Q1 2020 Earnings Call
[music].
During today's presentation, all parties will be in a lesson.
Following the presentation, we will conduct a question and answer session in Culberson will be limited to one question plus.
Due to time constraints, we will conclude probably happy hour I.
I would now like to turn the call over to John Stewart Digital Realty Senior Vice President Investor Relations. John. Please go ahead.
Thank you Sean the speakers on today's call, our CEO, Bill Stein and CFO Andy power.
If investment Officer, Greg Wright, Chief Technology Officer, Chris Sharp and eat VP of sales and marketing Corey dire also on the call and will be available for acuity management may make forward looking statements, including guidance and the underlying assumptions 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 FCC.
This call will contain non-GAAP financial information reconciliations to net income are included in the supplemental package furnished to the FCC and available on our website with that I'd like to turn the call over to Bill.
Thank you John.
Good afternoon, and thank you all for joining us.
The last 90 days, but unlike anything that we've experienced in our lifetime at our Hearts go out to all those who have been directly impacted by covert 19, especially those who lost loved ones.
No what has been immune to this crisis, but the data center industry has been fortunate to have remained open for business well huge portions of the global economy haven't put oh.
As you probably know data centers have been classified as critical infrastructure at a central businesses by government agencies around the world.
Our top priority is of course, the health and safety of our employees customers and partners.
The entire datacenter industry has delivered a strong track record of operational excellence uptime throughout this crisis.
Digital Realty has made 100% uptight.
Well, we have deferred preventative maintenance and I've asked customers to limit site visits to critical activities. Our doors have remained open at our data centers continue to brought by the trusted <unk> Foundation for the digital economy.
Business continuity is our core competency.
We have a full fledged pandemic playbook to ensure that we maintain service levels, while prioritizing the health and safety of our employees customers and partners.
We have received very high marks from our customers for our professional protocols and proactive communication throughout the crisis for this.
We always data gratitude to our operations team and particularly our frontline employees and critical data set of rules.
Despite the challenging environment.
Continued coming to work so that industries governments and families continue to connect keep in touch and keep commerce and information flow it.
We are deeply appreciative of their efforts.
Let's turn to our sustainable growth initiatives here on page four.
In early January we issued 1.4 billion euros Green Euro bonds.
This was our third green bond issuance, we are now the largest U.S. rate Green bond issuer.
Our Green Bond framework is aligned with the ice C N. A green bought principles with a second party opinion provided by stay analytics.
In mid January where now we had achieved EPA energy star certification for an industry, leading 29 Datacenters last year.
In early April we were honored to be the first dataset of provider to receive an EPA energy star partner of the year Award for Energy management.
Finally in late April we announced a wind energy agreement just apply approximately 30% of our power needs in the Dallas, Texas area with renewable energy.
On the social front, we are fortunate to be in a position they get back in the midst of this crisis.
We have undertaken a comprehensive philanthropic initiative consisting of corporate contributions employee matching gifts and community outreach initiatives to help support organizations combating cobiz 19 around the world.
We're also waiving fees for expanded service exchange connectivity for the next six months to help customers in the government medical emergency services and educational verticals keep critical services running.
On the governance right.
Mandeville has joined the board of directors bolstering the additions of Alexis de orbit and Dash Jamison in January.
John was previously chairman of the board and interaction and he has extensive experience and the technology and telecom sectors. Having previously served as the CFO of global crossing in Singapore technologies, Telemedia as well as President of Asia Pac for British Telecom.
We're pleased to welcome John to the Board, we look forward to benefiting from his leadership and expertise.
On a more bittersweet note.
We also have a departure to announce.
Former chairman data Singleton has reached mandatory retirement age it will not be standing for reelection at our annual meeting.
Yeah, I just had a distinguished career prior to joining our board most notably as a founding partner of speaker properties.
He has served as a digital realty director since our IPO in 2004, and he served as chairman of the board for 2012 to 2017.
The company has grown nearly 50 fold status joined the board and he has provided sound count. So it's steady leadership through the most critical juncture in the company's history, including the strategic investments that are built the business as well as leadership changes at the board and the C suite.
He is a true gentlemen, it is sage council and collegial bearing will be sorely missed.
Well I'd be happy the entire board of directors I'd like to think that as far as more than 15 years of service or digital Realty and we wish him the very very best.
Let's turn to page five.
Our first quarter investment activity showcased the breadth of our global platform and crystallize the transformation of our business.
The highlight of the quarter was of course, our combination with interaction in a highly strategic and complimentary transaction, creating a leading global provider of cloud and carrier neutral data Center solutions.
We also closed the acquisition of a 49% interest in the Western building exchange in Seattle.
The western building as one of the most densely interconnected facilities in North America, and is home to leading global cloud contests, and interconnection providers with over 150 carriers and more than 10000 cross connects.
We closed on the sale of a portfolio of Ted North American data centers to Maple tree in January generating approximately $550 million of proceeds.
We also launched our co location product offering in Osaka building upon the success of our Hyperscale business in Japan.
We opened a new data center doubling the new Quad chart facility supports the growth of Dublin's technology sector, which is projected to boom over the next decade.
We acquired a small land parcel in Frankfurt adjacent to our existing Sossen hype campus to accelerate time to market as supply constrained metro.
Separately interaction has line of sight.
Sizable land parcel expected to represent a strategic extension, which existing Frankfurt campus that would support the development of up to 180 megawatts of I T capacity, providing runway to support customer growth in key European Metro for years to come.
We announced that we turned the power audit.
In 12, 50 megawatt new development, Singapore, partially pre leased to a major Singaporean bag at a leading global cloud provider.
Finally in April interaction I know it is broken ground interaction Paris digital part a major expansion projects in Paris with up to 85 megawatts of capacity.
First a four new data centers on the site will be interactions eight in pairs in the first phase is scheduled to open in late 2021.
Let's turn to integration on page six.
We believe our combination with interaction has the potential to change the global data center landscape.
The combined organization is well placed to meet the growing demand from cloud and content platforms IP service writers and enterprises seeking colocation hybrid cloud and Hyperscale data Center solutions.
As our global long term opportunities that we are ideally positioned to address.
Integration is our top priority for Twentytwenty.
The combined company offers a comprehensive global platform for our customers and gives us a runway for significant growth.
We've obviously had to adapt to the current environment. The transaction closed on March 13, and we began to shelter in place the following week.
Many of the initial meetings between teams that would have taken place in person have been virtual instead that has obviously created some challenges, but both teams have risen to the challenge.
During that first week, we had to implement policies procedures and customer communications for operating in the midst of a global pandemic.
As I mentioned earlier I'm deeply grateful for the way both teams have come together to continue to serve our customers needs throughout this crisis.
Based on our work prior to closing within just the past few weeks, we've made progress on our corporate integration efforts, including finalizing our integration governance and combined AMEA leadership structure, which we'll be rolling out in the coming weeks.
There will be more to come over the next several quarters, but we're pleased with our progress to date.
Let's turn to the macro environment on page seven.
As we're all aware the global economy has ground to a halt.
As you've heard me say many times before datacenter demand is not directly correlated job growth and we are fortunate to be operating in a business lever to secular demand drivers, both growing faster than global GDP growth and somewhat insulated from economic volatility.
Put a finer point on the secular demand drivers underpinning our business I'd like to draw your attention to page eight.
Mackenzie recently conducted a global survey.
3600, B to B decision makers are their business outlook and priorities.
The surveyed executive stated they value digital interactions with customers as two to three times more important than traditional interactions, reflecting continued need for digital infrastructure and capacity demand for datacenters.
According to the market intelligence from intricately.
The average enterprises utilize 27 cloud products deployed at consumed across eight points of presence globally.
We are seeing indicators of this demand globally across our platform in the volume of new logo was led by our enterprise vertical as these firms ship their strategy to enable digital interactions for their customers.
Digital Realty was recently named a worldwide leader in the ITC Marketscape Colocation and interconnection services provider assessment report.
Noting platform digital provides a global scale platform to enable digital transformation in a consistent modular fashion.
We are honored by this strong validation of our platform.
And our unique positioning to capture the global datacenter demand opportunity.
Given the resiliency of the demand drivers underpinning our business and the relevance of our portfolio to meet these needs. We believe we are well position to continue to deliver sustainable growth for customers shareholders and employees whatever the macro environment may hold in store.
With that I'd like to turn the call over to Andy to take you through our financial reserves.
Thank you Bill.
Let's pick up here on page 10.
You may have seen from our supplemental reporting package given the compressed timeframe post closing and the complexity of reconciling different reporting practices with both teams working remotely. We've included the partial period contribution from interaction in our financial statements believe not included interactions portfolio statistics in the.
Supplemental until next quarter.
We've also table most of the changes tour disclosure package, we discussed last quarter.
We continue to see the winds blurring between prototypes and we believe the distinction is becoming less meaningful.
As a result, we still expect to evolve our disclosure in the coming quarters to more closely aligned with our customers buying behavior and the way we manage the business.
We also expect to fully reflect the interaction portfolio statistics within our disclosure next quarter as well.
Nonetheless, we provided a few pro forma data points in summary form here on page 10 to help frame the power of the combined business.
I'd like to point out that we slightly tweaked our definition of adjusted EBITDA. This quarter to include our pro rata share of unconsolidated joint venture taxes and interest expense.
We use net debt to adjusted EBITDA as our primary levers governor and we calculate leverage on a look through basis.
In other words, we include our pro rata share of unconsolidated JV debt in the numerator and we believe that including our pro rata share of unconsolidated JV joint venture EBITDA in the denominator intellectually honest approach.
Our pro rata share of joint venture interest expense and taxes has historically been negligible, but is becoming more meaningful as we expand our strategic private capital initiative through ventures like a 70 in Latin America NMC digital Realty in Japan.
Let's turn to our leasing activity on page 11.
We delivered solid leasing volume with balanced performance across sectors products and geographies.
We signed total bookings, a 75 million, our second highest quarter on record.
This does not include any contribution from interaction, which separately signed another 10 million during the first quarter.
Interactions first quarter bookings were entirely colocation and connectivity business with no single deal larger than the 180 kilowatts.
Standalone digital Realty its first quarter bookings included a 9 million contribution from interconnection.
We signed new leases for space and power totaling 66 million the weighted average lease term of nearly seven years, including a seven a half million co location contribution.
Standalone digital Realty added 54, new logos during the first quarter on a consolidated basis.
In addition, a center you landed 20, new logos and interaction added another 45 for a grand total of 119.
Underscoring the power of our global platform.
In terms of regions Standalone digital Realty is results showed particular strength in the Americas as well as a pack.
Notably in Northern Virginia here in the U.S. as well as Singapore in a pack.
We leased 25 megawatts in ashburn during the first quarter, bringing our total over the past three quarters to 57 megawatts.
93% as of March 31st.
We have not be happy gone to see meaningful improvement in northern Virginia marker rents, but the available inventory is being rapidly absorbed and the pendulum appears to be swing back towards tighter availability and healthy competitive tension.
In terms of specific ones during the quarter and around the world. We landed a leading global video streaming platform for their launch across much of Europe, which was a resounding success.
Interaction and digital Realty company supports this on demand AD free streaming service by providing their data center infrastructure across five locations in Europe.
With a growing demand for O.T.T. video services. This is a sector that relies on highly connected data centres to deliver a superior customer experience and we are honor to have partnered with is leading provider to help them bring their world class content to European consumers.
We help they leading European digital service provider stand up a bare metal cloud offering adjacent to cloud on ramps and South Paulo to support a major cloud providers hybrid services in South America on our sente platform.
And global financial services from using Nvidia G.P.U.'s in their high density of compute cabinets chose digital realty, because we met their high performers computer requirements.
Including proximity to their latency computing environment to ensure ultra low latency and security.
Platform digital has been painting significant momentum since its launch late last year.
And customer spanning industries, geography, and business objectives are making the migration.
<unk> is sass provider offering online visibility and marketing analytic software subscriptions had a requirement for data hub with proximity to multiple leading global cloud providers and it global expansion under an aggressive timeline.
We were able to solve their needs with a new deployment in ashburn, including connectivity via our service exchange.
Similarly, but you go a Singapore based technology company specializing in A.I. enable video platforms needed a critical infrastructure provider to help them expand into EEMEA.
Ego landed on legacy digital <unk> Frankfurt campus.
Interactions capabilities across the region further solidified the selection of their ideal partner.
We were also able to support the five g. aspirations of a global Fortune, one 100 service provider mean by meeting their financial growth and power density requirements.
We are continuing to build on a global momentum in the second quarter.
And we look forward to helping customers achieve their goals during these uncertain times.
Turn into our backlog on page 13, Standalone digital Realty, it's curved backlog of leases signed but not yet commenced stepped up from 116 million a year end to 122 million at the end of the first quarter.
Alive between signings and Commencements was a bit better than a long term historical average at four and a half months.
Moving onto renewal leasing activity on page 14.
Which again excludes interaction.
<unk> 92 million of renewal during the first quarter. In addition to new lease assigned.
Activity was heavily skewed to to our co location business and the weighted average least term on renewal signed during the first quarter was a little over three years, while the positive mark to market on collocation rules, largely offset turn p. and P.D.B. rolldowns for an average cash really some spread across the product type.
Negative 1.5%.
You may have seen or guidance calls for cash releasing spreads to be down low single digits.
Please keep in mind that are 2020 <unk> does include interaction.
Whereas we have not reflected interactions results in our first quarter or at least some statistics.
Aside from a few select supplies constrain regions and metro areas, we have yet to see broadbase rental rate growth across most markets. However, we are continuing to make significant progress cycling through <unk> vintage journals.
Lion's share of our portfolio has recently been least a current market rents.
And we are beginning to see barriers to entry emerge in a growing number of markets around the world.
As a result, we expect to see continue to gradual improvement on <unk>, but in the 2020 and be on.
In terms of first quarter operating performance.
Overall portfolio <unk> improved 40 basis points to 87.2%.
Largely due to positive absorption in northern Virginia in Dallas.
Same capital cash in a while I was down 3.7%.
Downtime related to record expirations in 2019 <unk>.
And reflecting their 40 basis point affects had one.
Or for your Guy and supplies improvement going forward and.
Barring any unforeseen shocks, we're cautiously optimistic that we put the low watermark for the cycle behind us.
As a reminder, interaction and the west and building are not included in the 2020 seems to work pool, but we expect both acquisitions will be a creative to organic growth going forward.
Turning to economic risk mitigation strategies on page 15.
U.S. dollars continue declined relative to pry your exchange rates and F.X. represented roughly 50 basis points headwind to the every year growth in our reported results from the top to the bottom line.
We managed currents your wrist by you shouldn't locally denominated debt to act as a natural heads so only our net assets within a given region are exposed occurrences risk from an economic perspective.
In terms of vertical concentration.
You can see from the Pie chart on the upper right.
We have limited exposure to the businesses that have been most directly impacted by the covert 19 pandemic.
Or April rent collections are in line with our historical average and the sum total of customers who have reached out to request retton relief represent approximately two per cent of total revenue.
In addition to managing credit risk and foreign currency exposure.
We also Medicaid interest rate risk by proactively terming out short term variable rate debt with longer term fixed rate financing.
Given our strategy of matching duration of our long lived assets with long term fixed rate debt.
And 100 basis point move in <unk> would have less than a 50 basis points impact to <unk>.
Or near term funding and refinancing risk is very well managed and our capital plan is fully funded.
In terms of earnings growth core Fo Pershare was down 11.6% you every year.
May recall there were several one time items in one q. 19 affecting the every year comparison.
Six and a half set you paid tax benefit.
Another six and a half sense of interest income on that Brookville bridge loan and a full quarter contribution from consolidating the 70 prior closing the joint venture with Brookfield on the last day of the year ago corner.
Whereas we had it nearly a full quarter of dilution from the <unk> Maple tree asset sales in one <unk>.
Excluding these non comparable items do you ever your growth would have been up 1.2%.
Core if if a person share miss consensus by three cents, but was three cents ahead of our internal forecast driven by strong leasing performance and operating expensive things.
By our estimation the first quarter Miss relative to consensus was entirely do the share account. It's actual results were 5% to 6% ahead of a consensus on the top line any button.
And most street models did not reflect the 54 million additional shares outstanding for 18 days upon opposing the interaction combination in mid March.
As you may have seen from the press release, we Opportunistically issued a little over 650 million of equity on R.A.T.M. in late March in early April.
In addition, we now expect to draw down or afford equity offering sooner rather than later this year.
Or 2020 guidance includes just over 25 cents or 4% headwind comprised of three items.
The opportunistic equity issuance and accelerate drawdown upper equity Ford.
Ethics, and coven, 19 impact, including modest drag from development delivered delays and select markets.
And finally, the earlier than expected closing over a combination with interaction along with additional investments in the interaction business to fun future group.
As you can see from the bridge short on page 16, we expect the quarterly Runrate dip down by six cents in a second and third quarter's before rebounding and the fourth quarter and beyond.
Our recent investment activity, including the Sente in Latin America and interaction in EEMEA, along with our capital recycling initiative and balance sheet management have lowered the per share bar in 2020.
But we believe each of these initiatives will create long term value and set us up for accelerating growth in a greater share of global customer wallet going forward, while still providing free well covered dividend, which the board raised for the 15th consecutive year in February.
Last but certainly not least let's turn to the balance sheet on page 17.
Fix charged coverage remains healthy 3.8 times.
Net debt to adjust stood at 6.6 times as of the end of the first quarter, primarily due to showing 100 per cent of interactions dead on our balance sheet as a Morse 31, whereas the contributed just 18 days of even in the first quarter.
Pro forma for a full corner contribution from interaction and the west in building.
The equity issuance activity on the A.T.M. after quarter and.
And settlement of the 1.1 billion Ford equity offering.
Net debt to adjusted <unk> remained in line with our target range and just over five times.
Well fix charged coverage is just under five times.
As a result of our proactive bouncy management, we have sample liquidity to fund our capital spending.
Nearly 250 million of cash the bounds she has a morse 31.
Another 1.7 billion of equity coming in post quarter and.
And 2 billion of availability on a global revolving credit facilities.
The successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu public as well as private capital.
Sets us apart from our peers and enables us to prudently fund our growth.
As you can see from the chart on page 18.
Are weighted average debt maturities over six years and our weighted average coupon is 3%.
60% of her dad is non U.S. dollar denominated acting as a natural aspects hedge for our investments outside the U.S.
90% of our debt is fixed rate to guard against the rising rate environment.
90% of her dad is unsecured riding the greatest flexibility for capital recycling.
Finally, as you can see from the left side a page 18, we have a clear runway with virtually no near term debt maturities.
No bar too tall in the out years.
Our balance is poised to whether a storm, but also position to fuel growth opportunities for our customers around the globe <unk>.
Consistent with our long term financing strategy.
There's concludes are prepared remarks.
Now would be pleased to take her questions. Sean would you please be getting the <unk>.
Thank you people now open up the line for question.
I have a reminder, participants or will be limited to one question and the one follow.
You would like to ask a question. Please press star <unk>.
If your question has been addressed and you would like to withdraw your <unk>, we Crestar then too.
The first question they will come from Jonathan <unk> <unk> <unk> Capitalmark. Please go ahead.
That's a couple of questions that's as far Leon for John.
That's the first of all given a widespread pausing replaced and sing a corresponding your permitting moratorium on permitting and play from Amsterdam are there any other markets, where this was happening and you have any update on Mondays or sexual maybe it'll have said.
Yeah.
Hey, Thanks for the question. This is Andy speaking I think given the digital team on the calls in different locations right now to social distancing <unk> quarterback handed off the questions I think actually <unk> can I have to start the first one like that team time in so Singapore, obviously is a a country.
That was early out of the woods and now kind of back in locked down so and having some impact or delivery time there.
And Amsterdam, a different story I'm not really coded related.
It's it's more of a the government's restrictions on certain locations I would say in Amsterdam.
We we've done a very nice job about being a head of the game there with planning for an existing now multiple campuses with a combination with interaction. In addition to tying up some lands that are outside the restricted area I I don't I'm not aware of restrictions that are are akin to the.
Amsterdam scenario really elsewhere in the portfolio, there's obviously markets, where we running up to supply constraints I think that interesting scenario is lends itself to the incumbent players like a digital and keep some of the new entrants out for for sure. We are seeing I would more covert related.
Impacts that have government intertwine, Toronto is a market, where where we have our campus is under construction building out future capacity and that the government kind of leaned and and put a whole for some time before reopening in particular Hillsborough, Oregon, We're we're.
Holding out a campus that significantly preleased that less government restrictions I'd say, some we saw a significant amount absenteeism that cause some delay in the labor side.
But again this is just a handful select markets, where we saw some potential disruptions to our deliveries that will impact or 2020, which we tried to lay out in the script I wouldn't say, it's a widespread a phenomenon within our portfolio a digital.
And for my part question to ask you guys evaluate announced to launch are destroyed all reality I data <unk> <unk>, the rapid decline and yeah <unk>, it's not part of the color on this announcement or they're similar lines, that's well and what are some oh, that's right at customer use cases.
<unk>.
Or expects to see.
Thank you I'll tell us at the Bill.
<unk>.
Thanks, Andy So we're we're absolutely delighted to partner with and videos to extend machine learning.
To data center to accelerate artificial intelligence.
There's always an early stage partner with India and together, we've pre certified 24 locations around the world.
In addition to been video we've released solution officer offers with Cisco IBCM and vapor Io.
This is part of the platform digital roadmap that we published.
Last November when we launched the platform.
We're seeing multiple customer use cases across many industries.
We've captured multiple customer wins across financial services transportation, and logistics and IP service industries.
All of these customers are looking to unbound data processing and exchange limitations to enable intelligent insights for their business.
Initial use cases include complex trade analytics and risk.
Hi, based cyber security and route optimization for connected vehicles.
Great. Thank you very much.
Our next question will come from Jordan Sadler with Keybanc capital markets. Please go ahead.
Thank you and good afternoon, I think every but I hope everybody is doing well.
First question.
I guess.
On interest.
What we've seen in terms of demand.
The pipeline in funnel as a result.
Directly or amidst.
David.
First and foremost so.
I know first quarter.
And there wasn't much going on in terms of.
Time, which we had corona virus on though globally certainly there might have been.
Yes, and a little bit earlier in the quarter.
But I'm speaking more specifically to what's going on in took place in marks the end and margin into April and sort of velocity, you've seen and maybe you could parse that across your customer base a little bit. Thank you.
Hey, Thanks Jordan.
Hope you and your family are helping save as well I'm gonna toss it over to Corey.
Talk.
Pipeline in response to your question there.
Yes, Hey, Jordan, Thanks, London I appreciate the sentiment on for everybody and how common detecting everyone across the globe.
Probably answered kind of into part a little bit about just want our pipeline looks like and then separately I'll try to give you a sense of what the cobot impact of that was that makes sense for you Jordan on but I would tell you that that from a demand perspective overall.
It's really been a strong demand that's really picked up and continued through when we did our launch a platform digital in Q4.
Q1 kind of continued on that momentum.
I was really well received by customers partner the industry you guys. We just mentioned the Nvidia.
Sign off which is just another example of customers and partners adhering to our platform and some of the unique values that we have.
Well in his opening remarks mentioned that I'd see markets can bring to us as a leader in the data Center space and then we follow the same follow through on our enterprise new logos of the new logos, we had 75% of ammonia enterprise.
Well staying on kind of that demand aspect.
And looking forward to Q2 really strong pipeline that we have continuing that momentum around platform digital to get started on.
And so we look at it kind of late stage pipeline quarter on quarter, it's up over 50% hundred percent year on year, We go and look at new logo pipeline similar kind of robust metrics.
And then looked at the enterprise to see if we had anything there thinking who would maybe be the most impacted Jordan and really strong pipeline are on our enterprise side, So happy with it across the board.
The concern we have is just as you would expect.
We've got we've got some in enterprises that are being impacted by it and those that you would expect more we saw some slowdown there but on a net it was taken up by a new enterprise.
Opportunity that Csps content network, and really interconnection growth across the board. So I would tell you that the the industry you would expect to get affected work, but on net for US we still have plenty of demand in a strong pipeline going forward.
Jordan of that helps.
That's helpful.
And then maybe one for you Andy on the guide.
I think pretty disappointing relative to where the street is and where expectations were I know.
You had to layer in quite a bit between interaction and co bed.
I appreciate the 25 cents headwind, but.
Even relative to the dollar 57, you printed do one Q.
Just annualizing the 25 cents of headwinds.
It seems to point to very limited growth from some new business nine already in the year.
But I guess, it just seems a bit like and I guess, the other sort of comment would be around the re leasing spreads.
The digital portfolio is a much larger portfolio than men interactions I know, we've previously talked about maybe being through the most difficult times and I feel like fundamentals only have only gotten better increased demand less ability to supply.
What sort of what am I missing.
So that thanks, Sean let me try to tackle this.
So.
One quick clarification first quarter came in above our internal expectations, a $1.53 I think we might have so dollar 57 silver close enough.
For what where you're getting that here so was it and we certainly.
Had a complicated in quarter four.
Our friends on in the research community to follow Us.
I think when we're tracking the 23 or so in all of the cover US I think we.
The only got around seven there were able to get all the moving parts, including interaction closing early into the numbers.
So where we saw a consensus would be if you did the math.
Including the interaction in the share count in the like.
Closer to 630 ish.
And.
Relative to beginning of year and today I think the things have changed that we try to highlight in our prepared remarks are roughly total with over 25 cents of impact.
Three buckets.
The first two buckets being the major components.
First one is.
We.
Took this time.
In the context of certainly uncertain times.
To.
To some balance sheet management, we opportunistically issued 650 million under our ATM and we plan to bring our equity forward down sooner.
I would say is called.
Eight or so sense of the 25 it.
And that was intentional.
And that was intentional in the broader backdrop that was intentional.
We also see investment opportunities.
To fund future growth.
Hence, we've kind of took a more conservative balance sheet posture.
The second major component, what I'd call in the FX and covert impact.
Maybe call it 13, or so sent in total.
And I'd say, it's roughly 50 50 between those two buckets.
Cobot had some smaller items like some more conservative posture, our estimation of bad debt expense, but the major cobot item I would say is really going back to my response to the first question was we are seeing.
Certain jurisdictions in select markets are putting restrictions on our ability to bring labor to the sites.
So fantastic, it's fantastic have our global platform across 20 countries and 44 markets.
But when you have a country like Singapore that was originally alderwoods in terms of its exposure and then kind of goes back into locked down our 50 megawatt shell are called 11, or 12 megawatts or pre leasing already.
It's going to certainly get delayed a couple of months.
And that episodic thing and a handful of markets, which I highlighted certainly going to put a little dent into our revenue that's going to come across the personnel in 2020.
But again temporary impact and really goes back to the fluid dynamics around the cobot situation and then last but not least.
I'd say call it the small minority, let's say is interaction related.
I don't think when we stood.
At the beginning the year, we thought we'd have the good fortune of navigating numerous European government jurisdictions in multiple shareholder votes and close the transaction at the middle of March.
Like we did we initially estimated 1% to 2% dilution on that transaction.
But the pull forward and earlier timing.
I would say a little bit we're seeing some investment opportunities in our combined EMEA business, which will.
The a penny or so to the 2020 that kind of rounds up the minority of the 25 cents net net this is obviously.
We are always looking to grow earnings as fast as possible.
Same time, I I would look at our combination interaction our balance sheet management be our copper recycling or even the more smaller opportunistic things like further equitizing the balance sheet to fund future growth opportunities really seller setting us up for more accelerating growth and.
And also at the same time I don't think doing anything that's reckless in terms of our dividend coverage and the like.
And then turning briefly to the releasing spreads.
Taking a step back for half a second.
For the five of the last years four up the last five years, we've actually had positive releasing spreads.
If you go back to our supplemental to each of those years.
This year, we're obviously guiding to.
Down slightly.
This is a stat, where we usually.
Overestimate the negative impact and outperformed relative to guidance as you saw just last year.
In any given quarter there could have an episodic.
Customer.
That is renewing with an above market lease.
Usually those transactions bit any form a renewal.
Is something that's additive to our commercial negotiations, where we can help these customers across multiple products multiple geos, new business and renewals in a comprehensive fashion.
So.
I don't think we're out of the Woodson every single one of our contracts being below market whatsoever, and I think.
The trend is moving the right direction, the stat and we're certainly looking forward to.
Getting too in the in the Green territory on that Stat moving forward.
And overall driving higher organic growth.
And our next question will come from Michael Rollins with Citi. Please go ahead.
Hi, good afternoon Hum since this might be one of the last quarter is that you're reporting metrics for the heritage DLR business.
Back when you filed the S. Four for the transaction with interaction. It was inferred from there that organic growth to just heritage digital business would be about 5%.
Can you frame what that growth rate looks like that in bed.
In the guidance for 2020 in terms of the expectation for heritage digital revenue growth.
I think honestly if you look at the result, so for the interaction really only contributed call it.
Two weeks or so of contributions on first quarter results is primarily digital and just to reiterate.
I did.
Really.
Through the facts and circumstances are moving to a work from home environment literally the day, we closed.
Interaction.
Put all of our statistics in here.
Excluding interactions you could see the entire.
Legacy or classic digital business fundamentals.
And in terms of contribution to guidance.
I was not only fourth quarter call, but.
Matt Mercier.
Stepped into it if on a very nice job I thought.
And laying out some some kind of guide rails for legacy digital.
Including on a standalone basis.
Or what our top line would be.
And adjusting for the ins and outs of our dispositions and capital recycling will be called organic revenue growth in the mid single digits in 2020, which I would affirm is still accurate and I would also we also stated that we got industry, leading EBITDA margins, which I would also from is still accurate.
I think that I'd say, that's accurate even pro forma.
For our interaction combination, which obviously was a lower EBITDA margin business.
So just the comments made.
Back in February.
In terms of organic profit growth profile, I would say flow through into the guidance.
I would say the organic growth of the digital business.
Major driver of the outperformance from from our internal perspective in the first quarter, which was a largely digital only quarter.
Thanks.
And our next question will come from Erik Rasmussen with Stifel. Please go ahead.
Yes. Thank you maybe just.
With the Q1 sort of breaking things down with the year Q1 results.
823 million can you just maybe.
Break that down in terms of the organic DLR versus what interactions contribution obviously could backing out into the bad but just wanted to get a sense of what those numbers, where it was was there anything else and with that I thought you were going to be.
Consolidating the Westin exchange, what's what was the can you just maybe comment on what what that was in the quarter.
Sure. Thanks.
Eric So just unclear you're asking kind of deep on package, the 823 million a revenue for the quarter in terms of contribution from each of the major transactions.
D.
If it does that that was your question correct.
Yes. Thank you.
So.
123 million.
And I'm kind of bridging you between the quarters.
Changes I would say interaction was probably a 40.
So almost 40 700 million contribution.
And the rest was really the ins and outs of digital.
And I think we put a cap rate and a return on the west in purchase about a 5.8% return.
So they can kinda back into.
Flipping that from an unconsolidated joint ventures auditor, apparently joint venture investment.
Eric we're also more than happy to.
A follow up post the called work through any the granularity we understand.
When you a joint venture and recycle a building four of capital in the last 90 plus days.
Buyout of seven pardon on or seven and but our asset and close the inhibiting our.
Strategic combination in Europe, it's not a simple quarter from anyone's modeling perspective.
So definitely appreciate that and they will do that maybe just my follow up northern Virginia seems to be recovering and we're hearing of improved demand. How are you seeing this market new opportunities and can comment on other markets, where you're seeing it improvement versus what you thought.
Just 90 days ago, and that's maybe just not year in the U.S., but obviously now with interaction you have a lot more visibility into that European base as well. Thank you.
Hi.
Sure. So maybe I'll start off and unlike a little kind of market tour and I'll ask according to chime in a little bit on what soon on the customer standpoint.
Northern Virginia.
I was very strong quarter. It was up I believe our top quarter site top mark in terms of overall signings. It was strong on the colocation or connection front awesome, great starting that pretty attractive pricings into our colo suites on that campus.
We also were very successful in backfilling into that market numerous recently vacated suites.
So that's kind of high flow through leasing activity for the suite is already built in constructed and lastly, it was the home of our largest transaction for the quarter, where we imported from outer region.
Fairly sizable transaction on the Hyperscale front, so all around pretty strong I would say, it's not a market that is completely out of the woods.
I would I would attribute our success there due to a few things.
One our offering is really entire platform offering on numerous of our sales into any market are going to include numerous products. Numerous goes at the same time till we have a very large installed and growing customer base that once the growth adjacent C. And then three in northern Virginia, Weve I believe the longer.
As one way of future proofing, our customers growth in terms of capacity potential build out.
And I would say, while more commodity like providers on the periphery in northern Virginia are certainly cutting rates that kinda almost internal competitive prevention for our customers to get specific suites on various products within the various campuses in ashburn, certainly the crude or itself to our platform.
Generally better economics.
If you turn to kind of quickly at rest in North America.
Brighter spot I would say is Toronto.
It's been a very attractive location, where we're quickly.
Going through capacity there.
And we're about to launch our Colocation suite, which will be a great new entrants to that market.
A new York City Metro both in the city and also.
In New Jersey has been seeing a rebound that's been on the Colocation connectivity side as well as I'd say call. It a half a megawatt to two megawatt type scale us enterprise type demand financial services in particular.
Santa Clara remains very tight.
Other markets of robustness outside of.
North America.
Asia Pacific I had a very strong quarter.
Early signs in the small dollars of kilowatts from MRO soccer launch of co location or connection upper offer great start there.
And our Sim 12 building I think I've mentioned has had wins with a major enterprise, a leading Asia Pacific Bank.
As well as a major CSP.
Swing down to Latin America, South Paulo.
Had success, where we export demand from a European based customer on the enterprise side.
Into the coal can a colo connectivity suites in our sente platform and then last but not least in Europe. We are in her prepared remarks, we mentioned the strength of selling some major customers into our legacy digital Cola facility in Frankfurt.
The London Cloud House is off to the start and then last one not least interaction, which we didnt kind of put on the page in our results I would reiterate did a very healthy $10 million of signings.
It was a very.
Attractive book of business with no major Sunny Bluff hundred kilowatts, I believe the connectivity signs were close to 35 plus percent of the signings.
So also very successful quarter.
In terms of the interaction activity.
Core anything to add on that.
You gave in pretty much a Rockstar World tour.
What we've got going on so I was trying to think of what to add I guess I would say Andy is the only thing to add is it is that we're really happy with what we've seen in ashburn. If that's the base question here, we've had deals each of the last couple of quarters that have helped us.
And we're continuing to see demand in that area that we're going to continue to source and take care of it puts us in a position to think about expanding and growing more there and then as you said if you look across our regions. Each of our regions was really successful this year or in this last quarter as well as 80, just going gang busters for us.
I think it a great job summarizing it we're happy with health life on digital been received by customers. We're seeing a lot more multi metro deals come through and a big pickup on the enterprise wins with new logo. So I appreciate it.
Yes.
Great. Thank you.
Our next question will come from Richard Choe with JP Morgan. Please go ahead.
Hi, I just wanted to ask about.
The base business and given that Theres. So many puts and takes on the financial side.
Just a focus on what's going on the underlying business. It seems like 70 million and signings has been pretty steady for the past four quarters is that the new normal and is it fair to say, even though northern Virginia contributed it doesn't seem like you had a kind of out of.
Trend when there and later on that could boost that overall sonys number from 72, a much bigger number.
Hi, Thanks, Richard So I would say I mean, we've showed a pretty consistent stair step up over now several quarters.
And each and every quarter has gotten a little bit better.
In terms of its volume and composition on multiple fronts.
So were just under 75.
Excluding anything for interaction.
And it was it was very diverse as we mentioned the APAC was the big contributor.
It was it was.
Northern Virginia, with a solid contributor, but I wouldn't say it took stole the entire show.
And.
I think if you've got to really do peel, the onion going back to some of.
Aurizon bills.
Common season in prepared remarks.
Very healthy new logos, when you add up or new logos upper up to 120, new logos.
So.
You don't usually don't like to annualize that but on a 4% 4000 customers were talking unlike almost 12% new logo generation growth from the combined platform.
So very pleased not on numerous other key performance indicators.
I think you heard a little bit about coreys outlook on on the pipeline move it into Twoq.
And as a follow up the interaction of 10 million signings is that kind of the normal level or was that kind of them, having a very good quarter and how should we think about that going forward.
Hi, I'm pretty sure.
I don't believe David's ever given a signings pipeline or even a signings number so I'm not going to be the first one to unpack that on publicly or here.
But I'm sure some transactions.
Well I didn't get done during the quarter I would say Europe in particular was in the middle of the cold the crisis, a lot sooner than the United States.
But I was pretty pleased when I saw a close to 10 million of signings with that healthy consistency numerous Martin.
Across numerous markets and so connectivity rich.
The next contribution thank you.
Our next question will come from Colby sign a sale with Cowen. Please go ahead.
Great. Thank you for on for taking my questions. The first one just you guys have talked about in the past.
Goal of getting Ted maybe five 7%.
Core FFO per share.
When you think about 2021 and getting passed and the thing that you've talked about that are impacting you. Specifically in 2020 is that still fair approximation for for where you would aspire to seek growth going particularly the leasing numbers.
They have been so strong and then secondly on why patient you don't guide to asset. So I was hoping to give us a little bit of color on.
Some of the metrics that go into it so just straight lining in market rent amortization and some of US do focus a little bit more on that metric as well. Thank you.
Hi, Thanks, Colby, So I think our our growth objectives for the business remain consistent.
The only ounce of caution I put that is we're obviously in a whole branded world here.
That could have interim drag or longer term acceleration.
Overall digital transformation that could further.
Emphasize the growth of our business, but I think.
That mid to high single digits kind of growth in our recurring cash flows are ethical way AFFO per share is still the bogey.
Two or hurdle to overcome shoot for an overcome.
Going to the adjustments.
Two.
FFO and AFFO.
Really straight line rents is just a.
GAAP phenomenon, where we essentially kind of including the the rental escalations or bump.
And depending on where the customers contracts are in their lifecycle. It could have a positive or negative impact and depending on what type of.
Customer whether customers ramping indoor space.
Or not can obviously have an impact.
And the above and boat market amortization is also a noncash.
Impact as well so.
I am happy too.
The with 4000 customers in the breadth of our business, there's a lot of ins and outs that go into that number.
I'm I'm.
You want to ask another question I'm not sure.
Maybe I'm not hitting the heart of what you're seeking to understand there in terms of the impact.
Sure I, just given that interaction and adequate slightly different business and what you guys. It what you're going it's predominantly is as I was wondering if theres any color you can get on but maybe more simply when do you expect and AFFO to be notably below about similar tuning acquired at though.
Maybe that's an easy way of asking and then I guess since.
If you're not able to ask answer that question. Just curious just in terms of koby 19, if you're seeing as a result of that some of the larger hyperscalers are shifting more to and how source novel opposed to a self build model.
Given our perhaps their own desires to reduce their own capex expense in the size and the size.
For me.
Yes, I think the more elegant answer to your first question is.
It's a combination of consolidating our highly connected colocation facility the west in building and our combination with interaction are caught our mix of business.
It's certainly moving much more towards.
A more granular our customer base more network oriented customers, we're obviously going out the enterprise customer in a hybrid multi cloud environments.
And that customer mix, it's going to have less much much less of call. It 15 year steady Eddy bump contracts, which is going the other day narrow I believe the gap between our FFO and AFFO per share.
Overtime versus if what going back to our legacy much more legacy business, even pretty kind of tell us kind of five five years back.
And then going to your second question on.
Maybe ill turn this over to.
Cory or Chris.
To answer about the second question about customer behaviors.
As.
Well, the buying better patterns of Hyperscalers.
Yes, I can tell about.
Andy and I think on Hyperscalers.
Colby.
Their requirements they've got them all across the globe. So we're well positioned to help out where they where they need.
To look at it.
And they recruit Rick.
They generally handle that demand with a combination of like yourself filled and there and then outsourcing to degree it's like US many of the Hyperscaler requirements also involve compute nodes combined with connectivity.
And I think we're really well positioned just to take care of them from all full spectrum of data Center solutions, both higher connected and wholesale and I think while you might hear that some of them one in source for whatever different reasons or build around.
Being that come through in the pipeline, yet and we haven't seen that come through in any kind of change in our customer conversations in our engagements with them, but I'd tell you a coli. Thanks.
Okay. Thank you.
This will conclude our question and answer session I would now let's turn the call back over to CEO Bill Stein for any closing remarks Bill. Please go ahead.
Hey, Thanks, Sean.
I'd like to wrap up our call today by recapping, our highlights for the first quarter.
As outlined here in the last page for presentation.
First we enhanced the value of our platform.
Successfully closing on our highly strategic combination with interaction.
As was the acquisition of the West and building in Seattle, and the Maple tree portfolio sale.
Second we also underscored our commitment to delivering sustainable growth for all stakeholders with community outreach initiatives.
Renewable wind energy contract and new additions to our board.
Third.
We maintained steadfast support for our customers prioritizing health and safety, while maintaining service levels.
Last but not lease we further strengthened our balance sheet with the opportunistic issuance of $650 million of equity capital.
I'd like to conclude todays call by saying, Thank you to the entire digital Realty family.
But particularly our frontline team members and critical data center facility rules, who have kept the digital world turning in the midst of this global pandemic.
I hope you all stay safe and healthy.
Hope to see many of you in person again soon.
Thank you.
The conference has now concluded. Thank you for joining todays presentation you may now disconnect.
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