Investment In Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 2013

Investment In Unconsolidated Joint Ventures

4. Investment in Unconsolidated Joint Ventures

As of December 31, 2013, our investment in unconsolidated joint ventures consists of effective 50% interests in joint ventures that own a data center property at 2001 Sixth Avenue in Seattle, Washington, a data center property at 2020 Fifth Avenue in Seattle, Washington and a development property at 33 Chun Choi Street in Hong Kong, and a 20% interest in a joint venture with an investment fund managed by Prudential Real Estate Investors (PREI®). The following tables present summarized financial information for the joint ventures for the years ended December 31, 2013, 2012, and 2011 (in thousands):

2013	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             33,980	$         39,674	$        105,953	$        111,943	$        (72,269)	$         37,625	$         (11,981)	$         25,644	$         12,346
700/750 Central Expressway	50.00%	-	-	-	-	-	55	(1)	54	58
2020 Fifth Avenue	50.00%	47,901	53,389	47,000	47,525	5,864	7,513	(522)	6,991	5,756
33 Chun Choi Street (Hong Kong)	50.00%	102,428	122,890	-	8,382	114,508	-	(44)	(44)	(150)
PREI ®	20.00%	400,528	460,062	185,000	276,212	183,850	9,577	(4,479)	5,098	2,641
Total Unconsolidated Joint Ventures		$           584,837	$       676,015	$        337,953	$        444,062	$       231,953	$         54,770	$         (17,027)	$         37,743	$         20,651
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         70,504				$           9,796
2012	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             33,397	$         40,340	$        107,294	$        113,207	$        (72,867)	$         35,031	$         (10,266)	$         24,765	$         11,823
700/750 Central Expressway	50.00%	-	879	-	496	383	1,798	(582)	1,216	4,389
2020 Fifth Avenue	50.00%	46,339	47,680	-	1,543	46,137	-	(38)	(38)	(38)
33 Chun Choi Street (Hong Kong)	50.00%	33,144	72,391	-	953	71,438	-	(24)	(24)	(44)
Total Unconsolidated Joint Ventures		$           112,880	$       161,290	$        107,294	$        116,199	$         45,091	$         36,829	$         (10,910)	$         25,919	$         16,130
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         66,634				$           8,135
2011	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             34,512	$         42,096	$        108,532	$        114,284	$        (72,188)	$         32,716	$           (9,592)	$         23,124	$           9,822
700/750 Central Expressway	50.00%	43,086	52,352	25,000	38,830	13,522	4,776	(1,053)	3,723	(677)
2020 Fifth Avenue	16.40%	26,645	28,439	-	1,044	27,395	37	(49)	(12)	(12)
Total Unconsolidated Joint Ventures		$           104,243	$       122,887	$        133,532	$        154,158	$        (31,271)	$         37,529	$         (10,694)	$         26,835	$           9,133
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         23,976				$           4,952

Our investment in the 2001 Sixth Avenue unconsolidated joint venture included in our consolidated balance sheet exceeds our equity presented in the joint ventures’ balance sheet since our purchase accounting adjustments are not pushed down to the joint venture.

In March 2012, we entered into a joint venture with Savvis, Inc., a CenturyLink company. On June 26, 2012, this unconsolidated joint venture acquired a 164,000 square foot property in Hong Kong. The property is located at 33 Chun Choi Street in Hong Kong. As of December 31, 2013, we have contributed approximately $57.4 million to this joint venture.

PREI ® Joint Venture

On September 27, 2013, we formed a joint venture with an investment fund managed by Prudential Real Estate Investors (PREI®). We contributed nine Powered Base Building® data centers valued at approximately $366.4 million plus 20% of $2.8 million of closing costs. The PREI®-managed fund contributed cash equal to their 80% interest in the joint venture assets at fair value and we retained a 20% interest. The joint venture is structured to provide a current annual preferred return from cash flow first to the PREI®-managed interest, then to our interest, after which a portion of any excess cash flows is shared by the partners based on their respective interests and the remaining portion is paid to us as a promote interest. We 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 $115.6 million on the sale of the 80% interest in the nine properties during the year ended December 31, 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 the Company’s contributed interest in 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 consolidated income statements.

The table below presents properties contributed to the PREI® 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 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

We amortize the difference between the cost of our investment in the joint venture with PREI® and the book value of the underlying equity into earnings from unconsolidated affilaites on a straight-line basis consistent with the lives of the underlying assets.  The amortization of this difference was approximately $0.1 million for the year ended December 31, 2013.

Digital Realty Trust, L.P. [Member]

Investment In Unconsolidated Joint Ventures

4. Investment in Unconsolidated Joint Ventures

As of December 31, 2013, our investment in unconsolidated joint ventures consists of effective 50% interests in joint ventures that own a data center property at 2001 Sixth Avenue in Seattle, Washington, a data center property at 2020 Fifth Avenue in Seattle, Washington and a development property at 33 Chun Choi Street in Hong Kong, and a 20% interest in a joint venture with an investment fund managed by Prudential Real Estate Investors (PREI®). The following tables present summarized financial information for the joint ventures for the years ended December 31, 2013, 2012, and 2011 (in thousands):

2013	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             33,980	$         39,674	$        105,953	$        111,943	$        (72,269)	$         37,625	$         (11,981)	$         25,644	$         12,346
700/750 Central Expressway	50.00%	-	-	-	-	-	55	(1)	54	58
2020 Fifth Avenue	50.00%	47,901	53,389	47,000	47,525	5,864	7,513	(522)	6,991	5,756
33 Chun Choi Street (Hong Kong)	50.00%	102,428	122,890	-	8,382	114,508	-	(44)	(44)	(150)
PREI ®	20.00%	400,528	460,062	185,000	276,212	183,850	9,577	(4,479)	5,098	2,641
Total Unconsolidated Joint Ventures		$           584,837	$       676,015	$        337,953	$        444,062	$       231,953	$         54,770	$         (17,027)	$         37,743	$         20,651
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         70,504				$           9,796
2012	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             33,397	$         40,340	$        107,294	$        113,207	$        (72,867)	$         35,031	$         (10,266)	$         24,765	$         11,823
700/750 Central Expressway	50.00%	-	879	-	496	383	1,798	(582)	1,216	4,389
2020 Fifth Avenue	50.00%	46,339	47,680	-	1,543	46,137	-	(38)	(38)	(38)
33 Chun Choi Street (Hong Kong)	50.00%	33,144	72,391	-	953	71,438	-	(24)	(24)	(44)
Total Unconsolidated Joint Ventures		$           112,880	$       161,290	$        107,294	$        116,199	$         45,091	$         36,829	$         (10,910)	$         25,919	$         16,130
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         66,634				$           8,135
2011	% Ownership	Net Investment in Properties	Total Assets	Mortgage Loans	Total Liabilities	Equity / (Deficit)	Revenues	Property Operating Expense	Net Operating Income	Net Income (Loss)
Unconsolidated Joint Ventures
2001 Sixth Avenue	50.00%	$             34,512	$         42,096	$        108,532	$        114,284	$        (72,188)	$         32,716	$           (9,592)	$         23,124	$           9,822
700/750 Central Expressway	50.00%	43,086	52,352	25,000	38,830	13,522	4,776	(1,053)	3,723	(677)
2020 Fifth Avenue	16.40%	26,645	28,439	-	1,044	27,395	37	(49)	(12)	(12)
Total Unconsolidated Joint Ventures		$           104,243	$       122,887	$        133,532	$        154,158	$        (31,271)	$         37,529	$         (10,694)	$         26,835	$           9,133
Our investment in and share of equity in earnings    of unconsolidated joint ventures						$         23,976				$           4,952

Our investment in the 2001 Sixth Avenue unconsolidated joint venture included in our consolidated balance sheet exceeds our equity presented in the joint ventures’ balance sheet since our purchase accounting adjustments are not pushed down to the joint venture.

In March 2012, we entered into a joint venture with Savvis, Inc., a CenturyLink company. On June 26, 2012, this unconsolidated joint venture acquired a 164,000 square foot property in Hong Kong. The property is located at 33 Chun Choi Street in Hong Kong. As of December 31, 2013, we have contributed approximately $57.4 million to this joint venture.

PREI ® Joint Venture

On September 27, 2013, we formed a joint venture with an investment fund managed by Prudential Real Estate Investors (PREI®). We contributed nine Powered Base Building® data centers valued at approximately $366.4 million plus 20% of $2.8 million of closing costs. The PREI®-managed fund contributed cash equal to their 80% interest in the joint venture assets at fair value and we retained a 20% interest. The joint venture is structured to provide a current annual preferred return from cash flow first to the PREI®-managed interest, then to our interest, after which a portion of any excess cash flows is shared by the partners based on their respective interests and the remaining portion is paid to us as a promote interest. We 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 $115.6 million on the sale of the 80% interest in the nine properties during the year ended December 31, 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 the Company’s contributed interest in 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 consolidated income statements.

The table below presents properties contributed to the PREI® 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 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

We amortize the difference between the cost of our investment in the joint venture with PREI® and the book value of the underlying equity into earnings from unconsolidated affilaites on a straight-line basis consistent with the lives of the underlying assets.  The amortization of this difference was approximately $0.1 million for the year ended December 31, 2013.