Q2 2021 Digital Realty Trust Inc Earnings Call
Good afternoon, and welcome to the digital Realty second quarter, 2021earnings call.
Please note this event is being recorded.
During todays presentation, all parties will be in a listen only mode. Following the presentation, we will conduct.
A question and answer session callers will be limited to 1 question plus a follow up and we will conclude promptly at the bottom of the hour.
I would now like to turn the call over to John Stewart Digital Realty as senior Vice President of Investor Relations. John. Please go ahead.
Thank you Andrea the speakers on today's call are CEO, Bill Stein and CFO Andy power.
<unk> investment Officer, Greg Wright, Chief Technology Officer, Chris Sharp and Chief revenue Officer, Corey Dyer are also on the call and will be available for Q&A.
Management may make forward looking statements, including guidance and the underlying assumptions forward looking statements.
On expectations that involve risks and uncertainties that could cause actual results to differ materially for.
For further discussion of risks related to our business see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information and 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 Bill I'd like to hit the tops of the waves on our second quarter results.
We continue to enhance our product mix with a record contribution from our sub 1 megawatt plus interconnection category.
We extended our sustainability leadership with the publication of our third annual ESG report.
We raised revenue and EBITDA.
So based on guidance for the second quarter, and a row setting the stage for accelerating growth and cash flow.
Last but not least we further strengthen the balance sheet with the redemption of high coupon preferred stock and the issuance of low cost long term fixed rate debt with that I'd like to turn the call over to bill.
Thanks, John.
Good afternoon.
EBITDA and thank you all for joining us.
Our formula for long term value creation is a global connected sustainable framework.
We continued to advance along these lines during the second quarter.
Our business continues to globalize and.
And once again, we generated solid performance and strong.
Wrong bookings across all regions.
Our full spectrum product offering continues to blossom with record sub 1 megawatt bookings and the second quarter and regional highs in both EMEA and APAC.
Together with interconnection the sub 1 megawatt category comprised.
Nearly half of our total bookings demonstrating customer's enthusiastic adoption of platform digital to help accomplish their digital transformation initiatives.
I'll discuss our sustainable growth initiatives on page 3.
In June we were awarded the Green lease leader Golar.
And award from the Institute for market transformation, and the U S Department of energy for the third year.
We remain the only data center provider to receive this award, which recognizes digital realty as a leader and the real estate industry that incorporates green leasing provisions to better align.
And our interest with our customers and drive high performance and healthy buildings.
During the second quarter, we published our third annual ESG report.
Detailing our 2020 sustainability initiatives, including the utilization of renewable energy for 100% of our energy needs across our.
<unk> portfolio and Europe, as well as our U S co location portfolio, and reaching 50% of our global needs.
We also reported progress towards our science based target, ensuring a deep focus on our renewable energy energy efficiency and supply chain sustainability.
Initiatives.
Our ESG report highlights many of our ongoing initiatives, including our diversity equity and inclusion efforts along with our community involvement.
Digital Realty is committed to being an active member of and giving back to the communities, where we operate globally.
We encourage and.
And total break community involvement and employee engagement activities through our do better together initiative.
We also recently underscored our commitment to transparency and accountability on our diversity equity and inclusion journey with the publication of our EEO 1 report.
Events over the past year and a half have demonstrated that now more than ever ESG belongs at the forefront of our business.
I'm proud of our leadership in this area as we advance our broader goal of delivering sustainable growth for all of our stakeholders investors customers employees and the communities.
And so we serve around the world.
Let's turn to our investment activity on page 4.
We are continuing to invest and our global platform.
And with 39 projects underway around the world as of June 30th totaling nearly 300 megawatts of incremental capacity.
These most of which is scheduled for delivery over the next 12 months.
We are investing most heavily in EMEA with 19 projects totaling over 150 megawatts of capacity under construction.
Most of this capacity is highly connected including projects and Frankfurt Marseille.
Paris and Zurich.
Demand remains strong across these metros and each continues to attract service providers as well as enterprise customers from around the world.
Many of which contributed to a truly standout performance by the region during the second quarter and the up to 1 megawatt category.
And North America over half of our capacity on our construction is concentrated and 2 hot markets, Portland, and Toronto that can sometimes be overlooked in favor of more traditional north American data Center metros.
We've had tremendous recent success and these 2 metros.
We have 30 megawatts.
And under construction and Portland, or more specifically Hillsboro that are now fully pre leased.
While our Toronto connected campus continues to gain momentum as the Premier Canadian hub for global cloud service providers and enterprise customers.
Finally, and Asia Pacific where access.
Elevating our organic growth and this underserved region.
We opened our third data center and Singapore.
50 megawatt facility that received permitting prior to the moratorium on new data center construction day.
Demand for this scarce capacity is robust.
And we have another 18 megawatts larger.
We pre sold and scheduled to open this quarter.
Also coming soon and this region are a pair of M. C digital Realty data centers in Japan.
With the worlds is currently on Tokyo for the Olympics, we are opening a new Tokyo facility, that's poised to win the gold medal.
Okay.
We're also.
And another data center and Osaka this quarter, along with our first data center and the first carrier neutral offering and Seoul Korea during the fourth quarter.
We are very excited about the opportunity and so and earlier. This morning, we announced that we've acquired another land parcel to expand our connected campus.
Also best to accommodate the Hyperscale demand that has been clamoring for capacity and our first highly connected facility.
Finally earlier this month, we announced our intention to enter India and partnership with Brookfield infrastructure.
Given the success of our existing partnership on the <unk> platform and Latin America.
And the complementary skills and expertise that we both bring to this partnership.
And with the exception and significant growth opportunity available in India. We are excited to expand our footprint and this robust and dynamic market.
Let's turn to the macro environment on page 5.
We are fortunate to be operating and a business levered to secular demand drivers.
Our leadership position provides us with a unique vantage point to detect secular trends as they emerge globally on platform digital.
The first of these trends is the growing importance of data gravity for.
And for global 2000 enterprises.
Last year, we introduced the data gravity index, our market intelligence tool, which forecast a growing intensity of enterprise data creation lifecycle and its gravitational impact on global it infrastructure between key global markets.
Earlier this year, we took the next step and published and industry manifesto, enabling connected data communities to guide cross industry collaboration tackled data gravity head on and.
And unlock a new era of growth opportunity for all companies.
Earlier.
We announced a collaboration with <unk> to further interconnection business through the creation of and open fabric of fabrics.
With datasets exploding and data gravity challenge is expanding this.
This initiative will enable multinational enterprises to connect these data oceans through fabric.
This week and orchestration.
Third Party research continues to support data gravity is growing importance.
Market intelligence firm Gartner recently conducted its sixth annual survey of Chief data officers and.
And less than 35% of these executives reported their business have achieved their data sharing.
And objectives, including data exchange with external data sources that drive revenue generating business outcomes.
Issues, often arise due to multiple data hosting and processing meeting places together with the need for appropriate security controls and the.
The inability to overcome latency challenges with direct private interconnection between many counterparties.
Platform digital was designed to solve these problems.
Digital transformation is compounding this enterprise data and connectivity problem.
Recent research indicates.
Kate and enterprise workflows utilize an average of 400 unique data sources for exchanging data with 27 external cloud products.
Digital Realty's enterprise and service provider customers are turning to platform digital to overcome these issues by deploying.
And their own data hubs and using interconnection to securely exchange data in and across multiple metros.
Our leadership position is resonating with industry experts and Influencers.
For the second consecutive year.
Digital Realty was named a global leader by IDC market.
Deploy escape for datacenter and Colocation and interconnection services.
Further acknowledgment of our consistently improving customer capabilities.
This recognition reflects our execution against the platform digital roadmap, providing unique differentiated value for customers with our fit for purpose.
Both spectrum global capabilities.
Earlier this month cloud seen again ranked digital realty as the strongest provider of data center ecosystems in EMEA for the second consecutive year.
Digital Realty was ranked second in both North America as well as Latin America.
Merica and jumped up 3 spots to number 7 and Asia.
Also in July Giga on published their analysis of edge infrastructure capabilities.
Digital Realty ranked as an industry leader on multiple criteria and <unk>.
<unk> 3 broad categories.
And our capabilities for ranked highest in vendor positioning and evaluation metrics comparison.
And second among the key criteria comparison.
Given the resiliency of the demand drivers underpinning our business and the relevance of our platform to meeting customers needs. We believe we are well positioned.
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 results.
Thank you Bill, let's turn to our leasing activity on.
<unk> 7.
We signed total bookings of $113 million in the second quarter.
Including a $13 million contribution from interconnection.
Network and enterprise oriented deals of 1 megawatt or less reached an all time high of $41 million.
Demonstrating our consistent momentum.
And the growing success of platform digital as we continue to capture a greater share of enterprise demand.
The weighted average lease term was over 8 years.
And we landed a 109 new logos during the second quarter with a strong showings across all regions.
Again, demonstrating the power.
Global platform.
The geographic and product mix of our new activity was quite healthy with APAC and EMEA each contributing approximately 20% the.
The Americas, representing nearly 50% and interconnection responsible for a little over 10%.
The megawatt are less plus.
Interconnection category accounted for almost half our total bookings with particular strength and the cloud content and financial services verticals.
In terms of specific wins during the quarter and around the world we.
We landed a top 5 cloud service provider to anchor our new Tokyo campus.
Close on the heels and this magnetic customer deployment, Japan's most popular social media application selected platform digital on the same campus.
Naver, the leading Korea based cloud provider, serving the greater APAC region selected our new carrier neutral facility in Singapore to support data and.
Intensive workloads for their high performance computing and AI intensive technology based platform.
A european broadcaster and leveraging platform digital and Vienna, and Frankfurt to rewire their network and failure in favor of data intensive interconnection with benefits and performance scalability and.
Savings.
A global 2000, and enterprise data platform is adopting platform digital and Amsterdam, and Dublin, and Frankfurt to orchestrate workloads across hundreds of ecosystem applications, delivering improved performance security and cost savings and simplicity.
Yes.
And London platform digital is supporting a top 3 global money center banks fortification of their business continuity capabilities without compromising their data intensive interconnection requirements.
On the continent, our connectivity and operational capabilities are helping to independent fintech customers.
Costs improved performance enhanced and enhanced access to their connected data communities.
Finally, and North America, and life Sciences digital marketing firm chose platform digital to improve their network architecture and enable future growth.
Turning to our backlog.
On page 9.
The current backlog of leases signed but not yet commenced ticked down from 307 million to $303 million as commensurate commencement slightly eclipses space and power leases signed during the quarter.
The lag between signings and Commencements was a bit longer than our long term historical average adjusted.
Just over 7 months.
Moving on to renewal leasing activity on page 10.
We signed $178 million of renewals during the second quarter, and addition to new leases signed.
The weighted average lease term on renewals signed during the second quarter was just under 3 years again, reflecting a greater.
Backlog of enterprise deals smaller than 1 megawatt.
We retained 77% of expiring leases, while cash re leasing spreads on renewals were slightly positive also reflective of the greater mix of some 1 megawatt and renewals and the total.
In terms of second quarter operating performance.
Overall.
Later on the occupancy ticked down by 60 basis points as we brought additional capacity on line across 6 metros and during the quarter.
Same capital cash NOI growth was negative 1.5% in the second quarter, largely driven by the churn and ashburn at the beginning of the year.
As a reminder, the Westin building and.
It'll the interaction platform and EMEA, Lambda helix, and Greece, and Altice and Croatia are not yet included in our same store pool. So these same capital comparisons are less representative of our underlying business today than usual.
Let's turn to our economic risk mitigation strategies on page 11.
All per for U S dollar fluctuated during the second quarter, but remained below the prior year average, providing a bit of and FX tailwind.
As a reminder, we manage currency risk by issuing locally denominated debt and to act as a natural hedge so only our net assets within a given region are exposed to currency risk from an economic perspective.
In addition to managing credit risk and foreign currency exposure.
We also mitigate interest rate risk by proactively terming out short term variable rate debt with longer term fixed rate financing.
Given our strategy and matching the duration of our long lived assets with long term.
Fixed rate debt and.
100 basis point move and benchmark rates would have roughly 75 basis point impact on full year <unk> per share.
Okay.
In terms of earnings growth.
Second quarter core <unk> per share was flat year over year, but down 8% from last quarter driven by a 12.
<unk> noncash deferred tax charge related to the higher corporate tax rate and the U K, which came into effect during the second quarter.
Excluding the tax charge, which was not previously contemplated in our guidance, we outperformed our internal forecast due to a beat on the top line with a slight.
From FX tailwind.
As well as operating expense savings, partially due to lower property level spending in the COVID-19 environment.
For the second time this year, we are raising our full year outlook for total revenue and adjusted EBITDA to reflect the underlying momentum in our business that.
The deferred tax charge does run.
<unk> for core <unk> per share, but as you can see from the press release, we are lowering the midpoint by just 5.
Which all else equal would imply a 7 and raise excluding the deferred tax charge.
Since it is noncash deferred tax charge does not hit <unk>.
Most.
<unk> of our guidance table are unchanged, but I would like to point out that we are lowering our expected recurring capex spend for the remainder of the year setting the stage for accelerating growth and cash flow.
As you can see from the bridge chart on page 12, we.
We expect our bottomline results to improve sequentially over the balance of the year.
Are the drives of deferred tax charge comes out of the quarterly run rate and the momentum and our underlying business continues to accelerate and we do still expect to see some normalization and our cost structure with an increase in property level operating expenses that have been deferred due to COVID-19, along with an uptick and G&A expense as we returned to the office and resilient.
More normal travel schedule and so your models should reflect these higher costs.
Last but certainly not least let's turn to the balance sheet on page 13 and.
As you May recall, we closed on the sale of a portfolio of non core assets in Europe for $680 million late in the first quarter, which impacted second quarter adjusted EBITDA to the.
Resume and have approximately $10 million.
As a result net debt to adjusted EBITDA was slightly elevated at 6 times as of the end of the second quarter, but is expected to come back down in line with our long term range over the course of the year through a combination of proceeds from asset sales and growth and cash flows and signed leases commence.
Fixed charge coverage ticked down slightly also reflecting the near term impact from asset sales, but remains well above our target and close on our all time high and 5.4 times, reflecting the results of our proactive liability management.
We continue to execute our financial strategy and maximizing the.
For 2 of available capital options, while minimizing the related cost and extending the duration of our liabilities to match our long lived assets and mid May we redeemed $200 million of preferred stock at 6 and 5 eighths, which brought total preferred equity redemptions over the prior 12 months to 700 million at a weighted average.
Average coupon of just over 6 and a quarter effectively lowering leverage on a 0.3 turns.
And mid June we issued half a million shares under our ATM program, raising approximately $77 million.
And early July we raised another $26 million with the sale of the balance of our Mega Port stock.
We also took our first trip to the Swiss bond market and early July.
Raising approximately $595 million and a dual tranche offering of Swiss green bonds with a weighted average maturity of a little over 6 and a half years and a weighted average coupon of approximately 0.37%.
This successful execution against our financial strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital sets us apart from our peers enables us to prudently fund our growth and.
As you can see from the chart on page 13, our weighted average debt maturity.
6 and a half years and a weighted average coupon is down to 2.2% over 70% of our debt is non U S. Dollar denominated reflecting reflected growth of our global platform and serving as a natural FX hedge for our investments outside the U S..90% of our debt is fixed rate.
To guard against a rising rate environment, and 98% of our debt is unsecured and providing the greatest flexibility for capital recycling.
Finally, as you can see from the left side of page 13, we have a clear runway with nominal near term debt maturities and no bar too tall and the out years our.
Our balance sheet is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe consistent with our long term financing strategy.
This concludes our prepared remarks and now we'd be pleased to take your questions. Andrea would you. Please begin the Q&A session.
We will now open.
And up the call for questions. As a reminder, participants will be limited to 1 question and 1 follow up too.
To ask a question you May press Star then 1 on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
And withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
Okay.
And our first question comes from Jon Atkin of RBC. Please.
Go ahead.
Thanks, I've got 1 question and then a follow up first on M&A interaction is now more than a year under your belt, and then you announced kind of the JV expansion into India.
Wondered if you could maybe summarize your strategy for inorganic growth as it pertains to the potential purchases.
Existing platforms or assets, sometimes there can be assets out there with dislocated valuations. So I thought it would be worth asking about that topic and getting a refresh.
Sure John Happy to provide a refresh and first of all we don't comment on.
M&A speculation.
Particularly as it relates to specific opportunities and the marketplace.
But to refresh everyone's memory, we try to do only strategic deals.
And by that I mean, we're looking for investments that enhance either our geographic geographic footprint for our product offering.
Thinking about specific deals when you look back on interaction I think were fortunate were there we were able to do both we were able to enhance our our geographic penetration and add.
Significantly to the co location mix in Europe.
We.
As it relates to the.
And the Cyrusone situation.
<unk> I think is what you're probably alluding to and <unk>.
We think we think that's a good platform.
We have all this respect and the world for both Bruce Duncan and Steve and Dave Friedman.
But it's.
It gives us more of what we already have.
And so I just don't think that's something that would be.
Of interest to us.
And then on asset recycling that Andy mentioned towards the end there was a price item from June about the potential formation of a Singapore REIT and I wondered if you could.
Give us an update as to what's happening and kind of the rationale.
Thanks, John.
<unk>.
I think theres 2 concepts kind of and are linked and your and your question. So non core.
Capital recycling, we've been doing a fair bit of that most.
Most recently executed on a portfolio and EMEA up close to 700 million debt was not core or strategic for digital.
And it's kind of similar to a transaction.
We did back in 2.
2019.
So call it focusing our portfolio, where we see the most robust and diverse customer growth.
So that's 1 leg of the stool that you can see we will continue on and we activated this year again and true.
For the funding.
Our business plan by recycling that capital into more strategic projects with <unk>.
And also.
<unk> done what I'll call it private capital partnerships. So.
Similarly, with that same transaction back in 2019 with Maple tree, we raised.
80% stake and $8 billion of core assets assets.
And that.
And never really want to part with and we maintain operational control of as a minority partner and.
So I think youll see us continue to do both but there is a big difference and our mines non core things that we're willing to part with 100% and we wish the new owners well and core really.
And really keeping those assets as part of our collective platform.
And just.
Trying to recycle capital on the slower growth assets, both of which I think for the end of the day.
And hopefully accelerates our growth and allows us to redeploy that capital into higher return opportunities.
And anything specifically about the price item from.
I think Bloomberg and data center knowledge about about forming a REIT and Singapore.
And I can say debt.
Kind of ties of both for questions.
Coincidentally.
Singapore reads have been buyers of our 2 biggest portfolio sales and they have not been the only buyers. We've also done other 1 off assets.
Sales to other private buyers that were non core.
As it relates to any vehicle that we would do like that.
And we would only think about that and our core context, if we're going to extend our brand.
And sponsorship to it so.
So I think I cant comment on what that specifically rumor was kind of pointing to but it kind.
And as interwoven with both concepts a little bit.
The next question comes from Jordan Sadler of Keybanc capital markets. Please go ahead.
Thank you and good afternoon.
So I wanted to follow up a little bit in terms of sort of investment opportunity.
Community.
Bill you have talked about.
T J and accretive and I think enhancing growth growth enhancing for some of the strategic objectives.
Our criteria for acquisitions.
If you can check those boxes.
It would seem that on <unk>.
Acquisition.
And something domestic could make sense the piece that I am struggling with a little bit maybe like the growth enhancing strategic makes some sense that even though there's some overlap accretive I guess you can figure that out growth enhancing the piece and I want to ask you about was.
There's market share.
For help.
In terms of sort of the growth outlook in other words, if if you're controlling you know certain at a greater extent in the marketplaces and certainly these large hyperscale.
Tier 1 markets and the U S.
Do you think that would mitigate some.
The downside and rent pressure we've seen.
And that vertical.
Yeah.
Yes.
And I guess.
When I think about so what we're what we're trying to accomplish here.
And certainly <unk> and.
In recent history and you saw the press release.
Say right, where we are we bought a piece of land and in Seoul Korea and.
And we already own.
Our carrier neutral datacenter and downtown Seoul, and now we're going to build a campus out in and are in the suburbs and and what we're trying to do is is replicate it and saw what we've.
Created and and other markets and the road and around the world for the connected campus.
With a carrier neutral.
Dense network that you can tethered to the campus back into.
And.
I think that when you when you look around the world today.
There just aren't that many.
Platforms, I mean, theres, not an interaction and Asia.
And and I think that would you.
More likely see from US is what you're seeing and so we are in fact pursuing.
And similar models and other parts of Asia.
And in other parts of the world, where we're going into new markets and and.
And planting the flag with.
With both network dense facilities and and campuses.
So so just 2.
2.
Repeat what our criteria is yes, it has to be strategically.
It's important to us in terms of either geography or product additive to both.
And it needs to be and we'd like it to be accretive.
2 our near term earnings idea and certainly accretive to growth, which is what interaction was and SMT.
And importantly prudently.
So.
Our capitalization that is consistent with how we.
Finance the rest of the business here and digital.
And anything to call out or I guess, I've got 2 and premiums.
Sure.
You did.
And we're not going.
Levered up and over and make us better and your high school range John.
And I hope I say.
And this wasn't the interview.
[laughter] and put up put put a finer point and on and we're not going to lever up these assets to make the number works is on for his work.
Okay, and if you have anything else I haven't followed.
I think the second the second and third parts of your question was does can you.
And drive pricing power through market share.
Which.
I think episodically, there's opportunities to do that.
I think if you look back towards Dupont Fabrice transaction that was a market share moving transaction.
We're.
Or are we up tiered our relationships and many customers.
Kind of controlled near term supply.
And I think that concept maybe works and.
More overall supply constrained markets.
Predominantly outside the U S or even like Santa Claire for that example.
I do not I'm not confident I think to your line of thinking would be.
Other domestically focused larger footprint players does that.
Does that M&A credit.
Pricing power and today's backdrop, I don't see that that chain of events, playing out and again like such.
As such and America.
That's helpful and then coming back to sort of being around the world India can you guys potentially decide.
<unk> opportunity for us.
And just sort of and.
Initial sizing and Carinthia platform purchase like Asante.
And with Brookfield and then.
Or is this going to be a de novo opportunity.
I'm going to hand that 1 over to Greg Okay. Thanks, Hey, Jordan.
I think to describe our the India joint venture <unk>.
Jordan is it's actually a hybrid.
Look as you know we've had a strong relationship for the field, we've had a great experience.
<unk> and <unk>, but when we purchase and sandy.
We bought we came into that platform together and purchased an existing platform that had 14 assets 8 of which were under construction and 6 of which were operational assets and a team in place.
And this is going to be different from that but we are again going and 50.50 joint partners.
For them and St branding, and the like which you've seen and some of our press materials, but here, we're going to be and we have we have some folks that are already residing in the JV, but we're actually <unk>.
And to India here to build a platform and ultimately we expect it to be like a cent day bidding being a standalone platform.
And you had a strong management team that drives the business and I think when we look at India.
We're not looking to go into India, and just do like for like product.
We're looking to do differentiated product.
And we think Brookfield as a partner here and given there given their presence in the and the tower space and given what's happening in India in the mobile.
Market and alike, we think we have a great opportunity to do that and so but the.
And the general our governance.
Governance and construct if you will is very similar to <unk>, but the basic premise of going in and we're going to build a platform. We're not buying a platform. So I'd say, that's how I'd describe it.
The next question comes from Sami Badri of Credit Suisse. Please go ahead.
Alright, thank you.
Our first question and I just wanted to just.
Run by you guys and maybe you could give us a little bit more color on what's going on on re leasing spreads because in the greater than 1 megawatt.
Not releasing spread slide which is slide 10, and there was meaningful improvement and.
And spreads and I think we were going from down 11% and just down 1% and was hoping you can just walk us through this so that's part 1 other question on.
Part 2 is are we essentially done with a lot of.
And I negative renewal spread type leases that we've kind of been discussing on the last couple of quarters are you guys on that clear is this are we going to see some lumpiness.
Thank you.
Thanks, Sami let me, let me tackle that so.
Like for like.
Great and megawatt north of a megawatt quarter over quarter.
Certainly saw an improvement from down just just close to 11% on the prior quarter's 30 ish megs.
The <unk> from 23, and a half Mexican renewed this quarter came through this quarter.
Basically flat negative 90 bps.
And overall also improvement basically at zero point, and 1% positive and over 2%.
GAAP.
So definitely moving the right direction.
At the same time.
And then called be standing on the aircraft carrier with the victory flag just yet.
We're still working through.
Some still certain contracts that are above market.
Hence we've maintained our language around our full year guidance of slightly negative.
I did some parsing through both categories.
In the and that category.
Net 2% of the megawatts that renewed were positive so close to 2% positive. So it really was like 1 or 2.
Negative that drug down the category.
<unk> flat and and.
And the over to love to that is greater than Meg.
Per cent positive cash mark to markets.
In terms of the megawatts renewed so.
I'd call it still up Esodic.
Moving and a better direction and Thats, a thematic thing that I don't think.
This 1 quarter was a massive inflection point, we missed and gradually getting into better territory.
And this year versus last year.
And also feel that same trend kind of continuing based on the mix.
And in future.
And can you remind me of your second question, though.
I think you kind of already hit it but the second part of the question was just kind of.
Have you guys essentially gone into the clear regarding a lot of the the high negative renewal spread leases that came with the DFT portfolio.
We've seen.
You've kind of answered it but that was second question.
Because I don't think I want to.
Kind of goes on my victories.
Piece here I don't think we're fully on the woods, but where the trend is moving and our.
Direction, and we benefit from a incredibly diverse platform.
And as you look at our explorations.
Going into this peers rest of this year or 2022 and beyond the mix just is improving right the vars and gotten shorter.
The concentration and the greater the megawatts.
Become more international and places, where we've had greater pricing power. So.
Not fully and are clear, but I feel like we're inching, our way and to better territory every day.
Got it thank you.
The next question comes from Brendan Lynch of Barclays. Please go ahead.
Great. Thanks for taking my question and maybe Andy I'll just follow.
Flow up on that renewal issue.
And it seem like things are going better now is it possible debt a few years out renewals could actually be a tailwind or are the escalators structured so that its generally neutral at best.
I think there's definitely potential for.
Sure.
Viewers out cash mark to market to be a positive tailwind here I mean.
We.
If you look at the diversity of our product here we are.
Sticky product, we're typically doing renewals and many markets better than new rates on new deals given the propensity and inertia for our.
At this day.
On our interconnection capabilities.
Kind of further that stickiness.
These markets were even bringing on new capacity are running up to physical barriers.
Other supply of power access to land and connectivity.
Government moratoriums are pumping.
Accustomed certain countries.
And then the whole concept of inflation and.
And its impact to newer incumbents and overall cost structures all of those things point to a world of higher pricing power and this and this asset for us and certainly.
So for digital.
2 our new Oriental.
Great that's helpful and maybe a question for Chris as well.
Chris maybe you can give us just a little bit of insight on the fabric of fabrics.
And it platform and kind of simplify that for us if you can.
No absolutely appreciate it yeah. So.
It's a continuation.
Up and divesting and platform digital to make it more robust where we have over 4000 customers today and as Andy alluded to earlier and Bill's comments earlier that we're adding 100, new customers every quarter.
So what we've talked about with the fabric of fabrics and the partnership that we've pulled together would say Oh is that these capabilities are proven to be very successful.
And with our enterprise customers and I think what we're talking about here today is about <unk>.
Expanding those capabilities and those connect connectivity capabilities to a broader set of customers and so I think that's 1 of the core things that we're really starting to drive and it's resonating well with our customers and that.
A lot of enterprises are out there looking for.
And open platform to really achieve their goals and remove complexity out of their deployments and so that's what the platform digital is and what fabric fabrics means as we pulled together a carrier grade partner with Zale and they're the first partner that we've executed this with and you'll see other partners coming online to expand that value focused.
On our customers' success.
Okay.
And next question comes from Mike Funk of Bank of America. Please go ahead.
Yes. Thanks, Thank you for the questions and good evening everyone.
First 1 on the basic math question on just check my facts so I.
I think it's first quarter, you did core <unk> of $1.67, a share on acute guided saying kind of down 10% sequentially due to a number of factors, but the 12 noncash charge wasn't getting that guide right. So if you strip that out.
And you actually were really only down.
About a penny a quarter over quarter right for the core <unk> and then.
And think about rolling that forward for the second half of the year, saying you really had an 8 <unk> beach.
Why wouldnt that core <unk> per share beat up excluding the 12, why wouldn't net recur and <unk> and <unk>.
What's going to change and those 2 quarters stripping out that 1 time charge.
So.
For <unk> 2.
Data points, 1 we are increasing.
The guidance net of the <unk> right. So the 12 is a noncash deferred tax.
Hit.
Essentially.
<unk>.
Real brief.
Valuing the liability.
On that too.
Due to the UK changing its corporate tax rates, and a 600 basis points that $35 million or 12 flow through 1 time and.
And it is non cash does not hit <unk>.
So which you can see is that I think the lowest payout ratio.
We've had and 5 quarters now.
So by the fact that we have.
Increased the guidance notwithstanding that 12.
Essentially would have been a raise and.
And if you backed out the 12.
To the midpoint of our new guidance for close to what it would be 6% year over year growth on the core flow.
The reason it doesn't all.
The beat and this quarter to the heart of your question it doesn't all flow through as some of the beat.
And <unk> Opex timing so.
So timing relative to some of our opex spend which.
Got pushed out from <unk> into back half of the year.
And.
And that was related to some of the deferred opex from 2020 is that still what youre talking about.
Correct correct.
Call it COVID-19 related catch up a little bit.
Got it understood.
And then maybe a little bit of commentary on the leasing environment I know there was a low by concern about leasing <unk>.
And the industry, but you know came in very strong and given the visibility you have into the back half for the year or whatever that might be you know what.
What have you seen in terms of demand from hyper scaler and or demand picking back up and enterprise customers.
I think Corey you want to pick us up there.
Yeah.
Yeah sure. Thanks, a lot thanks, Mike for the question.
With regard to enterprise demand and then and I'll, let you handle the Hyperscale and I think was part of his question as well, but and our opening remarks, we mentioned that over 50 million of our business was from the sub 1 megawatt plus interconnection, which is really approaching about 50%.
And of our bookings that's really a proxy.
For our for our enterprise business on top of that our best channel for order ever. We also saw an increase and multi site multi region customers, which are all and indicative of kind of the strength of the enterprise demand and where we're going and so I would tell you that for the second half we see.
Strongest sufficient demand across all the regions and.
They take care of and and address the needs for data gravity and hybrid <unk> architectures, all of which had been driven by enterprise customers across all the regions, we mentioned and to the strength and in each of the regions, both AP and EMEA as well as North America. So we're seeing that that.
Flow through and looking at our fun and we see strength across all those regions multiple industries and vertical financial services cloud and others.
Pretty excited about where we are and and and confident in demand from the enterprise side and I feel like that's going to continue and I don't know if Andy you want to talk to the Hyperscale part of it.
I'll just add on real quick on on the.
Larger from the Hyperscale customers.
Strong Americas quarter, which is really largely a.
And we did have a top 5 CSP land with us and stuff, So Paulo, but the lion's share was.
Hillsboro and Toronto.
So some great wins.
And from Hyperscale and that market.
Top 5 hyperscale and both in Paris, and Frankfurt for grew with Us and Paris and Frankfurt.
And then over and APAC.
Mentioned in the prepared remarks had a book.
And the leading Japanese social media platform landed with Us and Tokyo and addition to a top 5 CSP.
I think we announced that as the anchor to Tokyo, Tokyo campus on the prior call. So.
I think I think dramatically 2 things are playing out here.
On.
And the hard work in terms of creating this.
Global platform for these hyperscale or.
Cross approaching 50 metropolitan areas on 6 continents.
And really trying to be their trusted partner of choice.
Around the globe is certainly benefiting.
Our leasing or signing activity and I would also say.
And we're making some great inroads to whether you call. It next to your next Gen Hyperscale.
I think couple of quarters ago, we had a hyperscale.
When with a Singaporean based technology company I mentioned, the Japanese social Media Company, We mentioned Korean company and neighbor so definitely.
Penetrating the broader cast of customers.
And then just top box csp's at the same time.
The next question comes from Michael Rollins of Citi. Please go ahead.
Thanks, and good afternoon, just a couple of questions first if you look at the.
Bookings trajectory and just some of the commentary we just heard.
And as well as just the backlog position.
For 2020 to be a better year for organic revenue growth and core <unk> per share growth relative to 2021 and.
And then secondly on a separate topic just curious as you have a range of assets in your portfolio and some very young.
Older what.
What are you seeing in terms of the maintenance capital.
And the pricing on the.
Facilities that are a bit more tenured relative to maybe similar facilities that are a bit newer and vintage.
Okay.
Sure Michael.
Michael why don't I try to tackle those.
And reverse order so.
In terms of maintenance capital obviously.
All of the facility.
On the more you propose and of life on various components, but that's no different than any piece.
Piece of infrastructure, our real estate, so, replacing a roof, placing a chiller.
You kind of.
2030 year end of life and.
And 1 by 1 now.
The good thing is we've.
Built this portfolio over many years.
And essentially keep adding newer products to the mix for the same time, so we've been able to keep on recurring capex and a pretty modest.
Debt to these.
<unk>, we actually dialed it back slightly just this for the year and our guidance table.
So I wouldn't say any material upticks and we do a lot of maintenance throughout the year.
In terms of.
Fixed repair preventative and to ensure that Theres no.
Modest and infrastructure headaches called on the horizon from a pricing standpoint.
Obviously, there is smaller nuances, whether it's <unk> efficiencies or power densities, which we certainly are innovating and bringing to.
To bear and new technologies in terms of legacy facilities.
But net net the biggest driver.
<unk> demand and the market.
A data center debt becomes available for us and Santa Clara or Singapore.
Or Frankfurt or.
Markets that are comparably demand outpacing supply.
Customers are craving, the availability and not looking for the birth date.
And so I think thats more of a driver of the pricing activity. So on your first question I mean.
On call it 2022.
We're only we're on.
Only called halftime here, so not ready to rollout season, 2 or wherever.
But I would say a couple of things.
And that set us up for <unk>.
Accelerating growth overall.
1 I just spoke a little bit to the cash mark to market position and it's been improving this year relative to last year.
And C horizon, where it could continue to improve too.
And this year we took.
Relative to our certainly Ashwin we took.
Back significant amount of capacity that we're chopping wood on re leasing so that Rev and downtime from that based on capacity and our numbers. This year and you can see it on our occupancy as well.
And youre going to see that kind of come on line.
As we refill that and have a greater contribution to revenue and 2022 and then it doesn't 'twenty 'twenty 1.
So I think those elements.
And the fact and I think we've now put up I.
And I should count this but I think it's close to a pretty darn good quarters of consecutive.
Leasing right.
Obviously have to adjust to a pre interaction days relative towards denominator, but the leasing has been pretty darn consistent.
For some quarters now so.
I think all of those things.
And the picture as well as a pretty attractive development pipeline, which will obviously.
Later contribution to 2022% and 21.
Yes.
The next question comes from Simon Flannery of Morgan Stanley. Please go ahead.
Great. Thank you very much good afternoon.
Great to see the enterprise coming back this quarter do you think we are pretty much back to normal now in terms of your operations and I know theres been COVID-19 and picking up again and in certain regions and any comments around supply chain inflationary impacts and how that might be affecting you.
Let me try and give me up that question because I think there's a couple of great points and here, maybe Corey you want to pick up on enterprise demand.
I was really pleased on that front I mean, north of $19 million and May is zero, 1 megawatt of close to 50% of our bookings are Corey can speak to that and then maybe Chris and I can ham and egg inflation impacts on.
And our customers and our supply chain. Thanks.
Thanks.
Yeah. Thanks, Thanks, Tom and I went through it a little bit with some of the kind of I'll say proxy items for for enterprise success, and the fact that we've got a strong pipeline.
And I'd call. It a strong well qualified pipeline with with quality as well so really feel good about.
Where the enterprise is and the follow on and.
All of the.
The acceleration and hybrid I T and the move to I'll call. It work from home I think is just accelerated the enterprise demand and how we're set up with our channel initiatives and what we're doing there are just going to help us can change it to build on.
On that so rather than repeat what I I think I answered with with Mike earlier I would just tell you that the enterprise demand is strong and I think we're in a good place going forward and accelerated a little bit by the pandemic and the last couple of years, but and a good place going forward.
Yes.
Thanks, Corey and I appreciate the question Simon.
And I think from a supply chain and what we've seen and the industry, we haven't seen any material impacts or delays at this point and time, we work extensively with our customers to understand their needs and their requirements for the infrastructure and their deployments and so we align their orders to manufacturing dates there has been some delays, but most of the time, we can signal that right and the beginning of the sales.
To ensure that they can order them and and not miss any kind of delivery dates from that perspective, but again, it's something we constantly watch with the different types of manufacturers out there and I think Andy referenced this earlier, our <unk> program with the infrastructure that we leverage and delivering our own services. We're way ahead of that and I think we've really differentiate ourselves with the weight and the market.
Get that we can execute I think beyond most of the other companies out there. So it's something that we watch closely but no material impact to date.
The next question comes from Erik Rasmussen of Stifel. Please go ahead.
Yes, thanks for taking the questions. So.
Q2 leasing we're somewhat steady in the quarter I know you called out.
U S and Hyperscale came back and and I think theres strength on the less than 1 megawatt category.
But were there any limitations with overall capacity in certain markets.
Or is there anything else to sort of.
Call out debt.
And that could have put a.
A damper on.
Kevin.
Lid on sort of your leasing in the quarter.
I mean.
And in any given.
Quarter, there's always certain markets that are call. It <unk>.
Tighter on inventory standpoint.
And we were spoke about how we ran into that Nashburg. Luckily. It was a good time for us to run into that and ashburn because of the market and softened.
And what comes to mind right now Eric are a few markets.
And are certainly a little bit on the tighter side, we have I don't think we've done a much much activity and Santa Clara for several quarters now for that market has been soft.
Right and what way and for new capacity to come online and at <unk>.
Laying on where were really solely focused on coal and connectivity of 56 Marietta.
This is the most highly connected.
Data center and the southeast is 100% full.
Waiting for and annex building essentially to bring on a call it several megawatts.
Lots of coal capacity outside the states Frankfurt has been a bit of a tetris game in terms of fit and the customers in and.
And certain markets and in Singapore.
That's a market where.
And I don't think were fully sold out, but we've raised our rates given the.
Supply demand.
And as supply demand imbalance.
We do look at any any churn will have and that market. When we look to re product types for enterprise Colocation and connectivity total 1 the name they wanted to come top of mind.
But I mean across 47, metros and developing a new capacity.
And at least half of them I'm sure. There is a 1 or 2 that will be similar.
Okay.
Great and then maybe just staying with the leasing Europe seem too.
There was some lower leasing on the greater than 1 megawatt.
Category.
Has there been any change and sort of the hyperscale side that would suggest that things may be slowing or we could be hitting a little bit.
And air pocket, there or I wouldn't say air pocket, but just a slowing.
Or is it more of just sort of timing in that market and just the lumpiness nature of overall hyperscale.
Okay.
I don't see anything close to an air pocket and Europe.
So.
As a reminder, Europe had a pretty phenomenal fourth Q and <unk>.
Strong <unk>.
So you're coming off of 2 quarters of pretty good leads and.
And what we're seeing the back half for the year I think that trend is going in the north and megawatt territory is going on.
Continue its broad price.
Certainly flat oriented.
And I talked about Paris, and Frankfurt to standout markets overall.
But we're also seeing some great demand outside the flat markets.
And we now have a European platform Thats across 10, maybe 12 European countries.
So were servicing the hyperscale orders and some larger enterprise requirements and many of them.
But I think that's Inc.
Europe didn't have a great north of megawatt quarter, because it had a really fantastic lesson and megawatt quarter over $19 million.
And had numerous markets major contribution and that lesson and megawatt.
Cash and categories. So net net still really pleased with Europe.
Okay.
The last question comes from Frank Louthan of Raymond James. Please go ahead.
Great. Thank you very much on Singapore, you know what.
And if it comes down it's been a really nice boost this year with kind of their the way they restricted the supply but at some point is that at some point it probably resolves itself what kind of terms are you getting there with the higher prices signing leases or customer just taking shorter duration terms given the price hikes and.
Or are we looking at.
<unk>.
Some.
It goes up and pulling back a little bit and 12 or 24 months or is there do you think this is going to be a longer term situation there.
1 I would say the.
Customers are not seeking shorter contract durations, because we price those at higher rates.
And.
And if it saw the activity.
The simple rates are.
Clearly shown through our APAC rates switch.
You can see are up again quarter over quarter.
I don't think Singapore is 1 part of the world that I have a high degree of confidence what goes up and may not come back down I mean, 1 it's an island state.
It is incredibly government controlled everyone's operating under long term.
Some of the pieces with the government.
And they take a very thoughtful and measured approach to.
Supply chain overall, who gets Lan who gets to bring data center capacity on line.
And they're really trying to curate it so they have the right providers and do so.
Ground me more environmentally friendly way that's the Genesis of this right. So.
That's a market I do not see interest and the fact that it's an island so.
So you get a quick more quickly run out and natural resources.
And Singapore.
Yes.
Alright, Thank you very much.
Thanks Frank.
And a.
This concludes the question and answer portion of today's call I'd now like to turn the call back over to CEO Bill Stein for his closing remarks. Please go ahead.
Thank you Andrea.
I'd like to wrap up our call today by recapping, our highlights for the second quarter.
As outlined here on the last page for a presentation.
1 we continue to enhance our product mix.
With record bookings within our sub 1 megawatt plus interconnection category demonstrating the progress we've made and offering the full product spectrum to our customers globally.
And we're also committed to delivering sustainable growth for all stakeholders.
And we provided additional transparency with the publication of our third annual ESG report.
We've also raised full year revenue and EBITDA guidance for the second quarter and a row setting the stage for.
Growth and cash flow.
Last but not least we further strengthened our balance sheet.
Redeeming high coupon preferred equity and raising very attractively priced long term fixed rate financing to support customer growth around the world.
I'd like to wrap up.
And <unk> by saying thank you to.
For the entire digital Realty family, whose hard work and dedication is directly responsible for this consistent execution.
All of you stay healthy and safe and enjoy the rest of your summer.
We hope to see many of you in person again later this year. Thank.
Today book.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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And.
Thank you.
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