pro forma balance sheet

combines the historical consolidated balance sheet of DLR OP and the historical consolidated balance sheet of DFT OP as of March 31, 2017, giving effect to the mergers as if they had been consummated on March 31, 2017. This information is presented for illustrative purposes only. It is neither indicative of the consolidated operating results that would have occurred or financial position that would have existed if such transactions had occurred on the dates described above and in accordance with the assumptions described below, nor is it indicative of future operating results or financial position.

The pro forma financial statements, although helpful in illustrating the financial characteristics of DLR OP following the mergers under one set of assumptions, do not reflect the benefits of expected cost savings (or associated costs to achieve such savings), opportunities to earn additional revenue, or other factors that may result as a consequence of the mergers and do not attempt to predict or suggest future results. Specifically, the unaudited pro forma condensed combined statements of income exclude projected operating efficiencies and overhead synergies expected to be achieved as a result of the mergers. The pro forma financial statements also exclude the effects of costs associated with any restructuring or integration activities from the mergers as they are currently not known and, to the extent they occur, are expected to be non-recurring and will not have been incurred at the closing date of the mergers. However, such costs could affect DLR OP following the mergers in the period the costs are incurred or recorded. Further, the pro forma financial statements do not reflect the effect of any regulatory actions that may impact the results of DLR OP following the mergers.

The following Unaudited Pro Forma Condensed Combined Financial Information is based on, and should be read in conjunction with:

•

the accompanying notes to the pro forma financial statements;

•

the historical audited consolidated financial statements of DLR OP and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission, or the SEC, on March 1, 2017;

•

the historical unaudited condensed consolidated financial statements of DLR OP and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the SEC on May 10, 2017;

•

the historical audited consolidated financial statements of DFT OP and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC, on February 23, 2017; and

•

the historical unaudited condensed consolidated financial statements of DFT OP and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in its quarterly report on Form 10-Q for the quarterly period ended March 31, 2017, as filed with the SEC on April 27, 2017.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2017

(in thousands)


	Historical
	Digital Realty Trust, L.P.			DuPont Fabros Technology, L.P. (See Note 1)			Pro Forma Adjustments			Note Reference		Pro Forma Combined Company
ASSETS
Investments in real estate:
Properties:
Land	$	767,148		$	179,648		$	130,316			2(b)	$	1,077,112
Acquired ground leases		11,489			—			—					11,489
Buildings and improvements		10,558,200			3,407,545			317,895			2(b)		14,283,640
Tenant improvements		532,168			—			—					532,168

Total investments in properties		11,869,005			3,587,193			448,211					15,904,409
Accumulated depreciation and amortization		(2,792,910	)		(661,499	)		661,499			2(c)		(2,792,910	)

Net investments in properties		9,076,095			2,925,694			1,109,710					13,111,499
Investment in unconsolidated joint ventures		112,856			—			—					112,856

Net investments in real estate		9,188,951			2,925,694			1,109,710					13,224,355
Cash and cash equivalents		14,950			40,765			—					55,715
Accounts and other receivables, net of allowance for doubtful accounts		195,406			9,504			—					204,910
Deferred rent		418,858			121,340			(121,340	)		2(d)		418,858
Acquired above-market leases, net		20,826			4,793			155,806			2(b)		181,425
Goodwill		757,444			—			1,770,526			2(b)		2,527,970
Acquired in-place lease value, deferred leasing costs and intangibles, net		1,501,843			26,238			1,513,481			2(b)		3,041,562
Restricted cash		10,447			—			—					10,447
Assets held for sale		56,154			—			—					56,154
Other assets		164,669			45,463			—					210,132

Total assets	$	12,329,548		$	3,173,797		$	4,428,183				$	19,931,528

LIABILITIES AND EQUITY
Global revolving credit facility, net	$	564,467		$	197,819		$	(135,424	)		2(a)	$	626,862
Unsecured term loan, net		1,505,667			249,089			(249,089	)		2(a)		1,505,667
Unsecured senior notes, net		4,128,110			837,895			(837,895	)		2(a)		4,128,110
Mortgage loans, including premiums, net		3,085			109,592			(5,592	)		2(a)		107,085
Bridge loan facility		—			—			1,400,000			2(a)		1,400,000
Accounts payable and other accrued liabilities		804,371			111,804			—					916,175
Accrued dividends and distributions		—			46,426			—					46,426
Acquired below-market leases, net		78,641			2,214			182,853			2(b)		263,708
Security deposits and prepaid rents		171,692			70,235			—					241,927
Obligations associated with assets held for sale		3,070			—			—					3,070

Total liabilities		7,259,103			1,625,074			354,853					9,239,030

Redeemable partnership units		—			579,329			(517,753	)		2(e)		61,576
Commitments and contingencies
Capital:
Partners’ capital:
General Partner		6,783,636			6,537			4,970,975			2(e)		11,761,148
Limited Partners		37,244			962,857			(207,892	)		2(e)		792,209
Accumulated distributions in excess of earnings		(1,629,633	)		—			(172,000	)		2(e)		(1,801,633	)
Accumulated other comprehensive loss		(127,375	)		—			—					(127,375	)

Total partners’ capital		5,063,872			969,394			4,591,083					10,624,349
Noncontrolling interests in consolidated joint ventures		6,573			—			—					6,573

Total capital		5,070,445			969,394			4,591,083					10,630,922

Total liabilities and capital	$	12,329,548		$	3,173,797		$	4,428,183				$	19,931,528

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE THREE MONTHS ENDED MARCH 31, 2017

(in thousands, except unit and per unit data)


	Historical
	Digital Realty Trust, L.P.			DuPont Fabros Technology, L.P. (See Note 1)			Pro Forma Adjustments			Note Reference		Pro Forma Combined Company
Operating Revenues:
Rental	$	404,126		$	91,899		$	(2,705	)		3(a)	$	493,320
Tenant reimbursements		87,288			45,295			—					132,583
Interconnection and other		57,225			—			—					57,225
Fee income		1,895			—			—					1,895
Other		35			2,290			—					2,325

Total operating revenues		550,569			139,484			(2,705	)				687,348

Operating Expenses:
Rental property operating and maintenance		169,339			40,240			—					209,579
Property taxes		26,919			4,496			—					31,415
Insurance		2,592			514			—					3,106
Depreciation and amortization		176,466			28,207			57,211			3(b)		261,884
General and administrative		34,647			6,812			—			3(c)		41,459
Transactions		3,323			512			—					3,835
Other		—			2,144			—					2,144

Total operating expenses		413,286			82,925			57,211					553,422

Operating income		137,283			56,559			(59,916	)				133,926
Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		5,324			—			—					5,324
Loss on sale of property		(522	)		—			—					(522	)
Interest and other income		151			—			—					151
Interest expense		(55,450	)		(12,284	)		2,798			3(d)		(64,936	)
Tax expense		(2,223	)		—			—					(2,223	)

Net income		84,563			44,275			(57,118	)				71,720
Net income attributable to noncontrolling interests in consolidated joint ventures		(121	)		—			—					(121	)

Net income attributable to Digital Realty Trust, L.P.		84,442			44,275			(57,118	)				71,599
Preferred units distributions		(17,393	)		(3,333	)		—					(20,726	)

Net income available to common unitholders	$	67,049		$	40,942		$	(57,118	)			$	50,873

Net income per unit available to common unitholders:
Basic	$	0.42			0.46							$	0.24
Diluted	$	0.41			0.45							$	0.24

Weighted average common units outstanding:
Basic		161,474,901			89,095,663			49,562,275			3(e)		211,037,176
Diluted		162,599,529			90,076,644			49,562,275			3(e)		212,161,804

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2016

(in thousands, except unit and per unit data)


	Historical
	Digital Realty Trust, L.P.			DuPont Fabros Technology, L.P. (See Note 1)			Pro Forma Adjustments			Note Reference		Pro Forma Combined Company
Operating Revenues:
Rental	$	1,542,511		$	347,512		$	(9,540	)		3(a)	$	1,880,483
Tenant reimbursements		355,903			169,668			—					525,571
Interconnection and other		204,317			—			—					204,317
Fee income		6,285			—			—					6,285
Other		33,197			11,521			—					44,718

Total operating revenues		2,142,213			528,701			(9,540	)				2,661,374

Operating Expenses:
Rental property operating and maintenance		660,177			154,206			—					814,383
Property taxes		102,497			18,102			—					120,599
Insurance		9,492			2,078			—					11,570
Depreciation and amortization		699,324			107,781			260,279			3(b)		1,067,384
General and administrative		152,733			23,043			—			3(c)		175,776
Transactions		20,491			1,532			—					22,023
Other		213			10,074			—					10,287

Total operating expenses		1,644,927			316,816			260,279					2,222,022

Operating income		497,286			211,885			(269,819	)				439,352
Other Income (Expenses):
Equity in earnings of unconsolidated joint ventures		17,104			—			—					17,104
Gain on sale of property		169,902			22,833			—					192,735
Interest and other income (expense)		(4,564	)		(33	)		—					(4,597	)
Interest expense		(236,480	)		(52,006	)		4,964			3(d)		(283,522	)
Tax expense		(10,385	)		—			—					(10,385	)
Loss from early extinguishment of debt		(1,011	)		(1,232	)		—					(2,243	)

Net income		431,852			181,447			(264,855	)				348,444
Net income attributable to noncontrolling interests in consolidated joint ventures		(367	)		—			—					(367	)

Net income attributable to Digital Realty Trust, L.P.		431,485			181,447			(264,855	)				348,077
Preferred units distributions		(83,771	)		(20,739	)		—					(104,510	)
Issuance costs associated with redeemed preferred units		(10,328	)		(12,495	)		—					(22,823	)

Net income available to common unitholders	$	337,386		$	148,213		$	(264,855	)			$	220,744

Net income per unit available to common unitholders:
Basic	$	2.21		$	1.69							$	1.09
Diluted	$	2.20		$	1.67							$	1.09

Weighted average common units outstanding:
Basic		152,359,680		$	87,284,564			49,562,275			3(e)		201,921,955
Diluted		153,085,706		$	88,120,436			49,562,275			3(e)		202,647,981

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.	Reclassifications of Historical DFT

Financial information presented in the “Historical-DuPont Fabros Technology, L.P.” columns in the unaudited pro forma condensed combined balance sheet and income statement represents the historical balance sheet of DFT OP as of March 31, 2017 and the historical statement of operations of DFT OP for the three months ended March 31, 2017 and for the year ended December 31, 2016, respectively. Such financial information has been reclassified or classified to conform to the historical presentation in DLR OP’s consolidated financial statements as set forth below. Unless otherwise indicated, defined line items included in the footnotes have the meanings given to them in the historical financial statements of DFT OP.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)


(in thousands)	Before Reclassification			Reclassification Amount				After Reclassification
*Balance Sheet*
Construction in progress and land held for development	$	493,442		$	(493,442	)	(1)	$	—
Land		103,304			76,344		(1)		179,648
Building and improvements		3,019,725			387,820		(1)(5)		3,407,545
Accumulated depreciation and amortization		(689,099	)		27,600		(5)		(661,499	)
Acquired above-market leases, net		—			4,793		(2)		4,793
Acquired in-place lease value, deferred leasing costs and intangibles, net		24,560			1,678		(5)		26,238
Other assets		50,256			(4,793	)	(2)		45,463
Accounts payable and accrued liabilities		29,647			82,157		(3)		111,804
Construction costs payable		75,884			(75,884	)	(3)		—
Accrued interest payable		6,273			(6,273	)	(3)		—
Acquired below-market leases, net		—			2,214		(4)		2,214
Security deposits and prepaid rents		72,449			(2,214	)	(4)		70,235

*Income Statement - For the Three Months Ended March 31, 2017*
Rental	$	91,268		$	631		(1)	$	91,899
Other revenue		2,921			(631	)	(1)		2,290
Real estate taxes and insurance		5,010			(5,010	)	(2)		—
Property taxes		—			4,496		(2)		4,496
Insurance		—			514		(2)		514
Rental property operating and maintenance		40,191			49		(3)		40,240
Transactions		—			512		(3)		512
Other		2,705			(561	)	(3)		2,144

*Income Statement - For the Year Ended December 31, 2016*
Rental	$	345,022		$	2,490		(1)	$	347,512
Other revenue		14,011			(2,490	)	(1)		11,521
Real estate taxes and insurance		20,180			(20,180	)	(2)		—
Property taxes		—			18,102		(2)		18,102
Insurance		—			2,078		(2)		2,078
Rental property operating and maintenance		154,064			142		(3)		154,206
Transactions		—			1,532		(3)		1,532
Other		11,781			(1,707	)	(3)		10,074
Interest and other income (expense)		—			33		(3)		33

Reclassification and classification of the Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2017:

(1)

Represents disaggregation and reclassification of “Construction in progress and land held for development” of $493.4 million to “Land” of $76.3 million and “Buildings and improvements” of $417.1 million.

(2)

Represents reclassification of “Other assets” of $4.8 million to “Acquired above-market leases, net” of $4.8 million.

(3)

Represents reclassification of “Construction costs payable” of $75.9 million and “Accrued interest payable” of $6.3 million to “Accounts payable and other accrued liabilities” of $82.2 million.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)

(4)

Represents reclassification of “Security deposits and prepaid rents” of $2.2 million to “Acquired below-market leases, net” of $2.2 million.

(5)

Represents reclassification of “Buildings and improvements” of $29.3 million and “Accumulated depreciation and amortization” of ($27.6) million to “Acquired in-place lease value, deferred leasing costs and intangibles, net” of $1.7 million.

Reclassification and classification of the Unaudited Pro Forma Condensed Combined Income Statement for the three months ended March 31, 2017:

(1)

Represents reclassification of “Other revenue” of $0.6 million to “Rental revenue” of $0.6 million.

(2)

Represents reclassification of “Real estate taxes and insurance” of $5.0 million to “Property taxes” of $4.5 million and to “Insurance” of $0.5 million.

(3)

Represents reclassification of “Other expense” of $0.6 million to “Rental property operating and maintenance” of $0.1 million and to “Transactions” of $0.5 million.

Reclassification and classification of the Unaudited Pro Forma Condensed Combined Income Statement for the year ended December 31, 2016:

(1)

Represents reclassification of “Other revenue” of $2.5 million to “Rental revenue” of $2.5 million.

(2)

Represents reclassification of “Real estate taxes and insurance” of $20.2 million to “Property taxes” of $18.1 million and to “Insurance” of $2.1 million.

(3)

Represents reclassification of “Other expense” of $1.7 million to “Rental property operating and maintenance” of $0.2 million and to “Transactions” of $1.5 million and to “Interest and other income (expense)” of $0.0 million.

2.	Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

The unaudited pro forma condensed combined balance sheet reflects the effect of the following adjustments:

(a)

Summary of sources and uses for the mergers (in thousands):


Sources of funds:
DLR OP common units ⁽¹⁾	$	5,570,372
DLR series C preferred units ⁽²⁾		201,250
Global revolving credit and committed facilities ⁽³⁾		1,566,395

Total sources of funds	$	7,338,017

Uses of funds:
DFT OP common units and other ⁽¹⁾	$	5,570,372
DFT series C preferred units ⁽²⁾		201,250
DFT indebtedness⁽⁴⁾		1,394,395
Transaction costs ⁽⁵⁾		172,000

Total uses of funds	$	7,338,017

⁽¹⁾

Reflects the issuance of 49.5 million DLR OP common units at an assumed price of $112.95 per DLR common unit, the last reported sales price of DLR’s common stock on the New York Stock Exchange on June 30, 2017. The number of DLR OP common units to be issued was determined based on the number of DFT OP common units (including DFT OP common units held by DFT) outstanding as of June 30, 2017, as well as the number of shares of restricted DFT common stock, DFT performance stock units and unexercised options to purchase shares of DFT common stock outstanding as of June 30, 2017, which will be converted into the right to receive the common consideration and result in the issuance of an equal number of DLR OP

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)

common units to DLR. Such DFT OP common units, shares of restricted DFT common stock, DFT performance stock units and unexercised options to purchase shares of DFT common stock are assumed to remain outstanding until the closing date of the mergers. Further, no effect has been given to any new DFT OP common units, shares of restricted DFT common stock, DFT performance stock units and unexercised options to purchase shares of DFT common stock that may be issued or granted subsequent to June 30, 2017 and before the closing date of the mergers. A 10% increase (decrease) in the closing share price of DLR common stock would increase (decrease) the purchase price by approximately $560 million, which, in turn, would increase (decrease) the amount of goodwill recorded in connection with the mergers by the same amount. See Note 2(b) for additional information on our preliminary purchase price allocation, and see Note 2(e) for additional information on the issuance of DLR OP common units and elimination of historical DFT capital balances.

⁽²⁾	Reflects the conversion of each DFT OP series C preferred unit into the right to receive one validly issued DLR OP series C preferred unit.

⁽³⁾

Reflects a $62.4 million draw under DLR OP’s global revolving credit facility, a $1.4 billion draw under the bridge facility and a $104.0 million draw under the mortgage loan facility to repay DFT OP indebtedness and pay transaction costs in connection with the mergers. Subject to market conditions, DLR OP may fund a portion of such anticipated debt repayments and transaction costs using sources of debt financing other than DLR’s global revolving credit or bridge facilities. See Note 3(d) for additional information on the interest expense associated with the assumed draw under DLR OP’s global revolving credit and committed facilities.

⁽⁴⁾

Includes the payoff of $197.8 million, $249.1 million, $837.9 million and $109.6 million outstanding under DFT OP’s revolving credit facility, term loan, senior notes and mortgage loans, respectively, net of deferred financing costs. The debt has been eliminated from the unaudited pro forma condensed combined balance sheet, with a corresponding decrease to accumulated deficit.

⁽⁵⁾

DLR OP estimates that the total transaction costs will be approximately $172.0 million. The actual amount may vary. DLR OP also expects to incur other financing costs and integration costs associated with the mergers. Given the uncertainty of the amounts involved, such financing costs and integration costs are not reasonably estimatable.

(b)

Adjustment reflects the excess of the estimated purchase price as determined in Note 2(a) over the book value of the net tangible and intangible assets to be acquired. Under the acquisition method of accounting, the total estimated purchase price will be allocated to DFT OP’s net tangible and intangible assets based on their estimated fair values at the date of the completion of the mergers. The following table sets forth the preliminary allocation of the estimated purchase price to DFT OP’s net tangible and intangible assets and the adjustments to the historical book value of DFT OP’s net tangible and intangible assets to reflect this preliminary allocation (in thousands):


	Preliminary estimate for allocation of the purchase price			Historical DFT			Pro Forma Adjustment
Land	$	309,964		$	179,648		$	130,316
Buildings and improvements		3,725,440			3,407,545			317,895
Acquired above-market leases		160,599			4,793			155,806
Customer relationships		961,400			—			961,400
In-place lease value		520,713			—			520,713
Tenant origination costs		50,906			26,238			24,668
Non-compete		6,700			—			6,700
Goodwill		1,770,526			—			1,770,526
Acquired below-market leases		(185,067	)		(2,214	)		(182,853	)
Working capital and other		(155,164	)		(155,164	)		—

Total	$	7,166,017		$	3,460,846		$	3,705,171

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)

Upon closing of the mergers, the purchase consideration will be adjusted for working capital levels and other adjustments as stipulated in the merger agreement.

Upon completion of the fair value assessment, the final purchase price allocation may differ from the preliminary allocation provided above. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and the residual amounts will be allocated as an increase or decrease to goodwill. The goodwill recorded is due primarily to the synergies expected to be realized between the two companies and the assembled workforce acquired in connection with the mergers.

The fair value of investment in real estate acquired of $4.0 billion consists of land with an estimated fair value of $0.3 billion, building and improvements with an estimated fair value of $2.9 billion and construction in process, which is classified within building and improvements, with an estimated fair value of $0.8 billion. Investment in real estate is expected to be amortized on a straight-line basis over estimated remaining useful lives of 2 - 39 years.

The components of investment in real estate have been valued using a combination of the income approach, the market approach and the cost approach, which is based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional and economic factors.

The fair value of definite life intangible assets acquired of $1.5 billion consist of customer relationships with an estimated fair value of $1.0 billion, in-place lease value with an estimated fair value of $0.5 billion, acquired above-market leases with an estimated fair value of $0.2 billion, acquired below-market leases with an estimated fair value of ($0.2) billion and tenant origination costs with an estimated fair value of $0.1 billion. The customer relationship value is expected to be amortized on a straight-line basis over an estimated useful life of approximately 19 years, in-place lease value is expected to be amortized on a straight-line basis over an estimated useful life of six years, acquired above-market leases is expected to be amortized on a straight-line basis over an estimated useful life of approximately four years, acquired below-market leases is expected to be amortized on a straight-line basis over an estimated useful life of approximately 12 years and tenant origination costs is expected to be amortized on a straight-line basis over an estimated useful life of seven years.

The fair value of intangible assets is determined primarily using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an asset based on market participants’ expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of the valuations include the estimated annual net cash flows for each indefinite lived or definite lived intangible asset (including net revenues, operating expenses, selling and marketing costs and working capital asset/contributory asset charges), the appropriate discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends as well as other factors.

(c)

Adjustment eliminates DFT OP’s historical accumulated depreciation.

(d)

Adjustment eliminates DFT OP’s historical deferred rent receivable.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)

(e)

Reflects the issuance of 49.5 million DLR OP common units at an assumed price of $112.95 per DLR OP common unit, the last reported sales price of DLR’s common stock on the New York Stock Exchange on June 30, 2017, as well as the elimination of all historical DFT OP general partner’s capital, limited partners’ capital and redeemable partnership units balances and the incurrence of transaction costs. The following table sets forth the adjustments impacting general partner capital, limited partner capital, distributions in excess of earnings and redeemable partnership units (in thousands):


	General partner’s capital			Limited partners’ capital			Accumulated distributions in excess of earnings			Redeemable partnership units
Issuance of DLR OP common units	$	4,977,512		$	553,715		$	—		$	61,576
Elimination of DFT OP’s historical capital balances		(6,537	)		(761,607	)		—			(579,329	)
Transaction costs of DLR OP		—			—			(172,000	)		—

Adjustments	$	4,970,975		$	(207,892	)	$	(172,000	)	$	(517,753	)

3.	Unaudited Pro Forma Condensed Combined Income Statement Adjustments

The unaudited pro forma condensed combined income statements reflect the effect of the following pro forma adjustments:

(a)

Rental revenue for the three months ended March 31, 2017 is adjusted to: (i) remove ($1.7) million of DFT OP’s historical straight-line rent; (ii) recognize $3.0 million of total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from January 1, 2016; (iii) remove $0.2 million of DFT OP’s historical amortization of the asset or liability created from previous acquisitions of leases with favorable or unfavorable rents; and (iv) amortization of the asset or liability from the acquired leases with favorable or unfavorable rents relative to estimated market rents, including a reduction of $12.7 million from amortization of the asset and an increase of $5.5 million from amortization of the liability, both from January 1, 2016. Rental revenue for the year ended December 31, 2016 is adjusted to: (i) remove $0.1 million of DFT OP’s historical straight-line rent; (ii) recognize $20.0 million of total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from January 1, 2016; (iii) remove $0.4 million of DFT OP’s historical amortization of the asset or liability created from previous acquisitions of leases with favorable or unfavorable rents; and (iv) amortization of the asset or liability from the acquired leases with favorable or unfavorable rents relative to estimated market rents, including a reduction of $50.8 million from amortization of the asset and an increase of $21.7 million from amortization of the liability, both from January 1, 2016. We amortized the asset or liability from the acquired leases with favorable or unfavorable rents relative to estimated market rents using the remaining lease term associated with these leases, which approximated eight years.

(b)

Reflects the net impact on depreciation and amortization expense of the following adjustments:

•

An increase to depreciation and amortization expense of $7.8 million and $36.1 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, as a result of fair value accounting for investment in real estate and other fixed assets acquired in the mergers.

•

An increase to depreciation and amortization expense of $49.4 million and $224.2 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, as a result of fair value accounting for definite-lived intangible assets acquired in the mergers.

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)

For the three months ended March 31, 2017, real estate depreciation expense for the assets acquired in the mergers would have been $85.3 million and non-real estate depreciation expense would have been $0.1 million. For the year ended December 31, 2016, total real estate depreciation expense for the assets acquired in the mergers would have been $360.9 million and non-real estate depreciation expense would have been $7.2 million.

(c)

DLR OP expects to incur additional general and administrative costs as a result of the mergers that will include, but are not limited to, incremental salaries and benefits, audit, tax and legal fees and other administrative costs. As DLR OP has not yet entered into contracts with third-parties to provide the services included within this estimate, these expenses do not appear in the unaudited pro forma condensed combined income statements.

(d)

Reflects the net reduction in interest expense of $2.8 million and $5.0 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, due to the following adjustments:

•

An increase in interest expense of $9.5 million and $37.8 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, due to a $62.4 million draw under DLR OP’s global revolving credit facility, which will bear interest at LIBOR plus 1.00% (estimated to be 2.22%), a $1.4 billion draw under the bridge facility, which will bear interest at LIBOR plus 1.10% (estimated to be 2.32%) and a $104.0 million draw under the mortgage loan facility, which will bear interest at 3.70%), to consummate the mergers. In addition, amortization of deferred loan fees related to the committed facilities would total $0.0 million and $9.3 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. A hypothetical 0.125% increase or decrease in the expected weighted average interest rate would increase or decrease interest expense associated with this additional debt by $0.5 million and $1.8 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively. Subject to market conditions, DLR OP may fund a portion of the debt repayment and transaction costs using sources of debt financing other than DLR OP’s global revolving credit or the bridge facilities. Such alternative debt financing may bear interest at a rate greater or less than DLR OP’s global revolving credit or the bridge facilities, which would cause DLR OP’s actual interest expense to exceed or be less than the interest expense reflected in the unaudited pro forma condensed combined income statements.

•

A reduction in interest expense of $11.5 million and $48.3 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, due to the payoff of DFT OP debt in connection with the mergers, and elimination of the associated deferred financing cost amortization of $0.8 million and $3.7 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively.

(e)

The calculation of basic and diluted income per common unit was as follows:


	Three Months Ended March 31, 2017
	(in thousands, except for per unit data)
	DLR OP Historical		DFT OP Historical		Pro Forma Combined Company
Net income from continuing operations available to common unitholders, basic and diluted	$	67,049	$	40,942	$	50,873
Weighted average common units outstanding, basic ⁽¹⁾		161,475		89,096		211,037
Weighted average common units outstanding, diluted ⁽¹⁾		162,600		90,077		212,162
Net income per unit available to common unitholders, basic	$	0.42	$	0.46	$	0.24
Net income per unit available to common unitholders, diluted	$	0.41	$	0.45	$	0.24

DIGITAL REALTY TRUST, L.P. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (continued)


	Year Ended December 31, 2016
	(in thousands, except for per unit data)
	DLR OP Historical		DFT OP Historical		Pro Forma Combined Company
Net income from continuing operations available to common unitholders, basic and diluted	$	337,386	$	148,213	$	220,744
Weighted average common units outstanding, basic ⁽¹⁾		152,360		87,285		201,922
Weighted average common units outstanding, diluted ⁽¹⁾		153,086		88,120		202,648
Net income per unit available to common unitholders, basic	$	2.21	$	1.69	$	1.09
Net income per unit available to common unitholders, diluted	$	2.20	$	1.67	$	1.09

⁽¹⁾	The pro forma weighted average DLR OP common units outstanding assume that the DLR OP common units issued in connection with the mergers were issued as of January 1, 2016.

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