Digital Realty Trust Inc (DLR) — Q1 2019 Earnings Call Transcript

Thank you, Andrea. The speakers on today's call are CEO, Bill Stein, and CFO, Andy Power. Chief Investment Officer, Greg Wright, and Chief Technology Officer, Chris Sharp, are also on the call and will be available for Q&A. Management may make forward-looking statements including guidance and the underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to our CEO, Bill Stein, I'd like to hit the tops of the waves on our first quarter results. First and foremost, we continued to support our customers' global expansion requirements with an agreement to anchor development of a new campus in Santiago, Chile. Next, we demonstrated our commitment to deliver sustainable growth for all stakeholders with efficient and socially responsible capital raises, renewable energy procurement, and corporate governance enhancements. Third, we raised the dividend by 7%, our 14th consecutive annual dividend increase. Last but not least, we further strengthened the balance sheet, redeeming high coupon debt and preferred stock, lowering our weighted average coupon by 30 basis points while simultaneously extending our weighted average duration by more than half a year with the opportunistic issuance of $1.6 billion of long-term capital. And now, I'd like to turn the call over to Bill.

Thanks, John. Good afternoon, and thank you all for joining us. During the first quarter of 2019, the Digital Realty team continued to effectively press our competitive advantages. We capitalized on the strength of our comprehensive multiproduct offering by capturing healthy enterprise demand across multiple regions. We also advanced our private capital initiative by closing our joint venture with Brookfield and we further strengthened our balance sheet by locking in fixed-rate long-term capital at attractive coupons. We continued to build upon our industry-leading commitment to sustainability and sound corporate governance, setting the stage for sustainable growth for all stakeholders. We further expanded our global platform with strategic land purchases in Tokyo and Singapore, as shown here on Page 3 of our presentation, and finally, we announced earlier this afternoon that we are entering Chile, Digital Realty's 14th country, with a 6-megawatt facility underway slated for delivery in the third quarter of 2020. Our strategy for new market entry is to follow our customers, and Chile is no exception. We are pleased to be supporting the growth of a leading global cloud provider who will be anchoring the first phase of our campus in Santiago. Chile is one of the most economically and politically stable countries in South America and is considered a high-income economy by the World Bank with a clearly quantified business-friendly investment climate and the highest per capita GDP in Latin America. Our Chilean operations will be conducted by the Ascenty joint venture with Brookfield, our exclusive vehicle for data center investment in South America. It's obviously still early days since we just closed on the acquisition of Ascenty in December and the joint venture with Brookfield at the tail end of the first quarter, but we are encouraged by our partnership with Brookfield, the early execution by the Ascenty team and the compelling growth opportunity within the region. We also continued to advance our ESG priorities over the past few months, highlighted here on Page 4. In January, we issued the first-ever data center green euro bond. Late January, we announced a long-term renewable power purchase agreement to secure 80 megawatts of solar power on behalf of Facebook to support their renewable energy goals. In late February, our Board of Directors submitted our corporate governance guidelines to clarify that director-candidate pools must include candidates with diversity of race, ethnicity, and gender. Finally, our Board also approved a proxy access standard for stockholders in late February. We are committed to sustainability and sound corporate governance principles and we are focused on delivering sustainable growth for our customers, shareholders, and employees. Let's turn to market fundamentals on Page 5. As most of you are aware, 2018 was a record year for data center net absorption, and the primary metros across North America are still in digestion and restocking mode. To provide some context, North America represents approximately 80% of our total revenue and was responsible for 75% of our 2018 leasing activity, but only half of our current availability is located in North America. The same dynamic is true in Northern Virginia, our largest market at over 20% of total revenue. It accounted for 40% of our 2018 bookings, but less than 15% of our current availability. We expect to see a pickup in North America data center absorption in the second half of the year as data center providers restock their shelves with inventory coinciding with the next phase of hyperscale users' incremental growth requirements, taking adjacency next to existing applications and continuous runway for growth on our campuses. In Europe, recent leasing activity has been dominated by global cloud service providers who continue to sign expansions throughout the major metros. Data privacy and sovereignty rules are driving a distributed architecture, forcing cloud providers to establish a presence in all the major metros. These expansions generally come in smaller increments than the hyperscale deployments in North America. Last year was likewise a record year for absorption in Europe with leading cloud providers deploying multiple megawatts across major metros. These cloud providers also exhibit a clear preference for expanding adjacent to existing deployments. So landing the initial deployment is key. Our Global Connected Campus strategy is uniquely positioned to capitalize on this consumption pattern. Across the Asia Pacific, regions, supply remains largely in check. The complexity of local regulatory frameworks, the difficulty of procuring power and the limited availability of sites with adequate connectivity all serve to limit competition. Demand is outpacing supply in several of our key APAC markets, notably, Singapore, Tokyo, and Osaka. This is translating into solid execution and pipeline targeting our near and medium-term available inventory in these markets, setting us up for an attractive backdrop as we bring adjacent capacity online at our Singapore and Osaka campuses, in addition to our recently announced Tokyo campus development project. At the macro level, the Asia Pacific region is still likely in the very early stages of its communications infrastructure build-out, and we see a significant runway for growth for years to come. Finally, our pipeline of existing customer expansion and new customer opportunities is growing in both Brazil and now Chile, where we are the market-leading data center provider. On balance, we believe customers view our global platform and comprehensive space, power, and interconnection offerings as key differentiators in the selection of their data center provider. Let's turn to the macro environment on Page 6. Global economic expansion remains intact. The U.S. unemployment claims recently dipped below 200,000. Interbanks the world over have adopted a dovish stance and the risk of a full-blown trade war appears to be receding. As you've heard me say many times before, we are fortunate to be operating in a business levered to secular demand drivers, both growing faster than global GDP growth and somewhat insulated from economic volatility. The hyperscale data center customers who drove outsized demand in 2018 marched to the beat of their own drum. Although they have largely remained in digestion mode in the early days of 2019, we remain highly confident in the longer-term trajectory of this demand. In addition, the resiliency of our business model enables us to capture robust and diverse demand from a broad swath of customer verticals across geographic regions around the world, as evidenced by our first quarter results. To put a finer point on the secular demand drivers underpinning our business, I'd like to highlight a couple of the points on Page 7. According to Synergy Research, the total cloud market ecosystem passed the $250 billion revenue milestone in 2018, up 32% from the prior year. Separately, according to an IDC global study of 800 enterprise cloud users, 58% of respondents are now employing a hybrid cloud model, defined as using private and public resources for the same workload. Finally, an IDC study of 400 users of public cloud compute and storage services found that over 50% have recently moved the workload back on-premise. To effectively address the hybrid multi-cloud market, data center providers must offer a global interconnected solution from colocation to hyperscale. These trends obviously play directly to our strengths, help explain the durability of our recent results and bode very well for future demand cycles. Given the resiliency of our industry, our business, and our balance sheet, we believe we are well positioned to continue to deliver steady per share growth in earnings, cash flow, and dividends, whatever the macro environment may hold in store. With that, I'd like to turn the call over to Andy to take you through our financial results.

Thank you, Bill. Let's begin with our leasing activity here on Page 9. As Bill indicated, our first quarter results highlighted the durability of the Digital Realty global platform with balanced performance across the regions, product types, and customer segments. We signed total bookings of $50 million, including $9 million from Ascenty, a $7 million contribution from interconnection. We signed new leases for space and power totaling $42 million with a weighted average lease term of 10 years, including a $7 million colocation contribution. 5 of our top 10 deals in the first quarter were outside the U.S., including several top customers who were able to leverage our global platform to enable their growth across regions. For example, this quarter, we enabled the expansion of a cloud infrastructure provider, which specializes in helping developers launch applications into the cloud, helping them better serve their customers on the West Coast as well as APAC. Within our global account segment, we landed 2 sizable deployments north and south of the border with a leading global cloud service provider. Separately, we also landed a network edge node from another leading global cloud service provider, which we expect will enhance the interconnection profile of our campus in Dallas, Texas. We continue to track healthy demand within our global account segment, but the cloud accounted for just 1/3 of our first quarter bookings, as shown on Page 11. On a majority of our new business during the quarter was with existing customers, we added 43 new logos, with a particularly strong contribution from our enterprise segment. For example, a well-funded software startup leveraging artificial intelligence to develop safe and reliable technology for autonomous vehicles selected a Digital Realty data center to help their production application and deliver their technology on a global scale. Afterpay is a global fintech provider based in Australia providing a 'buy now, pay later' payment platform. Their proprietary decision-making engine determines the creditworthiness of their retail customers in near real-time on a global scale, and they are leveraging service exchanges from earning their gateways in the U.S. and in Europe to simplify, scale, and improve the user experience. We continue to see traction from European-based organizations keen to partner with a data center provider able to facilitate their global growth well into the future. A multinational semiconductor and software design company headquartered in New York selected Digital Realty to provide a global data center strategy to support the transition of their business services as they decommissioned data centers and extend their business reach. In particular, the partnership will facilitate their ability to extend their presence into Singapore in support of their APAC initiatives. They will now be able to deliver a full global services capability supported by Digital Realty in each region around the world. In addition, a British satellite telecommunications company is expanding with us in Europe to provide further colocation solutions for their London and Amsterdam operations. The solution underpins the infrastructure required to support the launch of their new satellite later this year and will provide high-speed broadband services to their customers. Channel partners continued to contribute to our business and comprised 15% of our first quarter colocation and interconnection bookings and accounted for 25% of our new logos. One of our top channel partners brought us an opportunity to support a digital health care company that is redefining the way cardiac arrhythmias are clinically diagnosed by combining their wearable bio-sensing technology with cloud-based data analytics and machine learning capabilities. Their primary business model requires extensive data mining to help doctors predict and respond to cardiovascular events. The customer's proprietary cloud solution within Digital Realty required access to Azure, AWS, and Salesforce cloud services. Digital Realty won the business by providing a superior low-latency and HIPAA-compliant solution with the ability to connect to multiple cloud providers throughout our interconnection services, including Service Exchange. We're also seeing traction with the strategic relationships we have forged with leading cloud and managed service providers. For example, we're engaged with one of our global cloud's hyperscale customers to provide best-in-class ultra-low-latency hybrid services to end customers with specific performance requirements. We're also teaming up with a major storage solution provider who offers services to end customers who want to deploy private infrastructure in close proximity to the public cloud. Alliances like this greatly expand Digital Realty's addressable market and demonstrate our unique capabilities in terms of ubiquitous cloud interconnection and near-field proximity to underlying cloud infrastructure around the globe. Turning to our backlog on Page 12. The current backlog of leases signed but not yet commenced stood at $144 million at the end of the first quarter. I'd like to point out here that the current backlog shown on Page 12 reflects the full contribution from Ascenty, whereas the Ascenty contribution will be shown in our 49% pro rata share going forward. The weighted average lag between the first quarter signings and commencements remained tighter than our long-term average and a little over 2 months. Moving on to renewal leasing activity on Page 13. We signed $116 million of renewals during the first quarter, in addition to new leases signed. This is the second highest quarterly renewal leasing volume in our history, right on the heels of the all-time high of $138 million in 4Q '18. The weighted average lease term on renewals was nearly 13 years, while cash rents on renewals were down 6.9%, driven primarily by strategic portfolio transaction as a single customer deployed a multiple powered base building shell as well as fully built-out turn-key capacity in 15 sites across our global platform. We renewed their footprint for 15 years on triple net lease terms, locking in these cash flows for years to come and maximizing the value from these facilities. We also effectively tied the strategic renewal to a multi-region expansion opportunity with the same customer. Excluding global relationships, that have signed an incremental $15 million of annualized GAAP revenue over the past 6 months, the mark-to-market on first quarter renewals would have been essentially flat on a cash basis, as you can see from the data points on the bottom of Page 13. This incremental leasing activity is a prime example of what we mean when we talk about our holistic, long-term approach to customer relationship management. We believe we have a distinct advantage when we are competing for new business with a customer we are already supporting elsewhere within our global portfolio. And whenever we can, we try to provide a comprehensive financial package across multiple locations and offerings, including both new business as well as renewals. In terms of first quarter operating performance, overall portfolio occupancy slipped 40 basis points to 88.6%, half due to development deliveries placed in service in Amsterdam and Chicago and half due to customer move-outs in Silicon Valley and Dallas. The U.S. dollar continues to strengthen over the past 90 days and FX represented roughly a 100 basis point headwind to the year-over-year growth in our reported results from the top to the bottom line, as shown on Page 14. Turning to our economic risk mitigation strategies on Page 15. We manage currency risk by issuing locally denominated debt to act as a natural hedge, so only our net assets within a given region are exposed to currency risks from an economic perspective. In addition to managing foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable-rate debt with longer-term fixed-rate financing. Given our strategy of matching the duration of our long-lived assets with long-term fixed-rate debt, a 100 basis point move-in LIBOR will have less than a 1% impact to full year FFO per share. Our near-term funding and refinancing risk is very well managed and our capital plan is fully funded. In terms of earnings growth, core FFO per share was up 6% year-over-year or 7% on a constant currency basis and came in $0.10 above consensus. Delta relative to prior expectations was primarily due to interest income on the Brookfield joint venture funding as well as tax benefits due to a reduction in the corporate tax rate in the U.K., which came in effect during the first quarter. In terms of the quarterly run rate, we expect to dip back down in the second quarter due to the deconsolidation of the Ascenty joint venture going forward, the absence of the tax benefit in future periods, and the forward equity drawdown, as you can see from the bridge on Page 16. We're revaluing in the second half of the year as several large leases commence. As you may have seen from the press release, we're reiterating 2019 core FFO per share guidance. Most of the drivers are unchanged, with the exception of updating financing activity and a reduction to our same-store growth outlook. In addition to continued FX headwinds, the primary change from our prior forecast includes the blend and extend component of the strategic portfolio transaction executed during the first quarter and bad debt expense related to a subscale private colocation reseller. We also face a particularly tough comparison in the second quarter due to a sizable property tax refund we collected in the second quarter of last year, which also weighs on the full year same-store growth comparison. Last but certainly not least, let's turn to the balance sheet on Page 17. Net debt-to-EBITDA remains in line at 5.5 times as of the end of the first quarter. Our fixed charge coverage remains healthy at 3.6 times. Pro forma for the ins and outs of Brookfield's funding of the Ascenty joint venture and the forward equity drawdown, net debt-to-EBITDA is just over 5 times and fixed charge coverage is just over 4 times. Over the past several months, the Digital team capitalized on favorable market conditions to advance our financing strategy of maximizing the menu of available capital options while minimizing the related costs. In early January, we did issue all $500 million of our 5.875% senior notes due 2020. We also executed against our strategy of locking in long-term fixed-rate financing at attractive coupons across the currency to support our assets with a green euro bond offering in early January. This was our second euro bond offering and also our second green bond, following the USD 500 million green bond released in 2015. But this was the first-ever data center euro green bond. The offering was well received, successfully raising gross proceeds of approximately $1 billion of 7-year paper at 2.5% while underscoring Digital Realty's industry-leading sustainability commitment. Market conditions continued to improve over the quarter, and in late February on the basis of reverse increase from investors, we reopened both the 2.5% euro green bond offering due 2026 as well as our recently issued 3.75% sterling bonds due 2030. And we raised another $450 million of long-term debt at attractive coupons. We follow the same playbook with a perpetual preferred equity portion of our capital stock during the first quarter. We announced the reduction of all $365 million of our 7.375% series H preferred stock and we raised $210 million of permanent capital under our new series K perpetual preferred at 5.85%. Finally, we advanced our private capital initiative, closing on the $700 million Ascenty joint venture with Brookfield, a leading global asset manager. The successful execution against our financial strategy is a reflection of our best-in-class global platform, which provides access to the full menu of public as well as private capital, sets us apart from our peers and enables us to prudently fund our growth. As you can see from the debt maturity schedule on Page 18, the recent financings have extended our weighted average debt maturity by more than half a year and lowered our weighted average coupon by 30 basis points. A little over half our debt is non-U.S. dollar-denominated, acting as a natural FX hedge for investments outside the U.S. Nearly 90% of our debt is fixed rate to guard against a rising rate environment and 99% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 18, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out-years. Our balance sheet is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks. Now we'd be pleased to take your questions. Andrea, would you please begin the Q&A session?

So two questions. One, on the sales pipeline, I was wondering if it looks measurably different than earlier this year and late last year. Or do you see a greater mix potentially of double-digit megawatt opportunities as the company brings on more inventory? And are there any notable exchanges by region in Asia Pac, Brazil, Europe, and North America as you sort of think about the pipeline rest of the year versus earlier? And then I have kind of a margin question more conceptually, do you see an opportunity to get sustainably past the 60% EBITDA margin level? Or are high 50%s kind of appropriate given your anticipated development pipeline or other investments you're making in the business?

Thanks, Jon. This is Andy. There are still a few questions to address, so let me clarify. Regarding our overall pipeline, we don't focus solely on a specific pipeline number. The composition of our signings in the first quarter looks quite healthy across various regions in terms of competition and deal size, with 43 new logos added. Therefore, I believe the pipeline moving forward remains strong. In terms of double-digit megawatt opportunities, we have seen an increase as more inventory becomes available. This trend has been noticeable in cities like Nashville, Dallas, and Chicago, where we've been expanding for some time, but it's also a newer development in Frankfurt, Amsterdam, London, Toronto, and even Osaka. Here, larger customers can find immediate inventory that meets their needs, which suggests a clear path for growth. I expect that we will continue to see more double-digit megawatt deals in the future. I believe your next question was about comparing and contrasting the markets. I'll address that briefly. Starting with Asia, we've seen significant strength, particularly in Singapore and Tokyo, where we're actively seeking additional capacity for our customers as we prepare for the launch of our newest campuses in SIN12 and Tokyo. In Osaka, we are also adding capacity through a series of adjacent facilities, supporting our customers' growth effectively. Moving on to Europe, Frankfurt highlighted a notable 3-megawatt agreement with an IT service customer that had transitioned from the U.S. to that market, demonstrating some resilience despite currently limited supply. In the Americas, as I mentioned earlier, Toronto has been a key focus, and we've seen some recent interest there, along with additional wins in Dallas and Santa Clara. Ashburn is slightly quieter, largely due to inventory constraints. Lastly, Bill provided a preview of our expansion into Chile and our success with Ascenty. So the second question was about EBITDA margins and where we see that going from here. The midpoint of our guidance is around 58% adjusted EBITDA margin. This is down over 100 basis points year-over-year due to the ASC 842 accounting change regarding the expensing of non-success-based leasing compensation. Currently, we are more focused on growth rather than expanding our industry-leading EBITDA margin. Over the longer term, as we continue to scale our platform globally and particularly in new markets with more volume campuses and greater scale, I see a potential for further EBITDA expansion, pushing closer to the 60% area you mentioned. However, for now, our focus is on prioritizing growth, given that we have a healthy EBITDA margin.

The first question is about the guidance compared to the performance in the quarter. Andy, you covered this when you discussed Slide 16, which was helpful. However, if we look at the numbers instead of the visuals, backing out the $1.73 from the $6.65 indicates that to reach the full year target, you would need to achieve $1.64 per quarter, suggesting a significant decline. I know you addressed some factors affecting this, including the Brookfield joint venture funding, which is somewhat of a setback. I would appreciate a clearer explanation of the tax benefit. Additionally, could you clarify what we should anticipate regarding the forward equity? In the example presented, it seems to imply that you're reducing all forward equity before the second quarter. I will have a follow-up question.

Sure. Thanks, Jordan. So I guess the components again. So Brookfield closed on its 49% joint venture the very last day of the quarter. So we had not anticipated that to take so long in terms of regulatory approvals and tax and legal structuring, but we did prepare for just in case, and they've compensated us for carrying their share in the investment with a current return. And that's, obviously, going to go away. So it's a bit of a one-time benefit to actually feel in the quarter. To a lesser extent, the U.K. corporate tax rates revised from 21% down with something slightly lower than that, I think, 17%. And obviously, we have non-U.S. dollar investments in London that we have to adjust our tax rate for deferred tax assets or liabilities in this case. So having a benefit to our core FFO that appears in the quarter as well. So those are the factors that led to our outperformance in the first quarter compared to our original guidance. Regarding the challenges we faced during the quarter, which will also impact us for the full year, we experienced some bad debt expense. We have a somewhat troubled private colo reseller customer that is a minor part of our overall portfolio but did create some challenges during the quarter. This has affected our same-store NOI year-over-year growth and will also impact our core FFO per share growth for the full year. Currently, as per our established practice of not acting prematurely after just one quarter, we are maintaining our guidance. In response to your question about the equity forward drawdown, there is $1.1 billion in gross equity, and we have not yet drawn from it. Our balance sheet as of March 31 shows just over $800 million drawn on our $2.6 billion revolver, along with nearly $130 million in cash. Brookfield arrived at the last moment, which prevented us from paying down the revolver with some of that cash until the following day. We plan to utilize a portion of the equity forward before the end of the second quarter. Although we displayed the drawdown timeline a bit creatively on the chart, I can assure you that the majority, if not all, will be completed by the end of the quarter.

Just to clarify, the Brookfield cash didn't show up on the balance sheet at all. Is it because that's...

I'm just stating we have a $127 million or so cash in the balance sheet at 3/31 because that money literally came in that single day, and we couldn't send the wire to pay down more revolver balance for that piece.

Okay. My follow-up was more on funding for the longer term. Recently, you've mentioned a potential self-funding model, and I'm curious if we can get an update a few months into the year on what that looks like as you've pursued the market or assessed the portfolio. How should we think about Digital's funding and the harvesting of assets this year?

Yes, Jordan. Thanks for the question. Look, I think, consistently, we've said previously, although our 2019 guidance does not include any of the disposition assumptions, we continue to remain focused on recycling capital and portfolio optimization. The company has a heritage to that. Bill was doing that 6, 7 years ago, and we continue to focus on those opportunities when they make sense. We're certainly continuing to evaluate the private markets as a source of capital, and clearly, what everyone know when we have anything to report. And with that said, you can reasonably expect us to periodically sell assets, particularly non-data center properties or assets in markets that no longer fit our strategy. Specifically, we discussed selling certain triple net lease assets potentially as well as potentially joint venturing stabilized assets where we can pull out some of that capital. We would joint venture it and redeploy that capital into higher-yielding development assets, which we think is a prudent capital allocation strategy. And look, I think, again, we haven't committed to any specific amounts and timing since. As Andy would touch on, we're fully funded through 2020. I want to say that it could be as high as a couple billion over multiple years, but again, no specific timing has been announced.

Yes, I have a couple of questions. Bill, during the call, you mentioned some expectations for a potential increase in activity in the second half of 2019 from large hyperscale clients. Could you relate that to the recent comments from Intel regarding unit weakness and NTSI discussing inventory oversupply? Also, considering Microsoft is expanding their global data center regions, could you provide your insights on the potential increase in absorption in the second half?

In the first half, we had no inventory in Northern Virginia, which is our largest market, but we expect that to change in the second half, providing us with products to sell. Based on our discussions, the purchasing cycles of these cloud service providers can be unpredictable and vary significantly. Not all providers purchase on the same timeline, and some place much larger orders than others, with different regions experiencing varying demand. Generally, Virginia tends to have the highest orders while Europe has traditionally seen smaller ones compared to North America. We did experience a lull in the first quarter, but we still achieved $50 million in bookings, which we are pleased with. In many ways, we believe the quality of these bookings is stronger in the first quarter since we relied less on those large, fluctuating orders. However, I am confident that those larger orders will pick up again in the latter half of the year.

Okay. You mentioned the Chile deal in its first phase earlier. I believe you shared the deal's size. Do you have any further insights on what future phases might entail, the timing, or any underwriting details? What rates are you using for underwriting?

Sure, Michael. I'd like to provide some additional details here. This is very much in line with our Digital Realty new market entry expansion, which is completely driven by customer demand. In this case, the project is secured by simultaneous customer agreements and our control over land, leading to the start of construction. We are looking at a data center hall in Santiago that will exceed 6.3 megawatts, and there's potential for growth as well, possibly adding another 20-plus megawatts nearby. Following this, we are likely to see more customers interested in expanding in this market. Mike, you probably know it, but the initial structure is leased hall, and that is really a function of time-to-market. Our expectation is that we will purchase that asset.

Okay. I have a quick clarification, Andy, regarding the adjusted EBITDA guidance. Is it the same as what you provided for the fourth quarter? I didn't see any adjustments for Ascenty. Can you confirm if this guidance is the same or if there has been a change?

Sure. I believe we provided guidance for the adjusted EBITDA margin, not specifically for Chile EBITDA. If you review the guidance table along with the assumptions and the final output, you'll see that we've maintained consistency without any changes. Going back to our initial guidance at the beginning of January, we aimed to outline what 2018 would look like in light of the new accounting standards under ASC 842.

Regarding your comments on focusing on growth, particularly with developments expected at the year's end, does it make sense to consider the possibility of slowing dividend growth to support this growth? Or is that just an effect of scaling? Additionally, I would appreciate a follow-up on how you view the dividend growth rate.

Thanks, Richard. I don't believe this is an either-or situation between dividend growth investing and future top-line growth for the platform. The growth in dividends is fundamentally linked to the increase in taxable income as a REIT and, ultimately, our cash flows. Currently, we're at around a 70% AFFO P/E ratio, following our dividend increase of just under 7% last quarter. With regards to cash flows, I expect to see growth into 2019 and beyond, which should lead to an increase in dividends. I aim to avoid over-distributing and to keep a substantial portion of our capital to mitigate reliance on external markets for funding our development opportunities. Meanwhile, we are definitely investing in and prioritizing the acceleration of our growth. This is a key focus for our new Global Head of Sales and Marketing, Corey Dyer. We’ve implemented changes to boost growth and emphasized our target on enterprise customers looking for colocation and interconnection on a global platform. Ultimately, I see both objectives as achievable at the same time.

Thank you, Andrea. I'd like to wrap up our call today by recapping our highlights for the first quarter as outlined here on the last page of our presentation. First, we further expanded our global platform, closing the Ascenty joint venture with Brookfield, securing strategic landholdings in key global metros, and announcing our entry into Chile in support of our strategic customers' global growth aspirations. Second, we also underscored our commitment to delivering sustainable growth for all stakeholders with efficient and socially responsible capital raises, renewable energy contracts, and corporate governance enhancements. Third, we raised the dividend by 7%, the 14th consecutive year we've raised the dividend, dating all the way back to our inception in 2004. Last but not least, we further strengthened our balance sheet with the redemption of high coupon debt and preferred equity and the opportunistic issuance of $1.6 billion of long-term capital. As I do every quarter, I'd like to conclude today by saying thank you to the entire Digital Realty family, whose hard work and dedication is directly responsible for this consistent execution. Thank you all for joining us, and we look forward to seeing many of you at NAREIT in June.