Digital Realty Trust Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 24, 2025
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Operator

Good afternoon, and welcome to the Digital Realty First Quarter twenty twenty five Earnings Call. Please note this event is being recorded. During today's presentation, all parties will be in listen only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and we will aim to conclude at the top of the hour.

Operator

I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Jordan Sadler
Jordan Sadler
SVP, Public & Private IR at Digital Realty Trust

Thank you, operator, and welcome, everyone, to Digital Realty's first quarter twenty twenty five 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 McQueen are also on the call and will be available for Q and 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 ks and subsequent filings with the SEC.

Jordan Sadler
Jordan Sadler
SVP, Public & Private IR at Digital Realty Trust

This call will contain non GAAP financial information. Reconciliations to the most directly comparable GAAP measure 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 results. First, we posted strong overall leasing in the first quarter of $242,000,000 consistent with a record pace set in 2024 and driving our backlog of booked not billed leases to a new record of $919,000,000 Activity was robust across our primary product segments. Second, core FFO per share growth accelerated ahead of our expectations for the quarter and with our record backlog have strong visibility for the remainder of 2025 and growing momentum for 2026.

Jordan Sadler
Jordan Sadler
SVP, Public & Private IR at Digital Realty Trust

And third, we further evolved our funding model this quarter, following the successful formation of our first U. S. Hyperscale fund, enabling us to meet the growing needs of our customers while scaling our balance sheet and enhancing our returns. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Jordan, and thanks to everyone for joining our call. The first quarter of twenty twenty five was fraught with attention grabbing headlines focused on advances in AI and the potential implications for the ongoing AI infrastructure build out. But Digital Realty continued to execute our full spectrum meeting place strategy and posted strong results. With the strength of our 1Q results and the visibility provided by a record backlog, we remain confident in our 2025 growth targets and are encouraged by the 40 plus percent increase in our 2026 backlog since the beginning of this year. At 100% share, our backlog of signed but not commenced leases exceeded $1,300,000,000 at 03/31/2025.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Despite the headlines, demand for data center capacity remains strong, and our value proposition continues to resonate, evidenced by nearly 400,000,000 of new leasing completed in the quarter or $242,000,000 of new leasing at digital share, with healthy contributions from both our major product categories. Leasing in our zero to one megawatt plus interconnection segment was $69,000,000 our second highest ever, behind only last quarter's record. This quarter's total included $15,000,000 of interconnection bookings. The leasing achieved in the first quarter in this segment was ahead of pace relative to last year's record $250,000,000 of leasing, which is a reflection of our team's intense focus and execution on our meeting place strategy. We completed nearly $325,000,000 of greater than a megawatt leasing in the quarter, reflecting the demand we are capturing and executing across platform digital in the quarter.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

At our share, greater than a megawatt leasing was $172,000,000 Demand for large capacity blocks remains strong and diverse. Over the past five quarters, we've topped $100,000,000 of leasing volume in the greater than a megawatt category four times, with four different customers signing the largest lease in each of those quarters, including this quarter. In fact, the single largest lease in the first quarter of twenty twenty five set a new record for Digital Realty in terms of total annualized rent signed. In our experience, hyperscale customer activity is more likely to rhyme rather than repeat. Each customer typically beats to its own drum, so when some slow or pause, others push forward.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Today, we continue to be encouraged by the secular demand drivers of digital transformation, cloud, and AI, which have been in place for the last several quarters and are supporting consistent interest across our portfolio, including large capacity blocks. Reflecting this dynamic, pricing reached a new milestone in the quarter with the overall rate on new data center leasing reaching $244 per kilowatt per month, up 10% from the prior record, reflecting strength within the greater than a megawatt category. Looking ahead, our pipeline remains healthy and diverse. Customer and partner interest and engagement were high throughout the quarter and continued into 2Q. Customers continue to see significant value in contiguous capacity in core markets that can support multiple use cases, from network optimization to hybrid clouds to artificial intelligence.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

While it is important to acknowledge the risk posed by elevated uncertainty and capital markets volatility, Digital Realty's product pipelines remain near record levels. In the meantime, we continue to focus on serving our 5,000 plus customers in the major markets around the world. This quarter, bookings were strongest in North America hyperscale, but we are seeing demand from all regions and for both products. To meet this growing demand, we increased our development pipeline by another 170 megawatts since year end to eight fourteen megawatts at 100% share. Of this total, 63% is pre leased with the lion's share of the remaining hyperscale availability focused in Northern Virginia.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

We continue to see healthy interregion activity across our global platform in the first quarter. EMEA was the biggest importer with strong activity from all other regions. We also had very strong enterprise export activity from The Americas and APAC with EMEA as the preferred destination from each region. It is clear that our global full spectrum data center platform is a key differentiator for Digital Realty. It is a key component of our value proposition as customers may onboard to platform digital with just a cabinet but can then scale to a cage that leverages hyperscale cloud compute and will soon provide access to AI for all customers.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

During the first quarter, we added another 119 new logos, including a leading global semiconductor equipment manufacturer deploying high performance computing in Paris to take advantage of the well developed cloud and network communities along with an emerging AI community on platform digital. Other key wins in the quarter include a leading high frequency trading fintech is expanding on platform digital to add private AI by increasing their HPC platform to a new market while improving cloud access and business continuity. An Oracle partner is expanding its footprint on platform digital to Zurich to support Oracle's dedicated region integrated solution for private cloud to address data localization and data sovereignty. A leading blockchain provider is also expanding to a new metro on platform digital to deploy infrastructure to support decentralized private and public networks. A Fortune 500 payments and transactions company is expanding their global presence on platform digital into The Nordics to solve compliance and data localization needs.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And an AI inference and training company and a new logo is utilizing the connectivity available on PlatformDigital to provide a scalable solution for their AI inference applications. We continue to expand the reach and connectivity of PlatformDigital during the first quarter with our entrance into Indonesia. We partnered with a leading Jakarta based carrier neutral data center platform to create Digital Realty Persama, which will expand its connected campus, offering direct access to a wide array of networks and services, including a direct connection to Indonesia's largest Internet exchange provider. Supported by a young and large population, growing cloud adoption, and access to multiple subsea cables, Jakarta is an attractive expansion location that complements our existing APAC footprint. We also launched our Heracleion 1 data center in Crete earlier this month, which complements our Athens campus and adds a key connectivity hub in the Eastern Mediterranean, strategically linking Europe with Asia, The Middle East, and East Africa via a dense network of highly connected subsea cables.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Also during the quarter, Digital Realty and Console Connect announced a strategic collaboration that will expand the reach of Service Fabric to more than 100 new third party data centers with access to more than 75 new cloud on ramps, enriching the global connectivity options available to enterprises across platform digital. In closing out our connectivity oriented advances, this morning, we announced the addition of three new Azure on ramps, one in Atlanta, One in Brussels, and one in Vienna. These on ramps expand our global relationship with Microsoft as we now host 15 cloud on ramps across four continents. Moving over to the financing side of the business, after more than a year of hard work across our team, this year we announced our first US hyperscale data center fund, continuing to evolve our funding model and further expanding the pool of capital available to support the growth of hyperscale data center capacity. The fund offers a unique opportunity for private institutional investors to invest directly in hyperscale data centers alongside the world's largest data center provider.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

It is dedicated to investing in high quality hyperscale data centers located across top tier U. S. Metros, including Northern Virginia, Dallas, Atlanta, Charlotte, New York Metro, and Silicon Valley. We've seeded the portfolio with five operating assets and four land sites for data center development and have received very strong interest and limited partner commitments from some of the world's savviest investors, including sovereign wealth funds, pension funds, insurance companies, endowments, and other institutional investors. The investors have done their due diligence, committed capital, and placed their trust in digital realty.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

We are targeting $2,500,000,000 of equity commitments from our LPs, and we expect to maintain a 20% or greater interest to ensure alignment. All told, the fund will support approximately $10,000,000,000 of hyperscale data center investment, enabling us to serve the robust demand of our customers while enhancing our returns through fees. We received more than $1,700,000,000 of commitments through our first closing, placing us ahead of schedule relative to our year end target, and we continue to field investor interest. As Matt will discuss in a moment, our progress puts us well on track to meet our capital recycling guidance for 2025 and to fund growth in 2026 and beyond. Before turning it over to Matt, I'd like to touch on our global sustainability progress.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

During the first quarter, we opened FRA18, a 16 megawatt data center, adaptively reusing the historic and iconic site while delivering cutting edge technology solutions with a deep focus on sustainable performance and water conservation. Draw eighteen is optimized for AI and high performance compute applications with advanced liquid cooling along with the integration of service fabric for enhanced data security and connectivity. Importantly, this state of the art brownfield development is powered by 100% renewable sources, as are all our facilities in EMEA. This sustainable building in Frankfurt continued Digital Realty's leadership in the industry with high performance green buildings. We added 190 megawatts of third party certified green data centers in 2024.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Also in the first quarter, Digital Realty reached 100% renewable energy coverage for operations in Singapore, a top priority in that market given the country's resource constraints and its Smart Nation initiative. We've installed solar on our facilities over the past couple of years and in the first quarter signed a PPA with Tuos Power for Biomass and other regionally sourced renewables to fully cover our load. This further expands the more than 150 data centers around the world that are matched with 100% renewable electricity and adds to our portfolio of 1.5 gigawatts of contracted renewable capacity. And with that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

Thank you, Andy. Digital Realty continued to post healthy results in the first quarter, as strong leasing pushed our backlog of signed but not yet commenced leases to a new record, while the formation of our first hyperscale fund added a new horse to our funding stable. These milestones enhance our visibility and predictability of earnings growth, improve our returns, and further reduce our reliance on any single capital source, while enabling digital to responsibly invest to serve the needs of our customers. In the first quarter, we grew core FFO by 6.1%, posted strong leasing results, and increased the capacity under development by another 26%, despite delivering nearly 50 megawatts of new capacity during the quarter, a great start to the year. We signed aggregate leases representing nearly $400,000,000 of annualized rent at 100% share in the first quarter, which was the second highest in Digital Realty's history.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

At our share, we signed $242,000,000 of new leases in the first quarter, with notable strength across each of our two segments. We completed nearly $69,000,000 of bookings in our zero to one megawatt plus interconnection segment, which marked the second highest quarter for digital, following last quarter's record. This activity also exceeded the prior April average bookings by nearly 10%. We also signed $172,000,000 within the greater than a megawatt category at our share, largely driven by hyperscaler leasing in North America. Consistent with our objective of improving digital's long term sustainable growth, more than 85% of our bookings included fixed rent escalators of at least 4% or were linked to CPI.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

Our backlog at Digital Realty's share totaled $919,000,000 at quarter end, an increase of 7% above our prior record, as 119,000,000 of commencements was more than offset by our strong new bookings. Looking ahead to the rest of 2025, we expect to see strong commencements in the next two quarters, providing momentum into the end of the year and beyond. For 2026, we currently have $440,000,000 scheduled to commence, while another $100 plus million commences in 2027 and beyond, providing strong visibility for multi year growth. For context, our 2026 backlog is already more than double the backlog we had for 2025 at this time last year. During the first quarter, we signed $147,000,000 of renewal leases at a blended 5.6% increase on a cash basis, consistent with our 4% to 6% full year guidance.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

Renewals in the first quarter were heavily weighted toward our zero to one megawatt category, with $127,000,000 of renewals at a 3.8% uplift. Greater than a megawatt renewals were relatively sparse at only $5,000,000 with a 4.6% uplift. We remain on track to meet our full year guidance. For the quarter, churn declined and ended at 1.5%. As for earnings, we reported first quarter core FFO of 1.77 per share, up 6% year over year, reflecting strong same capital operating results, combined with new commencements over the past year.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

On a constant currency basis, we reported core FFO per share of $1.79 in the first quarter. During the quarter, operating expenses were $01 to $02 lower than expected due to a slower ramp in repair and maintenance spend following an uptick in the fourth quarter, while property taxes benefited from a $01 refund in the quarter. Data center revenue was up 7% year over year as the combination of strong renewal spreads, rent escalators, and new lease commencements more than offset the drag associated with the dispositions completed over the last twelve months. Adjusted EBITDA increased by 11% year over year, reflecting the growth in data center revenue combined with expense controls. Same capital cash NOI growth was healthy in the first quarter, increasing by 5% year over year on a constant currency basis, driven by 5.7% growth in data center revenue.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

Moving on to our investment activity. During the quarter, we spent approximately $1,000,000,000 on development CapEx on a gross basis, including our partner share, and roughly $700,000,000 on a net basis to Digital Realty. We delivered nearly 50 megawatts of new capacity, 83% of which was pre leased, while we started another two nineteen megawatts of new projects, highlighted by 200 megawatts in Northern Virginia that is 50% pre leased. At quarter end, our data center development pipeline increased to $9,300,000,000 at a 12.5% expected stabilized yield. In addition, as Andy highlighted, we invested approximately $95,000,000 for a 50 interest in Digital Realty Bersama, expanding into a highly connected platform in Indonesia.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

We were also pleased to announce the formation of our first US hyperscale data center fund, which has the potential to support up to $10,000,000,000 of data center investments. In the second quarter, Digital expects to contribute a portion of five existing operating assets with an aggregated agreed value of more than $1,500,000,000 which will satisfy the majority of our disposition guidance for 2025. Turning to the balance sheet, we have spent the last two and a half years positioning digital for the opportunity that lies ahead by deleveraging our balance sheet and bolstering and diversifying our capital sources. Leverage is still well below our long term target at 5.1 times, while liquidity remained robust at more than $5,000,000,000 before considering the capital from our new fund. Early in the quarter, we raised €850,000,000 of 3.875% notes, which was used to pay off the £400,000,000 of maturing 4.25% gilts, with the balance used to reduce outstandings on our credit facility.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

This leaves us with €650,000,000 of maturing debt through the rest of 2025. Looking further out, our maturities remain well laddered through 02/1935. Moving on to our debt profile, our weighted average debt maturity was four point five years, and our weighted average interest rate ticked down to 2.6%. Approximately 83% of our debt is non US dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 93% of our net debt is fixed rate, and 96 of our debt is unsecured, providing ample flexibility for capital recycling.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

Let me conclude with our guidance. We are increasing our core FFO guidance range for the full year 2025 by $05 to $7.05 to $7.15 per share to reflect our updated FX assumptions for the full year. The new core FFO per share guidance now aligns with our constant currency guidance. It is worth noting that while our constant currency core FFO per share is trending toward the high end of the range through the first quarter, we have chosen to maintain this guidance range given the heightened degree of macro and geopolitical uncertainty today. The midpoint of our core FFO per share guidance represents approximately 6% year over year growth, reflecting the underlying strength in our business, balanced by meaningful step up in development spend and a substantial reduction in leverage year over year.

Matt Mercier
Matt Mercier
Chief Financial Officer at Digital Realty Trust

On a normalized and constant currency basis, we continue to anticipate total revenue and adjusted EBITDA growth of more than 10% in 2025, reflecting the strong underlying fundamentals of our business. In accordance with our updated FX assumptions for the year, we are increasing both our revenue and adjusted EBITDA guidance ranges for 2025 by $25,000,000 while our G and A assumption increased by $5,000,000 We are maintaining the rest of our guidance assumptions for 2025. This concludes our prepared remarks. Now we'll be pleased to take your questions. Operator, would you please begin the Q and A session?

Operator

We will now open up the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.

Operator

At this time, we will pause momentarily to assemble our roster. The first question is from John Atkin with RBC Capital Markets. Please go ahead.

Jonathan Atkin
Jonathan Atkin
Managing Director at RBC Capital Markets

So I was wondering, as you factor in the trends that you saw in the first quarter and coupled with some of the recent commentary surrounding hyperscaler demand and the increased uncertainty we've seen over the last several weeks, how do you see the leasing environment over the next several quarters? Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, John. So we're obviously off for a very strong start to the year, both in the enterprise colo segment and also in hyperscale. And including in the hyperscale, that largest signing we had was signed in the month of March, so not that long ago. Now the backdrop has certainly changed in just the last few weeks, which has certainly created significant market volatility and a fair bit of uncertainty. But despite this, our pipeline across both of those customer segments remains very robust.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So on the enterprise front, even coming off of now a string of several pretty fantastic quarters, our pipeline is at a record level. And on the hyperscale side of the equation, you can see from what we've disclosed, we have a runway of numerous sites with those large contiguous capacity blocks installed after locations. And I can tell you in just the last several days, quotes for those large capacity blocks have been requested by customers and are going out across multiple markets. I think it's important, though, to remember something that's a different differentiating point about our strategy. So one, when it comes to the markets, we have and we continue to focus on markets with both robust and diverse demand.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So enterprise service providers, cloud availability zones for compute and now AI serving location and latency sensitive workloads. And those markets have and we continue to see experiencing supply constraints. Two, we never lost our focus or eye on the ball when it came to accelerating our enterprise and colo execution on multiple fronts. So you've seen that in the customer wins, the new signings, where we're growing, as we highlighted in the prepared remarks, all the way to latest new country entry with Indonesia. And then lastly, when it comes to hyperscale, we focus on places where we believe we can best serve customers.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

We're not trying to be all things to all hyperscalers. So be it our tremendous track record for delivery and operational excellence, having these must have runways for growth, or that boots on the ground experience, This has really allowed us to support those hyperscale customers when they need us most to solve critical capacity problems often in our core markets when others simply cannot.

Operator

The next question is from Richard Cho with JPMorgan. Please go ahead.

Richard Choe
Richard Choe
Vice President at JP Morgan

I know there's a lot of uncertainty around this question, but the best you could, given current state of things, if prices and tariffs kind of come through your supply chain, when should we expect to see that in your development costs? How would you kind of mitigate that? Thank you.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Richard, for the question. So first off, think you've to take a step back as it relates to digital in that question, because I don't think the answer is going to be all data center providers are to be created equal in this category. And you heard from us for several quarters, if not years. We have, call it, longstanding vendor and partner relationships with vendor managed inventory programs and the consistency building and delivering and operating in our markets called keeping our folks at work with consistency, which I don't think I could say that if I was at a different data center provider. From our standpoint, based on the current facts and circumstances, which we all know are evolving almost minute by minute, we're seeing a very modest, call it less than 5% impact to potential build costs when it comes to digital.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

That has a lot to do with how we operate our business. That has to do with our supply chains being both very US focused as well as if not US, very Mexico and Canada and governed under current USMCA carve outs from tariff implications. So nothing but very modest numbers. At the same time, we are not sitting idly. We have been, even leading up to the chain of events that have unfolded, been proactively getting out ahead of this.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And our supply chain team owes a lot of kudos for that in terms of ordering components wherever we could to pull forward components that we need to derisk potential incremental volatility or outcomes that could happen on the tariff front. So I don't think you'd see this really unfold in probably until, call it, several quarters when it comes to actual development cycles, given what you have today under construction have, call it, actual contractual orders for equipment. And I do think it's going be pretty modest, assuming there isn't a dramatic change of events to what our current understanding of the tariff implications.

Operator

The next question is from Ari Klein with BMO Capital Markets. Please go ahead.

Ari Klein
Ari Klein
Director - Equity Research at BMO Capital Markets

Thanks. Can you provide a little bit of color on the land acquisitions in Atlanta and Charlotte, both which are markets where you've had a retail presence but not much of a hyperscale one? I think previously, you've been perhaps a little bit hesitant to expand into The US markets. What makes these attractive, particularly Charlotte?

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks Ari. I'll toss it to Greg to touch on our expansion of our capabilities in those markets.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Yeah, thanks for

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

the question Ari. Let me start with Charlotte. Look, I think it's not surprising. I think all investors on the phone know that traditional markets are expanding. And Charlotte meets our criteria in terms of a target market.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Let me just remind folks, we've operated in Charlotte for a long time. We have the key connectivity hub in what's called Uptown Charlotte. But now we're seeing availability zones coming in from several of the major cloud providers. So as we see this, we're creating this campus that's consistent with our traditional campus strategy by developing a hyperscale campus that's within 10 miles of a highly connected facility. And again, just to remind folks again, our facility there we have, I think it's north of roughly 25 networks, significant cross connect count, roughly 40 customers.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

And we've recently been awarded an on ramp. So when you look at that and look at the components of what makes a market competitive and attractive, we really do believe Charlotte is well on its way to be a tier one market. And we have a location that's a latency sensitive location. So it checks all those boxes that we tend to like. Also let me remind you Charlotte is home to a large number of enterprises, especially in the financial services business and many of the Fortune 500 companies.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

And one last point, and then I'll get to Atlanta is that our site in Charlotte has power available on a very competitive basis. So I guess another way to say it is it's land with precious power timelines if you will. And most of those points we've made all apply to Atlanta as well. We've purchased of land, that's going to have a mix between hyperscale and co location. The co location facility will be within 10 miles of Downtown Atlanta, which we love obviously given our ownership of 56 Marietta.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

And as you know, when you look at the underlying fundamentals of a market like Atlanta, there's a lot of the vacancies are very low, 1% or less. Power, same thing. It's the power is in place on a very competitive basis. So when we look at that we think those are both critical markets for us and we're really excited to have between those two projects over 600 megawatts of developable capacity.

Operator

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

Matthew Niknam
Matthew Niknam
Director, Equity Research at Deutsche Bank

Hey guys, thanks so much for taking the question. My question relates more to hyperscale. And I guess in recent, weeks and months, we've been reading more about deep seek more efficient, AI models. And I guess also a little bit more questions around, revenue use cases tied to AI. And so I'm wondering whether, less so macro, but more around recalibration of overall CapEx being invested into AI, whether you're seeing or hearing any evolution in how some of your larger cloud and hyperscale customers are approaching CapEx investment plans?

Matthew Niknam
Matthew Niknam
Director, Equity Research at Deutsche Bank

Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Matt. Maybe I'll start off briefly and then kick it over to Chris to talk a little bit about the evolution of the infrastructure and some of the deep sea early implications. Think, again, I don't think all hyperscale is equal. And I think it comes back to focusing on markets that have diversity of demand. So serving cloud availability zones and AI being incremental use cases to that.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Think it also makes sure you're not in places with numerous cloud availability zones. As we shared in the prepared remarks, the flow of business when one customer may be slowing down, others are called steaming ahead. I think you've seen that now in the last, call it, five quarters where we've had robust signings. In the four largest of those quarters, the largest lease, each four of those was signed by a different customer. So four different hyperscalers called front of the pack for us at Digital, and none of those four are actually our top customer.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So further emphasizing the diversity of that demand. But Chris, why don't you speak a little bit to some of the deep seeking locations as well?

Chris Sharp
Chris Sharp
Chief Technology Officer at Digital Realty Trust

I appreciate the question, Matt. Yes, so no one hardware or software advancements are going to win. So no single model, no single vintage of GPU. It's an amalgamation of multiple capabilities coming together in the market. And I think that's what was represented with DeepSeek.

Chris Sharp
Chris Sharp
Chief Technology Officer at Digital Realty Trust

It was a pretty substantial step in efficiencies associated with models coming to market. But you're going see more of these. And I think what's interesting is the capabilities and ecosystems are driving a new utilization, which is unlocking performance across the overall landscape of infrastructure represented in the market today. I think it's important to really emphasize that we're always focused on enabling inference, because the second part of your question is around the monetization of AI. And so inference is where that monetization will happen, and also associated with private AI deployments coming into the facility as well.

Chris Sharp
Chris Sharp
Chief Technology Officer at Digital Realty Trust

So we're always focused on how can we support the interconnectivity in that broader ecosystem of capabilities coming to market. And that's really what's represented in our portfolio and some of the pipeline that we've referenced in the prepared remarks.

Operator

The next question is from Alex Waters with Bank of America. Please go ahead.

Alexander Waters
Alexander Waters
Vice President, Equity Research - Communications Infrastructure at Bank of America

Perfect. Thanks so much for taking

Alexander Waters
Alexander Waters
Vice President, Equity Research - Communications Infrastructure at Bank of America

the question. Maybe just to start off, Andy, you noted in your prepared remarks you had the largest lease in kind of like greater than one megawatt. Could you help us frame just kind of the size of that and then what portion of that greater than one megawatt was AI related? Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So, Alex, without going into the nitty gritty of individual customer contracts, let me frame it as this. So we did about 400,000,000 total signings, 100%, and our share was that $2.40 plus. So you can kind of get back into portions flowing into builds or operational capacity that we are delivering and managing on behalf of private capital partners. AI overall was about just over two thirds, I would say, of our signings. So it's a new high watermark in terms of contributions.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Again, as you look, all of those signings again were into our traditional core markets that we've been serving for some time. So certainly customers pushing their AI needs into the major markets that also have cloud availability zones. If you look at the composition of AI wins, I would say more hyperscale driven than enterprise this quarter in particular. But if you look at the pipeline we have on the enterprise AI use cases, I would say we've seen a step up in size and quality of pipeline. The deal sizes were in that, obviously not major deals, but they're growing in size as well as power density.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So I think that fits well with where our portfolio could help see these customers scale their infrastructure.

Operator

The next question is from Michael Elias with TD Cowen. Please go ahead.

Michael Elias
Director at TD Cowen

Great. Thanks for taking the question and congratulations on the leasing quarter and kudos to you, Greg, for getting the fundraise. Just a blast from the past here. Going back to the Teraco and the Ascenty acquisitions that you did, could you just give us a reminder in terms of Teraco, if there is an option for the remaining stake and kind of what the thought is there. And then also just an update on Ascenty and if there's anything that's likely to happen there.

Michael Elias
Director at TD Cowen

Thank you.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Greg, do you want to hit both of those?

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Yes, sure. Thanks, Michael. Appreciate the kind words. Look, first in the order of the question, let's go to Terraco. In Terraco, there is in 2026, there is a put call mechanism that may or may not take place.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

And then that goes on. Originally, it's a put period for two years. And then if that's not exercised, there's a call period after that. So that's halfway through 2026. I may be a quarter or so off, but that's roughly the time period there.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

But look, I think that business continues to perform exceptionally well. And we couldn't be happier with the investment in the management team there. They really do have a dominant position down there in South Africa. With respect to Ascenty, again, Ascenty is going well. Partnership with Brookfield is great.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Chris Torto and his team continue to execute. We're happy that market remains strong. They've made a lot of progress on the enterprise front down there. Historically, that was a more of a hyperscale play. But Chris and the team have been working really hard.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

They've adopted strategy here at Platform Digital, and they're doing a great job down there. So look, I would say and just as with Teraco, we're very pleased with the team, with the assets and the performance. So and that there's no rights for exit or anything like that. So hopefully that answers your questions.

Operator

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

Jim Schneider
Jim Schneider
Senior Equity Analyst at Goldman Sachs

Good afternoon. Thanks for taking my question. I was wondering if you can make a couple of comments. One on the backlog comment you made. I just see you talked about record backlog in enterprise.

Jim Schneider
Jim Schneider
Senior Equity Analyst at Goldman Sachs

Is the hyperscale backlog also at record? Or has there been any kind of diminution there? And then can you maybe just sort of talk about the kind of current environment and whether any pause or any kind of activity you're seeing in the current quarter would prevent you from sort of sustaining strong leasing quarters into Q2 and Q3? Thank you.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Jim. So I think pipeline, just to and I will touch on backlog, because I think it's important, or Mac can amplify that. So pipeline, we did call out record on the enterprise side. I'm not sure if we're at a necessarily record on the other piece of the equation, but I'll tell you the speed of where the deals have been moving in that category have been exceptionally fast, including I think our largest signing last quarter may have been done in record pacing, especially for a large deal. And as I mentioned in response to the first question, we are actively engaging with customers who are requesting new quotes for those large capacity blocks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

You did mention backlog, which we probably should touch on as well. I mean, we do have a record backlog of signed but not commenced contracts. 1,300,000,000.0 in total. Our shares just over 900,000,000. Those are attractive rates and returns, long term contracts, attractive escalators, call it either CPI or north of 4% or higher.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And we just had a call, if you look at the 2026 component, that stepped up about 40% in just the last quarter, which really is going to help contribute to our algorithm of accelerating our bottom line and generating better long term sustainable growth per share.

Operator

The next question is from Frank Louthan with Raymond James. Please go ahead.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Hey guys, this is Rob on for Frank. Thank you for taking my question. So you might have touched on this a tad earlier, but what would have to change on your end in order to see re leasing spread dip again? And do you potentially see pricing weakening in any of your markets?

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So let's maybe just break that down into two components. In the zero to one megawatt side, we had to call it close to 4% cash mark to markets. On the new deal signing side, the new signing component in a call it second highest quarter in the company's history off the back of a record quarter back to back. We have positive price action in almost every single one of our markets across the board in that zero to one category. So I don't see any lack of momentum continuing there.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And on the larger deal side, we also had positive price movement. You can see that by the overall rates we were able to achieve in that category. And the latter of that, being more hyperscale, somewhat comes back to supplydemand dynamics. And when you look at where we've concentrated our bets to support those hyperscale customers, we've really focused on places, like I said previously, that has robust and diverse hyperscale demand, where customers need to put those workloads and grow, where they have ability to land large capacity blocks that have future proof growth, and where supply constraints do not seem to be really being relieved to a great extent rapidly, which all those ingredients together in the places where we're supporting hyperscalers seems to keep pricing firm on our behalf.

Operator

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

David Guarino
Managing Director, Data Centers & Towers at Green Street Advisors, LLC

Thanks. This one probably go to Greg. Given the volatility in interest rates and equity markets we've seen over the past few weeks, have you seen any change in cap rates for stabilized turnkey data centers? And then if you could just comment too, I think you said $5,000,000,000 of stabilized assets would go to the new fund. What was the cap rate on those?

David Guarino
Managing Director, Data Centers & Towers at Green Street Advisors, LLC

That'll be helpful for modeling.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Sure. Thanks, Dave. I hope you're well. Well, the two points are related. But look, the answer is and look, you've seen this and I've seen this over time.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

Cap rates are impacted not just by interest rates, but also by growth rates, right? So I think when you look at the data center space today, clearly cap rates have gone up. But I would also say there's been more than an offset in terms of commensurate growth, if you will. So the answer is we have not seen a change in cap rates that's meaningful. In fact, we see that across the board actually in the different transactions we're seeing in the market.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

They've remained consistent. Again rates are higher. But I think people are underwriting greater growth now. So that's the offset. With respect to the cap rate on the it's a little north of $1,000,000,000 of the assets that went into the fund.

Greg Wright
Greg Wright
Chief Investment Officer at Digital Realty Trust

That was, call it high fives cap rate give or take.

Operator

The next question is from Ervin Liu with Evercore ISI. Please go ahead.

Irvin Liu
Vice President at Evercore ISI

Hi, thank you for the question. So I had another one related to pricing for new leases. I think, you know, positive trends are mostly broad based but especially pronounced in The Americas, greater than one megawatt segment at $2.57 per kilowatt. So can you just talk about the drivers of pricing strength on some of your new leases, whether there were any one offs or, you know, which markets these new leases were in? So, you know, any details on this would be helpful.

Irvin Liu
Vice President at Evercore ISI

Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Ervin. So success recently has been very US focused, because you've seen a compounding of demand from traditional enterprise IT, digital transformation, cloud computing demand, AI training, and the budding of AI inference from hyperscalers. And that's been a heavily U. S.-focused phenomenon to date. We have in the last several quarters captured that in a few markets, Northern Virginia, Dallas, Chicago.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And this last quarter was particularly Northern Virginia led. I do think this phenomenon will continue to globalize, just like cloud computing globalized on the back of data sovereignty over time. And you're seeing that for numerous countries looking to really invest and grow AI and digital data center infrastructure. So I think that we are well positioned when that globalization phenomenon starts to bud. But it's what I just described as really driving the accentuation of pricing in The U.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

S. In particular.

Operator

The next question is from Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow
Eric Luebchow
Director - Senior Equity Analyst at Wells Fargo Securities

Great. I appreciate you taking the question. Andy, I think you mentioned that your enterprise funnel was at record levels, if I heard you. So I wanted to dig into the enterprise segment in the less than one megawatt, and I suppose there's some in the larger footprint as well. Obviously, there's been a little concern just in the past few weeks with all the tariff and macro noise, there could be some delayed decision making at the enterprise level.

Eric Luebchow
Eric Luebchow
Director - Senior Equity Analyst at Wells Fargo Securities

So I just wanted to confirm you're not really seeing that at this point. And I think you've talked about growing your less than one megawatt bookings this year versus last. Just wanted make sure that's still on track. Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Eric. I'm gonna turn it to Colin. But the one thing I just wanted to highlight, I can't recall if we've mentioned this, it's phenomenal. It's great to be out of the gate strong in that category in particular on the backs of two really strong third and fourth quarters. To put up a number in the first quarter in the zero to one megawatt interconnection, but let's call it is 10% above the pacing we did last year, and last year was a great year overall.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

But I'll just call in a little bit provide some color on what the results we saw in the pipeline ahead.

Colin McLean
Colin McLean
Chief Revenue Officer at Digital Realty Trust

Thanks, Eric. Yes, as Andy highlighted previously, the demand profile continues to be robust and diverse across the regions and our segments, global large enterprise and commercial. As Andy quickly just highlighted, just a quick reminder on Q1 second highest booking quarters to date, that's a third straight quarter zero to one megawatt performance, strong contribution. Large enterprise in particular, that's 53% of the overall bookings. We saw 16 industry subsegments book over $1,000,000 and a strong interconnection performance, which speaks really the value of our platform.

Colin McLean
Colin McLean
Chief Revenue Officer at Digital Realty Trust

As it relates to the future pipeline, we have the largest zero to one megawatt pipeline on record. Regarding the overall opportunity creation, within the global accounts, we continue multiple use cases emerge across network and compute enterprise as 55% of the overall opportunity. And the trend is very much hybrid. On the commercial side as we define it as $1,000,000,000 and below there's record new logo pipeline performance. So that's all underscored with a really strong partner contribution, which is about 33% of the overall pipeline.

Colin McLean
Colin McLean
Chief Revenue Officer at Digital Realty Trust

Key use cases and characteristics, hybrid cloud continues to emerge. Data localization, which is really driving distributed architecture, is becoming prime. And we're seeing early stages of artificial intelligence as part of the overall pipeline. So as it relates to the zero to one megawatt pipeline, we're continuing to see demand really across all our markets.

Operator

The next question is from Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra
Vikram Malhotra
Managing Director at Mizuho Financial Group, Inc.

Thanks for taking the question. Just maybe breaking up your thoughts between sort of hyperscale and more cloud or enterprise demand. Can you talk about the visibility you have in both segments from the perspective of historically, perhaps cloud is maybe a little bit more economically sensitive versus maybe on enterprise, it's obviously very specific. So I'm wondering just in light of your comments last quarter where you talked about delayed decision making, how do you see both those segments in today's environment? And just if you still believe this year is likely a record year?

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Vikram. So, maybe parse through that here. So, at a high level, going back to the last piece you were saying, we had a landmark $2,024,000,000,000 dollars in signings. And within that, great composition, both the zero to one and also greater than megawatt. Great, I think, 600 ish new customers to the fold, great verticals, segmentation, imports and exports.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So all in all, And to be out of the gates now, almost pacing where we were in the first quarter, is a great start. Now we've got several innings left in this game for this year, but quite pleased where we are out of the gates. Maybe I'll let Colin talk to a little bit more about the enterprise versus the hyperscale cloud in terms of buying cycles and any potential thoughts related to the macro environment implications.

Colin McLean
Colin McLean
Chief Revenue Officer at Digital Realty Trust

Sure. Yes, thanks for the question. As Andy mentioned, hyperscale demand continues to really cement around large contiguous capacity blocks. So we're having active conversations, frankly, in our core markets where we have available capacity. On the enterprise side, the buying cycle typically is a little bit shorter, although we haven't really seen any real changes, frankly quarter over quarter in terms of timeline to make decisions and execute.

Colin McLean
Colin McLean
Chief Revenue Officer at Digital Realty Trust

That's been pretty solid as it relates to enterprise and cloud compute.

Operator

The next question is from Michael Rowling with Citi. Please go ahead.

Michael Rollins
Michael Rollins
Analyst at Citigroup

Thanks and good afternoon. Curious if you could discuss the opportunity to try to compress the timeframe to bring new development online, especially where there may be energy constraints? And within that context, if you're able to shorten this timeframe based on the conversations that you're having with the hyperscalers, do you think that would yield more sales sooner or based on the timeframes that they're on, you're kind of working on a path that's complementary to their current prospects? Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thanks, Michael. So compressing timelines is, I think, a key attribute to increasing your win probabilities at better outcomes. There's no question about that. And we have been doing that and we continue to do that on multiple fronts. And obviously it's a multi legged stool to do that.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Having the balance sheet that we've got today with, call it, 5,000,000,000 liquidity, the commitments in hand for our first fund to fund that growth is a key attribute required and allows us to move more expeditiously to seize upon opportunities. Having the supply chains set up and having folks on-site constructing in a continuous fashion is a key element as well. And having now our development pipeline, call it $9,500,000,000 to date, very highly pre leased, call it almost 55% overall, with the lion's share of the unleased play in the prime markets of like Northern Virginia. That allows us to call it even work more nimbly as well. And then lastly one of the key attributes that Greg touched on a little bit in a prior question is the land that's been recently acquired, that has been competitively advantaged land that has opportunity to serve customers in the nearest windows.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So things that are most attractive. And that is a big kudos to our team finding these opportunities, working with utility partners, working with other partners to seize upon them to essentially help customers in more critical locations like we have been doing and delivering the results you've seen in the last several quarters.

Operator

The next question is from Nick Del Deo with MoffettNathanson. Please go ahead.

Nick Del Deo
Managing Director at Moffettnathanson LLC

Hey, thanks for taking my question guys. You've disclosed working with a leading Neo Cloud customer in a couple

Nick Del Deo
Managing Director at Moffettnathanson LLC

of

Nick Del Deo
Managing Director at Moffettnathanson LLC

locations. Can you talk about what sort of demand you're seeing from Neo Clouds more broadly and how you're thinking about them from a new business perspective and a credit risk perspective? Thanks.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

So that's correct. Have been expanding our customer base to support the Neo Cloud universe. I can tell you we're obviously being judicious like we are with almost any customers to make sure we're curating our customer base and campuses with diverse demand to preserve and create long term value for us and the customers. And that has been something that's been consistent with us for some time. We've seen demand from those customers called big and small.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

And we've, I said, won our fair share of that without being overexposed certainly. And in some instances, we're in environments in the markets where we're serving customers where we already have other major customers that sometimes beat those NeoClouds to the punch because they sometimes move faster or they want something that is really critical to them and we would try to help them and we try to help all of our customers. So I can't say that the NeoClouds have climbed the ranks with us as some of our other customers have rapidly climbed. And then last but not least, some of them, not all, but have been tremendously successful to date. And we're rooting for them.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

We want to expand the Hyperscale We want expand all of our customer base, and allow numerous technology providers, to take advantage of the infrastructure they are providing through their CPUs and so on.

Operator

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

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Thank you,

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Gary. Digital Realty led off 2025 with strong results in the first quarter, continuing the momentum we demonstrated in 2024. Demand for data center capacity remains resilient and broad based, given the strong secular growth and proliferation of technology across the globe. Digital Realty continues to work to support our customers' growing requirements, as evidenced by the substantial growth in our development pipeline and the successful evolution of our funding model. We remain focused on our key strategic priorities and expect success to be realized through the acceleration of bottom line growth in 2025 and increased visibility of better long term sustainable growth.

Andrew Power
Andrew Power
President & CFO at Digital Realty Trust

Scaling our business across the globe is a tremendous effort, and I am extremely grateful and appreciative of our incredibly talented and dedicated team. I'm excited about the future and remain focused on seizing the opportunity at hand. Thank you all for joining us today.

Operator

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

Executives
    • Jordan Sadler
      Jordan Sadler
      SVP, Public & Private IR
    • Andrew Power
      Andrew Power
      President & CFO
    • Matt Mercier
      Matt Mercier
      Chief Financial Officer
    • Greg Wright
      Greg Wright
      Chief Investment Officer
    • Chris Sharp
      Chris Sharp
      Chief Technology Officer
    • Colin McLean
      Colin McLean
      Chief Revenue Officer
Analysts
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Earnings Conference Call
Digital Realty Trust Q1 2025
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