Digital Realty Trust Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

Key Takeaways

  • Digital Realty delivered record Q1 leasing, with volume over 40% above its prior high, driven by AI demand and pricing improvements.
  • The company achieved a 4.7% year-over-year same capital cash NOI growth and posted the highest releasing spreads in its history.
  • With more than $1 billion of fresh capital raised via asset sales and joint ventures, reported leverage fell to 6.1× and pro forma to 5.8×.
  • Digital Realty launched its Service Directory Marketplace and Private AI Exchange, expanding interconnection offerings and enabling adjacent enterprise AI architectures.
  • The full-year core FFO outlook of $6.60–$6.75 per share was maintained while raising expectations for cash releasing spreads and same capital NOI growth amid interest-rate uncertainty.
AI Generated. May Contain Errors.
Earnings Conference Call
Digital Realty Trust Q1 2024
00:00 / 00:00

There are 14 speakers on the call.

Operator

Good afternoon, and welcome to the Digital Realty First Quarter 2024 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.

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 Q1 2024 earnings conference call. Joining me on today's call are President and CEO, Andy Power and CFO, Matt Versier 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 results to differ materially. For a further discussion of risks related to our business, see our 10 ks and subsequent filings with the SEC.

Speaker 1

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 Web site. Before I turn the call over to Andy, let me offer a few key takeaways from our Q1. 1st, our customer value proposition continues to resonate as reflected by an AI driven acceleration in leasing activity that drove our overall leasing volume to a new record. 1st quarter leasing was more than 40% above our prior record, principally driven by an improvement in pricing.

Speaker 1

2nd, our fundamental strength picked up where 2023 left off with record cash releasing spreads and strong stabilized same capital cash NOI growth of 4.7%, reflecting continued strength in data center fundamentals combined with the benefit of the improvements that we have made to our portfolio over the past year. And 3rd, we've made meaningful progress on our 2024 funding plan already with just over $1,000,000,000 of fresh capital raised from asset sales and joint ventures to date, putting us above the low end of our guidance range for 2024, just 1 third of the way through the year. As a result of our efforts, reported leverage fell from 6.2 times at year end to 6.1 times at March 31 and remained at 5.8 times on a pro form a basis reflecting completed and announced transactions. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Speaker 2

Thanks, Jordan, and thanks to everyone for joining our call. Following the successful course we set in 2023, Digital Realty experienced accelerating momentum in the Q1 of 2024, headlined by a collection of multifaceted AI opportunities that drove

Speaker 3

a number of new leasing records

Speaker 2

as demand for our capacity in core markets remains elevated, while visibility surrounding competitive new supply remains cloud. At Digital, we continue to focus on our strategic priorities

Speaker 4

and on delivering on behalf

Speaker 2

of our expanding list of 5,000 plus customers across our 50 plus markets in 25 plus countries on 6 continents. During the Q1, we posted record leasing results surpassing our prior record by more than 40% and exceeding our leasing results for all of 2019 in just this one quarter. We also delivered strong operating results as evidenced by healthy, stabilized same capital growth and the highest releasing spreads in the company history. We continue to innovate and integrate a further expansion of service fabric through the launch of our service directory marketplace, which has seen the addition of over 90 members offering more than 150 services, including secure and direct connections to over 225 vulnerable cloud on ramps, creating a vibrant community for seamless interconnection and collaboration. And just last week, we launched Private AI Exchange powered by Service Fabric, which enables enterprise data to be at the center of an AI architecture, directly adjacent and interconnected with AI capabilities.

Speaker 2

This architecture alleviates the data graphic barriers that emerge as data is generated and exchanged with multiple applications across end to end AI enabled digital workflows. We also continued down the path of bolstering our balance sheet and diversifying our capital sources with the expansion of 1 of our stabilized hyperscale joint ventures and the addition of a new hyperscale development JV together with our first transaction with our perpetual capital partner DigitalCorey in well over a year. These transactions help to fund development pipeline capacity that our customers are seeking while reducing our overall leverage. Operating and financial results in the Q1 were encouraging. We posted sequential growth in our core data center revenues, our growing adjusted EBITDA and core FFO per share.

Speaker 2

Development returns also continued to improve and we further enhanced the product mix of our portfolio while maintaining strong liquidity and lower leverage. Bookings and renewal results were even better with a number of metrics reaching new records, reflecting a strong demand environment and limited new capacity. Total bookings were $252,000,000 well ahead of our prior quarterly record of $176,000,000 reflecting the impact from the acceleration of AI and the improved pricing environment. Importantly, when comparing this quarter's leasing to the prior record set in 3Q 2022, we leased an incremental 10% of IT load capacity, all rates in a greater than 1 megawatt segment were approximately 60% higher than those achieved 18 months prior. Perhaps a bit overshadowed by these record setting results was another strong quarter in our 0 to 1 Megawatt Plus Interconnection segment was delivered in 3rd straight quarter over $50,000,000 Demand for our connectivity oriented capacity remains healthy and pricing remains firm.

Speaker 2

Our mark to market renewal spreads were up by 11.8%, aided by a record 18.5% increase in our greater than 1 megawatt category. Churn remained low and well controlled at 1.7% for the quarter. Same capital cash NOI growth will also remain healthy growing by 4.7% year over year in the quarter and marking our 5th consecutive quarter of positive same capital growth. A year ago, data center demand was strong, driven by the growth of cloud and digital transformation, while supply was tightening due to power transmission constraints, supply chain delays and other factors. Since then, AI has become a significant driver of demand as hyperscale is raised to develop, deploy and implement the technology while enterprises begin to explore the potential of this wave of technological evolution.

Speaker 2

Mackenzie recently forecasted data center demand growth at a double digit CAGR through 2,030. This growing secular demand is broad and deep with both enterprises and service providers needing significant new data center capacity to accommodate their expanding needs fueled by trends such as enterprise AI adoption, AI as a service, IoT and the relentless growth in data creation. Reflecting these trends, I want to highlight 2 highly strategic AI signs that came to fruition during the quarter. First, we were selected to host 1 of the world's most powerful AI supercomputers in one of our data centers in Copenhagen in a collaboration spearheaded by the Novo Nordisk Foundation and the Export and Investment Fund of Denmark to grant researchers from Denmark's public and private sectors access to a cutting edge NVIDIA powered AI supercomputer in addition to NVIDIA software platforms, training and expertise. 2nd, Digital Realty further strengthened its collaboration with Oracle to accelerate the growth and adoption of AI among enterprises, aiming to develop hybrid integrated solutions that address data gravity challenges, expedite time to market for enterprise deploying next generation AI services and unlock data and AI based business outcomes.

Speaker 2

Oracle will deploy critical GPU based infrastructure with Digital Realty that leverages Platform Digital's open purpose built global data center solution and caters to enterprise and AI customers critical NVIDIA and AMD deployments among others. Our 0 to 1 plus interconnection customers also continue to recognize our demonstrable strength and value proposition, whether that related to power dense applications, a network of globally connected data centers or other critical infrastructure requirements. During the Q1, we added over 128 new logos. Our wins included a leading Fortune 500 AI component maker is expanding their presence on platform digital to a new EMEA market to support their streaming service capabilities. A global cloud computing and content distribution provider leveraging the leading connectivity proposition of platform digital in Mombasa to support their global edge POP expansion project.

Speaker 2

A global 120 manufacturing company is building an AI HPC environment in Frankfurt to support its autonomous vehicle project. A leading French cloud service provider is deploying on platform digital to build out its edge cloud offering across the globe to support their enterprise customers' hybrid infrastructure by delivering low latency performance while retaining local data residency. 4x500 Technology Distributor and VAR IT Service Provider chose Platform Digital and Phoenix to support data exchange and interconnect with key partners. And a Fortune 500 health benefits provider is expanding into 2 additional North America metros to take advantage of cloud and network density available on platform digital. Moving over to a quick update on our largest market, Northern Virginia.

Speaker 2

During the Q1, we leased approximately 80 megawatts of capacity in a supply constrained quarter in Eastern Loudoun County. Demand for our capacity remains strong and while hyperscale leasing is typically lumpy, we continue to see healthy traction on the remaining capacity and we are focused on helping our customers and partners source the incremental data center infrastructure that they require. During the Q1, we worked with Dominion Energy to help address the transmission bottleneck in Ashburn by providing them with an easement to land a southern line at the Mars substation that they plan to construct on a quarter partial of our 450 Acres Digital Dulles campus. We remain cautiously optimistic about getting access to additional power with Dominion's current forecast for completion of the Southern Line Transmission Project by late 2025. Today, we have roughly 80 megawatts of remaining capacity available for lease within our 1st building on our additional Dulles campus in Loudoun, known as Building 7.

Speaker 2

And we have almost 200 megawatts available for development on our Brickyard campus in Manassas, which was contributed to our JV with Blackstone in the Q1. As a reminder, Manassas is currently outside of the constrained area and power remains accessible there. Before turning it over to Matt, I'd like to touch on our ESC progress during the Q1. Continue to make meaningful progress and be recognized for our strong EFC performance in 2024. We went live with a switch to 100 percent renewable energy supplies for our Texas, New Jersey and City data center portfolios, benefiting 30 sites addressing more than 10% of our global electricity footprint.

Speaker 2

We were recognized by the EPA as Energy Star Partner of the Year with Sustained Excellence for the 4th year and we added a new green building certification at our MRS4 development in Marseille, France. We also announced a partnership with a leading global energy solutions provider to use our UPS systems to support Ireland's transition to renewable energy. And we've announced a significant expansion of our use of HVO diesel, a cleaner fuel made from waste cooking oils and fats to power our backup generators. This will up our use of HBO to 20 global sites and 15% of

Speaker 3

our global portfolio by IT capacity.

Speaker 2

We remain committed to minimizing Digital Realty's impact on the environment while delivering sustainable growth for all of our stakeholders. With that, I'm pleased to turn the call over to our CFO, Matt Recier.

Speaker 3

Thank you, Andy. Let me jump right into our Q1 results. We signed a record $252,000,000 of new leases in the first quarter, led by $175,000,000 of greater than a megawatt leasing in the Americas and another $53,000,000 of 0 to 1 megawatt plus interconnection leasing with interconnection bookings remaining firm at $13,000,000 Turning to our backlog, given the record leasing, the backlog of signed but not yet commenced leases swelled to a new record of $541,000,000 at quarter end with new leasing outstripping a record $156,000,000 of commencements during the quarter. Looking ahead, more than half of the record backlog is slated to commence during the remainder of 2024, indicating that commencements are likely to remain elevated. During the Q1, we signed a record $248,000,000 of renewal leases and a record increase of 11.8% on a cash basis.

Speaker 3

Pre leasing spreads were once again positive across products and regions with particular strength in the Americas. Re leasing spreads have been increasing steadily for well over a year now. And while we expect that they will remain very healthy, they're likely to moderate this quarter's record given the significant weighting of lease expirations in the 0 to 1 megawatt segment for the remainder of the year. In addition, we think it is important to consider a normalized view of the headline renewal spreads as 2 separate items skew our reported spreads higher in the Q1. First, there was a notable outlier in the other category that should not be considered recurring or repeatable and removing this transaction would reduce our overall reported spreads by 2 50 basis points to 9.3% for the quarter.

Speaker 3

2nd, there was a significant early renewal transaction in our greater than 1 megawatt segment that was part of a large package deal as we work to support this customer's broader data center capacity needs in one of our tightest markets. While this transaction enabled us to opportunistically pull forward some of our below market expirations from the outer years, our forward year lease expiration schedule remains dominated our 0 to 1 megawatt segment, which tends to experience spreads in the low to mid single digits akin to what we saw in the Q1. Excluding both the outlier transaction and the package deal renewal, releasing spreads in the quarter would have been up 3.4% on a cash basis. We feel that this is more predictable aspect of our portfolio that we will continue to seek opportunities and may periodically be able to capture the growing mark to market opportunity in our greater than a megawatt portfolio. In terms of earnings growth, we reported Q1 core FFO of $1.67 per share, reflecting strong organic operating results, partly balanced by dilution associated with the stabilized asset sales and JV contributions completed early in the year and the ongoing deleveraging of our balance sheet.

Speaker 3

The normalizing for the sale or JV of $3,000,000,000 of stabilized assets completed since the beginning of last year, total revenue growth was 7% year over year in the Q1 due to the benefit of improved leasing spreads along with favorable new leasing. Revenue growth in the quarter was tempered by the decline in utility expense reimbursements as electricity rates fell sharply in EMEA year over year. Normalized adjusted EBITDA increased 9% year over year, reflecting the strong revenue growth and modest increase in operating expenses. As Andy noted earlier, stabilized same capital operating performance saw continued strength in the Q1 with year over year cash NOI up 4.7%, driven by 4% growth in rental plus interconnection revenues and further supported by expense control. Moving on to our investment activity, we spent $550,000,000 on consolidated development in the Q1, plus another $23,000,000 for our share of managed unconsolidated JV spending, while delivering 32 megawatts of new capacity across the globe for our customers.

Speaker 3

It's worth mentioning the approximate $300,000,000 sequential decline in our development spending this quarter, which highlights the effects of the contributions of our 3 development JVs. However, seasonal and other timing related factors also contributed to less CapEx spending in the Q1. Turning to the balance sheet. We continue to strengthen our balance sheet in the Q1 with the closing of previously disclosed transactions, including the Cyxtera transaction, the 1st phase of the Blackstone hyperscale development JV and the sale of an additional 15% share of the 2 stabilized hyperscale assets in our Chicago JV to GI Partners. During the quarter, we also completed a hyperscale development JV with Mitsubishi for 2 assets in the Dallas Metro.

Speaker 3

In terms of new news, we also sold a piece of land in Sydney, Australia for $65,000,000 and we provided an easement to Dominion Energy to build the Mars substation

Speaker 5

on our

Speaker 3

digital Dulles campus for $92,000,000 which all contributed to a reduction in our reported leverage to 6.1 times at the end of the Q1 versus 6.2 times at the end of 2023. Then in April, we continued to recycle capital by selling 75% of CH2, the 3rd and final stabilized hyperscale facility on our Elk Grove campus at a 6.5% cap rate to GI Partners, raising nearly 400,000,000 dollars and resulted DigitalCore REIT an additional 24.9% interest in our Frankfort site, where Digital Core REIT previously owned 25%, raising another 129,000,000 dollars In addition, we use some of our cash on hand to pay off the 600,000,000 of maturing euro notes. After adjusting for these transactions along with the anticipated closing of Phase 2 of the Blackstone transaction later this year, pro form a leverage is 5.8 times. We continue to keep significant cash on the balance sheet approximately $1,200,000,000 on hand and over $3,000,000,000 of total liquidity at March 31 to support ongoing investment opportunities. Moving on to our debt profile, our weighted average debt maturity is over 4 years our weighted average interest rate is 2.9%.

Speaker 3

Approximately 85% of our debt is non U. S. Dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the year notes in April, we have $316,000,000 of debt maturity through year end 2024.

Speaker 3

Beyond that, our maturities remain well laggard through 2,032. I'll finish with guidance. We are maintaining our core FFO guidance range for the full year 2024 of between $6.60 $6.75 per share, reflecting the continued improvement we are seeing in our core business. Positive underlying operating trends are partly balanced by potential acceleration in development spending and additional capital recycling as we move our leverage down towards the long term target and position the company for the accelerating opportunity in front

Speaker 2

of us.

Speaker 3

We are maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, though we are notching up our cash and GAAP releasing spreads along with our same capital cash NOI growth expectations, reflecting better than expected execution on the leasing front in the Q1 and the strict and fundamental conditions that we continue to see across our portfolio. Specifically, cash releasing spreads are now expected to increase 5% to 7% in 2024, up 100 basis points at the midpoint of the prior 4% to 6% range. And same capital cash NOI is now expected to increase by 2.5 percent to 3.5 percent, up 50 basis points from the 2% to 3% range we provided in February. Highlighted in our investor presentations, excluding the nearly 200 basis points of power margin headwinds that we have previously discussed, our same capital cash NOI growth for 2024 would be 4.5% to 5.5%. While these improvements and stronger core FFO per share realized in the Q1 bode well for the balance of the year, there are a few mitigating factors to consider as you're refining your models.

Speaker 3

First, we will see a modest drag of the 500 plus 1,000,000 of capital recycling completed in April. 2nd, we are only a third of the way into the year and there is still significant potential for both development spend and asset sales guidance to reach the high end of their guidance ranges. In addition, it is worth pointing out that the interest rate outlook and current have changed considerably since we provided guidance and remains another source of uncertainty for the balance of this year. One final reminder and update, over the course of 2024 2025, we expect that our $6,000,000,000 development pipeline will become increasingly accretive as higher yielding projects are completed and stabilized. The expected yield on our stabilized pipeline ticked up another 20 basis points sequentially, reflecting the addition of higher yielding projects and the completion or contribution to joint ventures of lower yielding projects.

Speaker 3

To help provide increased transparency around this important evolving aspect of our company, we have enhanced our development lifecycle schedule on Page 25 of our supplemental to 1, reflect our proportionate share of total data center development, including our unconsolidated joint ventures and 2, to provide increased disclosure around our available developable capacity in terms of IT load. We hope you find this helpful. This concludes our prepared remarks. And now we will be pleased to take your questions. Operator, could could you please begin the Q and A session?

Operator

Thank you. We will now open up the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. Today's first question comes from Jon Petersen with Jefferies. Please go ahead.

Speaker 6

Great, thanks. I guess I could start with actually, let me start on the leasing side. So I was curious as to how much of the leasing that was done this quarter was inside of some of the joint ventures, like maybe the Blackstone joint venture that you did? And in terms of the yield on development in Northern Virginia or North America, I noticed that was up 200 basis points to 12 0.3% as your expected yield from last quarter. I guess is that kind of a good number to think about of what new developments you're signing today are is in the 12% -plus range?

Operator

Pardon me, I believe our speaker location may be muted.

Speaker 1

Sorry, can

Speaker 6

you guys hear me now?

Operator

We can hear you now. Yes, sir. Please proceed with your answer.

Speaker 4

Sorry about that. So John, thanks for the question. So I'd say the lion's share high, high percentage was not done into any of the JVs. I don't have the exact stat, given we have now numerous strategic capital partners across our hyperscale platform, be it stabilized JVs. But I'm very confident that none of the leasing that we report in this quarter went into the deal you identified with Blackstone.

Speaker 4

We are seeing great traction on those projects, but this quarter, none of that leasing went inside. On your second question, in terms of improvement in ROIs, in particular, North America, I would say we are we've definitely moved the needle quite dramatically on that category from some of our build to suit projects that we're call it closer to 7% that we joint ventured to now north of 12% ROIs. And we're still working through projects that are obviously weighing that down a little bit. And we have projects that are entering that schedule on the higher side as well given the rapid improvement in the rate environment.

Operator

Thank you. And our next question today comes from Jon Atkin with RBC Capital Markets. Please go ahead.

Speaker 7

Thanks. So you mentioned rate environment and maybe continuing on that seem a little bit in terms of pricing. As we think about next year's core SFO per share growth rate, you gave a little bit of commentary on that in the last call. And any updated thoughts in terms of what we should be considering around puts and takes as that number potentially goes higher, whether it's execution of leases or pricing or renewals or whatnot? Thanks.

Speaker 4

Thanks, John. Maybe I'll speak to market rates and where we are able to execute on new leases signed and also renewals first and then hand it over to Matt in terms of FFO trajectory into next year. As you saw from our results, we're obviously benefiting from overall supply demand dynamic with robust demand trends, be it enterprise digital transformation, cloud computing and now AI on top of that. That's playing out in our 0 to 1 megawatt category as well as our greater than megawatt category. And that's all happening in the backdrop of supply constraints from numerous sources.

Speaker 4

And we were able to continue to push rate both on the existing contracts that were coming up from renewal as well as on new contracts to higher and higher levels that obviously you've seen in the leasing results and believe that trend is going to remain intact for some time.

Speaker 2

Matt, why don't you speak to the FFO trajectory, please?

Speaker 3

Sure. Thanks, John. So what I would say is I think we're based on our Q1 results, we our optimism has improved in terms of our what we expect to see and what we talked about last quarter in terms of improving growth as we look to 2025. And a big part of that, I would say, is driven by the successful leasing execution that we saw this quarter, $250,000,000 and the shorter sign to commence lag, which is at 7 months. So it really sets us up for accelerating revenue and therefore bottom line growth as we exit this year and into next year.

Speaker 3

But from boiling all that down, I would say that the growth algorithm is generally similar to what I discussed last quarter, which is we'd expect to see, call it, plus 4% related to our stabilized same store portfolio. On top of that, you'd add another, call it, 2% plus as we deliver developments into our operating portfolio at yields that are continuing to improve. There'll be some offset, call it, in the 1% area, given higher rates in the debt refinancing that we have over the next couple of years. And I think that kind of sets us up for mid single digit and greater growth going forward.

Operator

Thank you. And our next question today comes from Eric Lukow with Wells Fargo. Please go ahead.

Speaker 5

Great. Thanks for taking the question. I wanted to dive into Northern Virginia a little bit. Could you maybe just provide an update on the timing of the Dominion transmission upgrades and when you think you can get even more capacity into that market? And then on rental rates in Northern Virginia, I think that probably had a big influence on the 170 plus you reported in America.

Speaker 5

Could you just talk about where you're seeing rental rates in that very supply constrained market and what that kind of how that influences your yields, your underwriting and your development table? Thanks.

Speaker 4

Sure. Thanks, Eric. So Northern Virginia is obviously has been a highly dynamic market for some time here. We were very pleased to come together and support our partner at Dominion with a very strategic easement to be the landing of the Mars substation, which we are it is our understanding they are on track to be delivering power and bringing power back online by the beginning of 2026 from that southern line. So there's not been a divergence in terms of timing what was previously expressed to us.

Speaker 4

We definitely benefited from the increase in rates in that market. Our largest signing was in that market as well as a few other decent sized signings. Although we also had some very great signings in the London market and north of a megawatt signings also in Copenhagen. So they were not the only contributors in the plus megawatt category. The rates, I would say, the market rates in general are, call it, continue to improve in that market and as the precious capacity becomes more and more finite.

Speaker 4

As you saw on that slide, we now have or turning our attention to really 80 megawatts remaining at Digital Dulles as well as the Manassas campus, which is not impacted by the power delays. And I would say rates in both Manassas and Loudoun County are converging right at this moment, call it in the 165, call it almost 180 type area on a market basis. That's net be the cash rate, not a GAAP rate that we report.

Operator

Thank you. And our next question today comes from David Barden with Bank of America. Please go ahead.

Speaker 8

Hey guys, thanks so much for taking the questions. I guess if I could just explore, Andy, the commentary around how AI is contributing already to your business. A lot of the retail data center centric companies have kind of said that's not really a thing for them yet. So could you kind of elaborate a little bit on within that greater than 1 megawatt category, how much of that is the hyperscale? Is it really hyperscale or is it these maybe more bespoke Copenhagen, Nordic Foundation Engines that are coming online.

Speaker 8

And what are these builds look like? In what way are they different than maybe what you've been doing historically? And how is that informing how your development is evolving? Thanks.

Speaker 4

Sure. Thanks, David. So let me just give you the tops of the ways and I'm going to turn it to Chris on how we're tapping in our infrastructure capabilities to really excel in this category. Obviously, the data points are smaller in the more enterprise oriented wins, but they are there. We've, I would say, call it, less than 0.5 megawatt supported through a partner, a global manufacturing company on its AI journey in Europe.

Speaker 4

You noted the slightly larger than that, but still not certainly not hyperscale. The great win we had with Nova Nordics supporting them in their NVIDIA backed chips with a really landmark win with supercomputer in their market. And then for some time, we've seen the emergence of the hyperscalers with larger capacity block needs. And the largest of our wins in the quarter, I would characterize as an AI wind as well. And it's all in all, it's probably close to 50% of this quarter signs, which is up relative to prior quarters.

Speaker 4

And I think there's a lot about what our platform offers that really allows us to capture this demand, maybe even earlier in the evolution of AI than some others, but Chris can speak to that as well.

Speaker 6

Yes. No, I appreciate it, David. This is Chris Sharp. And so a couple of elements. I you're thinking about it correctly in that there's 2 lenses, right?

Speaker 6

There's kind of that hyperscale lens that has AI built within it. And then there's this other pocket that we kind of look at that's definitely emerging with private AI. So these larger deployments that we're seeing come out from multiple types of enterprises. And I think it's important to understand from a design perspective, it kind of starts with a little bit broader in how we master plan our campuses. And so I think the work that we've been doing around building out substations and doing a long term plan within the market has allowed us to then bring a very large capacity block design to market, which is very modular.

Speaker 6

And I think in that modularity, it's something that we continue to ideate with our customers to be able to support the varying power densities. And I think we talked last call about HD Colo and being able to do what we're very proud about with 70 kilowatts, but then you'll see us start to evolve over the next quarter here, the ability to even support 150 kilowatts. And so being able to support these densities, which is representative of the AI workload, is absolutely paramount to our modular designs and be able to do that very efficiently. And then I think the last piece is the heritage. The heritage of the team on a global basis being able to really meet and ideate with these customer bases is what's really building a distinct differentiator for us to not only capture that hyperscale AI, which we see growing and burgeoning, which you see in the prepared remarks with Oracle and some of those customers.

Speaker 6

But then I think directly to your point, David, these smaller, if you will, from a hyperscale scale perspective, private AI around Novo Nordisk Foundation and just we really are at the cusp of a lot of this AI demand coming into the platform digital globally.

Operator

Thank you. And our next question today comes from Ervin Liu with Evercore ISI. Please go ahead.

Speaker 5

Hi, thank you for the question. So maybe to piggyback on the prior question related to retail and enterprise. Do you see potential for AI tailwinds to perhaps drive meaningful acceleration to your 0 to 1 megawatt segment, similar to what you saw in the greater than 1 megawatt segment this quarter. Just as AI workloads begin to evolve towards private AI and inferencing?

Speaker 4

Sure. I mean, so I mean, the here and now, I think AI is having a numerous positive implications for the sector. And I'll have Chris speak into what's next because I don't think we're really at what's next, be it inference, private datasets, enterprise consumption. But they're here now, you have a backdrop of big existing customers with desires to have immediate see around their capacity. There's still we're winning that in our core markets where we see robust and diverse demand.

Speaker 4

We are not falling or chasing this demand into unproven locations. We're intersecting it where we have we're supporting availability zones or on ramps where there's network density and not in unproven markets. Are also seeing new players pop up that obviously are not front of queue for those larger capacity blocks who are going to try to get their hands on what we have and often able to fit in some of the more challenging places in our portfolio to sell, but they're going to take it because they have urgency around their business models and bringing their AI models on. That's the right now, the last quarter, the next quarter, but there's more to come here in this AI story. And I'll let Chris expand upon it in terms of the next chapter.

Speaker 6

Yes. Thanks, Ervin. Absolutely. And I think one of the things that we really have thought about for some time now is the data is at the core of a lot of these AI kind of capabilities coming to market. So being able to place that algorithm right next to the data in that market, I think it's everything that we've been looking at.

Speaker 6

And doing that algorithm in proximity to the data is absolutely paramount for a lot of these kind of 0 to 1 megawatt offerings. And so what we've been thinking about with HD colo and why I talk about on a rack by rack basis is allowing our customers to leverage a lot of their existing kind of inventory and architecture to bring AI in proximity to that capability. And I think that's where even recently we talked AI in proximity to that capability. And I think that's where even recently we talked about private AI exchange, that's really focused on removing that technical barrier, so customers can get the right state of the art infrastructure, be it NVIDIA, be it AMD and being able to support those power densities in an existing environment. So we do see the future of that coming to market in that fashion.

Speaker 6

I will tell you that you brought up inference. Inference is being done within training today just because of time to market, but we do see inference picking up and being a longer term demand cycle over the years, which I think Platform Digital is well positioned to continue to support.

Operator

Thank you. Our next question today comes from Richard Choe with JPMorgan. Please go ahead.

Speaker 5

Hi. You noted pull forward of leases in Northern Virginia. Do you have other are you having other conversations? And should we expect to see more of those?

Speaker 4

Thanks, Richard. Maybe I'll hand it to Colin here in a second to talk about the broader backdrop for both the enterprise and also the hyperscale AI side. But I would call our Northern Virginia activity as a pull forward. As you could see, our signs of commenced time materially step down. There is urgency around the capacity blocks.

Speaker 4

We still have significant runway of precious capacity in the Northern Virginia market customers, numerous customers have desires for and we're in various states of negotiation. And it's not just a Northern Virginia story. We have the similar types of opportunities in other parts of the North America portfolio be it Santa Clara, Dallas, New Jersey. And we also have the equivalent in the major flat markets in Europe and in parts of Asia Pacific. So and I think this trend is going to continue for some time.

Speaker 4

And now again, you can't predict some of these large capacity blocks executing on consecutive quarters necessarily, but I believe it's going to continue. But Colin, why don't you speak a little bit about the pipeline we're seeing on both sides?

Speaker 9

Yes. Thanks, Andy. I appreciate the question. Yes, I mean, overall, I would say our pipeline kind of reflects some of the same characteristics of our bookings this quarter. So pretty AI heavy.

Speaker 9

As Andy highlighted, 50% of our bookings this quarter were AI. I would say our pipeline is representative of that. But honestly, it's a pretty diverse characterization overall between enterprise, namely hybrid IT, cloud compute and then AI. So I think it's a pretty robust platform across the globe. And you saw that in some of our bookings, in particular, London really jumped up this quarter.

Speaker 9

If you look at the sub-one megawatt and really what's going on, the digital transformation story, the explosion of data and really the IT spend, you're seeing a pretty pervasive enterprise activation going on where that is really taking place really across the globe in a big way. That's, in our view, enabled by channel, which this quarter, we had about 22% of our business go through channel, which was, I think, substantive. And those channel partners are really helping us tap into new logos, which you might have seen was 128 this quarter, which I think was 4th highest on record. So I think that's substantial. So overall, I'm pretty pleased with the balance we're seeing across the portfolio and the pipeline and hope to see that continue in the future.

Operator

Thank you. And our next question comes from Michael Rollins with Citi. Please go ahead.

Speaker 10

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

Speaker 4

So I think if you just ask

Speaker 2

the overall mark to market on the portfolio, Mike?

Speaker 4

Yes. And then I think yes. So as I think you can get the you obviously look at the in place rates even pro form a for our recent positive cash mark to market on our schedule, I think that question probably more focuses on the greater than megawatt category, which we've seen the greatest resurgence or uptick, that it does tick down, call it, lower for the next few years, call it down to the 130s and then even hits 100 upon expiration as the low watermark in a few years' time. And I could just I just commented on the Northern Virginia rates, if they call it, 165 to 180. Not all markets are at Northern Virginia.

Speaker 4

There are some markets that are ahead of Northern Virginia. But it does feel like big deals are gravitating towards that mid-100s type area pretty quickly and universally. And it does not seem like that trend is taking any cessation or pause.

Operator

Thank you. And our next question today comes from Frank Louthan with Raymond James. Please go ahead.

Speaker 10

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

Speaker 11

Hey, Frank, it's Greg Wright here. Look, I think consistent with past practice, we continue to play across the product spectrum and it's going to vary by market, right? I mean, as we've mentioned, we're using our 3rd party capital model to continue to support our hyperscale customers and grow that element of the business. As you know, demand for that business is projected to increase 2.7 times between now and 2030. And then when you look over at the co location in the enterprise segment of the product spectrum, that's still supposed to grow.

Speaker 11

It's still a very large market. People forget about how large that market is. And the solid growth in that market too is still like 2.3 times. So I mean, we're not sitting here today saying, hey, it's a zero sum game. We're only going to do enterprisecolo versus hyperscale.

Speaker 11

It's going to vary by market, in what our customer needs are. But we're actually pretty bullish and optimistic on both right now in terms of underlying fundamentals and potential for rent growth.

Operator

Thank you. And our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Speaker 12

Great. Thank you very much. Good evening. Great to see the leasing in Loudoun County. It looks like the Americas was about 80% of your leasing.

Speaker 12

Could you just talk a little bit about Europe and Asia Pac? It seems like AI is sort of starting off in the U. S. You talked about Copenhagen as well. But just help us think about broadening this out beyond the kind of key U.

Speaker 12

S. Markets. And then, Matt, on the leverage, could you just update us on getting once you get to the 5.8, what's the plan from there?

Speaker 4

Thanks. So I'll do a quick the quick non U. S. World tour. You're correct.

Speaker 4

Americas had put up some record results in contribution, and that was not just in the greater than megawatt category, it was also a major contributor in our less than megawatt category, which is great to see. Outside the U. S. Starting in EMEA on the 0 to 1 megawatt category, Frankfurt, Amsterdam and London shined. And on the greater than 1 megawatt category, which Colin I think touched on, London turned out to be a big contributor this quarter, which has not been for a while, which is also great to see.

Speaker 4

We saw a fair bit of importing business into Europe from outside of Europe on both sides and firm pricing. In APAC, while this particular quarter, we did not have a significant contribution from the greater than megawatt category. We did have strong results both in pricing and volume on the 1 megawatt category with Singapore, Hong Kong and Seoul leading the way. And I would just say that the greater than megawatt category, it's just the fact that there's just fewer markets in APAC that we're landing big deals into. So it's not as consistent of every single quarter being a major contributor.

Speaker 4

But all in all, I agree with your sentiment that AI has certainly landed on the U. S. Shores sooner than the rest of the globe. And I think it has a great propensity to likely globalize as did cloud.

Speaker 3

Yes. Thanks, Simon. So on the leverage front, I mean, just to take a little step back, I mean, hopefully, as you've seen, we've made some considerable progress. You go back a year ago, we were at 7 little over 7 times. We're now at a reported 6 point one times, so a full turn of leverage that we've taken out in the last year, thanks to all the work and execution that the broader team has done.

Speaker 3

We've continued that. As Greg's team, even subsequent to the quarter, we brought in another $500,000,000 of proceeds from some additional JV activities as well as transaction within our digital core REIT. So showing the diversity of capital sources we have. We're going to continue to see as a result of the strong operating fundamentals continue to increase our overall EBITDA. And we're now sitting at approximately $3,000,000,000 of liquidity.

Speaker 3

So we're well on our way and we feel confident about being able to achieve our goal of getting down to 5.5 times leverage this year. And we've I think we've done a lion's share of the work. So we'll continue to execute and feel pretty good about it.

Operator

Thank you. And our next question today comes from Ari Klein with BMO Capital Markets. Please go

Speaker 10

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

Speaker 4

Thanks, Ari. So on all scenarios, we don't want to speak to confidential customer information whatsoever. Obviously, anyone who picked up a newspaper can refer to the scenario you're talking about. Two comments. First one, which is just from the Chief seats, I would my personal opinion is not to jump into any draconian conclusions on outcomes just yet.

Speaker 4

There's a lot of innings left in that game and a lot of outcomes that could happen. So I wouldn't jump to the doomsday scenario for digital, I don't know if depending what plays out in the ensuing months. And even under that scenario, I would group them among all of our hyperscale customers that have maximized the pricing curve when markets were much softer and have contracts that are better like all our hyperscale customers, some of the best contracts on the books in terms of markup opportunities, certainly on the south of 100 side rather than the north of 100 side by and large. So if the doomsdays are coming in this area was to play out, which I'm discounting, we would have some churn to refill, but probably couldn't come at a better time with a better mark to market opportunity for the company.

Operator

Thank you. And our next question comes from Matt Niknam with Deutsche Bank. Please go ahead.

Speaker 7

Hey, guys. Thank you for taking the question. Just bigger picture question. With pricing seeing the type of growth it's seeing, supply chain constraints that I think largely plagued

Speaker 4

the industry a couple of years back

Speaker 7

are now largely resolved. Can you help us frame outsourced relative to outsourced to partners like yourself? And I guess more importantly, how digital can enhance the utility it offers its larger customers in what's looking like a firmer pricing backdrop that's likely to persist for some time? Thanks.

Speaker 4

Hey, Matt. So, I would not characterize the world of supply constraints or just hindrances to supply as being in the rearview mirror in general. And maybe that we're not talking about the proverbial waiting for your refrigerators COVID supply chain equivalent, but the friction to supply, whether it is power transmission, power generation, supply chains on data center components or just positions in queue for production or components for substations, broader sustainability concerns, nimbyism in general, that friction is existing and it's happening in a backdrop, where I think we can add more and more value to our customers than probably ever before. And even despite historical preferences, or too often do it yourself, I think by and large the customer base is seeing having the benefit of global outsourced trusted partner with 20 years of experience operationally, delivery wise and really turning to digital in their times of need. And really in a time where it could be continuing of urgency around those capacity blocks.

Speaker 4

And that's certainly been highlighted in the Northern Virginia market, but I think that's a broader Americas phenomenon and a growing global phenomenon.

Operator

Thank you. And our next question today comes from Michael Elias with TD Cowen. Please go ahead.

Speaker 4

Curious how you're thinking about the potential for M and A, particularly given where your stock is

Speaker 3

trading right now? Thank you.

Speaker 4

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

Speaker 11

Yes. Thanks, Michael. Look, I think right now, our appetite for acquisitions, unless they're smaller tuck in strategic acquisitions, Michael, I think we've discussed this before. It's not that great right now. When we look across most markets, we think we already have the footprint, the product and the team to continue to drive our business and succeed.

Speaker 11

And as you know, most of our legacy M and A activity was either gaining access to markets, to product or to teams in select markets where we didn't have a real presence. We don't have nearly as much of that today, particularly when you look across the Americas in EMEA. Over time, when we continue to look in markets through APAC potentially grow, yes, but there's not a

Operator

lot of those platforms, if

Speaker 11

you will. For example, there's not the logical interaction sitting in APAC for us to try to do a strategic transaction. So while you never say never, I think we look at things today and we Matt and Andy and the team laid out where we are in our development yields and the like. And you look at this on a risk adjusted basis and we still prefer right now at least given current conditions to buy land and build organically and we think that's a better risk adjusted return than what multiples would imply in the M and A market. So I don't think you're going to see a lot, but again, you never say never.

Operator

Thank you. And our next question comes from Nick D'Ardale with MoffettNathanson. Please go ahead.

Speaker 10

Hey, thanks for taking my question. Andy, earlier you said that you're not going to chase demand into unproven markets, but you're seeing a fair bit of demand today. I guess, what sort of thresholds would those markets have to cross before they might become interesting in your eyes, especially if power constraints in key markets remain exceedingly tight or even get worse? Or are they like so far down the list of priorities that we really shouldn't be thinking about them?

Speaker 4

Thanks, Nick. So I think if you look at our strategy, we're focused on supporting workloads, be it enterprise, digital transformation or hybrid or just hyperscale cloud or AI in markets with robust and diverse demand in supporting applications with latency and locational sensitivity. The cloud has been around for a long time and did not put AZs in every single NFL city in America or its equivalents around the globe. They picked locations where GDP population, infrastructure and data are essentially there, which I think lends itself to greater longevity and sustainable growth in our asset class and our strategy and our business. Now there's markets that have been added to that list over time.

Speaker 4

They didn't get put chiseled in stone and put away on a shelf years years ago. But so I think new markets for us would have to give us the similar conviction we have investing in our core markets to want us to go there. So that could happen. That certainly could happen in a rapidly changing world with power becoming such a precious resource as well as other precious resources. But anything we're thinking about is investing in we're not in this for a trade, we're investing in this for the long term for long term sustainable growth.

Speaker 4

And we're fortunate, if you can look at our newly tweaked and disclosure on our development cycle, we've got north of 3 gigawatts of growth in land capacity or shell capacity in those core markets. So we've got a lot of runway to harvest that demand before even feeling the urge or urgency to chase into less proven markets.

Operator

Thank you. And our final question today comes from Erik Rasmussen at Stifel. Please go ahead.

Speaker 13

Yes. Thank you for taking the question. Obviously, North America is very strong and greater than 1 megawatt. And I think based on your commentary, a lot of that was AI driven. And then also, it seems like it's going to AI will sort of follow a similar pattern as we saw with cloud.

Speaker 13

So would you expect I wouldn't expect similar levels of quarterly leasing, but would you expect sort of similar outperformance throughout the year in North America, especially the greater one megawatt based on sort of the other regions.

Speaker 4

I just want

Speaker 13

to get a sense of sort of how the year could be shaping up in terms of the bookings. Thanks.

Speaker 4

Hey, thanks, Eric. So just more on the tactical and on the quarterly bookings, I mean, we're out of the gates here with a great start on both the less than megawatt category, call it north of 50 for several consecutive quarters now. I think 2 in a row north of 53, great new logos contribution and obviously an overall record, which we've discussed. By and large, I wouldn't say usually another record follows the prior record on the one hand, but on the other, we're certainly in a different territory right now in terms of demand. We have large capacity blocks that are deeply sought after.

Speaker 4

We have a team focused on executing and we got 3 more at bats in 2024 to put those results up. Bigger backdrop, if you look back at cloud globalizing, it's one of those things that the famous quote, it happened slowly and then it happened really fast. I can remember years of the thesis being it's going to globalize forever and ever and then it really took off. So I'm not I wouldn't I couldn't pound the table saying 2024 year is the year that AI globalizes like cloud, but it's signs do point that it should follow a similar trend over time.

Operator

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

Speaker 4

Thank you all for dialing in. We really appreciate it. Digital Realty had a strong first quarter with record leasing results that reflected the growing impact of AI on our business. Fundamental strength continued through the Q1 with healthy same capital organic growth and robust re leasing spreads. We've continued to innovate with the expansion of service fabric, new products like our private AI exchange, along with modular designs to accommodate increasingly power dense workloads.

Speaker 4

Finally, we've closed a number of transactions already this year, bringing in additional private capital and enhancing our ability to deliver new capacity to meet our customers' growing needs. We're excited about this quarter's results and look ahead with continued optimism. The 3 key demand drivers, AI, cloud and enterprise digital transformation are showing no signs of letting up and we are well positioned with over 300 data centers across the key markets around the world. I'd like to thank everyone for joining us today would like to thank our dedicated and exceptional team at Digital Realty who keep the digital world running. Thank you.

Operator

Thank you. This conference has now concluded and we thank you for joining today's presentation. You may now disconnect your line and have a wonderful afternoon.

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