Digital Realty Trust Inc (DLR) — Q4 2019 Earnings Call Transcript

Thank you, Sean. The speakers on today's call are CEO, Bill Stein; and SVP Finance, Matt Mercier; CIO, Greg Wright; CTO, Chris Sharp; and Corey Dyer, EVP Sales and Marketing, 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 a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Investors are encouraged to read the proxy statement and prospectus with respect to the proposed transaction between Digital Realty and Interxion and other relevant documents filed with the SEC because they contain important information. You may obtain a free copy of these documents from the SEC's website at sec.gov or from the websites of our Investor Relations department of either Digital Realty or Interxion. Before I turn the call over to our CEO, Bill Stein, I'd like to highlight our fourth quarter results. We extended our global footprint, reaching agreements to combine with Interxion and to enter India. We enhanced our portfolio quality, recycling capital from fully stabilized assets into network-dense interconnection hubs. We launched PlatformDIGITAL, a unique global data center platform designed to enable customers to scale digital business. We advanced our sustainability initiatives with incremental renewable energy agreements and several industry awards. Lastly, we further strengthened the balance sheet, locking in long-term debt and preferred equity capital at record low coupons. With that, I'd like to turn the call over to Bill.

Good afternoon, and thank you all for joining us. Our formula for long-term value creation is a global, connected, sustainable framework. We advanced each of these three pillars in 2019, culminating with the addition of a new member to the Digital family. We congratulated our friend and partner Andy Power, along with his wife Sarah, on the arrival of their baby girl, Madison Elizabeth, earlier this week. We continued to expand our global footprint, highlighted by our entry into a definitive agreement to combine with Interxion in a highly strategic and complementary transaction that will create a leading global provider of cloud and carrier-neutral data center solutions. We also executed a memorandum of understanding with the Adani Group to pursue a joint venture in India and we are actively exploring opportunities to establish our first presence in this vast untapped market with tremendous growth potential. Yesterday, we announced an agreement with Clise Properties to acquire a 49% ownership interest in the Westin Building Exchange in Seattle. The Westin Building is one of the most densely interconnected facilities in North America. It is home to leading global cloud content and interconnection providers with over 150 carriers and more than 10,000 cross-connects. As you are probably aware, we've closed $1.4 billion of asset sales over the past three months. Pro forma for the asset sales of Westin Building and the combination with Interxion, network dense, performance-sensitive assets will make up nearly half of our portfolio, up from a little over one-fourth as of September 30th. Taken together, you can see the strategic direction uniting each of these individual pieces. We are deliberately recycling capital from stabilized assets and reinvesting in higher growth opportunities, sacrificing near-term earnings growth for long-term value creation. We've also made significant strides extending our sustainability leadership, as outlined here. In October, we announced renewable energy agreements in Northern Virginia and Oregon. In November, we were honored to receive NAREIT's Leader in the Light Award for data center sustainability for the third consecutive year. In January, we earned EPA ENERGY STAR Certification for exemplary energy performance in 29 data centers, the second year in a row we achieved the most ENERGY STAR Certifications in the sector. Also in January, we issued €1.4 billion of green euro bonds, marking our third green bond issuance, and we are now the largest U.S. REIT green bond issuer. Our green bond framework is aligned with ICMA Green Bond Principles, with a second-party opinion provided by Sustainalytics. Additionally, in January, some of our largest customers and investors unveiled sweeping sustainability commitments, particularly focusing on improved disclosure for shareholders. We have included SASB-aligned disclosures in our 10-K for the past two years, and our ESG Report contains extensive additional information about our approach to managing the impact of climate change. Our ESG Report also addresses relevant themes of the TCFD framework. We are committed to managing our environmental impact and optimizing our use of energy and natural resources because we believe it's the right thing to do, and because it matters to our customers, our investors, and our employees. We are committed to delivering sustainable growth for all stakeholders and serving a social purpose. In January, we announced the appointment of two new directors, expanding our Board from nine to eleven members. Our governance principle behind the Board refreshment philosophy balances fresh thinking and new perspectives with experience and continuity. The average tenure on our Board is less than six years, while our Chairman and former Chairman have both served on the Board since our IPO. We are particularly excited about the new perspectives and expertise our two new directors will bring to the Board. Specifically, Alexis Black Bjorlin provides unique connectivity and customer perspective from her experience at leading global providers across the cloud and communications value chain. Lieutenant General Dash Jamieson brings invaluable cyber security expertise from her tenure as former Director of U.S. Air Force Intelligence Surveillance, Reconnaissance, and Cyber Effects Operations. We are delighted to welcome them both to our Board, and we look forward to benefiting from their leadership and expertise for years to come. Let's turn to an update on Interxion. In early January, we raised €1.7 billion of euro bonds with a weighted average maturity of approximately seven years and a weighted average coupon of approximately 1%. We intend to use a portion of the net proceeds from these bonds to refinance Interxion's outstanding debt. The bond offering is not contingent upon the completion of the combination with Interxion, but if the combination is not consummated before the end of next January, we will be required to redeem €1.4 billion of the euro bonds at 101% of par. In late January, the SEC declared our S-4 registration statement effective and we launched the exchange offer for shares of Interxion. Following the registration statement, Interxion filed its Schedule 14D-9, which included the background on the transaction from their perspective, fairness opinions from their advisers, and their Board's unanimous recommendation in support of the exchange offer. Once the Schedule 14D-9 was filed, both companies began mailing proxy materials for our respective shareholder meetings, which are scheduled for February 27. In terms of the regulatory process, we've received clearance from the antitrust authorities in Austria, Germany, and the Netherlands, and we are now just waiting for decisions on our foreign investment filings in France and Germany, where we currently own and operate data centers. Regarding integration, planning activities are underway, but until the transaction closes, it remains business as usual and we continue to operate as two independent companies. In terms of timing, we remain on track and subject to regulatory clearance and other closing conditions; we expect to close sometime in the second quarter. During the fourth quarter, we launched PlatformDIGITAL, continuing our focus on the customer, an evolution of our Connected Campus strategy. We also unveiled our platform roadmap to underpin the next wave of digital transformation in response to market demand. Enterprise customers are demanding a global fit-for-purpose data center platform experience to rapidly deploy, connect, and host distributed IT infrastructure to scale their digital business. To address this demand, we introduced four solution offers, productizing specific combinations of space, power, cross-connect, and management controls. These solutions enable enterprise deployments of network, security, and data infrastructure at global points of business presence. The launch of PlatformDIGITAL has been well-received by the industry, including customers, partners, and industry analysts. At MarketplaceLIVE in November, Cisco, IBM, and Vapor launched partner-validated versions of PlatformDIGITAL solutions, and numerous industry analysts published highlight reports. We are excited about the PlatformDIGITAL launch as it positions us to capture the significant incremental addressable market by serving the global needs of the enterprise. Let's turn to the favorable secular demand drivers underlying our business along with industry analysts' recognition of the leadership role Digital Realty has to play. According to the IDC CEO Survey, digital transformation is expected to enable over $18 trillion of economic value-add over the next three years. Gartner recently predicted enterprise global IT spending at almost $4 trillion, reflecting rapidly growing investment to build distributed IT and data center infrastructure. During the fourth quarter, Digital Realty was named a worldwide leader in the IDC MarketScape Colocation and Interconnection Services Vendor Assessment Report, noting that PlatformDIGITAL provides a global scale platform to enable digital transformation on a consistent, modular basis. We are honored by the strong confirmation of Digital Realty's unique positioning to capture the global data center demand opportunity. We continue to see early indicators of digital transformation demand on our platform. We captured a record number of new logos last year led by our enterprise vertical, as these customers began to deploy and connect components of their digital infrastructure globally. Given the resilience of the demand drivers underpinning our business and the relevance of our portfolio to meeting these needs, we believe we are well-positioned to continue to deliver sustainable growth for customers, shareholders, and employees, whatever the macro environment may hold in store. With that, I'd like to turn the call over to Matt Mercier to take you through our financial results.

Thank you, Bill. Let's begin with our leasing activity. We delivered another solid quarter of leasing activity, with particular strength in APAC and the Americas. We signed total bookings of $69 million, just shy of our all-time second-best, fourth-quarter bookings, which included a $7 million contribution from interconnection. We signed new leases for space and power totaling $62 million, with a weighted average lease term of a little over six years, including an $8 million colocation contribution. I would like to point out that we see the lines blurring between product types, and the distinction is becoming less meaningful. As a result, we expect to evolve our disclosure in the coming quarters to more closely align with our customers' buying behavior and the way we manage the business. We aim to consistently improve the transparency of our financial disclosures, and as always, we welcome additional input from analysts and investors in the process. During the fourth quarter, we added 51 new logos, which was our third-highest new logo quarter, and our two best came in 3Q '19 and 2Q '19. For the full year, we added 250 new logos—nearly 40% better than the prior year—underscoring the traction we're gaining within our enterprise segment. In APAC, we saw strength in Sydney, Singapore, and Osaka. In the Americas, we quietly leased another 18 megawatts in Ashburn during the fourth quarter, and similar to the previous quarter, our biggest deal in this market was just 6 megawatts, demonstrating broad-based strengths of demand. As Andy predicted last quarter, the Ashburn pendulum has swung back a bit quicker than just about anyone expected a year ago. The tremendous scale and connectivity of our Ashburn Connected Campus outperformed in a crowded, competitive backdrop. On the heels of additional activities since year-end, our Northern Virginia active development pipeline is now 100% pre-leased. We have not yet begun to see upward pressure on pricing given competitive supply elsewhere in the market, but rental rates have stabilized. We are beginning to field mutually exclusive requirements for the remaining capacity, and available blocks of contiguous inventory are becoming scarce. Needless to say, while the Ashburn market is not entirely out of the supply and demand woods just yet, we remain bullish on the long-term prospects for communications infrastructure in the Commonwealth, as well as our position in the market, given the diversity of our large and growing installed base of customers seeking additional footprint on the campus, and the value of our strategic land holdings, which provide the longest run rate for their growth. Several specific fourth-quarter wins speak directly to our ability to address customer needs with our global platform and full product spectrum offering. PathAI is the world's leading provider of AI-powered technology for advancing pathology research, using machine learning and deep learning techniques to drive faster, more accurate diagnosis of diseases like cancer. The Boston-based startup partners with some of the world's largest life science companies, such as Bristol-Myers Squibb, LabCorp, and Gilead Sciences. As a company that was born in and until now operated exclusively in the cloud, this is PathAI's first deployment of physical infrastructure. Given the GPU-intensive nature of their IT environment and rapid growth, PathAI was struggling to control their monthly cloud spend. Their deployment into Digital Realty's move-in ready capacity will enable them to pull over 80% of their GPU workload out of the cloud to better manage and predict the costs associated with their high-performance computing environment. Our PlatformDIGITAL solution addresses multiple needs for a global social media provider, including the need for network point of presence with the ability to connect directly to our communities of interest locally and globally, as well as a testing environment for their larger deployment in the same location. This customer was able to leverage our Connected Campus and Internet Gateway, which is really the power of PlatformDIGITAL—the ability to connect to the subsea cable that provides substantial bandwidth for traffic to markets across Asia Pacific was another key driver. They trusted the Digital Realty team, and we're confident we can move quickly, think creatively, and, most importantly, execute. We enjoyed notable success in re-leasing previously occupied or move-in ready inventory with a U.S.-based designer, developer, manufacturer, and global supplier of a broad range of semiconductor and infrastructure software products. The Digital Realty team closed a multi-site, multi-country deal with this customer that included a combination of move-in ready locations alongside a large colocation deployment. Digital Realty was awarded the business due to our ability to quickly negotiate terms while remaining flexible in scope to be into market and expansion options. This win was a prime example of our global multi-product platform meeting our customers' digital transformation needs. Lastly, just to give you an example of the breadth of companies using PlatformDIGITAL to enable and help scale their business, we landed a deal this quarter with an advertising company that creates patented, world-class ad tech that delivers viewable, high-impact ad formats for brands, agencies, and publishers looking to maximize ROI. They serve their global client base through unmissable digital ad formats using patented ad-serving technology. They selected Digital Realty because we offer a flexible solution they could customize as they grew, as well as connectivity to global Internet providers. Turning to our backlog, the current backlog of leases signed but not yet commenced stepped up from $99 million as of September 30th to $116 million at year-end. The lag between signings and commencements during the fourth quarter was a bit better than our long-term historical average at four months. Moving on to renewal leasing activity, we signed $117 million of renewals during the fourth quarter in addition to new leases signed. As you may recall, 2019 was our all-time high in terms of lease expirations, and we signed over $500 million of renewal leasing in 2019—more than 50% higher than our previous record year—with a weighted average lease term of nearly nine years. For the full year, we retained a little over 80% of expiring leases, right in line with our long-term average, while cash rents rolled down 1.3%, much better than our initial expectation of a high single-digit decrease. As you may recall, we successfully executed both legacy deal renewals for our long-term top customers, as well as the long-awaited legacy DFT customer renewal in 2019. As you can see from the lease expirations schedule, less than 16% of the portfolio expires in any given year compared to the 23% we faced at the beginning of last year, which should set the stage for a low churn hurdle going forward. Aside from a few select supply-constrained regions in metro areas, we have yet to see broad-based rental rate growth across most markets. However, we are continuing to make significant progress cycling through peak vintage renewals; a large share of our portfolio has recently been leased at current market rates, and we are beginning to see barriers to entry emerge in a growing number of markets around the world. Thus, we expect to see continued gradual improvement in cash re-leasing spreads into 2020 and beyond. In terms of fourth-quarter operating performance, overall portfolio occupancy slipped 60 basis points to 86.8%, due to a handful of move-outs across the portfolio. After successfully navigating the record expiration year in 2019, we expect to generate positive net absorption in 2020 with improving portfolio occupancy on the heels of significant progress backfilling this recently available capacity. For the full year, same capital cash NOI was down 4%, at the low end of our guidance, reflecting an 80 basis point FX headwind, continued pressure from property taxes, and the record high lease expirations in 2019. Although we still face some same-store headwinds from higher property taxes and downtime from refurbishing and re-leasing available capacity, we do expect to see improvement going forward. The U.S. dollar continued to climb relative to prior year exchange rates, and FX represented roughly a 70 basis point headwind for the year-over-year growth in our reported results from the top to the bottom line. Turning to our economic risk mitigation strategies. 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 long-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 would have less than a 20 basis point impact on 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 down 3.6% year-over-year, primarily due to two months of dilution from the Mapletree joint venture. While we are not providing formal guidance for 2020 at this time, given the number of moving parts related to our pending strategic combination with Interxion, as well as the acquisition of our partner's interest in the Westin Building, we do want to share a few forward-looking data points. On a standalone basis, we expect reported top-line revenue growth for Digital Realty to be roughly flat year-over-year, reflecting the full-year impact of $1.4 billion of asset sales, as well as a one-quarter consolidated revenue contribution from Ascenty in 2019, prior to closing the joint venture with Brookfield on the last day of 1Q '19. Adjusting for the revenue related to these private capital efforts, and excluding any potential contribution from the Westin Building acquisition, we expect to generate organic revenue growth in the mid-single digits in 2020. We expect to maintain industry-leading EBITDA margins in line with the prior year. In terms of financing, we have positioned the balance sheet with outsized liquidity in anticipation of closing the combination with Interxion. In January, we closed on the $557 million Mapletree portfolio sale at a 6.6% cap rate. We also successfully raised €1.7 billion of euro bonds at a blended coupon of 1%. As you may recall, €1.4 billion of these euro bonds will initially be used to refinance Interxion's outstanding debt. These bonds included a special mandatory redemption provision and will be retired at 101% of par if the Interxion transaction does not close. Finally, we expect to settle our $1.1 billion equity forward in the third quarter. Hopefully, this high-level color provides some context for our 2020 outlook, and we expect to provide formal guidance, along with the underlying assumptions on the heels of closing the combination with Interxion. Lastly, let's turn to the balance sheet. Net debt-to-EBITDA dropped by four-tenths of a turn to 5.7 times at year end, as proceeds from the Mapletree joint venture were used to pay down debt, while fixed charge coverage remained healthy at 4.1 times. Pro forma for the Mapletree portfolio sale and settlement of the forward equity offering, net debt to EBITDA remains in line with our targeted range at approximately 5 times, while fixed charge coverage is approximately 4.6 times. In terms of capital raising activity, in early October, we raised $345 million of perpetual preferred equity at 5.2%—an all-time low preferred equity coupon for Digital Realty. The next day, we opportunistically tapped the euro bond market, raising approximately €550 million of 8.5-year paper at 1.8%. Finally, in early January, we came back to the euro bond market and raised €1.7 billion of euro bonds to refinance Interxion's outstanding debt. Bill mentioned the weighted average maturity was approximately seven years, and the weighted average coupon was approximately 1%. This successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu of public, as well as private capital, setting us apart from our peers and enabling us to prudently fund our growth. As you can see from the chart, our weighted average debt maturities are over six years, and including the January bond issuance, we have lowered our weighted average coupon down another 25 basis points this quarter to 2.9%. Approximately half of our debt is non-U.S. dollar denominated, acting as a natural FX hedge for investments outside the U.S. Over 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. Our balance sheet is poised to weather a storm, and also position us for growth opportunities for our customers around the globe. Consistent with our long-term financing strategy, this concludes our prepared remarks. We will now be pleased to take your questions. Sean, would you please begin the Q&A session?

So my first question is around the transaction with Interxion and wondering if you have any sort of thoughts about the anticipated timing around the foreign investment filings in France and Germany that you alluded to? And then as you proceed with planning, I know you're understandably limited to a degree prior to the close. But what steps are you able to take over in Europe prior to the transaction close to facilitate the integration once the deal is concluded?

Jon, it's Greg Wright. Let me take your question. The first one, with respect to where we are in the Interxion transaction, specifically, let's just go through a couple of things. We have received antitrust clearance, as Bill said, in all three jurisdictions where we need approval—in terms of Austria, Germany, and the Netherlands. That's on the antitrust clearance side. We're still awaiting decisions for the foreign investment filings in both France and Germany, and while it's hard to project when that response will come back, it’s encouraging that we’re already in both of those markets. We feel we are making progress and will continue to announce to the market as we get additional updates. That was your first question. On the second question, regarding the steps to integration, we're currently planning for integration, as you can imagine. So far, though, the primary focus has been on regulatory approvals going effective with the SEC and launching our exchange offer. We have started to ramp up the integration efforts with our colleagues at Interxion. We've identified people and teams to lead the integration. We have also identified integration consultants. We are at the point where select individuals on both sides can begin connecting with each other, while ensuring we consult with our legal teams to do everything correctly. So that's where we are with respect to that.

And then maybe just a follow-up more on the operational side, but PlatformDIGITAL, I’m curious about which metros you've been seeing the most commercial progress towards driving more connectivity-driven and retail business. Any color around sales cycles and if there’s any kind of lengthening or shortening that you're seeing, as well as book-to-bill trends you talked about that, I think maybe in reference to wholesale, but anything sort of commercially related to connectivity and retail and PlatformDIGITAL would be interesting to hear.

Jonathan, this is Corey Dyer. Just going to help out with the PlatformDIGITAL question you had. You asked about where we've been noticing progress and where we've seen it take root. PlatformDIGITAL really is about the enterprise and selling globally, so it's not really a situation where we're looking at specific markets. That said, we launched it in November at MarketplaceLIVE, our event that we put out or resurrected. We’ve received excellent feedback from media analysts and the analysts themselves. If you refer to the IDC report, it has just ranked us in the leader segment for that along with one of their groups. So we are thrilled with how it's been rolled out and what we're seeing from traction with customers. We referenced earlier a couple of different wins. We had one of the largest investment banks deploy six different network hubs with us to support their architecture and service their customers and employees. We also have a large agricultural firm doing the same kind of deployment across multiple regions with us. So we've noticed it picking up remarkably well across the globe for us. The cadence of commencement dates, to your follow-on question, I think you will notice some shortening of that cycle. To your point around wholesale, we tend to see that commence a little later compared to others. These will drive much more co-location for us and will result in more enterprise wins, leading to a quicker or shorter time between booking and commencement. I believe that answered all your questions. Greg, do you have anything else?

No, I think you've covered it. Thanks, Jonathan.

So I wanted to circle back to the Seattle acquisition that you announced and discussed on the call here. Could you provide insights into the thought process behind this transaction and its return profile relative to that of legacy Digital and perhaps how it compares to what you're doing over in Europe, if at all?

Jordan, this is Greg. Let me take that question. With respect to the Westin transaction, I think Bill covered really the merits of the transaction—boosting connectivity and network density. As he mentioned, this is the sixth most interconnected building in North America, boasting over 250 networks and more than 10,000 cross-connects. It really is the Internet gateway to the Pacific Northwest. The way the process started is that our partner has been a terrific partner, and they decided they wanted to sell. We have always said our strategy is to increase our ownership of Internet gateway and highly connected assets. When that is your mandate, you cannot get better than the Westin building, so that was the rationale behind it. In terms of returns, I would say somewhere in the mid to high 5% cap rate, call it a little less than 18 times on an EBITDA multiple basis. Regarding growth projections, clearly, with any of these highly connected Internet Gateway buildings, we expect greater growth than our portfolio average, just because these buildings, as we know from Saramacca, 60 Hudson, and similar, are quite special. You obtain outsized growth with them. That was the strategic rationale. In response to your question concerning Europe, it’s a very similar strategy. We've had several objectives with the Interxion transaction: to expand our footprint in Europe, to increase our ownership of Internet Gateway and highly connected assets, and to strive for a leading European platform. With Interxion, we achieve all of that. We will gain a broader footprint and product offering to serve our customers, which is paramount. It's going to allow us to do what they do best and overlay that onto our portfolio. This will also accelerate growth and ultimately create increased value for us. I believe I've covered your questions, Jordan. If I missed anything, please let me know.

No, I think you nailed it. I assume we're going to close in the next couple of months or so. But as it relates to Ashburn, I wanted to come back. It sounded like you are quietly signing some significant leases here, 18 megawatts. Could you share if there were any new logos signed in that market during the quarter? Any other insight you can offer in terms of availability within your portfolio? You mentioned that you were largely leased on your development there, but it sounds like you're sorting out some availability as well.

Yes, Jordan. This is Matt. We've had a lot of success in Northern Virginia both this quarter and last quarter. In fact, Northern Virginia was our number one market for leasing during this quarter. Overall, as we mentioned in the commentary, the market really rebounded in the second half of the year. While absorption was down slightly from 2018, it was higher than in 2017 overall. Specifically, to your question, subsequent to the end of the quarter, we leased another 20 megawatts in that market. Of those, 12 megawatts were in our development portfolio, which now brings that up to 100% leased. Another 8 megawatts were within our operating portfolio, which was already slightly over 90% leased. Thus, we've improved the overall occupancy in that market, and we're excited about Northern Virginia and the robust demand we’re continuing to see.

Thanks, Jordan. I'd also like to add a bit about our overall efforts in that market with our master plans and land banking. It truly allows us to be prudent in how we can bring infrastructure to our customers in a balanced manner. While new logos is one way to look at it, it’s also about new types of infrastructure coming to market. As AI and machine learning grow more prevalent with major providers, they need to be near their existing infrastructure. Our work in that market to master plan the right-of-ways and how we can future-proof existing assets is uniquely valuable.

A couple if I could. I am just going to follow up on the last question. It’s a wide-ranging commentary about the funnel for hyperscale demand in general. Maybe you could tie that back to your commentary about Ashburn, what you're seeing there and this funnel in general. And then one of the interactions, if I could, remind me about the tax ability for that deal for Interaction investors and the other details behind that.

So Michael, this is Corey. I'll take the first part of your question around Ashburn competition, because I think that's what you’re driving at, and we can get to the other tax-related questions in a bit. First off, yes, we’ve been successful in Ashburn, thanks to the value of our platform and diverse offerings. Considering the customers already located there and their demands, we've secured some significant leases and are working with customers who need proximity to augment their existing infrastructure. It’s important to highlight these same customers are often the scaling customers we collaborate with globally, and our relationships help us continue to win opportunities. Lastly, we are engaging in this Tetris game of how we accommodate the demands coming our way while ensuring we cater to our customers effectively. Overall, we feel strong about this funnel. Our funnel for 2020 appears well positioned, leading us into a good start.

And just a follow-on.

Mike, go ahead.

Sorry, go ahead. I’ve got a follow-on. I think you clarified so, I mean are you saying that kind of the customer base being diverse explains the 80 new to Westin bookings that you're seeing with a more diverse customer base, whether it's industry-wide or geographically? Is that part of what we're seeing here?

Yes, let me. This is Matt again. We noticed in Northern Virginia that we had widespread activity across multiple customers within cloud, content, and gaming leading the way in that market. We also saw a number of international clients coming into Northern Virginia, with major signs of APAC-based technology companies in that market during the quarter, and we expect continued growth in that area going forward.

Yes, hey Michael, it’s Greg. Sorry to interrupt you there before. Regarding your second question on taxation of the Interxion transaction, you're right. We outlined this in the S-4 and mentioned it on the original call. The deal is a taxable transaction for U.S. federal income tax purposes for U.S. holders of the Interxion shares. We considered several tax implications while structuring this deal. There were numerous tax considerations from both sides. Our objective was to find the most efficient structure that enables us to securely pay the price agreed upon. Not all shareholders pay U.S. tax, and some may have been exempt. Furthermore, not all shareholders hold the same basis—some may have minimal gains compared to others. Taxable transactions are common when the market value of what’s being paid significantly exceeds the tax basis; if you acquire the stepped-up basis, it provides tax shelter moving forward. Importantly, the structure we devised ensures that tendering shareholders will be able to avoid the 15% Dutch withholding tax, providing they tender. I hope that clarifies the tax impact for you.

No, that's great detail. Thank you very much, guys.

I had two questions regarding some of the metrics. First, could you elaborate more on the commentary around cash leasing spreads, unpacking what happened in the quarter and the experience you're seeing between retail and colocation? Also, could you share insights into some of the large deployments from your customers? Secondly, there was a comment about expecting the same store NOI to improve. Does that mean for 2020 there will be less of a decline, or is actual net positive growth expected? How should we assess what's happening in relation to all of that?

Yes, so let me take your second question first, and we can circle back to your first one. Yes, within the quarter, we came in at around the lower end of our stabilized NOI growth forecast. I believe as we noted in our commentary, we experienced about a 1% negative impact from FX rates and an additional 1% attributed to uncontrollable costs, primarily property taxes. Much of the remaining impact relates to our record expiration year in 2019. Even though we had around 80% retention, which is a solid metric, we’re starting to see green shoots. In the fourth quarter, we backfilled 15 megawatts into available inventory, which is around 40% of our total signings. Our backlog today shows about a 100 basis points improvement in occupancy. Most of our available inventory is in high-demand core markets, leading us to remain quite optimistic regarding organic growth moving ahead. The same comment translates to leasing spreads. Throughout the year, we signed leasing agreements totaling a record $500 million, slightly below current expectations, but we performed better than our forecast. We anticipate a decrease in the volume of expirations next year, so we are optimistic about our mark-to-market experience in the future.

Yes, thank you. Circling back to the deal you announced yesterday with the 49% additional stake in the Westin property, can you elaborate on your ability to expand internally or if there is any adjacent land that you could potentially develop to capture additional opportunities?

Yes, thanks, Erik. This is Chris. We are very excited about the Westin Building. There is indeed some ability to expand there, and with the new offerings discussed earlier by Bill and Matt, regarding how we leverage interconnection, we will be able to add more value to the existing customer base there. We also have some additional power we can introduce. Ownership enables us to control how we evolve that infrastructure, guaranteeing we maximize returns for our customers. I'll turn the second part of your question over to Greg.

Yes, thanks Chris. In terms of adjacent land, it’s important to note that we own the building next door with our partners at Clise. But also, one thing about the Westin is the significant connectivity it offers beyond just adjacent lands. When considering connections to Canada, Asia Pacific, and our Hillsboro project, this endeavor gives us tremendous connectivity across the board at all connection points. That adds substantial value to a project like Westin, which extends beyond immediate adjacency into larger, broader connectivity elements. If there is any nearby land or building that we’re not managing, please let us know, we’re very interested. Thank you.

And then maybe just my follow-up. Can you provide any updates on Brazil, particularly regarding Ascenty? How much did they contribute to the Americas this quarter, and how do you assess that market currently?

Erik, it's Greg. On Ascenty, we are on top of our targets for 2019. A couple of significant takeaways: we've observed major U.S. cloud service providers take extensive space over the last 24 months. It's important to note that, regarding the transaction, there were 14 assets—eight existing and six under construction. Currently, those 14 assets are 99% leased. We believe Ascenty remains the dominant platform in the region to generate significant follow-on growth opportunities in additional markets like Chile. There was a slight pause in the previous quarter, but as we've seen elsewhere, demand will eventually return once customers absorb enough capacity. Chris and his team have executed excellently and have an attractive pipeline for 2020. Matt can share how much they contributed to the quarter.

Yes, the contribution to the quarter was minimal. However, we are noticing an acceleration in the first quarter. They have already signed more in the first quarter than they did in the fourth quarter, indicating positive momentum in the South American portfolio, similar to what we're seeing in our overall portfolio as cloud providers ramp up.

This is Chris, just to emphasize that we are still in the early phases of building our ecosystem in Brazil. It's a critical element for us and indicates a positive direction.

It's interesting to hear the commentary on Ashburn; that’s encouraging. Can you detail to what extent changes in the competitive dynamic there are occurring? Are you witnessing shifts in how private players position themselves concerning capital commitments or delaying builds? Are there any supply-side changes? It's also encouraging to see lease renewals spreading out from here, but should we be aware of any potential churn events, or do you expect churn to remain fairly stable throughout the year?

No, Simon. This is Chris. Ashburn is a phenomenal market; it's unique in the industry as we all know. With private competitors, it's often overlooked that platforms increasingly matter to our customers. Access to broader revenue in every major market around the globe, along with the ability to land and expand with us, and the work we’ve done to create land banks differentiate us from these smaller private companies. Regarding supply, I would echo what we’ve mentioned previously. Given the current supply and demand situation in Northern Virginia, we wouldn’t expect to see any new private capital coming into development property in that market. Having said that, while we’ve seen private spaces that may not be leased, we’ll monitor concessions and other factors as well. We’ve seen success due to our diversified platform, and we plan to leverage that going forward.

Yes, Simon, I’d echo everything Chris said. Regarding churn, we experienced an elevated overall expiration pool this year, but our churn is relatively aligned with historical averages—around 80%. We've a substantial decrease in our expiration pool for next year and expect churn to improve even more in 2020 than what we experienced in 2019. We're excited about our overall portfolio management as we navigate the leases coming back to us in 2020.

On the M&A front, clearly, there’s a lot on your plate with Interxion and Westin in progress. Equinix recently announced the acquisition of Packet. I’m interested in your thoughts on whether Digital could look into pursuing similar types of deals as you build out the interconnection platform, and are these transactions something customers are asking for?

Ari, this is Chris. It's certainly something that was expected in the market. My perspective is that we have a philosophical difference here. Our platform seeps being open. One of the core elements we value is not competing with our customers and partners. Instead, we aim to invest in them rather than compete. The work we’ve done in creating one of the largest SDN fabrics globally with our service exchange powered by Megaport is critical. One of our key elements in this regard is that our focus remains unaltered. We’re committed to building the only global fit-for-purpose data center platform, supplemented by an open ecosystem approach, allowing our partners to provide higher value services like Packet. We see ourselves as a foundational element for partners and customers to meet the enterprise demand on a global scale.

I wanted to follow up on the Packet discussion and the potential to add some additional tools. I understand the industry is focused on not competing with customers, and I consistently hear that. But do you think there may be a balancing point where the industry is perhaps overly dedicated to that stance, possibly missing out on commoditized opportunities in the network that could be quite lucrative? Are you receiving direct feedback from your customers? And for my second question, what are you observing regarding potential rent roll-downs and do you believe there’s a risk of higher churn this year, with some customers potentially opting to walk away instead of moving?

No, actually, I'll address the first part. Our focus at Digital is heavily customer-led, as we prioritize understanding what their needs are. One of the elements we do well is centered around PlatformDIGITAL, which provides global reach and a repetitive need for fit-for-purpose products. That differentiates us in the industry. For various services, we find that if you focus on these higher-stack services, they can be transient, leading to service failures or complacency as the landscape evolves. Many customers already leverage purpose-built infrastructure for specific workloads. So, while a tuck-in acquisition could yield short-term benefits, we prefer aligning ourselves with substantial players in the industry to ensure our enterprises derive the full benefits from Digital deployments. Regarding your second question on churn and the potential for declines, I'll pass it to Matt.

Yes, your question on churn and mark-to-market indicates we navigated through around 25% of our portfolio this year. We encounter a material step down in the number of leases expiring this year compared to last. We are optimistic regarding our retention rates, forecasting them to exceed our historical averages for expiring leases. Additionally, we're anticipating positive mark-to-market experiences moving forward.

Thank you, Shaun. I'd like to wrap up our call today by recapping our 2019 highlights as outlined on the last page of our presentation. First, we strategically expanded our global platform, entering Chile with an anchor lease with a leading global cloud provider, acquiring a key land parcel in South Korea, and reaching agreements to explore a joint venture in India with the Adani Group, along with our combination with Interxion to create a leading global provider of cloud and carrier-neutral data center solutions, strengthening our presence in Europe. Secondly, we successfully executed on our private capital initiative, closing $1.4 billion of asset sales over the last three months and redeploying those proceeds into highly strategic investments. Thirdly, we launched PlatformDIGITAL—our unique global data center platform designed to enable customers to scale digital business, and we garnered a record number of new logos in 2019. Lastly, we further strengthened our balance sheet, raising $3.4 billion of long-term debt and preferred equity at a weighted average coupon of 3.1%. As I do each quarter, I'd like to conclude today by applauding the Digital Realty team—their hard work and dedication drive our consistent execution. Thank you for joining us, and we hope to see many of you at the Spring Conference Survey.