Digital Realty Trust, Inc.

And welcome to the Digital Realty first quarter 2024 earnings call. Please note that this event is being recorded. During today's presentation, all parties will be in listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Thank you, Operator, and welcome everyone to Digital Realty's first quarter 2024 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions of today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our first quarter. First, our customer value proposition continues to resonate as reflected by an AI-driven acceleration in leasing activity that drove our overall leasing volume to a new record. First quarter leasing was more than 40% above our prior record, principally driven by an improvement in pricing. Second, our fundamental strength picked up where 2023 left off. record cash releasing spread, and strong stabilized same-capital cash NLI growth of 4.7%, reflecting continued strength in data center fundamentals combined with the benefit of the improvements that we have made to our portfolio over the past year. And third, we've made meaningful progress on our 2024 funding plan already, with just over a billion dollars of fresh capital raised from asset sales and joint ventures to date, putting us above the low end of our guidance range for 2024, just one-third of the way through the year. As a result of our efforts, reported leverage fell from 6.2 times at year end to 6.1 times at March 31, and remained at 5.8 times on a pro forma basis, reflecting completed and announced transactions. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Thanks, Jordan. Thanks to everyone for joining our call. Following the successful course we set in 2023, Digital Realty experienced accelerating momentum in the first quarter of 2024, headlined by a collection of multifaceted AI opportunities that drove a number of new leasing records.

As the demand for our capacity in core markets remains elevated, all visibility surrounding competitive new supply remains cloud. At Digital, we continue to focus on our strategic priorities and on delivering on behalf of our expanding list of 5,000 plus customers across our 50 plus markets in 25 plus countries on six continents. During the first quarter, we posted record leasing results, surpassing our prior record by more than 40% and exceeding our leasing results for all of 2019 in just this one quarter. We also deliver strong operating results, as evidenced by healthy, stable, and sane capital growth, and the highest releasing spreads in the company history. We continue to innovate and integrate. A further expansion of service fabric through the launch of our service directory marketplace, which has seen the addition of over 90 members offering more than 150 services, including secure and direct connections to over 225 global cloud on-ramp. creating a vibrant community for seamless interconnection and collaboration. And just last week, we launched Private AI Exchange, powered by Service Fabric, which enables enterprise data to be at the center of an AI architecture, directly adjacent and interconnected with AI capabilities. This architecture alleviates the data-grabbing barriers that emerge as data is generated and exchanged with multiple applications, across end-to-end AI-enabled digital workflows. We also continued down the path of bolstering our balance sheet and diversifying our capital sources with the expansion of one of our stabilized hyperscale joint ventures and the addition of a new hyperscale development JV together with our first transaction with our professional capital partner, Digital Query, in well over a year. These transactions help to fund the development pipeline capacity that our customers are seeking while reducing our overall leverage. Operating the financial results in the first quarter were encouraging. We posted sequential growth in our core data center revenues while growing adjusted EBITDA and core FFO per share. Development returns also continued to improve, and we further enhanced the product mix of our portfolio while maintaining strong liquidity and lower leverage. Bookings and renewal results were even better with a number of metrics reaching new records, reflecting a strong demand environment and limited new capacity. Global bookings were 252 million, well ahead of our prior quarterly record of 176 million, reflecting the impact from the acceleration of AI and an improved pricing environment. Importantly, When comparing this quarter's leasing to the prior record set in 3Q2022, we leased an incremental 10% of IT load capacity, while rates in a greater than 1 megawatt segment were approximately 60% higher than those achieved 18 months prior. Perhaps a bit overshadowed by these record-setting results was another strong quarter in our 0 to 1 megawatt plus interconnection segment, which delivered a 30-straight quarter over $50 million. Demand for a connectivity-oriented capacity remains healthy and pricing remains firm. Our mark-to-market renewal spreads were up by 11.8%, aided by a record 18.5% increase in our greater-than-1-megawatt category.

Return remained low and well-controlled at 1.7% for the quarter. Staying capital cash-on-the-line growth also remained healthy, growing by 4.7% year-over-year in the quarter. and marking our fifth consecutive quarter of positive same-capital growth.

A year ago, data-centered demand was strong, driven by the growth of cloud and digital transformation, while supply was tightening due to power transmission constraints, supply chain delays, and other factors. Since then, AI has become a significant driver of demand as hyperscalers race to develop, deploy, and implement the technology while enterprises begin to explore the potential of this wave of technological evolution. McKinsey recently forecasted data center demand growth at a double-digit CAGR through 2030. This growth in secular demand is broad and deep, and both enterprises and service providers need significant new data center capacity to accommodate their expanding needs. Fueled by trends such as enterprise AI adoption, AI as a service, IoT, and the relentless growth in data creation. Reflecting these trends, I want to highlight two highly strategic AI assignments that came to fruition during the quarter. First, we were selected to host one of the world's most powerful AI supercomputers in one of our data centers in Copenhagen in a collaboration spearheaded by the Nova Nordisk Foundation and the Export and Investment Fund of Denmark to grant researchers from Denmark's public and private sectors access to a cutting-edge NVIDIA-powered AI supercomputer, in addition to NVIDIA software platforms, training, and expertise. Second, Digital Realty further strengthened its collaboration with Oracle to accelerate the growth and adoption of AI among enterprises, aiming to develop hybrid integrated solutions that address data gravity challenge. expedite time to market for enterprise-deployed next-generation AI services, and unlock data and AI-based business outcomes. Oracle will deploy critical GPU-based infrastructure with Digital Realty that leverages Platform Digital's open, purpose-built, global data center solution and caters to enterprise and AI customers' critical NVIDIA and AMD deployments, among others. Our 01 plus interconnection customers also continue to recognize our demonstrable strength and value proposition, whether that related to power dense applications, a network of globally connected data centers, or other critical infrastructure requirements. During the first quarter, we added over 128 new logos. Our wins included a leading Fortune 500 AI component maker is expanding their presence on platform digital to a new EMEA market to support their streaming service capabilities. A global cloud computing and content distribution provider is leveraging the leading connectivity proposition of platform digital in Mombasa to support their global EdgePop expansion project. A global 120 manufacturing company is building an AI HPC environment in Frankfurt to support its autonomous vehicle project. A leading French cloud service provider is deploying on Platform Digital to build out its edge cloud offering across the globe to support their enterprise customers' hybrid infrastructure by delivering low-latency performance while retaining local data residency. The Fortune 500 technology distributor and VAR IT service provider chose Platform Digital in Phoenix to support data exchange and interconnect with key partners. And the Fortune 500 health benefits provider is expanding into two additional North America metros to take advantage of cloud and network density available on platform digital. Moving over to a quick update on our largest market, Northern Virginia. During the first quarter, we leased approximately 80 megawatts of capacity in the supply-constrained corner of Eastern Loudoun County. Demand for our capacity remained strong And while hyperscale leasing is typically lumpy, we continue to see healthy traction on the remaining capacity, and we are focused on helping our customers and partners source the incremental data center infrastructure that they require. During the first quarter, we worked with Dominion Energy to help address the transmission bottleneck in Ashburn by providing them with an easement to land the southern line at the Mars substation that they plan to construct on a quarter partial of our 450-acre Digital Dollars Campus. We remain cautiously optimistic about getting access to additional power, with Dominion's current forecast for completion of the Southern Line Transmission Project by late 2025. Today, we have roughly 80 megawatts of remaining capacity available for use within our first building on our Digital Dollars Campus in Loudoun, known as Building 7. And we have almost 200 megawatts available for development on our brickyard campus in Manassas, which was contributed to our JV with Blackstone in the first quarter. As a reminder, Manassas is currently outside of the constrained area and power remains accessible there. Before turning it over to Matt, I'd like to touch on our ESC progress during the first quarter. Continue to make meaningful progress and be recognized for our strong ESC performance in 2024. We went live with a switch to 100% renewable energy supplies for our Texas, New Jersey, and Sydney data center portfolios, benefiting 30 sites, addressing more than 10% of our global electricity footprint. We were recognized by the EPA as Energy Star Partner of the Year with sustained excellence for the fourth year. And we added a new green building certification at our MRS Ford development in Marseille, France. We also announced a partnership with a leading global energy solutions provider to use our UPS systems to support Ireland's transition to renewable energy. And we've announced a significant expansion of our use of HVO diesel, a cleaner fuel made from waste cooking oils and fats to power our backup generators. This will up our use of HVO to 20 global sites and 15% of our global portfolio by IT capacity. We remain committed to minimizing digital realty's impact on the environment while delivering sustainable growth for all of our stakeholders.

With that, I'm pleased to turn the call over to our CFO, Matt Rossier.

Thank you, Andy. Let me jump right into our first quarter results. We signed a record 252 million of new leases in the first quarter, led by 175 million of greater than a megawatt leasing in the Americas. and another 53 million of 0 to 1 megawatt plus interconnection leasing, with interconnection bookings remaining firm at 13 million. Turning to our backlog, given the record leasing, the backlog of signed but not yet commenced leases swelled to a new record of 541 million at quarter end, with new leasing outstripping a record 156 million of commencements during the quarter. Looking ahead, more than half of the record backlog is slated to commence during the remainder of 2024, indicating that commencements are likely to remain elevated. During the first quarter, we signed a record $248 million of renewal leases and a record increase of 11.8% on a cash basis. Releasing spreads were once again positive across products and regions. with particular strength in the Americas. Releasing spreads have been increasing steadily for well over a year now, and while we expect that they will remain very healthy, they're likely to moderate this quarter's record, given the significant weighting of lease expirations in the zero to one megawatt segment for the remainder of the year. In addition, we think it is important to consider a normalized view of the headline and real spread, two separate items skewed our reported spreads higher in the first quarter. First, there was a notable outlier in the other category that should not be considered recurring or repeatable, and removing this transaction would reduce our overall reported spreads by 250 basis points to 9.3% for the quarter. Second, there was a significant early renewal transaction in our greater than one megawatt segment that was part of a large package deal as we work to support this customer's broader data center capacity needs in one of our tightest markets. While this transaction enabled us to opportunistically pull forward some of our below market expirations from the outer years, our forward year lease expiration schedule remains dominated by our zero to one megawatt segment, which tends to experience spreads in the low to mid single digits akin to what we saw in the first quarter. including both the outlier transaction and the package deal renewal, releasing spreads in the quarter would have been up 3.4% on a cash basis. We feel that this is a more predictable aspect of our portfolio, that we will continue to seek opportunities and may periodically be able to capture the growing mark-to-market opportunity in our greater than a megawatt portfolio. In terms of earnings growth, We reported first quarter core FFO of $1.67 per share, reflecting strong organic operating results, partly balanced by dilution associated with the stabilized asset sales and JV contributions completed early in the year and the ongoing deleveraging of our balance sheet. Normalizing for the sale or JV of $3 billion of stabilized assets completed since the beginning of last year, total revenue growth was 7% year-over-year in the first quarter due to the benefit of improved leasing spreads along with favorable new leasing. Revenue growth in the quarter was tempered by the decline in utility expense reimbursements as electricity rates fell sharply in EMEA year-over-year. Normalized adjusted EBITDA increased 9% year-over-year, reflecting the strong revenue growth and modest increase in operating expenses. As Andy noted earlier, stabilized same capital operating performance saw continued strength in the first quarter, with year-over-year cash NOI of 4.7%, driven by 4% growth in rental plus interconnection revenues, and further supported by expense control. Moving on to our investment activity, we spent $550 million on consolidated development in the first quarter plus another $23 million for our share of managed unconsolidated JV spending, while delivering 32 megawatts new capacity across the globe for our customers. It's worth mentioning the approximate $300 million sequential decline in our development spending this quarter, which highlights the effects of the contributions of our three development JVs. However, seasonal and other timing related factors also contributed to less capex spending in the first quarter. Turning to the balance sheet, we continue to strengthen our balance sheet in the first quarter with the closing of previously-disclosed transactions, including the six-terra transaction, the first phase of the Blackstone hyperscale development JV, and the sale of an additional 15% share of the two stabilized hyperscale assets in our Chicago JV to GI partners. During the quarter, we also completed a hyperscale development JV with Mitsubishi for two assets and the Dallas Metro. In terms of new news, we also sold a piece of land in Sydney, Australia for $65 million, and we provided an easement to Dominion Energy to build the Mars substation on our Digital Dulles campus for $92 million, which all contributed to a reduction in our reported leverage to 6.1 times at the end of the first quarter versus 6.2 times at the end of 2023. Then in April, we continued to recycle capital by selling 75% of CH2, the third and final stabilized hyperscale facility on our Elk Grove campus, at a 6.5 cap rate to GI Partners, raising nearly $400 million. And we sold to Digital Corp Reap an additional 24.9% interest in our Frankfort site, where Digital Corp Reap previously owned 25%, raising another $129 million. In addition, we used some of our cash on hand to pay off the 600 million of maturing euro notes. After adjusting for these transactions, along with the anticipated closing of phase two of the Blackstone transaction later this year, pro forma leverage is 5.8 times. We continue to keep significant cash on the balance sheet with approximately 1.2 billion on hand and over $3 billion of total liquidity at March 31st to support ongoing investment opportunities. Moving on to our debt profile, our weighted average debt maturity is over four years, and our weighted average interest rate is 2.9%. Approximately 85% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the year notes in April, we have $316 million of debt maturing through year-end 2024. Beyond that, our maturities remain well-laddered through 2032. I'll finish with guidance. We are maintaining our core FFO guidance range for the full year of 2024 of between $6.60 and $6.75 per share, reflecting the continued improvement we are seeing in our core business. Positive underlying operating trends are partly balanced by potential acceleration in development spending and additional capital recycling as we move our leverage down toward the long-term target and position the company for the accelerating opportunity in front of us. We are maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, so we are notching up our cash and gap releasing spreads along with our same capital cash NOI growth expectations, reflecting better than expected execution on the leasing front in the first quarter and the strength and fundamental conditions that we continue to see across our portfolio. Specifically, cash releasing spreads are now expected to increase 5% to 7% in 2024 of 100 basis points at the midpoint from the prior 4% to 6% range. And same capital, cash NOI, is now expected to increase by 2.5% to 3.5% of 50 basis points from the 2% to 3% range we provided in February. Highlighted in our investor presentations, excluding the nearly 200 basis points of power margin headwinds that we have PREVIOUSLY DISCUSSED, OUR SAME CAPITAL CASH ON OIL GROWTH FOR 2024 WOULD BE 4.5% TO 5.5%. WHILE THESE IMPROVEMENTS AND STRONGER CORE FFO PER SHARE REALIZED IN THE FIRST QUARTER BODE WELL FOR THE BALANCE OF THE YEAR, THERE ARE A FEW MITIGATING FACTORS TO CONSIDER AS YOU'RE REFINING YOUR MODELS. FIRST, WE WILL SEE A MODEST DRAG OF THE 500-PLUS MILLION OF CAPITAL RECYCLING COMPLETED IN APRIL. We are only a third of the way into the year, and there is still significant potential for both development spend and asset sales guidance to reach the high end of their guidance ranges. In addition, it is worth pointing out that the interest rate outlook and curve have changed considerably since we provided guidance and remains another source of uncertainty for the balance of this year. As one final reminder and update, over the course Of 2024 and 2025, we expect that our $6 billion development pipeline will become increasingly accretive as higher yielding projects are completed and stabilized. The expected yield on our stabilized pipeline ticked up another 20 basis points sequentially, reflecting the addition of higher yielding projects and the completion or contribution to joint ventures of lower yielding projects. To help provide increased transparency around this important and evolving aspect of our company, we have enhanced our development lifecycle schedule on page 25 of our supplemental to, one, reflect our proportionate share of total data center development, including our unconsolidated joint ventures, and two, to provide increased disclosure around our available developable capacity in terms of IT load. We hope you find this helpful. This concludes our prepared remarks and now we will be pleased to take your questions. Operator, would you please begin the Q&A session.

Thank you. We will now open up the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. If you'd like to ask a question, please press star then 1 to enter the question queue. To remove yourself from the queue, it is star then 2. Once again, it's Starvin1 if you have a question. Today's first question comes from John Peterson with Jefferies. Please go ahead.

Great, thanks. I guess I could start with, actually, we'll start on the leasing side. So I was curious to know how much of the leasing that was done this quarter was inside of some of the joint ventures, like maybe the Blackstone joint venture. that you did in terms of the yield on development in North America. I noticed that was up 200 basis points to 12.3% as your expected yield from last quarter. I guess is that kind of a good number to think about of what new developments you're signing today are is kind of in the 12 plus percent range.

Pardon me, I believe our speaker location may be muted.

Sorry, can you guys hear me now?

Pardon me, can the speaker location hear us? Your line may be on mute. Apologies.

We can hear you now. Yes, sir. Please proceed with your answer.

Sorry about that. So, John, thanks for the question. So I'd say the lion's share high, high percentage was not done into any of the JVs. I don't have the exact stat, given we have now numerous strategic capital partners across our hyperscale platform, be it stabilized JVs. But I'm very confident that none of the leasing that we reported this quarter went into the deal you identified with Blackstone. We are seeing great traction on those projects, but this quarter, none of that leasing went inside. On your second question in terms of improvement in ROIs, in particular on North America, I would say we've definitely moved the needle quite dramatically on that category from some of our build-a-suit projects that were closer to 7% that we joint ventured to now north of 12% ROIs. And we're still working through projects that are obviously weighting that down a little bit. And we have projects that are entering that schedule on the higher side as well, given the rapid improvement in the rate environment.

Thank you. And our next question today comes from John Atkin with RBC Capital Markets. Please go ahead.

Thanks. So you mentioned rate environment, and maybe continuing on that theme a little bit in terms of pricing, as we think about next year's core SFO per share growth rate, you gave a little bit of commentary on that on the last call. And any updated thoughts in terms of what we should be considering around puts and takes as that number potentially goes higher, whether it's execution of leases or pricing or renewals or whatnot? Thanks. Thanks.

Thanks, John. Maybe I'll speak to market rates and where we are able to execute on new leases signed and also renewals first and then hand it over to Matt in terms of FFO trajectory into next year. As you saw from our results, we're obviously benefiting from overall supply-demand dynamic with robust demand trends, be it enterprise digital transformation, cloud computing, and now AI on top of that. That's playing out in our zero to one megawatt category as well as our greater than megawatt category. And that's all having a backdrop of supply constraints from numerous sources. And we were able to continue to push rate both on the existing contracts that were coming up for renewal as well as on new contracts to higher and higher levels that obviously you see in the leasing results and believe that trend is going to remain intact for some time. Matt, why don't you speak to the FFO trajectory, please?

Sure. Thanks, John. So what I would say is I think we're, based on our first quarter results, our optimism has improved in terms of what we expect to see and what we talked about last quarter in terms of improving growth as we look to 2025.

And a big part of that, I would say, is driven by the successful leasing execution that we saw this quarter, $250 million, and the shorter sign to commence lag, which is at seven months. So it really sets us up for accelerating revenue and therefore bottom line growth as we exit this year and into next year.

But from boiling all that down, I would say that the growth algorithm is generally similar to what I discussed last quarter, which is we'd expect to see

you know, call it plus 4%, you know, related to our stabilized same store portfolio. On top of that, you'd add another call it two plus percent as we deliver developments into our operating portfolio at yields that are continuing to improve. There'll be some offset call it in the 1% area, you know, given higher rates and the debt refinancing that we have over the next couple of years. And I think that kind of sets us up for, you know, mid single digit and greater growth going forward.

Thank you. And our next question today comes from Eric Lupko with Wells Fargo.

Please go ahead.

Great. Thanks for taking the question. I wanted to dive into Northern Virginia a little bit. Could you maybe just provide an update on the timing of the Dominion transmission upgrades and when you think you can get even more capacity into that market? And then on rental rates in Northern Virginia, I think that probably you know, had a big influence on the, you know, 170-plus you reported in North America. Could you just talk about where you're seeing rental rates in that very supply-constrained market and what that kind of, how that influences your yields, your underwriting, and your development table?

Thanks. Sure. Thanks, Eric.

So Northern Virginia has obviously been a highly dynamic market for some time here. We were very pleased to come together and support our partner at Dominion with a very strategic easement to be the landing of the Mars substation, which is our understanding they are on track to be delivering power and bringing power back online by the beginning of 2026 from that southern line. So there's not been a divergence in terms of timing, what was previously expressed to us. We definitely benefited from the increase in rates in that market. Our largest signing was in that market, as well as a few other decent sized signings. Although we also had some very great signings in the London market and north of a megawatt signings also in Copenhagen. So they were not the only contributors in the plus the megawatt category. The rates, I would say the market rates in general, continue to improve in that market as the precious capacity becomes more and more finite. As you saw on that slide, we now are turning our attention to really 80 megawatts remaining at Digital Dulles, as well as the Manassas campus, which is not impacted by the power delays. And I'd say rates in both Manassas and Loudoun County are converging right at this moment. I've called in the 165, called to almost 180 type area on a market basis. That'd be the cash rate, not a gap rate that we report.

Thank you. And our next question today comes from David Barden with Bank of America. Please go ahead.

Hey, guys. Thanks so much for taking the questions. I guess if I could just explore... Andy, the commentary around how AI is contributing already to your business. A lot of the retail data center centric companies have kind of said that's not really a thing for them yet. So could you kind of elaborate a little bit on within that greater than one megawatt category, how much of that is the hyperscale? Is it really hyperscale or is it these maybe more bespoke categories? you know, Copenhagen Nordisk Foundation engines that are coming online, and what do these builds look like, and what way are they different than maybe what you've been doing historically, and how is that informing how your development's evolving? Thanks.

Sure, thanks.

Thanks, David. So let me just give you the tops of the ways, and I'm going to turn it to Chris on how we're tapping in our infrastructure capabilities to really excel in this category. Obviously, the data points are smaller in the more enterprise-oriented wins, but they are there. We, I would say, in a call, less than half a megawatt supported through a partner, a global manufacturing company on its AI journey in Europe. You noted the slightly larger than that, but still certainly not hyperscale. The great win we had with Nova Nordics, supporting them in their NVIDIA-backed chips, with a really landmark win with Supercomputer in their market. And then for some time, we've seen the emergence of the hyperscalers with larger capacity block needs. And the largest of our wins in the quarter, I would characterize as an AI win as well. And all in all, it's probably close to 50% of this quarter's signs, which is up relative to prior quarters. I think there's a lot about what our platform offers that really allows us to capture this demand, maybe even earlier in the evolution of AI than some others. But Chris can speak to that as well.

Yeah, no, appreciate it, David. This is Chris Sharp. And so a couple of minutes, I think you're thinking about it correctly in that there's two lenses, right? There's kind of that hyperscale lens that has AI built within it. And then there's this other pocket that we kind of look at that's definitely emerging with private AI. And so these are these larger deployments that we're seeing come out from multiple types of enterprises. And I think it's important to understand from a design perspective it kind of starts with a little bit broader in how we master plan our campuses and so i think the work that we've been doing around building out substations and doing a long-term plan within the market has allowed us to then bring a very large capacity block uh designed to market which is very modular And I think in that modularity, it's something that we continue to ideate with our customers to be able to support the varying power densities. And I think we talked last call about HD Colo and being able to do what we're very proud about with 70 kilowatts. But then you'll see us start to evolve over the next quarter here, the ability to even support 150 kilowatts. Being able to support these densities, which is representative of the AI workload, is absolutely paramount to our modular designs and be able to do that very efficiently. And then I think the last piece is the heritage. The heritage of the team on a global basis, being able to really meet and ideate with these customer bases is what's really building a distinct differentiator for us to not only capture that hyperscale AI, which we see growing and burgeoning, which you see in the prepared remarks with Oracle and some of those customers, but then I think directly to your point, David, these smaller, if you will, from a hyperscale perspective, private AI around Novo Nordisk Foundation, and just we really are at the cusp of a lot of this AI demand coming into the platform digital globally.

Thank you. And our next question today comes from Irvin Liu with Evercore ISI.

Please go ahead.

Hi, thank you for the question. So maybe to piggyback on the prior question related to retail and enterprise, do you see potential for AI tailwinds to perhaps drive meaningful acceleration to your zero to one megawatt segment, similar to what you saw in the greater than one megawatt segment this quarter, just as AI workloads begin to evolve towards private AI and inferencing? Sure. And so, I mean,

The here and now, I think AI is having numerous positive implications for the sector. And I'll have Chris speak into what's next, because I don't think we're really at what's next, be it inference, private data sets, enterprise consumption. But the here and now, you have a backdrop of big existing customers with desires to have immediacy around their capacity. They're still, we're winning that in our core markets where we see robust and diverse demand. We are not falling or chasing this demand into unproven locations. We're intersecting it where we're supporting availability zones or on-ramps where there's network density and not in unproven markets. You're also seeing new players pop up that obviously are not front of queue for those larger capacity blocks who are going to try to get their hands on what we have and often are able to fit in some of the more challenging places in our portfolio to sell. But they're going to take it because they have urgency around their business models and bringing their AI models on. That's the right now, the last core of the next core. But there's more to come here in this AI story. I'll let Chris expand upon it in terms of the next chapter.

Yeah, thanks, Irvin. Absolutely. And I think one of the things that we really have thought about for some time now is the the data is at the core of a lot of these AI kind of capabilities coming to market. So being able to place that algorithm right next to the data in that market, I think it's everything that we've been looking at and doing that algorithm in proximity to the data is absolutely paramount for a lot of these kind of zero to one megawatt offerings. And so what we've been thinking about with HD Colo and why I talk about on a rack by rack basis is allowing our customers to leverage a lot of their existing kind of inventory and architecture to bring AI in proximity to that capability. And I think that's where, you know, even recently we talked about private AI exchange, that's really focused on removing that technical barrier. So customers can get the right, you know, state of the art, uh, infrastructure, be it NVIDIA, be it AMD, and being able to support those power densities in an existing environment. So we do see the future of that coming to market in that fashion. I will tell you that you brought up inference. Inference is being done within training today just because of time to market, but we do see inference picking up and being a longer term demand cycle over the years, which I think platform digital is well positioned to continue to support.

Thank you. Our next question today comes from Richard Cho with JP Morgan. Please go ahead.

Hi. You noted a pull forward of leases in Northern Virginia. Are you having other conversations, and should we expect to see more of those?

Thanks, Richard. Maybe I'll hand it to Colin here in a second to talk about the broader backdrop for both the enterprise and also the hyperscale AI side. I wouldn't call our Northern Virginia activity as a pull forward. As you can see, our sign to commence time materially stepped down. There's urgency around the capacity blocks. We still have significant runway of precious capacity in the Northern Virginia market between now and 2026 that our customers, numerous customers have desires for, and we're in various states of negotiation. And it's not just a Northern Virginia story. We have the similar types of opportunities in other parts of the North America portfolio, be it Santa Clara, Dallas, New Jersey. And we also have the equivalent in the major flat markets in Europe and in parts of Asia Pacific. And I think this trend is going to continue for some time. Now, again, you can't predict some of these large capacity blocks executing on consecutive quarters necessarily, but I believe it's going to continue. But Colin, why don't you speak a little bit about the pipeline on both sides?

Thanks, Andy. Appreciate the question. Yeah, I mean, overall, I would say our pipeline kind of reflects some of the same characteristics of our bookings this quarter. So pretty AI heavy, as Andy highlighted, about 50% of our bookings this quarter were AI. I would say our pipeline is representative of that. But honestly, it's a pretty diverse system. characterization overall between enterprise, namely hybrid IT, cloud compute, and then AI. So I think it's a pretty robust platform across the globe. And you saw that in some of our bookings in particular, London really jumped up this quarter. If you look at the sub one megawatt and really what's going on, the digital transformation story, the explosion of data and really the IT spend, you're seeing a pretty pervasive enterprise activation going on where where that is really taking place really across the globe in a big way. That's, in our view, enabled by channel, which this quarter we had about 22% of our business go through channel, which was, I think, substantive. And those channel partners are really helping us tap into new logos, which you might have seen was 128 this quarter, which I think was fourth highest on record. So I think that's substantial. So overall, I'm pretty pleased with the balance we're seeing across the portfolio and the pipeline and hope to see that continue in the future.

Thank you. And our next question comes from Michael Rollins with Citi. Please go ahead.

Thanks and good afternoon. I'm just curious if you take a step back, where does the overall mark to market fit for the portfolio and the anticipated duration over which you could achieve that if pricing were to stay at current levels?

I think the overall mark to market on the portfolio might

Yes. Yeah. So, as I think, I think you can get the, obviously you look at the in-place rates, even pro forma for our recent positive cash market to market on our schedule. I think that question probably more focuses on the greater than megawatt category, which we've seen the greatest resurgence or uptick, that it does tick down, call it a lower for the next few years, called down to the 130s, and then even hits 100 upon expiration as the low water mark in a few years' time. And I just commented on the Northern Virginia rates, if they'll call it 165 to 180. Not all markets are at Northern Virginia. There are some markets that are ahead of Northern Virginia. But it does feel like big deals are gravitating towards that mid-100s type area pretty quickly and universally. And it does not seem like that trend is taking any cessation or pause.

Thank you.

And our next question today comes from Frank Walden with Raymond James. Please go ahead.

Great, thank you. And kind of to that point, when you're looking at new investment and expansion, how much are you focused on retail colo expansion versus wholesale? And what's kind of pushing you in one direction or the other?

Hey, Frank, it's Greg Wright here. Look, I think consistent with past practice, we continue to play across the product spectrum consistently. And it's going to vary by market, right? I mean, as we've mentioned, we're using, you know, our third-party capital model to continue to support our hyperscale customers and grow that element of the business. As you know, demand for that business is, you know, is projected to increase, you know, 2.7 times between now and 2030. And then when you look over at the, you know, the co-location in the enterprise segment of the product spectrum, You know, that's still supposed to grow. It's still a very large market. People forget about how large that market is. And the solid growth in that market, too, is still like 2.3 times. So, I mean, we're not sitting here today saying, hey, it's a zero-sum game. We're only going to do, you know, enterprise slash colo versus hyperscale. It's going to vary by market and what our customer needs are. But we're actually pretty bullish and optimistic on both right now. in terms of underlying fundamentals and potential for rent growth.

Thank you.

And our next question comes from Simon Flannery at Morgan Stanley. Please go ahead.

Great. Thank you very much. Good evening. Great to see the leasing in Loudoun County. It looks like the Americas was about 80% of your leasing. Could you just talk a little bit about Europe and Asia? It seems like AI is sort of starting off in the U.S. You talked about Copenhagen as well. But just help us think about, you know, broadening this out beyond the kind of key U.S. markets. And then, Matt, on the leverage, could you just update us on, you know, once you get to the 5.8, what's the plan from there?

Thanks, Simon. So I'll do it quick. The quick non-U.S.

world tour, you're correct. America's had put up some record results in contribution, and that was not just in the greater than megawatt category. It was also a major contributor in our less than megawatt category, which is great to see. Outside the U.S., starting in EMEA, on the zero to one megawatt category, Frankfurt, Amsterdam, and London shined. And on the greater than one megawatt category, which Colin, I think, touched on, London turned out to be a big contributor this quarter, which has not been for a while, which is also great to see. We saw a fair bit of importing business into Europe from outside of Europe on both sides and firm pricing. In APAC, while this particular quarter we did not have a significant contribution from the greater than megawatt category, we did have strong results both in pricing and volume on the zero to one megawatt category with Singapore, Hong Kong, and Seoul leading the way. And I would just say that the greater the megawatt category, it's just the fact that there's just fewer markets in the APAC that we're landing big deals into. So it's not as consistent of every single quarter being a major contributor. But all in all, I agree with your sentiment that AI has certainly landed on the US shores sooner than the rest of the globe. And I think it has a great propensity to likely globalize as did cloud.

Yeah, thanks, Simon. So on the leverage front, I mean, just to take a little step back, I mean, hopefully as you've seen, we've made some considerable progress. You go back a year ago, we were at seven, a little over seven times. We're now at a reported 6.1 times, so a full turn of leverage that we've taken out in the last year. you know, thanks to all the work and execution that the broader team has done. We've continued that, you know, as Greg's team, even subsequent to the quarter, we brought in another $500 million of proceeds from some additional JV activities, as well as a transaction within our digital core REIT, so showing the diversity of capital sources we have. We're going to continue to see, as a result of the strong operating fundamentals, you know, continue to increase our overall EBITDA. And we're now sitting at approximately $3 billion of liquidity. So we're well on our way, and we feel confident about being able to achieve our goal of getting down to five and a half times leverage this year. And I think we've done a lion's share of the work. So we'll continue to execute and feel pretty good about it.

Thank you. And our next question today comes from Ari Klein with BMO Capital Markets. Please go ahead.

Thanks, and good afternoon. I guess one of your larger customers is at risk of a potential ban in the US. Can you maybe talk a little bit about how you perceive the risks around that and maybe the potential mark-to-market opportunity if it came to that?

Hey, thanks, Ari.

So on all scenarios, we don't want to speak to confidential customer information whatsoever. Obviously, anyone who's picked up a newspaper can refer to the scenario you're talking about. Two comments. First one, which is just from the cheap seats, my personal opinion is not to jump into any draconian conclusions on outcomes just yet. There's a lot of innings left in that game and a lot of outcomes that could happen. So I wouldn't jump to that. a doomsday scenario for digital, depending on what plays out in the ensuing months. And even under that scenario, I've grouped them among all of our hyperscale customers that have maximized the pricing curve when markets were much softer and have contracts that are, like all our hyperscale customers, some of the best contracts on the books in terms of markup opportunities, certainly on the south of 100 side rather than the north of 100 side, by and large. So if the doomsday draconian scenario was to play out, which I'm discounting, we would have some churn to refill, but probably couldn't come at a better time with a better mark-to-market opportunity for the company.

Thank you. And our next question comes from Matt Nickman with Deutsche Bank. Please go ahead.

Hey, guys. Thank you for taking the question. Just a bigger picture question. With pricing seeing the type of growth it's seeing, supply chain constraints that I think largely plagued the industry a couple of years back are now largely resolved. Can you help us frame what you're seeing in terms of new hyperscale builds that are insourced relative to outsourced to partners like yourself? And I guess more importantly... How digital can enhance the utility it offers its larger customers in what's looking like a firmer pricing backdrop that's likely to persist for some time? Thanks.

Hey, Matt.

So I would not characterize the world of supply constraints or just hindrances to supply as being in the rearview mirror in general. And maybe we're not talking about the – proverbial waiting for your refrigerator's COVID supply chain equivalent, but the friction to supply, whether it is power transmission, power generation, supply chains on data center components or just positions in queue for production or components for substations, broader sustainability concerns, nimbyism in general, that friction is existing and it's happening in a backdrop where I think we can add more and more value to our customers than probably ever before. And even despite historical preferences or to often do it yourself, I think by and large the customer base is seeing having the benefit of a global outsourced trusted partner with 20 years of experience operationally, delivery-wise, and really turn into digital in their times of need and really in a time that could be continuing of urgency around those capacity blocks. And that's certainly been highlighted in the Northern Virginia market, but I think that's a broader America's phenomenon and a growing global phenomenon. Thank you.

And our next question today comes from Michael Elias with TD Carlin. Please go ahead.

Great. Thanks for taking the questions, and congrats, guys, on a record leasing quarter. Just a quick one from me. I know it's been a while since you guys have done an acquisition. Maybe for Andy or Greg, curious how you're thinking about the potential for M&A, particularly given where your stock is trading right now. Thank you. Going to Greg on that one, Michael.

Thank you for the compliment.

Yeah. Thanks, Michael. Look, I think right now our appetite for acquisitions, unless they're smaller, tuck-in strategic acquisitions, you know, Michael, I think we've discussed this before. It's not that great right now. When we look across most markets, you know, we think we already have the footprint and the product and the team to continue to drive our business and succeed. And as you know, most of our legacy M&A activity was either gaining access to markets, to product, or to teams in select markets where we didn't have a real presence. We don't have nearly as much of that today, particularly when you look across the Americas in EMEA. Over time, would we continue to look in markets through APAC to potentially grow? Yes, but there's not a lot of those platforms, if you will. For example, there's not the logical interaction sitting in APAC for us to try to do a strategic transaction. So, While you never say never, I think we look at things today, and Matt and Andy and the team laid out where we are in our development yields and the like, and you look at this on a risk-adjusted basis, and we still prefer, right now at least, given current conditions, to buy land and build organically, and we think that's a better risk-adjusted return than what multiples would imply in the M&A market. So I don't think you're going to see A lot, but again, you never say never.

Thank you. And our next question comes from Nick Dodale with Moffitt Nathanson. Please go ahead.

Oh, hey, thanks for taking my question. Andy, earlier you said that you're not going to chase demand into unproven markets, which we're seeing a fair bit of demand today. I guess what sort of thresholds would those markets have to cross before they might become interesting in your eyes, especially if power constraints in key markets remain you know, exceedingly tight or even get worse? Or are they like so far down the list of priorities that we really shouldn't be thinking about them?

Thanks, Nick. So I think if you look at our strategy, we're focused on supporting workloads, be it enterprise, digital transformation, or hybrid or hyperscale cloud or AI in markets with robust and diverse demand and supporting applications with latency and locational sensitivity. The cloud has been around for a long time and did not put AZs in every single NFL city in America or its equivalents around the globe. They picked locations where GDP, population, infrastructure, and data are essentially there, which I think lends itself to greater longevity and sustainable growth in our asset class and our strategy and our business. There's markets that have been added to that list over time. They didn't get put chiseled in stone and put away on a shelf years and years ago. So I think new markets for us would have to give us the similar conviction we have investing in our core markets to want us to go there. So that could happen. That certainly could happen in a rapidly changing world with power becoming such a precious resource as well as other precious resources. But anything we're thinking about is investing in, we're not in this for a trade, we're investing in this for the long-term, for long-term sustainable growth. And we're fortunate, if you can look at our newly tweaked and disclosure on our development cycle, we've got north of three gigawatts of growth in land capacity or shell capacity in those core markets. So we've got a lot of runway to harvest that demand before even feeling the urge or urgency to chase into less proven markets.

Thank you. And our final question today comes from Eric Rasmussen at Stifel. Please go ahead.

Yeah, thank you for taking the question. Obviously, North America is very strong, greater than one megawatt. And I think based on your commentary, a lot of that was AI-driven. And then also, it seems like it's going to I would sort of follow a similar pattern as we saw with cloud. So would you expect, I mean, I wouldn't expect similar levels of quarterly leasing, but would you expect sort of similar outperformance throughout the year in North America, especially the greater than one megawatt based on sort of the other regions? You know, just want to get a sense of sort of how the year could be shaping up in terms of the bookings. Thanks.

Hey, thanks, Eric.

So just more on the tactical and on the quarterly bookings, I mean, we're out of the gates here with a great start on both the less than a megawatt category, call it north of 50 for several consecutive quarters now, I think two in a row north of 53, great new logos contribution, and obviously an overall record, which we've discussed. By and large, I wouldn't say usually another record follows the prior record on the one hand. But on the other, we're certainly in a different territory right now in terms of demand. We have large capacity blocks that are deeply sought after. We have a team focused on executing, and we got three more at-bats in 2024 to put those results up. Bigger backdrop, if you look back at cloud globalizing, it's one of those things that the famous quote, it happens slowly and then it happens really fast. I can remember years of the thesis being it's going to globalize forever and ever, and then it really took off. So I couldn't pound the table saying 2024 is the year that AI globalizes like cloud, but science do point that it should follow a similar trend over time.

Thank you. That concludes the question and the answer portion of today's call. I'd now like to turn the call back over to President and CEO Andy Power for his closing remarks. Andy, please go ahead.

Thank you all for dialing in. We really appreciate it. Digital Realty had a strong first quarter with record leisure results that reflected the growing impact of AI on our business. Fundamental strength continued through the first quarter with healthy same capital organic growth and robust releasing spreads. We've continued to innovate with the expansion of service fabric, new products like our private AI exchange, along with modular designs to accommodate increasingly power-dense workloads. Finally, we've closed a number of transactions already this year, bringing in additional private capital and enhancing our ability to deliver new capacity to meet our customers' growing needs. We're excited about this quarter's results and look ahead with continued optimism. The three key demand drivers, AI, cloud, and enterprise digital transformation are showing no signs of letting up, and we are well positioned with over 300 data centers across the key markets around the world. I'd like to thank everyone for joining us today, and would like to thank our dedicated and exceptional team at Digital Realty who keep the digital world running. Thank you.

Thank you. The conference is now concluded, and we thank you for joining today's presentation. You may now disconnect your line and have a wonderful afternoon.