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.