Digital Realty Trust Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Jim Huseby, Vice President, Investor Relations
• William Stein, Chief Executive Officer
• Andrew Power, President and Chief Financial Officer
• Corey Dyer, Chief Revenue Officer
• Greg Wright, Chief Investment Officer
• Chris Sharp, Chief Technology Officer

Analysts

• Jon Atkin, RBC Capital Markets
• Michael Rollins, Smith Barney Citigroup
• Eric Luebchow, Wells Fargo Securities
• Simon Flannery, Morgan Stanley
• Eric Rasmussen, Stifel Financial
• David Barden, Bank of America Merrill Lynch
• Brendan Lynch, Barclays PLC
• Matt Niknam, Deutsche Bank Aktiengesellschaft

Presentation

[Operator]

Good afternoon and welcome to the Digital Realty Fourth Quarter 2021 Earnings Call. Please note this event is being recorded. [Operator Instructions]

I would now like to turn the call over to Jim Huseby Digital Realty's Vice President of Investor Relations. Please go ahead.

[Jim Huseby, Vice President, Investor Relations at Digital Realty Trust]

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 the 0 to 1-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.

[William Stein, Chief Executive Officer at Digital Realty Trust]

Thanks, Jim. Good afternoon and thank you all for joining us. Our formula for long-term value creation is a global connected sustainable framework and we made further progress on each front, during the fourth quarter. First, we continue to globalize our business with record global bookings and strength across all regions and all product types, including quarterly highs in both our sub 1 megawatt and greater than 1 megawatt categories. We also announced two significant global initiatives.

First, in December, we announced the successful listing of Digital Core REIT as a standalone publicly traded company on the Singapore Stock Exchange. Digital Realty contributed a 90% interest in a portfolio of 10 core data centers concentrated in top-tier markets across the U.S. and Canada, valued at $1.4 billion at a 4.25% cap rate. We generated net proceeds of over $950 million from the transaction and we retained a 35% equity interest in the publicly traded REIT. The offering was very well received and Digital Core REIT has traded up approximately 30% since the IPO enhancing the gain on our remaining ownership stake. In addition to providing investors a stable cash flow stream from a portfolio of high-quality core data centers Digital Core REIT offers key strategic benefits to Digital Realty.

First digital core right is a perpetual capital partner, it has a long-term investment horizon and a global mandate to invest in stabilized income-producing data centers. Second, Digital Core REIT has been carefully crafted to provide a seamless customer experience. Digital Core REIT is sponsored by and externally managed by Digital Realty. We will continue to manage the properties, providing the same level of operational excellence and we will earn fees for asset and property management, as well as acquisitions, dispositions, and development. From a customer perspective, nothing changes when we contribute an asset to Digital Core REIT. Third, digital core right is an ideal partner vehicle for Digital Realty. We expect to contribute additional stabilized core assets to Digital Core REIT in the future and we may also co-invest alongside Digital Core REIT on future investment activity.

Finally, our interests are aligned, as mentioned Digital Realty will continue to own a 10% direct ownership stake in each of the assets. In addition to 35% in the publicly traded vehicle. Digital Core REIT is led by two long time Digital Realty team members. John Stewart, who most of you know well along with Dan Tith. We are excited about their opportunity to create value for Digital Core REIT unitholders, including Digital Realty.

Our second global initiative, which we announced just after quarter-end is the definitive agreement to acquire roughly a 50% stake in Teraco, Africa's leading carrier-neutral colocation provider. This acquisition immediately establishes Digital Realty as the leading colocation and interconnection provider on the high-growth African continent and builds upon our earlier investments in Africa with iColo in both Kenya and Mozambique and in Medallion in Nigeria.

Teraco complements these investments as well as our highly connected facilities in the Mediterranean by hosting the key strategic landing points for subsea cable circling Africa. From Marseille in Athens in the North, Mombasa in Maputo along the East, Durban and Cape Town in the South and Lagos along the Western Coast PlatformDIGITAL is supporting the growth of our customers as well as the broader digital transformation of the entire African Continent.

Teraco has seven state of the art data centers across three key metros in South Africa and serves over 600 customers, including more than 275 connectivity providers over 25 cloud and content platforms and approximately 300 enterprises. Teraco facilitates approximately 22,000 interconnections between customers and host seven cloud on ramps and provides direct access to seven subsea cables. Teraco has historically generated healthy double-digit growth in revenue and EBITDA. In addition, more than half of Teraco's in-service portfolio was developed within the past two years. The current development pipeline will expand the existing asset base by over 25% and Teraco owns land adjacent to its highly connected campuses in Johannesburg and Cape Town that will support another doubling of the in-place capacity, representing significant embedded growth potential and providing considerable runway to support our customers growth.

Leading global cloud and content platforms have recently begun making significant investments in Africa, given the existing capacity within the in-service portfolio, the incremental capacity currently under construction, and the strategic land holdings to support future expansion. Teraco is uniquely positioned to support the expected growth of digital infrastructure in Africa over the next several years.

Let's discuss our sustainable growth initiatives on Page 3. During the fourth quarter Digital Realty are NAREIT's Leader in the Light Award for the 5th consecutive year, complementing the company's 5-star GRESB rating and top ranking within the technology and science sector. Digital Realty was also named one of America's Most Responsible Companies by Newsweek and was the number one ranked data center company. We continue to advance our sustainable financing strategy recasting and upsizing our credit facility with improved terms, while incorporating a sustainability-linked pricing component. With pricing, subject to adjustment based on annual performance against certain green targets. We are committed to minimizing our impact on the environment while simultaneously meeting the needs of our customers, our investors, and our employees along with the broader society and advancing our goal of delivering sustainable growth for all the stakeholders.

Let's turn to our investment activity on Page 4. We continue to invest in the expansion of our global platform. In addition to the Teraco transaction, we've grown our presence along the Eastern Coast of Africa with iColo and supplemented our acquisition of Medallion data centers in Nigeria, with two land purchases in Lagos for future development. Over the next decade, we expect to see huge opportunity for global businesses to tap into Africa's rapidly growing Internet economy and Digital Realty is uniquely positioned to enable this growth.

We also continue to invest in the organic growth of our platform, we spent $580 million on growth capex in the fourth quarter. Our largest quarterly growth capex investment to date. We currently have 44 projects underway, totaling more than 250 megawatt of IT capacity in 27 metros around the world. This capacity was 46% presold as of year-end. Geographically, we continue to invest most heavily in EMEA with 27 projects underway totaling more than 140 megawatts across 16 metros.

In Asia Pacific, we delivered several development projects during the fourth quarter, including facilities in Singapore and Hong Kong. In January, we opened Digital Seoul 1, our first data center in South Korea and the first carrier-neutral facility in the country. This facility will serve as a connectivity gateway for latency-sensitive customer workloads, but can be connected to hyperscale applications hosted in our second facility in Korea totaling over 60 megawatts of capacity, currently under construction just outside the city center. The two facilities will be tied together with fiber to create a connected campus and will complement each other by providing solutions for the full customer spectrum from small performance-sensitive colocation customers to huge hyperscale deployments.

In North America, our development pipeline is diversified by product mix as well as geographically with projects underway in seven different markets. We continue to see strong hyperscale demand in Hillsboro, while we were expanding in Downtown Atlanta to bring on additional colocation capacity at one of the most highly connected destinations in the South Eastern United States. We are bringing capacity online in both of these markets among others given the robust demand backdrop and our tightening inventory position.

Let's turn to the macro environment on Page 5. We are fortunate to be operating in a business lever to secular demand drivers. Our leadership position provides us with a unique vantage point to detect secular trends as they emerge globally on PlatformDIGITAL. Our customers continue to solve some of the most complex IT infrastructure connectivity and data integration challenges. We are witnessing a growing trend of multinational companies across all segments deploying and connecting large private data infrastructure footprints on PlatformDIGITAL across multiple regions and metros globally.

Industry research firm Gartner recently updated their global IT spending forecast for 2022 projecting a 5.1% increase to $4.5 trillion, driven by companies investing in digital data growth strategies. Additionally, Gartner believes that by 2024 75% of organizations will have deployed multiple data hubs to drive mission-critical data analytics sharing and governance in support of digital data growth strategies. These forecasts are consistent with our view of where the puck is headed.

Our market intelligence tool, the Data Gravity Index forecast similar growth in the intensity of data creation and its gravitational pull on global IT infrastructure. In addition, our industry manifesto enabling connected data communities serves as the global playbook for industry collaboration to tackle data gravity challenges head-on and unlock a new era of growth opportunity for all companies. Digital Realty was recently named Company of the Year by Frost and Sullivan for North American data center best practices. This award reflects our continued focus on operational excellence underpinned by continuous innovation and execution of the platform digital roadmap.

We are honored by the strong validation of the differentiated value proposition, we are creating for customers and partners. Given the resiliency of the demand drivers underpinning our business and the relevance of our platform in meeting these needs, we believe we are well-positioned to continue to deliver sustainable growth for customers, shareholders, and employees whatever the macro environment may hold in store.

With that, I'd like to turn the call over to Andy to take you through our financial results.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Thank you, Bill. Let's turn to our leasing activity on Page 7. As Bill noted, we delivered record bookings of $156 million within 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 1 megawatt and less than a megawatt plus interconnection. The EMEA region had a particularly strong quarter accounting for approximately 60% of total bookings led by Frankfurt withstand outperformance across product types.

The fourth quarter was also notable for the strength of cross-selling between regions. Nearly 30% of our sub-1 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-1 megawatt plus interconnection bookings landing out of region.

The weighted average lease term was nearly 10 years, primarily driven by hyperscale pre-lease 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 a strong validation of PlatformDIGITAL and our global strategy. In terms of specific wins during the quarter and around the world Gratkorn [Phonetic] 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 improving 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 of our 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 broker is consulting their data center footprint and has adopted PlatformDIGITAL to remove data gravity barriers and interconnect with cloud across multiple metros. And Ivy League University is expanding on PlatformDIGITAL to exit their own on-premise facility and enhance their access to the healthcare 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 line 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 accelerate 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 40 years. Renewal rates rolled down 4%, driven by a handful of large deals in North America as negative re-leasing spreads on greater than 1 megawatt renewals more than offset the positive re-leasing spreads on sub-1 megawatt renewals.

In terms of operating performance, overall portfolio occupancy ticked down 60 basis points, almost entirely due to development deliveries placed into 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 interaction platform 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 130 basis points headwind to the year-over-year growth in our reported results from the top to the bottom line. As a reminder, we 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 to 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 the 100 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 tightening 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 EUR750 million bond offering in early January of 10.5-year pay period at 1.375% coupon. Finally, we expect to raise $500 million to $1 billion from capital recycling, whether through contributions to Digital Core REIT, non-core 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 2014.

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 the 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 cost and extending the duration of our liabilities to match our long-lived assets.

As Bill previously mentioned we recast our credit facility during the fourth quarter, upsizing from $2.35 billion to $3 billion, extending the maturity by three years and tightening pricing by 5 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 eurobond 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-US dollar denominated reflecting the growth of our global platform, while also acting as a natural FX hedge for 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 to total 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'd be pleased to take your questions. Operator, would you please begin the Q&A session.

Questions and Answers

[Operator]

[Operator Instructions] Our first question will come from Jon Atkin of RBC Capital Markets. Please go ahead.

[Jon Atkin, Analyst at RBC Capital Markets]

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 -- to slightly more elongated commencement timeframe associated with your leasing of 14 months compared to what you've done in the past?

[William Stein, Chief Executive Officer at Digital Realty Trust]

Thanks, Jon. We are seeing some effects on the supply chain. Clearly, most of the equipment is strained in terms of availability, including data center infrastructure servers and network gear and shortages in things like chips and fans are impacting many industries, not just ours. Our VMI program, the vendor managed inventory program utilizes our knowledge and market way to overcome some of these disruptions. I believe that we're the gold standard for managing vendors and for forecasting and this gives us priority for production slots with our suppliers. This program has allowed us to reduce lead times by an average of 70% versus standard. Increased -- we increased the VMI pool when COVID hit. So I think we're pretty well prepared for the current disruptions and we're evaluating the program to expand it even further to better support our programs.

Steel, aluminum and copper is also rising, which affect some fit out by cages and cabinets. This is only -- this really only comes into play though for projects that are scheduled for completion in the next 6 to 12 months. And in those cases we're working closely with our customers to order gear early to lock-in the pricing and avoid any shipment delays. I hand it over to Andy to address the relationship to delay in construction and anything else that he might want to add.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Sure. I think Bill covered, but just on the -- Jon the elongated book to bill or timeline was -- had nothing really do a supply chain two factors there. One, if you've see in the Americas region we did power base shell deal obviously a longer lead time to develop that and bring that online. And then in Europe where we had a concentration of our larger deals, obviously stand out quarter for EMEA across the board. Some of the plus megawatt deals were rather larger size in take-downs and I think there is a project or two where we're literally at land state and the customers are looking to really just book that future runway for growth. So that was kind of what drug the overall timeline out for signed to commence.

[Jon Atkin, Analyst at RBC Capital Markets]

And then maybe more broadly, I wondered if you could maybe comment on the willingness to flex for -- your capex budget to a higher level? You accelerated compared to last year, but given all the demand that's out there and all the aggressive investment by some of your peers in order to maintain your share what is your thought about flexing the capex budget higher? And in any kind of updated thoughts on financing mix as to how you might do that? It seems like that wouldn't really affect 2022 capex, but further out any kind of broad thoughts on that would be appreciated?

[William Stein, Chief Executive Officer at Digital Realty Trust]

Sure. So we finished 2021 at south at $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 our addressable market, building out the pipeline from land to shelfs to finished lease to colo and connectivity inventory. I don't think we're looking to change our posture. We really go market-by-market supply chain -- excuse me market by market supply demand view and we think we're positioned in ahead of our competitors and I don't think there is 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.

[Jon Atkin, Analyst at RBC Capital Markets]

Thank you.

[Operator]

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

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks, and good afternoon. Was curious, first if you can unpack the guidance for the same capital cash NOI growth was down 2.5%, 3.5% maybe some of the puts and takes in there and how that might play out over the course of the year? And I can share the follow-up after this one.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Sure. Thanks, Michael. So just a quick drop on same capital. So last year we guided slightly negative on same capital or -- and we've called it came in at 4.4% same capital cash NOI 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. If you flip to 2022 you call it almost 80% of our companies in that pool with the addition for Westin Building, interaction 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 been impacted by two elements, one currency, we hedge to the balance sheet. So all the currency fluctuations are hitting that pool, if you look at that on a constant currency you're probably closer to negative 1%.

And then if you peel back the onion on that, it's really strong positive several for like 3% or so in APAC post the flat in EMEA due to the utilities being elevated. And then the negative contribution largely focusing in the Americas region where we are getting hit by what it looks like to be a property tax increase, that's going to hit us in that year, obviously, you mean 2022 but not continue in '23 and beyond. And the major driver of still not being more firmly into positive although improving really downtime for re-leasing of some of the larger non-retentions. We've been working away at that and making good activity actually re-leasing it and then moving those customers into that space it just takes time. Not because of supply chain bottlenecks, more that if one 5 megawatt customer leaves and new 5 megawatt customer refills the refurbs, the new PDUs, etc. takes time. And for those chunky deals you lose a month or two a retina a year that's just -- it won't flow through until you get to 2023. So net-net not in positive territory firmly on a reported basis yet, but heading that way.

[Michael Rollins, Analyst at Smith Barney Citigroup]

And just a follow-up on some comments that you and the team have provided earlier on just pricing, can you give us an update on the pricing strategy the opportunities to leverage price whether it's because of the inflationary backdrop or some of the other macro factors that you're dealing with, and then how that would affect the financial performance over time?

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Sure. So I mean pricing from two lenses, obviously you saw in the guidance we're guiding towards flat re-leasing spreads on our renewals for 2022. So that's not new news. We've been mentioning that we've been working our way to 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 all our supply chain team has a really -- and design and construction teams 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 are 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 and 50 metros with runway for growth that the pricing pendulum feels like it's continuing to slowly swing more and more our favor.

[Operator]

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

[Eric Luebchow, Analyst at Wells Fargo Securities]

Great, thanks for taking the question. I wanted to talk about the strength you had in the less than 1 megawatt category. Maybe we could break down where you're seeing the most success, whether it's traditional enterprise, smaller hyperscale edge nodes? And do you think that steady improvement, you've had, is sustainable going forward? And then my second question was on the asset disposition front, Andy, I think in the past, you've said you don't have a lot left to do non-core. So should we assume that you on the heavier weighting towards S3 contributions throughout the course of the year? And related to that, where do you think your leverage slightly north of 6 times should we expect it to remain elevated or you looking to drive that down with the Tereco financing and potentially other asset sales? Thanks.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Well, I'll have Corey start us off on the enterprise less than megawatt interconnection category and then I can fill in any factoids and talk about sourcing uses on your second question.

[Corey Dyer, Chief Revenue Officer at Digital Realty Trust]

Yeah. 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 sub 1 megawatt space. You've seen us 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'd have really strong demand and 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 enterprise. So we're happy about where that is and I think it's going to continue.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Just to add a couple more regional tipits, Eric. So EMEA was a absolute standout for the less than a megawatt as you saw in the numbers. Frankfurt, London, Paris, Amsterdam I'd say big contributors over half of our new logos actually came out of that region. In the Americas, New York, Chicago, Dallas, Atlanta were the top markets and then Singapore is obviously the standout in APAC. Do you -- Eric, do you mind just repeating the second part of your question about the sources and use? I heard the first part about how is it non-core versus contribution actually, what was the second part of your question?

[Eric Luebchow, Analyst at Wells Fargo Securities]

And just how we should think about your leverage throughout the year. You're a little above 6 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'd be helpful. Thanks.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

So as you've seen in the guidance table, we put about $0.5 billion to $1 billion of call it capital recycling, which would be both of these categories. We ended the year with really a -- one-off asset for $60 million that will be likely redeveloped into our residential project in San Jose. And there are a -- call it a shortlist through whittling down of incremental non-core dispositions that could happen during the year, but there will be a piece of that and then I think looking for incremental contributions to Digital Core REIT would probably be the larger segment of that source of capital that's obviously been a great success John Stewart after 32 earnings calls hung up the HP12C [Phonetic] is now looking to grow that vehicle.

In terms of funding for the year, we finished out the year with about almost $1 billion of proceeds, if you include that one-off asset plus Digital Core REIT in December that follow up put the balance sheet 12/31 with $140-ish million of cash, $400 million of -- excuse me $400 million drawn on a $3 billion credit facility. We got lucky and beat the rate march with a $850 million eurobond beginning of the year. That's probably an incremental $500 million of proceeds. We still have the $1 billion undrawn forward that we'll takedown. So, those combinations of sources and uses will essentially fund the closing of the $1.7 billion purchase of Tereco.

And then, obviously, those incremental non-core dispose or incremental contributions in the back half of the year will be the -- call it the replenishing of the capital stack. And will look to leverage to call it stay -- to move more in line to our targeted leverage levels below 6 times for sure as we move through the year.

[Eric Luebchow, Analyst at Wells Fargo Securities]

Great, thank you.

[Operator]

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

[Simon Flannery, Analyst at Morgan Stanley]

Thank you very much. Good evening. Andy, 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% a 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 -- its vehicle?

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

So the -- this was a -- essentially an evolution of our capital sources here that date back to probably the origin when Bill created the Prudential JV that just actually ran its course and we recognize to promote in the fall. Perpetual externally managed public vehicle with a global mandate. Although, albeit originally a North America portfolio. So over time, I would expect it to through contributions of assets from Digital Realty and they can also -- and can also acquire third-party assets, diversify its portfolio geographically, but really with core assets data centers that Digital Realty believes in for the long run that have really long-term weighted average lease terms, high occupancies core to our strategy. We don't have a set exact dollar amount or time of 2022 where we're looking to give a contribution we will work collaboratively with John and his team to position at the right time for digital Core REIT and its shareholders and Digital Realty's funding plans.

But I would think it will diversify over time and continue to scale and it's been well-received to date and I think that we'll be able to build upon that success.

[Simon Flannery, Analyst at Morgan Stanley]

On your 35% stake?

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

I'm sorry, that -- there is no magic to that that was really just a product of the size initial portfolio, the conservative leverage we put on the vehicle day one and a modest IPO size we -- the underwriters lock up it actually expires in next several months. So not -- it's right around the corner. We have no interest to sell down. We can sell down if we want to more likely over time, I could see us still being diluted down Digital Core REIT buys for cash more assets and Digital Realty makes room for incremental investors, both institutional and retail to participate in the growth of the vehicle.

[Simon Flannery, Analyst at Morgan Stanley]

Great, thank you.

[Operator]

The next question comes from Erik Rasmussen of Stifel. Please go ahead.

[Eric Rasmussen, Analyst at Stifel Financial]

Yeah, thanks for taking the questions. New logos were quite strong, I think you highlighted near-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?

[William Stein, Chief Executive Officer at Digital Realty Trust]

Yeah. So with our second -- so first of all, thanks for the question. And also thanks for just the acknowledgment of the success we're having around new logos. Second highest quarter in new logos, yet our highest year in new logos at 480. It's really with customers coming to a hybrid IT in a data-centric kind of mindset around what they're going to do. That's what we're seeing come through on the new logos. We've had a lot of customers now picking us consistently and making those decisions on it. Where we've seen kind of an outsized growth from the new logos is around our channel, from channel sales of 15% up to -- I'm sorry, from 10% in 2020 to 15% in 2021, but the new logos were getting or close to 22% on a quarterly basis from the channel. So when you ask where it's coming from, it's coming across the whole globe. You also think through our exports, we mentioned that 30% of our export business or 30% of our business is growing export meeting across regions and landing in EMEA at 60%. So really good progress across the globe on new logos supported by a strong success with the channel. And I think we're going to see that continue as well. So thanks for the question, Eric.

[Eric Rasmussen, Analyst at Stifel Financial]

Great. And then maybe just my follow-up, you've -- 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?

[William Stein, Chief Executive Officer at Digital Realty Trust]

So I would say maybe go region by region real quickly. As you saw there wasn't a lot of activity in APAC this particular quarter. But we've had -- we had great 2021 overall in that region across all product types, but certainly including hyperscale and we're seeing that continue and really excited with the introduction of Seoul 1, which we just opened up as well as significant activity across the Japanese market. In EMEA, we had four of the five top CSPs all sign new business with us during the quarter. A lot of activity in Frankfurt, both in the East with the legacy Interaction campus, in the West with the legacy digital campus, Zurich, Marseille, Madrid and Paris were also contributed as well as Amsterdam. In North America in the -- I'd say the social media category has been a contributor and Ashburn as was a probably the stand out for the quarter where we've made incredibly tight during a recovering market and continue to see strong demand.

[Operator]

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

[David Barden, Analyst at Bank of America Merrill Lynch]

Hey, guys. Thanks so much for taking the questions. Two if I could, please. One was Andy you talked of a co-investment with Singapore Core REIT and I'm wondering now given I think we're looking at about a 3.7 cap rate implied on the market cap now, whether this -- how this affects how you guys think about mergers and acquisitions and we've seen a lot of partnership models emerge across all sorts of digital infrastructure asset classes? I'd be interested in kind of hearing a little bit more about what you meant by that? And then Bill, look I'm a long time listener first time caller it's not gone unnoticed that John is taking over as CEO of Singapore Core REIT, Andy has become President you moved to Austin I mean we're all big fans of what you've done, what are we -- should we be expecting something? And I'd love to hear your thoughts on succession right now. Thank you.

[Greg Wright, Chief Investment Officer at Digital Realty Trust]

Hey, David. It's Greg. Wright. Let me take the first question. Your question with respect to the S REIT 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 standalone. And those assets they're going to go into that they're not going to be in development they're going to be stabilized. You've heard John's pitch in terms of the types of assets we're looking for that to put into that vehicle.

Well, as we do, if we do future M&A anything like that and there happens to be those kinds of assets. They will be a natural home for that and we obviously have a partner 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 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 will use for M&A.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

The only thing I would add to that question, John -- David was listen Singapore is opening up its moratorium in a very rational prudent way now with the development of call it three new data center locations. I can't think of a better partner to be one of the three, given our experience in this business 4,000 global customers leadership and sustainability, experience in region. And last but not least, having a partner Digital Core REIT listed on the Singapore Exchange that could be an eventual owner of that asset while all the citizens of Singapore to participate in the digital transformation of that country and the region. So that's a unique incremental attribute that could play in the future.

[William Stein, Chief Executive Officer at Digital Realty Trust]

Relative to the move to Austin, I'm 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, Erich Sanchack. 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've moved from four market or center up the block to space on California Street. And we're going to be downsizing in New York as well.

So there is nothing about this move to Austin that is related to succession. Relative to the movement of Andy into the President's slot 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 in the -- 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 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.

[Operator]

The next question comes from Brendan Lynch of Barclays. Please go ahead.

[Brendan Lynch, Analyst at Barclays]

Great, thanks for taking my question. Maybe this one is for Chris, with your growing pool of colo assets, do you have an interest in creating an internal software defined network? And if so, what would that entail and we're competitive advantages, would that provide you?

[Chris Sharp, Chief Technology Officer at Digital Realty Trust]

Yeah. No. Thanks, Brendan. I appreciate the question. Absolutely, right. That's what the customers are looking for and I just want to go back a little bit on what Eric had asked Corey on what's driving that sub-1 megawatt it's a sweet spot where customers are starting to outgrow colo. So it's very beneficial to our asset class to be able to support that growing need and allow them to land and expand even beyond the 1 megawatt and start to go to more markets, but that all requires an SDN, just software defined networking for the broader group that capability to tie it all together. And so one of the things you're going to hear about later in the year is, we are absolutely bringing to market one of two platforms in the world that is purpose-built for orchestrating at a higher level, that type of capability on our customers' behalf.

And I'll just press upon everybody, it's not improving on a 10-year-old product, it's definitely purpose-built. And at the core of that is enhancing our customer experience where we're removing that technical complexity with a lot of customers are impacted by around interconnection and making it easier for them to procure and deploy in all of these locations. And that's why that new logo growth is starting to grow at record numbers and you'll see that continually feed off of itself because we're getting a big benefit out of the community of interest that's been created around the globe. But again at the end of the day, it's about open access and unfettered customer experience, which allows all of our customers to access the right partners throughout the globe. And this fabric again will facilitate the easiest route to all destinations.

[Brendan Lynch, Analyst at Barclays]

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

[Chris Sharp, Chief Technology Officer at Digital Realty Trust]

Yeah, absolutely, Brendan. And we had referenced a while back we had acquired a smaller firm that was some of the leading software developers out in the market and it's something that Andy and I constantly talk about on the right amount of capital. And so we have a dedicated software team that is purpose-built in delivering that capability. And so I wouldn't say it's material as of yet, and we're not disclosing the details around the investment. But the impact that we get with having that team dedicated to building not only an SDN capability, but that broader orchestration is absolutely going to be beneficial. And we already have some great conversations with beta customers that are driving the direction of what those feature functionalities are going to be.

[William Stein, Chief Executive Officer at Digital Realty Trust]

And Brendan, I can confirm that the cost capex otherwise is included and non-material to the guidance we have out on the sub today.

[Operator]

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

[Matt Niknam, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, guys. Thanks for squeezing me and I'll keep this brief. Maybe two for Andy, first off, the 2022 guide, can you quantify what's embedded in there from Teraco just thinking about revenue, EBITDA, and core FFO? And then secondly, maybe dovetailing 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 of? Thanks.

[Andrew Power, President and Chief Financial Officer at Digital Realty Trust]

Sure. So just working backwards. So we didn't -- I don't think we have like a famous bar charts we'll have numbers on it for you in terms of weighted distribution. We do have a pretty decent moving part here with the timing of Teraco, which I can't remember if Greg mentioned this yet, but I mean we're working through the closing conditions and really the process for, call it competition committee review, but feels like it's going to happen call it the early -- very early second quarter to a couple of months in the second quarter timeframe. So that does put a little bit of puts and takes from a quarterly blend. It is just to confirm the dilution from Teraco is included in our guidance table in this up. So at the bottom line, our mid-point is, call it growing, call it 5%, which is about 100 basis points increase from our guidance a year ago, which we did beat by 140 bps.

We also are absorbing call it 100 -- 200 basis points of FX headwinds. So if you normalize for those items your call it close to the 6.5% call it core FFO per share growth. The components of Teraco, I would call it, ballpark for a rough swag a partial year contribution to revenue and a EBITDA basis, call it, 100-ish of revenue and 70-ish of EBITDA contribution rough swag. Just a reminder, a data point, our year-over-year revenue and EBITDA growth is deflated when you just look at our reported financials. Remember that we had a PPA in a settlement and a promote in 2021. So that plus ruling that plus FX calls it has puts you at 9.3% growth on a revenue basis, on a constant currency basis.

And then, as a reminder, we're also losing revenue from our contribution to the Singapore REIT Digital Core REIT. So that puts you up another 150 basis points higher on the revenue standpoint from a constant currency basis.

[Matt Niknam, Analyst at Deutsche Bank Aktiengesellschaft]

That's great. Thank you.

[Operator]

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

[William Stein, Chief Executive Officer at Digital Realty Trust]

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 delevers. We are 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 in 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 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 through 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.

[Operator]

[Operator Closing Remarks]