Digital Realty Trust, Inc.

Good afternoon, and welcome to the Digital Realty fourth quarter 2024 earnings call. Please note, 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, and we will aim to conclude at the top of the hour. 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 fourth 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 on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain 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 fourth quarter results. First, we posted a second consecutive quarter of record leasing in our zero to one megawatt plus interconnection segment, contributing to a record $1 billion of total leasing completed in 2024. The zero to one megawatt product continues to be a significant focus for digital realty, and we are encouraged by the growing strength and momentum of our execution. Second, In the quarter, we raised over $2 billion of new debt and equity capital, as well as over $500 billion of net proceeds from asset sales and JV contributions, boosting our liquidity to over $6 billion and reducing our leverage to 4.8 times at year end. And third, we posted 6% core FFO for share growth in the fourth quarter, foreshadowing our expectations for 2025. With that, I'd like to turn the call over to our president and CEO, Andy Power.

Thanks, Jordan, and thanks to everyone for joining our call. 2024 was a breakout year for digital realty. As we capitalized on the surge in demand for data center infrastructure, positioned the company for the opportunity that lies ahead, and continued to execute on the key strategic priorities that we outlined on this call two years ago to enhance our long-term sustainable growth. Back then, we said that we would strengthen our customer value proposition, and we are doing just that. The evidence from 2024 lies in over $8 billion of bookings, a convincing new record for us, with a few seminal hyperscale transactions, and nearly $250 million from the zero to one megawatt plus interconnection category, another record. Not to be outdone by new bookings, we also saw record lease renewal activity in 2024, also approached $1 billion, with cash rents rolling up 9% on average. We added a record number of new logos during the year, nearly 600, while expanding our connectivity-rich solutions. We expanded the capacity of our total portfolio by over 200 megawatts in 2024, while scaling our development pipeline by over 75% to 7-plus billion of projects underway that are 70% pre-leased in order to serve our customers' growing data center needs. I also talked about innovating and integrating across our unmatched global portfolio, and we've rolled out new products and services, such as high-density COLO 2.0, a cooling solution to support densities of up to 150 kilowatts per rack, the expansion of service fabric to 38 metros around the world, and Private AI Exchange, an open platform available through Service Vaping, which enables enterprises to seamlessly integrate their data with AI capabilities and other technology solutions. By combining these leading-edge solutions with our global, full-spectrum strategy of connected campuses that offer color, scale, and hyperscale capacity, customers can count on Digital Realty to meet all of their data center needs. Finally, we vow to diversify and bolster our capital sources to expand our capacity to support our customers' growing requirements, improve capital efficiency, and reduce our leverage while increasing the returns to digital realty shareholders. We've done this by adding to the menu of debt and equity capital options, opportunistically recycling capital out of stabilized and non-core assets, and partnering with a diverse and high-quality list of private capital providers. Some of these activities have resulted in short-term headwinds to our results, but all of them have enhanced our operating momentum and financial position, enabling us to accelerate our bottom line per share growth. But there is still tremendous opportunity to be seized upon as we lead this dynamic and increasingly global industry. Demand for data center capacity remains robust, both for larger AI-oriented capacity blocks and to support growth in cloud and digital transformation while data center supply remains tight. Highlights for the fourth quarter include 100 million of new leases signed at Digital Realty Share, driven by a 16% sequential uplift in the 0 to 1 megawatt plus interconnection bookings for a new record of 76 million. Unsurprisingly, greater than a megawatt bookings dipped sequentially following last quarter's blowout, though the pipeline remains strong. Looking inside our 0 to 1 megawatt bookings, we experienced strong and balanced growth in both the Americas and in EMEA, with both regions achieving new records in the quarter. We continue to see a growing healthy mix of various size deployments within our 0 to 1 megawatt business, reflecting how our full spectrum strategy enabled digital to provide solutions for large and small deployments, along with everything in between. Some customers might simply need a network node to utilize that robust connectivity in a central city hub, while smaller enterprises might choose to locate a sum one megawatt deployment for compute or storage requirements in a facility outside of the city center. Interconnection bookings were also strong at 15 million, nearly matching last quarter's record. Finally, the strength and breadth of data center demand and the progress of our go-to-market initiatives are also reflected in our addition of a record 166 new logos. We continue to see healthy inter-region activity across our global platform. Hyperscalers drove a portion of this activity with our largest global customers driving record export activity to other regions around the world. EMEA exports were again at record levels with heightened transatlantic bookings for deployments landing in the Americas. Our record bookings in 2024 pushed our backlog of book-but-not-yet-billed leases up to roughly $800 million at year-end, providing strong revenue visibility for this year and beyond. As Jordan mentioned, we also continue to bolster our balance sheet and diversify our capital sources during the fourth quarter, with support from asset sales, hyper-skilled development joint ventures, and highly successful debt and equity raises. These activities helped to push leverage below five times. Matt will provide more details on these activities in just a few minutes. Over the past few weeks, we have seen commitments for data center spending continue to grow. New administration announced a $500 billion effort to support American-based AI development, and others around the world are following suit. Earlier this week, I was pleased to join French President Emmanuel Macron in Paris, along with U.S. Vice President J.D. Vance, and many other heads of state and industry leaders for France's AI Action Summit, which was geared toward convening the international community to discuss the use of AI for the common good. As I highlighted two years ago on my first earnings call as CEO, technology begets technology. In the past, innovation has typically led to greater efficiencies that ultimately spur incremental demand. At the time, we noted that we were at the precipice of the next wave of innovation that we thought might drive the next decade of data center demand. In 2024, we saw data center leases that were 80% higher than the next highest year, driven by steady growth in cloud and digital transformation, as well as a surge in AI-related use cases. Today, we see a similar dynamic playing out to what we've witnessed in the past. as the race for innovation remains in full effect, while recent efficiency gains appear poised to facilitate the proliferation of AI to the enterprise. We heard from hyperscalers earlier this reporting season, and none seem ready to moderate their pace of investment, as data center infrastructure remains a critical resource to support AI innovation. Within our sales organization, we continue to see robust demand for data center capacity, including large capacity blocks, driven by digital transformation, cloud, and AI. AI innovation is occurring on both the hardware and software side, and Digital Realty is pleased to support and enable this innovation. One of our wins this quarter was Ted Storen, a developer of scalable AI accelerators for both cloud and edge computing. During the fourth quarter, Ted Storen leveraged Platform Digital to host their R&D lab in a two-megawatt high-density co-location suite in a new metro that addresses their stringent engineering and time to market requirements. As they develop their leading edge chips, TenStore works with a number of partners. Consistent with our meeting place strategy, they improve their efficiency by interconnecting with their partners on platform digital. So together, we partnered to deploy an AI-hosted desktop solution for AI model development and testing that included another TenStore partner, resulting in another new logo to Platform Digital. That's an example of the network effect of being the meeting place. Other key wins in the quarter include a Global 2000 International Banking Group expanding on Platform Digital to improve cloud connectivity and localizing data for hybrid cloud, a world-renowned research and cultural institution was brought to us by a partner as they upgrade their HPC infrastructure, supported biology and physics research workloads by taking advantage of Platform Digital's high-density collocation capabilities. And the Global 2000 insurance and reinsurance provider is expanding their presence on Platform Digital to take advantage of robust networks and cloud ecosystems. Before turning over to Matt, I'd like to touch on our global ESG progress. During the fourth quarter, Teraco, our South African affiliate, started construction on a 120-megawatt utility-scale solar power plant, the first time a data center operator will own and utilize a solar power plant to support its data center alone. The plant is expected to begin generating power in late 2026. This project will upgrade existing transmission infrastructure and enable the plant to add renewable energy into the grid and to be distributed to Teraco's campuses. improving digital liability, and keeping Terrico on course to meet its clean energy goals. In Chicago, we signed community solar agreements for a share of three separate solar projects totaling nearly 20 megawatts under the Illinois Shines Program. This new and local clean energy supply for our data centers in Chicago supports our 100% clean and renewable energy coverage there. Both actions in the fourth quarter add to Digital Realty's leadership and commitment to renewable energy. We now have more than 150 data centers around the world that are matched with 100% renewable electricity, with more than 1.5 gigawatts of contracted solar and wind capacity. But sustainability is not just about renewable energy. We are also excited about our collaboration with Ecolab to deploy an AI-driven water conservation solution in 35 of our U.S. data centers to further enhance our water use efficiencies. We expect this solution to reduce water use by up to 15% at those sites while also extending the life of our equipment. Finally, Digital Realty was awarded Nairn's Leader in the Light Award for the eighth consecutive year, while our VP of Sustainability, Aaron Binkley, will serve as chair of Nairn's Real Estate Sustainability Council in 2025. Congratulations to Aaron. And with that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Thank you, Andy. As Andy noted earlier, 2024 was a transformative year for Digital Realty. Over the past 12 months, we posted record leasing results and increased the capacity under development by over 75%, while at the same time reducing our leverage from 6.2 times to 4.8 times. This achievement was a direct result of our strategy to bolster and diversify our capital sources. By recycling capital out of stabilized, slower-growth hyperscale and non-core assets and bringing in private capital to support hyperscale development, combined with the support of our public shareholders, we were able to simultaneously accomplish seemingly incompatible goals. We dramatically ramped development to better serve the needs of our customers while deleverating the balance sheet below our long-term leverage target and, by the fourth quarter, meaningfully accelerating our bottom-line growth. As we sit here today with more than $6 billion of liquidity, below-target leverage, and a broad and diverse array of capital sources, we are positioned to fund the investments that are underway and the attractive opportunities that we continue to see ahead. Like other challenges, this achievement took a tremendous amount of teamwork, so I want to thank my fellow digital realty teammates for their efforts in 2024. Let's jump into fourth quarter results. We signed 100 million of new leases in the fourth quarter, led by a record 76 million of bookings in our 01 megawatt plus interconnection segment, which exceeded the prior quarter's record by 16%. We also signed 23 million within the greater than a megawatt category, which was mostly weighted toward EMEA and APAC following last quarter's outsized strength in the Americas. Pricing in our zero to one megawatt category was strong, led by transactions in APAC and Americas, while pricing in the greater than a megawatt category reflected the modest sample size and market mix. Importantly, nearly 60% of leases signed include annual rent escalators of 4% or greater, or are linked to CPI, which bolsters our objective to drive better long-term sustainable growth. Our backlog at Digital Realty Share totaled $797 million at year end, modestly below the third quarter record as $147 million of commencements exceeded new bookings. Looking ahead, of the nearly $400 million backlog that is scheduled to commence in 2025, about two-thirds is slated to commence by mid-year, with the balance starting in the second half. Looking further out, we already have over $300 million scheduled to commence in 2026, and another $100 million slated to commence in 2027, setting a strong foundation for multi-year growth. During the quarter, we signed $250 million of renewal leases and a blended 4.7% increase on a cash basis. Renewals were fairly straightforward and largely consistent with the original 4% to 6% uplift in cash releasing spread in our original 2024 guidance provided one year ago. For full-year 2024, releasing spreads were 9%, aided by package deals that we have highlighted on prior calls. Excluding those deals, our full-year renewal spreads were still a healthy 5.2%, which is consistent with the guidance that we are issuing for 2025. Breaking down renewals by product category, cash renewal spreads in the 0.1 megawatt segment were a healthy 4.9% in the fourth quarter, while releasing spreads in the greater than a megawatt segment were up by 3.7 percent. For the quarter, churn remained well-controlled at 2 percent. In terms of earnings, we reported fourth quarter core FFO of $1.73 per share, up 6.1 percent year-over-year, reflecting continued healthy growth in revenue and adjusted EBITDA. Data center revenue growth accelerated to 8 percent year-over-year, as the combination of strong renewal spreads, rent escalators, and new lease commencements more than offset the drag associated with more than a billion dollars of dispositions throughout 2024. Adjusted EBITDA increased by 7.4 percent year-over-year, broadly consistent with our growth in data center revenue. Normalized total revenue and adjusted EBITDA growth were 10 percent and 13 percent, respectively, in full year 2024. Same capital cash NOI growth increased by 1.4% year-over-year in the fourth quarter, as 2.5% growth of data center revenue was partially offset by higher property operating costs in the quarter. For all of 2024, same capital cash NOI increased by 2.8%, which was approximately 200 basis points higher when normalized for the outsized utility margin realized in 2023. Moving on to our investment activity, during 2024, we spent approximately $3 billion on development CapEx on a gross basis, including our partner share, and roughly $2 billion on a net basis to digital realty. In the fourth quarter, given the strong demand for data center capacity, we backfilled all of our deliveries with new starts, ending the year with the same 644 megawatts under construction. More specifically, We delivered 42 megawatts of new capacity in the quarter, while we added another 42 megawatts of new starts. The overall pipeline is 70% pre-leased, with average expected yields edging up to 12.1%. Consistent with the third quarter's record bookings, almost all the development underway in the Americas today is pre-leased, with expected stabilized yields ticking up slightly to 13.7%. Some development capacity remains available in both EMEA and APAC, with both currently expecting double-digit stabilized deals. Turning to the balance sheet, we continue to strengthen our balance sheet in the fourth quarter, driving leverage below our long-term target and substantially enhancing our liquidity, with nearly $3 billion of fresh capital raised since the end of September. On the debt side, in November, we successfully issued $1.15 billion of 1.875% five-year exchangeable notes, and we repaid the remaining 500 million outstanding on our U.S. dollar term loan. We also raised over 900 million of equity under our prior ATM program during the fourth quarter. In January, we issued another 850 million euro of 3.875 percent notes during 2035, and then repaid 400 million gilts at 4.25 percent. This leaves us with only 650 million euros in maturing debt through the rest of 2025. Looking further out, our maturities remain well-laddered through 2035. Our net debt to adjusted EBITDA ratio fell to 4.8 times by year-end 2024, and today we have over $6 billion of total liquidity available. Moving on to our debt profile, at year-end, our weighted average debt maturity was over four years, and our weighted average interest rate ticked down to 2.7%. Approximately 83% of our debt is non-U.S. dollar denominated. reflecting the growth of our global platform and our FX hedging strategy. Approximately 91% of our net debt is fixed rate, and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Let me conclude with our guidance. We are establishing our core FFO guidance range for the full year 2025 at $7.05 to $7.15 per share on a constant currency basis. The midpoint represents 5.7% year-over-year growth, reflecting the underlying strength in our business, balanced by a meaningful acceleration in development spend, along with a substantial reduction in our overall leverage. On a normalized and constant currency basis, we anticipate total revenue and adjusted EBITDA growth of more than 10% in 2025, reflecting the strong underlying fundamentals of our business. Same capital cash NOI is expected to grow 3.5 to 4.5 percent on a constant currency basis. As for other guidance items, we expect a positive operating environment for data centers to continue. Cash renewals are again expected to be up approximately 4 to 6 percent. An upside is partially mitigated by relatively high expiring rates and are greater than a megawatt portfolio. Occupancy should improve by another 100 to 200 basis points. CapEx net of partner contributions are expected to rise to between $3 and $3.5 billion, while gross CapEx will reach approximately $4.5 billion, with development yields expected to remain in double digits. And we will also continue to recycle capital, with $500 million to $1 billion of dispositions in JV capital expected this year. This concludes our prepared remarks, and now we will be pleased to take your questions. Operator, would you please begin the Q&A session?

We will now begin the question and answer session. In the interest of time, and to allow a larger number of people to ask questions, callers will be limited to one question. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question today is from David Barden with Bank of America. Please go ahead. Hey, guys. Thank you so much. I really appreciate it.

I guess that I'd like to start maybe if Chris is available to kind of get Chris your perspective on how, again, we should be talking about deep seek. Andy, you referenced this roughly in some of the prepared remarks at the beginning, but we've historically talked about a framework, tokens to watts to dollars. And I guess it would just be great to hear kind of how your conversations with the hyperscalers subsequent to their reporting and their growing their CapEx outlooks, how this all fits together to make the outlook for digital realty better as opposed to maybe more concerning. Thank you.

Thanks, Dave. I'll hand to Chris in a second to talk through some of those elements, but I think you hit the nail on the head. We just, on the heels of the deep-sea news, had the opportunity to listen from several of our top customers and really heard nothing but consistency in terms of yes, this is a great accomplishment. This is a new player in the arena driving more efficiency to the model, but that doesn't take us off the course of the tremendous investment our top customers need to make on building out their AI infrastructure. And I think the CapEx we tallied up is called more than $300 billion compounding a tremendous rate year over year for now several years. And so we've heard that publicly on an earnings call like this, and we've obviously heard it from our team who've had a lot of contact with our customers over the last several weeks, pre-DeepSeek, certainly, and post-DeepSeek. So I don't think there's a wavering in the course here of overall demand coming to digital. But Chris, why don't you expand upon some more of the intricacies?

I appreciate the question, David. Essentially, I agree with you that tokens, watts, dollars is a good way and a good framework to look at the overall industry. I think we're going to continue to see AI being democratized, not only through software models such as DeepSeq in which they represented the efficiencies, but also with like GPUs and there's going to be step functions that we'll continue to see in the industry, but This shift will drive higher and higher AI utilization to more and more customers, ultimately creating more and more demand for our facilities. And I would emphasize that a lot of our facilities, as we've talked about in the past, are AI-ready with HD-Colo and some of the elements that Andy mentioned in his prepared remarks. These will continue to be in a place where we can continue to support as inference comes to market or even private AI. And essentially, at the end of the day, we believe Jevron's paradox will outpace Moore's Law, essentially.

The next question is from Richard Coe with J.P. Morgan. Please go ahead.

Hi. I wanted to ask about the cash renewal outlook. It was 4% to 6%. For this year, that's where you started off last year, but you ended up at nine. Could we see a similar result, or would that take more package deals to get there?

Yeah, thanks for the question. So, as you noted, last year we started out our guidance. We were at that 4% to 6%, as you noted. We're in a similar situation. position here for 2025 and our guidance today. And the reason we outperformed in 24, getting to that 9%, was we had package deals that we were able to pull forward from out of year expirations into 24. Our guidance does not assume that there's any of that within our 4% to 6% number for 2025. And similar to along the lines of discussions we've had in You know, you're still seeing somewhat of an elevated rate, expiry rates in 25. So we're still seeing positive mark-to-markets there, but you're going to be seeing an improving mark-to-market environment as you go out into outer years.

The next question is from Irvin Liu with Evercore ISI. Please go ahead.

Hi, thank you for the question. So I wanted to ask about your bookings expectations looking ahead. And I understand that bookings by nature is a very lumpy metric, and that's not something that you necessarily or you guide to, but you did do $1 billion this year or a little bit above that. Based on what you're seeing in the current pipeline and your 3.5 gigawatts of buildable capacity, do you think this billion-dollar annual bookings rate is repeatable over any future 12-month period?

Hey, thanks, Irvin.

So I think you really got to divide these into the larger capacity blocks and everything else categories. We obviously got to a record $30 million in these signs last year, which was close to two times our prior record. that has really created a development pipeline now that's called 7.4.30, 70% pre-released at just over 12 ROI. And you can see from our bookings backlog, it's starting to roll out in 2025, but then a lot more of it starts hitting our P&L in 2026, and four-year contributions come thereafter. We are on the larger capacity blocks. When you do so much leasing... the next batch of your leasing kind of goes into the deliveries that are just further out. And you can see that our unleased development pipeline, the megawatts in there, we call it about 40% as whole megawatts, so they're not going to get pre-leased all that far in advance. We have 500 megawatts of shell either already built in already, which is fantastic, and that will be the next batch. But you can see our delivery schedules, they're not going to deliver until end of the year or into 2026. So We're not necessarily in a panicking rush to fill those. We need to make sure that we're curing those to the right customers and the right outcomes to both driving diverse campuses and help our customers wherever possible. And the sooner they deliver, the more precious they are to those customers. Meanwhile, on the other end of the curve, in our 0-1 Megawatt interconnection category, we were delighted to put up a record in 3Q. We put up another record in on $76 million in 4Q that was up 16% quarter-to-quarter, contributing to a record full year. And that is a place where we have ample capacity to keep selling into and put incremental records on in 2025 as well.

The next question is from Jonathan Atkin with RBC. Please go ahead.

Thanks. So you've been kind of messaging last year the guide that you gave today kind of in the mid-single digits, and you also had indicated that you do expect this trend to accelerate. So as we look forward, you know, beyond this year, you know, what sorts of, you know, acceleration curves should we accelerate? Should we think about when it comes to core FFO for share or given the conversion of your significant bookings to billings over the next several quarters. Thanks.

Thanks, John. I mean, I'll turn to Matt to give you a bunch of the puzzle pieces for the call there after 2025. But we stand by what we said earlier in the year, and I think we see all that in the guidance here, which is called normalized growth at the top line, the EBITDA line in double digits, flowing down to a bottom line mid-signal digits for even better on a constant currency basis. And Matt can give you some of the possible pieces of where we go from there for 2025 into 2026 with acceleration.

Yeah, thanks for your question, John. I mean, you know, this is... This is a, which I think is a good thing. We're, you know, we're consistent with what the messaging has been. You know, we're delivering on the mid-single digits growth in 25, and we have a view toward, as we've noted before, continuing improvement and growth in years beyond. And I think a lot of what we did in 24 has really set the stage for that improving growth. You know, when you consider we've got the inventory to do it, we've got 200 megawatts available under development today with 500 megawatts of shell behind it. We've got 700 million of backlogs set to commence just over the next two years. And as I knew on a prior question, we've got an improving mark-to-market outlook as we look ahead towards expiring leases, which... is part of what you're seeing in also improving same-store growth as well. So on top of that, we put ourselves in a position where we've got $6 billion of liquidity and below-leverage targets. So I think all that puts together into the mixing bowl to put us in a great position to continue to build on what has been improving bottom-line growth in 24, 25, and beyond.

The next question is from Michael Rollins with Citi. Please go ahead.

Thanks and good afternoon. Two topics. First, just digging a little bit more into the under one megawatt business. When you look at the improving performance and the back-to-back records that you recorded on leasing, do you see that as a rising tide that's just lifting all boats, including yours? Or do you see digital taking share? And if you can expand on the characteristics within each of those. And then Just secondly, on the net debt leverage coming down, as you look at the incremental capacity that you have, is this solely directed at organic development opportunities, or are you preserving some flexibility for some potential inorganic activity at some point? Thanks.

Thanks, Mike.

So I'll hand it over to Colin, but maybe just in reverse order. We're very focused on using our now very infill liquidity and strong balance sheet, as well as numerous levers to continue to fund organic development activities. So, that is the main priority. When it goes to under one megawatt, I mean, you're really just seeing this momentum unlock throughout 2024, and I believe it's going to continue into 2025. It was broad-based, It was the number one quarter for Americas and Maya, in addition to a number one quarter overall. It had great diversity of wins on different size breaks. The price action was strong on the new sign-ins. The price action was also strong, almost 5% on the renewals in that category. I'll let Carl speak a little bit about the diversity of the demand and some of the – and if he can deal with the outlook as well.

Thanks, Michael, for the question and appreciate the comments on the corridor as well. Yeah, we are really pleased on the zero-to-one megawatt segment. That's really – We feel like it's manifesting well our strategy and how it comes off as the full spectrum of offerings to our clients. And I think our clients are really recognizing global reach and core markets and large contiguous blocks really matter. And we saw that diversity of demand, you know, across the board. This was one of the larger, large enterprise segments of the business. We've seen over 50% of the 0 to 1 megawatt bookings came out of that segment. We also had a really strong service provider quarter as well. So, again, those two – customer types play off each other. So enterprises attract service providers and vice versa. And we're also pleased with our focus on the channel side. So 2024 is a landmark year for channel, and we expect that to continue into the future.

The next question is from Matt Nicknam with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking the question. It's both a clarification. If you think about growth for next year, I mean, you talked about sort of organic growth that's 10% plus. I'm just wondering maybe for Matt if we can think through what's embedded in the 5.8 to 5.9 around FX headwinds, potentially lower utility reimbursements, and any other factors that may be mitigating some of the reported growth next year. Thanks.

Yeah, so in terms of, I mean, you saw what we put in terms of our performance

Constant currency. So we're looking at, from an FX perspective, we're looking at roughly 200 basis points of headwind, kind of from a P&L perspective. That winds its way down to a little less than a percent down to core FFO. So that all leads into, I think, what Andy mentioned in terms of when you're looking at top line revenue down to adjusted EBITDA. We're really looking at in 25, 10 plus percent on a normalized basis. And so that normalized basis is really comprised of two main elements. There's FX, which I just mentioned was around call 200 basis points. And then we're also normalizing for dispositions, joint venture, transactional activity, which we had both in what closed in 2024. We had some of that in the fourth quarter, as well as some in the first quarter, but also what we're expecting is to happen in 2025, which is related to the disposition private capital that we have in our guide of $500 to $1 billion. So I think long-term, we're looking to maintain that top line to adjust the EBITDA 10-plus percent growth.

The next question is from Ari Klein with VMO. Please go ahead.

Thank you. There's been a lot of talk within the industry around inference, particularly post-DeepSeek, and I was hoping maybe you can describe how you see that potential demand around inference evolving and whether you'd expect it to be more beneficial to your zero to one megawatt business or greater than one megawatt business.

Thanks.

Thanks, Arya. I'll hand it back to Chris. I think a stat we didn't put in the repair remarks that we forgot to pull out, I think, 30% of the megawatts we signed during the quarter were AI-related, and obviously we had a very much enterprise-heavy quarter, given the record contributions in the zero-one megawatt interconnection category. So certainly starting to see our fair share of AI come to the core markets, come to enterprises, certainly come to inference. But I believe we're still at the tip of an iceberg here, and I'll let Chris expand upon this.

Yeah, definitely appreciate the question, Ari. Definitely early innings of AI, right? And so I think a lot of the inference we see today is around augmenting current capabilities. So I think as you see some of these newer feature sets coming through AI, bimodal, where you're seeing video and other things coming to market, that's going to drive a higher and higher demand in the overall blocks required. So these capacity blocks that Colin was referencing earlier become more and more important. So... Maybe it doesn't fall in that sub-one megawatt because we're actually seeing that these will be larger capacity blocks that may be larger than a megawatt. But just to kind of press upon... the demands of inference, it will still have more and more proximity to the end consumer. I think that's the important piece that we always look at and where we apply our capital is that long-term durability of where that inference matures because that's where the actual consumption or monetization of the AI will happen. And that's why we're very excited about how that's going to be maturing over time. I would also be remiss not to mention the other element of this that we're very excited about is private AI. So inference, you'll see that coming from a lot of the hyperscalers bringing their capabilities to market, but then on the averse of that, you're going to see a lot of private AI capabilities coming in where that too has an inference element to it, but we're very excited about our AI-ready capabilities and our facilities to support that broad spectrum of not only capacity blocks, but power density domains as well.

The next question is from David Guarino with Green Street. Please go ahead.

Thanks. I want to go back to that less than one megawatt new leasing activity. Can you comment maybe on the majority of the deals signed? Were those in legacy assets, which will hopefully provide a much-needed boost to same-store occupancy when the leases commence? Or were the majority of those deals signed in maybe the newer construction assets that are better catered towards the current deployment requirements today?

I mean, it's pretty broad-based. I mean... The top markets were Northern Virginia, London, Los Angeles, Frankfurt, Chicago, globally. I can tell you London, Los Angeles, and Chicago. Those are not, I mean, that's 350 Cermak, that's 600 West Sedmont, that's even El Segundo. Our whole London portfolio, whether in the Docklands or Loking, we've had much more enterprise play there. We've not been built a brand new asset in a long, long time, probably until I started digital close to 10 years ago. So these are COLO, obviously, oriented use cases across numerous industries. business segments, financial services, insurance, healthcare. We quoted a few along the way. So, and when I look at the overall quantity of signings, of signings that went into called first generation or second generation, that has been pretty consistent. It's a little higher throughout the year. You did bring up the point of the safe store occupancy. We did almost have A little self-inflicted wound there with, I think, one of the remnants of a six-day transaction converted from 100% of his P&V suite to we get back the vacancies. Now they're in their full customer base there. But that creates an opportunity. And I know we're actively coding to refill that capacity, obviously a much better economic outcome, along with being our core priorities and building out our enterprise customer base along the way.

The next question is from Frank Louthen with Raymond James. Please go ahead. Sorry about that. Thank you.

Can you give us an idea going forward, so what percentage of your facilities you're going to set aside for sort of less than a megawatt? Where do you see that going? And within that less than a megawatt, what percentage of that floor space are you building that is for high power density compute versus just regular machines?

Thanks. Thanks, Frank.

I mean, not just very recently, but for a long time now, the last couple of years, we have been prioritizing making sure our customers, seeing enterprise global capabilities, be it network-oriented or private cloud or high-performance computing, pushing the power densities, have ample runway to grow within our portfolios. There's certain places that are clearly network-oriented, like a 56 Marietta in Atlanta, for example. But on our campuses, we're building with the modulatory and flexibility to span their power density needs. And we're often now moving towards places where we can get this scaled and build a sizable building, given how much success we've had in the category of various markets, to have dedicated for those customers facilities on the same campus for obviously dedicated buildings for those customers and have a little bit less mix and matching within a switch within a building. So that's a priority. We've been doing more of that. You're going to continue to see us doing more of that. And that's why, that's how we're going to get this growth. We've been putting out, what, 22-ish percent growth in that Simon category just this last year and looking for further acceleration next year.

The next question is from Jim Schneider with Goldman Sachs. Please go ahead.

Good afternoon. Thanks for taking my question. Andy, I think at the top of the script you mentioned the Stargate announcement. Some of your customers are directly or indirectly involved in that announcement. Some of them are your largest customers, in fact. So what conversations have you had with some of these customers since the announcement about their interest in sort of maintaining or expanding their relationship with digital realty in the future? And then maybe you can make a broader comment on hyperskillers and their willingness to look out even further into the future in terms of pre-leasing capacity. Do you think that's kind of on the margin a little bit greater or lesser than it was maybe three months ago? Thank you.

Thanks, Jim. So the Stargate announcement, I would say twofold, really was a partial announcement of activity that transpired quarters of a month ago, and also I put it in the category of conviction from top customers to continue to deploy significant dollars towards infrastructure. I don't think that some of that was transparent while we were signing with some of our biggest customers. Just last year, I think I said previously that of the three quarters when we had record signings during the year, we had a different top Hyperscale customer be the record signing customer each quarter, so there was diversity. And based on where I'm seeing things go this year, I think we could add a different customer to be the lead horse in any given quarter as we work into 2025. I will say at the same time, the size of this demand is getting to a place where the spigot of demand is not running at full blast 24 hours a day, seven days a week, 365 days a year. These packages with more expensive GPUs and infrastructure on larger capacity blocks are going up to the highest level of the big companies' boards for approval, and they don't do that every other week. So while the capacity we see continue up in the right, there will certainly be a week or two a month where we'll see a lull, and then they'll come back, which is fantastic. part and parcel with exactly what we saw transpire in 2024. And I think we're very well positioned to obviously support those customers in some of the large capacity blocks, which you can see we have delivering called significant phase capacity in our development pipeline, 500 megawatts of shelves, and we just grossed up our land holdings with some near-term delivery opportunities to about over three gigawatts of growth.

The next question is from Eric Lubchow with Wells Fargo. Please go ahead.

I appreciate it. I just wanted to touch on the capital recycling or JV picture for the year. I know you talked about $500 million to a billion, but maybe you could maybe touch a little bit on the potential mix of you know, outright dispositions, JVs, and then new programmatic fund-like structures that you've alluded to in the past, how we think, you know, about the mix of that this year versus using other sources of capital like issuing equity. Thank you.

Thanks, Eric. Why don't I, Matt, give you a quick breakdown of the numbers and then flip it over to Greg to give you a quick highlight of where we are on our specific capital initiatives.

Yeah, thanks, Eric. So, I mean, simplistically, we're looking at, if you just break it down, we're looking at roughly 300 to 400 million of that is going to be associated with, you know, continued efforts around our non-core asset disposition. And the remainder of that will be targeted towards, you know, the continued expansion of our private capital efforts. And for that, maybe I'll turn it over to Greg to give a little bit more color.

Thanks, Matt, and thanks, Eric. Look, I think there's a couple things. One is, you know, Andy and Matt have told investors for some time now as we look to diversify and bolster our capital sources, as you mentioned, you know, a fund is clearly the next logical step in this progression. I think all we'd say at this point is it's going very well, and as we continue to make progress and have more to report, we look forward to talking to you about it. But again, we think it's... I think it is the next logical step and like the flexibility associated with it.

The next question is from Eric Rasmussen with Stifel. Please go ahead.

Yeah, thanks for taking the question. So you laid out mid-single digit core FFO constant currency growth in 2025 and it sounds like there's a lot of momentum in the business for acceleration beyond that, but What are some of the factors that maybe could derail this thesis as you think about some of the things that might impact the business?

Thanks.

If you look at our components here, most of the big signings are not flowed through to 2025. So, any big signings we do from here, which we intend to be doing, are really building out growth in 2026 and 2027. So our near-term execution opportunity goes back to what we've been very successful recently and need to continue in the zero to one megawatt interconnection, filling that vacancy in our portfolio that does not have that pre-lease window of that scale. Continue to execute our commercialization. We've delivered a tremendous amount of value to our customers, and obviously we need to make sure the commercials are adequately rewarding, which you see through our cash market markets. Continue to expand the value of property over interconnection signings, which we had a strong fourth quarter, coming off a record third quarter, but continue on that road. And then obviously making sure we use these tools that we built over the last 18 months in terms of how we fund this business, in terms of continuing to be able to spend and accelerating $4.5 billion of gross capex, but use our own liquidity, retained capital, and obviously development private capital partnerships as well to make sure this all flows to the bottom line like we were guiding in 2025 and looking to do better than that in 2026.

The next question is from Vikram Malhotra with Mizuho. Please go ahead.

Good evening. Thanks for taking the question. I guess I just want to clarify two things you mentioned. So one is just the rush or the velocity of deals that, you know, tenants are wanting to sign and you're wanting to engage in. It sounds like in the less than one megawatt segment, there's like a, I don't want to call it a renewed rush, but certainly an upward trajectory and hopefully that continues. But in the larger than one megawatt, it's very lumpy, like you said. And I'm just wondering the combination of those two, does that put like just hypothetically the next two, three years in a different zip code of the last year and size of your bookings? I'm not looking for a number. I'm just trying to think over the next three years versus the last, call it seven years. And then same question on pricing power. With all this velocity, can you expand a little bit on how you're viewing your own pricing power going forward? Thanks.

Thank you very much. A lot to unpack in there. Let me try to be succinct. Zero-one megawatt enterprise co-location or connection, we see a growing market where we're taking more and more shares. And we will continue to do that with a very compelling value proposition. We have the power densities and runway for growth for our customers to learn and expand with us across 50 metropolitan areas and the connectivity solutions for today and tomorrow for these customers. So I think you're going to continue to see that called stair-stepping of improvement, blocking and tackling in a positive, robust backdrop. even before I think the days of inference becoming tremendously robust with enterprise happens. The other megawatt is certainly going to be lumpy because when you sign a 100 megawatt deal, a 50 megawatt deal in one quarter versus another, it swings it. The point I was just trying to make is based on the deliveries of our inventory timing, there isn't a panicky rush to trade off volume for commercials. So we're trying to create to the right customers and the right financial outcomes for those customers' capacity blocks because we've seen as time goes by, the sooner the capacity delivers, the more value it becomes and helpful to those customers. On the pricing power, I don't have a lot of data points given the composition there. We may want signings in a quarter, but I can tell you in a large market, we're still querying to multiple customers for large capacity blocks. call it 200-ish type rates for what we view as incredibly valuable to these customers. In the smaller 01 category, I think you can see the cash flow of the market is close to just under 5%, and our pricing has helped in there pretty firmly. All the backs of a big step up in volume in that category.

The next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Thank you very much. Good evening. I wonder if you could just talk a little bit on the supply chain side of things. What's the latest situation with getting power to your new developments? Any other items in the supply chain? Are you generally able to hit your timelines, hit your cost per megawatts? Any color around that would be great.

Thank you, Simon. I mean, supply chain, in my opinion, first and foremost with power, remains incredibly tight. And everybody wants something sooner than is confusing to get delivered in almost all markets. We are using our relationships. We're using our scale. We've been creative to find out ways to accelerate solutions for those customers wherever possible. But my sense is that if more power were delivered to where we have our campuses sooner, we'd have more demand because customers need it. The broader supply chain on physical elements, which kind of ties first ties back into, I mean, we have today owned 3.5 gigawatts, well, 3.6 gigawatts of land and shell. We're not going to look for that dilute. That is on our balance sheet. Much of that's been on our balance sheet for quite a while now. It's not like we just tied it up and have to run the super front end or getting pad ready, which puts us in a great position to make sure that we're able to keep delivering. Our supply chain is, I think, with the vendors, is on the tight side as well. And We'll see what happens when the talk of tariffs comes to data center land in terms of impact, but our current view of that outlook is we look like we're pretty well insulated given how we've gone ahead in terms of supply chain procurement.

The next question is from Nick DelDeo with Moffitt Nathanson. Please go ahead.

Hey, thanks for taking my question. Your development yield in the Americas is almost 14 percent now. That stepped up pretty nicely last quarter. You're sort of in the 10 to 11 percent zone in EMEA and APAC. Should we expect to see the development yields in EMEA and APAC, you know, start to move up and narrow that gap some versus the Americas, or do you see there being factors that restrain where you can get in those regions?

Thanks, Nick. So, I mean,

That's a product of the America's region having the most accentuated, for me, and well outpacing supplies on the larger capacity blocks. Now, we do have a sizable coal footprint in Emeo, which is obviously a higher ROI piece of our business. But when we look at the Megawatt, it's those larger capacity blocks that right now are swinging rates and returns. So, I believe that you're going to see AI globalize. I don't know if we'll be the same extent of growth and build that you've seen or will see in the United States, but based on including meetings I was part of this week, dialogue with customers, I think that you're going to see, and kind of following the footsteps of cloud and data sovereignty and cyber clouds, you're going to see that go up. And I can tell you, if that does come to fruition, it's going to come to fruition in markets that have the same issues as the United States in terms of power transmission and other supply chain elements.

The next question is from Michael Elias with CD Cowan. Please go ahead.

Great. Thanks for squeezing me in here. Andy, you've done a great job expanding yields and getting to 13.7% yields in the Americas. You know, if I ask you to put your prognostication hat on, you know, where do you see development yields and as part of that spot market pricing for hyperscale data center deals going, particularly in light of where the private market is clearing deals? Andy Carr there would be great. Thanks.

Thanks, Mike. I mean, it's... I'm sure there is a private market competitor that will settle for a lower economic yield than we have in our North American schedule as we speak. We're very blessed that we have numerous private capital partners to have some good intelligence on this. So I don't think they're all that much lower in terms of returns, and they still look healthy and profitable returns. I think we're being able to outshine that just because we're potentially picking our spots. We're not just chasing volume at the detriment of price and return, which has allowed us to keep our returns probably a couple hundred basis points higher than the average Joe data center competitor.

The next question is from Brandon Nicebell with KeyBank. Please go ahead.

Yeah, thanks for taking the question. Quick question for Matt. What type of core FFO contributions do you expect from the JV portfolio in 25? And then I saw you recently closed, you know, Blackstone phase two. Maybe, could you give us an update on how you're expecting that JV to impact the JV metrics in 25? Thanks.

Sure. So, in terms, I'll answer it in terms of like the broader you know, disposition, JV capital. So, we're not expecting that to have a material impact on our bottom line core FFO growth in 2025. That's a mix of, you know, call it timing, size, and when things might come to fruition. So, there's some variability there. So, we're not including material impact there. As it relates to, I think, you know, maybe to your point on the broader joint venture private capital. You know, you've seen, I think where you see that, you know, come through is you're seeing our fee income line pick up. You saw that in the fourth quarter, you know, which was largely tied to the closing of our Blackstone phase two and the fees that we got from that more from the development side. We also closed on an acquisition within our SRE, so that had some impact with our fee income as well. And as we now have the full Blackstone closed, And we look to expand on that. I think you'll see additional fee income contribute to our 2025 growth, in particular as those assets start to stabilize and we transition from development fees to more asset management, property management type recurring fees. So that's how we're taking a look at that for this year.

That concludes the Q&A portion of today's call. I'd now like to turn the call back over to Andy Powers for his closing remarks. Andy, please go ahead.

Thank you, Operator. Digital Realty had a remarkable 2024, reflecting strong demand for cloud, digital transformation, and AI. Digital Realty is ready to support these customers' requirements, as well as private AI and a potential avalanche of AI inference demand we anticipate around the world. We set a number of new records throughout our business, executed our key priorities, and positioned the company for an acceleration of bottom line growth in 2025 and beyond. I am extremely proud of how our team executed to deliver this year's results, and I'm excited about the future and remain focused on seizing all the opportunity at hand. I'd like to thank everyone for joining us today. I would like to thank our dedicated and exceptional team at Digital Realty who keep the digital world turning. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.