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Digital Realty Trust Q4 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Jordan Sadler
    Senior Vice President, Public and Private Investor Relations
  • Andrew Power
    President and Chief Executive Officer
  • Matt Mercier
    Chief Financial Officer
  • Greg Wright
    Chief Investment Officer
  • Corey Dyer
    Chief Revenue Officer
  • Chris Sharp
    Chief Technology Officer

Presentation

Operator

Good afternoon, and welcome to the Digital Realty Fourth Quarter 2022 Earnings Call. [Operator Instructions]

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
Senior Vice President, Public and Private Investor Relations at Digital Realty Trust

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

With that, I'd like to turn the call over to our President and CEO, Andy Power.

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Thanks, Jordan, and thanks to everyone for joining our call. While my voice is probably pretty familiar to most of you, this is my first earnings call as CEO of Digital Realty. I'm honored to lead Digital Realty's incredible global team, and I'm as optimistic and excited as ever about the opportunity that lies ahead. I want to thank both the Board for their confidence in me and the support that they provide in executing our strategy and thank Bill Stein, who I first met in 2004 as we worked together on Digital's IPO, for his leadership over these many years. Finally, I want to thank the numerous customers, partners, team members and shareholders for the kind words of support and encouragement that I've received over the past two months. When I joined Digital in 2015, we are primarily a North American scale data center provider. Since then, we've evolved the company to be a global provider of the full spectrum of scale, colocation and interconnection solutions to better serve the growing needs of our 4,000-plus customers. Today, Digital is the global data center leader with an unmatched footprint of over 300 data centers in over 50 metro areas in 28 countries on six continents. Globally, our portfolio comprises of more than 2.3 gigawatts of IT load, and we have another 400-plus megawatts under construction. I'm extremely proud of the success that we've had and the position that we are in. But now is not the time to rest on our laurels as the path that has brought us to where we are today will not get us to where we want to be. In that vein, we've swiftly taken action on a few fronts.

First, we quickly backfilled the role of CFO with my long-time finance partner, Matt Mercier. Matt has played a leadership role across Digital's global finance organization for well over a decade, including the successful integration of multiple platform acquisitions and the implementation of systems that will provide the foundation for our operations and evolving strategy. Second, we aligned and combined our strategy of business segments and investments team to assure that we have the right capabilities and are making the right investments in order to deliver the global meeting place for service providers and enterprises. Third, we moved to align all technology under our Chief Technology Officer, including our CECO and our recently appointed Chief Information Officer, which will support the acceleration of our journey and identity as both a technology and a real estate company. Recent product launches, including ServiceFabric, demonstrate the potential of bringing together innovation and technology to help drive our customers' growth. Lastly, we further streamlined our global operations' capabilities to maximize the potential of Digital Realty's 300-plus data centers and our people under the trusted hand of a long-time digital leader with a track record of bringing global teams together. And here's what's next on the agenda in terms of the top strategic priorities. First, as depicted on slide three, we will demonstrably; strengthen our customer value proposition. Through the continued execution of our meeting place strategy by delivering sustainable, connectivity-rich solutions to our enterprise and service provider customers, which will translate into better organic growth over the medium and long term.

Along these lines, yesterday, we announced a new AWS Direct Connect on-ramp at Digital Realty's Ashburn campus, landing one of the highest consumption markets and adding coast-to-coast U.S. coverage to our robust existing portfolio of AWS Direct Connect locations across EMEA. And earlier this month, we advanced our commitment to sustainability with a new 10-year power purchase agreement for 116 megawatts of renewable energy, supporting the construction of a new solar park in Germany. Second, we are integrating and innovating our capabilities across our entire unmatched global asset portfolio and have topped the largest open network platform in the world. Many of these integration and innovation efforts will benefit both our customers as they seek to deploy new and complex workloads on the leading data center platform and our own internal team, unifying our ability to deliver value to the market. Lastly, many of you are familiar with my many fishing poles in the water mantra. And in this vein, we plan to further diversify and bolster our sources of capital in order to support our customers' rapidly growing digital infrastructure needs while improving capital efficiency and returns for Digital Realty investors. The opportunity before us is tremendous. We have all the key ingredients at our fingertips and a long runway for growth. When I assess the digital infrastructure landscape today, including its fundamental prospects and then how Digital Realty is positioned within this sector, I'd say the following. First, demand for our product remains quite strong and well supported by ongoing digital transformation, migration to the cloud, and the overall evolution towards centralized compute.

As it goes, technology begets technology, and the growth in high-performance compute infrastructure has driven innovation that tends to spur the next wave of growth in technology that in many respects, advances productivity and hopefully, over time, driving improvement to the overall quality of our lives. While the demand drivers we have enjoyed for the last decade continue, we may now be on the precipice of the next wave of demand that will drive our sector for the next decade. For years, we have referenced new technology like artificial intelligence and machine learning as potential drivers of demand, but there have been relatively few identifiable workloads or specific infrastructure requirements tied to those specific technologies. The launch of ChatGPT 3.0 is a seemingly important milestone. Microsoft's incorporation of ChatGPT in the Bing last week, Google's coming launch of Bard, and Baidu's ERNIE Bot all suggest that we are on the forefront of the broader introduction of AI, which could spawn a wave of adoption and a proliferation of use cases and ultimately drive demand for compute infrastructure at scale. This is our domain expertise. We are in the very early days of this technology and its potential and have yet to see the effects of its introduction in the data center sector, but we are well positioned to support our customers and partners, and we are working diligently to understand how their requirements will evolve and making sure to incorporate these into our latest designs. Importantly, as we experienced with the cloud, the advent of new technology can play out over a very extended time frame. We have built Digital Realty with these time frames in mind and plan to be there to support our existing and growing customer base across the globe in the future.

Let's move to the quarter. Our core FFO landed within the implied guidance range that we provided last quarter as the turn that is taking shape in our core portfolio continued to gain momentum. Capping off another record year of bookings, new leases signed moderated from the record we achieved in the prior quarter, but remained quite strong and were highlighted by a nice rebound in our 0-1 megawatt segment and record interconnection bookings. Demand was geographically broad-based with strong contributions from APAC, the Americas and EMEA. This demonstrates the breadth and momentum that we are seeing in this business, which is a reflection of our ongoing effort to deliver the meeting place for our service provider and enterprise customers. During the fourth quarter, we added 106 new customers, continuing the streak of 100-plus new logos that we've added each quarter since closing the Interxion transaction nearly three years ago. One of our key wins during the fourth quarter was an expansion of our relationship with Avnet, a leading global technology distributor and solution provider and a member of the Fortune 500. Avnet Integrated has standardized on PlatformDIGITAL for an initial three market deployment in Northern Virginia, Dallas and Silicon Valley. This partnership enables high-performance, cost-effective computing solutions that can be deployed quickly in Digital Realty facilities globally while mitigating risk and complexity. A major global automotive manufacturer deploying internationally chose PlatformDIGITAL, leveraging Digital Realty's unrivaled global footprint and ability to manage complex deployments.

Four of the world's largest financial institutions, including three of the 10 largest in Europe, selected PlatformDIGITAL, seeking network-oriented solutions ranging from hybrid IT, trading and market data support to high-performance computing and more. A leading global asset manager and service provider leveraged Digital Realty's HPE GreenLake alliance to significantly reduce network and IT infrastructure complexity. Importantly, pricing on new leases signed increased yet again in the fourth quarter in each of our business segments, marking the fourth consecutive quarter of price improvements in 2022. We also continue to add more CPI-based escalators with approximately 25% of the newly signed leases in the quarter containing inflation-linked increases with fixed rate escalators on the balance. We also saw another quarter of positive leasing spreads on renewals in the fourth quarter, helping to support a positive inflection for the full year 2022. While we acknowledge that the turn was driven by the strength in the 0-1 megawatt renewals, we are beyond the point of excuses and call-offs and prefer to highlight the forest rather than the trees and point to the overall inflection in market rents and re-leasing spreads that took place in 2022 as a whole. We expect market conditions to remain supportive this year, and our guidance reflects a further inflection in this positive trend as Matt will lay out in a few minutes. Speaking of better pricing, I'd like to provide an update on our largest market in Northern Virginia.

We've continued to work constructively with the power provider in this market, and we are now pleased to be in a position to say that we fully expect to be able to deliver on the commitments that we've made to our customers within our development pipeline. So while conditions are far from business as usual in this market, we are encouraged by the progress made over the last 90 days and remain hopeful that we will continue to be able to work with a local utility provider to support the growing needs of our mutual customers. Moving on to our investment activity. During the fourth quarter, we sold a 25% interest in a data center in Frankfurt, Germany to Digital Core REIT. The facility was valued at nearly $500 million, and the transaction generated about $150 million of proceeds for Digital Realty. We also acquired land in five different metros for future development, including two organic new market entries into Rome and Accra. Rome is one of the largest cities in Europe by population, but has been essentially ignored by international data center providers. We've acquired a parcel within 15 kilometers off the coast that will make it an ideal interconnection point for future subsea cables that land in Rome, thereby, enhancing our position in the Mediterranean while serving as a connectivity hub in the middle of the country. Before turning it over to Matt, I'd like to reiterate my focus on ESG and share some of our recent progress with you. We were recognized by a variety of organizations for our ESG success, including, for the sixth consecutive year, Digital was recognized by Nareit with the Leader in the Light Award for data center sustainability. Sustainalytics recently included Digital Realty in the 2023 top-rated ESG company list.

Newsweek recently named Digital as one of America's most responsible companies for 2023. And once again, Digital is one of the JUST Capital's most just companies. In addition to these awards, given the importance of energy security, availability and sustainability, Digital remains keenly focused on supporting the development of renewable power projects. During 2022, we contracted for a total of 470 megawatts of renewable energy, adding green access to the energy grid. And we already added another 160 megawatts of solar power to our portfolio in 2023. We are committed to minimizing our impact on the environment while delivering sustainable growth for all of our stakeholders. Before I turn it over to our new CFO to review our financial results, let me introduce Matt Mercier to those of you who don't already know him. Matt joined Digital in 2006 and has been my right-hand man, helping me run Digital's finance team. Matt has been intimately involved in nearly every facet of finance at Digital from capital markets to M&A, FP&A, IR and all things global finance.

With that, I'm pleased to turn the call over to our new CFO, Matt Mercier.

Matt Mercier
Chief Financial Officer at Digital Realty Trust

Thank you, Andy. I'm privileged to succeed Andy as CFO and humbled by the opportunity to lead an incredibly capable team. Over the years, I've had a chance to meet and spend time with many of you, and I look forward to catching up with all of you over the course of the next several months at industry conferences and events that we are slated to attend. Let me jump right into our fourth quarter results. We signed a total of $117 million of new leases in the fourth quarter, highlighted by a strong rebound in our 0-1 megawatt segment and record interconnection signings, which accounted for 40% of total bookings. Demand was geographically diverse, particularly within the greater than a megawatt segment, which saw nearly even contributions across the Americas, EMEA and APAC regions. nine of our 10 largest deals in the quarter landed outside of North America, with strong contributions from Japan, South Africa, Latin America and Europe, demonstrating the increasingly global nature of our footprint and customer base. At the other end of the scale, somewhat in contrast to the hesitation we noted on our last call, we saw a nice bounce back within our smallest customer segment under 500 kilowatts, which delivered the second best quarterly leasing volume of 2022 at the highest average rate seen all year. Geographically, our 0-1 megawatt deals play to our strengths in EMEA and the Americas, with EMEA setting a quarterly record for 0-1 megawatt plus interconnection bookings.

Importantly, pricing on new leases signed increased for the fourth consecutive quarter in each of our 0-1 and greater than a megawatt segments, reflecting improving fundamentals and tightening conditions across our regions. In the fourth quarter, we experienced nearly 90% customer retention and a further reduction in churn to just 0.8%, marking the lowest level in nearly three years, as our customers' digital infrastructure requirements continue to increase, but the prospect of future availability is decreasing. Turning to our backlog. On page nine, the current backlog of signed but not yet commenced leases increased to a record $477 million at year-end, principally due to the inclusion of Teraco as other signings were largely offset by commencements. The lag between signings and commencements moderated slightly in the quarter, but remained elevated relative to historical levels at nearly 15 months due to a few larger longer-term leases that require build-outs. Approximately 60% of our record backlog is slated to commence throughout this year, split fairly evenly throughout the first and second halves. Moving on to page 10. We signed $195 million of renewal leases during the fourth quarter with pricing increases of 0.8% on a cash basis. For the full year, we renewed nearly $700 million of existing business at a 1.8% increase on a cash basis, a touch better than our upwardly revised guidance of slightly positive for 2022. Renewal rates in the fourth quarter for 0-1 megawatt renewals remained strong across each of our three regions and were up 4.1% overall, the strongest quarterly increase since adding interaction.

As Andy referenced, we did see a 3.6% decline on renewals in the greater than a megawatt category in the quarter, entirely due to a single lease at a single asset. However, we saw a better-than-anticipated improvement in market rents and an inflection in re-leasing spreads in 2022. More importantly, market conditions improved throughout the last year, and our guidance for 2023 reflects this positive trend. Turning to our results. Digital Realty delivered operating and financial performance in the fourth quarter that was largely consistent with our expectations, highlighted by improving core operating performance, progress toward enhancing our returns on investment and increased liquidity. Let's jump into the metrics on page 11. In terms of earnings growth, we reported fourth quarter core FFO per share of $1.65, consistent with the low end of our implied guidance range for the fourth quarter and down 1% on both a sequential and year-over-year basis, given a seasonal acceleration in operating expenses, a significant uptick in interest rates and a full quarter's dilution associated with the acquisition of Teraco on August 1. On a constant currency basis, core FFO was down 1% sequentially, but was up 2% year-over-year. For the full year 2022, we reported constant currency core FFO per share of $6.91, representing 6% growth over 2021. The improvement in operating performance is best gauged by our stabilized same-capital portfolio, which was challenged in the first half of the year, but improved meaningfully in the second half, particularly in the fourth quarter when stripping out the noise related to FX.

Focusing on top line, data center revenue growth on a constant currency basis improved steadily throughout 2022, increasing by 4% year-over-year in the fourth quarter compared to a 1.8% decline in the first quarter, demonstrating the turn in our core operations that we flagged last quarter. The sequential step-up from 3Q to 4Q was largely driven by an 80 basis point improvement in occupancy as commencements outpace churn as well as the benefit of positive re-leasing spreads and growing interconnection revenues. Turning to our currency slide on page 12. 56% of our fourth quarter operating revenue was denominated in U.S. dollars, with 20% in euros, 7% in British pounds, 6% in Singapore dollars and 2% in Japanese yen. The U.S. dollar reversed course from the strength we have seen throughout the first nine months of the year, removing the headwind on reported sequential growth. Nevertheless, the dollar was meaningfully stronger than it was versus 2021, negatively impacting our reported revenue growth and adjusted EBITDA growth by approximately 500 basis points a piece. Turning to the balance sheet on page 13. Our reported leverage ratio at quarter end was 6.9 times, while fixed charge coverage was at 4.9 times. Given the sharp recovery in the euro and the pound in the fourth quarter and the convention of how leverage is calculated with the average exchange rate used for calculated adjusted EBITDA and the spot rate used to mark our debt at year-end, our net debt to adjusted EBITDA was inflated by approximately 0.2 turns. Using the average exchange rate to mark our debt at year-end, our leverage would be 6.7 times net debt to adjusted EBITDA.

Since our last call, we drew the remaining $500 million outstanding from our 2021 forward equity offering and tapped our 5.55% 2028 notes for an additional $350 million to bring the total amount raised on that bond to $900 million. Since year-end, we also closed a $740 million 2-year term loan with a 1-year extension option. It's also worth mentioning that our investment-grade credit ratings were affirmed with stable outlooks by all three rating agencies since our last call. While leverage is above our historical average and our long-term target, we have bolstered our liquidity, and we intend to reduce leverage towards our long-term target over the course of 2023. Our weighted average debt maturity is over five years, and our weighted average coupon is 2.7%. Approximately 86% of our debt is non-U.S. dollar-denominated, reflecting the growth of our global platform. Over 80% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have minimal near-term debt maturities with only $100 million maturing in 2023, together with a well-laddered maturity schedule.

Lastly, let's turn to our guidance on page 14. We have provided an initial core FFO per share guidance range for the full year 2023 of $6.65 to $6.75, reflecting flat growth at the midpoint of the range, as the recovery in our stabilized portfolio is balanced by the impact of higher interest expense and capital recycling. Focusing in on the organic recovery we forecast for 2023, we expect cash and GAAP re-leasing spreads to improve to greater than 3%, same-capital cash NOI growth of 3% to 4% and an 80 basis point uplift in total portfolio occupancy at the midpoint of our expected range by year-end. Importantly, as Andy referenced at the outset, one of our key priorities is to further diversify and bolster our capital sources, which is geared toward increasing our capital efficiency and investment returns while reducing leverage toward our long-term target. As reflected in this guidance, throughout 2023, we expect to recycle capital from a combination of noncore dispositions, joint ventures of core assets and joint ventures of scale development in select core markets. In addition, we expect to benefit from high single-digit adjusted EBITDA growth, the retention of free cash flow and the moderation of recent currency headwinds.

This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?


Questions and Answers

Operator

[Operator Instructions] And our first question will come from Aryeh Klein of BMO Capital Markets. Please go ahead.

Aryeh Klein
Analyst at BMO Capital Markets

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

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Thanks, Aryeh. This is Andy. Why don't I kick it off, and I'll hand it to Greg on, call it, valuations and what we're seeing on broader asset class. So it's $2 billion at the midpoint as our funding plan. As a reminder, this has been part of our playbook for several years. I think we've either sold outright or joint ventured close to $4 billion of assets over the last handful of years. The composition is really threefold: one called [rounding surveys] or completion of our noncore assets disposition program selling outright; two, joint ventures around our stabilized assets; and three, joint ventures around our development program. Rough ballpark on numbers, I would say the noncore dispositions are probably in the 500-ish area, and the other two buckets are taking up the majority of the $2 billion at the midpoint. Greg, do you want to chime in on valuations and broader?

Greg Wright
Chief Investment Officer at Digital Realty Trust

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

Aryeh Klein
Analyst at BMO Capital Markets

Got it. And then just maybe a follow-up just on the leverage. If you do all this, where do you think that gets you to exiting 2023?

Matt Mercier
Chief Financial Officer at Digital Realty Trust

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

Operator

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

Eric Luebchow
Analyst at Wells Fargo & Company

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

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Corey, do you want to hit on demand overall first?

Corey Dyer
Chief Revenue Officer at Digital Realty Trust

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

Eric Luebchow
Analyst at Wells Fargo & Company

Great. And just one follow-up. I just wanted to touch base on the renewal spread that you guided to this year. Any kind of color you can provide on how those will shake out versus the greater than one megawatt versus the sub-1 megawatt category? And are there any markets, I'm thinking Northern Virginia, where supply is extremely limited, where you're really starting to see material rental improvements throughout the year?

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Sure. I mean I think we've seen this pendulum on pricing move in our favor now for several quarters. It started to move at the beginning of 2022, gained steam, became more broadbrushed. And I think it was a combination of not only supply and demand, but our value proposition really resonating with our customer base. In a backdrop where, quite honestly, it's never probably been harder to bring on capacity, procure power as well as finance this asset plan, this is -- we ended the year overall in positive territory. The less than a megawatt, which is becoming a much larger and larger portion of our revenue base, obviously led the way. We had some positive quarters in greater than a megawatt. We had some slightly negative quarters. If you look at the greater than a megawatt, again, and I know we're really tired of making excuses. It takes one single deal just to pull it down, just call it a 3% in that category, when predominance of deals are moving in positive territory. This year is the first, call it, overall inflection to positive territory and cash mark-to-markets in several years. Where we're guiding to for 2023 will be literally the best cash mark-to-market inflection in close to 10 years for our business, and it's -- obviously, it's increasing a dramatic amount. And I think all those things I just mentioned in terms of our value proposition as well as supply/demand moving in our favor, Ashburn is -- or Northern Virginia, excuse me, is a prime example of it. This quarter, $117 million gap. 50, almost 60 megawatts had almost nil Ashburn signings in it. And you could say last quarter did not have a super large amount either due to, call it, the tightness of that market and the timing of our deliveries of bringing on more capacity. So we don't have a large statistical set of data to point to. But what we're seeing on the quotes going out, the interactions with hearing from customers is that these rates are moving swiftly well past the hundreds into the much more firmer territory and still have ways to go in terms of runway.

Operator

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

Jon Atkin
Analyst at RBC Capital Markets

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

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Thanks, Jon. I'll tackle the first one and then let Matt tell you how we're going to beat the guidance we just put out an hour ago in real time to that one. So I won't rehash it what was all throughout the script of what's taking place for the last 60 days. But I can tell you, in that time, I was able to see all three of our regions, spent a lot of time with customers, the team, made it home for Valentine's Day at preschool and be able to put some preliminary thoughts together on top priorities, which I outlined in the prepared remarks. But just to rehash them in a little bit greater detail. Obviously, first and foremost is demonstrably strengthening our customer value proposition. That is number one for an important reason. We've obviously assembled a playful collection of digital infrastructure assets over the last several years, both inorganically and organically with what we're doing in the likes of Rome, Barcelona, Israel, across Africa, Mexico City and even Seoul. Harnessing the power of that platform and sort of the full customer spectrum with this diverse array of capabilities is going to be key. I firmly believe in delivering that to our customers with a global scale and consistency, yet with true local expertise, and really become that meeting place for both the enterprise and the service provider customers across 50 in growing metros, north of 30 countries and six continents, all with the vein of accelerating our pricing power, internal and organic growth.

Two, integrating and innovating is priority number two. We've had years of M&A that is in the rearview mirror. Just quite frankly, I think all the critical puzzle pieces when it comes to what we do have been taken off the board, and we got more than our fair share. We need to complete that integration work and complete our own digital transformation, making it easier for our internal and external customers and also continue advancing on our innovation, both on the connectivity as well as the physical infrastructure front. You've seen the likes of ServiceFabric, which is just still in its infancy. And it's got many great growth states to come. You'll see that on the space and power front. Or things like Direct Connect, we landed in such a high consumption market with AWS just announced yesterday, along with pressing our sustainability leadership and making sure that we are lifting the bar for our industry and our asset class and doing what's right for our customers and the world we live in. All about that -- all that is about is about elevating a data-driven approach to all facets of our business. Last but not least, again, diversify and bolster our capital sources. It's about completing the noncore dispose we've talked about and then expanding our private capital partnership programs for both stabilized as well as development hyperscale assets, with that in mind of enhancing capital efficiency, accelerating growth and returns to our digital shareholders. So that's the nuts and bolts of the three-point plan, and I'll let Matt tackle your second question.

Jon Atkin
Analyst at RBC Capital Markets

Maybe just quickly -- just quick. Yes, if I could just see [Indecipherable]. On the third-party funding of the development pipeline, what are -- you've not done that to my recollection at least recently. And I'm just interested, are there particular challenges around governance? Is it the economics? Is it finding the right partner or the right projects? What are some of the kind of factors that might dictate [Indecipherable] you might need some sort of arrangements around JV for your development pipeline.

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

I think you had six more questions in there, Jon. But listen, I -- the -- as Greg touched on already, there's been a dramatic rotation of capital towards digital infrastructure, and there's just not enough places to put it in terms of assets built or coming right now. And we're a great partner for that. We have a history of partnership. We've done versions of this in parts of the world, be it Latin America or Africa, and expanding that use of capital to -- or call it, more traditional markets to accelerate our capital efficiency and tap into the resources of our platform and monetize these long runways of growth we have for the hyperscalers is really the playbook. So I don't think there's -- we're all about trying to piece this together any simple fiduciary in mind playbook, limiting conflicts out of the gates. So we're going to be looking and already have been talking to partners that are like-minded in that approach, long-term investors in the space that really appreciate the value we deliver for our customers day in, day out. Maybe Matt, do you want to quickly do Jon's question? Because I'm sure we got a few of others as well.

Matt Mercier
Chief Financial Officer at Digital Realty Trust

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

Operator

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

Michael Elias
Analyst at Cowen and

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

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

So why don't we take on a reverse, or Greg, why don't you hit on the program versus what gets done in calendar 2023?

Greg Wright
Chief Investment Officer at Digital Realty Trust

Sure. Thanks, Michael. I hope you're well. Look, I want to be clear. First of all, we talked about the $1.5 billion estimate of noncore assets previously. I hope we made it clear, that's what was remaining. So we sold $2 billion. And we said whether it was a quarter or two ago that we had another $1.5 billion left. We didn't suggest that we were going to sell that all over the next several quarters, and we wouldn't suggest that. But instead, we said over time. So as you look at that $1.5 billion and how it's going to start to run off, we earmarked roughly $500 million of that for '23. And if you look back at our level of activity, whether it was '22, '21, '20, there's obviously different volumes in those years, and it's never perfect. Things roll over from one year to the next. Quite frankly, from my perspective, whether it's May or July, I don't think it really matters to say whether it's front half of the year or the back half of the year. But look, that has not changed. And again, just as our cap rate range this year is 0% to 10%, it was the same last year, and the volumes haven't changed. So again, it's -- I would say we're continuing to execute upon that program that we articulated to the market a couple of years ago. Actually, it's been 3-plus years ago now. And look, I'd like to think we've done a pretty good job with it. So that's it on that front.

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

And then, Michael, on your second question, listen, I think I look at it as a coming together of numerous puzzle pieces here. One, we've been adding the critical locations around the world that our customers need for a full platform solution, growing north of 50 metropolitan areas, 30-plus countries, across six continents. And really, I would say, demonstrably leading coverage in some of the hardest parts of the world with irreplaceable platform capabilities. Two, adding to that legacy magnetic destinations or customers and next-generation versions of those magnets, and we've seen many of those press released across multiple categories. Others have less notoriety. But ensuring the broadest attractiveness for our customer base based on our curation of our meeting place community. Three has been technology to bear. Internal technology I talked about. We've been eating our own cooking when it comes to digital transformation and tying this together for our internal team members, which ultimately provides better experiences for our customers and removes the friction in their procurement and their business. And lastly, external innovation, which we've been doing with the likes of evolving from Service Exchange to ServiceFabric, tying together our connectivity platforms and then harnessing all that in one platform offering essentially that has the best of both worlds, a global platform, $50-plus billion enterprise, serving the largest customers to the most local customers and doing it that scale and expertise, combined with true on-the-ground local experience. But Chris can maybe add on some of the technology elements as well.

Chris Sharp
Chief Technology Officer at Digital Realty Trust

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

Operator

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

Michael Rollins
Analyst at Smith Barney Citigroup

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

Matt Mercier
Chief Financial Officer at Digital Realty Trust

Sure, Mike. So let's talk about revenue because I think that's the one that's got more -- a little bit more to unpack in it for when you're looking year-over-year. So I think as most of us know, power has been a big topic, and we expect to be -- continue to be a topic. We are, like other operators, seeing increases in power costs, particularly in EMEA. So if you look at that growth, it's around 23%. From '22 to the midpoint of '23, roughly 14% of that is tied to utility reimbursements correlated to higher expected power costs. And just a reminder, we expect -- the majority -- I would say the majority of our contracts are full pass-through. And even those contracts that are not full pass-through, we have -- for the majority of those, we have the ability to pass on price increases, which we either have done or will do soon. So we are not expecting any or very minimal bottom line impact to our results in '23 from higher power costs. So that also -- when you then net that down, you're talking about, roughly speaking, 9% growth in our rental and interconnection revenue, driven by the business, which also coincides with the growth in adjusted EBITDA that you'll see there as you've done the math as well. In terms of then having that flow down to core FFO, look, I think part of that is -- what's in the plan this year is to set us up for being able to do that going forward, being able to continue to leverage the fundamentals that are continuing to improve and accrue to our favor as demonstrated by the growth of the stabilized portfolio. So that when we get our leverage down and balance sheet and stronger position, we should be able to see that going forward in '24.

Michael Rollins
Analyst at Smith Barney Citigroup

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

Matt Mercier
Chief Financial Officer at Digital Realty Trust

So the -- I guess I'll answer that in terms of like we are -- obviously, timing is a factor, but our -- the disposition, call it, joint venture capital plan that we've laid out, the range takes into consideration those potential dispositions.

Operator

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

Matt Niknam
Analyst at Deutsche Bank Aktiengesellschaft

Hey, thanks for squeezing me in. Andy and Matt, congrats, both, on your new roles. I had a question about the supply chain. I was just wondering with supply chain constraints loosening, are you seeing maybe some of your larger customers moving slower or less actively engaged in procuring space they need maybe several years out given shortening lead times. And then if I could just sneak in one more. I wanted to ask about the dividend. We're talking a lot about funding the business through divestitures and whatnot. I'm just wondering how, maybe Matt or even Andy, you're thinking about dividend per share, optimal payout levels? And is that even a lever you'd be willing to consider to pull in order maybe to help fund the business and delever faster?

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

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

Matt Mercier
Chief Financial Officer at Digital Realty Trust

Sure. I mean, look, ultimately, the dividend is a Board-level decision. I would -- what I'd add on to that is that it's -- in where we are, we would -- our objective is to maximize our free cash flow available to us to fund the business. And then in relation to the dividend, we want to make sure that we're paying out 100% of our taxable income. We want to make sure that we have an appropriate payout ratio. And then on top of that, we need to consider some of the -- some of our plans, which include potential for dispositions that could generate capital gains that could also be part of that analysis.

Operator

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

Frank Louthan
Analyst at Raymond James

Great, thank you. If you can -- a couple of questions on Ashburn. If you can walk us through sort of the available power and kind of the assurance that you have that those megawatts will be there when you need them. And then kind of a follow-up on that. Are you seeing any changes in the buying patterns from your customers? Are they rearchitecting deployments so that they can push more things outside of Ashburn to kind of avoid some of these issues in the future? Any of that kind of activity would be helpful.

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Sure. Thanks, Frank. So I mean, Ashburn, I would say, overall, the story remains the same of what transpired at the end of last summer. And the power -- incremental power deliveries into the largest, most robust and diverse market, quite frankly, in the world, is going to be restrained greatly for several years. Last quarter, I basically said I couldn't guarantee it, but I have confidence that we, working with the power providers, will be able to deliver on our customer commitments, which represents the lion's share of the just shy 80 megawatts we have in our development cycle. Today, as you heard in my prepared remarks, we are good to go. We'll be able to deliver for those customers, and there's no concerns about the power being available. What comes next is still to be determined. So again, similar song and dances I described last quarter, I can't promise you this, I can't guarantee it, but I do have a strong amount of confidence that the tools in our toolkit here at Digital Realty, given our experience in region, our critical and strategic landholdings, our breadth of infrastructure and our relationships, will be able to be creative in terms of bringing on some incremental power deliveries in this bottleneck period.

That is on top of what I would say is -- obviously, Ashburn is our largest market. I just looked at the 2023 expirations while we're -- we certainly have a higher retention, lower churn year expected relative to prior years. A large portion of our expected churn happens to be in Ashburn, which is a blessing given the ability to remarket that space at higher and better uses. So all of these with the Ashburn story, our saga continues, but broadly, it is greatly improving the pricing dynamic to a much more healthier environment for Digital and other providers in the market. In terms of buying patterns, just the tremendous amount of infrastructure across this part of Northern Virginia is not really shifting large-scale demand to other locations to any great stakes. So folks are still clamoring for available capacity or staying where they are with us or in market, and we've not seen a title shift on this market. And it will take a few years, but [the Calgary] is supposedly coming with new power bring -- brought into the region from the South and the North.

Frank Louthan
Analyst at Raymond James

Okay, great, thank you very much.

Operator

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

Andrew Power
President and Chief Executive Officer at Digital Realty Trust

Thank you, Andrea. So in my earlier remarks, I did mention something we didn't talk about on in the Q&A, but I do think this is an incremental tailwind of demand for our industry and Digital Realty as it relates to AI-related applications that we believe is on the precipice of driving an incremental wave of demand. As a result, I just recently asked ChatGPT how AI would impact demand for data centers. Here is a summary of the response, and I quote, "The impact of artificial intelligence on the demand for data centers is likely to be significant in the coming years. As AI continues to gain traction and more and more businesses adopt AI-powered solutions, the demand for data storage and processing is expected to increase significantly. AI also has the potential to create new data-intensive applications such as autonomous vehicles, virtual reality and personalized medicine, further driving the demand for data centers. In short, the impact of AI on the demand for data centers is expected to be substantial, and companies operating in this space are well positioned to benefit from this trend." Obviously, self-serving, but when you see some of the innovation that's playing out here and just the general media in the news, this AI trend has certainly come to fruition. And while this AI is certainly still in its development phase, we at Digital Realty agree and excited by the forecast that ChatGPT just provided. In closing, Digital Realty had a strong 2022. We believe we are making the appropriate adjustments here and now in 2023 to position us to take advantage of the incredible opportunity that lies before us. I'd like to thank all of our data team and exceptional team members of Digital Realty and everyone on this call for joining us today. Thank you.

Operator

[Operator Closing Remarks]

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