Q1 2024 Digital Realty Trust Inc Earnings Call

Yes.

Operator: Not ready. Not ready.

No.

Jordan Sadler: Good afternoon, and welcome to the Digital Realty first quarter 2024 earnings call. Please note that this event is being recorded. During today's presentation, all parties will be in listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Speaker Change: Good afternoon, and welcome to the digital Realty first quarter 2024 earnings call.

Jordan Sadler: Please note this event is being recorded.

Speaker Change: During todays presentation, all parties will be in listen only mode.

Jordan Sadler: Following the presentation, we will conduct a question and answer session.

Jordan Sadler: Callers will be limited to one question.

Jordan Sadler: I would now like to turn the call over to Jordan Sadler Digital Realty's Senior Vice President of public and private Investor Relations Jordan. Please go ahead.

Jordan Sadler: Thank you, operator, and welcome everyone to Digital Realty's first quarter 2024 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions, on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

Jordan Sadler: Thank you operator and welcome everyone.

Jordan Sadler: First quarter 2024 earnings conference call.

Jordan Sadler: With me on today's call are president and CEO Andy <unk>.

Matthew Mercier: Matt Mercier Chief.

Jordan Sadler: <unk> investment Officer, Greg Wright, Chief Technology Officer, Chris Sharp, our Chief revenue Officer.

Jordan Sadler: Also on the call will be available for Q&A.

Jordan Sadler: <unk> will be making forward looking statements, including guidance and underlying assumptions on today's call forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

Jordan Sadler: For a further discussion of risks related to our business, see CR10K and subsequent filing 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.

Jordan Sadler: A further discussion of risks related to our business.

Jordan Sadler: Our 10-K and subsequent filings with the SEC.

Jordan Sadler: 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.

Jordan Sadler: Before I turn the call over to Andy, let me offer a few key takeaways from our first quarter. Our customer value proposition continues to resonate, as reflected by an AI-driven acceleration in leasing activity that drove our overall leasing volume to a new record. First quarter leasing was more than 40% above our prior record, principally driven by an improvement in prices. Second, our fundamental strength picked up where 2023 left off with record cash releasing spreads and strong, stabilized same capital cash NLI growth of 4.7%, reflecting continued strength in data center fundamentals combined with the benefit of the improvements that we have made to our portfolio over the past year.

Speaker Change: Before I turn the call over to Andy Let me offer a few key takeaways from our first quarter.

Jordan Sadler: First.

Jordan Sadler: Our customer value proposition continues to resonate as reflected by an AI driven acceleration in leasing activity drove our overall leasing volume to a new record.

Jordan Sadler: First quarter leasing with more than 40% above our prior record principally driven by an improvement in pricing.

Jordan Sadler: Second our fundamental spring picked up where 2023 backed off its record cash.

Jordan Sadler: Leasing spreads and strong stabilized same capital cash NOI growth of four 7%, reflecting continued strength in data center fundamentals combined with the benefit of the improvements that we have made to our portfolio over the past year.

Jordan Sadler: And third, we've made meaningful progress on our 2024 funding plan already, with just over a billion dollars of fresh capital raised from asset sales and joint ventures to date, putting us above the low end of our guidance range for 2024, just one-third of the way through the year. As a result of our efforts, reported leverage fell from 6.2 times at year-end to 6.1 times at March 31, and remained at 5.8 times on a pro forma basis, reflecting completed and announced transactions. With that, I'd like to turn the call over to our president and CEO. Andy Power

Andy: Third we've made meaningful progress on our 2020 for funding plan already with just over $1 billion of breast capital raise from asset sales and joint ventures.

Andrew Power: I think that's above the low end of our guidance range for 2024, and one third of the way through the year.

Andrew Power: As a result of our efforts reported leverage fell from six two times at year end to six one times at March 31, and remains at five eight times on a pro forma basis, reflecting completed and announced transactions.

Jordan Sadler: With that I'd like to turn the call over to our president and CEO Sandeep.

Andy: Andy power.

Andrew Power: Thanks, Jordan. Thanks to everyone for joining our call. Following the successful course we set in 2023, digital realty experienced accelerating momentum in the first quarter of 2024, headlined by a collection of multifaceted AI opportunities. As demand for our capacity in core markets remains elevated, all visibility around the competitive new supply remains closed. At Digital, we continue to focus on our strategic priority and on delivering on behalf of our expanding list of 5,000 plus customers across our 50 plus markets, 25 plus countries on six continents.

Andrew Power: Thanks, Jordan, Thanks to everyone for joining our call.

Andrew Power: Following the successful course.

Andrew Power: Three digital Realty experienced accelerating momentum first quarter of 2020.

Andrew Power: Headlined by collection, a multifaceted AI opportunities that drove a number of new leasing records.

Andrew Power: And the demand for our capacity in core markets remains elevated.

Andrew Power: While visibility surrounding competitive.

Andrew Power: New supply remains.

Andrew Power: And digital we continue to focus on our strategic priorities.

Andrew Power: And on delivering on behalf of our expanding list of 5000 plus customers.

Andrew Power: Our 50 plus markets in 25 plus countries on six continents.

Andrew Power: During the first quarter, we posted record-breaking revenue, surpassing our prior record by more than 40%, and exceeding our leasing results for all of 2019 in just this one quarter. We also delivered strong operating results, as evidenced by healthy, stable, and sane capital growth and the highest releasing spreads in the company history, and continue to innovate and integrate. Further expansion of service fabric through the launch of our service directory marketplace has seen the addition of over 90 members offering more than 150 services, including secure and direct connections to over 225 global cloud on-ramps, creating a vibrant community for seamless interconnection and collaboration.

Andrew Power: During the first quarter.

Andrew Power: Posted record leasing results, surpassing the prior record by more than 40%.

Andrew Power: Our leasing results all in 2019.

Andrew Power: Just one more.

Andrew Power: We also delivered strong operating results as evidenced by healthy stabilized same capital growth.

Andrew Power: The highest releasing spreads in the company history.

Andrew Power: We continued to innovate and integrate.

Andrew Power: Further expansion of the service fabric and the launch of our service directory marketplace.

Andrew Power: Due to the addition of over 90 members offering more than 150 services, including secure and direct connections to over 225 global cloud on ramps and creating a vibrant community perceives interconnection and collaborators.

Andrew Power: And just last week, we launched Private AI Exchange, powered by ServiceFactors, which enables enterprise data to be at the center of an AI architecture, directly adjacent and interconnected with AI capability. This architecture alleviates data-graphic barriers that emerge as data is generated and exchanged with multiple applications across end-to-end, AI-enabled digital workflows.

Andrew Power: And just last week, we launched private AI exchange powered by service.

Andrew Power: Which enabled enterprise data to be at the center.

Andrew Power: Attached directly.

Andrew Power: Directly adjacent interconnected capabilities.

Andrew Power: Yes.

Andrew Power: Architectural EV demographics barriers.

Andrew Power: This data is generated and exchange with multiple applications.

Andrew Power: Yeah.

Andrew Power: Digital workflows.

Andrew Power: We also continue down the path of bolstering our balance sheet and diversifying our capital sources, with the expansion of one of our stabilized hyperscale joint ventures and the addition of a new hyperscale development JV, together with our first transaction with our potential capital partner, Digital Quarry, in well over a year. These transactions help to fund the development pipeline capacity that our customers are seeking while reducing our overall leverage. Operating the financial results in the first quarter, we're encouraging.

Andrew Power: We also continued down the path of bolstering our balance sheet and diversified capital sources.

Andrew Power: Pension of one of our statewide Hyperscale joint ventures.

Andrew Power: The addition of a new Hyperscale development JV.

Andrew Power: Canada was our first transaction with our potential capital partner did you won't Corey did well over a year.

Andrew Power: These transactions helped to fund the development pipeline capacity.

Andrew Power: We are seeking.

Andrew Power: While reducing our overall leverage.

Andrew Power: Operating and financial results in the first quarter were encouraging.

Andrew Power: We post sequential growth in our core data center revenues while growing adjusted EBITDA and core XFL per share. Development returns also continue to improve, and we further enhance the product mix of our portfolio while maintaining strong liquidity and lower migration costs. Bookings and renewal results were even better for the number of metrics reaching new records, for funding the strong demand environment and limited new capacity.

Andrew Power: We posted sequential growth in our core data center revenues.

Andrew Power: Adjusted EBITDA and core <unk> per share.

Andrew Power: Development returns also continue to improve.

Andrew Power: And we further enhanced the product mix of our portfolio, while maintaining strong liquidity and lower leverage.

Andrew Power: Bookings in renewable results were even better.

Andrew Power: A number of metrics, reaching new records on funding the strong demand environment and limited new capacity.

Andrew Power: Total bookings were $252 million, well ahead of our prior quarterly record of $176 million, reflecting the impact of the acceleration of AI and an improved pricing environment. Importantly, when comparing this quarter's leasing to the prior record set in 3Q 2022, we leased an incremental 10% of IT load capacity while rates in the greater than one megawatt segment were approximately 60% higher than those achieved 18 months prior. Perhaps a bit overshadowed by these record-setting results was another strong corner in our zero-to-one-megawatt-plus interconnection segment, which delivered a third straight quarter over $50 million.

Andrew Power: Bookings were 252 million well.

Andrew Power: Well ahead of our prior quarterly record of $176 million.

Andrew Power: What's the impact from the acceleration of AI and an improved pricing environment.

Andrew Power: Importantly, when comparing this quarters leasing to the prior record set in Q2 2022.

Andrew Power: An incremental 10% more capacity.

Andrew Power: Rates and a greater than one megawatt segment for approximately 60% higher than those achieved 18 months prior.

Andrew Power: Perhaps it's been overshadowed by these record setting results was another strong quarter and our zero to one megawatt plus interconnection segment.

Andrew Power: Was delivered a third straight quarter of over $50 million.

Andrew Power: Demand for connectivity-oriented capacity remains healthy, and pricing remains firm. Our mark-to-market renewal spreads were up by 11.8%, aided by a record 18.5% increase in our greater-than-1-megawatt category. The churn remained low and well controlled at 1.7% for the quarter.

Andrew Power: Demand for our connectivity oriented capacity remains healthy pricing remains firm.

Andrew Power: Our mark to market renewal spreads were up by 11, 8% is.

Andrew Power: Aided by a record 18, 5% increase in our greater than one megawatt category.

Andrew Power: Churn remained low and well controlled at 1.7% fourth quarter.

Andrew Power: Same capital cash on the line growth will also remain healthy, growing by 4.7% year over year in the quarter and marking our fifth consecutive quarter of positive same capital growth. A year ago, data center demand was strong, driven by the growth of cloud and digital transformation, while supply was tightening due to power transmission constraints, supply chain delays, and other factors. Since then, AI has become a significant driver of demand as hyperscales race to develop, deploy, and implement the technology, while enterprises begin to explore the potential of this wave of technological evolution.

Andrew Power: Same capital cash NOI growth also remained healthy growing by four 7% year over year in the quarter.

Andrew Power: Our fifth consecutive quarter of positive same capital growth.

Andrew Power: A year ago, so demand was strong driven.

Andrew Power: Driven by the growth of cloud and digital transformation.

Andrew Power: Plywood tightening and power transmission constraints supply chain delays and other factors.

Andrew Power: Since then.

Andrew Power: <unk> has become a significant driver of demand.

Andrew Power: Hyper skills race to develop deploy and implement the technology.

Andrew Power: Enterprises begin to explore the potential of this wave of technological evolution.

Andrew Power: McKinsey recently forecast data center growth at a double-digit CAGR to 2030. This growing sector of demand is broad and deep, with both enterprises and service providers deploying significant new data center capacity and comment. They're explaining the, Fueled by trends such as enterprise AI adoption, AI as a service, IoT, and the relentless growth that data creates. Reflecting these trends, I want to highlight two highly strategic AI assignments that came to fruition during the quarter.

Andrew Power: Mackenzie recently forecast.

Andrew Power: <unk> growth.

Andrew Power: Double digit CAGR through 2030.

Andrew Power: This growing secular demand is broad and deep.

Andrew Power: Both enterprises and service providers.

Andrew Power: Significant new data center capacity.

Andrew Power: Meet their expanding needs.

Andrew Power: Don't buy trends such as enterprise adoption.

Andrew Power: <unk> as a service Iot.

Andrew Power: And the relentless growth increase.

Andrew Power: What do these trends I want to highlight two highly strategic songs.

Andrew Power: In Russia during the quarter.

Andrew Power: First, we were selected to host one of the world's most powerful AI supercomputers at one of our data centers in Copenhagen in a collaboration spearheaded by the Nova Nordisk Foundation and the Export and Investment Fund of Denmark to grant researchers from Denmark's public and private sectors access to a cutting-edge NVIDIA-powered AI supercomputer in addition to NVIDIA software platforms, training, and expertise.

Andrew Power: First we were selected to the post war of the worlds most powerful AI supercomputers.

Andrew Power: Data center in Copenhagen, and the collaboration spearheaded by Novo Nordisk Foundation, the export and investment funds in Denmark.

Andrew Power: Researchers from Denmark's public and private sectors access to a cutting edge Nvidia powered AI supercomputer.

Andrew Power: In addition to Nvidia software platforms training and expertise.

Andrew Power: Second, Digital Realty further strengthened its collaboration with Oracle to accelerate the growth and adoption of AI among enterprises, aiming to develop hybrid integrated solutions that address data gravity challenges, expedite time to market for enterprise-deployed next-generation AI services, and Unlock Data and AI-Based Business Outcomes. Oracle will deploy critical GPU-based infrastructure with digital reality that leverages platform digital's open purposeful global data center solution and caters to enterprise and AI customers for critical video and AMD deployments among others.

Andrew Power: Second digital Realty further strengthened its collaboration with Oracle to accelerate the growth and adoption of AI enterprises.

Andrew Power: Aiming to develop hybrid integrated solutions that address geographic challenges.

Andrew Power: Expedite time to market for enterprise deploy next generation AI services.

Andrew Power: An online design denial aib's business outcomes.

Andrew Power: Oracle will deploy critical GPU based infrastructure with digital Realty and Leverages platform digital.

Andrew Power: Global data Center solutions.

Andrew Power: The enterprise and <unk> customers critical video and E&ps appointments among others.

Andrew Power: 01 plus interconnection customers also continue to recognize our demonstrable strength and value, whether that related to power-dense applications, or a network of globally connected data centers for other critical infrastructure requirements. During the first quarter, we added over 128 new logons, all wins included.

Andrew Power: Our zero, one plus interconnection customers also continue to recognize our demonstrable strength and value proposition wasn't that related to power dense applications.

Andrew Power: Networks globally connected data centers.

Andrew Power: The critical infrastructure requirements.

Andrew Power: During the first quarter, we added over 120, new buttons.

Andrew Power: Our wins included.

Andrew Power: A leading Fortune 500 AI component maker is expanding its presence on platform digital to a new EMEA market to support its streaming service capability. A global cloud computing and content distribution provider is leveraging the leading connectivity proposition of platform digital in Mombasa to support their global EdgePOP expansion project. Guomo 120, a manufacturing company, is building an AI HPC environment in Frankfurt to support its autonomous vehicle project.

Andrew Power: A leading fortune 500, AI component maker is expanding their presence on block with digital to our new EMEA markets to support their streaming service capabilities.

Andrew Power: The global cloud computing and content distribution provider, leveraging the leading connectivity proposition platform digital and velocity to support their global edge pump expansion project.

Andrew Power: Mm 120 manufacturing company is building, an AI hbc's environment Frankfurt, so to support its autonomous vehicle project.

Andrew Power: A leading French cloud service provider is deploying on platform digital to build out its edge cloud offering across the globe to support their enterprise customers hybrid infrastructure by delivering low latency performance while retaining local data residency. Voice of 500 Technology Distributor and VAR IT Service Provider chose Platform Digital in Phoenix to support data exchange and interconnect with key partners, and a Fortune 500 health benefits provider is expanding into two additional North American metros to take advantage of cloud and network density available on platform distribution.

Andrew Power: The leading French cloud service providers to one one platform digital to build out its edge cloud offerings across the globe to support their enterprise customers hybrid infrastructure.

Andrew Power: Liberty low latency performance, while between mobile data revenue.

Andrew Power: Voice and 500 technology distributor and borrower it service provider chose platform digital in Phoenix to support data exchange interconnect with key partners.

Andrew Power: And a fortune 500 health benefits provider, it's expanding into two additional north American metros to take advantage of cloud and network density available.

Andrew Power: For digital.

Andrew Power: Moving over to a quick update on our largest market, Northern Virginia. During the first quarter, we leased approximately 80 megawatts of capacity in a supply-constrained corner of eastern Loudoun County. Demand for our capacity remains strong, and while hyperscale leasing is typically lumpy, we continue to see healthy traction on the remaining capacity, and we are focused on helping our customers and partners source the incremental data center infrastructure that they require. During the first quarter, we worked with Dominion Energy to help address the transmission bottleneck in Ashburn by providing them with an easement to land the southern line at the Mars substation, which they plan to construct on a quarter parcel of our 450-acre Digital Dollars Campus.

Andrew Power: Moving over to a quick update on our largest market Northern Virginia.

Andrew Power: During the first quarter, we leased approximately 80 megawatts of capacity in the supply constrained quarter Eastern Mountain.

Andrew Power: Demand for capacity remains strong.

Andrew Power: Hyperscale leasing is typically lumpy, we continue to see healthy traction on our remaining capacity.

Andrew Power: We are focused on helping our customers and partners source the incremental piece of infrastructure that they require.

Andrew Power: During the first quarter, we worked with Dominion energy helped address the transmission following cash burn by providing them with an easement to land a southern line at the more subsidies.

Andrew Power: They plan to construct on a corner parcel among 450 acre digital dose.

Andrew Power: Yeah.

Andrew Power: We remain cautiously optimistic about getting access to additional power with Dominion's current forecast for completion of the Southern Line Transmission Project by late 2025. Today, we have roughly 80 megawatts of remaining capacity available for lease within our first building on our Digital Dolls campus in Loudoun, known as Building 7. And we have almost 200 megawatts available for denomination on our Brickyard campus in Manassas, which was contributed to our JV when it was blasted in the first quarter. As a reminder, FANASA is currently outside of the constrained area, and power remains accessible there.

Andrew Power: We remain cautiously optimistic about getting access to additional power dominion's current forecasts for completion of the southern line transmission project in late 2025.

Andrew Power: Today, we have roughly 80 megawatts of remaining capacity available within our first building on our digital Dulles campus in Loudoun Goldman.

Andrew Power: Goldman Sachs.

Andrew Power: We have almost 200 megawatts available for development or our Brickyard campus in Manassas.

Andrew Power: This contributed towards JV with Blackstone in the first quarter.

Andrew Power: As a reminder, <unk> is currently outside of constrained area.

Andrew Power: Remains successful there.

Andrew Power: Before turning it over to Matt, I'd like to touch on our ESG progress during the first quarter and our continued efforts to make meaningful progress and be recognized for our strong ESG performance in 2024. We went live with a switch to 100% renewable energy supplies for our Texas, New Jersey, and Sydney data center portfolios, benefiting 30 sites addressing more than 10% of our global electricity footprint. We have been recognized by the EPA as Energy Star Partner of the Year.

Speaker Change: Before turning it over to Matt I'd like to touch on our ESG progress during the first quarter.

Andrew Power: We continue to make meaningful progress and be recognized for our strong ESG performance in 2024.

Andrew Power: We went live with a switch 100% renewable energy clients.

Andrew Power: Our Texas, New Jersey, and Sydney data Center portfolios.

Andrew Power: In 30 states addressing more than 10% of our global electricity footprint.

Andrew Power: State of Excellence for the fourth year, and we added a new green building certification at our MRS4 development in Marseilles, France. We also announced a partnership with a leading global energy solutions provider to use our UPS systems to support Ireland's transition to renewable energy, and we've announced a significant expansion of our use of HVO diesel, a cleaner fuel made from waste cooking oils and fats to power our backup generators.

Andrew Power: This will up our use of HBO to 20 global sites and 15% of our global portfolio by IT capacity. We remain committed to minimizing digital realty's impact on the environment and pursuing wild, deliberate, sustainable growth from all of our stakeholders. With that, I'm pleased to turn the call over to our CFO, Matt Mercier. Thank you, Andy.

Matthew Mercier: Let me jump right into our first quarter results. We signed a record $252 million of new leases in the first quarter, led by $175 million of greater-than-a-megawatt leasing in the Americas and another $53 million of zero-to-one-megawatt plus interconnection leasing with interconnection bookings remaining firm at $13 million. Now, turning to our backlog. Given the record leasing, the backlog of signed but not yet commenced leases swelled to a new record of $541 million at quarter end, with new leasing outstripping a record $156 million in commencements during the quarter.

Matthew Mercier: Looking ahead, more than half of the record backlog is slated to commence during the remainder of 2024, indicating that commencements are likely to remain elevated. During the first quarter, we signed a record $248 million of renewal leases and a record increase of 11.8% on a cash-based basis. Releasing spreads were once again positive across products and resources, with particular strength in the Americas. Releasing spreads have been increasing steadily for well over a year now.

Matthew Mercier: And while we expect that they will remain very healthy, they're likely to moderate from this quarter's record, given the significant weighting of lease expirations in the zero-to-one megawatt segment for the remainder of the year. In addition, we think it is important to consider a normalized view of the headline and real spreads. Two separate items you are reporting spread higher in the first quarter. First, there is a notable outlier in the Other category that should not be considered recurring or repeatable.

Matthew Mercier: And removing this transaction would reduce our overall reported spreads by 250 basis points to 9.3% for the quarter. Second, there was a significant early renewal transaction in our greater than one megawatt segment that was part of a large package deal as we work to support this customer's broader data center capacity needs in one of our Titus smart grids. While this transaction enabled us to opportunistically pull forward some of our below market expirations from the outer years, our forward year lease expiration schedule remains dominated by our 0 to 1 megawatt segment. 10th to experience spread in the low to mid single digits, akin to what we saw in the first quarter.

Matthew Mercier: Excluding both the outlier transaction and the package deal renewal, releasing spreads in the quarter would have been up 3.4% on a cash basis. We feel that this is a more predictable aspect of our portfolio, that we will continue to seek opportunities and may periodically be able to capture the growing mark-to-market opportunity in our greater-than-a-megawatt portfolio. In terms of earnings growth, we reported first quarter core FFO of $1.

Matthew Mercier: [inaudible] normalizing for the sale or JV of 3 billion of stabilized assets completed since the beginning of last year. Total revenue growth was 7% year over year in the first quarter, due to the benefit of improved leasing spreads, along with favorable new leasing. However, revenue growth in the quarter was tempered by the decline in utility expense reimbursements as electricity rates fell sharply in Vietnam year over year. Normalized adjusted EBITDA increased 9% year-over-year, reflecting strong revenue growth and a modest increase in operating expenses.

Matthew Mercier: As Andy noted earlier, stabilized same capital operating performance saw continued strength in the first quarter, with year-over-year cash NOI of 4.7%, driven by 4% growth in rental plus interconnection revenues and further supported by expense control. Moving on to our investment activity, we spent $550 million on consolidated development in the first quarter, plus another $23 million for our share of managed, unconsolidated JV spending, while delivering 32 megawatts of new capacity across the globe for our customers.

Matthew Mercier: It is worth mentioning the approximately $300 million sequential decline in our development spending this quarter, which highlights the effects of the contributions of our three development JVs. However, seasonal and other timing-related factors also contributed to less CapEx spending in the first quarter.

Matthew Mercier: Attorney for the balance, We continue to strengthen our balance sheet in the first quarter with the closing of previously disclosed transactions, including the Sixterra transaction, the first phase of the Blackstone Hyperscale Development JV, and the sale of an additional 15% share of the two stabilized hyperscale assets in our Chicago JV to GI partner. During the quarter, we also completed a hyperscale development JV with Mitsubishi for two assets and the Dallas Metro. In terms of new news, we also sold a piece of land in Sydney, Australia.

Matthew Mercier: $65 million, and we provided an easement to Dominion Energy to build the Mars substation on our digital DOLOS campus for $92 million, all contributing to a reduction in our reported leverage. 6.1 times at the end of the first quarter versus 6.2 times at the end of 2023.

Matthew Mercier: Then in April, we continued to recycle capital by selling 75% of CH2, the third and final stabilized hyperscale facility on our Elk Grove campus at a six and a half cap rate to GI partners, raising nearly $400 million. We also sold to Digital Core Reef an additional 24.9% interest in our Frankfurt site, where Digital Core Reef previously owned 25%, raising another $129 million. In addition, we use some of our cash on hand to pay off the 600 million maturing Euro dollars.

Matthew Mercier: After adjusting for these transactions, along with the anticipated closing of Phase 2 of the Blackstone transaction later this year, pro forma leverage is 5.8 times. We continue to keep significant cash on the balance sheet. Approximately $1.2 billion on hand and over $3 billion of total liquidity on March 31 to support ongoing investment opportunities. Moving on to our debt profile. Our weighted average debt maturity is over four years, and our weighted average interest rate is 2.9%.

Matthew Mercier: Approximately 85% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Additionally, approximately 86% of our net debt is fixed rate, and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the year-ends in April, we have $316 million in debt maturing through year-end 2024. Beyond that, our maturities remain well laddered through 2032. I'll finish with Gay.

Matthew Mercier: We are maintaining our core FFO guidance range for the full year 2024 of between $6.60 and $6.75 per share, reflecting the continued improvement we are seeing in our corporate performance. The positive underlying operating trends are partly balanced by potential acceleration in development spending and additional capital recycling, which move our leverage down toward the long-term target and position the company for the accelerating opportunity in front of us. We are maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, so we are notching up our cash and gap-releasing spreads along with our same capital cash NOI growth expectations, reflecting better-than-expected execution on the leasing front in the first quarter.

Matthew Mercier: [inaudible] Cash releasing spreads are now expected to increase 5 to 7% in 2024, from 100 basis points at the midpoint, prior 4-6% rating. And same capital, Caps NOI, is now expected to increase by 2.5% to 3.5%, up 50 basis points from the 2% to 3% range we provided in February, highlighting and our investor presentation. Excluding the nearly 200 basis points of power margin headwinds that we have previously discussed, our same capital cash on our growth for 2024, forwarding up to five.

Matthew Mercier: While these improvements and the stronger core FFO per share realized in the first quarter bode well for the balance of the year, there are a few mitigating factors to consider as you're refining your model. First, we will see a modest drag from the $500 million of capital recycling completed in April. Second, we are only a third of the way into the year, and there is still significant potential for both development spend and asset sales guidance to reach the high end of their guidance ranges.

Matthew Mercier: In addition, it is worth pointing out that the interest rate outlook and curve have changed considerably since we provided guidance and remain another source of uncertainty for the balance of this year. Just one final reminder and update.

Operator: Over the course of 2024 and 2025, we expect that our six billion development pipeline will become increasingly accretive as Higher Realty projects are completed and stabilized. Unexpected yield on our stabilized pipeline ticked up another 20 basis points sequentially, reflecting the addition of higher-yielding projects or completion or contribution to joint ventures of lower-yielding properties. To help provide increased transparency around this important and evolving aspect of our company, we have enhanced our development lifecycle schedule on page 25 of our supplementary material to 1.

Operator: Reflect our proportionate share of total data center development, including our unconsolidated joint ventures, and 2. To provide increased disclosure around our available developable capacity in terms of IT load. We hope you find this helpful. This concludes our prepared remarks, and now we will be pleased to take your questions. Operator. Please begin the Q&A session.

Operator: Thank you. We will now open up the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. If you'd like to ask a question, please press star then 1 to enter the question queue. To remove yourself from the queue, it is star then two.

Operator: Once again, it's Starz101 if you have a question. Today's first question comes from John Petersen with Jefferies. Please go ahead. Great, thanks. I guess I could start with, actually, we can start.

Unknown Attendee: Great, thanks. I guess I could start with, actually, we'll start on the leasing side. So the lead, I was curious how much of the leasing that was done this quarter was inside of some of the joint ventures, like maybe the Blackstone joint venture that you did. And in terms of the yield on development in Northern Virginia or North America, I noticed that it was up 200 basis points to 12.3%, as your expected yield from last quarter, I guess, is that kind of a good number to think about what new developments you're signing today are kind of in the 12 plus percent range.

Operator: Pardon me, I believe our speaker location may be muted. Sorry, can you guys hear me now?

Operator: Pardon me, can the speaker location hear us? Your line may be on mute. Apologies, we can hear you now, yes, sir. Please proceed with your answer.

Andrew Power: Sorry about that. So, John, thanks for the question. So, I'd say the lion's share, a high, high percentage was not done into any of the JVs. I don't have the exact stats, given we now have numerous strategic capital partners across our hyperscale platform, be it stabilized JVs. But I'm very confident that none of the leasing we reported this quarter went into the DLU identified with Blackstone. We are seeing great traction on those projects, but this quarter, none of that leasing went inside.

Andrew Power: The deal you identified with Blackstone, we are seeing great traction on those projects, but this quarter not at least in what inside.

Andrew Power: And we're still working through projects that are obviously weighting that down a little bit, and we have projects that are entering that schedule on the higher side as well, given the rapid improvement in the rate environment. Thank you. And our next question today comes from Jon Atkin with RBC Capital Markets. Please go ahead.

Unknown Attendee: Thanks, you mentioned the rate environment and maybe continuing on that theme a little bit in terms of pricing as we think about next year's core SFO per share growth rate. You gave a little bit of commentary on that on the last call and any updated thoughts in terms of what we should be considering around puts and takes as that number potentially goes higher, whether it's execution of leases or repricing or renewals or whatnot. Thanks.

Andrew Power: Thanks, John. Maybe I'll speak to market rates and where we were able to execute on new leases signed and also renewals first, and then hand it over to Matt in terms of FFO trajectory into next year. As you saw from our results, we're obviously benefiting from an overall supply and demand dynamic with robust demand trends, be it enterprise digital transformation, cloud computing, and now AI on top of that. That's playing out in our zero to one megawatt category, as well as our greater than megawatt category.

Matt: Into next year.

Andrew Power: And that's all happening in a backdrop of supply constraints from numerous sources. And we were able to continue to push rates, both on the existing contracts that were coming up for renewal, as well as on new contracts, to higher and higher levels, which obviously you've seen in the leasing results. And we believe that trend is going to remain intact for some time. Now I want to speak about the FFO trajectory. Sure. Thanks, John.

Andrew Power: Sources.

Speaker Change: Set up is obviously you see in the leasing results and believe that trend is going to remain intact for some time that want you to speak to the episode trajectory. Please.

Matthew Mercier: So, you know, what I would say is based on our first quarter results, we are, our optimism is improved, has improved in terms of what we expect to see, and what we talked about last quarter in terms of improving growth as we look to 2025. And a big part of that, I would say, is driven by the successful leasing execution that we saw this quarter, $250 million, you know, and the shorter sign-to-commence flag, which was at seven months, so it really sets us up for accelerating revenue and, therefore, bottom line growth as we exit this year and into next year.

Matthew Mercier: And a big part of that I would say as you know.

Matthew Mercier: On top of that, you'd add another, call it 2-plus percent, as we deliver developments into our operating portfolio at yields that are continuing to improve. There'll be some offset, call it in the 1% area, you know, given higher rates and the debt refinancing that we have over the next couple years. And I think that kind of sets us up for, you know, mid-single digit and greater growth going forward.

Matthew Mercier: On top of that you would add another call. It two plus percent as we delivered developments into our operating portfolio at yields that are continuing to accrue there'll be some offset call. It in the 1% area given higher rates and the debt refinancing that we have over the next couple of years.

Unknown Attendee: Thank you. And our next question today comes from Eric Luebchow with Wells Fargo. Please go ahead.

Unknown Attendee: Great. Thanks for taking the time to answer the question. I wanted to dive into Northern Virginia a little bit. Could you maybe just provide an update on, you know, the timing of the Dominion transmission upgrades and when you think you can, you know, get even more capacity into that market? And then, you know, on rental rates in Northern Virginia, I think that probably had a big influence on the, you know, 170 plus you reported in North America. Could you just talk about where you're seeing rental rates in that very supply-constrained market and how that influences your yields, your underwriting, and your development table? Thanks.

Unknown Attendee: You know the timing of the Dominion transmission upgrades and when do you think you can get even more capacity into that market and then you know on rental rates in northern Virginia, I think that probably you know had a big influence on the 170 plus you reported in the in North America can you just talk about where you're seeing rental rates are not very supply constrained market.

Unknown Attendee: And what that kind of how that influences. Your yields are you underwriting in your development table.

Andrew Power: Sure, thanks, Eric. So, Northern Virginia is obviously been a highly dynamic market for some time here. We were very pleased to come together and support our partner at Dominion with a very strategic easement to be the landing of the Mars substation, which we are, it is our understanding they are on track to be delivering power and bringing power back online by the beginning of 2026 from that southern line. So, there has not been a divergence in terms of timing that was previously expressed to us.

Speaker Change: Sure. Thanks, Eric so.

Andrew Power: Northern Virginia is obviously, it's been a highly dynamic market for some time here.

Andrew Power: We're very pleased to come together and support to support our partner Dominion with a very strategic is meant to be the landing of the more substation, which we are or is it is our understanding they are on track to be delivering power.

Andrew Power: What in terms of timing what was previously expressed to us.

Andrew Power: We definitely benefited from the increase in rates in that market. Our largest signing was in that market, as well as a few other decent-sized signings. We also had some very great signings in the London market and north of a megawatt signings in Copenhagen, so they were not the only contributors in the plus megawatt category. The rates, I would say the market rates in general, continue to improve in that market, and the precious capacity becomes more and more finite.

Andrew Power: And the plus megawatt category.

Andrew Power: The the rates I would say the market rates in general are cut.

Andrew Power: <unk> continued to improve in that market and as the precious capacity becomes more and more finite.

Andrew Power: As you saw on that slide, we are now turning our attention to the really 80 megawatts remaining at Digital Dulles, as well as the Manassas campus, which is not impacted by the power delays. I would say rates in both Manassas and Loudoun County are converging right now. I've called in the 165, and called to almost 180 type areas on a market basis. That's the cash rate, not a gap rate that we report.

Andrew Power: As you saw on that slide we now have are turning our attention to really 80 megawatts remaining that digital dulles.

Andrew Power: As well as the Manassas.

Andrew Power: Call it in the 165 call it.

Andrew Power: Almost 180 type area on a market basis.

Unknown Attendee: Thank you. And our next question today comes from David Barden with Bank of America.

Unknown Attendee: Hey, guys, thanks so much for taking the questions. Um, I guess if I could just explore, Andy, the commentary around how AI is, you know, contributing already to your business. A lot of the retail data center-centric companies have kind of said that's not really a thing for them yet. So could you kind of elaborate a little bit on within that greater than one megawatt category? How much of that is, is the hyperscale? Is it really hyperscale?

Unknown Attendee: I guess, if if I could just explore.

Unknown Attendee: Andy.

Unknown Attendee: Or is it these maybe more bespoke, you know, Copenhagen Nordisk foundation engines that are coming online? And what do these builds look like? And in what way are they different from maybe what you've been doing historically? And how is that informing how your developments are evolving? Thanks.

Andrew Power: Sure, thanks. Thanks, David. So, let me just give you the highlights of the ways.

Speaker Change: To really excel in this category.

Andrew Power: I'm going to turn it to Chris on how we're tapping into our infrastructure capabilities to really excel in this category. Obviously, the data points are smaller in the more enterprise-oriented wins, but they are there. We've, I would say, in a call, supported less than half a megawatt through a partner, a global manufacturing company on its AI journey in Europe. You noted it was slightly larger than that, but still not, certainly not

Speaker Change: Obviously, the data points are smaller and the more enterprise oriented.

Andrew Power: Wins, but they are there we would say in a call it less than half a megawatt supported through a partner a global manufacturing company on its AI journey in Europe.

Andrew Power: The great win we had with Nova Nordics, supporting them in their NVIDIA-backed chips with a real landmark win with supercomputers in their market. And then, for some time, we've seen the emergence of the hyperscalers with larger capacity block needs. And the largest of our wins in the quarter, I would characterize as an AI win as well. And all in all, it's probably close to 50% of this quarter's wins, which is up relative to prior quarters.

Andrew Power: You noted the slightly larger than that but still not certainly not hyperscale. The great win we had with novo nordics supporting them and their Nvidia back chips, what they wrote a landmark win a supercomputer in their market and then for some time, we've seen the emergence of the hyperscale orders with larger capacity.

Andrew Power: What needs and.

Andrew Power: And the the largest of our wins in the quarter I would characterize as an AI wind as well.

Andrew Power: And I think there's a lot about what our platform offers that really allows us to capture this demand, maybe even earlier in the evolution of AI than some others. But Chris can speak to that as well.

Christopher Sharp: Yeah, no, appreciate it, David. This is Chris Sharp. And so, in a couple of minutes, I think you're

Christopher Sharp: [inaudible]

Christopher Sharp: It's definitely emerging with private AI and so these are these larger deployments that we're seeing come out from multiple types of enterprises and I think it's important to understand from a design perspective, it kind of starts with a little bit broader in how we master plan our campuses and so I think the work that we've been doing around building out substations in doing a long term plan within.

Christopher Sharp: It kind of starts with a little bit broader in how we master plan our campuses. And so I think the work that we've been doing around building out substations and doing a long-term plan within the market has allowed us to then bring a very large capacity block design to market, which is very modular. And I think that modularity is something that we continue to think about with our customers to be able to support the varying power densities.

Christopher Sharp: The market has allowed us to then bringing a very large capacity block design to market, which is very modular and I think in that modularity, it's something that we continually to ideate with our customers to be able to support the varying power densities and I think we talked last call about HD Colo and being able to do what we're very proud about with 70.

Christopher Sharp: And I think we talked on the last call about HD Colo and being able to do what we're very proud of with 70 kilowatts. But then you'll see it start to evolve over the next quarter here, the ability to even support 150 kilowatts. And so being able to support these densities, which is representative of the AI workload, is absolutely paramount to our modular designs and to be able to do that very efficiently. And then I think the last piece is the heritage, the heritage of the team on a global basis.

Christopher Sharp: is what's really building a distinct differentiator for us to not only catch

Christopher Sharp: https://www.youtube.com.uk

Christopher Sharp: you will, from a hyperscale perspective, private AI around the Novo Nordisk Foundation, and we really are at the cusp of a

Christopher Sharp: But AI around Novo Nordisk Foundation, just we'd really are at the cusp of a lot of this AI demand coming into the platform digital globally.

Christopher Sharp: We really are at the cusp of a lot of this AI demand coming into the platform digital globally.

Unknown Attendee: Thank you. And our next question today comes from Irvin Liu with Evercore ISI. Please go ahead.

Andrew Power: Hi, thank you for the question. Maybe to piggyback on the prior question related to retail and enterprise, do you see potential for AI tailwinds to perhaps drive meaningful acceleration in your zero to one megawatt segment, similar to what you saw in the greater than one megawatt segment this quarter, just as AI workloads begin to evolve toward private AI and inferencing?

Jyhhaw Liu: Hi, Thank you for the question so maybe to piggyback on the prior question related to retail and enterprise do you see potential for AI tailwind to perhaps drive meaningful acceleration to your zero to one megawatt segment.

Andrew Power: AI workloads begin to evolve towards private AI inferencing.

Andrew Power: Sure. In the here and now, I think AI is having numerous positive implications for the sector. And I'll have Chris speak into what's next, because I don't think we're really at what's next, be it inference, private data sets, enterprise consumption. But in the here and now, you have a backdrop of big existing customers with desires to have immediacy around their capacity. There's still We're winning that in our core markets, where we see robust and diverse demand.

Speaker Change: Sure So I mean.

Andrew Power: The here and now.

Andrew Power: We are not falling. We're chasing this demand into unproven locations. We're intersecting it where we were supporting availability zones or on ramps where there's network density, and not in unproven markets. You're also seeing new players pop up that obviously are not front of the queue for those larger capacity blocks who are going to try to get their hands on what we have and are often able to fit in some of the more challenging places in our portfolio to sell. But they're going to take it because they have urgency around their business models and bringing their AI models to life. That's right now, the last quarter, the next quarter.

Andrew Power: Are there still where we're winning that in our core markets, where we see robust and diverse demand we're not falling we're chasing this demand into unproven locations. We're intersecting it when we were supporting availability zones are on ramps, where Theres network density and.

Andrew Power: And not an unproven markets, you'll also see new players pop up.

Andrew Power: That obviously are not front of queue for those larger capacity blocks, who are going to try to get their hands on what what we have in <unk>.

Andrew Power: That's the right now the last quarter of the next quarter, but there's more to come here on this AI story I'll, let Chris spanned upon it in terms of the next chapter yeah. Thanks Irvin.

Christopher Sharp: But there's more to come here in this AI story, so I'll let Chris expand upon it in terms of the next chapter. Yeah, thanks, Irvin.

Christopher Sharp: Absolutely, and I think one of the things that we've really been thinking about for some time now is that data is at the core of a lot of these AI capabilities coming to market. So being able to place that algorithm right next to the data in that market, I think it's everything that we've been looking at. And doing that algorithm in proximity to the data is absolutely paramount for a lot of these zero to one megawatt offerings.

Christopher Sharp: And so what we've been thinking about with HD Colo and why I talk about on a rack by rack basis is allowing our customers to leverage a lot of their existing kind of inventory and architecture to bring AI in proximity to that capability. And I think that's where, you know, even recently we talked about private AI exchange. That's really focused on removing that technical barrier so customers can get the right, you know, state-of-the-art infrastructure, be it NVIDIA, be it AMD, and be able to support those power densities in an existing environment.

Christopher Sharp: Similar to that capability and I think that's where you know even recently, we talked about private AI exchange, that's really focused on removing that technical barrier. So customers can get the right state of the art.

Christopher Sharp: So we do see the future of that coming to market in that fashion. I will tell you that you brought up an interesting point. Inference is being done within training today just because of time to market. But we do see inference picking up and being a longer-term demand cycle over the years, which I think platform digital is well positioned to continue to support. Thank you. Our next question today comes from Richard Cho with JPMorgan.

Christopher Sharp: Okay.

Unknown Attendee: Thank you. Our next question today comes from Richard Cho with J.P. Morgan. Please go ahead.

Yong Choe: Our next question today comes from Richard Choe with Jpmorgan. Please go ahead.

Unknown Attendee: Hi.

Yong Choe: Pull forward of leases.

Unknown Attendee: Okay.

Andrew Power: Thanks, Richard. Maybe I'll hand it to Colin here in a second to talk about the broader backdrop for both the enterprise and also the hyperscale AI side, but I want to call our Northern Virginia activity a pull forward. As you can see, our sign to commence time materially stepped down.

Yong Choe: Thanks, Richard I'll, maybe I'll hit it a column here in a second to talk about the broader backdrop for both the enterprise and also the Hyperscale AI side, but I wouldn't call, our northern Virginia activity as a pull forward.

Andrew Power: There's urgency around the capacity blocks.

Andrew Power: There's urgency around the capacity blocks. We still have a significant runway of precious capacity in the Northern Virginia market between now and 2026 that our customers, numerous customers, have desires for, and we're in various stages of negotiation. And it's not just a Northern Virginia story. We have similar types of opportunities in other parts of the North America portfolio, be it Santa Clara, or Dallas. New Jersey, and we'll also have the equivalent in the major flat markets in Europe and in parts of Asia-Pacific.

Andrew Power: Between now and 2026 different customers numerous customers have desires for and were in various stages of negotiation.

Andrew Power: And it's not just northern Virginia story, we have the similar types of opportunities in other parts of the North America portfolio be it Santa Clara Dallas.

Andrew Power: In New Jersey.

Andrew Power: And we're also have the equivalent and the major flat markets in Europe and in parts of Asia Pacific So and I think this trend is going to continue for some time now again, you can't predict some of these large capacity blocks executing on consecutive quarters necessarily.

Andrew Power: So, and I think this trend is going to continue for some time. I know, again, you can't predict some of these large capacity blocks executing on consecutive quarters necessarily, but I believe it's going to continue. But Colin, why don't you speak a little bit about the pipeline on both sides? Thanks.

Colin: But I believe it's going to continue but cole I'll just speak a little bit about the pipeline of both sides. Thanks, Andy I. Appreciate the question Yeah, I mean overall I would say our pipeline kind of reflects some of the same characteristics of our bookings this quarter. So.

Colin McLean: kind of reflects some of the same characteristics of our bookings this quarter. So pretty AI heavy, as Andy highlighted, about 50% of our bookings this quarter were AI. I would say our pipeline is representative of that.

Colin McLean: I'm pretty AI heavy as Andy highlighted up 50% of our bookings this quarter were a I would say our pipeline is representative of that but honestly, it's a pretty diverse characterization overall between enterprise, namely hybrid cloud.

Colin McLean: But honestly, it's a pretty diverse characterization overall between, you know, enterprise, namely hybrid IT, cloud compute, and then AI. So I think it's a pretty robust platform across the globe. And you saw that in some of our bookings, in particular, London really jumped up this quarter. If you look at the sub-one megawatt and really what's going on in the digital transformation story, the explosion of data, and really the IT spend, you're seeing a pretty pervasive enterprise activation going on where that is really taking place across the globe in a big way.

Colin McLean: Cloud compute and NII. So I think it's a it's a pretty robust platform across the globe you saw it in some of our bookings in particular, London really.

Colin McLean: Jumping up this quarter, if you look at the sub one megawatt and really what's going on the digital transformation story to explosion.

Colin McLean: Data and really the it spend youre seeing a pretty pervasive enterprise activation going on where that.

Colin McLean: That is really taking place really across the globe in a big way. That's that's in our view enabled by channel, which this quarter.

Colin McLean: That's that's, in our view, enabled by channel, which this quarter, we had about 22% of our business go through channel, which was, I think, substantive. And those channel partners are really helping us tap into new logos, which you might have seen was 128 this quarter, which I think was the fourth highest on record. So I think that's substantial. So, you know, overall, I'm pretty pleased with the balance we're seeing across the portfolio and the pipeline and hope to see that, you know, continue in the future.

Colin McLean: We had about 22% of our business go through channel, which was I think substantive.

Colin McLean: And those channel partners are really helping us tap into new logos, which you might have seen was 128 this quarter, which I think was the fourth highest on record. So I think that substantial so overall I'm pretty pleased with the balance we're seeing across the portfolio in the pipeline and hope to see that continue the future.

Unknown Attendee: Thank you. And our next question comes from Michael Rollins with Citi. Please go ahead.

Unknown Attendee: Thank you. And our next question comes from Michael Rollins with City. Please go ahead.