Q1 2025 Digital Realty Trust Inc Earnings Call
Speaker Change: Hold on make sure you set a sound to the proper building then we will do the coupling and let you out so makethose buckings
Speaker Change: Good afternoon, and welcome to the Digital Realty First Quarter 2025 earnings call. Please note this event is being recorded.
Speaker Change: During today's presentation, all parties will be in listen only mode. Following the presentation, we will conduct a question and answer session.
Speaker Change: I would now like to turn the call over to Jordan Sadler, Digital Realty 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 2025 earnings conference call
Jordan Sadler: 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.
Jordan Sadler: Management will be making forward-looking statements, including guidance and underlying assumptions on today's call.
Jordan Sadler: Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially
Jordan Sadler: This call will contain non-GAAP financial information, reconciliation to the most directly comparable gap measure are included in this supplemental package, furnished to the SEC, and available on our website.
Speaker Change: Before I turn the call over to Andy, let me offer a few key takeaways from our first quarter results
Speaker Change: First, we posted strong overall leasing in the first quarter of 242 million.
Speaker Change: Consistent with a record pace set in 2024 and driving our backlog of book not-built leases to a new record of $919 million. Activity was robust across our primary product segments.
Second.
Speaker Change: Core FFO Persia Growth accelerated ahead of our expectations for the quarter, and with our record backlog, have strong visibility for the remainder of 2025 and growing momentum for 2026 Thanks.
Speaker Change: And third, we further evolved our funding model this quarter following the successful formation of our first U.S. Hibiscal fund, enabling us to meet the growing needs of our customers while scaling our balance sheet and enhancing our returns.
Speaker Change: With that, I'd like to turn a call over to our president and CEO , Andy Power [inaudible]
Thanks Jordan and thanks to everyone for joining our call
Speaker Change: The first quarter of 2025 was fraught with attention-grabbing headlines focused on advances in AI and the potential implications for the ongoing AI infrastructure buildout [inaudible]
Speaker Change: But Digital Realty continue to execute our full spectrum meeting-place strategy and post its strong results
with the strength of our one-key results.
Speaker Change: and the visibility provided by a record backlog. We remain confident in our 2025 growth targets.
Speaker Change: and are encouraged by the 40 plus percent increase in our 2026 backlog since the beginning of this year.
Speaker Change: At 100% share, our backlog of signed but not commenced leases exceeded $1.3 billion at March 31, 2025
Speaker Change: Despite the headlines, demand for data center capacity remains strong and our value proposition continues to resonate evidence by nearly 400 million of new leasing completed in the quarter or 242 million of new leasing at Digital Share
with healthy contributions from both our major product categories.
Speaker Change: Leasing in our 0-1 megawatt plus interconnection segment with 69 million, our second highest ever, behind only last quarter's record
This quarter's total included 15 million of interconnection bookings.
Speaker Change: The leasing achieved in the first quarter in this segment was ahead of pace relative to last year's record 250 million of leasing [inaudible]
Speaker Change: which is a reflection of our team's intense focus and execution on our meeting place strategy.
Speaker Change: We completed nearly 325 million of greater than a megawatt leasing in the quarter, reflecting the demand we are capturing and executing a cross-platform digital in the quarter
Speaker Change: At our share, greater than a megawatt leasing was 172 million.
Demand from large capacity blocks remain strong and diverse [inaudible]
Speaker Change: Over the past five quarters, we've topped 100 million of leasing volume in the greater than a megawatt category, four times.
Speaker Change: With four different customers signing the largest lease in each of those quarters, including this quarter.
Speaker Change: In fact, the single largest lease in the first quarter of 2025 said a new record for Digital Realty in terms of total annualized rent signed
Speaker Change: In our experience, hyperscale customer activity is more likely to rhyme rather than repeat.
Each customer typically beats to its own drum.
So when some slower pause, others push forward.
Speaker Change: Reflecting this dynamic, pricing reached a new milestone in the quarter, with the overall rate on new data center leasing reaching $244 per kilowatt per month, up 10% from the prior record.
Reflecting strength within the greater than a meg-like category [inaudible]
Looking ahead, our pipeline remains healthy and diverse.
Speaker Change: customer and partner interest and engagement wore high throughout the quarter and continued
Speaker Change: Customers continue to see significant value in continuous capacity in core markets that can support multiple use cases.
from network optimization to hybrid clouds to artificial intelligence.
Speaker Change: While it is important to acknowledge the risks posed by elevated uncertainty and capital markets volatility, Digital Realty's product pipelines remain near record levels.
In the meantime.
Speaker Change: We continue to focus on serving our 5,000 plus customers in the major markets around the world.
Speaker Change: This quarter bookings were strongest in North America hyperscale but we are seeing the man from all regions and for both products [inaudible]
Speaker Change: To meet this growing demand, we increased our development pipeline by another 170 megawatts since year end to 814 megawatts at 100% share
Of this total, 63% is pre-leased [inaudible]
Speaker Change: with the lion's share of the remaining hyperscale availability focused in northern Virginia. [inaudible]
Speaker Change: We continue to see healthy inter-region activity across our global platform in the first quarter.
Speaker Change: The mayor was the biggest importer with strong activity from all other regions [inaudible]
Speaker Change: We also had very strong enterprise export activity from the Americas and APEC, with the Maya as the preferred destination from each region.
Speaker Change: It is clear that our global full spectrum data center platform is a key differentiator for digital realty [inaudible]
Speaker Change: is a key component of our value proposition as customers may onboard to platform digital with just a cabinet but can then scale to a cage that leverages hyperscale cloud compute and will soon provide access to AI for all customers.
Speaker Change: During the first quarter, we added another 119 new logos, including a leading global semiconductor equipment manufacturer, deploying high-performance computing in pairs [inaudible]
Speaker Change: to take advantage of the well-developed cloud and network communities along with an emerging AI community on platform digital.
Other key wins in the quarter include.
Speaker Change: A leading high frequency trading fintech is expanding on platform digital to add private AI by increasing their HPC platform to a new market while improving cloud access and business continuity.
Speaker Change: An Oracle partner is expanding its footprint on platform digital to Zurich to support Oracle's dedicated region integrate solution for private cloud to address data localization and data sovereignty
Speaker Change: A leading blockchain provider is also expanding to a new Metro on-platform digital, to deploy infrastructure, to support decentralized private and public networks
Speaker Change: A Fortune 500 payments and transactions company is expanding their global presence on platform digital into the Nordics to solve compliance and data localization needs.
Speaker Change: And an AI inference in training company and a new logo is utilizing the connectivity available on platform digital to provide a scalable solution for their AI inference applications .
Speaker Change: We continue to expand the reach and connectivity of platform digital during the first quarter with our entrance into Indonesia.
Speaker Change: We partnered with a leading Jakarta-based Carey Neutral Data Center platform to create Digital Realty Persama, which will expand its connective campus, often direct access to a wide array of networks and services, including a direct connection to Indonesia's largest internet exchange provider.
Speaker Change: Supported by a young and large population, growing cloud adoption, and access to multiple sub-suit cables. Jakarta is an attractive expansion location that complements our existing APAC footprint.
Speaker Change: We also launched our Hierarchy on one data center in Crete earlier this month, which complements our Athens campus and adds a key connectivity hub in the Eastern Mediterranean
Speaker Change: Strategically making Europe with Asia, the Middle East, and East Africa via a dense network of highly connected subsea cables.
with access to more than 75 new cloud on ramps.
Speaker Change: Enriching the global connectivity options available to enterprises across platform digital.
Speaker Change: and closing out a connectivity-oriented advances. This morning we announced the edition of Three New Azure Onramps.
One is Atlanta, one in Brussels, and one in Vienna.
Speaker Change: These on-ramps expand our global relationship with Microsoft as we now host 15 cloud on-ramps across four continents.
Speaker Change: Moving over to the financing side of the business, after more than a year of hard work across our team,
Speaker Change: This year we announced our first U.S. hyperscale data center fund.
Speaker Change: continuing to evolve a funding model and further expanding the pooled capital available to support the growth of Piper Sefail Data Center capacity.
Speaker Change: The fund offers a unique opportunity for private institutional investors to invest directly in scale data centers alongside the world's largest data center provider.
Speaker Change: It is dedicated to investing in high-quality, hyper-scale data centers located across top-tier U.S. metros including Northern Virginia, Dallas, Atlanta, Charlotte, New York Metro, and Silicon Valley [inaudible]
Speaker Change: We've seated the portfolio with five operating assets and four land sites for data center development Let's move on to the next one.
Speaker Change: and a received very strong interest and limited partner commitments from some of the world's savviest investors including sovereign wealth funds, pension funds, insurance companies, endowments, and other institutional investors.
Speaker Change: The investors have done their due diligence, committed capital, and placed their trust in digital realty.
Speaker Change: We are targeting 2.5 billion of equity commitments from our LPs, and we expect to maintain a 20% of greater interest to ensure alignment.
Speaker Change: All told, the fund will support approximately 10 billion of hyperscale data center investment, enabling us to serve the robust demand of our customers while enhancing our returns through fees.
Speaker Change: We receive more than 1.7 billion of commitments through our first closing, placing us ahead of schedule relative to our year end target. And we continue to field investor interest.
Speaker Change: As Matt will discuss in a moment, our progress puts us well-entracted New York capital recycling guidance for 2025 and the fun growth in 2026 and beyond
Speaker Change: Before turning it over to Matt, I'd like to touch on our global sustainability progress.
During the first quarter, we open Friday Teen [inaudible]
Speaker Change: A 16-megawatt data center, adaptively reusing the historic and iconic site while delivering cutting-edge technology solutions with a deep focus on sustainable performance and water conservation.
Speaker Change: Fraud team is optimized for AI and high performance compute applications with advanced liquid corn along with the integration of service fabric for enhanced data security and connectivity.
Speaker Change: Importantly, this state-of-the-art Brownfield development is powered by 100% renewable sources, as are all our facilities in America.
Speaker Change: This sustainable building in Frankfurt continues Digital Realty's leadership in the industry with high-performance green buildings [inaudible]
Speaker Change: We added 190 megawatts of third party certified green data centers in 2024. We added 190 megawatts of third party certified green data centers in 2024.
Speaker Change: Also in the first quarter, Digital Realty reached 100% renewable energy coverage for operations in Singapore, a top priority in that market, given the country's resource constraints and its smart nation initiative. Thank you, David.
Speaker Change: We have installed solar honor facilities over the past couple of years and in the first quarter signed a PPA with Tua's power for biomass and other regionally sourced renewables to fully cover our loan [inaudible]
Speaker Change: This further expands the more than 150 data centers around the world that are matched with 100% renewable electricity and adds to our portfolio of 1.5 gigawatts of contracted renewable capacity.
Speaker Change: And with that, I'm pleased to turn the call over to our CFO , Matt Mercier.
Matt Mercier: Thank you, Andy. Digital Realty continue to post healthy results in the first quarter, as strong leasing pushed our backlog of sign but not yet commenced leases to a new record, while the formation of our first hyperscale fund added a new horse to our funding stable.
Matt Mercier: These milestones enhance our visibility and predictability of earnings growth, improve our returns and further reduce our reliance on any single capital source, while enabling digital to responsibly invest to serve the needs of our customers.
In the first quarter, we grew a core FFO by 6.1% [inaudible]
Matt Mercier: Posted strong leasing, results, and increased the capacity under development by another 26 percent despite delivering nearly 50 megawatts of new capacity during the quarter A great start to the year
Matt Mercier: We signed aggregate leases representing nearly 400 million evangelized rent at 100% share in the first quarter [inaudible]
which was the second highest in digital realty's history.
Matt Mercier: At our share, we signed 242 million of new leases in the first quarter, with notable strength across each of our two segments [inaudible]
Matt Mercier: We completed nearly 69 million of bookings in our zero to one megawatt plus interconnection segment which marked the second highest quarter for digital, following last quarter's record
Matt Mercier: This activity also exceeded the prior four-quarter average bookings by nearly ten percent
Matt Mercier: We also signed 172 million within the greater than a megawatt category at our share, largely driven by Hyperscale Releasing in North America.
Matt Mercier: Consistent with our objective of improving digital's long-term, sustainable growth, more than 85% of our bookings included fixed-trent escalators of at least 4% or linked to CPI
Matt Mercier: Our backlog at Digital Realty's share told a 919 million at quarter-end [inaudible]
Matt Mercier: An increase of 7% above our prior record, as 119 million of commencement was more than offset by our strong new bookings [inaudible]
Matt Mercier: Looking ahead to the rest of 2025, we expect to see strong commencement in the next two quarters providing momentum into the end of the year and beyond.
Matt Mercier: For 2026, we currently have 440 million scheduled to commence, while another 100 plus million commences in 2027 and beyond.
Providing strong visibility for multi-year growth
Matt Mercier: For context, our 2026 backlog is already more than double the backlog we had for 2025 at this time last year.
Matt Mercier: During the first quarter, we signed 147 million of renewal leases at a blended 5.6% increase on a cash basis consistent with our 4% to 6% full-year guidance
Matt Mercier: Renewals in the first quarter were heavily weighted toward our zero to one megawatt category with 127 million of renewals at a 3.8% uplift [inaudible]
Matt Mercier: Greater than a megawatt renewals or relatively sparse at only 5 million with a 4.6% uplift .
We remain on track to meet our full year guidance.
For the quarter, turn, decline and ended at 1.5%
Matt Mercier: As for earnings, we reported first quarter core FFO of $1.77 per share, up 6% year-of-year, reflecting strong, same capital operating results combined with new commencement over the past year.
Matt Mercier: On a constant currency basis, we reported core FFO per share of $1.79 in the first quarter [inaudible]
Matt Mercier: During the quarter, operating expenses were one to two cents lower than expected due to a slower ramp in repair and maintenance spend following an uptick in the fourth quarter, while property taxes benefited from a one cent refund in the quarter. [inaudible] the end of the quarter, the end of the quarter, the end of the quarter,
Matt Mercier: Data Center Revenue was up 7% year-over-year as the combination of strong renewal speds, rent escalators, and new lease commencements more than offset the drag associated with the dispositions completed over the last 12 months.
Matt Mercier: Adjusted EBITDA increased by 11% year of year, reflecting the growth in data center revenue combined with expense controls.
Matt Mercier: Same Capitol, Casano Eye Growth was healthy in the first quarter, increasing by 5% year-of-year on a constant currency basis, driven by 5.7% growth in data center revenue [inaudible]
Matt Mercier: Moving on to our investment activity, during the quarter, we spent approximately 1 billion on development Catholics on a grow spaces.
Matt Mercier: including our partner share and roughly 700 million on a net basis to digital realty
Matt Mercier: We delivered nearly 50 megawatts of new capacity, 83% of which was pre-leased, while we started another 219 megawatts of new projects
Matt Mercier: highlighted by 200 megawatts in Northern Virginia, says 50% pre-least. [inaudible]
Matt Mercier: At quarter end, our data center development pipeline increased to 9.3 billion at a 12.5% expected stabilized deal.
Matt Mercier: In addition, as Andy highlighted, we invested approximately 95 million for a 50% interest in Digital Realty Versauma, expanding into a highly connected platform in Indonesia
Matt Mercier: We are also pleased to announce the formation of our first U.S. Hyperscale Data Center Fund.
Matt Mercier: which has the potential to support up to 10 billion of data center investment.
Matt Mercier: In the second quarter, digital expects to contribute a portion of five existing operating assets with an aggregate agreed value of more than 1.5 billion, which will satisfy the majority of our disposition guidance for 2025.
Matt Mercier: Turning into the balance sheet, we have spent the last two and a half years positioning digital for the opportunity that lies ahead by de-leveraging our balance sheet and bolstering and diversifying our capital sources Thank you very much.
Matt Mercier: Leverage is still well below our long-term target at 5.1 times, while liquidity remained robust at more than 5 billion, before considering the capital from our new fund.
Matt Mercier: Early in the quarter, we raised 850 million euros of 3.875% notes, which was used to pay off the 400 million pounds of maturing 4.25% guilt
Matt Mercier: with the balance used to reduce outstanding on our credit facility.
Matt Mercier: This leads us with 650 million euros of maturing debt through the rest of 2025.
Matt Mercier: Moving on to our debt profile, our weighted average debt maturity was 4.5 years and our weighted average interest rate ticked down to 2.6 percent.
Matt Mercier: Approximately 83% of our debt is non-US dollars denominated, reflecting the growth of our global platform and our FX hedging strategy.
Matt Mercier: Approximately 93% of our net debt is fixed rate, and 96% of our debt is unsecured, providing ample flexibility for capital recycling.
Let me conclude with our guides.
Matt Mercier: We are increasing our core FFO guidance range for the full year 2025 by five cents to seven dollars and five cents to seven dollars and fifteen cents per share to reflect our updated FX assumptions for the full year
Matt Mercier: The new core of a faux-presure guidance now aligns with our constant currency guidance. [inaudible]
Matt Mercier: It is worth noting that while our constant currency, Kora Fafo per share, is trending toward the high end of the range in the first quarter, we have chosen to maintain this guidance range, given the heightened degree of macro and geopolitical uncertainty today.
Matt Mercier: The midpoint of our core FFO per share guidance represents approximately 6% year-over-year growth.
Matt Mercier: Reflecting the underlying strength in our business, balanced by a meaningful step-up in development spend and the substantial reduction in leverage year-over-year .
Matt Mercier: On a normalized and constant currency basis, we continue to anticipate total revenue and the Justin Evita growth of more than 10% in 2025, reflecting the strong underlying fundamentals of our business.
[inaudible]
Matt Mercier: In accordance with our update, FX Assumptions for the Year, we are increasing both our revenue and adjusted to Yvita Guidance Ranges for 2025 by 25 million while our GNA Assumption increased by 5 million [inaudible]
Matt Mercier: We are maintaining the rest of our guidance assumptions for 2025.
Matt Mercier: This concludes our prepared remarks now will be pleased to take your questions.
Operator, would you please begin the Q&A session? [inaudible]
Matt Mercier: 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.
Matt Mercier: To ask a question, you may press star then one on your telephone keypad. Thank you.
Matt Mercier: If you are using a speaker phone, please pick up your handset before pressing the keys.
Matt Mercier: To draw your question, please press star then two. At this time, we will pause momentarily to assemble our roster
Speaker Change: The first question is from John Atkin with RBC Capital Markets. Please go ahead.
John Atkin: So I was wondering, as you factor in the trends that you saw in the first quarter and coupled with some of the recent commentaries surrounding hyper-scalered demand and the increase in certainty we've seen over the last several weeks, how do you see the leasing environment? [inaudible]
Over the next several quarters, thanks.
And thanks John .
John Atkin: So, we're obviously off for a very strong start to the year, both in the Enterprise Colo segment and also in Hyperscale and including in the Hyperscale, that largest signing we had was signed in the month of March, so not that long ago [inaudible]
John Atkin: Now the backdrop has certainly changed in just the last few weeks.
John Atkin: which has certainly created significant market volatility in the fair bit of uncertainty. [inaudible]
John Atkin: But despite this, our pipeline across both of those customer segments remains very robust.
John Atkin: So in the enterprise front, even coming off of now a string of several pretty fantastic quarters, our pipeline is at a record level.
John Atkin: And on the hyperscale side of the equation, you can see from what we've disclosed, we have a runway of numerous sites with those large contiguous capacity blocks installed after locations [inaudible]
John Atkin: and I can tell you in just the last several days quotes for those large capacity blocks have been requested by customers and are going out across multiple markets.
John Atkin: I think it's an important note to remember something that's a different differentiating point about our strategy [inaudible]
So, one...
John Atkin: When it comes to the markets, we have and we continue to focus on markets with both robust and diverse demand, so enterprise service providers, cloud availability zones for compute and now AI.
John Atkin: serving vocational and latency-sensitive workloads and those markets have and we continue to see experiencing supply constraints .
John Atkin: We never lost our focus or eye on the ball when it came to accelerating our enterprise and colonel execution on multiple fronts. So you see that in the customer wins, the new signings, where we're growing as we highlighted in the prepared remarks all the way to our latest new country entry with Indonesia. Thank you.
And then lastly, Lily,
When it comes to hyperscale [inaudible]
John Atkin: We focus on places where we believe we can best serve our hyperscale customers. We're not trying to be all things to all hyperscalers.
John Atkin: So, be it our tremendous track record for delivery and operational excellence, having these must-have runways for growth, or that boots-on-the-ground experience.
John Atkin: This has really allowed us to support those hyperscale customers when they need us most to solve critical capacity problems, often in our core markets when others simply cannot. Thank you very much.
[inaudible]
Speaker Change: The next question is from Richard Cho with JP Morgan, please go ahead Let's go ahead.
Richard Cho: I know there's a lot of uncertainty around this question, but the best you could give in current state of things. If prices and tariffs kind of come through your supply chain, when should we expect to see that in your development costs and how would you kind of mitigate that? Thank you.
Thanks, Richard, for the question. [inaudible]
Richard Cho: First off, I think you've got to take a step back. Was it related to digital and that question? Because I don't think the answer is going to be all data center providers going to be created equal in this category. And you heard from us for several quarters, if not years.
Richard Cho: We have called long-standing vendor and partner relationships with the vendor manager inventory programs and the consistency building and delivering and operating in our markets . . . .
Richard Cho: called Keeping Our Folks at Work with Consistency, which I don't think I could say that if I was at a different data center provider. From our standpoint,
Richard Cho: We're seeing a very modest, called less than 5% impact to potential build costs when it comes to digital. That has a lot to do with how we operate our business.
Richard Cho: That has to do with our supply chains being both very US-focused, as well as, if not US, very Mexico-Canada, and governed under USMCA, Carbouts from Terrific Implications That has to do with our supply chains being both very US-focused, as well as, in our supply chains being both very US-focused,
So not nothing but very modest numbers. [inaudible]
at the same time.
We are not...
Richard Cho: Sitting idly, we have been even leading up to the chain of events that have unfolded.
Richard Cho: being proactively getting out ahead of this and our supply chain team owes a lot of kudos for that [inaudible]
Richard Cho: in terms of ordering components wherever we could to pull forward components that we need to de-risk potential incremental volatility or outcomes that could happen on the tariff front. So, I don't think you'd see this really unfold and probably until...
Richard Cho: given what you have today on art and under construction have called actual contractual orders for equipment. And I do think it's going to be pretty modest, assuming there isn't a dramatic change of events to what our current understanding of the tariff implications. [inaudible]
Speaker Change: The next question is from Aryeh Klein with BMO Capital Markets. Please go ahead.
Ari Klein: Thanks. Can you find a little bit of color on the land acquisitions in Atlanta and Charlotte? Both of which are markets where you've had a retail presence, but not much of a hyper scale one? I think previously you've been in practice a little bit has tends to take stand into the US market. What makes these attractive particularly Charlotte? [inaudible]
Ari Klein: Thanks, are you all posted to Greg to touch on our expansion of our capabilities in those markets? Yes, thanks for the question. All right, let me start with Charlotte.
Ari Klein: Look, I think it's not surprising. I think all investors on the phone know that traditional markets are expanding and Charlotte meets our criteria in terms of a target market. Let me just remind folks, we've operated in Charlotte for a long time. We have the key connectivity hub and what's called Uptown Charlotte.
Ari Klein: but now we're seeing availability zones coming in from several of the major cloud providers. Thank you very much.
shows we see this.
Ari Klein: You know, recreating this campus that's consistent with our traditional connected campus strategy by developing a hyperscale campus that's within 10 miles of a highly connected facility.
And again, just to remind folks again.
Ari Klein: Our facility there we have, I think it's north of roughly 25 networks, significant cross-connect count, roughly 40 customers, you know, and we've recently been awarded an on-ramp [inaudible]
Ari Klein: So we look at that and look at the components of what makes a market competitive and attractive. We really do believe Charlotte is well on its way to be a tier one market and we have a location that's a latency-sensitive location so it checks all those boxes.
Ari Klein: that we tend to like. Also, let me remind you, Charlotte is home to a large number of enterprises, especially in the financial services business, and many of the Fortune 500 companies.
Ari Klein: It has power available on a very competitive basis, so I guess another way to say it is it's land with...
You know, Prussia's power timelines, if you will. [inaudible]
Ari Klein: And most of those points we've made all apply to Atlanta as well. We've purchased a parcel of land that's going to have a mix between hyperscale and location. The co-location facility would be within 10 miles of downtown Atlanta, which we love obviously given our ownership of 56 Marietta.
Ari Klein: And as you know, when you look at the underlying fundamentals of a market like Atlanta, you know, there's a lot of the vacancies are very low, 1% or less [inaudible]
Matt Nicknam: The next question is from Matt Niknam with Deutsche Bank, please go ahead [inaudible]
Matt Nicknam: Hey guys, thanks so much for taking the question. My question relates more to hyperscale and I guess in recent weeks and months we've been reading more about
Deep Seek More Efficient AI Models, and...
Matt Nicknam: I guess also a little bit more questions around revenue use cases tied to AI and so I'm wondering whether, you know, less so macro but more around
Matt Nicknam: Recalibration of overall CAPEX being invested into AI, whether you're seeing or hearing any evolution in how some of your larger cloud and paper scale customers are approaching CAPEX investment plans. Thanks.
Speaker Change: Thanks, Matt. Maybe I'll start off briefly and then kick it over to Chris to talk a little bit about the evolution of the infrastructure and some of the deep seek early implications.
Speaker Change: Again, I don't think all hyperscale is equal, and I think it comes back to focusing on markets that have diversity of demand, so certain cloud availability zones and AI being incremental use cases to that
Speaker Change: I think it also makes sure you're not in places with numerous God availability zones.
as I was sharing the prepared remarks.
Speaker Change: The flow of business when one customer may be thrown down others are called steaming ahead.
Speaker Change: I think you've seen that now in the last five quarters where we've had robust signings [inaudible]
Speaker Change: In the four largest of those quarters, the largest lease, each four of those was signed by a different customer. So four different hyperscalers called the front of the pack for us at Digital. And none of those four are actually our top customer. [inaudible]
So further emphasizing the diversity of that demand.
Speaker Change: But Chris, why don't you call, speak a little bit to some of the deep seek invitations as well? I appreciate the question Matt. Yeah, so...
Speaker Change: substantial step in efficiencies associated with models coming to market but you're going to see more of these and I think what's interesting is the capabilities and ecosystems are driving a new utilization which is unlocking performance across the overall you know landscape of infrastructure represented in the market today. I think it's important to really emphasize that.
We're always focused on enabling... [inaudible]
Speaker Change: Inference because the second part of your question is about the monetization of AI and so inference is where that monetization will happen and also associated with private AI deployment is coming into the facility as well. So we're always focused on how can we support the interconnectivity in that broader ecosystem of capabilities coming to market and that's really what's represented in our portfolio and some of the pipeline that we've referenced in the prepared remarks. Thank you very much for your time.
Alex Waters: The next question is from Alex Waters with Bank of America. Please go ahead.
Alex Waters: Perfect, thanks so much for taking the question. Maybe just to start off, Andy, you noted in your prepared remarks.
Alex Waters: You had the largest lease in kind of the greater than one megawatt. Could you help us frame just kind of the size of that and then what portion of that greater than one megawatt was, quote-unquote, A.I. related? Thanks
Andy Power: So, without going into the nitty gritty of individual customer contracts, let me frame it at this
Andy Power: So, we did about 400 million total signings, 100% in our share with that 240 plus, so you can kind of get back into portions flowing into builds or operational capacity that we are...
Andy Power: Delivering or Enmanaging on behalf of private capital partners. AI overall is about just over two-thirds, I would say of our signings.
Andy Power: So, the new High Watermark in terms of contributions. Again, as you look, all of the signs again, we're into our traditional core markets.
Andy Power: that we've been serving for some time so certainly customers pushing their AI needs into the major market that also have cloud availability zones.
Thank you.
If you look at the composition of AI wins.
Andy Power: But if you look at the pipeline we have on the enterprise, AIU's cases, I would say we've seen this
Andy Power: A step up in size and quality of pipeline, the deal sizes when that, obviously not major deals, but they're growing in size as well as power density. So I think that fits well with where our portfolio can help see these customers scale their infrastructure.
Thank you.
Michael Elias: The next question is from Michael Elias with TD Cowan, please go ahead
Michael Elias: Great, thanks for taking the question and congratulations on the leasing quarter and kudos to you Greg for getting the fundraise
Michael Elias: Just a blast from the past here. We're going back to the tarotco and the the senti acquisitions that you did. Could you just give us a reminder in terms of tarotco, you know, if there's an option for the remaining stake and kind of what the thought is there and then also just an update on on a senti.
Michael Elias: and if there's anything that's likely to happen there. Thank you.
Michael Elias: You regularly hit both of us? Yes, sure. Thanks, Michael. Appreciate the kind words. But first, in the order of the question, let's, let's go to Tarako. In Tarako, there is in 2026.
Michael Elias: There is a put-call mechanism that may or may not take place, and then that goes on, you know, it's originally it's a put period for two years.
Michael Elias: And then, if that's not exercised, there's a called period after that So that's midway through 26 I may be a quarter or so off but that's roughly the time period there [inaudible]
Michael Elias: But, you know, look, I think, you know, that business continues to perform exceptionally well and we couldn't be happier with the investment and the management team there. They really do have a dominant position down there in South Africa with respect to Ascente.
Michael Elias: You know, again, Ascente is going well, you know, partnership with Brookfields Great, Chris Torto on his team continue to execute
We're happy that market remains strong.
Michael Elias: They've made a lot of progress on the enterprise front down there, historically that was a more of a hyperscale play.
Michael Elias: But Chris and the team have been working really hard. They've adopted Andy's strategy here at Platform Digital, and they're doing a great job down there. So, look, I would say, and just as with Terrico, we're very pleased with the team, with the assets and the performance. So,
Michael Elias: And, you know, there's no rights for exit or anything like that. So, hopefully that answers your questions.
Speaker Change: The next question is from Jen Schneider with Goldman Sachs. Please go ahead.
Jim Schneider: Backlog comment, you made, you talked about record backlog in enterprise, is the hyper skill backlog also at a record, or has there been any kind of diminution there? And then can you maybe just sort of talk about the kind of current environment, and whether, you know, any pause or any kind of activity you're seeing in the current quarter would prevent you from sort of sustaining, you know, strong leasing quarters into Q2 and Q3. Thank you.
Thank you, Jim, so just...
Jim Schneider: I think Pipeline just, and I will touch on back a lot because I think it's important and amplify that. So Pipeline, we did call out record on the enterprise side.
Jim Schneider: I'm not sure if we're at it, necessarily a record on the other piece of the equation, but I'll tell you the...
Jim Schneider: The speed of where deals have been moving in that category have been exceptionally fast. [inaudible]
Jim Schneider: including I think the largest signing last quarter may have been done in record piece especially for a larger deal.
Jim Schneider: And as I mentioned at the first question, we are active engaging with customers who are requesting new quotes for those large capacity blocks.
Um...
Speaker Change: You did mention backlog, which we probably should touch on as well. I mean, we do have a record backlog of signs but not comments contracts. 1.3 billion in total, our shares just over 900 million
Those are attractive rates and returns, long-term contracts Thanks.
Speaker Change: Attractive Escalators called either CPI or North of 4% or higher. [inaudible]
Speaker Change: and we just had a call, if you look at the 2026 component, that stepped up about 40% in just the last quarter, which really is going to help contribute.
Speaker Change: to our algorithm of accelerating our bottom line and generating better long-term sustainable growth per share.
Speaker Change: The next question is from Frank Loughan with Raymond James. Please go ahead.
Rob Lunter: Hey guys, this is Roblin for Frank. Thank you for taking my question. So you might have touched on this a tad earlier, but...
Speaker Change: What would have to change on your end in order to see releasing spread dip again? And do you potentially see pricing weakening in any of your markets?
The, um...
Speaker Change: So let's maybe just break that down into two components. In the zero to one megawatt side, we had close to 4% cash mark to markets.
Speaker Change: Quarter in the company's history off the back of a record quarter back to back We have positive price action in almost every single one of our markets across the board in that zero to one category
Speaker Change: So, I don't see any lack of momentum continuing there. And on the larger deal side we also had positive price movement. You can see that by the overall rates we were able to achieve in that category. And the latter, that...
Be a more hyper scale. [inaudible]
Someone comes back to supply demand dynamics. [inaudible]
and when you look at where we concentrated our bets.
Speaker Change: To support those hyperscale customers, we really focused on places like I said previously that has robust and diverse hyperscale demand where customers need to put those workloads and grow, where they have ability to land large capacity blocks.
And a future proof growth.
Speaker Change: Do not seem to be really being relieved to great extent rapidly, which all those agreements together in the places where we're supporting hyperscalers, seems to keep pricing firm on our behalf.
Speaker Change: The next question is from David Guarino with Green Street. Please go ahead.
David Guarino: Thanks, this one probably got a drag, given the volatility and interest rates and equity markets we've seen over the past few weeks.
David Guarino: Have you seen any change in cap rates for stabilized turnkey data centers? And then if you could just comment too, I think you said 1.5 billion of stabilized assets would go to the new fund. What was the cap rate on this? That will be helpful for modeling.
Speaker Change: Tara, thanks, Dave. Hope you're well. Well, let's look at the two.
Speaker Change: Look, the answer is, and look, you've seen this, and I've seen this over time [inaudible]
Speaker Change: You know, cap rates are impacted not just by interest rates but also by growth rates, right? So I think when you look at the data center space today, you know, clearly cap rates have gone up, but I would also say there's been more than an offset in terms of commensurate growth, if you will.
Speaker Change: So the answer is we have not seen a change in cab rates that's meaningful.
In fact,
Speaker Change: You know, we see that across the board, actually, and the different transactions we're seeing in the market, they remain consistent again, rates are higher, but I think people are underwriting greater growth now, so that's the offset . . .
Speaker Change: With respect to the cap rate on the, it's a little north of a billion five, or the assets that went into the fund That was, you know, called high fives cap rate give or take [inaudible]
Speaker Change: The next question is from Irvin Lue with Evercore ISI, please go ahead [inaudible]
Irvin Liu: Hi, thank you for the question. So I had another one related to pricing for new leases.
I think positive trends. [inaudible]
Irvin Liu: are mostly broad-based, but especially pronounced in the Americas, greater than one megawatt segment at 257 per kilowatt
Speaker Change: So, can you just talk about the drivers of pricing strength on some of your new leases? Whether there were any one offs or, you know, which markets worth these new leases were in? So, you know, any details on this would be helpful thanks.
Thanks, Irvin, so-
The
Speaker Change: The success recently has been very US focused because you've seen a compounding of demand from traditional enterprise IT, digital transformation, cloud computing demand, AI training, and the budding of AI inference from hyperscalers and that's been a heavily US
Speaker Change: Focus Phenomenon to date. We have in the last several quarters captured that in a few markets including Northern Virginia, Dallas, Chicago, and this last quarter was particularly Northern Virginia lead. [inaudible] We have in the last four quarters.
I do think this phenomenon will continue to globalize [inaudible]
Speaker Change: just like cloud computing globalized on the back of data sovereignty over time. And you're seeing that for numerous countries.
Speaker Change: Looking to really invest and grow AI in digital data center infrastructure
Speaker Change: So I think that we are well positioned when that globalization phenomenon starts to bud, but it's what I just described as really driving the saturation of pricing in the U.S. in particular.
Eric Lubechow: The next question is from Eric Luebchow with Wells Fargo, please go ahead [inaudible]
Eric Lubechow: Great, I appreciate you taking the question. You know, Andy, I think you mentioned that your enterprise funnel...
Eric Lubechow: Was it record levels that I heard you? So I wanted to dig into the...
Speaker Change: Obviously, there's been a little concern just in the past few weeks with all the tariff and macro noise there could be some delayed decision making at the enterprise level, so I just wanted to confirm you're not really seeing that at this point, and I think you've talked about growing your less than one megawatt bookings this year versus last just wanted to make sure that's still on track. Thanks. Thank you.
Speaker Change: Thanks Eric, I'm going to turn it to Colin, but the one thing I just wanted to highlight, I can't recall if we mention this [inaudible]
Speaker Change: It's phenomenal, it's great to be out of the gate strong in that category in particular, on the backs of two really strong third and fourth quarters [inaudible]
Speaker Change: to put up a number in the first quarter, in the 0-1 megawatt interconnection. The let's call it is 10% above the pace and we did last year. And last year was a great year overall. But I'm going to call on a little bit, probably some color on what results we saw on the pipeline head.
Andy Power: Thanks, Eric. Yeah, as Andy Howard previously, the demand profile continues to be robust and diverse across the region.
Andy Power: and our segments, global large enterprise and commercial is, is Andy quickly just highlighting just a quick reminder on Q1's second highest.
Andy Power: Looking quarters to date. That's a third straight quarter zero to one megawatt performance strong contribution large enterprise in particular That's 53% of the overall bookings
We saw 16 industry sub segments book over a million dollars [inaudible]
Andy Power: and a strong interconnection performance, which speaks really the value of our platform. As it relates to the future pipeline, we have the largest zero-to-one megawatt pipeline on record.
Andy Power: Regarding the overall opportunity creation within the global accounts we continue to see multiple use cases emerge across network and compute enterprise as 55% of the overall opportunity and the trend is very much hybrid.
Andy Power: On the commercial side as we define it as a billion and below, there's record new logo pipeline performance So that's all underscored with a really strong partner contribution, which is about 33% of the overall pipeline [inaudible]
Andy Power: and we're seeing early stages of artificial intelligence as part of the overall pipeline. So, as it relates to the zero to one megawatt pipeline, we're continuing the street, see demand really across all our markets.
Speaker Change: The next question is from Vikram Malhotra with Masuho, please go ahead Let's go ahead.
Vikram Malhotra: Thanks for saying the question. Just maybe breaking up your thoughts between sort of hyperscale and more cloud or enterprise demand. Can you talk about the visibility you have in both segments from the perspective of
Vikram Malhotra: You know, historically perhaps cloud is maybe a little bit more economically sensitive versus maybe on enterprise, it's obviously very specific So I'm wondering if in light of your comments last quarter where you talk about delayed decision-making [inaudible]
Vikram Malhotra: How do you see both those segments in today's environment? And just if you still believe this year is likely a recordier?
Thanks, Vikram Malhotra, so maybe parse through that here. So, um...
Vikram Malhotra: Great, I think 600 is new customers to the fold, great vertical segmentation, imports and exports [inaudible]
Vikram Malhotra: So all in all, great. And to be out of the gates now, almost pacing where we were on in the first quarter is a great start. Now we got several meetings left in this game for this year but quite pleased where we are out of the gates.
Vikram Malhotra: Maybe I'll let Colin talk to a little bit more about the enterprise versus the hyperscale cloud in terms of buying cycles in any potential thoughts related to the macro environment implications.
Colin McLean: Sure, yeah, thanks to the question. As Andy mentioned, Hyperscale Demand continues to really cement around large, continuous capacity blocks. So we're having active conversations.
Colin McLean: You know, frankly, in our core markets where we have available capacity. On the enterprise side, you know, the buying cycle, you know, typically is a little bit shorter than we haven't really seen any real changes, frankly, quarter of a quarter in terms of timeline to make decisions and execute that's been pretty solid. [inaudible]
as it relates to enterprise and cloud compute.
Speaker Change: The next question is from Michael Rollins with City, please go ahead
Thanks and good afternoon [inaudible]
Truth is, if you could discuss the opportunity.
Speaker Change: Constraints, and within that context if you're able to shorten this time frame based on the conversations that you're having with the hyperscalers, do you think that would yield more sales? [inaudible]
Speaker Change: Schuner, or based on the time frames that they're on, you're kind of, you know, working on a path that's complimentary to their, you know, their current prospects. Thanks.
Thanks Michael, so...
Speaker Change: The compressing timelines is, I think, remains a key attribute to increasing your win probabilities of better outcomes.
There's no question about that [inaudible]
Speaker Change: and we have been doing that and we continue to do that on multiple fronts.
Speaker Change: and it's a multi-legged stool to do that. Having the balance sheet that...
Speaker Change: We've got today what's called Fidelin liquidity, the commitments in hand for our first fund.
to fund that growth. [inaudible]
Speaker Change: Our key is a key actually required and allows us to move more expeditiously to see the upon opportunities [inaudible]
Speaker Change: Having supply chains, setup, and having folks on site constructing in a continuous fashion is a key element as well and having now a development pipeline called $9.5 billion $9.5 billion.
to date [inaudible]
Speaker Change: Very highly pre-leased, called almost 65% overall with the lion's share of the Unleased Plays in the prime markets of like Northern Virginia that allows us to even work more nimbly as well. And then lastly, these...
Speaker Change: One of the key attributes that Greg Tusson a little bit in a prior question is the land that's been recently acquired
Speaker Change: That has been competitively advanced land that has opportunity to serve customers in the nearest windows. So things that are most attractive, that is a big kudos to our team.
Speaker Change: finding these opportunities, working with utility partners, working with other partners to seize upon them, to essentially help customers in more critical locations like we have been doing and delivering the results you've seen in the last several quarters.
Speaker Change: The next question is from Nick DelDale with Moffett-Nathanson. Please go ahead.
Nick DelDale: Thanks for having my question guys. You've disclosed working with a leading Neocloud customer in a couple of locations. Can you talk about what sort of demand you're seeing from Neocloud is more broadly and how you're thinking about them from a new business perspective and a credit risk perspective? Thanks.
So, um...
Nick DelDale: That's correct. We have been supported. We have been expanding our customer base to support the Neocloud Universe.
Thank you.
We are...
Speaker Change: to preserve and create long-term value for us and the customers.
That has been something that's been consistent with us [inaudible]
Speaker Change: for some time. We've seen demand from those customers called Big and Small and I said one, our fair share of that without being overexposed certainly.
and in some instances...
Speaker Change: Other major customers that sometimes beat those neoclas to the punch because they sometimes move faster or they want to something that is really critical them and we would try to help them and we try to help all of our customers [inaudible]
Speaker Change: So I can't say that the Neoclas have climbed the ranks with us as some of the other customers have rapidly climbed And then last but not least, some of them not all but have been tremendously successful to date
Speaker Change: and we're rooting for them. We want to expand the Hyperscale customer base. We want to expand all of our customer base and allow numerous technology providers to take advantage of the infrastructure they are providing, do their CPUs and so on.
Thank you. Bye.
Speaker Change: This concludes the Q&A portion of today's call. I'd now like to turn the call back over to President and CEO Andy Power for his closing remarks. Andy, please go ahead.
Thank you, Gary [inaudible]
Speaker Change: Digital Realty led off 2025 with strong results in the first quarter.
Continuing the momentum we've just demonstrated in 2024
The man for data center capacity remains resilient and broad-based [inaudible]
Speaker Change: given the strong secular growth and proliferation of technology across the globe. [inaudible]
Speaker Change: Digital Realty continues to work to support our customers' growing requirements as evidenced by the substantial growth in our development pipeline and the successful evolution of our funding model.
Speaker Change: We remain focused on our key strategic priorities and expect success to be realized through the acceleration of bottom line growth in 2025 and increased visibility of better long term sustainable growth.
Speaker Change: Scaling our business across the globe is a tremendous effort and I am extremely grateful and appreciative of our incredibly talented and dedicated team [inaudible]
Speaker Change: I'm excited about the future and remain focused on season the opportunity at hand. Thank you all for joining us today.
Speaker Change: The conference is now concluded. Thank you for joining today's presentation. You may now disconnect.