Amcor Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2025

There are 9 speakers on the call.

Operator

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

Operator

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

Speaker 1

Thank you, operator, and welcome everyone to Digital Realty's fourth quarter twenty twenty four earnings conference call. Joining me on today's call are President and CEO, Andy Power and CFO, Matt Resier Chief Investment Officer, Greg Wright Chief Technology Officer, Chris Sharp and Chief Revenue Officer, Colin McLean are also on the call and will be available for Q and A. Management will be making forward looking statements, including guidance and underlying assumptions on today's call. Forward looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10 K and subsequent filings with the SEC.

Speaker 1

This call will contain certain non GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our fourth quarter results. First, we posted a second consecutive quarter of record leasing in our zero to one megawatt plus interconnection segment, contributing to a record $1,000,000,000 of total leasing completed in 2024. The zero to one megawatt product continues to be a significant focus for Digital Realty and we are encouraged by the growing strength and momentum of our execution.

Speaker 1

Second, in the quarter we raised over $2,000,000,000 of new debt and equity capital as well as over $500,000,000,000 of net proceeds from asset sales and JV contributions, boosting our liquidity to over $6,000,000,000 and reducing our leverage to 4.8 times at year end. And third, we posted 6% core FFO per share growth in the fourth quarter, foreshadowing our expectations for 2025. With that, I'd like to turn the call over to our President and CEO, Andy Power. Thanks, Jordan,

Speaker 2

and thanks to everyone for joining our call. 2024 was a breakout year for Digital Realty as we capitalized on the surge in demand for data center infrastructure, position the company for the opportunity that lies ahead and continue to execute on the key strategic priorities that we outlined on this call two years ago to enhance our long term sustainable growth. Back then, we said that we would strengthen our customer value proposition and we are doing just that. The evidence from 2024 lies in over $1,000,000,000 of bookings, a convincing new record for us with a few seminal hyperscale transactions and nearly $250,000,000 from the zero to one megawatt plus interconnection category, another record. Not to be outdone by new bookings, we also saw record lease renewal activity in 2024, which also approached $1,000,000,000 with cash rents rolling up 9% on average.

Speaker 2

We added a record number of new logos during the year, nearly 600, while expanding our connectivity rich solutions. We expanded the capacity of our total portfolio by over 200 megawatts in 2024, while scaling our development pipeline by over 75% to 7 plus billion of projects underway that are 70% pre leased in order to serve our customers' growing data center needs. I also talked about innovating and integrating across our unmatched global portfolio and we've rolled out new products and services such as high density cola two point zero, a cooling solution to support densities of up to 150 kilowatts per rack, the expansion of service fabric to 38 metros around the world and private AI exchange, an open platform available through ServiceVacnet, which enables enterprises to seamlessly integrate their data with AI capabilities and other technology solutions. By combining these leading edge solutions with our global full spectrum strategy of connected campuses that offer color, scale and hyperscale capacity, customers can count on Digital Realty to meet all of their data center needs. Finally, we vowed to diversify and bolster our capital sources to expand our capacity to support our customers' growing requirements, improve capital efficiency and reduce our leverage while increasing the returns to Digital Realty shareholders.

Speaker 2

We've done this by adding to the menu of debt and equity capital options, opportunistically recycling capital out of stabilized and non core assets and partnering with a diverse and high quality list of private capital providers. Some of these activities have resulted in short term headwinds to our results, but all of them have enhanced our operating momentum and financial position, enabling us to accelerate our bottom line per share growth. But there is still tremendous opportunity to be seized upon as we lead this dynamic in an increasingly global industry. Demand for data center capacity remains robust, both for larger AI oriented capacity blocks and to support growth in cloud and digital transformation while data center supply remains tight. Highlights for the fourth quarter include $100,000,000 of new leases signed at Digital Realty share, driven by a 16% sequential uplift in the zero to one megawatt plus interconnection bookings for a new record of $76,000,000 Unsurprisingly, greater than a megawatt bookings dipped sequentially following last quarter's blowout, though the pipeline remains strong.

Speaker 2

Looking inside our zero to one megawatt bookings, we experienced strong and balanced growth in both The Americas and in EMEA with both regions achieving new records in the quarter. We continue to see a growing healthy mix of various size deployments within our zero to one megawatt business, reflecting how our full spectrum strategy enables digital to provide solutions for large and small deployments along with everything in between. Some customers might simply need a network node to utilize our robust connectivity in a central city hub, while smaller enterprises might choose to locate a sum one megawatt deployment for compute or storage requirements in a facility outside of the city center. Interconnection bookings were also strong at $15,000,000 nearly matching last quarter's record. Finally, the strength and breadth of data center demand and the progress of our go to market initiatives are also reflected in our addition of a record 156 new logos.

Speaker 2

We continue to see healthy inter region activity across our global platform. Hyperscale drove a portion of this activity with our largest global customers driving record export activity to other regions around the world. EMEA exports were again at record levels with heightened transatlantic bookings for deployments landing in The Americas. Our record bookings in 2024 pushed our backlog of booked but not yet built leases up to roughly $800,000,000 at year end, providing strong revenue visibility for this year and beyond. As Jordan mentioned, we also continue to bolster our balance sheet and diversify our capital sources during the fourth quarter with support from asset sales, hyperscale development joint ventures and highly successful debt and equity raises.

Speaker 2

These activities helped to push leverage below five times. Matt will provide more details on these activities in just a few minutes. Over the past few weeks, we have seen commitments for data center spending continue to grow. New administration announced a $500,000,000,000 effort to support American based AI development and others around the world are following suit. Earlier this week, I was pleased to join French President Emmanuel Macron in Paris along with U.

Speaker 2

S. Vice President J. D. Vance and many other heads of state and industry leaders for France's AI Action Summit, which was geared toward convening the international community to discuss the use of AI for the common good. As I highlighted two years ago on my first earnings call as CEO, technology begets technology.

Speaker 2

In the past, innovation has typically led to greater efficiencies that ultimately spur incremental demand. At the time, we noted that we were at the precipice of the next wave of innovation that we thought might drive the next decade of data center demand. 2024 we signed data center leases that were 80% higher than the next highest year, driven by steady growth in cloud and digital transformation, as well as a surge in AI related use cases. Today, we see a similar dynamic playing out to what we've witnessed in the past as the RACE renovation remains in full effect, while recent efficiency gains appear poised to facilitate the proliferation of AI to the enterprise. We heard from Hyperscopes earlier this reporting season and none seem ready to moderate their pace of investment as data center infrastructure remains a critical resource to support AI innovation.

Speaker 2

Within our sales organization, we continue to see robust demand for data center capacity, including large capacity blocks driven by digital transformation, cloud and AI. AI innovation is current on both the hardware and software side and Digital Realty is pleased to support and enable this innovation. One of our wins this quarter was Tens Dorrent, a developer of scalable AI accelerators for both cloud and edge computing. During the fourth quarter, Tenstorant leveraged Platform Digital to host their R and D lab in a two megawatt high density colocation suite in a new metro that addresses their stringent engineering and time to market requirements. As they develop their leading edge chips, Tensor works with a number of partners.

Speaker 2

Consistent with our meeting place strategy, they improve their efficiency by interconnecting with their partners on platform digital. So together, we partner to deploy an AI hosted desktop solution for AI model development and testing that included another test to our partner resulting in another new logo to Platform Digital. That's an example of the network effect of being the meeting place. Other key wins in the quarter include a Global two thousand international banking group expanding on Platform Digital to improve cloud connectivity and localizing data for hybrid cloud. A world renowned research and cultural institution was brought to us by a partner as they upgrade their HPC infrastructure, supporting biology and physics research workloads by taking advantage of Platform Digital's high density colocation capabilities.

Speaker 2

And the Global two thousand insurance and reinsurance provider is expanding their presence on Platform Digital to take advantage of robust networks and cloud ecosystems. Before turning over to Matt, I'd like to touch on our global ESG progress. During the fourth quarter, Teraco, our South African affiliate, started construction on a 120 megawatt utilities well solar power plant, the first time a data center operator will own and utilize a solar power plant to support its data center load. The plant is expected to begin generating power in late twenty twenty six. This project will upgrade existing transmission infrastructure and enables the plant to add renewable energy into the grid and to be distributed to Teraco's campuses, improving its reliability and keeping Teraco on course to meet its clean energy goals.

Speaker 2

In Chicago, we signed community solar agreements for a share of three separate solar projects totaling nearly 20 megawatts under the Illinois Science program. This new and local clean energy supply for our data centers in Chicago supports our 100% clean and renewable energy coverage there. Both actions in the fourth quarter added to Digital Realty's leadership and commitment to renewable energy. We now have more than 150 datacentral around the world that are matched with 100% renewable electricity with more than 1.5 gigawatts of contracted solar and wind capacity. But sustainability is not just about renewable energy.

Speaker 2

We are also excited about our collaboration with Ecolab to deploy an AI driven water conservation solution in 35 of our U. S. Data centers to further enhance our water use efficiency. We expect this solution to reduce water use by up to 15% at those sites while also extending the life of

Speaker 3

our

Speaker 2

equipment. Finally, Digital Realty was awarded NAREIT's Leader in the Light Award for the eighth consecutive year, while our VP in Sustainability, Aaron Binkley will serve as Chair of NAREIT's Real Estate Sustainability Council in 2025. Many congratulations to Aaron. And with that, I'm pleased to turn the call over to our CFO, Matt Mercier. Thank you, Andy.

Speaker 2

As Andy noted earlier, 2024 was a transformative year for Digital Realty. Over the past twelve months, we posted record leasing results and increased the capacity under development by over 75%, while at the same time reducing our leverage from 6.2 times to 4.8 times. This achievement was a direct result of our strategy to bolster and diversify our capital sources. By recycling capital out of stabilized, slower growth hyperscale and non core assets and bringing in private capital to support hyperscale development, combined with the support of our public shareholders, we were able to simultaneously accomplish seemingly incompatible goals. We dramatically ramp development to better serve the needs of our customers, while delevering the balance sheet below our long term leverage target and by the fourth quarter meaningfully accelerating our bottom line growth.

Speaker 2

As we sit here today with more than $6,000,000,000 of liquidity, below target leverage and a broad and diverse array of capital sources, we are positioned to fund the investments that are underway and the attractive opportunities that we continue to see ahead. Like other challenges, this achievement took a tremendous amount of teamwork. So I want to thank my fellow Digital Realty teammates for their efforts in 2024. Let's jump into fourth quarter results. We signed $100,000,000 of new leases in the fourth quarter led by a record $76,000,000 of bookings in our one megawatt plus interconnection segment, which exceeded the prior quarter's record by 16%.

Speaker 2

We also signed $23,000,000 within the greater than a megawatt category, which was mostly weighted toward EMEA and APAC following last quarter's outsized strength in The Americas. Pricing in our zero to one megawatt category was strong, led by transactions in APAC and Americas, while pricing in the greater than a megawatt category reflected the modest sample size and market mix. Importantly, nearly 60% of leases signed include annual rent escalators of 4% or greater or are linked to CPI, which bolsters our objective to drive better long term sustainable growth. Our backlog at Digital Realty share totaled $797,000,000 at year end, modestly below the third quarter record as $147,000,000 of commensals exceeded new bookings. Looking ahead, of the nearly $400,000,000 backlog that is scheduled to commence in 2025, about two thirds is slated to commence by midyear with the balance starting in the second half.

Speaker 2

Looking further out, we already have over $300,000,000 scheduled to commence in 2026 and another $100,000,000 slated to commence in 2027, setting the strong foundation for multi year growth. During the quarter, we signed $250,000,000 of renewal leases at a blended 4.7% increase on a cash basis. Renewals were fairly straightforward and largely consistent with the original 4% to 6% uplift in cash releasing spread in our original 2024 guidance provided one year ago. For full year 2024, releasing spreads were 9% aided by package deals that we have highlighted on prior calls. Excluding those deals, our full year renewal spreads were still a healthy 5.2%, which is consistent with the guidance that we are issuing for 2025.

Speaker 2

Breaking down renewals by product category, cash renewal spreads in the 0.01 megawatt segment were a healthy 4.9% in the fourth quarter, while re leasing spreads in the greater than a megawatt segment were up by 3.7%. For the quarter, churn remained well controlled at 2%. In terms of earnings, we reported fourth quarter core FFO of $1.73 per share, up 6.1% year over year reflecting continued healthy growth in revenue and adjusted EBITDA. Data center revenue growth accelerated to 8% year over year as the combination of strong renewal spreads, rent escalators and new lease commencements more than offset the drag associated with more than $1,000,000,000 of dispositions throughout 2024. Adjusted EBITDA increased by 7.4 year over year, broadly consistent with our growth in data center revenue.

Speaker 2

Normalized total revenue and adjusted EBITDA growth were 1013% respectively in full year 2024. Same capital cash NOI growth increased by 1.4% year over year in the fourth quarter as 2.5% growth of data center revenue was partially offset by higher property operating costs in the quarter. For all of 2024, same capital cash NOI increased by 2.8%, which was approximately 200 basis points higher when normalized for the outsized utility margin realized in 2023. Moving on to our investment activity, during 2024, we spent approximately $3,000,000,000 on development CapEx on a gross basis, including our partner share and roughly $2,000,000,000 on a net basis to Digital Realty. In the fourth quarter, given the strong demand for data center capacity, we backfilled all of our deliveries with new starts, ending the year with the same six forty four megawatts under construction.

Speaker 2

More specifically, we delivered 42 megawatts of new capacity in the quarter while we added another 42 megawatts of new starts. The overall pipeline is 70% pre leased with average expected yields edging up to 12.1%. Consistent with the third quarter's record bookings, almost all the development underway in The Americas today is pre leased with expected stabilized yields ticking up slightly to 13.7. Some development capacity remains available in both EMEA and APAC with both currently expecting double digit stabilized deals. Turning to the balance sheet, we continue to strengthen our balance sheet in the fourth quarter driving leverage below our long term target and sustainably enhancing our liquidity with nearly $3,000,000,000 of fresh capital raised since the September.

Speaker 2

On the debt side, in November, we successfully issued $1,150,000,000 of one point eight seven five percent five year exchangeable notes and we repaid the remaining $500,000,000 outstanding on our U. S. Dollar term loan. We also raised over $900,000,000 of equity under our prior ATM program during the fourth quarter. In January, we issued another €850,000,000 of 3.875% notes during 02/1935 and then repaid 400,000,000 gilts at 4.25%.

Speaker 2

This leaves us with only €650,000,000 in procuring debt through the rest of 2025. Looking further out, our maturities remain well litered through 02/1935. Our net debt to adjusted EBITDA ratio fell to 4.8 times by year end 2024 and today we have over $6,000,000,000 of total liquidity available. Moving on to our debt profile, at year end our weighted average debt maturity was over four years and our weighted average interest rate ticked down to 2.7%. Approximately 83% of our debt is non U.

Speaker 2

S. Dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 91% of our net debt is fixed rate and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Let me conclude with our guidance. We are establishing our core FFO guidance range for the full year 2025 at $7.05 to $7.15 per share on a constant currency basis.

Speaker 2

The midpoint represents 5.7% year over year growth, reflecting the underlying strength in our business, balanced by a meaningful acceleration in development spend, along with a substantial reduction in our overall leverage. On a normalized and constant currency basis, we anticipate total revenue and adjusted EBITDA growth of more than 10% in 2025, reflecting the strong underlying fundamentals of our business. Same capital cash NOI is expected to grow 3.5% to 4.5% on a constant currency basis. As for other guidance items, we expect a positive operating environment for data centers to continue. Cash renewals are again expected to be up approximately 4% to 6% and upside is partially mitigated by relatively high expiring rates in our greater than a megawatt portfolio.

Speaker 2

Occupancy should improve by another 100 to 200 basis points. CapEx, net of partner contributions are expected to rise to between $3,000,000,000 and $3,500,000,000 while gross CapEx will reach approximately $4,500,000,000 with development yields expected to remain in double digits. And we will also continue to recycle capital with $500,000,000 to 1,000,000,000 of dispositions in JV Capital expected this year. This concludes our prepared remarks and now we will be pleased to take your questions. Operator, would you please begin the Q and A session?

Operator

We will now begin the question and answer session. Our first question today is from David Barden with Bank of America. Please go ahead.

Speaker 3

Hey, guys. Thank you so much. I really appreciate it. I guess I'd like to start maybe if Chris is available to kind of get, Chris, your perspective on how, again, we should be talking about DeepSeq, Andy, you referenced this roughly in some of the prepared remarks at the beginning, but we've historically talked about a framework tokens to lots to doll.

Operator

And I guess it would just

Speaker 3

be great to hear kind of how your conversations with the hyperscalers subsequent to their reporting and they're growing their CapEx outlook, how this all fits together to make the outlook for Digitalty better as opposed to maybe more concerning? Thank you.

Speaker 2

Thanks, Dave. I'll hand to Chris in a second to talk through some of those elements. But I think you hit the nail on the head. We've just on the heels of the DBC news had the opportunity to listen from several of our top customers and really heard nothing but consistency in terms of the essence of the great accomplishment. We see a new player in the arena driving more efficiency to the model, but that doesn't take us off the course of the tremendous investment our top customers need to make on building out their AI infrastructure.

Speaker 2

And I think the CapEx mentality of this call is more than $300,000,000,000 compounding a tremendous rate year over year for now several years. And so we've heard that publicly on earnings call like this and we've obviously heard it from our team. We've had a lot of contact with our customers over the last several weeks, pre DeepSeek certainly and post DeepSeek. So I don't think there's a wavering in the course here of overall demand coming to digital. But Chris, why don't you expand upon some of the intricacies?

Speaker 2

I appreciate the question, David. Essentially, I agree with you that tokens lost dollars is a good way and a good framework to look at the overall industry. I think we're going to continue to see AI being democratized not only through software models such as DeepSeek in which they represented the efficiencies, but also with like GPUs and there's going to be step functions that we'll continue to see in the industry. But this shift will drive higher and higher AI utilization to more and more customers, ultimately creating more and more demand for our facilities. And I would emphasize that a lot of our facilities as we've talked about in the past are AI ready with HD colo and some of the elements that Andy mentioned in his prepared remarks.

Speaker 2

These will continue to be in a place where we can continue to support as inference comes to market or even private AI. And essentially at the end of the day, we believe Chevron's Paradox will outpace Moore's Law essentially.

Operator

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

Speaker 1

Hi. I wanted to ask about the cash renewal outlook. It was 4% to 6% for this year. That's where you start off last year, but you ended up at 9%. Could we see a similar result or would that take more package deals to get there?

Speaker 2

Yes. Thanks for the question. So, as you noted, last year, we started out our guidance, we were at that 4% to 6%, as you noted. We're in a similar position here for 2025 in our guidance today. And the reason we outperformed in 'twenty four getting to that 9% was we had packaged deals that we were able to pull forward from out of your expirations into 'twenty four.

Speaker 2

Our guidance does not assume that there's any of that within our 4% to 6% number for 2025. And similar to along the lines of discussions we've had in 'twenty four, you're still seeing somewhat of an elevated rates, expiry rates in 'twenty five. So we're still seeing positive mark to markets there, but you're going to be seeing an improving mark to market environment as you go out into outer years.

Operator

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

Speaker 4

Hi. Thank you for the question. So, I wanted

Speaker 2

to ask about

Speaker 4

your bookings expectations looking ahead. And I understand that bookings by nature is a very lumpy metric and that's not something that you necessarily or you guide to, but you did do $1,000,000,000 this year or a little bit above that. Based on what you're seeing in the current pipeline and your 3.5 gigawatts of buildable capacity, do you think this $1,000,000,000 annual bookings rate is repeatable over any future 12 period?

Speaker 2

Thanks, Durbin. So I think you really got to divide these into the larger capacity blocks and everything else categories.

Speaker 3

We've obviously got to a record $30 in

Speaker 2

new signs last year, which was close to two times from prior record that has really created a development pipeline now that Gulfstream will put 30% to 70% premium used at just over 12 ROI. And you can see from our bookings backlog, it's going to roll out in 2025, but then a lot more of it starts hitting our P and L of 2026 and full year contributions come thereafter. We are on the larger capacity blocks. When we do so much leasing, the next batch of releasing kind of goes into the deliveries that are just further out. And you can see that our unleased development pipeline, the megawatts in there, call it, about 40% of that is total megawatts.

Speaker 2

So they're not going to get pre leased all that solid advance. We have 500 megawatts of shell either already built already, which is fantastic and that will be the next batch. But you

Speaker 3

can see our delivery schedules, they're not going

Speaker 2

to deliver until end of the year or end of the 2026. So we're not necessarily in a panicky rush to fill those. We need to make sure that they're procuring to the right customers and the right outcomes to both driving to most campuses and help our customers wherever possible. And the sooner they deliver, the more precious they are to those customers. Meanwhile, on the other end of the curve, in our year one, year one interconnection category, we were delighted to put up a record in 3Q.

Speaker 2

We put up another record on $76,000,000 in 4Q. That was up 16% quarter over quarter, contributing to a record full year. And that is a place where we have ample capacity to consolidate to and put incremental records on in 2025 as well.

Operator

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

Speaker 1

Thanks. So you've been kind of messaging last year the guide that you gave today kind of in the mid single digits and you also had indicated that you do expect this trend to accelerate.

Speaker 4

So as we look forward beyond this year, what sorts of acceleration curve should we accelerate? Should we think about when it comes to core FFO per share given the conversion of your significant bookings to billings over

Speaker 2

the next several quarters? Thanks. Thanks, John. I mean, I'll turn it to Matt to give you much of the puzzle pieces for the call thereafter 2025. But we stand by what we said earlier in the year and I think we've seen all that in the diamonds here which is call it normalized growth at the top line EBITDA line in double digits, flowing down to a bottom line mid single digits or even better on a constant currency basis.

Speaker 2

And Matt can give you some of the puzzle pieces of how where we go from there off of 2025 into 2026 with acceleration. Yes. Thanks for the question, John. I mean, this is a I think it's a good thing. We're consistent with what the messaging has been.

Speaker 2

We're delivering on the mid single digits growth in 'twenty five and we have a view for, as we've noted before, continued improvement in growth in years beyond. And I think a lot of what we did in 2024 is really set the stage for that improving growth. When you consider we've got the inventory to do, we've got 200 megawatts available under development today with 500 megawatts of shell behind it. We've got $700,000,000 of backlog

Speaker 3

that's commenced just over

Speaker 2

the next two years. And as I know on product lines, we've got an improving mark to market outlook as we look ahead towards expiring leases, which is part of what you're seeing and also improving same store growth as well. So on top of that, we put ourselves in a position where we've got $6,000,000,000 of liquidity and below leverage targets. So I think all that puts together into the mixing vault to put us in a great position to continue to build on what has been improving bottom line growth in 2024, '20 '20 '5 and beyond.

Operator

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

Speaker 5

Thanks and good afternoon. Two topics. First, just digging a little bit more into the under one megawatt business. When you look at the improving performance and the back to back records that you've recorded on leasing, do you see that as a rising tide that's just lifting all boats including yours? Or do you see digital taking share?

Speaker 5

And if you can expand on the characteristics within each of those? And then just secondly on the net debt leverage coming down, as you look at the incremental capacity that you have, is this solely directed at organic development opportunities or are you preserving some flexibility for some potential inorganic activity at some point? Thanks.

Speaker 2

Thanks, Mike. So I'll hand it over to Colin, but maybe just in reverse order. We are very focused on using our now very ample liquidity and strong balance sheet as well as numerous levers to continue to fund organic development activities. So that is the main priority. When it goes to the other one megawatt, I mean, you're really just seeing momentum unlock throughout 2024 and I believe it's going to continue into 2025.

Speaker 2

It was broad based, We were working the number one quarter for Americas and EMEA in addition to a number one quarter overall. It had great diversity of wins on different size breaks. The price action was strong on the new signings. The price action was also strong, almost 5% on the renewals in that category. All our calls do work without the diversity of the demand and some of the outlook as well.

Speaker 2

Thanks, Michael, for the question and appreciate the comments on the quarter. We are really pleased on the 0.01 megawatt segment that's really looks like it's manifesting well our strategy and outcomes up as the full spectrum of local reach in core markets and large contiguous blocks really matter. And we saw that diversity demand across the board. This was the larger large enterprise segments of the business that we've seen over 50% of the 0.1 megawatt bookings came out of the segment. We also had a really strong service provider on quarter as well.

Speaker 2

So again, those two customer types play off each other. So enterprises attract service providers and vice versa. And we're also pleased with our focus on the channel side. So 2024 is a landmark year for channel and we expect that to continue into the future.

Operator

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

Speaker 3

Hey, guys. Thanks for taking the question. As you think about growth for next year, you talked about sort of organic growth that's 10% plus. I'm just wondering maybe for Matt, if we can think through what's embedded in the 5.8% to 5.9% around FX headwinds, potentially lower utility reimbursements and any other factors that may be mitigating some of the

Speaker 1

reported growth next year? Thanks.

Speaker 2

Yes. So, in terms of, I mean, you saw what we put in terms of our constant currency. So we're looking at from an FX perspective, we're looking at roughly 200 basis points of headwind kind of from a probably from a P and L perspective that winds its way down to little less than 1% down to core FFO. The other so that all leads into I think what Andy mentioned in terms of when you're looking at top line revenue down to adjusted EBITDA, we're really looking at the 25%, ten plus percent on a normalized basis. And so that normalized basis is really comprised of two main elements.

Speaker 2

There's FX, which I just mentioned was around, call it, 200 basis points and then we're also normalizing for dispositions, joint venture transactional activity, which we had both in what closed in 2024. We had some of that in the fourth quarter as well as some in the first quarter, but also what we're expecting to happen in 2025, which is related to the disposition of private capital that we have in our guide of $500 to $1,000,000,000 So I think long term, we're looking to maintain that call it top line to adjusted EBITDA 10 plus percent growth.

Operator

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

Speaker 6

Thank you. There's been a lot of talk within the industry around inference, particularly post deep seek. And I was hoping maybe you can describe how you see that potential demand around imprints of Aldi and whether you'd expect it to be more beneficial to your zero to one megawatt business or greater than one megawatt business? Thanks.

Speaker 2

Thanks, Ari. I'll hand it back to Chris. I think it's time we didn't put in the prepared remarks. We forgot to follow-up. I think it was done.

Speaker 2

Our new 38% megawatts we signed during the quarter were AI related. And obviously, we had a very much enterprise heavy quarter given the record contributions in the one megawatt interconnection category. So certainly starting to see our fair share of AI coming to the core markets coming there and certainly coming to inference. But I believe we're still at the tip of an iceberg here and I'll let Chris expand upon this. Yes, definitely appreciate the question.

Speaker 2

All right. Definitely early innings of AI, right? And so I think a lot of the inference we see today is around augmenting current capabilities. So I think as you see some of these newer feature sets coming through AI by mobile where you're seeing video and other things coming to market, that's going to drive a higher and higher demand in the overall blocks required. So these capacity blocks that Colin was referencing earlier become more and more important.

Speaker 2

So maybe it doesn't fall in that sub one megawatt because we're actually seeing that these will be larger capacity blocks that may be larger than a megawatt. But just to kind of press upon the demand and inference, it will still have more and more proximity to the end consumer. I think that's the important piece that we always look at and where we apply our capital is that long term durability of where that inference matures because that's where the actual consumption or monetization of the AI will happen and That's why we're very excited about how that will be maturing over time. I'd also be remiss not to mention the other element of this that we're very excited about is private AI. So inference, you'll see that coming from a lot of the hyperscalers bringing their capabilities to market.

Speaker 2

Then on the averse of that,

Speaker 3

you're going to see a lot

Speaker 2

of private AI capabilities coming in where that too has an inference element to it, but we're very excited about our AI ready capabilities in our facilities to support that broad spectrum of not only capacity blocks but the power density domain as well.

Operator

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

Speaker 3

Thanks. I want to go back to that Lesson one megawatt leasing activity. Can you comment maybe on the majority of the deals signed? Were those in legacy assets, which will hopefully provide a much needed boost to same store occupancy when the leases commence?

Speaker 2

Or were the majority of

Speaker 3

those deals signed and maybe the newer construction assets that are dedicated towards the current deployment requirements today?

Speaker 2

Thanks, Dave. I mean, it's pretty broad based. I mean, you look the top markets were Northern Virginia, London, Los Angeles, Frankfurt, Chicago globally. I can tell you London Los Angeles and the Toronto Chicago, those are not I mean that's Virginia De Cermak that 600 West Seventh that's even El Segundo what our whole funded portfolio whether in the documents or Vulcan, we thought we've had much more enterprise play there. We've not been built a new brand new asset in a long, long time, probably till I started digital close to ten years ago.

Speaker 2

So, these are colo obviously oriented use cases across numerous business segments, financial services, insurance, healthcare, we've quoted a few along the way. So, and when I look at the overall quantity of signings, the signings that went into called the first generation or second generation that is been pretty consistent, it's a little higher to round up the year. But you did bring up the point in safe store occupancy. We did almost have a little self inflicted wound there. I think one of the remnants of the six carrier transaction converted from 100% of these P and V suite to we get back to the vacancy slash nine year old customer phase there, but that creates an opportunity.

Speaker 2

And I know we're actively quoting to refill that capacity, obviously a much better economic outcome along with our core priorities in building out our enterprise customer base along the way.

Operator

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

Speaker 7

Sorry about that. Thank you. Can you give us

Speaker 6

an idea going forward, so what percentage of your facilities you're going to set aside for sort of less than a megawatt? Where do you see that going? And within that less than a megawatt, what percentage of that floor space are you building that is for high power density compute versus just regular machines? Thanks.

Speaker 2

Thanks, Frank. I mean, not just very recently, but for a long time now, last couple of years, we have been prioritizing and making sure our customers seek enterprise capabilities, be it network oriented or private cloud or high performance computing pushing the power densities, ample runway of growth within our portfolio. There are certainly places that are clearly network oriented like a $56,000,000 in Atlanta for example, but on our campuses we're building with the modularity and flexibility to stand their power density needs. And we're often now moving towards places where we can get the scale and build a sizable building given how much success we've had in the category in various markets to have dedicated for those customers on the same campus as far as the dedicated buildings for those customers and have a little bit less mix and matching within up suites within a building. So that's a priority.

Speaker 2

We've been doing more of that. You're going to continue to see us doing more of that. And that's right. That's how we're going to get this growth we've been putting up call 22 ish percent growth in that cyanobecategory just this last year and look for further acceleration next year.

Operator

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

Speaker 7

Good afternoon. Thanks for taking my question. Andy, I think at the top of the script, you mentioned the start of the announcement. Some of your customers are directly or indirectly involved in that announcement on some of your largest customers in fact. So what conversations have you had with some of these customers since the announcement about their interest in sort of maintaining or expanding their relationship with Digital Realty in the future?

Speaker 7

And then maybe you can make a broader comment on hyperscalers and their willingness to look out even further into the future in terms of pre leasing capacity, do you think that's kind of on the margin a little bit greater or lesser than it was maybe three months ago? Thank you.

Speaker 2

Thanks, Jim. So the Stargate announcement, I would say twofold, really was partial announcement of activity that transpired quarters and months ago and also I put it in category of conviction from top customers to continue to deploy significant dollars towards infrastructure. So I don't think that some of that was transparent while we were signing with some of our biggest customers. Just last year, I think I said previously that of the three quarters when we had record signings during the year, we had a different top hyperscale customer being a record signing customer each quarter, so there was diversity. And based on what I've seen things go this year, I think we could add a different customer to be able to lead it worse at any given quarter as we work into 2025.

Speaker 2

I will say at the same time, the size of this demand is getting to a place where the spigot of demand is not running at progress twenty four hours a day, seven days a week, three sixty five days a year. These packages with more expensive GPUs and infrastructure or larger capacity blocks are going up to the highest level of the big company's boards for approval and they don't do that every other week. So while the capacity we see continued up in the right, there will certainly be a week or two a month where we'll see a lull and then they'll came back, which is part and parcel with exactly what we saw transpire in 2024. And I think we're very well positioned to obviously support those customers in some of the large capacity blocks, which you can see. We have delivering significant data capacity in our development pipeline, 500 megawatts a shell and we just grossed up our land holdings with some near term delivery opportunities to about over three gigawatts of growth.

Operator

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

Speaker 2

I appreciate it. I just wanted

Speaker 3

to touch on the capital recycling or JV picture for the year. I know you talked about $500,000,000 to $1,000,000,000 Maybe you could maybe touch a little bit on the potential mix of outright dispositions, JVs and then new programmatic fund like structures that you've alluded to in the past. How we think about the mix of that this year versus using other sources of capital like issuing equity? Thank you.

Speaker 2

Thanks, Eric. Why don't I let Matt give you a quick breakdown of numbers and then flip it over to Greg to give you a quick high value on our strategic capital initiatives? Yes. Thanks, Eric. So, I mean, simplistically, we're looking at if you just break it down, we're looking at roughly $300,000,000 to $400,000,000 that is going to be associated with continued efforts around our non core asset disposition.

Speaker 2

And the remainder of that will be targeted towards the continued expansion of our private capital efforts. And for that, maybe I'll turn it over to Greg to give a little bit more color. Thanks, Matt and thanks, Eric. Look, I think there's a couple of things. One is, Andy and Matt have told investors for some time now as we look to diversify and bolster our capital sources.

Speaker 2

As you mentioned, the fund is clearly the next logical step in this progression. I think all we'd say at this point is it's going very well. And as we continue to make progress and have more to report, we look forward to talking to you about it. But again, we think it is the next logical step and like the flexibility associated.

Operator

The next question is from Erik Rasmussen with Stifel. Please go ahead.

Speaker 3

Yes. Thanks for taking the question. So you laid out mid single digit core FFO constant currency growth in 2025 and it sounds like there's a lot of momentum in the business for acceleration beyond that. But what are some of the factors that maybe could derail this thesis as you think about some of the things that might impact the business? Thanks.

Speaker 2

If you look at our components here, most of the big signings are not flow through to 2025. So any big signs we do from here, which we anticipate doing, are really building out growth in 2026 and 2027. So our near term execution opportunity goes back to what we've been very successful recently and need to continue with the zero to one megawatt interconnection, filling that vacancy in our portfolio that does not have that pre lease window of that scale, continue to execute our commercialization. We've delivered tremendous amount of value to our customers. And obviously, we need to make sure that the commercials are adequately rewarding, which is seen through our cash mark to markets.

Speaker 2

Continue to expand the value prop through radio connection signings, which we had a strong fourth quarter, coming off a record third quarter, but continuing on that. And then obviously making sure we use these tools that we built over the last eighteen months in terms of how we fund this business, in terms of continuing to be able to spend and accelerating $4,500,000,000 of gross CapEx, but use our own liquidity, retain capital and obviously development private capital partnerships as well to make sure this all flows to the bottom line by guiding in 2025 and looking to do better than that in 2026.

Operator

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

Speaker 2

I guess I just want

Speaker 3

to clarify two things you mentioned. So one is just the rush or the velocity of deals that tenants are wanting to sign and you're wanting to engage in. It sounds like in the less than one megawatt segment there's like a, I don't want to call it renewed rush, but certainly an upward trajectory and hopefully that continues. But in the larger than one megawatt, it's very lumpy like you said. And I'm just wondering the combination of those two, does that put like just hypothetically the next two, three years in a different zip code of Velocity and size of your bookings?

Speaker 3

I'm not looking for a number. I'm just trying to think over the next few years versus the last, call it, seven years. And then same question on pricing power. With all this velocity, can you expand a little bit on how you're viewing your own pricing power going forward? Thanks.

Speaker 2

Thank you, Vikram. I'd like to unpack in there. Let me try to get this thing. Zero one megawatt enterprise coal casing interconnection, we see a growing market where we're taking more and more share. And we will continue to do that with a very compelling value proposition.

Speaker 2

We have the power densities and runway for growth for our customers and we're going to expand with us across 50 metropolitan areas and connectivity solutions for today and tomorrow for these customers. So I think you're going to continue to see that called stair stepping of recruitment, blocking and tackling in a kind of robust backdrop even before I think the days of inference becoming tremendously robust with enterprise happens. The other megawatt is certainly going to be wealthy because when we sign a 100 megawatt deal or 50 megawatt deal in one quarter versus another, it swings it. The point I was just trying to make is based on the deliveries of our inventory timing, there isn't a panicky rush to trade off volume for commercials. So we are trying to create to the right customers and the right financial outcomes for those prices capacity blocks because we've seen as time goes by the sooner the capacity delivers the more value it becomes and helpful to those customers.

Speaker 2

On the pricing power, I don't have a lot of data points given the composition of where we may want signings in the quarter, but I can tell you in our most a large market, we're still quoting to multiple customers for large capacity blocks, call it 200 ish type rates for what we view is incredibly valuable to these customers. And the smaller if you have a one category, I think you can see a cash mark to mark to close to just under 5% and our pricing is helped in there pretty firmly. All the backs have a big step up in volume in that category.

Operator

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

Speaker 8

I wonder if you could just talk a little bit on the supply chain side of things. What's the latest situation with getting power to your new developments? Any other items in the supply chain that you're generally able to hit your timelines, hit your cost per megawatts? Any color around that would be great.

Speaker 2

Thank you, Simon. I mean, supply chain, in my opinion, first and foremost with power remains incredibly tight and everybody wants something sooner than it continues to get delivered in almost all markets. We are, call it, using our relationships, we're using our scale, we've been creative to find out ways to settle these solutions for these customers wherever possible. But my sense is, it's more how we're delivered to where we have our campuses sooner, we'd be happy to have more demand as customers needed. The broader supply chain on the physical elements was kind of

Speaker 3

tied to first tie back into it. I mean, we

Speaker 2

have today owned and owned 3.5 gigawatts or 3.6 gigawatts of land and shell. We're not going

Speaker 3

to look for that to

Speaker 2

that is on our balance sheet. Much of that's been on our balance sheet for quite a while now. It's not like we just signed it up and have to work up super front end of preliminary or the same pad meti, which puts us in a great position to make sure that we're able to keep delivering. Our supply chain is I think with the vendors is on the tight side as well. And we'll see what happens when the talk of tariffs comes to data center land in terms of impact.

Speaker 2

But currently in that outlook is we look like we're pretty well insulated given how we've gone ahead in terms of supply chain for Q4.

Operator

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

Speaker 1

Hey, thanks for taking my question. Your development yield in The Americas is almost 14% now, that stepped up pretty nicely last quarter. You're sort of in the 10% to 11% zone in EMEA and APAC. Should we expect to see the development yields in EMEA and APAC start to move up and that gap some versus The Americas? Or do you see there being factors that restrain where you can get in those regions?

Speaker 2

Thanks, Nick. So, I mean, I mean, that's a product though, the Americas region having the most accentuated for million well outpacing supplies on the larger capacity blocks. Now we do have a sizable cola footprint in EMEA which is obviously a higher ROI piece of our business. But when we look at the megawatt, it's those large capacity blocks that right now we're swinging our leads and returns. So, I believe that you're going to see AI globalize.

Speaker 2

I don't know if it will be the same extent of growth that I've seen or will see in The United States. But based on including meetings as part of this week, dialogue with customers, I think that you're going to see and kind of follow in the footsteps of cloud and data sovereignty and cloud of clouds, you guys see that go up. And I can tell you that does come to fruition, it's going to come to fruition in markets that have the same issues as United States in terms of power transmission and other supply chain elements.

Operator

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

Speaker 3

Great. Thanks for squeezing me

Speaker 2

in here. Andy, you've done a great job expanding yields and you're getting to 13.7% yields in The Americas. If I ask you to put your prognostication hat on, where do you see development yield and as part of that spot market pricing for hyperscale data center deals going, particularly in light of where the private market is clearing deals? The color there would be great. Thanks.

Speaker 2

Thanks, Flavia. I mean, it's I'm sure there is a private market competitor that will settle for a loan debt to dollar yield than we have in our North America schedule as we speak. I know we're very blessed that we have numerous private capital partners to have some good intelligence on this. So I don't think they're all that much lower in terms of returns and they still look healthy and profitable returns. I think we're being able to outshine that is because we're potentially picking our spots.

Speaker 2

We're not just chasing volume at the detriment of price and return, which has allowed us to keep our returns probably a couple of hundred basis points higher than the average Joe Datasen compendium.

Operator

The next question is from Brandon Nispel with KeyBanc. Please go ahead.

Speaker 1

Yes. Thanks for taking the question. Quick question for Matt. What type of core FFO contribution do you expect from the JV portfolio in 'twenty five? And then I saw you recently closed Blackstone Phase II.

Speaker 1

Maybe could you give us an update on how how you're expecting that JV to impact the JV metrics in 'twenty five? Thanks.

Speaker 2

Sure. So in terms I'll answer it in terms of like the broader disposition JV Capital. So we're not expecting that to have a material impact on our bottom line core FFO growth in 2025. That's a mix of call it timing, size and when things might come to fruition. So there's some variability there.

Speaker 2

So we're not clearly in material impact there. As it relates to I think maybe to your point on the broader joint venture private capital, you've seen I think where you see that come through is you're seeing our fee income line pick up. You saw that in the fourth quarter, which was largely tied to the closing of our Blackstone Phase and the fees that we got from that more from the development side. We also closed on an acquisition within our SREIT, so that had some impact with our fee income as well. And as we now have the full Blackstone closed and we look to expand on that, I think you'll see additional fee income contribute to our 2025 growth, in particular as those assets start to stabilize and we transition from development fees to more asset management, property management type recurring fees.

Speaker 2

So that's how we're I'd now like to turn the call back over to

Operator

Andy Powers for his closing remarks. Andy, please I'd now like to turn the call back over to Andy Powers for his closing remarks. Andy, please go ahead.

Speaker 2

Thank you, operator. Digital Realty had a remarkable 2024, reflecting strong demand for cloud, digital transformation and AI. Digital Realty is ready to support these customers' requirements as well as private AI and a potential avalanche of AI inference demand we anticipate around the world. We set a number of new records throughout

Speaker 3

our

Speaker 2

business, execute on our key priorities and position the company for an acceleration of bottom line growth in 2025 and beyond. I am extremely proud of how our team execute to deliver this year's results and I'm excited about the future and remain focused on seizing all the opportunity at hand. I'd like to thank everyone for joining us today. I would like to thank our dedicated and exceptional team at Digital Realty who keep the digital world turning. Thank you.

Operator

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

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Earnings Conference Call
Amcor Q4 2024
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