Jordan Sadler:

Thank you, operator, and welcome everyone to Digital Realty's second 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. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information, reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our second quarter. First, we continue to execute within a very favorable demand environment with $164 million of new leasing executed in the quarter, again marking one of the top quarters in our history, which together with last quarter's record leasing drove a record first half of the year. Second, our operating momentum continued through the second quarter as a record level of commencements translated into meaningful improvement in both total and same capital occupancy, while cash releasing spreads remained firmly positive and continued growth in cross connects drove interconnection revenue to a new record in the quarter. And third, through capital recycling and demand-driven equity issuance in the quarter, we reduced our leverage to 5.3 times at quarter end, below our long-term target level, helping to position Digital Realty for the opportunity that we continue to see in front of us. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Matthew Mercier:

Thank you, Andy. Let me jump right into our second-quarter results. We signed $164 million of new leases in the second quarter with two-thirds of that falling into the greater than megawatt category, the majority of which landed in the Americas, with healthy contributions from both EMEA and APAC. Not to be overlooked, however, was the $40 million of 0 to 1 megawatt leasing and a standout $14 million of interconnection bookings. Our fourth consecutive quarter exceeding $50 million in our 0 to 1 megawatt plus interconnection segment. Turning to our backlog, we commenced a record $176 million of new leases this quarter, which was largely balanced by the strong second-quarter leasing. As such, the $527 million backlog of signed and not yet commenced leases moderated by only 2% from last quarter's peak and remains robust at more than 9% of our total revenue guidance for the full year 2024. Looking ahead, we have over $175 million scheduled to commence through the remainder of this year with over $230 million already scheduled to commence next year. During the second quarter, we signed $215 million of renewal leases at a 4% increase on a cash basis, driving year-to-date renewal spreads to 8.2%. Re-leasing spreads were once again positive across products and regions. Last quarter, we noted that the underlying renewal spread after stripping out two outliers was 3.4%. Our cash renewal spreads in the 0 to 1 megawatt segment were up 3.8% in the second quarter, while the greater than 1 megawatt segment was up 3.9%. As a reminder, the 0 to 1 megawatt segment is the primary driver of our overall re-leasing spreads, given the heavier weighting of lease expirations in this category, which are typically shorter-term leases with inflationary or better escalators. 0 to 1 megawatt deals renew reliably and predictably, making them track closer to market over time, thereby reducing the outsized movements that can come with larger or longer-term lease renewals. On the greater than 1 megawatt side, renewals reflected the strong pricing environment with leases renewed at $159 per kilowatt compared to the $133 per kilowatt achieved on greater than 1 megawatt renewals last quarter. The key difference between the quarters was the rate on the expiring leases. This quarter, leases in this segment expired at $153 per kW, while last quarter's leases expired at an average of $112 per kilowatt. For the quarter, churn remained low and well-controlled at 1.6% and our largest termination was immediately backfilled at an improved rate. In terms of earnings growth, we reported second quarter core FFO of $1.65 per share, reflecting continued healthy organic operating results, partly balanced by the impact of the meaningful deleveraging and capital-raising activity executed over the course of the last year. Revenue growth in the quarter was tempered by the decline in utility expense reimbursements, a comparison that is likely to persist throughout this year, given the decline in electricity rates in EMEA year-over-year, along with the impact of substantial capital recycling activity. Despite the deleveraging headwinds, rental revenue plus interconnection revenues were up 5% on a combined basis year-over-year. Adjusted EBITDA also increased 5% year-over-year through the first half and remains well on track to meet our 2024 guidance. Pro forma for the capital recycling completed since last July, rental plus interconnection revenue and adjusted EBITDA grew by 13% and 14% year-over-year, respectively, in the second quarter. Stabilized same capital operating performance saw continued growth in the second quarter with year-over-year cash NOI up 2% as 3.6% growth in data center revenue was offset by a catch-up in rental property operating costs, which were flat last quarter. Year-to-date, same capital cash NOI has increased by 3.5%. And as we have previously highlighted, same capital NOI growth is expected to be impacted by nearly 200 basis points of power margin headwinds year-over-year, given the elevated utility prices in EMEA in 2023. Moving on to our investment activity, we spent $532 million on consolidated development in the second quarter, plus another $90 million for our share of unconsolidated JV spending. We delivered 72 megawatts of new capacity across the globe for our customers in the quarter, while we backfilled the pipeline with 71 megawatts of new starts. The blended average yield on our overall development pipeline moderated 20 basis points sequentially to 10.4% as a result of a market mix-shift of completions and starts in North America during the quarter. In the first half of the year, we spent a bit over $1 billion in development CapEx, tracking closely towards our full-year guidance. As the second half should see a ramp from newly commenced projects along with the typical seasonal uplift. Turning to the balance sheet, we continued to strengthen our balance sheet in the second quarter with the closing of the two transactions in April that we disclosed during last quarter's earnings report and was referenced earlier by Andy. Together, these two transactions raised just over $500 million of gross proceeds. Additionally, since our last earnings report, we sold 14.7 million shares, including a 12.1 million share follow-on offering in early May and incremental ATM issuance raising $2 billion of net proceeds while using cash-on-hand to pay off a €600 million bond that matured in April and a GBP250 million that matured last Friday. At the end of the second quarter, we had more than $4 billion of total liquidity and our net debt to EBITDA ratio fell to 5.3 times, which is below our long-term target. Moving on to our debt profile, our weighted average debt maturity is over four years and our weighted average interest rate is 2.9%. Approximately 84% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the euro notes in April and Sterling notes last week, we have zero remaining debt maturities through year-end. Beyond that, our maturities remain well laddered through 2032. Let me conclude with our guidance. We are maintaining our core FFO guidance range for the full year of 2024 of $6.60 to $6.75 per share, reflecting the continued strength in our core business, partly balanced by the front-half weighted capital recycling and funding activity, which helped to reduce our reported leverage by a full turn to better position the company to fund development in 2024 and beyond. We are also maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, as well as the operating, investing, and financing expectations that we previously provided. Looking forward to the balance of 2024, core FFO per share remains poised to increase in the second half as the backlog commences and the impact of prior deleveraging moderates. This concludes our prepared remarks. And now we will be pleased to take your questions. Operator, would you please begin the Q&A session?

Richard Choe:

Hi. I wanted to ask about the long-term pipeline, you're seeing for the -- over 1 megawatt category. I think there is some concerns that right now we might be in a kind of pull-forward or kind of elevated cycle. And just wanted to get your sense of how far out this pipeline of deals that you're looking at in the current environment could last. Thank you.

Operator:

The next question comes from Irvin Liu with Evercore ISI. Please go ahead. Please go ahead, Irvin.

Andrew Power:

Hi, thanks, Irvin. So I think the one big deal or the one market you were pointing to is just the North America greater than 1 megawatt. Now just a mix of composition of deals. This quarter, in particular, Dallas market really led the way. It's had outside strength and this is actually a quarter where we didn't actually have any signings into our Northern Virginia market, which was not a lack of demand for that market, and we still have some great options for customers available at large capacity blocks in two parts of that market, but we just didn't penned anything in this particular quarter. So if you look more broadly, I think almost all the other, call it regions in both segments had an uptick in rates and that's always on apples-to-apples that the mix in the region could be different metros like that one example I just gave you, but that would be only outlier is the one that I just discussed.

Michael Rollins:

Thanks and good afternoon. Curious if you could talk about some of the ideas that you shared in the past around working on ways to participate in private capital recycling, whether it's trying to establish mechanisms to be able to react to when some of your private capital partners are going to hit their kind of maturity dates of those investments, what to do with those as well as maybe other opportunities in the category where there is private investments in other data center assets?

Gregory Wright:

Yes. Thanks, Andy. Thanks for the question, Michael. I think the first thing I would say is consistent with as Andy said, we laid out a year ago, January. We're going to continue to bolster and diversify these private capital sources and that's just what we're doing. And as he said, we did a lot of transactions over the last 18 months. We're continuing to evolve that strategy. And when we have something to report, we will. I think it's important to note that the importance of that capital because if you take a look at the demand profile for the business right now, the hyperscale business in and of itself between now and 2030 is expected to grow almost three times and that includes AI hyperscale and non-AI hyperscale. So look, we think that the strategy that Andy laid out and that we embarked upon was the right strategy, but we're not done yet. And as we said, it's continuing to evolve. And when we have something to report on that front, we'll tell you.

Jonathan Atkin:

Yes, good afternoon. I wonder about kind of the speed at which you can kind of deliver on your new starts that you've commenced recently, supply chain, access to energy, access to heavy equipment, and so forth. Any kind of color there?

Operator:

The next question comes from Jon Petersen with Jefferies. Please go ahead.

Matthew Mercier:

Yes. Sure. Thanks, Jonathan. So in terms of lease expirations, so what I'd say is less than half of our or greater than 1 megawatt leases have options with total fixed increases on them. But I would call that significantly less than that are typically renewed pursuant to those options. And that's generally for a few reasons. One, our customers must provide us notice of renewal within the proper period and that doesn't always happen to -- renewals must come in essence without any changes. So if there's any additional space, term, anything changes that opens up the contract. I think as we've talked about in the past and third, some of those customers also end up churning. So that all gives us an ability to be able to bring those contracts to market for the majority of what ends up rolling within a given period. On your second point on impairment, yes, we did have -- we did have impairment associated with a few of our non-core assets, which are part of our disposition plans and those are all located in the secondary market. We -- and I'd also put that in context to the fact that we've generated, call it, close to I think over $1.3 billion of gains from the capital recycling efforts that we've done over the last year.

Ari Klein:

Thank you. I guess, just the comments on the pipeline coming off two very strong quarters of leasing and with the development pipeline, 66% leased, including 80% in the Americas. How should we expect CapEx to trend from here? And then what's your appetite to add new domestic markets given what seems like a broadening of demand?

Colin McLean:

Yes. Thanks, Ari. I appreciate the question. Andy highlighted strong performance over 1-megawatt -- pipeline overall for 1-megawatt trends to -- is trending positively below 1 megawatt, which we deem as important as heading in the right direction as well, record pipeline driven from digital transformation, cloud, and AI. And you saw that trending positively in our results, both directly and indirectly. Indirect execution has picked up the last quarter and we're now 23% of our pipeline being indirect, which we think is a positive sign on value proposition there. One of the things that Andy highlighted is the key value of metros. With the demand cycle, we're seeing enterprises and hyperscalers like zero value of proximity and the metro play that we have in key metros across the globe being particularly important. Finally, the ability both for enterprise and hyperscalers to grow in scale and capacity is of keen value really across the spectrum of low and above 1 megawatt.

Operator:

The next question comes from David Barden with Bank of America. Please go ahead.

Andrew Power:

Thanks, Dave. So obviously posted apples-to-apples from a 50% contribution last quarter to this quarter is probably closer a quarter of our science. We would say, we really pin on AI use cases. But I would caveat that in a few ways. One, that's in a quarter that's not our record quarter, but I think the top four quarter overall signings, great contribution of both 0 to 1 and plus 1 megawatt, as well as a near record in interconnection signings. And that means we're still winning with the traditional demand drivers of digital transformation, cloud computing, and the like, that though that demand is not nearly exhausted shelf or played out. I would also say that there was certainly a deal that I didn't count in the category of AI that is certainly pushing the envelope on power density and post-ink drawing, already thinking about evolving that capacity block or signed with them in towards what will ultimately be supporting AI down the road is my guess, which I think speaks to the modularity of design and how we're able to scale infrastructure to the demands of our customers as they needed. The second part of your question, let -- first off, I don't want to confuse the word offense with M&A. I think we've not done any real M&A or external growth for several years now. You can maybe save the resolution of the Cyxtera relationship, but that was I think making lemonade out of lemons more than anything. And when I use the word offense, I mean, that's converting this 3 plus gigawatt land bank, which we've assembled over the years, i.e., we didn't just go buy that yesterday and turning that into a great product for our customers to land and expand in -- at great returns on our investment. And you've been seeing that play out now with our ROIs and development schedule, crescendoing into the double-digits. You've seen that in the pricing power and you've seen our value proposition really resonate in all of our customer segments across our core markets. And lastly, our eye is on the price of accelerating the bottom line. That's where we reoriented our strategy 18 months ago about our value proposition, integrated, innovating, bolstering, diversifying our capital sources. And all those things were about, call it making sure we're driving per share -- FFO per share growth that's accelerating and it's going to be continuously compounding for years to come. So there is been no divergence in that conviction of what comes next for the rest of 2024 and what we've said about 2025, next year.

Eric Luebchow:

I appreciate it. Thanks for taking the questions. So Andy, could you maybe comment on what type of market rent growth you're seeing right now in some of your key metros on an apples-to-apples basis relative to last year and whether that continues to evolve as this year has progressed? And then as you look out into the future, do you see an opportunity for market rent growth to continue to outstrip your development costs and we can see the kind of 10% to 12% development yields you have in your pipeline move even higher? Thank you.

Operator:

The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.

Andrew Power:

Jim, I think that there is a few phenomenons happening. One, we're getting closer, I mean, some of these constraints popped up now a years in a rearview mirror. And we're obviously inching our way close to destinations of resolutions, be it in Northern Virginia, which I think 2026 is supposedly above or within like in Santa Clara and there is other non-U.S. markets as well. At the same time as we approach the power constraints, there is obviously a good potential that the delivery dates may not deliver on time. These are multifaceted projects that require easement, substations, construction projects. At the same time, the demand didn't standstill while the power was constrained. The second phenomenon I think they're seeing is -- this is becoming a more pervasive topic. It was very focused on one cloud center of the universe market with Northern Virginia and we're hearing more and more about other markets. And lastly, I wouldn't pin it just on power. Yes, the power has got broader generation issues in the economy that we're trying to green. It's got transmission issues that navigate municipalities and substation deliveries and transmission lines cutting through the backyards of folks that rather not have them there. But there are also other elements of sustainability concerns, moratoriums in certain parts of the world. And so I think that this is a multifaceted supply constraint, which I would also mention that even if it does get fixed, has a propensity that could -- history could repeat itself here. So I think this is going to make our value proposition with what we deliver to our customers even more compelling and valuable at the end of the day.

Vikram Malhotra:

Hi, good afternoon or evening. Thanks for taking the question. I guess just a bigger picture, you've talked about leasing spreads in greater than 1 megawatt improving over time given the differential of what's expiring versus, I guess, market, but you also referenced market rent growth improving quite a bit. So with that and just some recent comments from hyperscalers, just talking about the risk of oversupply or just too much CapEx. Can you sort of just frame the near-term opportunity set in the greater than 1 megawatt from -- maybe bookings, but more so pricing standpoint versus the puts and takes over time just from a demand-supply? I'm just wondering, is there a risk that you see the spreads theoretically improve, but there is a lot of supply coming down the pipe?

Matthew Mercier:

Sure. So what I look, what I call it is -- if you look at the greater than 1-megawatt leases that are expiring, call it the next 18 months, the rate -- average rate on that in the 140 to 145 area. But then it steps down pretty gradually to as low as 111 by the time you get to 2029. So I think you're going to see a continued positive trajectory on our leasing spreads, not only in the greater than 1-megawatt category, but I think also across all the categories. So I think you'd also recall within our 0 to 1 spreads have been positive. I think throughout our history, those are typically more regular steady inflationary type increases or better. So I think this puts us in a -- I think in a good position considering where market rates are, where some of the supply constraints are to where we'll see market rates now continue to remain positive and grow and continue to accrue benefits to our releasing spreads as we go through time.

Frank Louthan:

Great. Thank you. So in talking before, you mentioned you're prioritizing retail Colo over hyperscale. How should we think about that practically and kind of track that? Is that part of the reason the sub of megawatt bookings have remained a little bit elevated? How should we think about that trend going forward?

Colin McLean:

Sure. Frank, thanks for the question. I'm not sure I'd use the word prioritize. We definitely want to emphasize a full platform to have an offering set. So as highlighted in Andy's opening remarks, performance in Q2 was particularly strong 0 to 1, fourth consecutive quarter over $50 million, which I think was -- which is in also the third highest ever from 0 to 1. We think this consistency is really driven from our ability to serve the full spectrum of requirements for our enterprisers and service providers across the Global 5000 focus of customer set. New logos are also pretty strong as well, most solid ever in terms of 148% with 40% of that coming from the indirect side. Channel also which I highlighted earlier was a particularly strong point with over 20% booking contribution from the indirect side overall. So we view this segment as continuing on our value proposition out to our client set. And a lot of the drivers Andy talked about around digital transformation, cloud, and AI are also playing out in 0-1 segment across enterprises and service providers. And Andy highlighted a couple of those key wins on opening remarks, namely Fortune 5,000 clients, excuse me, offering their virtual desktop requirements and the global manufacturing win we had on the enterprise side. I also want to highlight the particular highlight of the Microsoft ExpressRoute launch into Dallas, which we feel like is a presumably strong representation of our platform.

Michael Elias:

Great. Thanks for taking the questions guys. Andy, in the past, you've talked about CapEx being an accordion that you expand and contract to the end of solving for consistent bottom line growth. So as I'm thinking about it, given the leasing success that you've had over the last two quarters and also as part of that like the market opportunity in both hyperscale and enterprise. Is now the time to be expanding that Accordion and really hitting the gap on CapEx? And if so, I just want to be clear, what is the explicit FFO per share that you can grow -- that you guys are solving for as part of that algorithm? Thank you.

Operator:

The next question comes from David Guarino with Green Street. Please go ahead.

Andrew Power:

I think Dave - you got to remember that our portfolio is not all -- just call it hyperscale. And the hyperscale portion of this business can literally be 100% leased in many buildings or markets, right? And my gut is that chart, which I think data center walk, which they're doing the best they can, is very much about more of a hyperscale lens. I was actually pretty pleased on the occupancy front. We're up 100 basis points in the same-store occupancy quarter-over-quarter and we have a big same-store pool. It's not mountain. We're also actively taking it one step backwards sometimes on occupancy to take two, three, four steps forward when vacant -- when suites come back and scale and we convert those to Colo and really support our customers' Colo growth as well. So this was the year we said that with occupancy, we're going to be moving the needle and we have been moving the needle. We got more to do in that arena. So I think we'll be seeing -- see it move up. And if you look at, you can also look to get a number of apples-to-apples. If you look at their occupancy, we show by markets. There are certain markets of way less than 60% vacancy that are just very much heavily weighted towards our hyperscale business. They just have a much, much smaller a footprint like Northern Virginia, where if you parse through it, especially on a megawatt basis. I wish, I had that type of vacancy to sell right now and we just don't.

Matthew Niknam:

Hi, guys. Thanks for getting me on. I had two follow-ups. First, on the Colo side, so you cited the record new logo is 148 this quarter. I'm just wondering from a macro perspective, any change in terms of macro impacts across different customer sizes within that sub 1 megawatt base? And then secondly, you talked about leverage getting back under 5.5 turns, the prospect of improving bottom line growth from next year. How do you think about the dividend and the potential for forward growth in the dividend relative to some potential incremental investments in the business? Thanks.

Matthew Mercier:

Yes, sure. So thanks, Matt. So in terms of the dividend, look I think it's back to kind of what we've said historically. I think we've got a unique opportunity here to take advantage of what we see as a tremendous growth opportunity throughout our global portfolio and one of the easiest and cheapest forms of capital within that is internally generated funds. And so we continue to look to try to maximize our cash flow as part of our funding strategy on that front. And on top of that, we're also -- I think as we've also mentioned throughout this call, we're keenly focused on growing the bottom line and accelerating that growth in outer years. So as we grow the bottom line, which is going to benefit and accrue benefits to not only core FFO but then on to AFFO, we then look to keep our dividend growth in line with that bottom line per share growth as well.

Andrew Power:

And just one, Chris, why don't you just chime in on the early reads on the HD Colo 2.0, with some of the -- I would say an uptick in the enterprise segment?

Operator:

Your next question comes from Anthony Hau with Truist Securities. Please go ahead.

Andrew Power:

Thanks. So I mean customers are -- especially when it comes to larger capacity blocks, they're really trying to future proof and that's where our 3 gigawatts of growth comes in handy. So they certainly -- the nearest-term deliveries are precious, but I think in the years ahead. Now that particular example, as I mentioned, the 20 months was elongated because that customer -- one particular customer had very much their eyesight on a particular market and then various restrictions about where they could grow and where we can support that growth, we are literally their capacity. So that we were able to do deliver as fast as we could, but it certainly elongated. Look, excluding that one outlier, we're close to 4.5 months. And I think you'll -- I wouldn't count on those outliers consistently popping up, they'll be more sporadic.

Brandon Nispel:

Hi, thanks for taking the question. Question for Matt. Can you talk about not updating the guidance at all? Maybe there is some moving pieces from FX and the recent acquisition that you call out. Just as I was looking at it, if you look at the first half of the year and annualize it, revenue really need to accelerate while adjusted EBITDA would need to be backwards, actually to hit the midpoint of your guide. So I guess, the question is, is the EBITDA FFO guidance is conservative? Are there some uncertainty in terms of timing of commencements, unusual expenses? Hoping you could just unpack that for us. Thanks.

Operator:

Thank you. That concludes the Q&A portion of today's call. I'd like to now turn the call back over to President and CEO, Andy Power, for closing remarks. Andy, please go ahead.

Operator:

The conference is now concluded. Thank you for joining today's presentation. You may now disconnect.

Matthew Mercier:

Thank you, Andy. 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 0 to 1 megawatt plus interconnection leasing, with interconnection bookings remaining firm at $13 million.

To help provide increased transparency around this important and evolving aspect of our company, we have enhanced our development life cycle schedule on Page 25 of our supplemental to:

one, reflect our proportionate share of total data center development, including our unconsolidated joint ventures; and two, to provide increased disclosure around our available developable capacity in terms of [ IQ logo ]. We hope you find this helpful.

Operator:

[Operator Instructions] Today's first question comes from Jon Petersen with Jefferies.

Jonathan Atkin:

So you mentioned rate environment and maybe continuing on that theme a little bit in terms of pricing. As we think about next year's core FFO per share growth rate, you gave a little bit of commentary on that in 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 pricing or renewals or whatnot?

Matthew Mercier:

Sure. Thanks, Jon. So what I would say is I think we're -- based on our first quarter results, we -- our optimism is improved -- has improved in terms of our -- what we expect to see and what we talked about last quarter in terms of improving growth as we look to 2025.

Eric Luebchow:

I wanted to dive into Northern Virginia a little bit. Can you maybe just provide an update on the timing of the Dominion transmission upgrades and when you think you can get even more capacity into that market? And then on rental rates in Northern Virginia, I think that probably had a big influence on the 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 what that kind of -- how that influences your yields, your underwriting and your development table?

Operator:

And our next question today comes from David Barden with Bank of America.

Andrew Power:

Sure. Thanks, David. So let me just give you the tops of the ways then I'm going to turn it to Chris on how we're tapping our infrastructure capabilities to really excel in this category.

Operator:

And our next question today comes from Irvin Liu with Evercore ISI.

Andrew Power:

Sure, Irvin. So I mean, the here and now I think AI is having a 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 the here and now you have a backdrop of big existing customers with desires to have immediate [ see ] around the capacity.

Operator:

Our next question today comes from Richard Choe with JPMorgan.

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 wouldn't call our Northern Virginia activity as a pull forward. As you could see, they're signed to commence time, materially step down, there is urgency around the capacity blocks. We still have significant runway of precious capacity in the Northern Virginia market between now and 2026 that our numerous customers have desires for and we're in various stages of negotiation.

Colin McLean:

Thanks, Andy. Appreciate the question. Yes, I mean, overall, I would say our pipeline kind of reflects some of the same characteristics or bookings this quarter. So pretty AI heavy, as Andy highlighted, of 50% of our bookings this quarter were AI. I would say our pipeline is representative of that. But honestly, it's a pretty diverse characterization overall between 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.

Michael Rollins:

Just curious if you take a step back, where does the overall mark-to-market it for the portfolio and the anticipated duration over which you could achieve that if pricing were to stay at current levels?

Michael Rollins:

Yes.

Frank Louthan:

Great. And kind of to that point, when you're looking at new investment and expansion, how much are you focused on retail colo expansion versus wholesale? And what's kind of pushing you in one direction or the other?

Simon Flannery:

Great. Great to see the leasing in Loudoun County. It looks like the Americas was about 80% of your leasing. Could you just talk a little bit about Europe and Asia Pac? It seems like AI is sort of starting off in the U.S. You talked about Copenhagen as well. But just help us think about broadening this out beyond the kind of key U.S. markets. And then, Matt, on the leverage. Could you just update us on getting -- once you get to the 5.8, what's the plan from there?

Matthew Mercier:

Yes. Makes sense. So on the leverage front, I mean, just to take a little step back. I mean, hopefully, as you've seen, we've made some considerable progress. You go back a year ago, we were at a little over 7x. We're now at a reported 6.1x, so a full turn of leverage that we've taken out in the last year, thanks to all the work and execution that the broader team has done.

Aryeh Klein:

I guess one of your larger customers is at risk of a potential ban in the U.S. Can you maybe talk a little bit about how you perceive the risks around that? And maybe the potential mark-to-market opportunity if it came to that.

Matthew Niknam:

Just bigger picture question. With pricing seeing the type of growth it's seeing, supply chain constraints that I think largely plagued the industry a couple of years back are now largely resolved. Can you help us frame what you're seeing in terms of new hyperscale builds that are in-sourced relative to outsourced to partners like yourself?

Andrew Power:

Matt, so I would not characterize the world of supply constraints or just hindrances to supply as being in the rearview mirror in general. And maybe we're not talking about the proverbial waiting for your refrigerators COVID supply chain equivalent. But the friction to supply, whether it is power transmission, power generation, supply chains on data center components or just positions in queue for production or components for substations, broader sustainability concerns, nimbyism in general, that friction is existing, and it's happening in a backdrop where I think we can add more and more value to our customers than probably ever before.

Operator:

And our next question today comes from Michael Elias with TD Cowen.

Andrew Power:

Going to Greg on that one, Michael. Thank you for the compliment.

Operator:

And our next question comes from Nick Del Deo with MoffettNathanson.

Andrew Power:

Thanks, Nick. So I think if you look at our strategy, we're focused on supporting workloads, be it enterprise, digital transformation or hybrid or hyperscale cloud or AI in markets with robust and diverse demand and supporting applications with latency and locational sensitivity.

Operator:

And our final question today comes from Erik Rasmussen at Stifel.

Andrew Power:

Thanks, Erik. So just more on the tactical on the quarterly bookings. I mean, we're out of the gates here with a great start on both the less-than-megawatt category, call it north of 50 for several consecutive quarters now. I think 2 in a row, north of 53, great new logos contribution and obviously, an overall record which we discussed. By and large, I wouldn't say usually another record follows the prior record on the one hand. But on the other, we're certainly in a different territory right now in terms of demand. We have the large capacity blocks that are deeply sought after. We have a team focused on executing, and we got 3 more at bats in 2024 to put those results up.

Operator:

That concludes the question-and-answer 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.

Jordan Sadler:

Thank you, operator, and welcome, everyone to Digital Realty's Fourth Quarter 2023 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. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will also contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our fourth quarter and our full year. First, we are seeing a robust wave of demand across our platform, and we are optimistic about our ability to execute. Leasing in the quarter was healthy, highlighted by strong volume in the 0 to 1 megawatt plus interconnection segment, record pricing in the greater than megawatt category and the second highest quarter ever of new logos added. Second, our fundamental metrics capped off the year on a high note with the strongest cash re-leasing spreads and same capital cash NOI growth we've seen in years as our unique and differentiated value proposition continued to resonate. And lastly, in the fourth quarter alone, we announced nearly $8 billion of new development joint ventures and completed over $1 billion of equity issuance under our ATM bringing total capital sources raised during the year to more than $12 billion and reducing pro forma leverage below our year-end 2023 target. The execution on our funding and capital plan in 2023 has positioned Digital Realty to be able to support our customers' data center infrastructure needs as the next generation technology unfolds. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Matthew Mercier:

Thank you, Andy. Let me jump right into our fourth quarter results. We signed a total of $110 million of new leases in the fourth quarter with $53 million of 0 to 1 megawatt plus interconnection leasing, led by strength in the EMEA region. Interconnection bookings rebounded sequentially to $13.5 million, and we finished the year with 220,000 cross-connects despite continued network grooming. Turning to our backlog slide. The current backlog of signed by [Technical Difficulty] commenced leases increased to a new record of $495 million at quarter end as new leasing outran $84 million of commencements in the quarter. We expect commencements to pick up as nearly two-thirds of the backlog is scheduled to commence in 2024, with the majority coming in the second half of the year. During the fourth quarter, we signed $210 million of renewal leases with pricing increases of 8.2% on a cash basis, setting the high watermark for the year, though this was skewed over 100 basis points by shorter-term renewals in one market. For the full year, cash renewal spreads were up 6.8% and or 5.5% when normalizing for short-term extensions. Re-leasing spreads were positive across product, market and region in 2023, setting the foundation for an acceleration in long-term sustainable growth. In 2024, we expect the pricing environment to remain firm and renewal spreads to remain positive, principally reflecting the near 80% weighting of lease expirations in the 0 to 1 megawatt segment. In terms of earnings growth, we reported fourth quarter Core FFO of $1.63 per share and $6.59 for the full year within our guidance range. Earnings reflect the continued strong organic results, together with the impact from capital recycling, deleveraging and increased development spending throughout the year, as discussed on our third quarter call. Total revenue was up 11% year-over-year despite the incremental drag from the stabilized JV contributions and the noncore asset sales that closed in the third quarter. As we also noted last quarter, year-over-year revenue growth continued to be positively impacted by the significant volatility in utility costs and reimbursements, particularly in Europe. Energy dynamics proved to be a tailwind for our results in 2023. Assuming more normalized energy prices, we expect the related upside impact will moderate in 2024. Interconnection revenue was $106 million, up 9% year-over-year, reflecting continued unit growth and price increases. Moving over to the expense side. Utilities were 5% lower sequentially, reflecting the joint venture contributions over the summer, combined with seasonal impacts. Operating expenses increased due to seasonally elevated maintenance spending in the fourth quarter. Property taxes fell back toward normalized levels, reflecting the onetime property tax reassessment experienced in the third quarter. Net of this movement, adjusted EBITDA increased 9% year-over-year. Improvement in our stabilized same capital operating performance continued in the fourth quarter with a year-over-year cash NOI up a strong 9.9% and up 7.7% on a constant currency basis. For the full year, results were also strong with cash NOI growth of 7.5% and 6.5% on a constant currency basis. Focusing on investment activity, we spent $3 billion on development in 2023, net of the proceeds received from our first development JV closing in November, and we delivered over 230 megawatts of new capacity across the globe. Turning to the balance sheet. We continued to strengthen our balance sheet since the end of the third quarter. With the sale of $1.2 billion of equity through the ATM at an average price of $133 per share, achieving our goal of lowering our leverage towards six times and finishing the year at 6.2 times. After year-end, we made further progress on the balance sheet with the closings of the Cyxtera transactions in the first phase of the Blackstone joint venture. GI Partners also exercised their option and closed on an additional 15% share of the two stabilized assets in our Chicago JV, bringing their stake to 80%. Pro forma for these activities, year-end leverage was 5.8 times. S&P recognized our progress in December and upgraded our outlook. Early in the fourth quarter, we paid off our $100 million Swiss Franc notes and closed the Realty Income joint venture, which generated $200 million of gross proceeds and reduced our CapEx commitments for the remainder of the project's development. We continue to keep significant cash on the balance sheet with over $1.6 billion at year-end as we continue to prioritize liquidity and to support ongoing development spend. Moving on to our debt profile. Our weighted average debt maturity is nearly 4.5 years, and our weighted average interest rate is 2.9%. Approximately 84% of our debt is non-US dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 85% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have less than $1 billion of debt maturing in 2024 and beyond that, our maturities remained well laddered through 2032. I'll finish with guidance. We are providing an initial Core FFO per share guidance range for the full year 2024 of $6.60 to $6.75. Reflecting the underlying growth of our business, offset by the impact of the deleveraging activities we completed or announced in 2023. As a reminder, over the course of 2024 and 2025, we expect that our $6 billion development pipeline will become increasingly accretive as higher-yielding projects deliver. For 2024, we expect total revenue to grow by 2% and adjusted EBITDA to grow by 4% at the midpoint of our guidance ranges. When normalizing this growth for the impact of capital recycling, total revenue and adjusted EBITDA are anticipated to grow by 7% and 10%, respectively, in 2024. We expect both our cash and GAAP re-leasing spreads, along with same capital cash NOI growth to remain solidly positive. While occupancy is expected to improve steadily throughout the year as our record backlog commences and available capacity is leased. Specifically, cash re-leasing spreads are expected to increase by 4% to 6% in 2024. Same capital cash NOI is expected to grow by 2% to 3%, and given the tougher base year comparison versus last year's 7.5% growth and our expectations for FX and energy pricing in our colo segment. Total portfolio occupancy is expected to improve by 100 to 200 basis points by the end of 2024 while total occupancy slipped to 81.7% in the fourth quarter of 2023. This was predominantly driven by the delivery of substantial vacant development capacity that is slated to be occupied as same capital occupancy was stable quarter-over-quarter. We also expect to continue to recycle capital in 2024 with noncore asset sales and stabilized joint ventures raising $1.25 billion at the midpoint of our guidance range. Nearly one-third of this activity was completed in early January, while the balance should close throughout this year. Along with cash on hand and retained cash flow from operations, this capital is expected to be the primary funding source of our $2 billion to $2.5 billion net development CapEx program for 2024. To be clear, this approximately 25% reduction in development spend year-over-year represents Digital Realty's share of CapEx spend. The total development spend on these projects will be higher when including our partners pro rata share. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

Michael Rollins:

Thanks and good afternoon. A couple of questions. First, in terms of, you were just describing the shift in same capital cash NOI growth from 7.5% to 2% to 3%. Can you unpack more of what you're seeing in '24 relative to '23? And how pricing kind of comes into the expectation for 2024?

Matthew Mercier:

Sure. Thanks, Mike. So a couple of things that I would call out. First, in terms of, call it, the re-leasing spreads and their influence. First off, I think as we know, not all of our leases roll within the calendar year. So we roll roughly, call it, 20% to 25% of our portfolio in the year. And of that, 80% is in the 0 to 1 megawatt category, which is influenced by inflation or CPI, which we've seen come down over the course of the year, and therefore, part of the mark-to-market pricing within that segment. Then when you flip over the other 20%, which is in the greater than a megawatt category, we're seeing in '24 expiring rents that are higher than what we saw in '23, which creates a tougher comp in terms of the role despite strong market rents and overall growth. So that's on the spread side. The other part that I would call out is in '23, we saw benefits or tailwinds from FX as well as power pricing, which we're not seeing in '24, and lastly, in '24, we are expecting higher property tax expense. So putting all those together kind of is why you're seeing sort of the still positive, but not as positive as '23 results for same-store portfolio in '24.

David Barden:

Hey, guys. Thanks so much for taking the question. Maybe first, last night, we heard from one of your peers that the higher power prices in 2023 have created some sort of lagged crowding out effect in terms of budgeting and decision-making. And I was wondering if you could kind of talk a little bit about that, kind of something like maybe you're hearing or seeing some of that in your colo business, but it wasn't crystal. And then just as a follow-up, if I could. Matt, can you break down that $1.25 billion in kind of -- or the rest of the $1.25 billion that's closing this year? What is -- how is it all breakdown and the cadence of that? Thank you.

Gregory Wright:

Sure. Thanks, Andy. Hey, David. How are you? Look, I think, again, there's two components there. It's really -- it's a stabilized joint ventures, and it's our sort of noncore asset disposition. And when you look at that, call it, $1.250 billion or a range of $1 billion to $1.5 billion, call it, I think it's important to note that over one-third of that has already been announced and is either closed or is pending close. So obviously we feel good about that number. And it's clearly much less in the context of last year.

Michael Elias:

Great. Thanks for taking the question. So Andy, we're in the middle of one of the strongest hyperscale demand environment that we've seen in recent history. I was wondering, can you talk about the go-forward demand pipeline and the relative strength of the pipeline versus last year. And as part of that, can you talk about the opportunity set for the pricing for new leasing, specifically, is -- do you see there being a governor on pricing given the supply-demand backdrop that we're seeing? Thank you.

Operator:

The next question comes from Jonathan Atkin with RBC. Please go ahead.

Matthew Mercier:

Sure. Thanks, Jonathan. So look, I think, you've seen the results of the work we've done in '23, where we talked about getting down to the six times area. And the execution that not only Greg's team on did with the transaction that we closed, but also sales on the ATM that we did early in the year and then more recently, getting to that point and actually breaking through that when you look at it on a pro forma basis, we're at 5.8 times. And we -- and so we continue to want to get down towards that 5.5 times area, which is the same messaging we've had since the start of '23, and we've executed on that path. And we think that the plan that we've laid out here in terms of our guidance will enable us to get us there where we're continuing some level of capital recycling given the broad and diverse sources of capital that we've got available to us. And that's the plan we're going to continue to go down in terms of marching towards that 5.5% area, which is a smaller task than what we did in '23.

Irvin Liu:

Hi. Thank you for the question. I'll stick to one. Andy, you mentioned demand for large blocks of capacity in several key markets such as Nova and Silicon Valley among some of the other major markets. At an aggregate level, I think, overall supply remains very low in some of these markets. But specifically for you, has lower available capacity been a gating factor for your greater than one megawatt signings performance?

Operator:

The next question comes from David Guarino with Green Street. Please go ahead.

Andrew Power:

Thanks, David. So the -- I think you heard me loud and clear on where rates have come from and where they've gone and where they're likely to continue to move and some of these markets haven't even hit peak historical rates, if you look at the whole span of data center capacity. So I don't think we're at a rent bubble or near that necessarily and it's been on the back of real constraints and build costs that have inflated and issues. So they are -- I believe these rental moves are justified. I think you will continue to see the cash mark-to-markets flow through in our favor. We did call out in -- throughout last year and in the script for this quarter that we had some episodic short-term renewals inflated our cash mark-to-market, but we think being, call it, 4% to 6% in that category overall is pretty in our favor. And to your question on the bigger deals where you're going to have these potential roll-ups, yes, we do have subsections of our contracts that have clauses that are certainly in the favor of our customer. When the market was quite the opposite of what it was today and it was filling baking capacity, we certainly had to succumb to some of those clauses that our customers. But they all often are very narrowly defined in terms of fixed duration of renewal time period and other bells and whistles. And when a customer, which they often do wants to negotiate outside of that box that opens up the contract renegotiations. And we try to collaborate with our customers to come into a mutually agreeable outcome. So that's a long-winded way of saying, I don't think we'll be able to roll every one of those, call it, sub 100-plus megawatts directly up to the 140 or 150 or 160 or whatever we're going in the market. But I think we'll -- I do think there is going to be a positive mark-to-market in that category for some years to come.

Ari Klein:

Thanks. Andy, there's a lot of moving parts that are impacting the 2024 guidance that I think Matt mentioned 10% EBITDA growth normalized for the deleveraging activity I guess as you move past some of the headwinds creating dilution, and as you noted, it seems like pricing and mark-to-market tailwinds should be here for a while. What kind of growth do you think you can deliver beyond 2024 on the bottom line from a longer-term standpoint?

Matthew Mercier:

Sure. Yes. So a couple of things. So Ari, thanks as we did mention, on a normalized basis in '24 or a lot of -- for the transactional activity that hit in '23 and some -- and what we expect in '24. I do want to reiterate, we're looking at normalized growth at 7% on revenue and 10% on EBITDA as you noted. And so '24 is seeing the impact from the timing of those transactions and close where in '23, there in the second half of the year, and '24, we're expecting them, as Greg noted earlier, where we've already got a decent portion of that under contract, those are closed in the first part of '24. So creating some of that impacting on '24 bottom line. And we did all that at the same time, again, just as a reminder, that we're delevering over a turn. If you look through all that, what we would expect is that we look at it in sort of two buckets in terms of cost of growth algorithm. First one being, we would expect on our stabilized same-store pool to have seen growth in that 3% to 4% area. On top of that, looking at our development pipeline, the favorable pricing, better yields and as those start to deliver in '24 and '25, we would expect to see another 1% to 2% on top of that too. Together, that gets us to kind of the mid- to high single digits that we should expect to see in '25 and beyond.

Frank Louthan:

Sorry about that. I heard from several of your peers and some equipment companies and so forth about some macro issues that they're seeing with elongated sales cycles and squeezing some IT budgets. You mentioned some cross-connect grooming you've seen. Are you seeing anything like that from your enterprise business or elsewhere from any sort of macro pressures in part of your business?

Colin McLean:

Yes. Thanks, Frank, for the question. Appreciate it. As Andy highlighted, the pipeline across the board is robust and that's both above and below one megawatt. And we certainly see our customers engaging consistently with this related to growing their platform globally. So that $53 million back-to-back strong quarters, I think the testimony to how we're supporting their needs pretty well. In fact, 1,000-plus companies landed with us in Q4, which, again, I think it's a strong growth testimony. In terms of time to close overall, I think we had highlighted previously a couple of hiccups, maybe early in the year, Q1, Q2 in terms of expanded time to close. We haven't really seen that, honestly to date. It's really flattened out. And so I really think it's a by-product of us engaging showing up differently. The new logo engagement, I think, overall has been particularly strong we did 134 new logos last quarter. So on the enterprise side, on the whole, I think we've seen pretty strong interest pipeline and then execution on the whole.

Operator:

The next question comes from Matt Niknam with Deutsche Bank. Please go ahead.

Andrew Power:

Thanks, Matt. So multi fast, I'm going to hand to Matt to explain how the dividend call works in terms of taxable income and distribution and why the dividend is set where it is set. Because I think the topic of M&A, I mean, you could look at the linear press releases or just recent events we've done in just the last several months through resolving our relationship to Cyxtera to growing our platform in India with the addition of Reliance Jio. We also just had a big announcement with the leader in the GPU space recently to disposing of some noncore assets, JVs stabilized assets and adding strategically to our landholdings across key markets. So we've been incredibly active on pieces of that. I think the broader context of M&A, I think the most critical puzzle pieces have kind of been picked over. And most of our activity from here are really, call it, extending our strategic advantages and bolt-on in nature to what we have. I don't see any like key gems out there that would be really additive to our global platform at peak. Matt, why don't you hit on the dividend, Matt, if you want that.

Operator:

The next question comes from Simon Flannery with Morgan Stanley. Please go ahead.

Andrew Power:

Thanks, Simon. So one of our top, top, top priorities is to continue to focus on delivering acceleration in that 0 to 1 megawatt interconnection cohort, enterprise connectivity in order to customers, the most granular and the largest volume of over 5,000 customers as well as our new logos. So by and large, the more quarters where that represents a larger and increasing piece of the mix and continues to accelerate like it has done recently, that is filling our existing baking capacity. It's wins at our highest rates, it's multi-market, multi-geo enterprise customers and is the place where we believe we can deliver the greatest value to our customers, most consistently and long-term and durable there will be episodic quarters where that will be a lower percentage. But that's likely enough because we've filtered our execution. That's likely because we also are supporting some of the largest hyperscalers around the world. We're bringing our capacity in over half of our 50-plus metropolitan areas, places where we can really add value to those customers where they've already landed their compute or AZs where they want to grow at our continuous capacity with operational excellence, where we have that long runway of growth that they can get from no one else. And those are we quarters where we saw larger lumpier deals, obviously, into those capacity blocks. So we think both of these are large addressable markets where we have a distinct value proposition and a competitive moat that we'll continue to focus on executing each and every day.

Erik Rasmussen:

Thanks for taking the question. Maybe just on AI. It seems most of the demand in the early stages is expected to come from training versus inferencing. But we heard from Microsoft on their earnings call, and they said that most of the AI strength that they were seeing for Azure was, in fact, from inferencing workloads. Are you seeing the same as it relates to sort of the demand patterns from your customers? And then maybe any way to quantify how much AI has contributed or the size of the opportunity. Thanks.

Christopher Sharp:

Yes. It's a great question and appreciate it, Eric. I think there's a couple of dynamics that you touched on. The training to inference. That's something that we've been watching for some time. And we're selective with some of the training environments just because we're looking for a long-term durable workload being deployed into the asset. And so a lot of the customers we see today are actually doing training or inference inside of their training just because of sheer availability of the GPUs and time to market, but we definitely see the long tail of that value happening in inference and then also kind of another section of private AI and so we're seeing customers come to market with these types of requirements where Andy alluded to this at a high level coming from our heritage of scale and then being able to evolve and support a colo type of capability, if you will, allows us to support a higher power density need with our versatile designs. And so being highly focused on that with a lot of the hyperscale customers and being foundational for their cloud services has been top of mind. And then I think another element that may be overlooked is a lot of this inference is embedded in a lot of our top customers today as capabilities. So when you read about, and I think you referenced Microsoft and the work that they've been doing with CoPilot, a lot of that AI is embedded in enhancing their current product capabilities. And so we're constantly watching how that evolves, but being proximate to the AI being proximate to the existing infrastructure and workload is absolutely something that we're very excited about because that inference benefits from the data oceans that exist within Digital Realty, their current infrastructure and how all that culminates together. So it's something you'll see play out over this year. I think we just had a really good case study with KakaoBank where that's highlighted private AI deployment where they're able to generate and do a little bit of R&D around new product offerings for a financial vertical. So these are the things you're going to see play out in 2024 that we're very excited about.

Nick Del Deo:

Hey, thanks for squeezing me in. I was wondering if you could expand a little bit on the assumptions you're making about the broader lease environment and the pricing environment to get to the 4% to 6% range for cash renewal spreads. Are you just basically taking current prices as a given? Or are you kind of assuming further increases or other changes? And can you share anything about how the expected renewal spreads look for zero to one versus greater one categories? Thanks.

Matthew Mercier:

Yes. So thanks, Nick. With regard to -- I think I'll go back to some of the comments I had, I think, from one of the first questions. So with regard to 0 to 1 megawatt, that's on both the escalation and renewals tend to be influenced by inflation where CPI is coming in. So that's going to be spread across the leases that are rolling, whether they be in North America versus EMEA. And those have come down since last year and more in that 3% to 4%, 3% to 4% range. And now on the greater than 1 megawatt, as I mentioned, we're assuming, call it, current market pricing and that's more heavily influenced by where the expiring rates are versus that. So that's within the greater than the megawatt segment, which we're assuming still positive and resulting in the 4% to 6% total that we've guided towards.

Brandon Nispel:

Hey, thanks. Just a quick question. I think in the guidance for development capital, this is the first time it's actually been guided to net of capital contributions. Can you maybe talk about what your total capital outlay will look like in '24 versus '23 on a like-for-like basis? Thanks.

Operator:

That 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.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Jordan Sadler:

Thank you, operator, and welcome, everyone, to Digital Realty's third quarter 2023 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 may make forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our third quarter. First, our customer value proposition continues to resonate. Leasing was strong across both our primary product category with record overall bookings in the 0 to 1 megawatt plus interconnection segment, and an acceleration in our greater than megawatt segment. Second, we saw a further continuation of the improvements in our fundamental metrics. Strong demand and tight supply remains supportive of pricing, and this is evident in our results. Same capital cash NOI growth was the best in more than a decade at 9.4%, while cash releasing spreads eclipsed 7% in the quarter, which caused us to raise full year guidance for these metrics for the second consecutive quarter. Third, we continue to diversify and bolster our balance sheet with almost $4 billion of capital raised to date, including two hyperscale core joint ventures announced in July, and another almost $200 million of noncore sales, bringing total dispositions to $2.5 billion year-to-date. The capital that we've raised this year has enabled us to increase our liquidity and delever while expanding our investment in development that we expect to generate double-digit unlevered returns. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Matthew Mercier:

Thank you, Andy. Let me jump right into our third quarter results. We signed a total of $152 million of new leases in the third quarter with broad-based strength across each of our two primary product groups and geographic strength in the Americas and APAC. We leased a record $54 million in the 0-1 megawatt plus interconnection category, accounting for 35% of total bookings. This product segment remains a consistent and steady source of growth as we continue to execute on our global meeting place strategy. Interconnection bookings were strong once again at over $12 million as we added another 2,000 cross connects in the quarter, finishing with 218,000 total cross-connects, greater than a megawatt bookings totaled $97 million in the quarter with outsized contributions from Portland and Hong Kong. This was our highest greater than a megawatt signings quarter since we discussed sharpening the lens with regard to capital allocation decisions one year ago. Our greater focus and increased threshold have resulted in higher average returns in the greater than a megawatt category as implied by the growing expected stabilized returns in the Americas that we present on the development life cycle schedule in our supplemental. Pricing continues to improve across most markets globally with outsized pricing power experienced within the greater than the megawatt segment, which saw pricing on signed leases at the highest level since the first half of 2016. Turning to our backlog slide. The current backlog of signed but not yet commenced leases increased to a new record of $482 million at quarter end. As commencements of $110 million were more than offset by elevated new leasing volume in the quarter. We expect nearly 15% of the backlog to commence in the fourth quarter with a little over 50% commencing throughout 2024. The lag between signings and commencements in the quarter ticked up to 12 months, driven by new development and build-outs to support larger scale leases. During the third quarter, we signed $156 million of renewal leases with pricing increases of 7.4% on a cash basis, the strongest re-leasing spreads achieved since 2015. While renewal pricing was strong across product segments and across our three regions, the overall result was upwardly skewed by a single transaction within our other category. Excluding this outlier, renewal, releasing spreads in the quarter would have been up 4.5% on a cash basis and 6.4% on a GAAP basis. We feel that this is a more representative picture of the renewal spreads that we are seeing throughout the portfolio, which is consistent with the broad-based improvement we've seen throughout this year. With renewal rates trending higher over the first 9 months of the year, we are raising our full year guidance for renewal spreads to reflect the success year-to-date and today's improved fundamental environment. Renewal spreads in the 0-1 megawatt category continued their steady climb with 4.4% growth on a cash basis in the third quarter on $125 million of volume. Greater than a megawatt renewals continued to post strong results, with cash renewals higher by 5.6%, albeit on lighter volume of $19 million in the third quarter. In terms of earnings growth, we reported third quarter core FFO of $1.62 per share, broadly consistent with consensus expectations, but down $0.06 per share versus the second quarter, primarily reflecting the impact of the asset sales and the equity raised in the quarter and the redeployment of capital into accelerated and increased development. On a constant currency basis, core FFO was $1.60 per share relative to the $1.67 we reported in the third quarter of 2022. Total revenue was up 18% year-over-year and 3% sequentially despite the impact of the more than $2 billion of asset sales completed early in the quarter as the benefits of improved pricing are starting to take hold. Importantly, year-over-year revenue growth also continues to be impacted by the significant volatility in utility costs and reimbursements, particularly in Europe. Most of these energy costs are directly passed through to customers. Excluding the impact of utility and other reimbursements, total revenue was up 13% year-over-year. Interconnection revenue of $107 million marked another quarterly record and was 12% higher than the year ago period. Excluding Teraco, interconnection revenue was up 11% year-over-year, the highest interconnection growth since 2018 and reflects the ongoing organic strength in our core footprint. Quarter-over-quarter interconnection revenue was up almost 3% and as 2,000 new cross connects were added, increasing the total global installed base to 218,000. Moving over to the expense side, utilities were seasonally high given the warmer summer months and off an already elevated 2023 base. Rental property operating expenses remained essentially flat for the second consecutive quarter, partly reflecting the benefit of the removal of expenses related to the dispositions and joint ventures. However, on the noncontrollable expense front, property taxes spiked higher quarter-over-quarter to $72 million, driven by an elevated reassessment on some of our properties in Chicago. While these expenses will be largely passed on to our underlying customers, it will also be disputed over the coming years. Net of this movement, adjusted EBITDA increased 10% year-over-year. One nonrecurring item worth noting in the quarter was the $113 million noncash impairment charge related to the lower value of our holdings in digital core REIT stock. The Singapore REIT IPO-ed in December 2021 at $0.88 per share, but was valued at $0.53 per share at the end of September, driving the noncash adjustment in our carrying value of the investment. Improvement in our stabilized same capital operating performance continued in the third quarter, with year-over-year cash NOI up a strong 9.4% but moderating by 1.5% sequentially due to the expected increase in utility bleed during the seasonally warmer months. Even on a constant currency basis, year-over-year cash NOI growth was strong at 6.6%. These results demonstrate the strongest period of organic growth in our same capital pool since 2014, and extends the turning fundamentals that we have been highlighting throughout this year. Turning to the balance sheet. We meaningfully strengthened our balance sheet during the third quarter, driven by the success that we've had on our funding plan. This progress continues today, and as a result, we have raised our full year capital raising target for the second consecutive quarter. In the third quarter, we generated over $2.6 billion proceeds from JV closings, noncore asset sales and settlement of the equity forward. Roughly $1 billion was redeployed into our development program and a little over $500 million was used to repay higher cost USD borrowings on our credit facility. The remaining amount was kept in cash, earning interest at a rate in excess of the remaining borrowings under our credit facility. As a result, at quarter end, we had over $1 billion of cash on our balance sheet and our leverage fell to 6.3x net debt to EBITDA, down from 6.8x at the end of the second quarter and we are now within spitting distance of our near 6x leverage goal that we set out to achieve by year-end. Since the end of the quarter, we paid off CHF 100 million notes that matured in October and are confident in our ability to execute on additional asset sales and development joint ventures that are left in our upwardly revised funding plan. Moving to our debt profile. Our weighted average debt maturity is over 4.5 years, and our weighted average interest rate is 2.9%. Approximately 84% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have less than $1 billion of debt maturing in 2024 and beyond that our maturities remain well laddered through 2032. Lastly, let's turn to our guidance. We are tightening our core FFO per share guidance range for the full year 2023 by $0.03 at the high and low ends to a new range of $6.58 to $6.62 per share, maintaining the midpoint of $6.60 per share. We are also tightening the range for full year adjusted EBITDA, affirming our full year guidance midpoint of $2.7 billion. Our full year revenue guidance range is being adjusted down by about 1% at the midpoint to a new range of $5.475 billion to $5.525 billion to reflect the impact of lower pass-through oriented tenant utility reimbursements given the moderation in electricity pricing in EMEA. Importantly, you'll recall that last quarter's core FFO per share guidance reflected a $0.05 to $0.07 per share impact from a bankrupt customer, including $0.02 that was realized in the second quarter. In the third quarter, we received all of the rent due from this customer across our portfolio, but we did incur a $0.01 write-off related to unpaid utility expenses and we expect that we could see up to another $0.02 of dilution related to this customer in the fourth quarter. In addition, we could see up to $0.01 of drag related to the carryforward of increased Chicago property tax assessment and $0.01 of drag related to the acceleration and increase of development spend as we capitalize on the opportunities we are seeing in front of us. With the continued improvement in our fundamentals during the quarter, we are also updating the organic operating metrics supporting our full year guidance, including cash and GAAP re-leasing spreads of over 5%, up from 4%. Same capital cash NOI growth of 6% to 7%, representing a 200 basis points increase versus prior guidance and a reduction in year-end portfolio occupancy to between 83% and 84%, reflecting the delayed timing of the sale of a vacant nondata center asset in our portfolio. Given the successful leasing executed in the third quarter and the increased level of demand embedded within our pipeline, we are increasing our full year development spend guidance to $2.7 billion to $2.9 billion for 2023, representing the $400 million increase at the midpoint. Similarly, reflecting the continued execution on our funding plan to date, we have also updated our guidance for dispositions and JV capital to $2.7 million to $3.2 billion, representing a $350 million increase at the midpoint, which is in line with the increase in our expected development spend for this year. While development has been an important driver of our growth for the last decade, in the short term, we are experiencing the headwinds from the sharp regime change in interest rates. This year, we've sold assets at 6 caps, and new borrowings on our liner at similar levels, whereas GAAP requires us to capitalize interest at our weighted average borrowing cost of less than 3%. In other words, increasing our development spend today, to capitalize on the growing opportunities we are seeing is dilutive to near-term earnings. These projects underway are completed at incrementally higher yields and the relatively low rate of capitalized interest burns off, we expect development completions will become increasingly accretive to core FFO per share. The good news is that fundamentals are helping to mitigate a portion of this dilution. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, please begin the Q&A session.

Jonathan Atkin:

Thanks. So I was interested in the development JVs that you alluded to. It sounds like there's something relatively imminent or maybe a couple of transactions. Can you point to the leverage reduction benefit that we should expect? And then related to that, give us a sense of the tailwinds and the headwinds that might affect core FFO per share for next year? Thank you.

Gregory Wright:

Yes. Thanks, Jon. Look, I think as Andy mentioned, look, last quarter, which we already announced, we were - we had our two stabilized joint ventures with TPG in Northern Virginia and obviously, GI and Chicago, which generated about $2.2 billion of proceeds. And we -- what we found in that process was demand was very robust to invest in data center assets in the private market, and the same holds true. We're continuing to see even more demand for stabilized assets. And I would go as far as to say it's even greater investor demand, when you look at the development potential development JVs. All I can tell you is we're working hard, and we hope we have something here in relatively short order to report. But right now, no more guidance than that. Other than that, demand remains strong, and we remain encouraged.

David Barden:

Hi, guys. Thanks for taking the question. I guess I want to follow-up a little bit on the second part of Jonathan's question, which was thinking about 2024. When we began 2023, we were looking at same-store cash NOI growth in the mid-3s and now it's pushing towards 7%. We're talking about a decade level improvements in interconnection and sub-megawatt leasing and greater than one megawatt leasing. Andy, you frequently talked over the year about how re-leasing and greater than one megawatt, you couldn't confidently say would be greater than zero and here we are. And then we've lapped the first year of the Teraco acquisition, which was supposed to be dilutive in year one, neutral in year two, accretive in year three. So outside of some accounting issues, it kind of feels like all the needles are pointing up into 2024. And before I get too excited, tell me where I'm wrong?

Matthew Mercier:

Yes, sure. Thanks, David. I mean I think we - and we kind of talked about this a little bit towards the end of my prepared remarks, but I think, as we've been - one, we've been pretty clear about a desire to deleverage, which we've made substantial progress on. We started the year close to $7 billion, we're at $6.3 billion. We're making progress on that like, I stated at the start of the year. And we're doing that through level of capital recycling asset sales that are going to have an impact not only on this year, but we'll have some follow-through into next year. And we're doing it at a time also where we're looking to take advantage of what we see is a great opportunity in the market, where supply-demand fundamentals are about as strong as they've been. And we see opportunities to deploy capital, but that capital is coming at a higher cost today than it was. And therefore, it's dilutive near term, until that capacity comes online. And we think it's the prudent thing to do, but that's part of the dynamic that we're dealing with.

Michael Elias:

Right. Thanks for taking my questions. First, could you help us think about the sources of funding? And really what I mean by that is you raised equity at $97 a share, but you didn't raise equity when your stock was at $130. Presumably, the cost of that equity would have been lower than selling assets at, call it, a 9% cap rate. Just wondering how you're thinking about the use of equity as you march towards that, call it, 5.5 times leverage target next year? And then I have a follow-up? Thank you.

Gregory Wright:

Yes. Thanks, Andy. Hi Michael, Look, I don't think it's right to say a 9% - you're selling an asset at a 9% cap rate versus what your implied multiple is on your company. In our minds, from a capital allocation perspective, those are two very different things. One is the assets we sold, they're noncore assets, right? One's in Watford, ones in Chantilly. Anyhow what does that mean to us? I mean these are non-campus assets with limited connectivity, right? And when you look at Chantilly, Wilson Nova, it's neither of the major markets of Loudon and Manassas, right? And so when you look at these assets, they're older, they're stand-alone assets. Now this is a very, very small portion of our business. But we call these assets out. So I don't think we can sit here and assess a cap rate on one or two non-core assets versus selling equity in the business. These are assets that are not part of our core business going forward and non-strategic to us, that's a very different analysis. So, I would just caution folks to say, Hey, here's a couple of assets that were non-core that were signed as a nine, therefore, that's not the right cost of capital play or the right capital allocation, because I think it is.

David Guarino:

Hi. Thanks for taking the question. On Page 9 of your presentation you put out today, it feels like those new leasing bars, they just keep reaching to the sky. You think there's a sustainable pace of activity for Digital Realty and maybe even broadly, is it a sustainable pace for the industry as a whole? Or is there a risk maybe that the dirty word digestion phase starts to come back into our vocabulary again?

Operator:

The next question comes from Eric Luebchow of Wells Fargo. Please go ahead.

Matthew Mercier:

Sure. Thanks. So I think, first off, I think as a note, we feel pretty confident about the pricing environment right now and - that I think we demonstrated that with the continued increase in releasing spreads that we put into our guidance, where we said greater than 5%. And we've had - we called out some items this year that have been, we'll call it, slight outliers, but we'll - we still see a strong pricing environment that were. And we expect that to continue into the fourth quarter where, we expect positive renewal spreads across all of our product types. I think going into next year, again, not giving guidance, what I would say is come back to the environment that we're in. I mean, there's nothing that suggests that pricing won't continue to be robust and strong across all of our major markets, where things might be different. Again, that you were alluding to is the basis against which those strong pricings are compared against. We are not seeing the same, I still expect that we'll have positive renewal spreads next year, but we'll be able to provide more granularity in terms of the level that, that is once we give guidance next quarter.

Frank Louthan:

Great. Thank you. So when you guys are having conversations with a customer that's primarily looking at an AI deal when you win an AI deal, what is it that they're coming to you for versus maybe some of the less expensive campuses kind of the middle of nowhere that we've heard about and that sort of thing. So how are you winning in AI? And what is it they're looking to get from digital versus some of your peers or some of the private players?

Colin McLean:

Sure. Thanks, Andy. Frank. I appreciate the question. I would just amplify what Andy is saying is the demand principles are not monolithic. I mean you're talking about a wide gamut of requirements across the customer platform, which really plays well to our broad-based portfolio. So I think we do as good a job as any to support broad-based requirements and Catechist's capacity. But also having mixed dynamic requirements in terms of densities. And so what we try to do is to map that right customer to right market to right workload. And again, across 300-plus data centers, I think we can serve that pretty well. We also feel pretty strongly that core market orientation, i.e., proximity to eyeballs and GDP is still going to remain a core requirement for much of this AI workload. So, we feel like that maps really well to our course of assets across the globe.

Irvin Liu:

Hi. Thank you for the question. So Greg mentioned the strength in demand for both stabilized and development JVs, but in light of a more volatile rate environment, especially in recent weeks, have you sensed any meaningful shifts in the appetite for JVs when you're discussing with potential partners?

Gregory Wright:

I mean no. Look, it's a good question, but the answer is no. Remember, when investors are out there making investments in different sectors, right? Everything is on a relative basis. And I think when investors look at data centers today, and they look at the quality of the facility, the quality of the customer base, the term of the lease, the strong organic growth in the business today. It's the best place for them to invest. In fact, I would argue that over time, you're going to continue to see data centers becoming more mainstream investing rather than a niche play investing when you look at the level of demand out there, whether it's through pension funds, endowments, sovereign wealth funds and the like. So no, I mean, it's also an interesting as there's pockets of capital that are driven - we'll do this unlevered. So they're willing to be patient and wait for leverage and wait for rates to come back down. And I think that also, to your point, Ivan, and I think that's what I mentioned earlier, there's even an outsized demand on the development side. I think the fact that we're in a higher rate environment is driving more demand, if you will, towards development. So - but no, we have not. In fact, I would go the other way. I would say that we've seen an acceleration in the demand for development JVs.

Michael Rollins:

Thanks and good afternoon. When you take the demand that you're seeing, the backlog and the target for the development joint ventures, can you give us a bit of a preview on the range of development capital that digital will place on balance sheet in 2024?

Operator:

The next question comes from Matt Niknam of Deutsche Bank. Please go ahead.

Matthew Mercier:

Yes. Thanks, Matt. This is Matt as well. So yes, we've had what - I think the important points that I'd call out here are two things. One, the majority of the increase that we've seen over the last couple of quarters in our accounts receivable has been tied to actually VAT receivables as a result of the increased construction that we've had, particularly over internationally in EMEA. When you look at our trade payables, which are really only actually roughly half or a little over half of that balance, we have increased trade payables over the period, but it's also been fairly much in line with our increase in revenue as well. And we've actually been able to bring down our amount of trade payables in the last couple of quarters as well. But again, it doesn't appear that way when the total receivables balance has increased. But again, I think the two sailing points are only - roughly only half of our - that balance is tied to what I call trade receivables, which are actual rent and other billings that are sent to customers. A good chunk is related to VAT receivables tied to our construction, which has been the part that's been growing more substantially, which also has, a liability offset as well.

Ari Klein:

Thanks. Maybe following up on the JV question. Fundamentals are really strong. It feels like you believe there's a lot of runway there. Obviously, there are funding considerations. But have you rethought perhaps pursuing a JV versus going at it on your own and essentially keeping the upside to yourself?

Operator:

The next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Andrew Power:

It's not budget overruns or anything like that, it is called conviction in the demand landscape. And I mean we can - Matt can run through it. But I think the biggest piece is Northern Virginia, which goes back to our success in freeing up, call it, 100-plus megawatts in the Loudoun County pinch point and now activating that. But Matt, anything else I'm missing there?

Operator:

The next question comes from Nick Del Deo of MoffettNathanson. Please go ahead.

Andrew Power:

Hi. Thanks, Nick. So, I could tell you just yesterday, my team and I were on a called recurring check in with one of our top cloud customers. And that dialogue was multifaceted. It was obviously concentrated on how we can support their growth in their availability zones, how we can commence faster. There's operational elements, it ranges across all the theaters and it also had how we can drive greater consumption to their cloud. And their services from our 5,000 existing customers from the 100 plus we added this quarter and the next quarter, how we're integrating them onto our service fabric natively. And so, I think we are - and I think you're seeing those results paying dividends in that customer appreciation. And you're seeing that in the litany of, call it, magnetic destinations, be it the on-ramps we announced around the world as well as the pickup in the demand that we characterize as less than megawatt interconnection accelerating. So, I do see a connection there. I think we've delivered a tremendous amount of value to our customers, improving their top line and their bottom lines in a safe, secure fashion. And when obviously, I think some of your question was dovetailed also to some of the larger customers, I think that we're just being transparent and honest with these customers that we're really trying to build a durable business to stand the test of time. And that doesn't mean we try to win 100% of a hyperscales market share, but if we're in 50 metropolitan areas, there's probably 25 or 30 where we have something that they really need, and we can really help them like no other. And that's through our supply chain, our large campuses that future-proof their growth, operational excellence and other value adds and just being a one-stop shop for all their needs. So, I think that's a long, long-winded answer to yes.

Erik Rasmussen:

Yes. Thanks for taking the question. Just getting back to the development JV. This is obviously the missing piece in the capital recycling efforts. But - and I saw that you raised the disposition guidance for the year. Is $750 still a good range for this? And I guess, from your commentary, it seems like there's more than one deal that this can represent?

Operator:

The next question is a follow-up from Michael Elias of TD Cowen. Please go ahead.

Andrew Power:

Thanks, Michael. So I think, I'd point you to our development schedule, which has now been in the double-digits category across the board for the whole portfolio, including an increase in, call it, 65 megawatts quarter-over-quarter. North America, where, I would say, is the current home to the largest deals is in double-digit by itself and has moved up dramatically. I don't - when we look at the risk award, there's obviously episodic scenarios where returns for big deals with hyperscalers couldn't go higher. But I think that the - once you kind of ascend into the double-digits, given the current state of, call it, cost of capital in general, I think you're in the proverbial end zone in terms of creating value on many ways. So I wouldn't bank on incremental stair stiffs of shifts beyond that. But I think, we're in a time in the world where the demand remains robust and diverse, outpacing supply. That dynamic does not feel to be abating. And I think we've got a great hand to support tremendous customers' growth around the globe and create a lot of value for a lot of stakeholders.

Andrew Power:

Thank you, Andrea. Digital Realty had a strong third quarter. Our results demonstrate that our value proposition is resonating with our customers. We posted another quarter of strengthening organic operating results with record 0-1 megawatt bookings, strong re-leasing spreads and our best same-capital cash and ROI growth in over a decade. During the first nine months of the year, we've raised over $3.5 billion of new capital, enabling us to meaningfully delever while reinvesting to support our customers' growing needs, and we are not done yet. I'd like to thank everyone for joining us today and express my personal gratitude to our dedicated and exceptional team at Digital Realty to keep the digital world spinning. We look forward to updating you on our progress and meeting with many of you at NAREIT in L.A. in a few weeks. Thank you.

Jordan Sadler:

Thank you, operator, and welcome everyone to Digital Realty's second quarter 2023 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 may make forward-looking statements, including guidance and underlying assumptions on today’s call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our second quarter. First, our customer value proposition continues to resonate. We delivered yet another strong quarter of leasing in our zero to one megawatt plus interconnection segment and saw a healthy rebound in greater than a megawatt leasing. And second, this past quarter confirmed the continued inflection of fundamentals we have been speaking about for much of the past year, supported by a strong pricing environment. Releasing spreads were the strongest in three years and stabilized same cash NOI grew by 5.6% marking the second consecutive quarter with positive growth and the best growth in almost nine years. And third, we bolstered our total liquidity, which now stands at more than $4 billion and further diversified our capital sources and reduced our leverage well off of peak levels through more than $2 billion of dispositions and JVs and over $1 billion of equity issued under our ATM. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Matthew Mercier:

Thank you, Andy. Let me jump right into our second quarter results. We signed $114 million of new leases in the second quarter, with broad-based strength across the zero to one megawatt plus interconnection segment in each region. We leased approximately $50 million in the zero to one megawatt plus interconnection category, accounting for 43% of total bookings and becoming a larger part of our overall bookings since last year. . Interconnection bookings were strong once again at over $12 million, concluding a record 12-month period. Zero to one megawatt bookings, excluding interconnection, were among our strongest ever at $37 million. Digital Realty has come a long way over the past four years, more than tripling our bookings in the zero to one megawatt plus interconnection segment through a combination of organic and inorganic growth. These results demonstrate that our full spectrum strategy is working. Greater than a megawatt bookings totaled $61 million in the quarter, a meaningful bounce back from last quarter's timing-oriented pause. EMEA was the standout, including strong contributions from Johannesburg, Paris and [indiscernible] while we also saw notable strength in Northern Virginia and Tokyo. We also continue to overindex towards CPI-based escalators within our new leases with 35% of the newly signed leases in the quarter contained inflation-linked increases with fixed rate escalators on the balance. Pricing has improved in many markets. With our largest market, Northern Virginia, seen nearly a doubling of rates over the past year in response to supply constraints. Illustrating the changing tide in Ashburn, during the quarter, we opportunistically took back 8 megawatts of lease capacity from an existing customer and released it to another customer at a substantial premium. The original lease was signed in the first quarter of last year. Accordingly, our new leasing for the quarter only represents the uplift in rent achieved versus the prior lease rather than the full annualized value of the new lease. While we have previously tempered enthusiasm around the potential mark-to-market opportunity in Northern Virginia, we are encouraged by this recent transaction and our increased development potential and growing colocation and connectivity offering in this market. Aside from the shift seen in Northern Virginia, we have also seen an improvement in rates across the Americas as well as in EMEA and APAC. Looking forward, our demand funnel remains healthy with strength across product types and geographies. We expect ongoing and newly approved development capacity to be an important contributor to our growth through next year. Turning to our backlog slide. The current backlog of signed but not yet commenced leases was $437 million at quarter end as commencements were once again well over $100 million, balanced by new leasing. We expect the remaining $150 million of commencements in the second half of 2023 to be somewhat evenly weighted between the third and fourth quarters. The lag between signings and commencements in the quarter was 11 months as certain hyperscale customers await build-out completions. During the second quarter, we signed $211 million of renewal leases with pricing increases of 6.9% on a cash basis, our strongest renewal pricing in three years. This strength was shared across both product segments and across our three regions, continuing the broad-based improvement we saw last quarter with renewal rates trending over 5% during the first half combined, we are raising our full year guidance for renewal spreads to better reflect the success year-to-date in today's improved fundamental environment. Renewal spreads in the zero to one megawatt category continued to climb for the sixth consecutive quarter to an increase of 4.8% in the second quarter on $133 million of volume. Greater than 1 megawatt renewals were even stronger in the second quarter as cash releasing spreads increased by considerable 8.7% on $73 million of renewals, the largest increase within this category since the third quarter of 2019. Turning to our operating results. Our operating and financial performance in the second quarter was a bit better than our expectations highlighted by many of the same factors we highlighted last quarter. The continued improvement in our core operating performance, another record quarter of interconnection revenue and well-controlled expenses. In terms of earnings growth, we reported second quarter core FFO of $1.68 per share, 2% better versus the prior quarter and consensus expectations. On a constant currency basis, core FFO was $1.69 per share relative to the $1.72 we reported in the second quarter of 2022. Total revenue was up 20% year-over-year and 2% sequentially. The year-over-year revenue growth was impacted by both the inclusion of Teraco this year and the significant volatility in utility costs and reimbursements, particularly in Europe over the past 12 months. Most of these energy costs are directly passed through to our customers. Excluding utility reimbursements, total revenue was up 12% year-over-year. Critically, our rental revenues in the second quarter included a $25 million onetime write-off of noncash straight-line rent and the $6 million bad debt reserve related to a tenant that declared bankruptcy during the quarter. We also wrote off $3 million of noncash straight line rent related to the re-leasing opportunity we executed in Northern Virginia. These write-offs of noncash straight-line rent of approximately $28 million combined are excluded from core FFO per share. Interconnection revenue was at a record level in the quarter, increasing by 12% year-over-year and 3% sequentially. Excluding Teraco, interconnection revenue was up 8% year-over-year, reflecting the ongoing organic strength in our core footprint. Bookings were higher in all three regions and ServiceFabric activations doubled in the quarter. Other than utility costs, expenses were well contained as rental property operating expenses and insurance were both flat sequentially, resulting in adjusted EBITDA growth of 14% year-over-year and 4% sequentially. Improvement in our stabilized same capital operating performance continued in the second quarter, with year-over-year cash NOI up 5.6% and 1.7% sequentially. This marked the strongest year-over-year growth in our same capital pool since 2014, demonstrating the turn and fundamentals that we have been highlighting. The improvement was driven by an 80 basis point increase in occupancy as commencements outpace churn with upside from rent escalators and stronger-than-expected releasing spreads. While we're very encouraged by the improvement we've seen to date in this metric and the trend does indeed appear to be our friend, our enthusiasm for the second half of 2023 is tempered by the uncertainty related to a recent customer bankruptcy filing. We expect to know more about the potential impact by the time we report third quarter results. Turning to the balance sheet. As Andy outlined in his remarks, as of this week, we are meaningfully ahead of the funding plan that we laid out for you in February. We have already closed an approximately $2.2 billion of asset sales and stabilized joint ventures and expect to make additional progress on development joint ventures in the second half of this year. Specifically, earlier in July, we closed on the sale of a 65% interest in two stabilized hyperscale data centers on our Chicago campus, raising $743 million of gross proceeds. And as announced this afternoon, we sold an 80% interest in three stabilized hyperscale data centers on our Ashburn campus, raising another $1.3 billion of gross proceeds. Including proceeds from the sale of the noncore asset in Texas, we announced last month, we've raised over $2 billion in capital at a blended average cap rate of just over 6% so far this year. In addition to this capital recycling activity, during the second quarter we raised $1.1 billion of proceeds from the sale of 11 million shares of equity under our ATM. Included in this total was approximately 3.5 million shares or $335 million that was structured as forward equity issuance. These shares were settled earlier this week. Our reported leverage ratio at the quarter end was 6.8 times, while fixed charge coverage was 4.2 times. Pro forma for the JV transactions and the settlement of the forward equity outstanding at quarter end leverage was 6.3 times, putting us on track toward our near 6 time target by year-end. Moving on to our debt profile. Our weighted average debt maturity is nearly five years and our weighted average interest rate is 2.7%. Approximately 84% of our debt is non-US dollar denominated, reflecting the growth of our global platform. Approximately 83% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have minimal near-term debt maturities with only $100 million maturing during the rest of this year and a well-laddered maturity schedule throughout the out years. Lastly, let's turn to our guidance. We are affirming our full year revenue guidance range of $5.5 billion to $5.6 billion and adjusted EBITDA guidance of $2.7 billion at the midpoint as the recent acceleration in capital recycling has been balanced by better-than-expected releasing spreads and same capital cash NOI. We are, however, adjusting our core FFO and constant currency core FFO per share guidance ranges for the full year 2023 by $0.10 per share to a new range of [6.55 to 6.65] (ph) to reflect the following

Unidentified Participant:

Good afternoon, everyone. Thanks for taking my question. You have [Alex Waters] (ph) on for Dave. Congrats on the new JV deal. Just wanted to know if you could walk us through kind of what line of sight you have for the development JV pipeline. And then looking into 2024, can you speak to how comfortable you are with the funding pipeline? And then secondly, on the core business, you've had strong releasing spreads on the greater than 1 megawatt side. Just curious on what your expectations are for this bucket heading into the second half of the year and into 2024. Thanks.

Gregory Wright:

Sounds good. Thanks, Alex. Look, with respect to the development JV guidance, we're still comfortable with our full year development JV guidance that we provided previously. That's roughly [750] (ph), give or take. And that's obviously the plug, if you will, between the $1.5 billion to $2.5 billion last time, which now becomes $2.2 billion to $3 billion. Look, we remain engaged on these transactions over the second half of the year. And what we're seeing out there just as with the stabilized joint ventures, there's strong demand for the development joint ventures, particularly given that these JVs offer the highest returns and they have a lot of moving parts, though. So given the strategic considerations here, these tend to take a little longer. So, I'd say we remain optimistic and on track for those. With that, I'll turn it back over to Matt and Andy.

Matthew Mercier:

Yeah, I might just add that, again this quarter we saw all of our greater than megawatt renewals were in positive territory, and that includes across all regions as well.

Jon Petersen:

Great. Thank you very much for taking the questions. Good job on the execution on the JV deal. I wanted to ask about the 8 megawatts where you had an uplift in rents. I know you talked about it, but I'm sorry, can you maybe break down like what kind of drove your ability to push those rents higher? And if you were to take that out, what were the rents per kilowatt hour in the greater than 1 megawatts in America?

Matthew Mercier:

Yes, sure. So just to be clear, the deal that you're -- that we're talking about here is not included in our renewal stats. What we are doing is showing just the net incremental revenue that we expect to recognize within our signing stats. And you'll see that more clearly when you look at Page 8 of our supplemental, in particular, in North America, the greater than a megawatt, you're going to see a deal -- you're going to see the 300 KW rate, and that's because we're only showing the incremental revenue and not the associated megawatts attached to it. If you put that deal in at, call it, 100%, you got 300 KW that would come down to 148KW. But again, it was a substantial uplift from the in-place lease. It was over 50% higher than what we had currently.

Matthew Mercier:

Including, that would be our blended rate, if you look at Page 8 in our supplemental versus the 300KW, okay.

Andrew Power:

So, John, the NOVA market, the facts, I would say, remain the same in terms of transmission lines and arrival of utility power, which has really created an environment of demand well outpacing supply. We are, I'd say, less right now focused on signings that don't commence until 2026 based on the uncertainty of when in 2026 exactly that power rise. And quite honestly, making sure that we're maximizing the opportunity at hand for us. That market has seen dramatic price improvement. We've signed deals in the larger categories, call it, 140 or north of that per kilowatt. Again, that market was in the 70s, not so long ago. And the good news, as we reported, given our breadth and history in that market, we've been able to work with our utility provider and really cobble together incremental growth capacity for our customers across our campuses. If you add them all up, prior to the 2026 arrival, call it, by 2025, if not sooner, you're approaching, call it, 100 megawatts of growth capacity in Ashburn, which is in addition to our growth capacity that we have in Manassas.

Michael Elias:

Great, thanks for taking the question guys. To start, in recent months we've seen the volume and size of deals increase. And to that point, there are many requirements on the market right now that are over 100 megawatts. As you considered the strategy moving forward, is it your intention to compete for these deals? And if so, are you willing to pursue these deals with or without a development JV lined up with the understanding that these projects will drive long-term shareholder value? And then I have a follow-up.

Michael Elias:

Great. And then just to piggyback on that point about maximizing the opportunity. If I go back to the third quarter of 2022, you guys were clear that you were sharpening the lens to which you looked at investments with the intention of driving higher risk-adjusted return. As we think about hyperscale deals in which you would lease an entire into a single hyperscaler on a turnkey basis. Could you give us a framework for thinking about what the appropriate spread between your unlevered development yield and your cost of capital should be to make it worth it to lease it to the hyperscaler? Thank you.

Operator:

The next question comes from Jon Atkin of RBC. Please go ahead.

Andrew Power:

Matt can speak to the funding in our sources and uses in the guidance and leverage, and then Chris and I can [indiscernible] the India piece?

Gregory Wright:

Just on India, just -- I mean, I think it’s less about the assets. It's more -- obviously, they're going to be share in development opportunities in a huge market with a lot of growth, but it's really about a great, fantastic new partner to the partnership. And maybe Chris can touch on Jio and what we think they bring to the table here.

Jonathan Atkin:

If I could quickly add on interconnect trends and anything to expect going forward in terms of just the trajectory, any particular reason why it might see pressure because of grooming or acceleration because of new use cases and is AI play a role at all in the interconnect at this point? Thanks.

Operator:

The next question comes from David Guarino of Green Street. Please go ahead.

Gregory Wright:

David, it's Greg here. Look, I think when you take a look -- as we laid out, and Andy laid out at the beginning of the year, the reason for finding these development partners is, look, when you look at this opportunity in the hyperscale business today, it goes well beyond our balance sheet even at $55 billion. So when you look at that, what it tells you is you got to have third-party capital to meet the customers' needs within -- throughout the globe for that business. So as we sit here today, even though we have, as you said, we've exceeded our guidance on what we were going to do. [indiscernible] look at this strategically go forward, and we think that's the best way to fund that business to create value for our shareholders. So that's why we're going to continue to fund it through development. And we think that's the most prudent way to move forward with it.

Andrew Power:

David, just to add on to the last question, and I could [indiscernible] the second part of your question. The -- I think there's been -- our balance sheet today has, call it, north of 3 gigawatts of growth capacity around the world. And we see that expanding and having the balance sheet to be help funded alongside some great partners is another part of becoming more efficient and more quickly driving returns and results to our bottom lines. In a market and an opportunity backdrop that keeps getting bigger, it was large to begin with, cloud computing accelerated that with hyperscale demand. And AI is just an incremental lift to this wave of demand. Hence, we believe the best way to tackle this opportunity and support our customers while driving results to the bottom line is in partnerships on the capital front. When it comes to the customer bankruptcy, obviously, this customer is in the middle of bankruptcies so can't share too much. The typical playbook is the creditors essentially have to run a process for the assets or the business. And as part of that, make decisions on either accepting or rejecting leases. We have not, to date, had any leases rejected so far. While they have rejected other providers or landlord leases, I don't think you can assume that every one of our leases despite that fact will be accepted. But from a strategic lens, this is why years ago we increased our capabilities and be able to expand in the colocation interconnection offering and support end customers. So when -- if and when we sell to customers would have issues, we can essentially step in and support the end customers and have adequate financial outcomes and the [indiscernible] capabilities. So that there's a little bit of wait and see as this customer works its way through bankruptcy, and I think we'll have more to report by the third quarter call.

Michael Rollins:

Thanks and good afternoon. Just a couple of follow-ups. So first, as you're looking at the portfolio, what's the value of data center assets that you own that could be considered for future joint ventures? So what's left in terms of opportunity for recycling? And then also, can you just provide us an update on how you're doing and the opportunities to improve, whether it's overall occupancy or same capital occupancy within the portfolio? Thanks.

Matthew Mercier :

Yes. So I call out a couple of things. So first, I mean, we have been making what, I would say, is good to great progress so far. If you look at it versus last year, were up 80 basis points on our stabilized pool. We're going to continue, we think, to improve that over the course of this year into next year. And that's going to be a mix of essentially twofold, spaces where we believe that there's opportunity for larger customers. We're going to continue to target that given density requirements and the growing need for capacity across a global portfolio that we have, we're going to find opportunities to fill that in. But I think part of it and part of why it takes -- it's going to take a little bit more time to continue to improve the overall occupancy is that we're also looking where we can convert some of that space that we do have in the productized co-lo lease that over time because we see the growing need for enterprise demand and where we want to be able to capitalize that which is a higher return and a market that we want to be able to penetrate and grow even further from where we are today.

Frank Louthan:

Great. Thank you. Can you comment on the situation in Singapore, I guess, with the government allowing a few new players coming in. How do you think that affects the pricing there? And then looking at the capital recycling, kind of where do you go from here? I know you are continuing to look at other diversification strategies. Is this kind of sort of finish this out? Or what are some other areas of capital sources that you can look at to reach that goal? Thanks.

Gregory Wright:

Yes. Thanks. Look, I think as we said, we're going to continue to focus our efforts on the remainder of this year on our development joint ventures we talked about. But to answer your question specifically, you asked about other sources of capital, we're -- how we think about it. Look, I think as a whole, we've done a pretty good job so far. As we said, we have the dedicated core REIT in Singapore. So that's a public vehicle. We've obviously just announced two transactions what we would characterize as distinguished blue chip investment partners in both GI and TPG. And look, we continue to see strong interest across the board, so not just [indiscernible], but we see infrastructure funds, sovereign wealth funds, pension funds, insurance companies and the like. So we're seeing a broad-based demand here, looking at transactions, both stabilized core assets and development assets. So look, we're bullish on that. And when we look at that again, we think that's the prudent way to fund our growth going forward.

Eric Luebchow:

Great. Thanks for taking the question. So Andy, I think you've talked about getting down to 5.5 times leverage longer term. So maybe you could just walk through the path to get there beyond this year. And how much incremental capital recycling or JVs or other forms of capital you think you might need if you look past this year? And is the goal here to ultimately becoming more self-funding so that you can share more of the economics yourself instead of using development partners?

Eric Luebchow:

Okay. Great. And then just one follow-up. I think you still had some noncore portfolios out in the market today. And I guess given how successful you've been with capital recycling so far, is that kind of becoming less of a priority as you look forward? Or do you still plan to transact on some of those markets that are out there today?

Operator:

The next question comes from Irvin Liu of Evercore ISI. Please go ahead.

Andrew Power:

Hi, Irvin, that's a great question. I'm going to turn it over to our CRO, who really grabbed the baton and ran through the finish line strong, Colin McLean, to talk to what we saw on the AI front and maybe just give a little bit more color on the quarter in terms of bookings and new customers.

Irvin Liu:

Got it. Thank you for the color there. So my second question is on the strong pricing that you saw over the past two quarters. Can you just share with us how pricing trended quarter-to-quarter and the overall linearity of pricing trends now that we're one month into Q3?

Operator:

That concludes the question-and-answer 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.

Operator:

The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.

Jordan Sadler:

Thank you, operator. And welcome, everyone, to Digital Realty’s First Quarter 2023 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, Corey Dyer are also on the call, and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today’s call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our first quarter. First, our customer value proposition is resonating as we delivered yet another strong quarter of nearly $50 million of leasing in our zero to one plus interconnection segment, including our second strongest quarter of bookings in EMEA and record interconnection bookings, helping to push interconnection revenue over $100 million in the quarter for the first time. Second, the first quarter delivered on the inflection and fundamentals we have guided to for 2023 as demonstrated by 4.5% re-leasing spreads on renewals and a 3.4% increase in stabilized portfolio cash NOI growth. And, third, we remain confident in our funding plan for 2023. We are deeply engaged in the process with multiple institutional buyers, including new and existing partners and we’ll update you on specifics once we finalize the transactions. With that, I’d like to turn the call over to our President and CEO, Andy Power.

Matt Mercier:

Thank you, Andy. Let me jump right into our first quarter results. We signed a total of $83 million of new leases in the first quarter, highlighted by a second consecutive quarterly record in interconnection signings and continued strength in the 0-1 megawatt category, particularly in EMEA, which nearly matched the record level from last quarter. 0-1 megawatt plus interconnection accounted for a robust 57% of total bookings. Our greater than a megawatt bookings moderated to $35 million in the quarter. Though this activity was broadly dispersed throughout our global portfolio with leases signed in Toronto, the U.S., Mexico, Europe and South Africa, but nothing in Northern Virginia. These deals can be lumpy and the downtick in the greater than a megawatt leasing follows a record year in 2022, in which we signed more than $370 million and 288 megawatts of new leases. Importantly, our demand funnel remains quite strong as a number of our highly strategic customers remain actively engaged and are seeking to add capacity across our global portfolio. Of course, as we have discussed on the last few calls our largest scale market, Northern Virginia, is experiencing capacity constraints as a result of the power transmission issues that emerged last summer. Over the course of the last three years, including the second half of 2022 we signed approximately $20 million per quarter of new leases in Northern Virginia, versus $2.5 million of new leases signed in this market in 1Q 2023. As I’ll expand on in a moment, we expect the ballast to lower new lease volume to show up in better pricing including renewal spreads. Turning to our backlog slide. The current backlog signed but not yet commenced leases was $434 million at quarter end, as commencements were once again well over $100 million, partly balanced by new leasing. We expect the remaining $200-plus million of commencements in 2023 to be somewhat evenly weighted throughout the balance of the year. The lag between signings and commencements in the quarter was 16 months, principally due to a few larger long-term leases that require buildouts. During the first quarter, we signed $155 million of renewal leases with pricing increases of 4.5% on a cash basis, our strongest renewal pricing quarter since the early days of the pandemic. The strength was shared across both products and also across our three regions. So we’re off to a good start relative to our full year 2023 guidance. Renewal spreads in the 0-1 megawatt category continued accelerating up 4.6% in the first quarter on $118 million of volume, nearly 400 basis points faster than it was in the final quarter of 2021, but also more than 100 basis points better than full year 2022. Greater than a megawatt renewals were similarly strong in the first quarter, as cash re-leasing spreads increased by 4.4% on $30 million of renewals. We were also pleased to see 100% of the leases signed in the quarter roll up in this category, and we remain optimistic about the potential for the rest of this year. Turning to our operating results. Our performance in the first quarter was a bit better than our expectations, highlighted by the continued improvement in our core operating performance, higher development returns and a record quarter in interconnection revenue. In terms of earnings growth, we reported first quarter core FFO of $1.66 per share, $0.01 better versus prior quarter and a $0.01 light relative to last year. On a constant currency basis, core FFO was $1.69 per share relative to the $1.67 we reported in the first quarter of 2022. Total revenue was up 19% year-over-year and 9% sequentially. As discussed on the last call, this revenue growth is somewhat distorted due to the significant increases in utility costs and reimbursements as the impact of last year’s energy price increases went into full effect in January. As most of you understand, the large majority of energy costs are directly passed through to our customers. Excluding utility reimbursements, total revenue was up 13% year-over-year and 4% sequentially, while reimbursements remained a relatively consistent percentage of utility expenses at 92%. Due to a decline in spot energy prices between the fourth and first quarters, our top line revenue including utility reimbursements from our customers was more than $40 million below our original forecast, but this was directly mirrored by lower-than-expected utility expenses, since these expenses are directly borne by our customers. Interconnection revenue was up 5% sequentially, reflecting the ongoing improvement in our core operating performance. Other than utilities, expenses were well contained as NOI margins, excluding utilities, remained steady, resulting in adjusted EBITDA growth of 10% year-over-year and 4% sequentially. On our last two calls, we’ve highlighted the improvement in operating performance that started to emerge with our stabilized same capital portfolio, but was largely masked by FX headwinds. These positive trends strengthened further in the first quarter despite continued year-over-year currency headwinds. Same-capital cash NOI grew 3.4% in the first quarter compared to 1Q 2022, demonstrating the turn in our core operations that we have been discussing. The step-up was driven by a 90 basis point improvement in same-store occupancy as commencements outpace churn, upside from annual rent escalators and the benefit of positive re-leasing spreads. Turning to our currency slide, 51% of our first quarter operating revenue was denominated in U.S. dollars, with 25% in euros, 6% in British pounds, 5% in Singapore dollars, 3% in South African rand and 2% in each of the Brazilian real and Japanese yen. The weakening of the U.S. dollar in the first quarter provided a slight sequential tailwind, but the dollar’s strength through much of 2022 resulted in a continued headwind to year-over-year results. As a result, the dollar strength negatively impacted our reported revenue growth and adjusted EBITDA growth by about 300 basis points apiece on a year-over-year basis, whereas core FFO per share saw just under 200 basis points headwind. Turning to the balance sheet. Our reported leverage ratio at quarter end was 7.1 times, while fixed charge coverage was 4.4 times. In January, we completed a $740 million two year term loan with an initial maturity date at March 31, 2025, plus a one year extension option and an effective rate of 5.6%. Leverage remains above our historical average and our long-term target, and we intend to reduce our leverage toward our long-term target over the course of 2023. Our plan hasn’t changed. We are in active discussions on our asset sale and joint venture plans and remain confident in our ability to execute on these plans over the course of the year so that our leverage moves back towards the six times area by year-end. Our weighted average debt maturity is at five years, and our weighted average coupon is 2.8%. Approximately 82% of our debt is non-U.S. dollar-denominated, reflecting the growth of our global platform. Over 80% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have minimal near-term debt maturities with only $100 million maturing in 2023, together with a well-laddered maturity schedule. Lastly, let’s turn to our guidance. We are maintaining our core FFO and constant currency core FFO per share guidance ranges for the full year 2023 of $6.65 to $6.75. And our first quarter results were consistent with this range. We are also affirming our full year adjusted EBITDA guidance of $2.7 billion [ph] at the midpoint as the downward adjustment in our overall revenue guidance is purely due to lower utility expenses driven by lower spot electricity rates that are passed on directly to our customers. We are also modestly tweaking our year to U.S. dollar exchange rate expectations for the year to reflect the relative appreciation of the euro year-to-date. We also made meaningful progress on the turn in our fundamentals during the quarter, providing strong support to the organic operating metrics supporting our full year guidance, including cash and GAAP re-leasing spreads over 3%, same-capital cash NOI growth of 3% to 4% and year-end portfolio occupancy between 85% and 86%. As I mentioned a few moments ago, we remain confident in our funding plan for the year. So we have reiterated our guidance for dispositions and JV capital. We have tweaked our debt financing cost expectation to be consistent with the move in rate seen since the banking sector fall out last month, which will be largely mitigated by the upside we saw versus our core FFO expectation the first quarter. This concludes our prepared remarks. And now we will be pleased to take your questions. Operator, would you please begin the Q&A session?

Nick Del Deo:

Hi, guys. Thanks for taking my questions. First, I want to drill into the greater than 1-megawatt leasing a bit. Obviously, that’s been a bit below history in Q1, and you called out Ashburn as a driver of that. I guess, just thinking about some of the other drivers there, maybe can you expand upon the degree to which that was the result of making conscious decisions to maybe dial back a bit given the change in the cost of capital versus market conditions or other factors?

Corey Dyer:

Yes, I would tell you that – thanks, Nick. Nothing’s fundamentally really changed our relationship or our position with these hyperscalers in the greater than 1 megawatt category. Coming off, as Andy mentioned, I think, Matt, maybe did in the prepared remarks a record year, and so I’d tell you, this is probably just a one-quarter timing issue, our hyperscale demand remains really healthy and varies a little bit by customer, but it’s broad-based across the globe. Keep in mind, we didn’t do Ashburn deals on that this last quarter. And I’d say that they’re going through some digestion of their demand signals and maybe a little bit more scrutiny with the macro environment but really confident in the macro demand, our relationships to execute. And keep in mind; we had our highest and our largest connectivity quarter with the hyperscalers this last quarter. And so I just say that one quarter doesn’t make a trend. I’d suggest you look at the multi-quarter trends as well as they expand in new markets, new products like the advent of AI and their edge nodes that we’re winning and just new deployments across the globe. We’re in a really good position with them from a pipeline perspective and demand. Thanks, Nick.

Andy Power:

Yes, Nick. So – I mean, we all – we’re always trying to take a holistic approach to these relationships. And as you see from our top customer list, our largest customers can be with 20, 30, 40, 50 different locations. At the same time, the pricing is dynamic to overall supply/demand dynamics. And as inventory in various markets become more and more precious, we’ve seen that pendulum pricing move in our favor. We try to be straight shooters with the customer. We try to bring all the – everything to the table in a holistic fashion. We’ve done this before in terms of bringing renewals and new business, expansions, all-in-one holistic approach. And I think this is not new. These are – these big hyperscale customers are seeing cost of doing business going up. Many of them self build themselves and see inflation in construction costs or labor. So I think the understanding that the pricing dynamic is shifting a little bit towards the providers is playing out in a natural fashion.

Jonathan Atkin:

Thanks. So on Corey’s response about kind of the leasing volumes telling us to look at kind of the prior multi-quarter trend, curious about interconnection and the trends going forward given kind of the strength there. And any kind of mix shift that you could kind of point to there may be more how you’re targeting your customers is a lot of that coming from existing logos or deserting your sales format to focus on interconnect-rich opportunities? And then, secondly, I guess, on the competitive front, given so many privately-backed companies that are deploying a lot of capital into the sector. Does that affect your hyperscale sales pipeline at all?

Chris Sharp:

Yes. Appreciate it, Andy. And thanks for the question, Jon. A couple of dynamics here where I think we’ve led by our core existing products. And I think your direct question to, is it new logos or its existing, it’s both, right? I really want to emphasize the fact that the physical cross connects reaching 214,000 and growing, it’s something that we constantly have looked at and Andy referenced this earlier, growing the platform, right, investing and making sure that customers know how to access one another to get further value out of the deployment is absolutely important to us. And so just really watching how that evolves over time. And with the advent of the ServiceFabric and bringing that to market and what that’s being able to do for our customers, we’re just starting to see – it’s early innings, but future growth on virtual, right, where it’s going to be married to where now they’re going to be able to access multiple destinations in a more simplistic fashion, because of that product being purpose built in the way that we brought it to market, it really removes a lot of the technical complexity that has precluded other customers from getting the full value out of the deployment. But one of the things I’m just very pleased about is this customer-led and balanced approach that we’ve been doing on even new markets inside of Europe. We’ve talked about in the past where just bringing the value or the pricing closer to parity in some of these markets – we see really strong growth within Germany and France, where making sure that we’re delivering those capabilities to those customers in all these critical markets around the globe. And I would just say lastly, I’m pleased with the fact that Digital has been able to provide one of the greatest quarters of interconnection signings in the company’s history, and that’s just really representative of the value we’re bringing to the customers.

Operator:

The next question comes from Jon Petersen of Jefferies. Please go ahead.

Matt Mercier:

Yes, thanks. So I mean, the simple answer is, yes. So our capital plan, I think, as we laid out last quarter, and it really hasn’t changed coming into this quarter, is based on, call it, $2-plus billion of capital recycling from our joint venture opportunities as well as the potential for noncore dispositions. And as that capital comes in as well as our expected growth in EBITDA this year, which is a little shy of 10%, we believe that by the end of the year, largely those two items will get us back towards that six times area this year.

Andy Power:

Thanks, Jon. I mean, we do an incredibly granular market-by-market assessment here. So, it really depends on the market and the relative risk fee rates and risk premiums. I would just by and large, and this is not something that just showed up in our approach this quarter, three quarters ago almost, we basically took a posture that we need to raise the bar on capital allocation and prioritize our most strategic projects, call it, highest return, not only highest return, but also projects to generate the high long-term growth as well. So I don’t have a single number answer to get – to give you there, but I think you will see that come through our development returns at table as those numbers are inching into higher territory, and I can tell you more strategic long-term growth projects.

Andy Power:

Okay.

Michael Rollins :

Thanks, and good afternoon. I wanted to go back to the capital recycling topic. And just when we look at the guidance page, there is a wide range of outcomes. And what would be a good outcome for Digital in terms of the yield? And what would the scenario be in which you may just decide there is alternative forms of capital that are better than recycling? And then just a second topic but related, if I could take a step back. As I think about the comments you’ve made about considering both stabilized assets and development for monetization, just curious if there is a more profound change in the business strategy and financial model that investors should be mindful of in terms of how this business, over the next couple of years, might look different in terms of the quantum of investment in a given year and the level of financial performance that you’re driving off of those investments, just following on the comments you just made. Thanks.

Operator:

The next question comes from Michael Elias of TD Cowen. Please go ahead.

Andy Power:

The simple answer, Michael, is we’re looking to partner around large-scale development projects where there will be incremental spend that we and our partner will jointly fund over time. So that it will – we’re looking for – these are large projects, large swaths of acreage, large quantities and megawatts. Hence, the quality of capital or spend is not the entirety or near the entirety of where the project ultimately will be over time. So they would fund alongside us through the coming quarters.

Andy Power:

So Michael, I mean, again, I think this ties back to the first three strategic priorities I laid out in the prior call about really strengthening – demonstrably strengthening our customer value proposition. We took advantage of this call to remind folks that this is not something we started with me becoming the CEO four months ago. This is something that’s been in the works for roughly eight years through both inorganic and organic measures, putting together critical puzzle pieces, expanding across the globe in terms of where the customers need our capacity, adding connectivity hubs and innovating and bringing more to our customers, adding – we’ve changed up our go-to-market motion over time. What we go from here is, again, accelerating from that success. A piece of that – delighted to have Steve Smith on board to lead our essentially newly created Americas region. Steve comes with a tremendous background of really driving the – one of the only U.S.-only focused interconnection and colo platforms in a prior – previously a very formidable competitor. And I think he’s going to be very added to that our team, our leadership table. The incremental things that we’re doing in terms of continuing to innovate and bring more value to our customers. Chris touched upon ServiceFabric, which I still would characterize as just out of the bar in terms of where we’re going in terms of bringing more partners onto that platform, and drilling more value to our customers. We are – there’s a whole host of things that I’d say we’re doing behind the scenes to continue to accelerate our growth. And I think the fruits of our labor are continuing to build each and every quarter in terms of success. So I think there’s multiple angles that we are moving towards in that endeavor to be one of a very short list of global interconnection colo providers. And I think the industry demands and the broader competitive backdrop are also our wins at our sales.

Operator:

The next question comes from Frank Louthan of Raymond James. Please go ahead.

Andy Power:

I’ll let Matt, take it off in re-leasing spreads and we can tag some longer term outlook pieces.

Andy Power:

Frank, do you want – do you mind repeating that second part of your question just to make sure we hear it correctly?

Andy Power:

Yes. Frank, I’d direct you to our development table to follow, see the progression of yields. There’s – I would say the yields are improving in our favor. The pricing dynamic is outpacing the inflationary pressures. It’s not an overnight phenomenon, but we are moving into a better territory. I mean, you can look at episodic things like Ashburn, Virginia, where quite frankly, the rates have pretty much doubled in a pretty short time from deals in the, call it, low $70s to now call it, market rates of, call it, $140, and that’s flowing to the bottom line and enhancing those deals dramatically. So I think that table is a work in progress in our sub because it’s got a lot of pre-leasing, some of which was signed prior to some of this price progression. But as we continue to add more projects to that, that they are not pre-leased or we fill out the leasing on the available capacity, I think there’s ability to raise those yields. And I would also say the North America piece of that has a large project in it that is an open book build-to-suit to a very highly rated financial institution on a triple net lease basis. So it’s an apple to the oranges there in a good way. It’s been dramatically derisked in terms of its build and in terms of its ongoing revenue and EBITDA stream at the same time, lowering our Americas yields.

Operator:

The next question comes from David Guarino of Green Street. Please go ahead.

Andy Power:

I would say, I mean, it’s a new phenomenon in terms of recent history of the data centers, which is still, I’d call a nascent asset class, but we are seeing it. If you look at, call it, our less than a megawatt signings, either the Americas region or EMEA region where there’s critical consistent massive new signings, the rates have been up, call it, four quarters in a row. And that example I gave you, in Ashburn, Virginia, from rates going from $70 plus E [ph] to $140 plus E. That is quite a run. And I know I’m picking out one particular market there, an example, but it is the largest and most diverse market out there, our largest market as well. And it’s flanks the East Coast with a power constraint problem, but the West Coast is having the same low with Santa Clara now having power constraints to likely outpace when power comes online in Virginia. And I think this phenomenon is going to continue in other parts of the world, not just the U.S. And I think you’re going to continue to see those rates move more and more favor. David, I know you’re a student of the traditional real estate asset classes. I mean, it was a good 20 years where industrial had no rate growth before it’s had the renaissance that’s been experienced in the last few years. And I’m not saying that that’s going to happen to data centers, but it feels like we’re teeing ourselves up way for a healthier pricing environment for the incumbents.

Andy Power:

Yes, if you look at our financials, we’ve got a sizable amount of contiguous land capacity and available power that’s committed to us outside of these, call it, zones of disruption. But longer term, eventually we will exhaust that and you could have that phenomenon. At the same time, when you’re doing business at twice the rates, you have to sell half the kilowatts in certain markets. So, I’m not sure that the top-line pacing on our new signings will be all that disrupted near term based on what we have in this table in terms of capabilities and estimated power. But I agree with you this assessment and it’s going to continue. The other thing I’d emphasize is, we’re actively managing our platform and our capabilities, and we’re essentially always looking to reproductize for higher, better use when applicable. So if we have churn, which this is not a totally static business, it provides opportunity to release that capacity at higher rate opportunities and often higher better uses towards some granular enterprise colocation oriented customers. And on a big company like digital, you probably don’t see that. It’s not top of the waves, but that’s happening in terms of how we manage our footprint.

Operator:

The next question comes from Matt Niknam of Deutsche Bank. Please go ahead.

Andy Power:

Thanks, Matt. I’m going to have Greg tackle the first one and then Sharp and I can both tackle the second one.

Andy Power:

And turning to your second question – just one quick thing for I turn over to Chris GBT [ph] to give his view on AI. The – I think a misnomer here is that, in my opinion, that everyone thinks every data center is going to turn into one that’s going to be supporting artificial intelligence. The use cases, the applications, the workloads that exist today are still going to be thriving within the global data center footprint and digital. Yes, we have many data centers that lend themselves towards supporting the increasing power densities and cooling environments that will be required, and we’re doing a lot of that as we speak. But I look at more – the bigger picture around AI is that this is an incremental major wave of long-term demand that will certainly need to have proximity to the major data that sits today. And the first two waves of demand of moving from on-prem locations to hybrid locations and the second wave of multi-cloud haven’t even hit the shore yet while this next wave of demand, it is falling behind it. But Chris, why don’t you speak a little your view on AI?

Operator:

The last question comes from Eric Luebchow of Wells Fargo. Please go ahead.

Andy Power:

Thanks Eric. And we touched a little bit on this in the prepared remarks. The good news is that the powers that be in the region are sorting out ways to bring incremental power to the region by 2026. I think the – from there, I think you’ll see a much more rational providing power to that market. And I do think it’s going to move ourselves to be our history and track record of working in that region is going to keep us top of queue when power becomes more freely. Between now and then we – last quarter, had a good fortune having worked with the local providers to be able to deliver on all of our customer commitments, which is fantastic. We do believe that we will be able to bring on incremental growth capacity in this market between now and 2026 through called some development as well as some churn. We are working through all the resources we have in terms of excess power at sites, customers that may not be using their suites and be able to go to spare some capacity. So I don’t have a fine point of the quantity, but I don’t believe our shelves at Digital will be bearing, and we will be able to support our customers. Certainly our colocation customers and some of our hyperscale customers we’ll be able to grow with Digital in Ashburn in the coming years. And then as we get a finer point on the quantities probably in lockstep with leasing in that capacity, we’ll certainly be happy to share. In terms of spillover effect, the spillover is real. Manassas, I think is front center of a spillover market to the Loudoun County pinch point. I would say that’s – we’ve seen the greatest spillover effect. But there’s always potential some of the non-Northern Virginia markets will continue to but at auction. But I don’t think – I don’t see anyone packing their wagons and leaving Ashburn due to this. I think the momentum has been building for years, and it’s called out escape velocity in terms of its criticality to the data center industry and its customers.

Operator:

This concludes the question-and-answer 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.

Operator:

The conference has now concluded. Thank you for attending today’s presentation and you may now all disconnect.

Jordan Sadler:

Thank you, Andrea and welcome everybody to Digital Realty’s fourth quarter 2022 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, Corey Dyer are also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today’s call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our fourth quarter. First, the combination of strong demand and tightening levels of supply are translating into broad-based price improvements, which is reflected in the increased re-leasing spread expectations and the positive inflection in stabilized NOI growth that we are forecasting for 2023. Second, we remain focused on achieving the highest potential returns on investment and some progress on this front is evident in the sequential improvement in our development pipeline yields. And third, as most of you already know, we have made some changes to our management team since we last reported. Andy and Matt both have a long history with Digital and as expected, the transition has been seamless. But just as important, they also bring fresh perspective and energy to their new roles and the team remains excited about the opportunity that lies ahead. With that, I’d like to turn the call over to our President and CEO, Andy Power.

Matt Mercier:

Thank you, Andy. I am privileged to succeed Andy as CFO and humbled by the opportunity to lead an incredibly capable team. Over the years, I have had a chance to meet and spend time with many of you and I look forward to catching up with all of you over the course of the next several months at industry conferences and events that we are slated to attend. Let me jump right into our fourth quarter results. We signed a total of $117 million of new leases in the fourth quarter, highlighted by strong rebound in our 0 to 1 megawatt segment and record interconnection signings, which accounted for 40% of total bookings. Demand was geographically diverse, particularly within the greater than a megawatt segment, which saw nearly even contributions across the Americas, EMEA and APAC regions. 9 of our 10 largest deals in the quarter landed outside of North America, with strong contributions from Japan, South Africa, Latin America and Europe, demonstrating the increasingly global nature of our footprint and customer base. At the other end of the scale, somewhat in contrast to the hesitation we noted on our last call, we saw a nice bounce back within our smallest customer segment under 500 kilowatts, which delivered the second best quarterly leasing volume of 2022 at the highest average rate seen all year. Geographically, our 0 to 1 megawatt deals play to our strengths in EMEA and the Americas with EMEA setting a quarterly record for 0 to 1 megawatt plus interconnection bookings. Importantly, pricing on new leases signed increased for the fourth consecutive quarter in each of our 0 to 1 and greater than a megawatt segments, reflecting improving fundamentals and tightening conditions across our regions. In the fourth quarter, we experienced nearly 90% customer retention and a further reduction in churn to just 0.8%, marking the lowest level in nearly 3 years, as our customers’ digital infrastructure requirements continue to increase, but the prospect of future availability is decreasing. Turning to our backlog. On Page 9, the current backlog of signed, but not yet commenced leases increased to a record $477 million at year end, principally due to the inclusion of Teraco as other signings were largely offset by commencements. The lag between signings and commencements moderated slightly in the quarter, but remained elevated relative to historical levels at nearly 15 months due to a few larger longer term leases that require build-outs. Approximately, 60% of our record backlog is slated to commence throughout this year, split fairly evenly throughout the first and second halves. Moving on to Page 10, we signed $195 million of renewal leases during the fourth quarter with pricing increases of 0.8% on a cash basis. For the full year, we renewed nearly $700 million of existing business at a 1.8% increase on a cash basis, a touch better than our upwardly revised guidance of slightly positive for 2022. Renewal rates in the fourth quarter for 0 to 1 megawatt renewals remained strong across each of our three regions and were up 4.1% overall, the strongest quarterly increase since adding interaction. As Andy referenced, we did see a 3.6% decline on renewals in the greater than a megawatt category in the quarter, entirely due to a single lease at a single asset. However, we saw a better-than-anticipated improvement in market rents and an inflection in re-leasing spreads in 2022. More importantly, market conditions improved throughout the last year and our guidance for 2023 reflects this positive trend. Turning to our results. Digital Realty delivered operating and financial performance in the fourth quarter that was largely consistent with our expectations, highlighted by improving core operating performance, progress toward enhancing our returns on investment and increased liquidity. Let’s jump into the metrics on Page 11. In terms of earnings growth, we reported fourth quarter core FFO per share of $1.65, consistent with the low end of our implied guidance range for the fourth quarter and down 1% on both a sequential and year-over-year basis, given a seasonal acceleration in operating expenses, a significant uptick in interest rates and a full quarter’s dilution associated with the acquisition of Teraco on August 1. On a constant currency basis, core FFO was down 1% sequentially, but was up 2% year-over-year. For the full year 2022, we reported constant currency core FFO per share of $6.91, representing 6% growth over 2021. The improvement in operating performance is best gauged by our stabilized same capital portfolio, which was challenged in the first half of the year, but improved meaningfully in the second half particularly in the fourth quarter when stripping out the noise related to FX. Focusing on top line, data center revenue growth on a constant currency basis improved steadily throughout 2022 increasing by 4% year-over-year in the fourth quarter compared to a 1.8% decline in the first quarter, demonstrating the turn in our core operations that we flagged last quarter. The sequential step-up from 3Q to 4Q was largely driven by an 80 basis point improvement in occupancy as commencements outpace churn as well as the benefit of positive re-leasing spreads and growing interconnection revenues. Turning to our currency slide on Page 12. 56% of our fourth quarter operating revenue was denominated in U.S. dollars, with 20% in euros, 7% in British pounds, 6% in Singapore dollars and 2% in Japanese yen. The U.S. dollar reversed course from the strength we have seen throughout the first 9 months of the year, removing the headwind on reported sequential growth. Nevertheless, the dollar was meaningfully stronger than it was versus 2021, negatively impacting our reported revenue growth and adjusted EBITDA growth by approximately 500 basis points a piece. Turning to the balance sheet on Page 13. Our reported leverage ratio at quarter end was 6.9x, while fixed charge coverage was at 4.9x. Given the sharp recovery in the euro and the pound in the fourth quarter and the convention of how leverage is calculated with the average exchange rate used for calculated adjusted EBITDA and the spot rate used to mark our debt at year-end, our net debt to adjusted EBITDA was inflated by approximately 0.2 turns using the average exchange rate to mark our debt at year-end. Our leverage would be 6.7x net debt to adjusted EBITDA. Since our last call, we drew the remaining $500 million outstanding from our 2021 forward equity offering and tapped our 5.55% 2028 notes for an additional $350 million to bring the total amount raised on that bond to $900 million. Since year-end, we also closed a $740 million 2-year term loan with a 1-year extension option. It’s also worth mentioning that our investment grade credit ratings were affirmed with stable outlooks by all three rating agencies since our last call. While leverage is above our historical average and our long-term target, we have bolstered our liquidity, and we intend to reduce leverage towards our long-term target over the course of 2023. Our weighted average debt maturity is over 5 years, and our weighted average coupon is 2.7%. Approximately 86% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform. Over 80% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have minimal near-term debt maturities with only $100 million maturing in 2023, together with a well-laddered maturity schedule. Lastly, let’s turn to our guidance on Page 14. We have provided an initial core FFO per share guidance range for the full year 2023 of $6.65 to $6.75, reflecting flat growth at the midpoint of the range. as the recovery in our stabilized portfolio is balanced by the impact of higher interest expense and capital recycling. Focusing in on the organic recovery we forecast for 2023, we expect Cash and GAAP re-leasing spreads to improve to greater than 3%, same capital cash NOI growth of 3% to 4% and an 80 basis point uplift in total portfolio occupancy at the midpoint of our expected range by year-end. Importantly, as Andy referenced at the outset, one of our key priorities is to further diversify and bolster our capital sources, which is geared towards increasing our capital efficiency and investment returns while reducing leverage towards our long-term target. As reflected in this guidance, throughout 2023, we expect to recycle capital from a combination of non-core dispositions, joint ventures of core assets and joint ventures of scale development in select core markets. In addition, we expect to benefit from high single-digit adjusted EBITDA growth, the retention of free cash flow and the moderation of recent currency headwinds. This concludes our prepared remarks. And now, we will be pleased to take your questions. Operator, would you please begin the Q&A session?

Ari Klein:

Thanks and congrats, Andy and Matt on the new role. Maybe just starting on the balance sheet, the $2 billion in asset sales and JV is targeted for the year. Can you give us some additional color on the split between the two, the types of assets, the timing and pricing is a pretty wide range? Anything you can add on that front?

Greg Wright:

Yes. Thanks, Ari. Look, I think when you look at the – let’s look at first at the stabilized JVs and the development JVs, I mean, clearly, we are seeing strong demand for those assets. The private markets have a strong bid for those assets given the quality of the assets, stability of the income stream, the creditworthiness of the customer base. And the fact, quite frankly, that’s a hard asset class with strong secular demands we’ve seen really a significant rotation in the data center space from private capital over the last couple of years. Not to mention strong improvement in pricing and lower vacancies in all of our major markets have really gotten investors’ attention in terms of growth potential. So on that front we still think pricing has held in there. We’ve seen some transactions in the market recently. There is been some smaller transactions. We’re also aware of three sizable hyperscale platforms where that pricing is staying strong from what I understand. But what it tells us is that the sellers and their equity backers, who we think are sophisticated, are seeing strong value. So simply put money on the sideline is outweighing the investment opportunities. And then in terms of cap rates with respect to the non-core asset sales, I mean, clearly, they are going to be all over the place like we’ve seen in the past. As you recall, over the last few years, we’ve sold roughly $2 billion of these non-core assets. And at some point, we talked about having roughly $1.5 billion left. But look, I think, when you look at this, it’s important to understand that many of these assets are at different stages. So cap rates will end up in a range, and you look at our range right now at 0% to 10%, and it clearly depends on specific conditions. For example, if we sell land, right, that’s a zero cap rate. So there is a wide range and it depends on the asset.

Matt Mercier:

Yes. Ari, this is Matt. Thanks for the question. So look, I think with the way that we’re looking at our plan this year, as Greg and Andy mentioned, in terms of $2 billion at the midpoint for asset sales and joint ventures, really being the bulk of funding for our – the development spend that we have left. And then if you look at – we’re looking at 8% to 9% growth in our adjusted EBITDA, which I think will be a big part of our deleveraging plan also for this year. So without giving a specific number, I would say we’re going to be well on our way to bringing leverage back down closer to 6x by the end of the year.

Eric Luebchow:

Great. Thanks for taking the question. I just wanted to touch base just on the general demand environment. It’s nice to see a pickup in kind of some of the enterprise colo bookings. Maybe you could talk about what you see in the hyperscale funnel. We obviously heard some a couple of hyperscalers talking about a bit of a slowing in revenue growth, but it seems like demand remains pretty robust, and maybe you could kind of touch on that for us?

Corey Dyer:

Yes. I’ll hit the demand overall. Thanks, first of all, for the question, Eric. Look, demand remains as strong as ever, and we’re more than happy with kind of what our pipeline looks like and whether or not we’ve got enough to support our demand on the hyperscale end and actually I should just say thanks for the recognition on the improvement around enterprise and still 1 megawatt. But on the enterprise, we’re still seeing some really strong demand across and across the globe, really the traditional large build, but also some other interconnection needs. These hyperscalers are starting to come up for their connectivity options. It’s really the advantages that our portfolio plays out for them. We’re seeing that continue to grow that demand from them, utilizing our platform as a meeting place as they need to enhance their connectivity requirement. And so you’re seeing that across both places. And I would tell you that you also see the merits of our relationship around the opportunity to build up from the activity perspective for them. When you think through the cost and the difficulty getting power that we have right now, these hyperscalers and our relationship with them continue to evolve. I think improved and the value that we continue to bring to them will continue to drive demand for us and see the pipeline build across all of our regions, so really happy with where we are on that as well as the come back on the enterprise as well. Thanks a lot, Eric.

Andy Power:

Sure. I mean I think we’ve seen this pendulum on pricing moving our favor now for several quarters. It started to move at the beginning of 2022, gain steam, became more broad-brushed and I think it was a combination of not only supply and demand, but our value proposition really resonating with our customer base. In a backdrop, we’re quite honestly, it’s never probably been harder if you bring on capacity, procure power as well as the asset plan. This is – we ended the year overall in positive territory. The less than 1 megawatt, which is becoming a much larger and larger portion of our revenue base obviously led the way. We had some positive quarters in greater than net. We had some slightly negative quarters. If you look at the greater than 1 megawatt, again, and I know we’re really tied to making excuses. It takes one single deal just to pull it down, just call to 3% in that category when predominant deals are moving in positive territory. This year is the first called overall inflection to positive territory and cash mark-to-markets in several years, where we’re guiding to for 2023 will be literally the best cash mark-to-market inflection in close to 10 years for our business, and it’s obviously it’s increasingly a dramatic amount. And I think all those things I just mentioned in terms of our value proposition as well as supply/demand moving in our favor. Ashburn is – or Northern Virginia, excuse me, is a prime example of it. This quarter, 170 million of gap, 50 almost 60 megawatts had almost nil Ashburn signings in it. And you could say last quarter did not have a super large amount either due to, call it, the tightness of that market, the coming or deliveries or bringing on more capacity. So we don’t have a water statistical set of data to point to. But what we’re seeing on the quotes going out, the interactions with new customers is that these rates are moving swiftly well past the hundreds into the much more firmer territory and still have ways to go in terms of runway.

Jon Atkin:

Thanks. So I was interested in just kind of big picture, your first conference call as CEO, any kind of principles to underscore things to contemplate and things to be putting into action around changes in overall operating practices, changes in product focus strategy. I think you already hit on capital allocation, but just any kind of big picture kind of items to call out? And then secondly, maybe for Matt, but as we look at the FFO per share guidance for the year, what are the sort of operating catalysts that you can identify that might get neutral to the upper end of that range? I think you talked about renewal spreads, but what’s your cover over kind of hitting the midpoint or maybe at the midpoint based when you see your commencement pipeline just the overall pricing comes? Thanks.

Jon Atkin:

Yes. Maybe just quickly just quick, yes, if I could just see in the direction. On the third-party funding of the development pipeline, what are – you have not done that to my recollection recently. And I am just interested, are there particular challenges around governance? Is it the economics? Is it finally the right partner or the right projects? What are some of the kind of factors that I think it’s hard on that which you might need some sort of lower expense from JV through your development pipeline?

Matt Mercier:

Yes. So, Jon, look, I think to be brief, we feel pretty good about the fundamentals of the business. I think that we have talked about, a number of us have talked about, pricing and demand feel good. And therefore, that leads us to have strong conviction on our same capital cash NOI growth and the associated mark-to-markets that are going to help drive that. And then on top of that, in terms of continuing to lease up our development pipeline, that goes back to, again, feeling strong about where we are in the demand cycle and our ability to capture that. So, what that leaves remaining, I would say is timing around when the dispositions and the joint venture capital come to close. And maybe last, I know we talked about FX a lot last year. Right now, we are assuming that FX is neither a headwind nor a tailwind, but that’s also something we can’t control that could have influenced next year based on where we are in the economy.

Michael Elias:

Great. Thanks for taking the questions. My first question for you is, I mean you have talked about establishing this global interconnection platform and you have taken steps to do that with Telx, InterXion and then also Telko [ph]. As we think about the next steps for you guys, what are the most meaningful steps you could take to accelerate your traction on the interconnection front, is it adding more cloud on ramps? Is it building platform capabilities, what is that? And then my second question for you would be, in the past, you talked about doing $1.5 billion of non-core asset dispositions over the coming quarters. And now it sounds like, we are at $500 million. Just wondering what changed in terms of your view on the dispositions, is it just timing, or was the cap rate environment not supportive of you getting the valuations that you want? Thank you.

Greg Wright:

Sure. Thanks Michael. I hope you are well. Look, I want to be clear. First of all, we talked about the $1.5 billion estimate of non-core assets previously. I hope we made it clear that’s what was remaining. So, we sold $2 billion. And we said whether it was a quarter or two quarters ago that we had another $1.5 billion left. We didn’t suggest that we were going to sell that all over the next several quarters, and we wouldn’t suggest that. But instead, we said over time. So, as you look at that $1.5 billion and how it’s going to start to run off, we earmarked roughly $500 million of that for ‘23. And if you look back at our level of activity, whether it was ‘22, ‘21, ‘20, there is obviously different volumes in those years. It’s never perfect. Things roll over from 1 year to the next. Quite frankly, from my perspective, whether it’s May or July, I don’t think it really matters to say whether it’s front half of the year or the back half of the year. But look, that has not changed. And again, just as our cap rate range this year is zero to 10%, it was the same last year, and the volumes haven’t changed. So again, it’s – I would say we are continuing to execute upon that program that we articulated to the market a couple of years ago. Actually, it’s been 3-plus years ago now. And look, I would like to think we have done a pretty good job with it. So, that’s it on that front.

Chris Sharp:

Yes. I appreciate it, Andy. And thank you, Michael, for the question. Yes, ServiceFabric, I mean it’s something that we have talked about for some time now. It’s a purpose-built product that enhances the customer experience. And we have been aligning with our customers to remove that complexity. And quite frankly, it facilitates an easier process of deployment for our customers. And just to underpin Andy’s kind of position around the broader reach, I think one of the things that’s also driving a lot of traction and value to both our enterprise and our hyperscale customers as an open ecosystem that really accelerates the growth of the enterprise and they can solve more use cases and more markets on PlatformDIGITAL. And I think that’s the key element that we are highlighting. And quite frankly, you are starting to see even yesterday with the announcement of the on-ramp coming into Ashburn. That’s one of the largest cloud operators aligning to one of the largest markets for Digital Realty today. And I think just to underpin a couple of metrics. That’s 25 data centers with 500-plus megawatts. So, if you slow down and you think about that, the value that’s going to be created and to be further created in that market is demonstrable. And so the underpinning of why we brought ServiceFabric to market where we have purpose-built software developers, really we are moving that complexity and the last piece is in investing in our customers. We don’t want to compete with them. So, you will see the likes of a further set of press releases coming out with bare metals, security, it’s the full culmination of what enterprises are looking to do on that hybrid IT enablement, which is core to a broad swath of customers that we are servicing today and quite frankly, that we will be servicing in the not-too-distant future.

Michael Rollins:

Thanks and good afternoon. I just want to also extend my congratulations to Andy and Matt in the new roles. If I can ask two financial questions. And I am just looking at Slide 14 from the deck. So, the first question is if you look at the midpoint of revenue growth guidance for revenue and EBITDA, can you break out the organic portion of the growth relative on revenue, you will have energy and you will have acquisitions and divestitures kind of a mix of stuff as you have been recycling assets and investing in new ones? And then for EBITDA, just split between the organic and the M&A impact? And then the second question, as you look at the EBITDA growth and you look at the core FFO per share growth, what is holding back the piece parts holding back core FFO per share growth? And what are the opportunities for Digital Realty to unlock that in the future and get back to see a more consistent relationship of the EBITDA growth relative to what that core profit per share growth should do? Thanks.

Michael Rollins:

And does that mean that the PowerCo deal, the recycling divestitures that you did, those are kind of a neutral impact on the revenue and EBITDA growth rates for 2023 over 2022?

Operator:

The next question comes from Matt Niknam of Deutsche Bank. Please go ahead.

Andy Power:

Thank you again. So, on supply chain, the – I would say there is a loosening, but I would say we are not back to normal. And the production slots that become available seem to get gobbled up quickly. So – I wouldn’t say that there has been a correlation between customer buying behaviors through to our supply chains. I mean quite frankly, which is a contributor to the pricing revival has been that the demand is remaining quite firm across the board for both enterprise and hyperscale business. And it’s outpacing supply and supply is – I think that disconnect is in many money markets is going to continue for some time. You have got things like power shortages, you have got municipalities, you have got permitting, you got environmental impact. There is a whole host of reasons why it’s a lot harder today to bring on capacity efficiently and effectively. I think we in our platform stand out above many, given our expertise, our time doing in business, our relationships, our consistency. But it’s definitely helping on the overall pricing dynamic. And I don’t think I have seen a correlation to customers feeling the luxury of time when they are buying and especially the larger customers, I wouldn’t say are taking a wait and see due to that whatsoever. Matt, do you want to handle the dividend question?

Operator:

The next question comes from Frank Louthan of Raymond James. Please go ahead.

Andy Power:

Sure. Thanks Frank. So, I mean Ashburn, I would say overall, the story remains the same of what transpired at the end of last summer. And the power – incremental power deliveries into the largest, most robust in the first market, quite frankly, in the world, is going to be restrained greatly for several years. Last quarter, I basically said I couldn’t guarantee it, but I have confidence that we, working with the power providers will be able to deliver on our customer commitments, which represents the lion’s share of just shy of 80 megawatts we have in our development cycle. Today, as you heard in my prepared remarks, we are good to go. We will be able to deliver for those customers, and there is no concerns about the power being available. What comes next is still to be determined. So IP, and again, similar solid answers I provide, I can’t promise you this, I can’t guarantee it. But I do have a strong amount of confidence that the tools in our tool kit at Digital Realty, given our experience in region, our critical and strategic landholdings, our breadth of infrastructure and our relationships will be able to be creative in terms of bringing on some incremental power deliveries in this bottleneck period. That is on top of what I would say is, obviously, Ashford is our largest market. I just looked at the 2023 expirations, while we are – we certainly have a higher retention, lower churn year expected relative to prior years. A large portion of our expected churn happens to be in Ashburn, which is a blessing given the ability to remarket that space at higher and better uses. So, all of these, but the Ashford story or saga continues, but broadly, it is greatly improving the pricing dynamic to a much more healthier environment for digital and other providers in the market. In terms of buying patterns, just tremendous amount of infrastructure across this part of Northern Virginia is not really shifting large-scale demand to other locations to any great stakes. So, folks are still clamoring for available capacity or staying where they are with us or in market, and we have not seen a title shift on this market and it will take a few years, but the Calgary is supposedly coming with new power brining project in the region from the South and the North.

Operator:

That concludes the question-and-answer portion of today’s call. I would now like to turn the call back over to President and CEO, Andy Power, for his closing remarks. Please go ahead.

Operator:

The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.

Jordan Sadler:

Thank you, operator, and welcome, everyone, to Digital Realty's Third Quarter 2022 Earnings Conference Call. Joining me today on the call are CEO, Bill Stein; and President and CFO, Andy Power; Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer, also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to GAAP net income are included in the supplemental package furnished to the SEC and available on our website. One important item to note this quarter, while Teraco's results are consolidated into our financial statements since closing on August 1, we have excluded the platform's contribution from leasing backlog and other portfolio statistics that will be cited on this call and within our third quarter earnings materials. Before I turn the call over to Bill, let me offer a few key takeaways from our third quarter. First, we achieved another quarter of record bookings, led by robust demand within the greater than a megawatt segment. Second, the signs of improvement in our core portfolio continued to emerge in the quarter with 120 basis point sequential improvement and base data center revenues on a constant currency basis. Third, with the closing on our investment in Teraco, we cemented our position as a leading provider of colocation and connectivity in South Africa. And lastly, our management team guided by decades of experience remains focused on navigating the current environment and maximizing the opportunity that lies before us. With that, I'd like to turn the call over to our CEO, Bill Stein.

Andrew Power:

Thank you, Bill. Turning to Page 5. As Bill noted, we signed record bookings of $176 million, with a $13 million contribution from interconnection during the third quarter, excluding the results from Teraco. The greater than a megawatt business in the Americas was the big driver of this quarter's record leasing at nearly $100 million signed. Sub-1 megawatt plus interconnection accounted for 24% of the record quarterly bookings while the shell portion of a large multisite enterprise build-to-suit deal fell into our other category. Importantly, as we've discussed, we have meaningfully shifted our cadence toward further insulating our portfolio from the effects of inflation through the addition of CPI-based escalators into our new leases. While more than 95% of our portfolio includes rent escalation causes, less than 20% are specifically tied to CPI, while the balance are fixed. And our highest leasing volume quarter ever, we were able to achieve CPI-based escalators on 40% of the leases signed in the quarter, which demonstrates our resolve and our customers' acknowledgment of this important factor. The balance of our leases signed in 3Q include fixed rent escalators. Moving on to markets. In North America, Portland and Dallas were particularly strong with large deals landing in each of those metros, while demand in Northern Virginia also remained high. In EMEA, totals were consistent with expectations with particular strength in Paris. While San Paolo led in LatAm, and Osaka led the APAC region. These deals drove additional starts within our development pipeline, which grew to over 400 megawatts, but is also now more than 60% pre-leased mitigating much of the risk related to this capital spend and providing significant visibility into future revenue. As Bill touched on in his remarks, we signed 4 leases in the quarter with a large multinational financial services customer that has fully embarked upon its digital transformation journey. This large multi-site, multi-market build-to-suit transaction drove the upside in our greater than 1 megawatt North America leasing and also served to increase our development pipeline sequentially while reducing our anticipated yields. Importantly, this deal is structured as a yield on cost development supported by a long-term triple net lease to a strong investment-grade credit with fixed escalators, which serves to insulate Digital Realty from construction costs, and operating expense volatility. Excluding this transaction, our development life cycle average yield will be closer to the yield we presented last quarter. During the third quarter, we added another 103 new customers, continuing the 100-plus new logos we've added each quarter since the closing of the Interxion transaction 2.5 years ago. Key customer wins in the quarter include a Global 2000 luxury goods maker is expanding its capabilities on PlatformDIGITAL to add data exchange with its strategic cloud providers to its existing capabilities. A Global 2000 multinational technology manufacturer is expanding its hybrid IT capability in multiple metros across 2 global regions with PlatformDIGITAL. A Global 2000 retailer is rationalizing its data centers and joining Platform Digital as part of its hybrid IT architecture to have greater proximity to a key cloud service provider while enhancing both performance and ecosystem benefits. A Global 100 top insurance company is rationalizing its data centers and moving to PlatformDIGITAL to gain strong access to 2 leading cloud service providers. Landing with us as a new logo in 4Q '21, a Global 2000 U.S. energy provider expanded into 2 more metros with Digital Realty as it continues to rearchitect its network as part of a long-term hybrid IT transformation. And a Global 2000 aerospace and defense contractor is rationalizing its data center portfolio while supporting the re-architecture of its network and interconnecting with cloud providers on PlatformDIGITAL. Turning to our backlog on Page 7. The current backlog of signed but not yet commenced leases grew to $466 million by quarter end as our record signings were partially offset by $90 million of commencement. The lag between signings and commencements moved up to 17 months for the leases signed in the third quarter due to the large multisite enterprise build-to-suit deal discussed by Bill a moment ago. Excluding this deal, our sign to commence live was under 8 months, consistent with our historical average. Approximately 25% of our record backlog is slated to commence in the fourth quarter. While another 45% will commence in 2023, split fairly evenly throughout the first and second halfs of next year. Moving on to Page 8. We signed $154 million of renewal leases during the third quarter that rolled down 0.5% on a cash basis. Renewal rates for 01-megawatt renewals were positive across each region and up 3.1% overall, demonstrating the criticality of these deployments and the differentiation of our facilities. This product segment has historically experienced steadily positive renewal rates and cash renewal rates have steadily increased throughout this year. After two consecutive 3-plus percent bumps in 1Q and 2Q, the cash mark-to-market was weighed down by the greater than 1 megawatt segment in the third quarter. Despite this result, we are confident in a slightly positive cash releasing spread for the full year 2022. Importantly, we are encouraged by the general trajectory of market rents across our product line. We expect that the dislocation and volatility of capital markets coupled with rising costs and the reduced availability of power in several markets, including the world's largest market, Loudon County, Virginia, is constraining the ability to bring on new data center capacity despite the secular demand for data center infrastructure. With regard to power delivery in Northern Virginia, we are continuing to work with the primary power provider to ensure appropriate allocations with an acute focus on capacity needed to support our customers in this market. We have an incredibly unique footprint in Loudon and a set of capabilities that we are working to tap into in order to take advantage of this backdrop of continuing tightening market fundamentals. In terms of operating performance, total portfolio occupancy rebounded by 80 basis points sequentially, driven by the strong commencements. These improvements in our occupancy come despite our active intention to grow our global colocation inventory in order to meet the growing demand of our expanding customer base. Same capital cash NOI growth fell 7.3% in the third quarter, negatively impacted by another 480 basis point FX headwind. This is disappointing on the surface but once the noise is removed, the improving operating picture that we have been painting starts to emerge. On a constant currency basis, data center operating revenue, rental revenue interconnection was actually up 10 basis points year-over-year and improved by 120 basis points sequentially, demonstrating the turn that has started to take hold in our core operations. The sequential step-up was supported by a 50 basis point occupancy improvement over the second quarter, along with the benefits of the positive releasing spreads we've seen year-to-date. Turning to our risk mitigation strategies on Page 9. 56% of our third quarter operating revenue was denominated in U.S. dollars, with 21% in euros, 6% in Singapore dollars, 5% in British pounds and 2% in Japanese yen. The U.S. dollar continued to strengthen over the last few months, negatively impacting same capital revenue growth by 530 basis points and NOI growth by 480 basis points year-over-year, as shown in our constant currency analysis on Page 10. This strong headwind contrasts with typical FX impacts of 50 to 100 basis points in either direction during the periods with more normal FX volatility. While the outsized depreciation of the euro this year has been a major driver of the headwinds for our P&L, it also represents the lion's share of our development pipeline. To be clear, we are operating and then investing locally rather than repatriating proceeds into U.S. dollars. Our operations, investment pipeline and funding in locally-denominated debt serve as a natural hedge. As we discussed on our call last quarter, given the growth of our global portfolio, along with heightened FX volatility, we took a closer look at our hedging strategy during the third quarter and executed additional swaps to mitigate our remaining FX exposure. In August, we executed a U.S. dollar to euro currency swap against an existing $1 billion tranche of 2027 notes outstanding. And in late September, alongside our USD 550 million bond, we swapped those borrowings in the euro and Japanese yen, which also reduced the effective interest rate on those 5-year notes to just 3% versus the 5.55% coupon achieved via the offering. In terms of earnings growth, we reported third quarter core FFO per share of $1.67, which is 1% higher on a year-over-year basis and 3% lower sequentially due to the negative impact of FX, higher interest and operating expenses and the initial dilution we incurred from the closure of Teraco, which is consistent with the forecast we provided last quarter. On a constant currency basis, core FFO was 6% higher year-over-year but down $0.01 sequentially. The reported core FFO underperformance versus our prior expectation for the quarter was purely a function of greater-than-expected FX headwinds. Looking forward, we expect core FFO per share will remain under pressure from stiff FX headwinds given the appreciation of the U.S. dollar, though this should be offset by core growth. As you can see from the bridge on Page 11, we expect FFO will remain flat sequentially in the fourth quarter as FX and interest expense headwinds are partly balanced by NOI growth. Accordingly, we've adjusted our underlying guidance assumptions to reflect the continued pressures of FX and interest rates. We are also updating our core FFO per share guidance range for the full year 2022 to $6.70 to $6.75, reflecting a $0.075 per share adjustment at the midpoint of the range. Importantly, due to the sharper-than-expected move in interest rates since our last call, we are reducing our constant currency core FFO per share range by $0.025 at the midpoint to a new range of $6.95 to $7 for 2022, which represents approximately 7% growth over 2021. We expect currency headwinds could represent a 400 to 500 basis point drag on full year 2020 revenue and core FFO per share growth. A review of our leverage is on Page 12. Our reported leverage ratio at quarter end was 6.7x, while fixed charge coverage is at 5.5x. We drew $400 million down from last September's forward equity offering as part of our funding for Teraco. So pro forma for the remaining forward equity and adjusting for our full quarter's contribution from Teraco, our leverage ratio drops to 6.4x while pro forma fixed charge coverage is 5.7x. While leverage is above our historical average, we have bolstered our liquidity to ensure that we have the capital in hand to fund our committed development spend throughout the end of next year and maintain a comfortable cushion. Since our last earnings call, we have raised or received commitments for approximately $2 billion of debt capital at an effective blended average of just over 3%. These include more than $650 million of term loan commitments received subsequent to quarter end. With cash and forward equity outstanding totaling more than $700 million, we have increased our current available liquidity to approximately $3 billion. We expect to see leverage moderate back towards our longer-term target over time through a combination of noncore dispositions, joint ventures of core holdings, lease-up of available capacity and the retention of free cash flow. As Bill discussed, the current capital markets environment and increased cost of capital have led us to sharpen our lens and prioritize new investments to those that are the highest strategic merit and offer the best potential risk-adjusted returns. Our financial strategy includes a diverse menu of available capital options while minimizing the related cost of our liabilities. The execution against this financing strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital and enables us to fund our strategic objectives. As you can see from the chart on Page 13, our weighted average debt maturity is about 5.5 years, and our weighted average coupon is 2.4%. Approximately 3/4 of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform. More than 80% of our net debt is fixed rate and 97% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, we have no meaningful near-term debt maturities and a well-laddered debt maturity schedule. We repaid the remainder of our 2022 debt earlier this month and have only a small Swiss bond maturing in 2023. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session.

Jonathan Atkin:

I wondered if it's possible to kind of frame the magnitude and the timing of the CapEx associated with all the leasing that you did during the quarter. And then maybe to kind of bring it home to the $3 billion in liquidity that you talked about sources of funding that incremental CapEx.

Jonathan Atkin:

And then secondly, on the 17 month metric that you mentioned in the earnings release and in the script about kind of essentially book-to-bill. And then putting that in the context of what Bill said about elongated sales cycles, how much of that is due to perhaps the lack of server availability on part of the customers or from your standpoint, delays in power procurement or ability to construct just given supply chain which is facing data center infrastructure?

Arthur Stein:

It's a little bit elongated, Jon. But as Andy said, if you were to strip out the 4 build-to-suits that are in this quarter, the effect on the book-to-bill this quarter would be minimal.

Frank Louthan:

Great. Have you guys increased pricing on cross-connects as well? And if so, what is sort of the -- how much have you raised that? And what percentage are on the new pricing? And then going forward, you're fairly creative as far as the getting the effective rate on your financing down close to 3%. Is that -- what sort of expectation do you have, what sort of financing you can get going forward? Do you think you can keep it around that level?

Christopher Sharp:

Yes, absolutely. Thanks for the question, Frank. A couple of points, right? We definitely take a customer-led approach on aligning value to the overall reach and overall offering they're able to provide them. I would echo Andy sentiment that like in the Westin Building, I think we've talked about it a couple of quarters ago, where we're driving that consistency of our overall interconnection products and capabilities in that market to really just delivering more value and you're going to start to see more revenue pick up in the next year on being able to uniformly bring that into the overall PlatformDIGITAL delivery capabilities. I'd say this next piece is more probably pointing to your question in EMEA, right, where we've been talking for some time now about increasing those prices and that's been performing great. And I think that's something that you'll continue to see growing, which is represented in the interconnection numbers that we put up this last quarter. So you'll see that performing I think, much better over the course of the next year here.

Operator:

The next question comes from Dave Barden of Bank of America.

Andrew Power:

Thanks, Dave. Maybe I'll take them in reverse order because I think the second question ties a little bit into your first question. So as a broader reminder, literally, I think it was 90 days ago to the day, we got the, call it, the newer news from Dominion on the pinch point in Eastern Loudon County on power deliveries. I can tell you we're a regular dialogue with the power company on a path forward. But I would say also that the essence of the initial messaging remains intact that there's just going to be significantly less power provided to ongoing development in this region until 2026. The feedback we've received is that 2026, which should be back to more normal practices. So this is not a permanent thing. It's due to transmission not generation, and that's what they've expressed to us. But between now and then, it's going to be less supply in the biggest highest -- consistently high demand market. What that means and what we're seeing, and I alluded to it earlier is that the pricing power pendulum is shifting back towards us. And it's nice to be I believe, the largest incumbent, we call it, 500 megawatts of in-place capacity and just under, I think, 200 call it, coming due contractually expiration wise in the next 3 years. The -- we -- when it comes to available capacity, we're -- we've sold quite well in that market. We probably in hindsight, I wish we didn't do so well, but who knew this was going to come. I don't think any market participants really expected this. We do -- ourselves are not completely bearing and we do have a 200-megawatt parcel in Manassas that is to date in unaffected zone that -- which is really nice to have in times like this. And while I cannot guarantee it right now, I think we're optimistic that the responsible parties in Loudon will work with Digital to deliver on behalf of those customers that have signed contracts to grow with us and are sitting in our backlog. Turning to your second question. The pricing power pendulum again, I think, is continuing to move in the favor of the providers given that demand has been robust for so long, and the outlook is looking to be -- continue to be such and the supply has just been absorbed. You pointed out the 15%, which is like less than a megawatt piece of our exploration schedule. I mean that's -- in times like these, when prices are moving your friend, it's nice to have more bites at the apple to continue to ensure commensurate value is generated for our contracts. So I feel that is usually our most network dense sticky portion that consistently on the front end of our exploration schedules. I feel pretty darn good about that in terms of not only retention but price action. And I think even the PC didn't mention in the larger the megawatt, I think that my commentary around Northern Virginia and other tightening markets, I think, will also continue this trend of more positive cash releasing spreads, which were positive in the first 2 quarters this year and remain positive on a full year basis for 2022.

Michael Rollins:

So with some of the comments on demand but also a lengthening of the sales cycle, should investors look at Slide 5 a little differently in terms of the range of sales outcomes that you achieved over the last 6 to 8 quarters relative to what the next 6 quarters or 4 quarters might look like? And then secondly, just given some of the comments that you provided on currency and on interest rates. If everything stays where it is currently, can you share a sense of what the potential headwinds could be on 2023 financial performance, thinking of revenue and core FFO per share?

Corey Dyer:

Yes. So thanks, Mike, for the question, and Andy for the -- let me go second. The -- first off, I'll tell you that we don't forecast. I'm not going to try to play a game on what it's going to look like. But what I would tell you from a demand and a pipeline perspective, our multi-quarter pipeline is really robust, may not robust. I'll say resilient and very healthy. And that comes off of our quarter that was our top quarter ever. The demand is healthy across all regions. The one softness area would probably be in the small enterprises where they're having a little bit more -- I'd say they're more susceptible to the macro issues to the war in Europe. So all those different items. And so we saw those cycles lengthening, and that moderated some of our results in the somewhat megawatt. But broadly across the globe, we've got really strong hyperscale demand. We've got strong demand and increasing demand from, I'll call it, our large $1 billion-plus multinationals. Our channel business is going really well. We're seeing new logos uptick from that cohort as well as the possible demand from just new signings in that area. So positive from a broad space, it's resilient and really healthy after our best quarter ever.

Eric Luebchow:

Great. As we think about your -- the impact of inflation on your development costs next year and beyond, just I believe you have some VMI contracts renewing in early 2023 for your equipment spend. Maybe you could talk about what your expectations are there in terms of cost inflation on development as we enter the new year? And then second, as we think about the better pricing power and perhaps some constraints on new development in markets like Ashburn, are you in a position to perhaps have declining capital intensity in the next few years, which would kind of help reduce your needs for capital? Or how should we think about that dynamic as well?

Operator:

The next question comes from Simon Flannery of Morgan Stanley.

Andrew Power:

We didn't share much on Teraco and I'll start with that, and then we hand it to Greg to talk about both of your questions. Having spent some time down in region with the Teraco team, I think we're even more pleased with the incredible addition to our global platform, not only in terms of the most highly connected destinations across South Africa but we're a really fantastic team delivering on behalf of their customers, our customers and really growing that platform. I apologize, we did -- we obviously consolidated Teraco into our financials, but we did not roll them out into all the stats given we just closed and call it the middle of August. That's coming in a quarter's time. So please be patient with us on that. But I'll give it to Greg to maybe speak to take your questions.

Operator:

The next question comes from Matt Niknam of Deutsche Bank.

Andrew Power:

So I'll handle the more mundane question on Teraco, and I'll pass it to Corey a little bit on buyer behavior in the current environment. So Teraco, I believe, did for just about 1.5 months, about $28 million of revenue, $16 million of EBITDA. It -- I would say it's signings, we're call it -- and again, do not include any of our numbers. We call it just don't know the 6 megawatts plus a decent chunk of connectivity. It does have a very sizable backlog. Bit added, I think, a sizable amount to our construction called almost $0.5 billion of construction in progress. And based on what we're seeing, they're working on right now, feeling very good about the growth of that platform. Corey, do you want to handle on, call it, buyer behavior in the current part?

Operator:

The next question comes from Aryeh Klein of BMO Capital Markets.

Arthur Stein:

So sharpening the lens, I think practically, what you'll see is, over time, higher returns from the deals that we do and lower returning assets or investments dropping out of the mix. That's the practical implication. So obviously, it's more complicated than that because we look at risk-adjusted returns. We look at what return should be in any given market, what type of -- whether it's a build-to-suit or a speculative development, how much preleasing there is, whether there's any magnetic attributes to the customer. But in general, I think you'll see over time, higher yields.

Operator:

The next question comes from David Guarino of Green Street.

Andrew Power:

Thanks, David. So first off, CPI was a predominant term, I would say, mostly in our European footprint, even before inflation was such a buzzword. Hence -- and that's the majority of, call it, just under 20% of our in-place contracts that have CPI escalations. We've been, call it, in the face of the current environment, making this a priority in our customer discussions. And it's not -- we're seeking that on larger contracts as well as -- larger contracts as well as smaller contracts. I would tell you, on a smaller contract, that already likely had a shorter duration, i.e., 2 years, 3 years, it's probably a little bit less a priority because you get another bite at the apple depending on the market rates. But we're trying to push it into those contracts. But if you look at our signings, we had a record quarter, 176 and 40% had CPI escalation. Some of them had capped or, call it, 2% or 3% on the floor and call it, 5% or 6% on the cap. But we were able to include in a significant percentage of our greater than 1 megawatt signings this CPI escalation. And those look greater than 1 megawatt science are typically the longest conference call it, 10 years. Hence, where it's the most needed because we won't get another opportunity to reset to the appropriate market rates for a fair bit of time. When it goes to NOVA spillover Dallas, Portland, I don't think -- our activity -- I would not describe our activity as spillover activity. The Dallas activity, a good portion of that was this build-to-suit customer demand. That customer picked -- they wanted multiple cities, so they're always going to pick not just NOVA. And then the Portland demand was very, call it, locational sensitive. I do think you -- and this is a -- I mean you don't typically buy data centers like rushing to the grocery store and grab some of the shelf and run into the checkout. So in the last 90 days, when this NOVA power issues come on the scene, I think the spillover effects are still playing out as we speak. I would say we see more of the early interest of spillover effects to, call it, Atlanta where we have, call it, almost 30-megawatt shell capacity, Northern New Jersey, potentially Chicago. Dallas could be in the mix as well. But -- as well as -- I mean, nearby spillover tech in Manassas, we have 200 megawatts.

Michael Elias:

Congrats on the leasing. Just two questions for me. First is, as you think of Northern Virginia and the power delays, you mentioned how the conversations are evolving with Dominion. But how are the conversations going with the customers themselves who pre-leased capacity. Is there any risk to those leases maybe being canceled or anything like that? And then second, your leverage is now running around 6.7x or 6.4x if we adjust for forward. Based on the conversations you've had with the rating agencies, what's the highest level of leverage that you can hold before you run the risk of maybe being downgraded or losing that investment-grade status?

Operator:

That ends our question-and-answer portion of today's call. I'd now like to turn the call back over to CEO, Bill Stein, for his closing remarks. Bill, please go ahead.

Operator:

That does conclude the conference for today. Thank you for participating, and you may now disconnect.

Jordan Sadler:

Thank you, operator, and welcome everyone to Digital Realty's second quarter 2022 earnings conference call. Joining me on today's call are CEO, Bill Stein; and President and CFO, Andy Power. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer are also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Bill, let me offer a few key takeaways from our second quarter. First, the overarching trend of digital transformation remains a secular driver for our business, which was highlighted by yet another quarter of greater than $110 million of bookings and over a 100 new logos added, which was well diversified in terms of product [and GO]. Second, the improved re-leasing spreads we saw last quarter continued in 2Q, and we remain focused on offsetting the impacts of rising costs throughout our pipeline of new opportunity and development; third, our transformation into a leading global data center solution provider remains on track with our investment in Teraco expected to close within the next two weeks; and finally, our core FFO per share results exceeded consensus for the quarter, though we tempered our expectations for the second half and full year 2022, principally due to continued FX headwinds as we reaffirmed our constant currency core FFO per share guidance for 2022. With that, I'd like to turn the call over to our CEO, Bill Stein.

Andy Power :

Thank you, Bill. Let's turn to our leasing activity on Page 7. As Bill noted, we signed total bookings of $113 million with a $12 million contribution from interconnection during the second quarter. New business was healthy across product types as sub-1 megawatt plus interconnection accounted for 42% of the quarter's bookings, while deals larger than a megawatt accounted for 57% of this quarter's bookings. The weighted average lease term on new leases was more than 7 years. EMEA accounted for well over half of this quarter's new business as Frankfurt continued to set the pace in the region, while Paris was also a meaningful contributor. Leasing was also geographically broad based during the quarter with significant contributions from Northern Virginia, Athens, Zurich, Tokyo, Sao Paulo, New York, Dublin and Amsterdam. Reflecting the strength of demand from our customers, we grew the size of our development pipeline to more than 360 megawatts under construction as we started over 100 megawatts of new projects in EMEA and North America, including 35 megawatts in Frankfurt and 38 megawatts in Paris. Nearly 1/3 of our sub-1 megawatt plus interconnection bookings were exported from one region to another, reflecting the value customers realize from our global platform. North America was the most common export region with most of those exports landing in EMEA, followed by Asia Pacific and Latin America. During the second quarter, we added another 108 new customers, bringing the total to more than 1,000 new logos since closing the Interxion transaction a little over two years ago. We see a growing trend of multinational companies deploying and connecting large private data infrastructure footprints on PlatformDIGITAL across multiple regions and metros globally. In terms of specific customer wins during the quarter, a leading IT service provider has experienced the full range of benefits of PlatformDIGITAL from greater performance and scalability to cost savings. These customers expanded their capabilities across three metros in two geographic regions, emphasizing hybrid IT by integrating bare metal and cloud storage. Two leading Global 2000 financial services firms chose PlatformDIGITAL for multi-set deployments in multiple metros across North America and Asia Pacific. One of the world's leading video game developers is expanding on PlatformDIGITAL to access our global footprint, scalability and low latency performance. A Global 2000 reinsurer is expanding on PlatformDIGITAL with full-spectrum benefits from the strong community to top cloud providers and robust security being key drivers. And a life sciences organization is switching to PlatformDIGITAL in two markets across North America to reduce network costs while implementing artificial intelligence and high-performance computing applications. Turning to our backlog on Page 9. The current backlog of signed, but not yet commenced leases, tapered $393 million by quarter end as record level of commenced leases outpaced new signings. A lag between signings and commencements moved up to 13 months due to one larger signing into a new campus development in Frankfurt. Excluding that lease, the sign of commencement period was more in line with our recent experience of about eight months. Moving on to Page 10. We signed $173 million of renewal leases during the second quarter at a positive 3.4% cash re-leasing spreads compared to 3.3% positive last quarter. Renewal rates were positive in each product segment and also in each of our three regions. The majority of total renewals were sub-1 megawatt deals, reflecting the higher unit price contracts that are characteristic of that segment. These renewals climbed by 3% during the second quarter. Among larger deals, rates increased by 1.1%. We are encouraged by the positive trajectory of renewal spreads as well as our constructive engagement with customers on the current inflationary environment and our highly compelling value proposition. In terms of operating performance, total portfolio occupancy rebounded by 60 basis points sequentially, driven by the strong commencements from our record backlog. These improvements in our occupancy come despite our active intention to grow our global colocation inventory in order to meet the growing demand of our expanding customer base who continue to solve for complex IT infrastructure, connectivity and data integration challenges. Same capital cash NOI growth fell 5.5% in the second quarter, primarily driven by a 400 basis point FX headwind in the last leg of a previously discussed sizable churn event. Most of this space has already been re-leased and will more fully commence over the next several quarters, which should drive an improved trend in revenue growth on a constant currency basis. Turning to our risk mitigation strategies on Page 11. 57% of our second quarter operating revenue was denominated in U.S. dollars with 22% in euros, and 7% in Singapore dollars, 6% British pounds and 2% in Japanese yen. We have also actively mitigated interest rate risk by proactively terming out short-term variable rate debt or longer-term fixed-rate financing. Turning back to currency. The U.S. dollar continued to strengthen over the last several months, and FX represented a 400 basis point to 450 basis point drag on year-over-year growth in our second quarter reported results from a top to the bottom line, as shown in our constant currency analysis on Page 12. As we've highlighted in the past, currency fluctuations has more typically served as a 50 basis point to 100 basis point headwind or tailwind to earnings in periods of lower volatility. While the outsized depreciation of the euro this year has been a major driver of the headwinds for our P&L, it also represents the lion's share of our $4 billion-plus development pipeline. To be clear, we are operating and then investing locally rather than repatriating proceeds into U.S. dollars. Our operations and our investment pipeline along with our capital funding and locally denominated debt serve as a natural hedge. Of course, given the growth of our global portfolio, along with the heightened FX volatility, we will continue to evaluate our hedging strategy on an ongoing basis. In terms of earnings growth, second quarter core FFO per share of $1.72 was 12% higher on a year-over-year basis and 3% higher sequentially, despite increased FX headwinds. The outperformance versus our prior expectations for the quarter was principally a function of lower-than-expected OpEx spend and a short delay in the closing of the Teraco transaction. Looking forward, we expect core FFO per share will remain under pressure from stiffer than expected FX headwinds given the appreciation of the U.S. dollar. As you can see from the bridge chart on Page 13, we expect FFO will dip down a couple of pennies in the third quarter, principally due to FX, but also as a result of the delayed normalization of OpEx spend, near-term dilution from closing the Teraco transaction and higher interest rates. Accordingly, we have adjusted our underlying guidance assumptions that remain under pressure from foreign currency exchange and interest rates. We are also updating our core FFO per share guidance range for the full year 2022 to $6.75 to $6.85, reflecting a $0.05 per share adjustment at the low and high end of the range. Importantly, we are reaffirming our constant currency core FFO per share range of $6.95 to $7.05 for 2022. Given the continued strength of the U.S. dollar, we expect currency headwinds could represent a 300 basis point to 400 basis point drag on full year 2022 revenue and core FFO per share growth. Lastly, let's turn to the balance sheet on Page 14. Our reported leverage ticked down to 6.2x as of June 30, while fixed charge coverage increased to 6.0x. Adjusting for the proceeds from the last September's forward equity offering, our pro forma leverage drops to 5.8x, while fixed charge coverage improved to 6.2x. We remain focused on our financial strategy of maximizing the menu of available capital options while minimizing the related cost of our liabilities. The execution against this financial strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital, sets us apart from the pack and enables us to prudently fund our strategic objectives. As you can see from the chart on Page 15, our weighted average debt maturity is nearly six years, and our weighted average coupon is 2.2%. Approximately 3/4 of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform. Nearly 90% of our debt is fixed rate and 99% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 15, we have modest near-term debt maturities and a well-laddered maturity schedule for the foreseeable future. Our balance sheet is poised to weather the storm, but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

Eric Luebchow:

First of all, just curious on what your pipeline looks like in terms of hyperscale. I know you saw a tremendous amount of absorption in Q1. It was a little bit lighter, especially in the U.S. in Q2. Now any sense at all the large cloud operators are pulling back after a few record leasing quarters? Or is this just the natural ebbs and flows of the market maybe related to a slightly more limited inventory you had in some of your key markets?

Andy Power:

No...

Andy Power :

Sorry, go ahead, please.

Andy Power:

Sure, Eric. So the only thing I was going to add on, and sorry for interruption. Corey's first piece is that the -- if you look at the plus the megawatt signings were most of the hyperscale larger deals land. We did north of 50 megawatts. I think our largest deal is 10 megawatts. We had two around 5 each. So then you had, call it, 30 megawatts of, call it, 1 to 4 megawatts in size, including new landings and expansions from a diverse group of those hyperscalers. So that was the only data point I was going to add to that first question. On your second question, Eric, I would say, you definitely got the scoop in terms of something that's certainly very recently breaking. So I'll try to provide a little context and as well to answer your question. Dominion Energy, which is the primary power provider in that market, informed its major customers very recently regarding the call a potential pinch point in Eastern Loudoun County that could delay deliveries until 2026. So a little fair bit out there. The cause has been described to me as transmission, not generation, i.e. the pipes or the power line infrastructure, not the actual power. The power company did not give definitive answers to most of the relevant questions we and I would think you and others on this call would probably have, but they have been transparent about the potential issue, and they're working very diligently to finalize their assessment and then ultimately communicate their findings. What this means -- I mean while we're still obviously handicapping the potential outcomes, but net-net, if this is to come to fruition as we recently learned, it will obviously likely be a slowdown in delivery of new supply in what is our largest and the largest and most consistently in demand data center market in the world. So I see two possible outcomes there

Matthew Niknam :

So first on pricing. It sounds like it's been an incrementally positive story just based on some of the recent commentary you've been hearing. So I'm just wondering if maybe you can elaborate on what you're seeing on the pricing front across regions. And then also on demand, I know -- I think Corey referenced very strong demand. I'm just wondering, in light of maybe some elevated concern around a potential macro downturn, any regions, any verticals where you may have seen or started to see any sort of moderation in terms of demand from your customers?

Corey Dyer :

Yes, Matt, thanks. As far as demand, I mentioned hyperscaler demand earlier. Our demand across the board is really good. We've got it across all four -- all of our regions. I mentioned -- I think Andy mentioned in the prepared remarks, the demand across EMEA that was our largest landing spot for our business. Our pipeline is the highest pipeline I've ever had, and that's on top of a couple of years of huge growth in pipeline and in the business. So we feel really good about where the demand is and where the pipeline is. Enterprise customers are continuing to take advantage of PlatformDIGITAL, make use of the data gravity opportunity in front of them. And I feel like in a hybrid IT world, we're probably the best position to help them do that. And so we've seen our demand just grow across the board, enterprises across all regions and hyperscaler as well. If you look at the sub 1 megawatt, which is your colocation interconnection, that was our third highest quarter ever, right on the back of 2 of our highest quarters ever. So I feel really good about the demand.

Operator:

The next question comes from Michael Bilerman of Citi.

Andy Power :

Sure. Thanks, Michael. So I mean -- and we touched a little bit on this in the script. We've followed this playbook that you've somewhat summarized to your -- I mean often when we go into more volatile parts of the world like Latin America, we do partnerships. So we're not -- our equity is not entirely at risk. We also -- I've put a disproportionate amount of our debt in non-U.S. dollar financings, hitting the Eurobond, Swiss bond, Sterling bond. We have now called close to $4 billion in multicurrency revolver commitments. And so given that -- with that mismatch, you said of having a U.S. stock price in U.S. listed or U.S. currency dividends put more and more, call it, accessing diverse sources of capital and creating natural FX hedges along the way. At the same time, given the rate of return that we're investing relative to at least in more recent history has been very low rates in a lot of these currencies. There has been called cash flow or CFFO leakage. The point I was trying to highlight in the script, and this year, the volatility is just off the charts. I mean the year ago, the parity with the dollar is the highest it's been in several years. And certainly, it's created a headwind to our P&L or core FFO per share. But those same euros that got deflated in our P&L in 2022. We're also going into the ground with Europe being our largest development as part of the portfolio with 221 of our megawatts under construction across the continent or in London. So that is typically in our playbook. We've not followed some others in terms of, call it, just P&L hedging, which is really transacting with foreign currency derivatives to call it take out volatility, and that's been what we've done to date. Now I've also said in the prepared remarks, we're becoming a much more global company. There's no question of that. Call it, 50-plus metros, 27 countries, six continents, and we're in a -- certainly, and not in a long time heightened volatility to currency situation. So I think we're always open to good new ideas and something we'll consider in terms of adding to that FX playbook with various types of derivatives. Am I going to go a lot the euro at this point right now? I'm not sure quite honestly. I mean there could be a chance where some of these non-U.S. currencies or countries start raising their rates, and you have some reversion on some of this at the same time. So -- but that's really been what the past practice is, and we're always looking at trying to figure out new ideas to continue to actively hedge the business and mitigate risk.

Andy Power:

So the -- the DC REIT, Digital Core REIT, started out with the North America portfolio, but does have a global mandate. And really the selection of the initial assets was, we had the most to pick from in North America, given our history track record, stage of development of those assets. But we do very well expect to globalize it and diversify it with other types of assets in different parts of the world. The Singapore dollar is, I don't think it's 100% linked currency to the U.S. dollar, but there is, I believe, monetary policies or there is some governmental linkage where they try to track the U.S. dollar in terms of currency. So it's not usually a wildly divergent to the U.S. dollar type of currency. I mean, we view that vehicle as a, call it, the home for core assets with -- that are stabilized, fully operational, long-waited average lease terms, and again, will be a global basis. We also have ventures like Ascenty in Latin America, which today is held by our partners Brookfield or Mitsubishi or MC Digital Realty in Japan or our partners, Mitsubishi Corporation, that are certainly a private partner today, but those certainly could evolve into forms of public partnerships over time. So we're always looking at different ways to find the most appropriate both debt and equity capital, private and public, for partners to most efficiently and prudently scale and grow the platform.

David Barden :

I guess a couple. The first would be, Bill, you've talked about how steady kind of mid-single-digit inflation would be a useful tool for the pricing equation for the data center industry. I think in the script, you talked about resetting pricing on a CPI basis. I'm wondering if this is really -- is it CPI based? Is it supply-demand based? If you could kind of talk a little bit about your pricing strategy big picture there. And then back to the launch of the service platform, I was wondering if you could kind of talk about any expectations that investors should have for that being a contributor to the business or KPIs that we should look for on a go-forward basis?

Andy Power:

And thanks, David, for the question around the ServiceFabric. Yes. So we're -- I've kind of talked about this before to provide a little bit of color and background. It's a purpose-built product, right? And it really enhances our customer experience where we're removing technical complexity. And so what that's going to translate to and what we're watching is driving more of that sub-1 megawatt deployments where enterprises are looking to leverage and deploy their hybrid IT or multi-cloud deployment into our facility. So you'll see a lot more of that driving into our portfolio. And also, I think we're going to see us continually extend the reach into deeper sets of assets within our facilities, set differently, both colo and scale, will start to get the true benefit of interconnection, which at the end of the day will allow us to drive more value and higher margins outside of that product. And so that's one of the things we've been tracking extensively. And that utilization, which is another key KPI for us is multi-site, right, where we're starting to sell a blended set of capabilities, both scale and colo all heavily interconnected because that's where the market is headed. And that's where we see a lot of these larger enterprises requiring multi-market access with a highly interconnected backbone with true SLAs, and that's what the ServiceFabric was able to deliver to market there.

Jon Atkin :

Maybe just a follow-up to the topic raised two or three questions ago about asset recycling and the SREIT . They have their earnings call, I guess, 12 hours ago and specifically mentioned Chicago, Dallas, Frankfurt. So I wondered if there's anything you wanted to add to those comments around timing, and are we going to see all 3 or a subset of those all three or what's kind of the general cadence to suggest? So that's kind of maybe the follow-up. And then the question I had was about book-to-bill. It seems to have lengthened this quarter. That's kind of a choppy metric because I guess it depends on just the nature of the deals that you haven't designed in any given quarter, but it did lengthen noticeably anything to kind of call out there that might relate to the velocity of repeat demand that you might be seeing from the cloud providers or whether they might go through a digestion period. Appreciate Corey's comments about the pipeline being really strong, but the lengthening book-to-bill, is that something that's going to maybe shorten? Or how you see that trending?

Jon Atkin:

Slide 13, just looking at the FFO per share ramp and the seasonality through the year. And as we look at kind of -- you didn't put numbers on it, but the 3Q into 4Q ramp seems fairly modest compared to what you saw 1Q to 2Q as well as the NOI growth contribution in 2Q into the current quarter. So I'm just wondering, is there anything going on during the second half of the year that would moderate your sequential growth in the second half, specifically into the fourth quarter? And I read introduction to that slide or is there anything in particular that would cause the ramp to be so much less significant than what you've seen in the last couple of quarters?

Operator:

The next question comes from Aryeh Klein of BMO Capital Markets.

Bill Stein:

Thanks, Aryeh. So I mean -- and then -- again, it's still subject to change because this is very new or late breaking, but it's going to paint a picture where we believe there's still going to be robust demand in a tightened or slowed supply environment. So -- and those economics mean rates typically rise and economics accrue to the providers. We -- I don't -- first and foremost, I don't see people leaving Ashburn for this delay. This isn't like a permanent feature of Ashburn, this is a, call it, bottleneck of a portion of Ashburn. And you've got an incredible amount of customers, infrastructures, network Ashburn grew to where it is for many reasons. And I don't see demand just running away from in the face of this. I think the available capacity is going to become more precious. Hence, that call it, 40 megawatts of operational that we have today is more precious. And if we're able to proceed and bringing on new capacity that I outlined, that becomes more precious. And if we look at our expirations, we've got about 18 or 17 megawatts respond in the back half of this year. Another 75 in '23. Another 58 in '24. Another 54 in '25, so call it north of 200 over the next through the end of '25, which is a normal amount of role for us, but Ashburn is our largest market. So we have a lot of microwatts rolling over the ensuing years.

Andy Power:

Correct. Yes. I mean, I think asking rates on any available capacity in Ashburn, I mean when we got won of this, we went out to our entire field. The dynamics are shifting in Ashburn, and they could shift quite dramatically. So asking rates as well as negotiations on renewal contracts.

Simon Flannery :

Just following up on the comments on the strong cloud demand. Can you just update us on what your cloud customers are saying in terms of their desire to work with you versus building themselves? Is there any change in that one way or the other or from one location to another? And then given some of the issues we're just talking about in Ashburn, obviously, power issues are even greater in Europe, and your -- you've just committed to some major new builds in markets like Paris and Frankfurt. What is on the ground there in terms of ensuring that you're going to have the availability of that power supply over the next several years for these and other expansions?

Andy Power:

Sure. So we have on-the-ground teams that speak the local language, worked in the municipalities, network to the business leaders. So in each of these jurisdictions that call it, you mentioned our top of list relationships to make sure that we're in constant communication. That doesn't mean something doesn't pop off like we're experiencing Ashburn episodically, but I would say, we have a very good hand on the pulse of what's going on there. I mean this -- we're supporting critical -- mission-critical infrastructure here for a host of applications that I would say, even in a rationing environment, we're very top of list in terms of access to resources, including power. And we're constantly monitoring the power sources or deliveries for new projects and preparing for even more draconian scenarios in terms of backup fuel sources that could play out given the fact that circumstances of what's going on in Eastern Europe. So -- and that's part of our business, and we have very high stakes customers that I view as partners kind of in line what Bill mentioned who are side-by-side with us on these issues, right? They're with us with, expressing the criticality of them getting live on certain dates. So I think that partnership is -- so we would mutually benefit in terms of being able to derisk our execution on their behalf.

Frank Louthan :

What conversations have you had with folks kind of looking ahead to possibly shrinking economy and so forth? Are you seeing any proactive pull forward of digitization saving costs and so forth? And can you give us a little bit more color on sort of the verticals that you're seeing the strength in the bookings? Any shift there from your usual case characters, any new or different industries that you're seeing coming stronger.

Corey Dyer:

Yes, I would add to it, Frank, that we had 17 subsegments do more than $1 million in bookings this last quarter, which speaks to the breadth of the demand. We haven't seen a pullback. If you think about the secular trends around service providers driving revenue, enterprises saving money, adding features as far as efficiencies, taking advantage of a hybrid IT world that we're really well positioned for. We haven't seen that affect the demand in any way. Maybe pull forward a little bit, but I haven't seen it really affected because I've got a record pipeline in colo, record pipeline in interconnection, record pipeline in enterprise and just a record pipeline overall. So if there is an effect on inflation, then I would tell you that it's not enough that it keeps them from continuing to come to look to us to build out their infrastructure.

Nicholas Del Deo :

First, on the -- looking at your expected returns in the development pipeline, pricing is up. It looks like returns are consistent, maybe falling a little bit, particularly in Europe. Is that a function of mix shift with more large deals in the pipeline or other factors at play there?

Nicholas Del Deo:

Okay. Got it. And then maybe 1 more on the Ashburn power topic. I think you made a case that customers are not going to leave Ashburn because of this. If it does cause any customers to kind of reconsider their concentration in Ashburn and maybe you want to diversify a little bit, say, into adjacent markets like Richmond or Culpeper or Manassas. Do you think you can react quickly to capitalize on any sort of diversification trend?

Operator:

This concludes the question-and-answer portion of today's call. I'd now like to turn the call back over to CEO, Bill Stein, for his closing remarks. Please go ahead.

Operator:

The conference has now concluded. Thank you for joining today's presentation, and you may now disconnect.

Jordan Sadler:

Thank you, operator and welcome, everyone, to Digital Realty's first quarter 2022 earnings conference call. Joining me on today's call are CEO, Bill Stein; and President and CFO, Andy Power. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer are also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Bill, let me offer a few key takeaways from our first quarter. First, we kicked off the year on a high note with record bookings of $167 million, led by strength in the leases greater than 1 megawatt and supported by steady bookings in the 0 to 1 megawatt and interconnection category. Second, we saw a notable and broad-based improvement in our re-leasing spreads in the quarter, reflecting a healthier pricing environment but also the active engagement we are having with customers on the Digital Realty value proposition. Third, we remain poised to continue our expansion in Africa with plans to close our investment in Teraco later this quarter. And finally, our core FFO per share results exceeded consensus' expectations despite FX-related headwinds. With that, I'd like to turn the call over to our CEO, Bill Stein.

Andy Power:

Thank you, Bill. Let's turn to our leasing activity on Page 7. As Bill noted, we signed total bookings of $167 million with an $11 million contribution from interconnection during the first quarter. This is our second consecutive quarterly record and the seventh time in the last 8 quarters we have delivered bookings over $100 million. While our new business was healthy across product types, larger deals accounted for 70% of the quarter's bookings, while sub-1 megawatt plus interconnection accounted for 30% of the total. The weighted average lease term on new leases was more than 7 years. Demand was particularly strong in the Americas with Northern Virginia and Toronto leading the way. Fundamentals continue to tighten in both metros, as reflected by the high levels of pre-leasing on our development pipeline. In EMEA, Frankfurt remains the standout, while in APAC, demand remains robust in Singapore and Japan. Nearly 1/3 of our sub-1-megawatt plus interconnection bookings were exported from one region to another, reflecting the value customers realize from our global platform. North America was the most common export region, with most of those exports landing in EMEA followed by Asia Pacific and Latin America. We landed 128 new logos during the first quarter, maintaining the momentum we have built over the last several quarters which has been a strong validation of Platform Digital and our global strategy. In terms of specific wins during the quarter and around the world, Zenlayer, a global edge cloud provider, is expanding on Platform Digital across 3 continents to improve its geographic coverage, scale and access to customer communities across various industries. A Global 2000 consumer financial services firm continue to expand with Digital Realty, leveraging Platform Digital's full suite of capabilities, including rationalizing data centers, implementing IT controls and interconnecting with key business communities. Box Technologies, a leading innovator of high-performance desktop-as-a-service applications, is deploying on Platform Digital, supporting enterprise data architecture applications, serving the manufacturing, construction and engineering industries. A leading IT company is leveraging our full product spectrum by utilizing our connectivity offerings to support data exchange across 3 metros in North America and Lat Am to improve performance and scalability and reduce costs. Magnite, a global independent advertising platform is expanding our platform digital in multiple metros across EMEA to enable their hybrid IT transformation. And a Global 2000 reinsurer selected Platform Digital for mainframe migration with seamless connectivity to top cloud providers and robust security being key drivers. Turning to our backlog on Page 9. The current backlog of leases signed but not yet commenced grew by 15% and from $378 million to a record $436 million, driven by the strong first quarter signings which outpaced commencements. The lag between signings and commencements moderated to 7 months with nearly 2/3 of our $436 million backlog scheduled to commence later this year. Moving on to Page 10. We signed $177 million of renewal leases during the first quarter at a positive 3.3% cash re-leasing spread. Renewal rates were positive across the board, were spread in the black across product types in all 3 regions. 2/3 of total renewals were sub-1-megawatt deals, resulting in a smaller sample size for the 1-plus megawatt category in the quarter. Excluding one larger short-term extension, our cash renewal spread would have been positive 2.5%. We are encouraged by the positive trajectory on renewal spreads as well as constructive engagement with customers on the current inflationary environment and our highly compelling value proposition. In terms of operating performance, portfolio occupancy ticked down by 30 basis points sequentially, driven by previously reported churn events, most of which has already been re-leased. Consistent with our full year guidance, same capital cash NOI growth was negative 3.1% in the first quarter, primarily driven by 220 basis points of FX headwinds, the timing of no move-outs and a customer bankruptcy. The U.S. dollar continued to strengthen over the last several months and FX represented a 200 to 250 basis point drag on the year-over-year growth in our first quarter reported results from the top to the bottom line, as shown on Page 11. Our operations, along with our capital funding and locally denominated debt act as a natural hedge, so only our net assets within a given region are exposed to currency risk from an economic perspective. Turning to our risk mitigation strategies on Page 12. A little less than 60% of our first quarter operating revenue was denominated in U.S. dollars, followed by approximately 25% in euros and roughly 5% each in Singapore dollars and British pounds. In addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed rate financing. Given our strategy of matching duration of our long-lived assets with long-term fixed rate debt, a 100 basis point move in SOFR would have roughly a 75 basis point impact on full year FFO per share. Our near-term funding and refinancing risk is very well managed and our capital plan is fully funded. In terms of earnings growth, first quarter core FFO per share of $1.67 was flat on both a year-over-year and sequential basis. Despite FX headwinds, a $0.01 impact related to a customer bankruptcy and a difficult comp due to the contribution of assets to digital core REIT. In terms of the quarterly run rate, we expect the split between the first half of the year and the second half of the year to be approximately $49.51. In other words, as you can see from the bridge chart on Page 13, we expect to dip down a couple of pennies in the second quarter due to normalized OpEx spending and near-term dilution from closing the Teraco transaction before bouncing back in the second half of the year as leases from a record backlog commenced. Most of the drivers underlying our guidance remain unchanged but given the improving pricing environment, we are bumping up our outlook for cash re-leasing spreads for the full year to slightly positive compared to flat last quarter. We are maintaining our existing core FFO per share range of $6.80 to $6.90 despite the customer bankruptcy and stiffer FX headwinds. Given the continued strength of the U.S. dollar, we expect currency headwinds could represent a 250 to 300 basis point drag on full year 2022 revenue and core FFO per share growth. Last but certainly not least, let's turn to the balance sheet on Page 14. We were active again in the capital markets during the first quarter. We took advantage of favorable OEM market conditions to lock in EUR 750 million at 1.375% for 10.5 years. And later in the quarter, we completed a dual tranche Swiss bond offering, raising a total of CHF 250 million at a blended coupon of approximately 1.25%. We used a portion of the net proceeds to redeem 450 million of bonds at 4.75%. Reported leverage ratio is 6.3x while fixed charge coverage is 5.5x. Adjusting for the proceeds from the forward equity offering last September, our pro forma leverage ratio drops to 5.9x, while fixed charge coverage improves to 5.7x. We continue to execute our financial strategy of maximizing the menu of available capital options while minimizing the related cost and extending the duration of our liabilities to match our long-lived assets. This successful execution against our financing strategy reflects the strength of our global platform which provides access to the full menu of public as well as private capital, sets us apart from our peers and enables us to prudently fund our growth. As you can see from the chart on Page 15, our weighted average debt maturity is over 6 years and our weighted average coupon is 2.2%. A little over 3/4 of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform while also acting as a natural FX hedge for investments outside the U.S. Over 90% of our debt is fixed rate, guarding against a fixed a rising rate environment and 99% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 15, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years. Our balance sheet is poised to weather a storm but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks and now we will be pleased to take your questions. Operator, would you please begin the Q&A session?

Jon Atkin:

Two questions. I wanted to find out a little bit about the elevated demand and the record leasing. And I wondered how much of that you might attribute to in the greater than 1 megawatt category, any kind of a shift in the mix between building, self-building and leasing on the part of the hyperscalers. And then the second question around pricing, given higher costs and some of the developments that you mentioned, do you see this as really having the impact of protecting your target development yields given the higher cost or perhaps aiming to enhance your target yields?

Corey Dyer:

Yes. So we'll be pretty comprehensive here with our answer to you, Jonathan. Thanks for the question. I would tell you that with regard to the enterprise demand, we've got customers that are just being driven to the business needs and opportunities that are in front of us. Bill mentioned earlier we just published our Global Data Insights survey with data becoming a critical agenda topic for all the businesses and it raised really 5 key things. Data was pervasive, it's the business agenda, it requires aggregation and control and it's localizing and it's a data first strategy's win. And so we're seeing that is really what's driving a lot of the demand across the enterprise. As far as where is it happening from a regional perspective, if you even want to do a baseball analogy, sometimes you guys ask, I'd say North America is probably middle innings with a healthy bullpen that you ought to have in it. And then, I'd tell you that EMEA is probably third inning, maybe anything behind APAC, a little behind that as customers are still really waking to the data opportunity that's right above all of us and it was really highlighted in the index that we just did in that survey. I'd also tell you that we had really strong exports across all regions which was great. And then we're seeing an uptick in all the multi-market and multi-region wins. So really happy with the enterprise. I'll let Andy give you a little bit of perspective on the hyperscalers.

Bill Stein:

Relative to pricing, Jon, pricing dynamics are clearly market specific and will depend on both supply and demand in each market. So when demand exceeds supply, we've been able to raise our prices. And this is reflected in our results. So for example, if you look at our first quarter leasing results in Northern Virginia, our average prices were about 6% higher than just last quarter in the fourth quarter. That market is increasingly tightening. We're also fortunate to be in a position where we're well insulated from the increased costs on our current development pipeline and that's because of our contracts with suppliers and our vendor managed inventory program. So -- and this has obviously helped us not just in terms of cost but to assure that we do have the supply to continue around the world.

Andy Power:

Sure. we'll give you an extra question here. So that customer from a current -- on receivables, they had a very modest amount of called pre-petition outstanding receivables. They were regularly current paying customer, not a late paying customer and they're fairly pretty well up to date, a couple of million, I would say and really concentrated in the U.K. was outstanding when they entered bankruptcy. Obviously, they're going to go through a process under U.K. administration, in the U.S. and also Canada. That will play out over several months. The -- I think if you take a step back, really what -- I think what's more relevant is that customer obviously got, call it, sideswiped by 2 particular issues. One, obviously, a part of their business what's not common in our customer base was disaster recovery for office which has obviously got impacted by the Zoom-ification during the pandemic; and then secondly, the elevated power prices, especially in Europe at incremental liquidity constraints. I don't see that as a really recurring theme in our customer base, especially the first piece of what I described. And this customer is going to obviously work through with this bankruptcy process. And I think we've been taking active steps not just related to this customer but in general, to continue to streamline and focus our portfolio on core assets that we have -- we see robust and long-term demand, multicustomer facilities, less single stand-alone facilities. And quite frankly, why we entered the colocation interconnection business several years ago was not only was the growth to our business but also to be prepared in the event that some of our colocation resellers ran into financial times and we had to step in and support their end customers only in the event that leases are rejected, obviously.

Michael Rollins:

So one follow-up and one question. So on the follow-up, when you're talking about leasing, can you unpack the opportunities to lease up the existing inventory? And how much of the bookings you're seeing go towards that and where occupancy on the existing portfolio can get over the next 12 to 24 months? And then just a second question, I think it's Page 20 in the supplemental, the same-store numbers. How does that look if you were to put that on a constant currency basis in terms of the rental performance on the revenue side? And how does that look over the next 12 months as you talked about the pricing opportunities and some of the positive renewals that you're seeing?

Operator:

Our next question will come from Matt Niknam with Deutsche Bank.

Corey Dyer:

Matt, this is Corey. I'll take the first 2 questions, I think, that you had, one being around the supply chain impacts and then also the hyperscale demand. I'll take them in that order, if that helps you out. And as Andy mentioned kind of at the beginning of the commentary, our sales and marketing engine just continues to build up our demand and our pipeline growth, right? And I would tell you that the supply chain, inflation, energy costs has not really been a factor in that. Our customers really are thinking through what they do and how they source those materials so that they're setting up their commencement dates ahead of it with us. So they're just being really thoughtful about it and thinking through these concerns. And what I think it's done is actually had us create better dialogue with our customers to think through how we're going to solve this and create probably a little bit more demand for us as they think through it but it hasn't negatively impacted it at all. As far as the hyperscale demand, we're really still experiencing really strong demand from the hyperscalers across all regions, right? They work with us to help their speed to market. We're with them increasingly around their business impairs around this data opportunity the CSPs are helping all the enterprises with. We're seeing larger deal sizes at CSPs as they work to keep up with demand. So we have a really healthy pipeline for the remainder of the year. And I'd also say there's probably a dozen or so of these CSPs and more of them emerging in Asia and across the board. It's also helping us increase our demand on our pipeline for it. So really happy with both of those and where we're seeing the trajectory.

Operator:

Our next question will come from Simon Flannery with Morgan Stanley.

Andy Power:

Thanks, Simon. So first and foremost, better to be lucky than smart. We are out of the gates with a sizable EUR 750 million bond literally the first, I think, business day of 2022 and priced 10.5-year paper in the 1-plus percent, call it, category. So pleased with that. Followed that up with even more volatile start of the year, a Swiss bond offering which, again, both of those, I think, diversifying our source of capital, increasing our FX hedge, locking in long-duration debt at attractive cost of capital. We also increased our revolving credit facility by an incremental $750-ish million during the quarter, just a full start of liquidity given the broader uncertainty in backdrop. We still have not drawn down or close to $1 billion equity forward just yet. We look to close on Teraco in the next couple of months or so, or actually probably a month or 2, I guess. And then back half of the year in terms of capital sources on the leverage side to again keep us in line in terms of our targeted net debt to EBITDA. We will obviously evaluate equity as an alternative but right now at these current levels, I think the continued disposition of noncore assets as well as incremental contributions of core assets from our portfolio to digital core REIT in the back half of the year are going to be our primary funding mechanisms. And we made some great progress, obviously getting Digital Realty through its first earnings season and also working on identifying that next leg of assets to continue to grow and diversify and strengthen Digital Realty.

Greg Wright:

Yes. Simon, it's Greg. Look, to date, I'd say the private market seems to be lagging the public markets a little bit and I don't think that's uncommon. I think the public markets usually lead. But look, I think if rates stay up over time, you should start to see multiples come down. But right now, we see a lot of stuff out there but it feels as though the private market multiples have been a little sticky high at this point.

Erik Rasmussen:

So we've heard some very large deals in the first quarter. What's changed in the market that would lead to these massive deals? And then maybe with that, how do you plan for this?

Erik Rasmussen:

Great. And then maybe just my second question. As it relates to the development pipeline which is very active, besides the chip shortages, what's happening on the construction side, whether it's getting the right materials or having the proper staffing, especially considering the demand backdrop and maybe even increased competition in some markets that you might be seeing.

Operator:

Our next question will come from Eric Luebchow with Wells Fargo.

Andy Power:

Thanks, Eric. I mean that is obviously a constantly evolving schedule where we're adding projects in terms of new starts and we're subtracting projects that are delivering and being commissioned for customers and opening at high levels of pre-leasing. It's a combination of offices or colocation product as well as our scale and hyperscale dedicated data halls. We're trying to always stay ahead of the game, focusing on the longest lead time parts of development. Obviously, land procurement, hence the acreage I mentioned previously, followed by shelves. And then Chris just touched on our, call it, overall infrastructure and build-outs. I don't -- I think when you look at the combination of our current stabilized portfolio that has availability that we're actively leasing into our shelves and their delivery schedules and as well as our land, I feel good. There's always a market or 2 that will be a little tighter than I would like but I feel I think probably more in terms of the hyperscale front that these larger deals, you're often engaging in contracting at very early stages of those projects. So you don't need to necessarily have a finished data hall in order to sell that capacity, hence having that land bank and shelves coming online are very good selling tools by themselves.

Andy Power:

Yes. So we've obviously been working through this for some time. I would say, over the last several quarters, the -- call it, the mix was certainly helping us as we've kind of chopped through some of our largest customers, major expirations, as we got through more of the North America and more -- onto more international mix, having the less than a megawatt more highly connected destinations, legacy interaction, Westin, Telx, etcetera, being more -- a bigger piece of the puzzle. And last year, we came in a little bit better than we had guidance but albeit negative. This year, we guided to flat which is a year-over-year sequential improvement. And I think what you're seeing in this quarter are a few things. On the one hand, I'm not -- I wouldn't say that I can rule out that we'll never have a negative cash mark-to-market on any given product for the next several quarters. I don't think we're at that level of positive yet. But you saw positive across the board in the plus less than a megawatt categories. It was -- in the less than a megawatt which is the largest piece of it, it was up versus the LTM, about 130 basis points, cut north of 2.5% which is a pretty sizable move. And we've guided now for the full portfolio for 2022, slightly positive. So again, not -- I can't tell you we're fully done with never having a negative cash mark-to-market but the trend is certainly playing out which I would say is a combination of mix and also the broader pricing ratch up where the pendulum of pricing is swinging slightly more and more back to Digital Realty.

Unidentified Analyst:

This is Rob [ph] on for Frank. Where did you guys end the quarter on a quote of varying heads? And have you seen any hiring issues in sales or across any other parts of the business to help maintain growth?

Andy Power:

I think the hiring and ability to hire for that opportunity.

Operator:

Our next question will come from David Guarino with Green Street.

Andy Power:

David, maybe help just clarify numbers. That was not a cash mark-to-market. That was the like-for-like new rates. So showing progress in the overall market rates and trying to do it as best we could as apples-to-apples in terms of size of deal, all the nuances that go into the deal. I was little -- just down in the market a week ago. And that market is overall experience incredibly robust and continuous demand. And we've done quite well, I can tell you, more than our fair share in that market not just in the last quarter but over several quarters. And that, combined with just overall constraints on bringing on capacity in that market, running up on ability to get power, permitting and the like, I think it's all going to continue to trend in a more positive territory or in terms of healthier rates in that market. If you look at our just one last data point on that, our operating portfolio in that market is, call it, 91 something in the sub but that's missing some leases that have signed but not commenced. If you include that, we're like 94% leased on the operating portfolio. And then I think I have 16 out of 86 megawatts left in terms of -- that's not leased that's under construction. We're basically down to, I think, 1 or 2 more buildings in the legacy 3 digital DFT and lab campus and are already moving on to our, call it, Western lands or digital Dulles location for our next layer of growth.

Andy Power:

It feels to me like the lumpiness has subsided. I mean you looked at our quarterly leasing stats for several quarters. It's just been more diverse and more consistent. And based on the last few quarters of demand kind of combined with the broader supply backdrop dynamic, it doesn't feel like there's a -- I feels like the rates are going to be nowhere near peak rates yet. So we got a long way to run back to peak rates but still, I think marching in a more positive trajectory for some time to come.

Unidentified Analyst:

This is Alex [ph] on for Dave. Andy, maybe just my first one here. I think last quarter, you noted the Teraco acquisition was going to give around a partial year contribution of $100 million in revenues and $70 million in EBITDA. Just wanted to double-check to see if there are any updates there and just confirm that that's already baked in the guidance? And then secondly, I know we've kind of touched on global M&A before but just kind of thinking about the state of the market and any specific geographies of interest.

Unidentified Analyst:

M&A.

Operator:

Our next question will come from Aryeh Klein with BMO Capital Markets.

Andy Power:

Well, obviously the FX has gone against our favor for the year but we've had some success in the first quarter relative to our budget a little bit on the OpEx side but we are absorbing a customer -- a bankruptcy which is going to be in your headwind to that. Hence, we're holding our guidance for same-store cash NOI for the year.

Andy Power:

Bankruptcy, aside from a, call it, noncore straight-line right add back that's not in core FFO, we basically already absorbed about almost $4 million of a hit for the first quarter due to, call it, pre-petition receivables which I mentioned earlier on the call. And then, we've made an assumption as to additional, call it, $6 million of headwind for the remainder of the year because quite honestly, we're kind of just handicapping the outcome of events because the customer is obviously going to go through the court process and either accept or reject leases. The last time this go around, I think almost all of the leases were accepted. I'm not sure or that will be the case this go around. And then there's the scenarios as to if a lease is rejected and their end customers could be essentially absorbed by Digital Realty. So $6 million of incremental and on top of the $4 million, taken in the first quarter is our essentially hit or adjustment due to the bankruptcy for the year.

Irvin Liu:

Just one for me. Maybe Andy can answer this. I wanted to ask about the FX spot rate movement. You mentioned that bonds denominated in local currencies act as a natural profit hedge. And we do see this reflected on Slide 11. There's a 3-point revenue headwind but only a 2.3-point FFO headwind. Historically, is there any way to think about how well local currency denominated bonds offset some of these FX headwinds for FFO? And would you consider any durative instruments looking ahead to help you smooth out some of these headwinds?

Operator:

That concludes the Q&A portion of today's call. I'd now like to turn the call back over to CEO, Bill Stein, for his closing remarks. Bill, please go ahead.

Operator:

The conference has now concluded. Thank you for joining today's presentation. You may now disconnect.

Jim Huseby:

Thank you, operator, and welcome, everyone, to Digital Realty’s fourth quarter 2021 earnings conference call. Joining me on today’s call are CEO, Bill Stein; and President and CFO, Andy Power; Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer are also on the call, and they will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions on today’s call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of the risks related to our business, please see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Bill, I’d like to hit the tops of the waves on our fourth quarter results. We further strengthened connections with customers with $156 million of new bookings with record results in both a zero to one megawatt and greater than a megawatt category and ended the year with $500 million in new bookings, a 15% increase over the prior year. We also continue to enhance our global platform with the completion of organic development projects in multiple metros despite the continued challenges presented by the pandemic and the global supply chain in addition to strategic investments, establishing Digital Realty as the leading pan-African provider. Financially, we had a solid quarter with full year results above the high end of the guidance range that we provided this time last year. And finally, we continue to strengthen our balance sheet by raising equity capital through the establishment of Digital Core REIT in a highly successful IPO on the Singapore Stock Exchange and the related sale of a 90% interest in 10 fully utilized core data centers. As a perpetual capital partner, Digital Realty and Digital Core REIT can continue to work together while providing our customers with a seamless experience. And with that, I’d like to turn the call over to Bill.

Andy Power:

Thank you, Bill. Let’s turn to our leasing activity on Page 7. As Bill noted, we delivered record bookings of $156 million with an $11 million contribution from interconnection during the fourth quarter. Volume was elevated across both of our primary reporting categories in the quarter with a healthy mix between enterprise and hyperscale business. For the full year, we booked $0.5 billion of new business with roughly a 60/40 split between greater than one megawatt and less than one megawatt plus interconnection. The EMEA region had a particularly strong quarter accounting for approximately 60% of total bookings led by Frankfurt with standout performance across product types. The fourth quarter was also notable for the strength of cross-selling between regions. Nearly 30% of our sub-one megawatt plus interconnection bookings were exported from one region to another, a strong indication of the value customers derive from our global platform. Not surprisingly, the Americas was our biggest exporter with most deals landing in EMEA, followed by APAC. Both EMEA and APAC had strong export quarters as well, with over 15% of their sub-one megawatt plus interconnection bookings landing out of region. The weighted average lease term was nearly 10 years primarily driven by hyperscale pre-leasing in EMEA. We landed over 130 new logos during the fourth quarter, our second best quarterly result and just shy of last quarter’s record 140 for our full year total of 480 new logos. We are encouraged by the consistent organic growth of our customer base, and we view these results as strong validation of platform digital and our global strategy. In terms of specific wins during the quarter and around the world, Graphcore, a British semiconductor company that develops accelerators and systems for AI and machine learning, selected PlatformDIGITAL to address their density, security and scale requirements. The initial deployment will land in Amsterdam to be followed by a global rollout, and we are also collaborating on solution engineering and joint go-to-market activities. A leading high-frequency trading shop is expanding on PlatformDIGITAL to extend their high-performance computing platform across two continents and expand trading into two new international metros, while approving cloud access and business continuity state side. A Global 2000 U.S. energy provider is expanding with Digital Realty, consolidating their own on-premise facilities and using PlatformDIGITAL to scale their business across multiple metros. A leading aerospace manufacturing and services company is expanding on PlatformDIGITAL, leveraging dense interconnection to support data exchange across four new markets. A Global 2000 insurance brokerage is consolidating their data center footprint and has adopted PlatformDIGITAL to remove data gravity barriers and interconnect with clouds across multiple metros. An Ivy League university is expanding on PlatformDIGITAL to exit their own on-premise facility and enhance their access to the health care provider community for data exchange. And finally, a major APAC food services organization selected PlatformDIGITAL to improve cloud connectivity and leverage the local centers of data exchange in Japan. Turning to our backlog on Page 9. The current backlog of leases signed, but not yet commenced, rose from $330 million to $378 million as our fourth – record fourth quarter signings more than offset commencements. The lag between signings and commencements was unusually high at nearly 14 months primarily driven by long-term leases on recent development starts in EMEA as customers accelerated efforts to secure a long-term runway for growth against a backdrop of steadily dwindling inventory. Moving on to renewal leasing activity on Page 10. We signed $151 million of renewal leases during the fourth quarter in addition to the record new leases signed. The weighted average lease term on renewals signed during the fourth quarter was nearly four years. Renewal rates rolled down 4%, driven by a handful of large deals in North America as negative re-leasing spreads on greater than one megawatt renewals more than offset the positive releasing spreads on the sub-one megawatt renewals. In terms of operating performance, overall portfolio occupancy ticked down 60 basis points, almost entirely due to development deliveries placed in service during the quarter. Same capital cash NOI growth was negative 6.6% in the fourth quarter, primarily driven by churn in North America as well as higher property operating and net utilities expense. As a reminder, the 2021 same-store pool did not include the Westin Building in Seattle, the Interxion platform in EMEA, Lamda Hellix in Greece or Altus IT in Croatia. Each of these businesses will be included in the same-store pool beginning in the first quarter of 2022, and each is expected to contribute to improving same-store growth going forward, partially offset by higher property taxes as well as FX headwinds expected in 2022. Turning to our economic risk mitigation strategies on Page 11. The U.S. dollar strengthened during the fourth quarter relative to prior year exchange rates, and FX represented roughly a 130 basis point headwind to the year-over-year growth in our reported results from the top to the bottom line. As a reminder, we manage currency risk by issuing locally denominated debt to act as a natural hedge, so only our net assets within a given region are exposed to the currency risk from an economic perspective. In addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed rate financing. Given our strategy of matching the duration of our long-lived assets with long-term fixed-rate debt, a 100 basis point move in base rates would have roughly a 50 basis point impact on our full year FFO per share. Our near-term funding and refinancing risk is very well managed with a well-diversified menu of public and private capital sources available to fund the growth of our business. In terms of earnings growth, fourth quarter core FFO per share was up 4% year-over-year and up 1% sequentially, driven by solid operational execution, cost controls and a reduction in financing costs due to proactive balance sheet management over the past 12 months. For the full year, core FFO per share was up 5% year-over-year and came in $0.03 above the high end of our initial guidance range, which did not contemplate the contribution of $1.4 billion of assets through Digital Core REIT in early December. As a reminder, full year core FFO per share excludes the $20 million promote fee on the Prudential joint venture in the third quarter as well as the $25 million PPA settlement in the first quarter. Looking ahead to 2022, we expect core FFO per share will be between $6.80 and $6.90, including the 1% dilution from Teraco as well as 100 basis points to 200 basis points of expected FX headwinds due to the strength of the dollar relative to 2021. We expect to deliver revenue between $4.7 billion and $4.8 billion in 2022 and adjusted EBITDA of approximately $2.5 billion. Given the tightened supply environment, we expect flat cash renewal rates in 2022, up from slightly negative in 2021. And we expect overall portfolio occupancy to remain within the current range despite the significant new capacity scheduled to come online during the year in addition to the embedded lease-up potential within the Teraco portfolio. We are off to a great start on our financing plans for the year with a highly successful €750 million bond offering in early January of 10.5-year paper at 1 3/8% [ph] coupon. Finally, we expect to raise $500 million to $1 billion from capital recycling whether through contributions to Digital Core REIT, noncore asset sales to third parties or a combination of both. In terms of the quarterly dividend, the distribution policy is ultimately a Board-level decision. Given the continued growth in our cash flows and taxable income, we would expect to see continued growth in the per share dividend, just as we have had each and every year since our IPO in 2004. Last, but certainly not least, let’s turn to the balance sheet on Page 12. As of year-end, our reported leverage ratio stood at 6.1 times, while fixed charge coverage was 5.4 times. Pro forma for settlement of the $1 billion September forward equity offering, leverage drops to 5.7 times, while fixed charge coverage also improved to 5.7 times. We continue to execute on our financial strategy of maximizing the menu of available capital options while minimizing the related costs and extending the duration of our liabilities to match our long-lived assets. As Bill previously mentioned, we recast our credit facility during the fourth quarter, upsizing from $2.35 billion to $3 billion, extending the maturity by three years and tightening pricing by five basis points. We also incorporated a sustainability-linked pricing component subject to adjustment based on annual performance targets, further demonstrating our commitment to sustainable business practices. Subsequent to quarter end, we raised approximately $850 million from the 10.5-year euro bonds at 1.375%, and we used a portion of the proceeds to redeem all $450 million of our outstanding 4.75% U.S. dollar bonds due 2025. This successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital, sets us apart from our peers and enables us to prudently fund our growth. As you can see from the chart on Page 13, our weighted average debt maturity is over six years and our weighted average coupon is just over 2%. A little over three quarters of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform while also acting as a natural FX hedge for our investments outside the U.S. 94% of our debt is fixed rate, guarding against a rising rate environment. And 99% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 13, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years. Our balance sheet is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks. And now we’ll be pleased to take your questions. Operator, would you please begin the Q&A session?

Jon Atkin:

Thanks. I wondered if you could talk a little bit about supply chain. Last call, you talked about kind of on time and on budget in terms of delivery of turnkey inventory. Any update on that? And did that play a role in the slightly more elongated commencement timeframe associated with your leasing of 14 months compared to what you’ve done in the past?

Andy Power:

Sure. I think Bill covered it. But just on the – John, the elongated book-to-bill or time line, which had nothing really do with supply chain. Two factors there

Andy Power:

Sure. So, we finished 2021 at south of $2.2 billion of development CapEx or so. Our guidance range is a step-up of $2.3 billion to $2.5 billion of CapEx. You can just look at our press release throughout the year. We’ve been opening new markets, expanding addressable market, building out the pipeline from land to shells to finish suites to colo and connectivity inventory. I don’t think we’re looking to change our posture. We really go market-by-market supply chain – or excuse me, market-by-market supply-demand view. And we think we’re positioning ahead of our competitors. And I don’t think there’s a really necessary reactionary flex needed into our business. But if the opportunity presents itself, we look at that, and we’ll make those investments. And as I mentioned in my prepared remarks, we’ve got a diverse menu of capital sources to fuel our growth.

Operator:

The next question comes from Michael Rollins of Citi. Please go ahead.

Andy Power:

Sure. Thanks, Michael. So just a quick backdrop on same capital. So last year, we guided slightly negative on same capital or – and we came in at 4.4% same-capital cash NOI is negative. This was slightly worse than the year prior. As I mentioned, that was a real subset of the pool that we reported in 2021. You flip to 2022, you call it almost 80% of our company is in that pool with the addition of the Westin Building, Interxion, Lamda Hellix and Altus IT in Croatia. So you get a much larger sample set and an improving complexion. So from negative 4.4%, we guided to, call it, negative 3% at the midpoint. It’s really being impacted by two elements

Andy Power:

Sure. So I mean, pricing from two lenses. Obviously, you saw in the guidance, the – we’re guiding towards flat releasing spreads on our renewals for 2020. So that’s not new news. We’ve been mentioning that we’ve been working our way into that positive territory partly due to mix of expirations, but certainly, I would say, pricing related and then also, call it, pricing on new deals. Holistically, I think our supply chain team has done a really and design [indiscernible] team done a really good job insulating us given our scale, our consistency in market. I don’t think that’s industry-wide. And if you’re a newer, smaller, more fledgling or regional competitor that’s creating disruptions from an inflation standpoint and there’s just overall strains on delivery of capacity, whether it’s moratoriums in certain countries or the ability to deliver power. All of these elements, I’d say, add up together to, I think, be an incremental benefit to our value proposition to our customer of having this incumbent platform of 26 countries, 50 metros with one way for growth that the pricing pendulum feels like it’s continuing to slowly swing more and more in our favor.

Eric Luebchow:

Great. Thanks for taking the question. I wanted to talk about the strength you had in the less than one megawatt category. Maybe you could break down where you’re seeing the most success, whether it’s traditional enterprise, smaller hyperscale edge nodes? And do you think that study improvement you’ve had is sustainable going forward? And then my second question was on the asset disposition front. Andy, I think in the past, you said you don’t have a lot left to do on noncore. So should we assume that on a heavier weighting towards SREIT contributions throughout the course of the year? And related to that, where do you think your leverage slightly north of six times, should we expect it to remain elevated? Or are you looking to drive that down with the Teraco financing and potentially other asset sales? Thanks.

Corey Dyer:

Yes. Thanks, Eric, for the question. I’ll tell you that we’re really happy and feel good about the healthy demand that we’re getting out of the sub-1 megawatt smart space. It seem to be consistent about kind of where we’re growing that and how it’s been building. We mentioned the enterprise demand and just where it’s coming across. It’s coming across from a lot of our customers trying to take advantage of hybrid IT environments. And so we’re seeing that come across the board. Across the globe, we have really strong demand in pipeline. And the nice thing about it is it’s coming from an enterprise perspective from us, two thirds of that pipeline is coming through as enterprise. And we’re also getting good channel progress from it. So from a sub-1 megawatt perspective, is it sustainable? Is it something that we’re going to continue. I think you’re going to see it continue. And we’re happy with where we’re seeing that demand across all regions and coming through the channel specifically and then also enterprises. So, we’re happy about where that is, and I think it’s going to continue.

Eric Luebchow:

And just how we should think about your leverage throughout the year? You’re a little above six times. I know you have the equity forward, you have the Teraco financing. Just how we should think about the cadence of leverage this year? That would be helpful. Thanks.

Eric Luebchow:

Great. Thank you.

Simon Flannery:

Thank you very much. Good evening. Andy, I just wanted to continue on the Digital Core REIT. How should we think about what to expect there for 2022? Is this going to be something where it will potentially do more deals with you? And how are those? Is it really North America focused today and in the near term? Or could we see assets from Europe or elsewhere go in there? And you mentioned the stock price appreciation. Is there any magic is 35% of magic number in terms of your stake? Or could you get – use that as a source of funding as well to take your stake down in the critical. Thanks.

Simon Flannery:

And your 35% stake?

Simon Flannery:

Great. Thank you.

Eric Rasmussen:

Yes, thanks for taking the questions. New logos were quite strong. I think you highlighted in your record in the quarter. Maybe just talk about what’s behind the success there? And then maybe do you see that momentum sustaining into the New Year?

Eric Rasmussen:

Great. And then maybe just – my follow-up, obviously, hyperscale was strong. But maybe talk about the types of hyperscalers you’re seeing – is there a shift in the customer makeup? And what’s driving that demand?

Operator:

The next question comes from David Barden of Bank of America. Please go ahead.

Greg Wright:

David, it’s Greg Wright. Let me take the first question. Your question with respect to the SREIT and how we think about it in terms of our M&A strategy. I mean, look, I think when you look at the mandate that John and his team have for that vehicle, it’s clearly – it’s a yield-driven vehicle. And obviously, we assess that cost of capital for that vehicle like we do Digital Realty stand-alone. And those assets that are going to go into that, they’re not going to be development, they’re going to be stabilized. You’ve heard John’s pitch in terms of the types of assets they’re looking for that to put it into that vehicle. Well, if we do future M&A or anything like that, and there happens to be those kinds of assets, they will be a natural home for that. Now we obviously have a partner, how to pursue those transactions simultaneously and be able to bifurcate the assets and to get the best cost of capital. So that’s how we think about it from an M&A standpoint. But in terms of cost of capital, we still go back, we do our underwrites we’re going to go out and do DCFs and take a look at the projections and take a look at the risk of the asset and we’re going to price it accordingly. And obviously, having a vehicle that’s got a better cost of capital is helpful. But that’s generally the approach we’ll use for M&A.

Bill Stein:

Relative to the move to Austin, I am not the only person who has moved to Austin. We moved the corporate headquarters to Austin. January of last year. And I’m surrounded by people who have also moved to Austin. On my right is my Chief of Staff, Bill Bradley, on my left is my Chief Investment Officer, Greg Wright. I’m looking down the table here at our Chief Operating Officer, Eric Sanchak. So we have quite a few people who have moved. Andy Power is planning to move at the end of the year. So this is the corporate headquarters. We made a conscious decision to leave California for a number of reasons. I think we’ve articulated that. We’re going to be moving our staffs out of California and New York. We’ve announced that. We have downsized in California, our offices there. We moved from [indiscernible] center up the block to space it on California Street, and we’re going to be downsizing in New York as well. So there’s nothing about this move to Austin that is related to succession. Relative to the movement of Andy into the President’s log, I think that’s your question. Our – my goal and the goal of the Board is to try to give our top-performing executives as much experience and different experience as we possibly can. So this gives Andy an opportunity to spend time in operations as well as working with Chris Sharp on the networking side, the product development side, the innovation side. We have a number of very capable executives that work for this company that report to me. And I think many of them are potential candidates to succeed me. My obligation to the Board is to make sure that they have choices. And I’m trying to provide for that. And so when the time is right for me to move into retirement, I’d like our Board to be able to look at a number of potential candidates inside the company and potentially consider at candidates outside the company as well. But I have no plans to step down at any point in the near future. I like what I do. And I think we’re pretty good at it.

Brendan Lynch:

Great. Thanks for taking my question. Maybe this one is for Chris. With your growing pool of colo assets, do you have any interest in creating an internal software-defined network? And if so, what would that entail? And what competitive advantages would that provide to you?

Brendan Lynch:

Great. And maybe you could give a little color on the type of investment that, that will take?

Andy Power:

And Brendan, I can confirm that the cost CapEx otherwise is included and not material to the guidance we have on the sub today.

Matt Nickman:

Hey guys. Thanks for squeezing me and I’ll keep this brief. Maybe two for Andy. First off, does the 2022 guide, can you quantify what’s embedded in there from Tareco, just thinking about revenue, EBITDA and core FFO? And then secondly, maybe detailing on that. Typically, you’ll give some directional color on how to think about forward quarter core FFO. I’m just wondering if there are any puts and takes for 1Q core FFO per share that you would flag to be mindful off? Thanks.

Matt Nickman:

That’s great. Thank you.

Bill Stein:

Thank you. I’d like to wrap up our call today by recapping our highlights for 2021, as outlined here on the last page of our presentation. Our value proposition is clearly resonating with customers. We booked over $0.5 billion of new business in 2021, a 15% increase over the prior year. While attracting nearly 500 new logos. Digital Realty’s operational excellence is second to none, whether it be uninterrupted performance during a record Texas ice storm or on-time delivery of new capacity despite a global pandemic and the resulting strain on global supply chains. Our customers trust us with mission-critical applications and digital delivers. We’re expanding our global platform, establishing Digital Realty as the unquestioned leading colocation interconnection provider in Africa and positioning PlatformDIGITAL at key points of interconnection and subsea cable landing stations. We announced our expansion into India, together with our partner, Brookfield, and we invested in Atlas Edge gaining exposure to the European edge market all while investing over $2 billion in organic development around the world. We posted solid financial results and core FFO revenue and adjusted EBITDA above the high end of our initial guidance. Our 2022 guidance represents mid-single-digit growth in core FFO per share despite absorbing headwinds from FX, Teraco and capital recycling. Constant currency guidance for CFFO, if we were to exclude Teraco, would be in high single digits. Last but not least, we further strengthened our balance sheet, raising $1 billion of proceeds from asset sales all the while positioning ourselves as the leading global provider of the full spectrum of data center solutions. I’d like to once again thank the Digital Realty frontline team members in critical data center facility roles, who have kept the digital world turning. I hope that all of you stay safe and healthy, and we hope to see many of you in person again soon. Thank you.