Q4 2021 Digital Realty Trust Inc Earnings Call
Good afternoon, and welcome to the digital Realty fourth quarter 2021 earnings call.
Please note this effect 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 one question, let's say follow up and we will conclude promptly at the bottom of the hour.
I would now like to turn the call over to Jim hears me, Joe <unk>, Vice President of Investor Relations. Please go ahead.
Thank you operator, and welcome everyone to digital Realty's fourth quarter 2021 earnings conference call joining.
Joining me on today's call are CEO , Bill Stein, and President and CFO , Andy Power, Chief Investment Officer, Greg Wright, Chief Technology Officer, Chris Sharp and Chief revenue Officer, Corey Dyer are also on the call and they will be available for Q&A.
Management may make forward looking statements, including guidance and underlying assumptions on today's call forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially for further discussion of the risks related to our business. Please see our 10-K.
K and subsequent filings with the SEC.
This call will contain non-GAAP financial information reconciliations to net income are included in.
The supplemental package furnished to the SEC and available on our website.
Before I turn the call over to Bill I'd like to hit the tops of the waves on our fourth quarter results.
We further strengthen connections with customers with $156 million of new bookings with record results in both the zero to one megawatt and greater than a megawatt category and it ended the year with $500 million in new bookings, a 15% increase over the prior year.
We also continued to enhance our global platform.
With the completion of organic development projects and multiple metros.
The continued challenges presented by the pandemic and the global supply chain. In addition to strategic investments establishing digital Realty has the leading Pan African provider.
Financially, we had a solid quarter.
With full year results above the high end of the guidance range that we provided this time last year.
And finally, we continued to strengthen our balance sheet by raising equity capital through the establishment of digital core read in a highly successful IPO on the Singapore stock exchange and the related sale of a 90% interest in 10 fully utilized core data centers as a perpetual capital.
Partner did.
Digital Realty and digital Corey can continue to work together, while providing our customers with a seamless experience and with that I'd like to turn the call over to Bill.
Thanks, Jim.
Good afternoon.
And thank you all for joining us.
Our formula for long term value creation is a global connected sustainable framework.
And we made further progress on each front during the fourth quarter.
First we continue to globalize, our business with record global bookings in strength across all regions and all product types, including quarterly highs in both our sub one megawatt and greater than one megawatt categories.
We also announced two significant global initiatives.
First in December we announced the successful listing of digital core REIT as a standalone publicly traded company on the Singapore stock exchange.
Digital Realty contributed a 90% interest in a portfolio of 10 core data centers.
Traded in top tier markets across the U S and Canada valued at $1 $4 billion at a four 5% cap rate.
We generated net proceeds of over $950 million from the transaction.
And we retained a 35% equity interest in the publicly traded REIT.
The offering was very well received and digital core REIT has traded up approximately 30% since the IPO enhancing the gain on our remaining ownership stake in.
In addition to providing investors a stable cash flow stream from our portfolio of high quality core data centers digital core Reed offers key strategic benefits to digital Realty.
First.
Digital core REIT is a perpetual capital partner.
It has a long term investment horizon and a.
Global mandate to invest in stabilized income producing data centers.
<unk>.
Digital REIT has been carefully crafted to provide a seamless customer experience.
Digital Corey is sponsored by and externally managed by digital Realty.
We will continue to manage the properties, providing the same level of operational excellence and we will earn fees for asset and property management as well as acquisitions dispositions and development.
From a customer perspective, nothing changes when we contribute an asset to digital core right.
Third digital core REIT as an ideal partner vehicles for digital Realty.
We expect to contribute additional stabilized core assets to digital core REIT in the future and we May also co invest alongside digital core REIT on future investment activity.
Finally, our interests are aligned.
As mentioned digital Realty will continue to own a 10% direct ownership stake in each of the assets. In addition to 35% in the publicly traded vehicle.
Digital core REIT is led by two long time digital Realty team members, John Stewart, who most of you know well along with the anti F. <unk>.
We are excited about their opportunity to create value for digital core REIT unit holders, including digital Realty.
Our second Global initiative, which we announced just after quarter end is the definitive agreement to acquire roughly a 55% stake in <unk>.
Africa's leading carrier neutral colocation provider.
This acquisition immediately establishes digital realty as the leading co location and interconnection provider on the high growth African continent, and builds upon our earlier investments in Africa with I Colo in both Kenya, and Mozambique, and in medallion and Nigeria.
Character complements these investments as well as our highly connected facilities in the Mediterranean by hosting the key strategic landing points for subsea cables circling Africa.
From Marseille in Athens in the North Mombasa in Maputo, along the east Durbin and Cape town in the South and logos along the Western Coast platform digital is supporting the growth of our customers as well as the broader digital transformation of the entire African continent.
Tara co has seven state of the art Datacenters across three key metros in South Africa and serves over 600 customers, including more than 275 connectivity providers over 25 cloud and content platforms and approximately 300 enterprises.
<unk> facilitates approximately 22000 interconnections between customers and host seven cloud on ramps and provides direct access to seven subsea cables.
Telco has historically generated healthy double digit growth in revenue and EBITDA.
In addition.
More than half of it goes in service portfolio was developed within the past two years.
The current development pipeline will expand the existing asset base by over 25%.
And Tara owns land adjacent to its highly connected campuses in Johannesburg, and Cape town that will support another doubling of the in place capacity, representing significant embedded growth potential and providing considerable runway to support our customers' growth.
Leading global cloud and content platforms have recently begun making significant investments in Africa, given the existing capacity within the in service portfolio the incremental capacity currently under construction.
And the strategic land holdings to support future expansion.
<unk> is uniquely positioned to support the expected growth of digital infrastructure in Africa over the next several years.
Let's discuss our sustainable growth initiatives on page three.
During the fourth quarter digital Realty earned NAREIT leader in the Light award for the fifth consecutive year complementing the company's five star grasp B rating and top ranking within the technology and science sector.
Digital Realty was also named one of America's most responsible companies by Newsweek and was the number one ranked data Center company.
We continue to advance our sustainable financing strategy recasting and upsizing, our credit facility with improved terms, while incorporating sustainability linked pricing component.
With pricing subject to adjustment based on annual performance against certain green targets.
We are committed to minimizing our impact on the environment, while simultaneously meeting the needs of our customers our investors and our employees along with the broader society and advancing our goal of delivering sustainable growth for all the stakeholders.
Let's turn to our investment activity on page four.
We continue to invest in the expansion of our global platform.
In addition to the <unk> transaction, we have grown our presence along the eastern coast of Africa, with I Colo and supplemented our acquisition of medallion Datacenters in Nigeria, with two land purchases and logos for future development.
Over the next decade, we expect to see huge opportunity for global businesses to tap into Africa is rapidly growing internet economy, and digital Realty is uniquely positioned to enable this growth.
We also continue to invest in.
And the organic growth of our platform.
We spent $580 million on growth Capex in the fourth quarter, our largest quarterly growth capex investment to date.
We currently have 44 projects underway totaling more than 250 megawatts of capacity in 2007 metros around the world.
This capacity was 46% pre sold as of yearend.
Geographically, we continued to invest most heavily in EMEA.
With 27 projects underway totaling more than 140 megawatts across 16 metros.
In Asia Pacific, We delivered several development projects during the fourth quarter, including facilities in Singapore and Hong Kong.
In January we opened digital sold one.
Our first data center in South Korea, and the first carrier neutral facility in the country.
This facility will serve as a connectivity gateway for latency sensitive customer workloads, but can be connected to hyperscale applications hosted in our second facility in Korea totaling over 60 megawatts of capacity currently under construction just outside the city Center.
The two facilities will be tied together with fiber to create a connected campus and will complement each other by providing solutions for the full customer spectrum from small performance sensitive co location customers two huge hyperscale deployments.
In North America, our development pipeline is diversified by product mix as well as geographically with projects underway in seven different markets.
We continue to see strong hyperscale demand in Hillsboro, while we're expanding in downtown Atlanta to bring on additional co location capacity at one of the most highly connected destinations in the south Eastern United States.
We are bringing capacity online in both these markets among others, given the robust demand backdrop and are tightening inventory position.
Let's turn to the macro environment on page five.
We are fortunate to be operating in a business levered just secular demand drivers.
Our leadership position provides us with a unique vantage point to detect secular trends as they emerge globally on platform digital.
Our customers continue to solve some of the most complex.
Infrastructure connectivity and data integration challenges.
We are witnessing a growing trend among.
The national companies across all segments, deploying and connecting large private data infrastructure footprints on platform digital across multiple regions and metros globally.
Industry research firm Gartner recently updated their global it spending forecast for 2022 projecting a five 1% increase to $4 five trillion.
Driven by companies investing in digital data growth strategies.
Additionally, Gartner believes that by 2024, 75% of organizations will have deployed multiple data hubs to drive mission critical data analytics sharing and governance and support of digital data growth strategies.
These forecasts are consistent with our view of where the puck is headed.
Our market intelligence tool the data gravity index forecast similar growth in the intensity of data creation and its gravitational pull on global it infrastructure.
In addition, our industry manifesto, enabling connected data communities serves as the global playbook for industry collaboration to tackle data gravity challenges head on.
And unlock a new era of growth opportunity for all companies.
Digital Realty was recently named company of the year by Frost and Sullivan for North American data Center best practices.
This award reflects our continued focus on operational excellence underpinned by continuous innovation.
And execution of the platform digital roadmap.
We are honored.
By the strong validation of the differentiated value proposition, we are creating for customers and partners.
Given the resiliency of the demand drivers underpinning our business and the relevance of our platform in meeting. These 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 page seven.
As Bill noted, we delivered record bookings of $156 million within the $11 million contribution from interconnection during the fourth quarter.
Volume was elevated across both of our primary reporting categories in the quarter with a healthy mix between enterprise and Hyperscale business.
For the full year, we booked five 1 billion of new business.
With roughly a 60 40 split between greater than one megawatt and less than a megawatt plus interconnection.
The EMEA region had a particularly strong quarter accounting for approximately 60% of total bookings led by Frankfurt with standout performance across product types.
The fourth quarter was also notable for the strength of cross selling between regions.
Nearly 30% of our sub one megawatt plus interconnection bookings were exported from one region to another.
<unk> indication to the valued customers derive from our global platform.
Not surprisingly the Americas was our biggest exporter with most deals lending in EMEA followed by APAC.
Both EMEA and APAC had strong export quarters as well with over 15% of their sub one megawatt plus interconnection bookings landing out of region.
The weighted average lease term was nearly 10 years, primarily driven by Hyperscale pre leased in EMEA.
We added over 130, new logos during the fourth quarter, our second best quarterly result, and just shy of last quarter's record of 140.
For our full year total of 480, new logos.
We are encouraged by the consistent organic growth of our customer base and we view these results as strong validation platform digital and our global strategy.
In terms of specific wins during the quarter and around the world.
Graph Corp, a British semiconductor company that develops accelerators and systems for AI and machine learning selected platform digital to address their density security and scale requirements.
The initial deployment will land in Amsterdam to be followed by a global rollout and we are also collaborating on solution engineering and joint go to market activities.
A leading high frequency trading shop is expanding on platform digital two.
To extend their high performance computing platform across two continents and.
And expand trading into two new international Metros.
Ill, improving cloud access and business continuity state side.
A global 2000 U S energy provider is expanding with digital Realty.
Consolidated their own on premise facilities and using platform digital to scale their business across multiple metros.
A leading aerospace manufacturing and services company is expanding on platform digital leveraging dense interconnection to support data exchange across four new markets.
Global 2000 insurance brokerage is consolidating their data center footprint and has adopted platform digital to remove data gravity barriers and interconnect with cloud across multiple metros.
And I believe the University is expanding on platform digital to exit their own on premise facility and enhance their access to the health care provider community for data exchange.
And finally, a major APAC food services organization selected platform digital to improve cloud connectivity and leveraged local centers of data exchange in Japan.
Turning to our backlog on page nine.
The current backlog of leases signed but not yet commenced rose from $330 million to three.
$378 million as our fourth record fourth quarter signings more than offset commencements.
The lag between signings and Commencements was unusually high at nearly 14 months, primarily driven by long term leases on recent development starts in EMEA.
As customers accelerated efforts to secure a long term runway for growth against the backdrop of steadily dwindling inventory.
Moving on to renewal leasing activity on page 10.
We signed $151 million of renewal leases during the fourth quarter. In addition to the record new leases signed.
The weighted average lease term on renewals signed during the fourth quarter was nearly 40 years.
Low rates rolled down 4% driven by a handful of large deals in North America as negative releasing spreads on greater than one megawatt renewals more than offset the positive re leasing spreads on sub one megawatt renewals.
In terms of operating performance.
Overall portfolio occupancy ticked down 60 basis points almost entirely due to development deliveries placed in service during the quarter.
Same capital cash NOI growth was negative six 6% in the fourth quarter, primarily driven by churn in North America, as well as higher property operating and net utilities expense.
As a reminder, the 2021 same store pool did not include the Westin building in Seattle, the interaction platform EMEA, Linda helix in Greece, or Altice and Croatia.
Each of these businesses will be included in the same store pool, beginning in the first quarter of 2022 and each is expected to contribute to improving same store growth going forward, partially offset by higher property taxes as well as FX headwinds expected in 2022.
Turning to our economic risk mitigation strategies on page 11.
The U S dollar strengthened during the fourth quarter relative to prior year exchange rates and FX represented roughly a 130 basis points headwind to the year over year growth in our reported results from the top to the bottom line.
As a reminder, we managed currency risk by issuing locally denominated debt 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 of matching the duration of our long lived assets with long term fixed rate debt, a 100 basis point move in base rates would have roughly a 50 basis point impact on our full year <unk> per share.
Our near term funding and refinancing risk is very well managed with a well diversified menu of public and private capital sources available to fund the growth of our business.
In terms of earnings growth.
Fourth quarter core <unk> per share was up 4% year over year and up 1% sequentially.
Driven by solid operational execution cost controls and a reduction in financing costs due to proactive balance sheet management over the past 12 months for.
For the full year core <unk> per share was up 5% year over year and came in <unk> <unk> above the high end of our initial guidance range, which did not contemplate the contribution of $1 $4 billion of assets to digital core right in early December .
As a reminder, full.
Full year core <unk> per share excludes the $20 million promote on the Prudential joint venture in the third quarter as well as the 25 million PPA settlement in the first quarter.
Looking ahead to 2022, we expect core <unk> per share will be between $6 80, and $6 90.
Including the 1% dilution from <unk> as well as the 100 to 200 basis points of expected FX headwinds due to the strength of the dollar relative to 2021.
We.
Back to deliver revenue between four seven and $4 8 billion in 2022, and adjusted EBITDA of approximately $2 5 billion.
Given the tightened supply environment, we expect flat cash renewal rates in 2022 up from slightly negative in 2021, and we expect overall portfolio occupancy to remain within the current range. Despite the significant new capacity scheduled to come online during the year.
In addition to the embedded lease up potential within the <unk> portfolio.
We are off to a great start on our financing plans for the year with a highly successful $750 million eurobond offering in early January of 10, and a half year paper at one and three eights coupon.
Finally, we expect to raise $500 million to $1 billion from capital recycling, whether through contributions to digital corporate noncore asset sales to third parties or a combination of both.
In terms of the quarterly dividend the distribution policy is ultimately a board level decision.
The continued growth in our cash flows and taxable income we would expect to see continued growth in the per share dividend just as we have had each and every year since our IPO in 2004.
Last but certainly not least let's turn to the balance sheet on page 12.
As of year end, our reported leverage ratio stood at six one times, while fixed charge coverage was five four times pro forma for settlement of the $1 billion September forward equity offering leverage drops to five seven times, while fixed charge coverage also improved to five seven times.
We've continued to execute on our financial strategy of maximizing the menu of available capital options, while minimizing the related cost and extending the duration of our liabilities to match our long lived assets.
As Bill previously mentioned, we recast our credit facility during the fourth quarter Upsizing from 235 billion to 3 billion extending the maturity by three years and tightening pricing by five basis points.
We also incorporated a sustainability linked pricing component subject to adjustment based on annual performance targets further demonstrating our commitment to sustainable business practices.
Subsequent to quarter end, we raised approximately $850 million from the 10 and a half year euro bonds at 137, 5% and we used a portion of the proceeds to redeem all $450 million of our outstanding for three quarters U S dollar bonds due 2025.
This successful execution against our financing 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 and enables us to prudently fund our growth.
As you can see from the chart on page 13, our weighted average debt maturity is over six years and a weighted average coupon is just over 2%.
A little over three quarters of our debt is non U S dollar denominated reflecting the growth of our global platform. While also acting as a natural FX hedge for our investments outside the U S.
94% of our debt is fixed rate guarding against a rising rate environment.
And 99% of our debt is unsecured 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.
No bar too tall in the out years.
<unk> is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe.
Insistent with a long term financing strategy.
This concludes our prepared remarks and now we'd be pleased to take your questions. Operator would you. Please begin the Q&A session.
We will now begin the question and answer session.
As a reminder, participants will be limited to one question and one follow up.
To ask a question you May press Star then one on your telephone keypad.
Anthony Speakerphone, please pick up your handset before pressing the key.
Okay.
Question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from John <unk>.
Capital market. Please go ahead.
I wondered if you could talk a little bit about the supply chain last call you talked about kind of on time and on budget in terms of delivery of turnkey inventory.
Any update on that and did that play a role in the slightly more elongated commencement timeframe associated with your leasing of 14 months compared to what you've done in the past.
Alright, Thanks John .
We are seeing.
Some effects on the supply chain.
Clearly.
Most of the equipment.
Is strained in terms of.
Availability, including data center infrastructure servers and network gear.
And shortages and things like chips and fans are impacting many industries not just ours.
Our our BMI program the vendor managed inventory program.
As our knowledge and market way to overcome some of these disruptions.
I believe that were the gold standard for managing vendors and for forecasting and this gives us priority for production slots with our suppliers.
This program has allowed us to reduce lead times by an average of 70% versus standard.
Increased we increased the BMI pool when Covid hit.
So I think we're pretty well prepared for the for the current disruptions.
We're evaluating the program to expanded even further to better support our programs.
Steel aluminum and copper is also rising which affects some fit out cages and cabinets.
This is only theres really only comes into play though for.
Projects that are.
Our scheduled for completion in the next six months to 12 months and in those cases, we are working closely with our customers to order gear.
Early to lock in the pricing and avoid any shipment delays.
Let me hand, it over to Andy too.
Dress the.
The relationship too.
Delay in construction and anything else that he might want to add.
Sure I think bill covered but just on the John .
<unk> book.
Book to Bill.
Timeline was had nothing really to do with supply chain two factors there one.
You can see in the Americas region, we did a powered base shell deal, obviously, a longer lead time to develop that and bring that online and in Europe , where we had the concentration of our loan yields obviously standout quarter for EMEA across the board.
Some of the plus megawatt deals.
Rather large in size and take downs and I think Theres a project to literally it landscape and the customers are looking to really just looked at future runway for growth.
So that was kind of what drives the overall.
Timeline out for sign to commence.
And then.
Maybe more broadly I wondered if you could maybe comment on the willingness to flex catheter your capex budget.
To a higher level, you accelerated compared to last year, but given given all the demand that's out there and all the aggressive investment by some of your peers.
In order to maintain your share or what is your thought about.
And the Capex budget higher and any kind of.
David thoughts on financing mix as to how you might do that.
It seems like that would really affect 2022, capex, but further out.
Any any kind of broad.
Thoughts on that would be appreciated.
Sure so.
We finished 2021 at south of $2 2 billion of development Capex or so.
Our guidance range as a step up of two three to $2 5 billion.
Capex.
You can just look at our press release throughout the year, we've been opening new markets expanding our addressable market.
Building out the pipeline from land to shell to finish suites to Colo.
And connectivity inventory.
I don't think.
We're looking to change our posture, we really go market by market supply chain excuse me market by market supply demand view and we think we're positioning ahead of our competitors.
And I don't think theres really necessary reaction reflects needed into our business, but if the opportunity presents itself.
We looked at that and we'll make those investments.
As I mentioned in my prepared remarks, we've got.
Diverse menu of capital sources to fuel our growth.
Thank you.
The next question comes from Michael Rollins of Citi. Please go ahead.
Thanks, and good afternoon was curious first if you could.
Unpack the guidance for the same capital cash NOI growth down to three 5%.
Maybe some of the puts and takes in there and how that might play out over the course of the year.
I can.
Sure the follow up after this one.
Sure. Thanks, Michael So.
Just a quick back drop on same capital so last year, we guided slightly negative on same capital or.
And we came in at four 4% same capital cash NOI negative.
This was slightly worse than that.
Your prior.
As I mentioned that was a real subset of the pool that reported in 2021. He flipped to 2022 you call. It almost 80% of our company is in that pool with the addition to the Westin building inner.
<unk> and land to helix and altice in Croatia, So you've got a much larger sample set.
Improving complexion, so from negative four four.
We guided to call it negative 3% at the midpoint.
It's really.
Being impacted by two elements one currency.
<unk> hedged through the balance sheet. So all the currency fluctuations are hitting.
At that point.
Look at that on a constant currency, you're probably closer to negative 1%.
And then.
If you Peel back the onion on that.
Really.
Strong positives.
For like 3% or so.
In APAC.
Close to flat in EMEA due to the utilities.
Being elevated and then the negative contribution largely focused in the Americas region.
Where we are getting hit by.
It looks like it'd be a property tax increase.
Going to hit us in that year or excuse me in 2022, but not continue in 'twenty three and beyond.
And the major driver of still not being more firmly in the positive although improving really downtime for releasing of some of the larger non retentions.
Working away at that and making good activity actually re leasing it and then moving those customers into that space. It just takes time not because of supply chain <unk> more of that.
One five megawatt customer leaves a new five megawatt customer refills to refurbish the new PD use et cetera, just takes time for those chunky deal do you lose a month or two of rent in the year. That's just it.
Won't flow through until you get into 2023, so net yet not in depositary firmly on a reported basis, yet put heading that way.
And then just a follow up on some comments that you and the team have provided earlier on just pricing can you give us an update on the pricing strategy the opportunities today.
Leverage price, whether it's because of the inflationary backdrop or some of the other macro factors that you are dealing with and then.
How that would affect the financial performance overtime.
Sure So I mean.
Pricing from two lenses, obviously, so on the guidance.
We're guiding towards flat releasing spreads on renewals for 2020 so.
That's not new news, we mentioned that we've been working on that.
The territory.
Partly due to mix of explorations, but certainly I would say pricing related.
And then also call it pricing on new deals Holistically.
I think our supply chain team has done a really in designing structures you've done a really good job insulating us.
Given our scale our consistency in market.
I don't think thats industry wide and if your newer smaller fledgling a regional competitor.
Thats, creating disruptions from an inflation standpoint.
And Theres, just overall strains on delivery of capacity, whether it's moratoriums in certain countries or the ability to deliver power.
All of these elements I'd say add up together to I think.
Be an incremental benefit to our value proposition to our customer of having this incumbent platform of 26 countries 50, metros with one way for growth.
The pricing pendulum feels like it's continuing to slowly swing more and more in our favor.
Our next question comes from Eric <unk> of Wells.
Wells Fargo. Please go ahead.
Great. Thanks for taking the question.
Wanted to talk about the strength you had in the less than one megawatt category, maybe you could break down where you're seeing the most success, whether it's traditional enterprise smaller hyperscale edge nodes and do you think that steady improvement you've had as sustainable going forward.
And then you know.
My second question was on the asset asset disposition front Andy.
Andy I think in the past you've said you don't have a lot left to do on noncore. So there should we assume that you'll have a heavier weighting towards <unk>.
<unk> contribution throughout the course of the year.
And related to that.
Where do you think your leverage slightly north of six times should we expect it to remain elevated or you're looking to.
Drive that down with the <unk> financing and potentially other asset sales.
Okay.
I'll have Chris start us off on the enterprise less than a megawatt interconnection category and then I can fill in any factoids and talked about sources and uses.
Your second question, yes, Thanks, Eric for the question I'll tell you that we're really happy and feel good about the healthy demand that we're getting out of the sub one megawatt space you seem to be consistent about kind of where we are growing that and how it has been it's been building.
We mentioned the enterprise demand and just where it is coming across its coming across from a lot of our customers trying to take advantage of hybrid it environment and so we're seeing that come across the across the board across the globe.
Really strong demand and pipeline and the nice thing about as it's come in from an enterprise perspective from US two thirds of that pipeline is coming through as enterprise and we're also getting good channel progress from it so from a sub one megawatt perspective is sustainable and it's something that we're going to continue I think youre going to see it continue.
And we're happy with where we're seeing that demand across all regions.
And coming through the channel up specifically and then also enterprises. So we're happy about where that is and I think it's going to continue.
Just to add a couple more regional.
Uh-huh Titbits, Eric So EMEA was absolute standout for the lesson of megawatts as you saw in the numbers.
Frankfurt, London, and Paris, Amsterdam, Marseille Big contributors over half of our new logos actually came out of that region.
America's New York, Chicago, Dallas, Atlanta, with top markets in Singapore is obviously the standout in APAC.
Do you mind, just repeating the second part of your question about the sources in Houston I heard the first part about how just noncore versus.
Contributions yesterday, what was the second part of your question and just and just how we should think about your leverage throughout the year, you're a little above six times I know you have the equity forward you have the <unk> financing.
Just how we should think about the cadence of leverage this year that'd be helpful. Thanks.
Sure. So as you see in the guidance table, we put about half a billion or a $1 billion.
Call It capital recycling, which would be both of these categories.
We ended the year with it.
61 off asset for $60 million there'll be likely redeveloped into a residential project in San Jose.
And there are.
Called.
Shortlist were whittling down of incremental non core dispositions that could happen during the year <unk> be a piece of that and then I think looking for incremental contributions to digital core REIT would probably be larger.
<unk> segment of that source of capital, that's obviously been a great success.
Jon Stewart after 32 earnings calls hung up the.
<unk> is now looking to grow that vehicle.
In terms of funding for the year.
We finished out the year was about.
Almost $1 billion of proceeds you conclude that one off asset plus digital REIT in December .
That all up put the balance sheet 12, 31 was $140 ish million of cash $400 million.
Excuse me 400 million drawn on our $3 3 billion credit facility.
We got Lucky and beat the rate March with $850 million.
Eurobond beginning of the year, that's probably an incremental 500 million of proceeds we still have the $1 billion. Undrawn forward. Then we will take down so those combinations of sources and uses will essentially fund the closing of the $1 7 billion purchase of Tierco.
And then obviously those incremental noncore dispose or incremental contributions in the back half of the year.
We will be the call it the <unk>.
Replenishing of the capital stack, and we'll look to leverage to call. It state to move move more in line to our targeted leverage levels.
Below six times for sure as we move through the year.
Great. Thank you.
The next question comes from Simon Flannery of Morgan Stanley . Please go ahead.
Thank you very much good evening, Andrew just wanted to.
On the digital core right.
How should we think about what to expect there for 2022 is is this going to be something where it'll potentially.
Potentially do more deals with you and how are those is it really north America focused today and in the near term or could we see assets from Europe or elsewhere go in there and you mentioned the stock price depreciation is there any magic.
35% of Magic number in terms of your stake or could you.
That use that as a source of funding as well to take your stake down.
Vehicle. Thanks.
Yes so.
This was a essentially an evolution of our capital sources here.
Date back to the origins Bill creative Prudential JV that just actually ran its course and we recognize a promote in the fall.
Perpetual.
Eternally managed public vehicle with a global mandate.
Although albeit a regionally in North America portfolio, so over time I would expect it to.
Through contributions of assets from digital Realty and they can also.
And can also acquire third party assets diversified portfolio geographically, but really with core assets data centers that digital Realty believes it for the long run.
Really long term weighted average lease terms high occupancies.
Core to our strategy, we don't have a set exact dollar amount or time of 2022, where we're looking to your contribution will be.
Work collaboratively with John and his team.
To position at the right time for digital <unk> and its shareholders and digital Realty's funding plans.
But I would think it will diversify overtime and continue to scale and it's been well received to date and I think that we'll be able to build upon that success.
On your 35%.
Oh I'm sorry.
That there is no magic to that that was really just a product of <unk>.
The size of initial portfolio the conservative leverage we put on the vehicle day one.
Modest IPO size.
We.
The underwriters' lockup technically expires in the next several months so not just right around the corner, we have no interest to sell down.
We can sell down if we want to.
More likely over time, I could see us there'll be diluted down digital clearly buys for cash more assets and digital realty.
Makes room for incremental investors.
Institutional and retail to participate in the growth of the vehicle.
Great. Thank you.
Our next question comes from Erik Rasmussen of Stifel. Please go ahead.
Yes, thanks for taking the questions.
New logos.
<unk> strong I think you'd highlighted near record in the quarter.
Maybe just talk about what's behind that success.
And then maybe just.
Do you see that momentum sustaining into the new year.
Yes, so with our second so first of all thanks for the question and also thanks for the acknowledgement of the success, we're having around new logos.
Second highest quarter on new logos, yet our highest year in new logos at 480.
It's really.
With customers coming to our hybrid it in a data centric kind of mindset around what theyre going to do that's what we're seeing come through on the new logos, we pay a lot of customers now picking us.
Consistently in making those decisions on it where we've seen kind of an outside growth from the new logos is around our channel.
Went from channel sales of.
15% up to it.
I'm, sorry from 10% in 2020% to 15% in 2021, but the new logos, we're getting or close to 20% to 25% on a quarterly basis from that channel. So when you ask where it's coming from it's coming across the whole globe. You also think through our exports, we mentioned that 30% of our export business.
Our 30% of our business is growing export meaning across regions and landing in EMEA at 60%. So really good progress across the globe on new logos supported by a strong success with the channel and I think we're going to see that continue as well. So thanks for the question Eric.
Great and then maybe just.
My follow up.
Obviously hyperscale was strong, but maybe talk about the types of hyperscale as youre seeing.
Is there a shift in the customer makeup.
No.
<unk>.
Whats driving that demand.
So.
Maybe you go region by region real quickly.
As you saw there wasn't a lot of activity in APAC. This particular quarter, but we've had a great.
2021 overall in that region.
All product types, but certainly including Hyperscale and we're seeing significant demand continue.
And really excited with the introduction of sold one.
We just opened up as well as significant activity across the Japanese market.
In EMEA we.
We had four to five top CSP.
All signed new business with us during the quarter.
A lot of activity in Frankfurt both.
In the east with.
With the legacy interaction campus in the Western legacy digital campus.
Eric Marseille Madrid, Paris, we're also contributed as well as Amsterdam.
In North America.
In the let's say the social media category has been a contributor.
And ashburn.
Those are probably the standout for the quarter.
I mean incredibly tight during a recovering market.
Continue to see strong demand.
The next question comes from David Barden of Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking the questions two if I could please one was Andy you talked about co investment with Singapore core reads and.
Im wondering now given I think we're looking at about a $3 seven cap rate implied on the market cap now.
Whether this how this affects how.
You guys think about mergers and acquisitions and we've seen a lot of partnership models emerge across all sorts of digital infrastructure asset classes.
I'd be interested in kind of hearing a little bit more about what you meant by that and then bill.
I'm, a long time listener first time caller.
It has not gone unnoticed.
John is taking over as CEO of <unk>.
Andy's become president you've moved to Austin.
I mean, we're all big fans of what you've done what are we should we be expecting something in.
I'd love to hear your thoughts on succession right now thank you.
Okay. Okay.
David It's Greg Wright, Let me, let me take the first question. Your question with respect to the Street and how we think about it in terms of our M&A strategy.
I mean look I think when you look at the.
When you look at the mandate that John and his team have for that vehicle. It's clearly it's a it's a it's a yield driven vehicle.
And you obviously, we assess that cost of capital for that vehicle like we do digital Realty Standalone and those assets that are going to go into that theyre not going to be development, they're going to be stabilized.
John's.
Pitch in terms of the types of assets Youre looking for that they.
Put into that vehicle.
Well as we do if we do a future M&A or anything like that in there happens to be those kinds of assets. They will be a natural home for that now we obviously have a partner to pursue those transactions simultaneously and being able to bifurcate the assets and to get the best cost of capital.
So that is how do we think about it from a from an M&A standpoint, but in terms of cost of capital. We still go back we do our underwrites, we're going to go out and do Dcfs and take a look at the projections and take a look at the risk of the asset and we're going to price it accordingly.
And obviously, having a vehicle that's got a better cost of capital is helpful.
But thats generally the approach will be used for M&A.
The only thing I would add to that question John .
David was.
Listen to Singapore is.
Open it up it's moratorium in a very rational.
Prudent way.
Now with the development of call it three new data center locations.
I can't think of a better part.
<unk> partner to be one of the three given our experience in this business 4000 global customers.
Leadership in sustainability.
Experienced in region and last but not least having a partner digital core REIT listed on the Singapore exchange.
Could be an eventual owner of that asset while all the citizens of Singapore to participate in the digital transformation of that country in the region. So that's a unique instrument incremental attribute.
<unk> could play in the future.
Relative to the move to Austin.
I am not the only person who has moved to Austin.
We moved the corporate headquarters to Austin January of last year.
And I am surrounded by people, who have also moved to Austin.
On my right as my Chief of Staff Bill Bradley on My left is my Chief Investment Officer, Greg Wright.
Im looking down the table here at our Chief operating officer, Eric Sand check. So we have quite a few people who have moved.
Andy Power is planning to move at the end of the year. So this this is the corporate headquarters we made a conscious decision to leave California for a number of reasons I think we've articulated that we're going to be moving.
Our staff's out of cash.
California, and New York, we've announced that.
We have downsized in California are our offices there we move from foreign marketers that are up.
Up the block two.
Space at.
On California Street, and we're going to be downsizing in New York as well so.
There is nothing about this move to <unk>.
Austin that is related to succession realm.
Relative to.
The movement of Andy into the President's Slug, I think that's your question.
Sure Michael.
And the board is to try to give are our top performing executives as much.
Experience a different experience as we possibly can so this gives an opportunity to spend time in operations as well as working with Chris sharp in the either on the networking side the product development side the innovation side.
We have.
A number of very capable executives that work for this company that reports to me and I think.
Many of them are potential candidates to succeed me.
My obligation to the board is to make sure that they have choices and I'm trying to.
Provide for that.
So when the time is right for me to.
To move into retirement I'd like our board to be able to look at a number of potential candidates inside the company and potentially consider candidates outside the company as well, but I have no plans to step down.
At any point in the in the near future.
I like what I think.
And I think we're pretty good at it.
Yeah.
The next question comes from Brendan Lynch of Barclays. Please go ahead.
Great. Thanks for taking my question, maybe this one is for Chris.
With your growing pool of Colo assets.
Do you have any interest in creating an internal software defined network and if so what would that entail and what competitive advantages would that provide you.
Yes, no. Thanks.
Brendan I appreciate the question absolutely right Thats, what the customers are looking for and I. Just wanted to go back a little bit on what Eric had asked Cory on what's driving that sub one megawatt.
It's a sweet spot where customers are starting to outgrow Colo. So it is very beneficial to our asset class to be able to support that growing need and allow them to land and expand even beyond.
The one megawatt and start to go to more markets, but that all requires an SDN software.
Software defined networking for the broader group that capability to tie it altogether and so one of the things you're going to hear about later in the year is we are absolutely bringing to market one of two platforms in the world.
Purpose built for orchestrating at a higher level that type of capability on our customers' behalf right.
I'll just impressed upon everybody, it's not improving on a 10 year old product. It's definitely purpose built in at the core of that is enhancing our customer experience were removing that technical complexity, but a lot of customers are impacted by around interconnection and making it easier for them to <unk>.
<unk> and deploy and all of these locations and that's why that new logo growth is starting to grow at record.
Record numbers and Youll see that continually feed off of itself because we're getting a big benefit out of the community of interest that's being created around the globe, but again at the at the end of the day.
It's about open access and unfettered customer experience, which allows all of our customers to access the right partners throughout the globe and this.
Fabric again will facilitate the easiest route to all destinations.
Okay, Great and then maybe you could give a little color on the type of investment that that will take.
Yeah.
Yes, absolutely bring in we had referenced a while back we had acquired a smaller firm.
Some of the leading software developers out in the market.
It's something that Andy and I constantly talk about on the right amount of capital and so we have a dedicated software team.
<unk> purpose built in delivering that capability and so I wouldn't say, it's material as of yet and we're not disclosing the details around the investment, but the impact that we get with having that team dedicated to building not only in SDN capability, but that broader orchestration is absolutely going to be beneficial and we already have some great conversations with beta customers that are.
Driving the direction of what those feature functionalities are going to be and Brian I can confirm that the cost capex otherwise.
Included in non material to the guidance we have out.
On the sub today.
The next question will come from Matt Knickman.
Deutsche Bank. Please go ahead.
Hey, guys. Thanks for squeezing me in I'll keep this brief.
Maybe two for Andy first off does the 2022 guide can you quantify what's embedded in there.
From <unk>.
Just thinking about revenue EBITDA and core asset fall and then secondly, maybe dovetailing on that Tim.
Typically youll give some directional color on how to think about for quarter.
Core <unk> I'm just wondering if there are any.
And takes for <unk> core <unk> per share that you would flag to be mindful off thanks.
Just working.
Backwards.
We didn't I don't think we have.
<unk>.
Unlike.
Our famous bar charts without numbers on them for you in terms of the way to distribution, we do have a pretty decent moving part here with the timing of <unk>, which.
I can't remember Greg mentioned, this yet, but I mean, we're working through the closing conditions and really the the process.
For comp.
Competition Committee review, but.
Like it is going to happen in call. It. The early very early second quarter to a couple of months into the second quarter timeframe. So that does put a little bit of puts and takes from a quarterly blend.
It is just to confirm the dilution from <unk> is included in our guidance table in this up.
So at the bottom line, our midpoint is call it growing.
Call it, 5%, which is about 100 basis points increase.
Our guidance a year ago.
Which we did beat by 140 bps.
We also are absorbing called 100 200 basis points of FX headwinds. So if you normalize for those items.
You call it close to the six 5% core <unk> per share growth.
The components of Terror co.
I would call it ballpark for it.
Swag partial year contribution of revenue.
And a <unk>.
EBITDA basis call. It 100 ish of revenue and 70 issue.
EBITDA contribution.
Rough swag.
Just a reminder, a data point.
Our year over year revenue and EBITDA growth is deflated when you just look at our reported financials.
Remember that we had a PPA and a.
The settlement and a promote in 2021.
So that plus ruling that plus FX calls it puts you had call it now.
Nine 3%.
Growth on a revenue basis on a constant currency basis.
And then as a reminder, we're also losing revenue from a contribution to the Singapore REIT digital Corey So that puts you up another 100 or.
150 basis points higher.
On the on the revenue.
Standpoint from a constant currency basis.
That's great. Thank you.
That 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.
I'd like to wrap up our call today by recapping our highlights for 2021.
As outlined here on the last page of our presentation.
Our value proposition is clearly resonating with customers.
We booked over a half a billion dollars of new business in 2021 of.
A 15% increase over the prior year.
Attracting nearly 500 new logos.
Digital Realty's operational excellence is second to none whether it be on uninterrupted performance story of record, Texas Ice storm, our on time delivery of new capacity, Despite a global pandemic and the resulting strain on global supply chains.
Our customers Trust us with mission critical applications and digital delivers.
We're expanding our global platform, establishing digital realty as the unquestioned, leading colocation and interconnection provider in Africa, and positioning platform digital at key points of interconnection is subsea cable landing stations.
We announced our expansion into India, together with our partner Brookfield, and we invested in Atlas edge, gaining exposure to the European edge market, all while investing over $2 billion.
And organic development around the world.
We posted solid financial results in core revenue and adjusted EBITDA above the high end of our initial guidance.
Our 2022 guidance represents mid single digit growth in core <unk> per share despite absorbing headwinds from FX tariffs and capital recycling.
Constant currency guidance for CFO .
We were to exclude <unk> would be in high single digits.
Last but not least we further strengthened our balance sheet raising $1 billion of <unk>.
Proceeds from asset sales all the while positioning ourselves as the leading global provider of the full spectrum of data Center solutions.
I'd like to once again, thank the digital Realty frontline team members in critical data Center facility Rose, who kept the digital world turning.
Hope that all of you stay safe and healthy and we hope to see many of you in person again soon thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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