Digital Realty Trust Q3 2024 Earnings Call Transcript

Participants

Corporate Executives

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

Analysts

• Michael Rollins, Smith Barney Citigroup
• John Peterson, Jefferies Financial Group Inc.
• David Barden, Bank of America Co.
• Jonathan Atkin, RBC Capital Markets
• Richard Choe, J.P. Morgan
• Eric Luebchow, Wells Fargo & Company
• Frank Louthan, Raymond James
• Irvin Liu, Evercore ISI
• Jim Schneider, The Goldman Sachs Group, Inc.
• Michael Elias, TD Cowen
• Georgi Dinkov, Mizuho
• Matt Nicknam, Deutsche Bank Aktiengesellschaft
• David Guarino, Green Street
• Nick Del Deo, MoffettNathanson

Presentation

[Operator]

Good afternoon, and welcome to the Digital Realty Third Quarter 2024 Earnings Conference Call. [Operator Instructions]

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

[Jordan Sadler, Senior Vice President of Public and Private Investor Relations at Digital Realty Trust]

Thank you, Operator, and welcome, everyone, to Digital Realty's third quarter 2024 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright; and Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Colin McLean are also on the call and will be available for Q&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. This call will contain non-GAAP financial information. Reconciliations and 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 third quarter. First, new leasing volume of $521 million at our share shattered our prior record and even our own expectations for the realm of possibility in a quarter.

In fact, 3Q leasing was more than a full year's worth by previous standards as activity in the quarter exceeded the leasing completed in all of 2023, pushing our backlog of signed but not commenced leases up to nearly $816 million. While greater-than-a-megawatt leasing was the primary driver, our 0 to 1 megawatt plus interconnection segment also posted record bookings in the quarter. Second, strong fundamentals translated into improved pricing for data center capacity, and this was evident across both new and renewed leases, with record rates on new greater-than-a-megawatt leases, 4% escalators on the majority of new leases, and a record 15% uplift in cash renewal spreads in the quarter.

And third, our development pipeline increased by nearly 50% sequentially to 644 megawatts under construction, and is now 74% pre-leased at a 12% average expected yield as a result of successful leasing of shell and land capacity in North America. These results continue to move Digital Realty closer to management's objective to improve longer-term sustainable growth.

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

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

Thanks, Jordan, and thanks to everyone for joining our call. I don't often start this way, but this quarter was certainly one for the record books. As Jordan noted, we posted record results across a broad array of metrics. These results are the product of Digital Realty's team capitalizing on a favorable demand backdrop, but are also a testament to our efforts to enhance our value proposition and to drive long-term sustainable growth. Demand for data center capacity remains strong, both for larger capacity blocks in our core markets and to support continued growth in both cloud and digital transformation. We are well positioned to take advantage of this favorable environment, given our full-spectrum strategy, our global footprint across six continents, and a robust land bank that can support 3-plus gigawatts of incremental development, together with an investment-grade balance sheet that is complemented by a diverse group of capital partners.

And the expertise to put it all together and operate these facilities on behalf of the world's leading technology companies and enterprises. Highlights for the third quarter were abundant and include 521 million new leases signed at Digital Realty share, more than double our prior record in the first quarter of this year. Greater-than-a-megawatt bookings in North America led the way, driven by large hyperscale deals in Manassas, Ashburn, and Chicago.

New leasing volume in this segment was up more than 75% from the 1Q record, while pricing moved up nearly 30%. Included in our greater-than-a-megawatt signings was a large lease in our hyperscale development venture in Manassas. Like all of our JVs, we report these leasing results at our share, or 20% in this case.

The total leasing into our facilities at 100% share was in excess of 700 million in the third quarter, demonstrating the significant appetite for data center capacity. Given the size of those numbers, it might be easy to overlook a very strategic and important milestone with a sizable record quarter in our zero-to-one plus interconnection business, which saw more than 66 million of new bookings, topping our prior record in this product category by over 20%, with particular strength in small deals under half a megawatt, which accounted for 80% of our 0 to 1 megawatt leasing. Not to be forgotten, new interconnection bookings also hit a record in the quarter. We view these bookings very favorably as it further validates our full-spectrum product strategy and provides us with growing momentum in a segment with durable pricing power and steadily increasing customer demand.

Our strength in this category was also characterized by a record 149 new logos for the quarter. PlatformDIGITAL offers our customers the convenience and simplicity to manage their global data center needs, and it is reflected by record export activity in the third quarter, which were 50%-plus higher year-over-year, with Americas to EMEA exports leading the way, followed by APAC into the Americas. With a record $859 million backlog of favorably priced leases largely commencing over the next two years, we are positioned for accelerating top-line and bottom-line growth.

In support of our customers' growing requirements and all of the new leasing accomplished in the quarter, we also substantially scaled our development pipeline in the third quarter, increasing the capacity underway by almost 50% to 644 megawatts under construction today, and we maintain another 3 gigawatts of buildable IT load capacity in land-and-shell condition. As we noted last quarter, we also strengthened our value proposition in Europe with the acquisition of a densely connected enterprise data center campus in Slough. During the quarter, we also continued to bolster our balance sheet and diversify our capital sources through a combination of favorable debt and ATM issuances.

Matt will provide more details on these activities in a few minutes. Over the past few weeks, we've seen several examples of the lengths that some hyperscalers will go to reserve enough power for their fast-growing compute requirements. We've seen a deal to reactivate Three Mile Island, another hyperscaler partnering with an existing utility to develop small modular reactors, and a third executing power purchase agreements to purchase nuclear energy from multiple SMRs that have yet to be built.

These agreements are similar in that they are seeking long-term carbon-free energy solutions to help power growing data center portfolios and speak to the longer-term demand outlook for data center capacity. Yet each of these plans is still years away from beginning to generate power, underscoring the value of large capacity blocks today and perhaps for the next several years. And sourcing available power is just one piece of the data center infrastructure puzzle.

Supply chain management, construction management, and operating expertise are all challenges that customers rely on Digital Realty to solve, and they are clearly a critical aspect of the overall value proposition that we bring to the table. While the large hyperscale deals get plenty of focus, customers and partners are recognizing the value that Digital Realtiy's meeting place can bring to their private cloud and hybrid IT applications around the world. We continue to see a meaningful share of our 0 to 1 megawatt wins influenced by our partners, expanding our reach into more enterprises around the world.

Our wins this quarter include a Global 2000 telecom provider who partners with one of our largest customers choosing PlatformDIGITAL to deploy a distributed cloud solution to alleviate geographic data gravity challenges. A leading healthcare provider and a new logo for Digital Realty, which also came to us from a partner. Modernizing its infrastructure to take advantage of the cloud connectivity available on PlatformDIGITAL while maintaining data compliance for personal health information privacy. Another new logo, an international financial institution critical to global financial and monetary policy, chose PlatformDIGITAL to secure their cloud requirements while maintaining global access.

A Global 2000 technology company is expanding their presence on PlatformDIGITAL in support of its autonomous driving solution. A top 20 Japanese electronics and semiconductor manufacturer is joining PlatformDIGITAL through another partner as part of an integrated tech refresh initiative where robust connectivity was a critical differentiator. And a global cloud optimization provider is deploying additional capacity on PlatformDIGITAL across two continents to support their expanding enterprise customer base who require access to rich and scalable connectivity solutions.

Before turning it over to Matt, I'd like to touch on our global ESG progress during the third quarter. We continue to lead the industry in green building IT capacity, 178 megawatts certified in the last 12 months, while our Swiss team achieved the first-ever Swiss Data Center Efficiency Association Gold+ certification for our data centers in Zurich. Digital Realty also continued to be recognized for ESG leadership, including Broad Group's Data Cloud Global Awards 2024 for AI Data Center of the Year, the Tech Capital's Digital Infrastructure Action Global Award 2024, and Frost & Sullivan recognized our Japanese joint venture, MC Digital Realty, with the 2024 Japan Data Center Services Company of the Year award.

Moving to green finance, where Digital continues to be a leader in the data center industry, during the quarter we issued an EUR850 million green bond, adding to Digital's long history of support for linking its debt to sustainable projects. Additionally, we maintained a sustainability-linked pricing component on our new credit facility, further demonstrating the company's commitment to ESG. 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 Mercier.

[Matt Mercier, Cheif Financial Officer at Digital Realty Trust]

Thank you, Andy. Let me jump right into our third quarter results. We signed 521 million of new leases in the third quarter, of which 450 million fell into the greater-than-a-megawatt category and was heavily weighted toward the Americas.

We also signed 50 million of 0 to 1 megawatt leases and 16 million of interconnection bookings. Each of these figures were new records for Digital Realty. Importantly, more than 75% of the dollar volume of leases signed include annual rent escalators of 4% or greater, which bolsters the growth profile associated with our portfolio of long-term hyperscale leases.

Our backlog at Digital Realty share increased by more than 60% sequentially to 859 million at the end of September, as new leasing dramatically outpaced 180 million of record commencements in the quarter. To offer some perspective, the backlog now represents 20% of this quarter's annualized data center revenues, and we expect more than 85% of these leases to commence by the end of 2026.

Looking ahead, 100 million of the backlog is scheduled to commence by the end of this year, with another 350 million scheduled to commence next year, and over 300 million already slated to commence in 2026, setting us up for accelerating multiyear growth. During the third quarter, we signed 258 million of renewal leases at a 15.2% increase on a cash basis, driving year-to-date cash renewal spreads to 10.5%.

Similar to the first quarter, these robust releasing spreads were driven by a package deal that pulled forward a sizable renewal that was not scheduled to expire for several more years. Excluding this package deal, overall renewal spreads were still a healthy 5.8%, which is more consistent with the 5% to 7% guidance we previously provided for 2024.

While the package deals demonstrate the levers available to capitalize on the current pricing environment and also reflect our customers' views of the overall market, they are less predictable in nature. Breaking down renewals by product category, cash renewal spreads in the 0 to 1 megawatt segment were up a healthy 4.5% in the third quarter, while releasing spreads in the greater-than-a-megawatt segment were up by over 30%. Excluding the package deal, greater-than-a-megawatt renewals were still up 8.6%. For the quarter, churn remained low and well-controlled at 1.5%.

In terms of earnings, we reported third quarter Core FFO of $1.67 per share, reflecting continued healthy growth in revenues and adjusted EBITDA. Data center revenue grew by 7.5% year-over-year, as the combination of improved renewal spreads, rent escalators, and year-to-date commencements more than offset the drag associated with the more than $2.5 billion of capital recycling activity since the middle of 2023. Pro forma for the transaction activity, data center revenues were up 10% year-over-year. Adjusted EBITDA increased by 11% year-over-year, principally due to a near 200 basis points improvement in margin from the flow-through of higher data center and interconnection revenues with improved pricing.

Same capital NOI growth increased by 0.8% year over year in the third quarter, as 2.5% growth in data center revenue was offset by higher property operating costs and roughly 200 basis points of bad debt reserves in the quarter. Year-to-date, same capital cash NOI has increased by 2.6%, which continues to be negatively impacted by about 200 basis points of power margin headwinds year-over-year, given the elevated utility prices in EMEA in 2023.

Moving on to our investment activity, we spent $651 million on consolidated development in the third quarter. Gross development spend at 100% share was $855 million in the quarter. Given the strong demand for data center capacity, we doubled our development underway in the Americas and added more projects in EMEA. For an almost 50% increase in our pipeline, ending the quarter with 644 megawatts under construction.

More specifically, we delivered just 36 megawatts of new capacity in the quarter, while we backfilled the pipeline with another 244 megawatts of new starts at 100% share. The overall pipeline is now 74% pre-leased, up from 66% at the end of 2Q, with an average expected yield of 12%. Almost all the development underway in the Americas is pre-leased, with an expected stabilized yield of 13.6%. Some development capacity remains in both EMEA and APAC, with both currently expecting stabilized yields over 10%. Over the first nine months of the year, we spent $2.4 billion in development capex at 100% share, which has been balanced by nearly $900 million of partner contributions, keeping us on track and well within the range of our original full-year spending expectations.

Turning to the balance sheet, we continued to strengthen our balance sheet in the third quarter, with over $800 million of equity raised on the ATM. On the debt side, we paid off 250 million gilts in July and added an EUR850 million green bond in September. We also upsized and extended our credit facilities to $4.5 billion in September. At the end of the third quarter, we had nearly $5 billion of total liquidity, and our net debt to EBITDA ratio was 5.4 times.

Moving on to our debt profile, our weighted average debt maturity is over four years, and our weighted average interest rate is 2.8%. Approximately 85% of our debt is non-US dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 89% of our net debt is fixed rate, and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have no remaining debt maturities until early 2025, and our maturities remain well-laddered through 2033.

Let me conclude with our guidance. We are raising our Core FFO guidance range for the full year of 2024 to $6.65 to $6.75 per share, increasing the low end of the range by $0.5 per share and maintaining the high end. The increase in our guide at the midpoint of the range reflects the strength in our year-to-date leasing and commencements and the benefit of stronger-than-expected renewal pricing. Partly balanced by the impact of customer bankruptcies in the second half of this year and balance sheet positioning to capitalize on the robust opportunity we are seeing.

We are also adjusting our total revenue guidance to reflect the impact of lower utility expense reimbursements and are increasing our adjusted EBITDA guidance to reflect better-than-expected leasing volumes and higher pricing. Accordingly, we are also adjusting the following operating assumptions. Reflecting our success on cash renewals to date, we are increasing the full-year range to 8% to 10%, from 5% to 7%.

We are also tightening full-year same-store guidance to a range of 2.75% to 3.25%. In terms of investing expectations for 2024, we tightened the range of our net share development spend to $2.2 billion to $2.4 billion and maintained our recurring maintenance capex ranges. Lastly, on financing, the EUR850 million bond raise was completed slightly ahead of previous expectations but was mitigated by higher short-term rates than we anticipated at the beginning of this year.

Looking to the fourth quarter, Core FFO per share remains poised to increase as the momentum from strong year-to-date leasing increasingly contributes to bottom-line results. Looking out into 2025 and beyond, Digital Realty's growth remains poised to accelerate for 2024 levels as the fundamental environment for data centers remains strong and our robust backlog commences.

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

Questions and Answers

[Operator]

We will now open up the call for questions. [Operator Instructions] Our first question is from Michael Rollins with Citi. Please go ahead.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks, Tim. Good afternoon. When we were together last, in September, and you mentioned there could be another record before the end of the year, this was bigger, so congrats to you and the team on this. Maybe the first question with respect to that is how much of the demand is at a risk of maybe pulling forward what the natural opportunity for Digital Realty is? And for the capacity that's in the pipeline, but not in development today, how much of that is power-ready that's ready to sell into the market? Thanks.

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

Thanks, Mike. I really appreciate it. So, going to your questions, obviously, in a quarter of this magnitude, any one of those sizable deals that slip a quarter will really change the destiny of what a fourth quarter looks like. So I won't say there was zero pull forward, but at the same time, we are far from anywhere near selling at. Some of our largest signs during the quarter fell on the capacity blocks that are literally adjacent to the most identically sized capacity blocks with nearing power deliveries in the various markets we highlighted, Manassas and Ashland being one and two and Chicago being three in terms of our top signings.

Those specific markets, going to your second question, they are not ready, the available capacity in those specific locations that comes next are not necessarily powered today, but those deliveries are approaching rapidly and we have those in many markets, be it Dallas, Santa Clara in the U.S., EMEA, we have Frankfurt, Paris, Amsterdam, Seoul, South Korea, as well as similar in South Africa and South America, and those all aggregate to more than three gigawatts of capacity, including shell capacity that we can activate quickly.

And last but not least, we also, as you saw in some of the release, we've not been sitting idle. We've made some very attractive additions, including a parcel that will be adjacent to our Richardson campus in Dallas that I think approaches 80 megawatts of growth capacity and more to come. So I wouldn't call this as a massive pull forward.

Quite frankly, the scaling of demand we're seeing take place here, I think it's just overall restrained from numerous factors.

[Operator]

The next question is from John Peterson with Jefferies. Please go ahead.

[John Peterson, Analyst at Jefferies Financial Group]

Great, thanks. Really impressive quarter. Good job, guys. I wanted to ask, so clearly given the size of these leases, it seems like we're probably talking about AI use cases and some of the latest GPU technology out there. So maybe can you give us some more color on some of the design changes that are required to meet these power densities? And then also, the rental rates looked really impressive, but I'm kind of curious if the build cost side of it is also higher on some of the leases that you signed this quarter.

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

Thanks, John. Really a massive team effort from obviously the leadership team on the call, but it's the employer's Digital Realty efforts globally that contribute to this type of quarter. Going to the second, and then I'll hand it over to Chris and Colin to have an egg, the AI use cases and contributions from AI. Yes, we've seen some inflationary trends and build costs bringing more higher power densities has been part of our heritage and that requires incremental capex spend.

But the size of that as a percentage of these bills is in the call closer to single-digit percentile increases relative to what you've seen now in the rental rate movements that have well outpaced those inflationary elements. But maybe Colin, you just give us a little color on the composition from AI and then Chris can chime in on what we're doing on the tech infrastructure front.

[Colin McLean, Chief Revenue Officer at Digital Realty Trust]

Sure, thanks, Andy. Yeah, contribution was significant about 50% of our overall bookings came from AI. The larger charge capacity, which obviously our heritage comes well supported from is a real value in these use cases. These large capacity blocks are in high demand across our core markets. And so clients are certainly looking to take advantage of that. And that's a growing part of our less than 1 megawatt framework. Chris and Tim have rolled out a substantial program in HD Colo, which you can probably highlight in just a moment that really fits in the sweet spot of where we're taking our platform on the whole. So Chris?

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

Yeah, no, I appreciate it and appreciate the question. This is something that we've been contemplating for many years. So we've seen a lot of the cloud infrastructure densifying, but then as artificial intelligence has come to market, just working on the data center design, and we've talked about this, modularity around cooling and being able to maximize the utilization of air. And then I think a lot of us are starting to understand that liquid is coming into play, which is a core component that we've always anticipated in how we retrofit in an efficient fashion to bring that liquid in to meet this demand on a case by case basis. And so I think that's one of the critical elements that we've always watched in the market.

I think the other thing is the capacity block, just the sheer sizes that you just heard Andy walk you through. That's also very aligned to what a lot of the AI use cases that we've been looking for. And I think one of the things we're always watching is how inference comes into play.

And a part of the data center design is also the interconnectivity of that. And so how we allow those different types of AI environments, be it inference, be it different types of recursive models, where how this advanced solutions are coming to market, that's core to what we've been watching and understanding at a very granular level. And then to Colin's point, I think it's important for us to understand how that gets fitted out within the data center.

So we've launched an offering called HD Colo a while back. And I think what's interesting about what we're able to do with HD Colo across 30 markets -- 30 metros, 170 facilities, within 12 weeks, we're able to build in a capability that takes you to 150 kilowatts, a rack. And what's important about that, to put a little context on it, is that supports three NVIDIA H100 systems within a single rack.

And so that's what's really we're seeing in a lot of the form factors coming to market. And I think the state-of-the-play today is the latest GB 200s from NVIDIA as well. We're constantly staying aligned to how we can support a lot of that infrastructure coming to market.

[Operator]

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

[David Barden, Analyst at Bank of America]

Hey, guys. Thank you so much for taking the questions. Wow. Okay. That's a great quarter. But Andy, I guess a couple of questions, if I could. So this quarter was so strong in the wake of a record quarter in 1Q, a far from record quarter in 2Q. It kind of, I think, scrambles people's expectations about how we think about what's the new normal. And when we were talking about the first half, we were saying, well, you know, it was a record first half and the average of the first half was about 200 million new bookings. And now we've got this crazy number in the third quarter. Could you level-set people now that we've kind of rung the bell about what is the new normal for this?

And then the second question was just related to, I think, what we just heard, which was that like the first quarter record quarter, which was 50% AI bookings, the third quarter record quarter is also 50% AI bookings, which suggests that we're having record everything else, too. And could you speak to what is driving that? Thank you.

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

Thanks, David. So maybe I'll try to tackle it in reverse. I think it's very important what you just highlighted there. We're estimating based on numerous data points we have in terms of infrastructure, customer references, applications, estimation of AI today. That could be changing down the road.

These customers are, as you can see, in the least term signing 10, 15-year contracts. And we have the ability to retrofit our infrastructure along the way. But I think it's important that the core demand fundamentals that preexisted before Gen AI came on the scene are still massive and growing, be it digital transformation for enterprise and hybrid IT and cloud computing.

I'm hoping to get a lot more questions on the highlight of 66 million and 0 to 1 megawatt interconnection. That's up 20% over our prior record, nearly 150 new logos. So this has not just been about just big large capacity blocks. This is what we've been spending many years in the making, and certainly, our execution's been growing in the fall through that category has been a major contributor and more to come on that front.

Going back to your definition of the new normal, a couple of data points that we highlighted two quarters ago that I think are important. First quarter record was based on 10% more megawatts and 60% higher prices. This quarter record is, on top of that, 70% more volume, again on 30% higher prices versus the prior record we just set. So both levers, the volume and the price are contributing to this growth algorithm. When I look at it, I think there's two important other takeaways.

We're not going to be able to put up a record quarter like this in Q4, especially in a quarter with so many holidays approaching us. There's no question like that. But if you look at our inventory blocks, we do have a runway to repeat this record down the road. There's no question. I don't think we've top ticked it for digital in any regard. That's one thing.

Two, a lot of these signings are really turning into long-term contracts with great escalations that are going to commence in late 2025 and 2026 and really hopefully translating into long-term sustainable growth that flows from the top line down to the bottom line. That's another big piece of the composition. And lastly, I try not to focus necessarily on just the fluctuations in the signings, but let's look at our backlog.

After a record commencement quarter during the quarter, we're at a record backlog that represents, call it 20% of our revenue base today. And that is that record backlog of not necessarily maybe next quarter, but I think that record backlog has a lot of potential to keep growing and derisking our revenue runway for years to come.

[Operator]

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

[Jonathan Atkin, Analyst at RBC Capital Markets]

Thank you. So just given the strong backlog and inventory blocks that you talked about, what are your capex levels given all the demand and delivery ahead as well as balance sheet leverage goals? Thank you.

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

Thanks, Jon. I'm going to pass it over to Matt to walk you through those elements.

[Matt Mercier, Cheif Financial Officer at Digital Realty Trust]

Sure. Thanks, Jon. So look, I think in terms of capex, we're sitting here today, our capex for '24, we narrowed it down. We're still within the range. I think for '25, as we look forward, we'll obviously get more specific guidance as we get to the fourth quarter.

But just considering where we are in terms of the megawatts under construction, I don't suspect that it will be lower than what we're seeing for '24. And again, we'll get more as we look ahead towards guidance at the start of the year. But I think probably somewhat more important and going to your second point, from a balance sheet perspective, we're sitting here today given all the things we've done to put the balance sheet back in place where we're already at our leverage targets.

We've got $5 billion of liquidity. And ultimately, I think we've got ahead of and our plan, we prudently funded, I think, through '25 with a view that we'll be able to get within those leverage targets as well.

[Operator]

The next question is from Richard Choe with J.P. Morgan. Please go ahead.

[Richard Choe, Analyst at J.P. Morgan]

Hi, I wanted to follow up on these large package deals. You've done two of them now. How many more are out there that can be done? And is that driving the 4% escalation in the large deals or is 4% kind of something that you're looking at for all deals that are being done?

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

Thanks, Richard. So going, taking the escalation first, we are, for some time now, been looking to push on all the levers on our business. And it's whether it's rates, returns, duration of contracts. And that was, I think, I believe we were a leader when CPI was escalating to kind of bring more CPI clauses into our contracts.

And our escalations, especially the larger contracts, have been moving up and up for some time now. Obviously, when you have a quarter with a handful of larger deals, having those higher escalations certainly helps the weighting along the way. And going to your prior question on package deals, listen, this is very episodic.

I think the good news is that even if you take off our largest mark-to-markets, we're still at cash mark-to-markets like close to, call it 6%, 7%, call it the high end of our guidance on the cash mark-to-markets. So one specific deal that you referred to doesn't really, the underlying deals were also great renewals as well. In terms of more, this is, again, it's a product of having a large installed customer base, which you can see from our top customer role, having customers in 20, 30, 40, 50, 60, 70 locations around the world to help them.

And in times like today, we're seeing some customers having real business needs and urgency around their requirements. And being able to come to the table with a holistic solution to help them and brings kind of these patches to the table. So, again, I can't promise them in any given year or any given quarter, but I think it speaks to breadth of relationships and using all the tools in our toolkit to maximize our growth formula.

[Operator]

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

[Eric Luebchow, Analyst at Wells Fargo & Company]

Great. Appreciate you taking the question. So just curious, I know you have about 3 gigawatts of land in Shell that haven't been developed yet, but given the size and the speed of the deals leasing up now, how are you thinking about maintaining that runway either from new land in existing markets, potentially new markets where you could extend your reach even further?

And then separately, you touched on it a little bit on Northern Virginia. I think we've seen some reports there's as long as a seven-year wait time for power in parts of that footprint. I think you said you still have some capacity blocks in Manassas and in Ashburn, so maybe just an update on power delivery within your footprint would be helpful. Thank you.

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

Thanks, Eric. I'll take the second part first and hand it over to Greg to speak to what he's been spending a lot of time on this year. In Northern Virginia, I highlighted those were two major -- those markets were two of our large capacity signs went into, and in those markets, we have adjacent buildings literally identical sizes.

So, almost 100-megawatt IT load in both our Digital Dulles and then a similar one in Manassas. And they're coming on short order, not necessarily called early 2025, but one of the two, I think, can be brought into late 2025 potentially, certainly 2026. And thereafter, we've got another 230-ish in the next series of buildings where actually the power will be delivered via the more substation, and it's really called substation components on our end that will push those deliveries closer to 2027.

So, that starts chipping away and when you add that all up closer to 400 Digital Dulles and rounding up to 200 megawatts in total in Manassas, which leaves us another half a gigawatt at least at Digital Dulles, another couple, another 100 megawatts, not at Digital Dulles in Northern Virginia. So, long runway of growth, and I would say capacity blocks as their deliveries keep getting nearer and nearer and time goes by and just keeps getting more and more precious. Greg, why don't you speak to a little bit of what we've been doing on the -- adding to that on the other end of our supply-chain?

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

Thanks, Andy, and thanks for the question, Eric. Eric, I think the first thing to highlight is Andy's point about our buildable capacity on balance sheets. So, clearly within existing markets we have over 3 gigawatts of buildable capacity.

So, I think when you think about the context of where new growth is going to come from, that's pretty sizable. I think there's probably very few that have that kind of pipeline that we can bring to service in a relatively short period of time. The second thing to highlight is we're buying land primarily in our existing markets, buying land, purchasing power and the like, and really across the globe, whether it's North America, South America, Europe, particularly in the flat markets, Africa, particularly South Africa, Johannesburg, and Cape Town, and then throughout the major markets and APAC.

So, that strategy hasn't changed. We still think that's the best risk-adjusted return on our capital. And with that said, we're selectively looking at new markets, but that will not be the primary driver of our growth on the development front.

[Operator]

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

[Frank Louthan, Analyst at Raymond James]

Great. Thank you. So, you've talked to us earlier about looking at some markets where you've seen a lot of data center demand popping up and the long-term visibility is a little bit less clear, and you're kind of avoiding some of those as you're looking at some of these larger deployments. Are you still holding to that, and how should we think about that? And then, how are you set up for funding for these developments and thoughts on capital for the next 12 months? Thanks.

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

Thanks, Frank. So, and I think this dovetails well with Greg's answer. What we're doing is continuing to focus on markets that we believe have robust and diverse demand. That is called enterprise, digital transformation, hybrid IT demand, service provider data, cloud demand, as well as various stages of AI demand.

We believe that certainly exists and has for some time in our called 50 metropolitan areas where we're operating today called runways. In addition to operating capacity, our runways for growth exist at 3-plus gigawatts. And we are, I think to dovetail Greg's point, we're expanding into markets where we're operating today, but maybe now at a bigger scale with bigger presence, i.e. markets we're looking at where we are the major player in the connectivity hubs or have a strong enterprise hand, but a much smaller scale or hyperscale plan, and looking at those and adding to our footprint in those markets. What we're not doing, which I think is even more relevant, is chasing demand for demand's sake to markets that we just don't believe are there for the long term. I'm not suggesting data centers and demand won't be in some of those markets, and there'll be opportunities for one-off bills and contracts with customers, but we've been a company now for just reaching our 20 years of public company. We've been through cycles before, and we're looking to generate long-term sustainable growth.

Within a key element when it comes to that is having robust and diverse customer demand. So when renewals do come, you can maintain your pricing power and generate that sustainable growth.

[Operator]

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

[Irvin Liu, Analyst at Evercore ISI]

Hi. Thank you for the question and congrats on the strong bookings. You indicated that you were positioned for acceleration multiple times in your prepared remarks. And if I recall correctly, you previously also said that 2025 growth should be somewhere closer to mid-single digits. But is it safe to assume that based on what your commencement schedule looks like today, there is potential for upside versus this growth expectation? And if so, how should we be thinking about your medium-term growth algorithm?

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

Thanks, Irvin. I'll ask Matt to unpack the 2025 and the financial algorithm from there.

[Matt Mercier, Cheif Financial Officer at Digital Realty Trust]

Yeah. Thanks, Irvin. I think I lost the bet because I thought for sure the growth question would come before the first 15 minutes. So, but thanks. So look, I think a few things. I've been pretty consistent I think all year in terms of our mid-single-digit growth for 2025 and setting that as the foundation. Keep in mind that's in spite of doing a turn and a half of deleveraging over the course of the last 12 months to 18 months. We continue to focus on our objective to improve the company's long-term sustainable growth profile.

You've seen that in the results we put up. Some of those things accrue to the bottom line a little faster than the others. Obviously, our renewal spreads and the zero-to-one comes into the financials a little bit sooner. The greater-than-a-megawatt takes a little bit longer. You see most of that in terms of our backlog, which is already at $350 million for next year. I think even more importantly is at $300 million for 2026.

So which if you looked same stat a year ago in terms of where that would have been in a two-year forward view, it's $200 million more. So again, this quarter really de-risked the plan to achieve the goals that we set out, which would provide a solid foundation for accelerating growth not only in 2025 but even further beyond that. And I would say we were confident in what we said before about that, and we're even more confident now.

[Operator]

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

[Jim Schneider, Analyst at The Goldman Sachs Group]

Good afternoon. Thanks for taking my question. I was wondering if you could maybe talk a little bit about the complexion of the bookings in the quarter and roughly how many customers were contributing to the 60% or 50% or 80% mark of that, meaning the concentration of customers in that booking. Can you maybe talk to any of those customers of substantial size were, in fact, new customers in the quarter?

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

Thanks, Jim. While I ask Colin to walk through some of the highlights, maybe, Colin, you can try to break it down into two categories one by one.

[Colin McLean, Chief Revenue Officer at Digital Realty Trust]

Sure, yeah. Thanks for the question, Jim. Appreciate it. Yeah, obviously, successful quarter, a lot of impact across the board, both new customers, existing customers, and growth. We had about 1,000 customers book within the platform in Q3. A good chunk of those 149 were new logos. Those predominantly came at the commercial segment. We think about the segmentation of customers within global, large enterprise, and commercial. The large number of new logos come out of that commercial basis, but we're putting more and more focus on large enterprise.

So in that 66 million of bookings, we had about 52% of that at a large enterprise, which is an all-time high. So, again, that's a growing segment with our business. Again, I think that references to what Andy's talking about, the diverse demand that's hitting platform digital across digital transformation, cloud, and AI.

So we continue to see that characteristics in our pipeline. Current pipeline for Q4, aggregate, all-time high, particularly key strong characteristics in the 0 to 1 megawatt variety. Maybe a little bit more context as to what we're seeing across the platform, and just double down on one of the questions that proximity matters.

So our core networks in terms of bookings, variety, 80%-plus were in our primary markets, our top 20 markets. So we continue to see strength there, continue to see indirect focus. So about 26% of our bookings were indirect. Future pipeline, about 30%. So that's going to continue to grow.

And, frankly, our flexibility to support the various density and scalability requirements for our clients will continue to be a big value proposition for our clients. So this adds up to pretty robust quarter, very robust in terms of number of customers, new logos, and types of customers landing up on business.

[Operator]

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

[Michael Elias, Analyst at TD Cowen]

Great. Thanks for taking the question, and congratulations to the whole Digital Realty team on a really exceptional quarter. I want to switch focus and actually talk about the enterprise. You know, the great bookings in the enterprise segment, what I'm curious about is kind of what changed there from the prior run rate of bookings where you were on? Was it that the enterprise backdrop got better for you guys, or was it something that you shifted in terms of your go-to-market? And just as part of that, what are you seeing in terms of the ability to price up enterprise customers, i.e., what are you seeing on the renewal spread side with them? Are we getting past some of that price-type fatigue? Those are my questions. And, again, congratulations to you guys.

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

Thank you, Michael. Colin touched a little bit on this in his last question, but before I turn it back to him, going back to your pricing question, and this kind of dovetails with, I think, maybe Frankie asked about spreads and bumps. I mean, we've been looking at called making sure we have a strong value proposition for our customers. This has been many years in the work and building momentum and you've seen the success grow. And, certainly, this is a milestone quarter. But I don't, I definitely, this will not be a record in that category.

We're going to build on that record. That is a incredibly important strategic priority to this company, given the long-term value we can provide to the customers and the growth it provides. You look in the 0 to 1 megawatt signings category, we've been flagged in on the cash market markets. They're up on 4.5% on LTM basis. I think they're up about 70 basis points, just quarter over quarter. You can see that in the asking rates as well.

I think we'll have more, we have more opportunity to go on the interconnection side in terms of continuing to make sure our value we bring to the customers is appropriately commercialized. And that's even with a record interconnection signings quarter. So we're looking at all levers.

And again, it's about giving more value to the customer. It's about their infrastructure and their power density. It's about helping them connect and solve pain points. It's about being their one-stop global shop from no matter what side of deployment or workload, be it enterprise, hybrid IT, cloud, or certainly AI, which is starting to percolate in that category. Collin deserves a tremendous amount of credit as well. But I'll turn it over to him to kind of walk through what his insights on the inflection this quarter as well.

[Colin McLean, Chief Revenue Officer at Digital Realty Trust]

Thanks, Andy. Appreciate it. I think one point to make is this is not one quarter in the making. This is a multi-year transformation of platform-oriented company servicing service providers and enterprises. And the way that you do that is you make your platform more attractive. So we announced a couple of on-ramps this quarter. One in Dallas. We did a couple in Europe in Zurich and Amsterdam. That's material and attracting enterprises.

Andy mentioned that the digital transformation is now in full steam. But we still think it's early innings. So we think that our platform will continue to grow because enterprises see value in platform digital.

One key metric that I'll leave you with, that's a really good sign of a platform-oriented approach. Our exports were a record 43%, 0 to 1 megawatt. That's material that shows customers the same value, that they're expanding across the platform into other geos. So, again, strong contribution across the board for the team to bring this to fruition.

[Operator]

The next question is from Georgii Dinkov with Mizuho. Please go ahead.

[Georgi Dinkov, Analyst at Mizuho]

Hey, thank you for taking my question, and congrats on the strong results. So I just noticed the development yields are now 12%, which is higher compared to the second quarter. And given the strong market trend growth, can we see development yields move even higher? And is there a cap on how high they can go? And also, can you just provide more color on what the contracts on the development pipeline look like in terms of land and caps on the renewals? Thank you.

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

Thanks, Georgie. So, again, this goes back to the accelerated development capex sizably, 50% higher. And we did that based on demand. So you can see overall we're close to 75% pre-leased. In North America, we're now 97% pre-leased. Some of the signings in North America in particular actually have called on the longer end of our signing for the commencement trail. So they were signing the capacity that the shell is just getting delivered.

Last quarter, we signed a nearly 50 megawatt deal in the land state. So they're close to two years. So they elongated. So that means we didn't sell just the nearest term capacity blocks. We sold what the customer needed given the facts and circumstances. We're doing everything we can to maintain, if not improve our yields.

That's a product of making sure we're scaling our infrastructure and economies of scale and where we deliver. And obviously seizing upon the right rates and translating to better returns as products in that development lifecycle often roll up. In today's market, we're looking to have, again, all the levers of the commercials are in the discussion. Rates, escalations, real estate tax base stops, and certainly renewal options. We're not entertaining a cult capping when those contracts come to.

[Operator]

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

[Matt Nicknam, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, thanks for squeezing me in. Congrats on the quarter. I will keep it to one question, then I know that was specified up front. On the AI front, I know you mentioned there was about half of your bookings. Is there any contribution from enterprise or sovereign players, or is it primarily traditional hyperscalers and newer AI model builders? Thanks.

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

First off, Matt, thank you for being a role follower. Really appreciate that. Chris, why don't you give a little percentage, 50% overall, but how much in the call enterprise, and then give us a little more color on some of the AI demand we've seized upon in the quarter and also within the pipeline.

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

I appreciate the question, Matt. There's a lot happening across AI, which I think is at the core of your question. It's not just about the hyperscalers. I think it's pretty important to understand that the demand is pretty broad across all of the segments. And one just in particular and highlight, and I don't speak about any customer-specific details, but one of the things that we have great history with NVIDIA. We've been DGX certified, one of the leading providers, 30 plus data centers already pre-certified, but what's important to us is just yesterday we were able to host Jensen Huang, the CEO of NVIDIA, at a kickoff of the largest DGX supercomputer in Europe.

It's just very exciting to support Novo Nordisk Foundation and that overall effort. One of the things that I think is pretty interesting that highlights it is that Jensen quoted that it was the factor of intelligence. Something like that is fundamental in showing that private AI deployments are very relevant and coming into our overall portfolio.

And the last piece I'd like to just say is just to highlight that, that digital reality is foundational in that and we're able to do it in a sustainable way because that facility runs on 100% renewable power.

[Operator]

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

[David Guarino, Analyst at Green Street]

Thanks. On your greater than one megawatt in the American rent on a gap basis, we're almost 225 kilowatts this quarter. I'm guessing Manassas and Chicago you called out were below that number.

But does that suggest that hyperscale rental rates in Ashburn are pushing close to that 225 kilowatt or maybe even 250 kilowatt number? Just any color you could share on the relative spread between markets would be helpful.

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

So those are gap rates, just a reminder. So you've got to take the duration of all these, you know the drill, David, and the bumps. So they certainly pushed them over. I can tell you in Ashburn, we have multiple customers at call-up rates in the call-up of 175 or 200 or higher, just slightly over 200, in call-up 8 megawatts or higher type of capacity blocks. Where we go from here, I'm not sure you're going to see this repeat itself immediately, but these other markets have been catching up and I think will continue to catch up over time. Certainly the comparables in the Chicago, the Dallas's that have always trailed the Ashburn, certainly trailed the Santa Clara, and now trailing in Ashburn. And I do think you're just going to see more and more markets coalesce at these higher rates over time.

[David Guarino, Analyst at Green Street]

Thanks.

[Operator]

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

[Nick Del Deo, Analyst at MoffettNathanson]

Hi. Thanks for squeezing me in. You've obviously got a ton of development work underway that's going to grow. Can you talk a little bit bout the steps you're taking to ensure that you're able to deliver all that on time, on budget, without hiccups?

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

Thanks, Nick. So first off, it's really important that we just didn't call it a day I didn't come in and just get out of yesterday. This company has been solely focused on this business for 20 years now. And we've been in these markets that I touched on, we've been consistently operating, assembling land, building, and delivering for our customers for many, many years.

And ingrained in the communities with the utility providers. As we saw this opportunity evolve, I think scaling certainly came to mind, and that is what we did. That was scaling our supply chain, our teams have great relationships with their vendors, and making sure that we are future proofing those supply chains, and being very collaborative with our partners.

If we have a switch in one market, we can bring it to another market. We're certainly scaling our team as well, operationally. We're delivering a lot of capacity for our customers, and we're investing in our systems and the development of our team along the way.

And then lastly, the capital. Capital intensive business, and the great work of our organization over the last year to supplement our use of public equity with some great private investment partnerships both of the stage-wise in development. We see a really fantastic runway of capital intensive growth here.

I think you're seeing the fruits of our labor in terms of the rates and the returns bearing fruit. We've seen this out for years to come and we want to make sure that we have stable of partners to help fund this business to generate long-term growth for our customers and our shareholders.

[Operator]

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

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

Thank you, Gary. Digital Realty posted a remarkable quarter in 3Q, reflecting the strong demand environment and demonstrating how Digital Realty is meeting the challenge to support our customers around the world. We set a number of records throughout our business, raised guidance and positioned the company for accelerating growth in 2025 and beyond.

I am extremely proud of how our team executed to deliver this quarter's results. We are excited about the outlook for data center demand and our position in the market. But most importantly, we remain focused on seizing on the opportunity at hand.

I'd like to thank everyone for joining us today. I'd like to thank our dedicated and exceptional team at Digital Realty who keep the digital world turning. Thank you.

[Operator]

[Operator Closing Remarks]