Digital Realty Trust Inc (DLR) — Q1 2021 Earnings Call Transcript

Thank you, Operator. The speakers on today’s call are CEO, Bill Stein; and CFO, Andy Power. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer, are also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and 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. Before I turn the call over to Bill, I’d like to hit the tops of the waves on our first quarter results. First, we demonstrated our commitment to delivering sustainable growth for all stakeholders with efficient and socially responsible capital raises and corporate governance enhancements. We continue to enhance the value of our global platform, extending connectivity offerings globally, recycling capital and investing to fuel high-quality organic growth. We delivered solid financial results with core FFO per share up 9% year-over-year and $0.09 ahead of consensus. Finally, we continued to strengthen our balance sheet, lowering our weighted average cost of debt with the redemption of high coupon debt and preferred equity, while extending our weighted average duration with the issuance of attractively priced long-term capital. With that, I’d like to turn the call over to Bill.

Thanks, John. Good afternoon and thank you all for joining us. Our formula for long-term value creation is a globally connected sustainable framework and our first quarter results demonstrate the strength of this framework. Our business is increasingly global, with first quarter bookings very evenly balanced across regions. We continue to align PlatformDIGITAL with our customers’ digital transformation issues by expanding our unique interconnection capabilities, focusing on connecting centers of data across our robust, reliable global platform. Last, but not least, we continue to advance our initiatives to deliver sustainable growth for all stakeholders. Let’s turn to our sustainable growth initiatives here on page three. We were recently honored to be named EPA ENERGY STAR Partner of the Year for Energy Management for the second year in a row. We were also recently honored to receive the 2020 largest financial Corporate Green Bond Award from Climate Bonds Initiative. We expect to publish our third annual ESG report during the second quarter, providing transparency on our ESG performance for 2020, as well as a comprehensive overview of our clean energy commitment, resource conservation, diversity, equity and inclusion, and other sustainable business practices. We are committed to minimizing our impact on the environment, while simultaneously meeting the needs of our customers, our investors, our employees and the broader society. In terms of our social efforts, we recently joined leaders across 85 industries, inciting the CEO pledge on CEO action for diversity and inclusion, an initiative to advance diversity and inclusion in the workplace. Our Board of Directors also amended our corporate governance guidelines to clarify that director candidate pools must include candidates with diversity of race, ethnicity and gender. Finally in February, our Board of Directors amended our Nominating and Corporate Governance Committee Charter to formalize oversight of our ESG programs, including sustainability, as well as diversity, equity and inclusion. We are doing our best to play a constructive, proactive role in advancing our broader goal of delivering sustainable growth for all our stakeholders, investors, customers, employees and the communities we serve around the world. Let’s turn to our investment activity on page four. We continue to invest in our global platform, with 44 projects underway around the world, totaling more than 300 megawatts of incremental capacity scheduled for delivery over the next 18 months. Half of this expansion is underway in EMEA, while the balance is split roughly evenly between the Americas and APAC. In EMEA we continued our extension of the highly connected legacy Interxion campus in Frankfurt and began construction on the Neckermann expansion campus. During the first quarter, we broke ground on the first 26 megawatts on the expansion campus which are scheduled for delivery next year. Demand in Frankfurt remains strong and our campus with access to over 700 carriers and ISPs continues to attract customers from around the world. In France, we are adding capacity in Marseille, as well as Paris. Demand in Marseille is largely driven by the 14 subsea cables that terminate in our facilities where we are transforming a former abandoned World War II U-boat bunker into a modern and vital communications hub for over half of the world’s population. In Paris, we continue to develop Interxion Paris Digital Park, while the Dunant subsea cable that links Paris to Virginia Beach was connected in our Paris campus during the quarter. We are also expanding our highly connected Brussels campus and breaking ground on another facility in Madrid to serve the broadening needs of service providers, as well as enterprises. In APAC, we recently announced the grand opening of our third data center in Singapore. We were particularly pleased to be recognized by Singapore’s Desmond Lee, Minister of National Development, highlighting the sustainable design of our most energy efficient data center in the region. Despite some COVID-related construction challenges last year, we were gratified to be able to deliver this highly connected and sustainably designed facility to meet customer needs in our tightest market. Finally, in mid-March, we closed on a sale of a portfolio of 11 assets in Europe for approximately $680 million, executing on our strategy of recycling capital from stabilized assets, reinvesting proceeds into higher growth opportunities, while prioritizing long-term value creation over near-term earnings growth. Let’s turn to the demand drivers on page five. We are fortunate to be operating in a business leveraged by secular demand drivers. Our leadership position provides us with a unique advantage point that enables us to detect secular trends as they emerge globally on PlatformDIGITAL. In the second half of last year, we introduced to our customers the Data Gravity Index, our market intelligence tool that projects the growing intensity of the enterprise data creation lifecycle and its gravitational impact on global IT infrastructure. In the first quarter of this year, we took the next step and published an industry manifesto, enabling connected data communities to guide cross-industry collaboration for our customers, as they tackle data gravity head-on and unlock a new era of growth opportunity. Recent third-party research continues to support the growing relevance of data gravity. Market intelligence from Gartner recently hosted an executive retreat and surveyed over 400 Chief Data and Analytic officers, with 83% of CEOs expecting to increase investments in digital business, with a large percentage of these firms prioritizing digital data products to drive growth. With this transition to data-driven businesses, Gartner predicts that by 2024, more than 75% of companies will deploy multiple data hubs to drive mission-critical data analytics, sharing and governance. We are seeing growing momentum across our enterprise and service provider customers deploying their own data hubs and analytics environments in multiple metros on PlatformDIGITAL. As I mentioned earlier, Digital Realty was recently named ENERGY STAR Partner of the Year by the United States Environmental Protection Agency for the second consecutive year. This award reflects our sharpened focus on driving sustainable design and operations on PlatformDIGITAL, underpinned by ambitious science-based targets to significantly reduce our carbon footprint by 2030. We are honored by the strong validation of our platform and our market-leading innovation to capture the growing global data center demand opportunity from data-driven businesses. Given the resiliency of the demand drivers underpinning our business and the relevance of our platform to meeting these needs, we believe that we are well-positioned to continue to deliver sustainable growth for customers, shareholders and employees, regardless of what 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 turn to our leasing activity on page seven. We signed total bookings of $117 million in the first quarter, including a $13 million contribution from Interxion. Network and enterprise-oriented deals of 1 megawatt or less totaled $33 million, building upon our consistent momentum and demonstrating the growing success of PlatformDIGITAL, as we continue to capture a greater share of enterprise demand. The weighted average lease term was over seven years. We landed 100 new logos during the first quarter, with a strong showing across all regions, again demonstrating the power of our global platform. The mix of our new signings was quite healthy, with APAC and EMEA, each contributing approximately 30% and the Americas accounting for the remaining 40%. In addition, nearly 40% of bookings were generated within the megawatt or less category, with strength in the e-commerce, gaming and financial services segments. In terms of specific wins during the quarter and around the world, a particular highlight of the quarter was landing a leading APAC-based diversified digital economy platform in Singapore, where we were able to support this customer’s needs across our full product spectrum, from colocation and connectivity to a hyperscale dedicated data hall. Elsewhere in APAC, a leading cloud service provider expanded with us simultaneously in both Melbourne and Osaka. Subsequent to quarter end, we landed a leading cloud provider to anchor our Tokyo campus in Inzai, where we’ve assembled a runway of over 100 megawatts of growth capacity, as well as key magnetic connectivity solutions. In EMEA, an automotive digital technology maker deployed an artificial intelligence machine learning footprint on PlatformDIGITAL to gain access to a community of leading cloud service providers on our Frankfurt campus. In the Americas, a leading cloud provider expanded on our campuses in Sao Paulo and Rio de Janeiro. A global Industrial manufacturer leveraged a partner to deploy on PlatformDIGITAL to support growing demand, enabled by our global platform and runway for growth on our Suburban Chicago campus. A global digital advertising exchange platform expanded its presence on PlatformDIGITAL to gain access to connected data communities in the Northern Virginia Metro area, while in Ashburn, a leading video game developer selected PlatformDIGITAL to build centers of data exchange. Lastly, a global IT service provider expanded across multiple metros in North America to enable new services on PlatformDIGITAL. Turning to our backlog on page nine, the current backlog of leases signed but not yet commenced reached another all-time high of $307 million. The step-up from $269 million last quarter reflects $66 million of commencements during the first quarter, offset by roughly $104 million of combined space and power leases signed. The lag between signage and commencements was a bit longer than our long-term historical average adjusted on eight months. Moving on to renewal leasing activity on page 10. We signed $193 million of renewals during the first quarter in addition to new leases signed. The weighted average lease term on renewals signed during the first quarter was a little less than three years, reflecting a greater mix of enterprise deals smaller than 1 megawatt. We retained 75% of expiring leases, just a bit below our long-term average. Cash re-leasing spreads on renewals were negative 2.1%, which was in line with guidance, but weighed down by two customers who were new to existing capacity as part of the expansion of their footprint on our platform. These transactions are prime examples 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’re competing for new business with a customer that we are already supporting elsewhere within our global portfolio. 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 ticked down 100 basis points, driven by anticipated churn in Ashburn, as well as the sale of 11 almost fully leased facilities in Europe. Same capital cash NOI growth was negative 2.8% in the first quarter, in line with guidance and largely driven by this same Ashburn churn. As a reminder, our recently acquired Western building in Seattle, Interxion across EMEA, Lamda Hellix in Greece and Altus IT in Croatia, are not yet included in the same-store pool. However, we expect each of these acquisitions will be accretive to our organic growth going forward. Turning to our economic risk mitigation strategies on page 11. The U.S. dollar strengthened in the first quarter, but still remains somewhat depressed relative to the prior year average, providing a bit of an FX tailwind in the first quarter. As a reminder, 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 risk from an economic perspective. In addition to managing credit risk and 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 would have less than a 50-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, first quarter core FFO per share was up 9% year-over-year and $0.09 ahead of consensus. The upside relative to our internal forecasts was driven by a beat on the topline with an assist from an FX tailwind, as well as operating expense savings, primarily due to lower property level spending in the COVID-19 environment and a later budget of closing on the non-core European portfolio sale. A portion of the OpEx savings is likely timing-related and represents more of a deferral rather than permanent savings. However, substantially all of the beat flows through to the raise and we are taking core FFO per share guidance up by $0.075 at the midpoint. In terms of the quarterly run rate, we still expect the split between the first half of the year and the second half of the year to be approximately 49/51. In other words, as you can see from the bridge chart on page 12, we expect to dip down by about $0.10 in the second quarter, before ramping up fairly steadily over the rest of the year due to the mid-March closing of the non-core European portfolio sale, as well as an expected catch-up in OpEx spend previously budgeted for the first quarter. I would like to point out that although we are raising our G&A forecast by $15 million at the midpoint, our implied EBITDA margin guidance is unchanged, as the lion’s share of the increase is due to geography on the income statement as we finalize mapping the Interxion cost structure and reap characterize a portion of Interxion’s OpEx spend as overhead. In terms of our financing plans, we’ve already made great strides this year, with a highly successful $1 billion green euro bond offering in early January at 0.625%, in addition to the proceeds from the asset sales in March. As always, we expect to remain nimble for the rest of the year and we may look to capitalize on favorable market conditions to lock in long-term fixed-rate financing at attractive coupons across the currencies that support our assets to proactively manage future liabilities. Last but certainly not least, let’s turn to the balance sheet on page 13. As previously mentioned, we’ve closed on the sale of a portfolio of 11 assets in Europe for approximately $680 million and used the proceeds to pay down debt, bringing net debt to adjusted EBITDA back down to 5.6 times in line with our long-term target range. Fixed charge coverage reached an all-time high of 5.8 times, reflecting the results of our proactive liability management. We continue to execute on our financial strategy of maximizing the menu of available capital options, while minimizing the related cost and extending the durations of our liabilities to match our long-lived assets. In early January, we raised $1 billion to 10.5-year green euro bonds at an all-time low coupon for Digital Realty of 0.625%. We also retired $350 million of 2.75% bonds due in 2023 and we’ve repaid all $530 million outstanding on the term loan due in 2023. In mid-April, we announced the redemption of $200 million of preferred stock at 0.625%, also bringing total preferred equity redemptions over the past 12 months to $700 million and a weighted average coupon of just over 6.25%, effectively lowering leverage by another 0.3 turns. 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 enables us to prudently fund our growth. As you can see from the chart on page 13, we extended our weighted average debt maturity up to nearly seven years, ratcheting our weighted average coupon down to 2.3%. A little over 70% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and acting as a natural FX hedge for our investments outside the U.S. 94% of our debt is fixed rate to guard against a rising rate environment and 98% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see on the left side of the page 13, 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 feel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks and now we’d be pleased to take your questions. Operator, would you please begin the Q&A session.

Thanks. I wanted to ask a question about customer retention and new logo generation. As we look at your pending lease expirations through the end of 2022, can you provide any updates on which markets might have the greatest exposure? Also, how much of that do you think is likely to renew or extend their commitments? Regarding the new business you’re acquiring, particularly with your sub-megawatts or low single-digit megawatt colocation wins, can you characterize how much of that has a high connectivity attach rate? More generally, could you review the initiatives you have in place to enhance productivity in your direct and indirect channels and manage those ongoing relationships? Thanks.

Thank you, Jon. I'll start by addressing some of the initial questions and then I'll hand it over to Corey to discuss our channels and productivity. To begin with your second question regarding the connectivity-rich aspect of our colocation offerings under one megawatt, I would say that it constitutes a significant part of our business. Among our 4,000 digital customers, a large portion falls into this category. They are typically located in some of our most highly connected areas, often stemming from our legacy Telx business, Interxion, or the Westin building, as well as our organically developed colocation connectivity suites across North America. We have five markets in the Asia-Pacific region and others globally. This segment tends to show strong customer loyalty, low churn rates, and considerable pricing power quarter after quarter, as evidenced by the retention data in our supplemental materials. The definition has remained largely unchanged as we transitioned from the work colocation to a sizing definition. As for the first part of your question regarding the expiration schedule, I believe you mentioned 2022. I’m not sure I can predict anything that specific for that timeframe. We have been navigating through a challenging period with expirations over the past few years, particularly in 2020, 2019, and 2018. This has involved a significant volume of expirations and a mix that leaned towards less favorable pricing locations, including telco deals and multi-market major customer renewals. However, I think we’ve made progress on managing our expiration schedule. The outlook appears better than what we’ve experienced recently, and you’ve likely noticed improvements in our mark-to-market as we work through some of the more complicated contracts. You’ll see variations in the percentages related to expirations in the sub-megawatt category going forward. Overall, we seem to be making strides in the right direction regarding the expiration schedule, and I haven’t touched on our international segments, particularly in EMEA and APAC, which represent future expirations in higher entry barrier, high pricing power markets. Now, I’ll pass it to Corey to address the final part of your question.

Yeah. Hey. Thanks, Andy, and Jon, thanks for the question. I think I kind of captured it and you correct me if I missed it. But you asked a question around channels and how we’re doing there. And then a little bit about with the new logo that we’re getting an increase in interconnect I think are the questions, and, Jonathan, if I missed it, then you can always clarify it later. But I will tell you that really happy with the progress we’re making on channels of our, I will call it, enterprise business, non-scale business, the channel is now about a quarter of the business. So we’re pretty happy with the progress there. And then your question around new logos and how much of the new logos are adding interconnection to it. We’ve seen an increase in that. It really kind of just comes through when you think through PlatformDIGITAL and how we’re getting many, many more multi-use cases deployment, multi-site deployment, most of those look like network connectivity, as well as in control our hub. And so we’re seeing good progress across those and we’re seeing, I guess, the net of it is the channels bringing up a lot more new logos and those new logos are a little bit more interconnections in and they were in the past. Hopefully that answers the question.

I was just curious about the challenges raised by Interxion and the presence of many legacy Equinix members on the Board, particularly regarding any developments in machine learning, AI, and predictive analytics tools.

Oh! Okay. Yes. Thank you for the question. I'm quite familiar with the topic. While I won't comment on specific competitors, I can share that we do utilize AI and a target-based data set for both our prospects and customers. The essence of the Data Gravity Index was based on our data and insights from the industry, which helped us identify necessary shifts in infrastructure placement and connectivity across the entire spectrum of colocation. Overall, I feel confident about our position as we leverage AI and data to strategically target our customers.

Thanks, I wanted to touch base on sort of the connectivity piece of the business, looked like there were some particular strengths in your connection this quarter sequentially in particular and just kind of curious if the pacing and the growth is something that’s sustainable, that you potentially got some momentum there or if there was anything in particular that drove it?

Thank you, Jordan. Overall, we saw an increase in total volume connectivity new signs. Our Latin America segment played a significant role in this growth. Looking at the primary markets for interconnection signs in North America, we had strong performances in the typical areas like New York Metro, Chicago, and Atlanta. Additionally, we experienced notable connectivity growth in our Northern Virginia campus and our Franklin Park Chicago campus. While these locations may not have historically been seen as highly connectivity-dense, it's encouraging to see enterprises establishing and expanding their connectivity presence there. In response to Jon Atkins' question, we monitor our new logos based on year-over-year growth. While we don’t have data for all new logos due to our recent business combinations, I can say that the legacy digital subset from a year ago saw an over 10% increase in their connectivity footprint year-over-year, indicating that new logos are growing after joining us. We are definitely pleased with this progress, which aligns with many of Corey’s points about our strategic reorientation and how we are integrating key elements of our asset profile and go-to-market strategy, particularly through PlatformDIGITAL and other initiatives that are contributing to our success.

Okay. Can you provide more details about the availability in the Northern Virginia market and what customer demand looks like there this year?

In Northern Virginia, we had a remarkable 2020, selling nearly 85 megawatts overall. We experienced tight inventory levels due to that success, which is not necessarily a negative considering Northern Virginia has been recovering for some time. We concluded the year with our development pathway fully pre-leased and are currently under construction, with new buildings scheduled to be delivered this summer. We achieved almost 5 megawatts of leasing in that market, covering the full product suite. Our main focus is on the capacity we regained at the start of the year, which I mentioned was already released on the last call. We are concentrating on some of that non-retained capacity on our existing campus, and we secured an anchor deal that is a larger enterprise contract, with buildings expected to come online in the second half of the year, including a large shell that will provide 6 megawatt suites on a bi-monthly basis. Currently, we are a bit constrained as we focus on customer placements, but we are establishing a longer-term trajectory for our company towards the end of the year.

Hi. Good afternoon. Thank you for the questions. So, first, I am wondering if your posture or your approach to rental rates and renewals has changed at all in the last 12 months, given the tightening in some of the markets.

I mean, I think we have a pretty responsive pricing dynamic holistically, Mike. So it’s not just on renewals. We have a call it inventory price book for every type of capacity, for every duration of contract, for every market, for every product that is updated on a recurring basis in response to what we see in terms of the supply/demand dynamics in the market. We obviously don’t have certain overlays in terms of customer relationships or in the larger growing customers or newer customers that we kind of make sure we’re responsive to at the same time. We’re certainly not sitting by idly when a market is weaker and we need to respond to that with pricing to be more competitive. On the other flip side of that coin, we’ve had experiences like in Singapore or other markets like Santa Clara or Frankfurt, where we raised rates over time and those rates are impacting our renewals and our new pricing in response to, call it, the overall supply/demand dynamic.

And then one more if I could, Andy, so on the guidance, I saw the non-core expense add back increased for 2021. I didn’t hear you call that out in the prepared remarks. What was the increase in the non-core?

The increase in the non-core, I believe, we got a whole list of items in our FFO reconciliation that kind of hits the non-core that includes our investment in Megaport is good stock price mark-to-market when that flows through, and that obviously, is in the core up or down to our business. I believe there’s a revaluation on our debt at SMP, given it’s a resilient entity and with the U.S. dollar denominated debt to match the currency of the lion’s share of our contracts. And we also have, I think, in this particular quarter, a little bit of a benefit from our PPA settlement that we added back, because we didn’t do that as recurring benefits on core FFO.

Thank you. Corey, could you provide an update on the sales process's return to normal in various regions? Are you still able to conduct virtual tours and make connections, or do you believe there is still more progress needed to return to normal? Additionally, could you share your thoughts on the supply chain, particularly regarding building costs or inventory levels? Thank you.

Andy, you want me to take the enterprise demand question and just data use and you can just follow on the second half?

Please go ahead.

Okay. All right. So, yeah, thanks for the question. I would tell you that we’re getting closer to the state of normal, if that’s what you want to call it. Some of the things are opening up. But we’ve got a lot of ability around doing tours virtually, we’ve found a bunch of different ways to augment the need and take our customers during the pandemic. So I feel like we’re getting close to it. We’re not quite there. That said, enterprise demand has been really, really good. It’s been strong, broad-based success, still on our platform, Andy mentioned it earlier, but early innings with long tail left. We’re looking through some of the more macro trends. Gartner’s got IT spending getting at 6% growth, with about $4.1 trillion annually and only about $400 billion of that go into public cloud. So we think that enterprise demand and the point of presence and the multi-use cases, as well as multi-markets that we’re going after are going to be there and we’re seeing it continue to sustain. Well, I wouldn’t say that it’s a complete back to normal. We haven’t seen, I guess, in enterprise demand and quite frankly, we think we’ve done a pretty good job adjusting through it with all the ops and FCs and SAs we have important to it. I think that answers the question, I’m not sure if I did it.

Yeah. That’s great. Thank you.

Hey. Simon, can you just repeat the second part of the question to make sure we…

Yeah. It was really around the supply chain issues and what you’re seeing in terms of the COVID impacts on your ability to bring on data centers on time, on budget, and any cost issues you might be seeing or inventory issues?

Okay, great. Let me discuss our digital supply chain, and I will have Chris address the customer supply chain since that's been a topic of interest. I really want to acknowledge our operational design, construction, and supply chain teams for consistently staying ahead of challenges. We benefit from our scale, global presence, and extensive operational knowledge. Recently, we haven't experienced disruptions in critical equipment, delays, or cost impacts, and the team has done an outstanding job managing these issues. I can't say the same for all providers in the data center sector, particularly the smaller ones, but we've been free from disruptions. Looking at the 300 megawatts of capacity we have under development, we are well-protected against any potential inflation impacts, and we are monitoring that closely. Chris, could you also address the chip aspect?

No. Absolutely not. I echo your sentiment, Andy, the vendor management program that we have in place today, I think, is something that has allowed us to overcome some of the shortcomings of some of the infrastructure within the facilities like breakers, optical infrastructure, things like that. But that’s something that operating on a global basis has been a big benefit digital going forward. But we also stay very close to our customers and really watching if they’re having trouble procuring infrastructure to deploy their architectures into our facility. We haven’t seen a material impact on that as well. I know there’s been a lot of concern around chip shortages and things like that, but again, just to reiterate, not all chips are the same and there’s a lot of variability out there and so have not seen any kind of material impact from customers being able to deploy the massive amount of infrastructure required for their deployments as well.

Thanks. Thank you. Very helpful.

Yes. Good evening. So when I look at the updated guidance, it seems like the only major change there really is the FX assumption around the pound. So is it fair to assume guidance is going up simply because of changes in FX assumptions or is there something also kind of operationally there’s an improvement that that should also be signaled through the guidance increase?

Thank you, Tayo. The pound has become a smaller part of our business due to some recent acquisitions. While foreign exchange did help our performance in the first quarter, it wasn’t the sole reason for the increase in our guidance. We exceeded our internal forecast, which was in line with consensus. We’ve revised a few figures, including revenue and EBITDA, with the G&A adjustments primarily relating to the geographical mapping from our Interxion integrations. We also ensured that the improvements reflected in the bottom line, with an increase at the midpoint of the range of about $0.075, representing a 5% year-over-year growth, not solely attributed to FX but also driven by operational success. Some of the outperformance didn’t fully translate into our results as some operating expenses were delayed to the second, third, and fourth quarters of the year. Overall, I’m pleased with the results, which gave us the confidence to raise our guidance in the first quarter—a rarity during my six years with Digital—and I’m happy with the progress we've made.

Is that way to separate the effect of those things, the rate some of the carriers do?

We used to have a constant currency disclosure at the bottom here. I'm not sure if we have that anymore. I would estimate it to be around $0.075, maybe $0.03 from foreign exchange.

Hey, guys. Thank you for taking the question. First, maybe on bookings, can you talk about some of the strengths seen in Asia-Pac and what drove the uptick in bookings during the quarter? And then just on maybe a little bit more of a housekeeping item, margins in the quarter were pretty solid, I think they were the highest since you closed the Interxion deal, but we also saw tenant reimbursements pick up. And so I’m just wondering what was behind the pickup in utilities reimbursements, was that tied to the winter storm in Texas? And then maybe what drove some of the offsetting cost benefits that helped drive EBITDA margins as high as they were? Thanks.

Thank you, Matt. I'll address this in reverse order and involve Corey when we discuss APAC. To start with some housekeeping, we had a unique quarter regarding margins. I've directed you to our full-year guidance table concerning EBITDA margins. Our presence in Texas, particularly in Dallas, was affected by the winter storm. Our operational team performed exceptionally well to maintain service and keep customers satisfied. I received a cold call from a CTO of a major global client who needed diesel fuel rerouted to support their data center during the storm, and our team responded swiftly with just an hour's notice, managing to assist them remarkably. On the power front, we experienced an unusual increase due to the storm. Fortunately, our team effectively hedged against power costs. While this increased expenses, it also boosted reimbursements since a significant part of our Texas operations involves metered power, which gets reimbursed. Overall, considering the company's scale, this did not result in a major negative impact, even though the spike in power affected our EBITDA margins. Now for APAC, I will pass it to Corey, but we had an impressive quarter across all customer product offerings. We are now operational with five or six colocation projects across our platform in cities like Seoul, Tokyo, Osaka, and Singapore. We've had great success in these markets. Additionally, on the larger footprint side, I mentioned in my comments that a major cloud service provider partnered with us in both Osaka and Melbourne, and we also secured major anchor customers in Inzai, Tokyo. In Singapore, I'll let Corey elaborate on some of our recent achievements there.

Yes, Andy. I would just add, you hit most of the data points I was thinking through in the response. Really broad-based success across the portfolio is what I would say. AP was really successful as well. You mentioned it in your prepared remarks, diversified e-commerce customers that’s been doing a lot of business with us and we really are happy with that. But I would also tell you that our new logos coming out of that region has tripled in the last year. We’re really happy with the team. It’s where most of our organic growth as far as the sales team that we’re putting out there in place. So we’re really happy with it. But I wouldn’t get focused just on AP. I think about the broad-based platform success we’re having across all the regions. I think our largest export region this last quarter was EMEA. So we’re really excited about just kind of broad-based successful we are, and we think there’s a ton of opportunity in Asia Pacific, and yes, in Singapore, we were pretty successful selling through that large building there that we have. Andy, was there any other data point I missed? I think we hit most of them.

Thank you.

Yes. Thanks for taking the questions. Looking at your table, it looks like Europe seemed to have sort of taken a breather this quarter with leasing down and especially in the greater than 1 megawatt category. Has anything changed there, I mean, I know you talked about a pretty robust pipeline? But maybe some commentary around that, just to understand where the opportunities are and what drove this decline and if there’s anything else you can comment on?

Thank you, Erik. Europe or EMEA had an exceptional performance last quarter. I was still impressed with the results and consider it a very strong quarter. We had four different cloud service providers sign agreements in three markets: Frankfurt, two in Zurich, and one in Amsterdam. I'm quite happy with the diversity of demand and the customer energy offers. In the enterprise customer segment, Frankfurt, London, and Amsterdam stood out this quarter regarding new signings. In the non-enterprise segment, Marseille, Stockholm, and Madrid were among our top EMEA markets. Our development efforts continue to expand in EMEA, particularly on our highly connected campuses. I'm still very optimistic about growth in Europe.

Hi. Thank you. I want to refer back to slide number 10 and the 11.3% regarding the greater than one megawatt. If we consider about a year ago, you were managing a considerable number of leases and we were advised that we might see high single-digit or double-digit negative roll down. Are we mostly finished with those leases, or should we anticipate more negative rates at a similar level in other quarters in 2021?

Yes, Sam, similar to my response to Erik’s question, accurately predicting the quarterly results can be quite challenging because we cannot control when a customer renews their contract. However, I agree with your initial statement; we started 2020 with an expectation of mid-to-high single-digit negative cash mark-to-markets overall, and as we progressed through the year, we exceeded that expectation. Ultimately, it was negative but only slightly so. Our guidance was in that same range, reflecting a better outlook than the previous year. When we look at the overall results, which showed a negative 2% cash market across all products, it aligns well with what we have described. While I can’t guarantee that every quarter will be positive, I believe that based on our understanding of contract expirations and market dynamics, we are moving toward improved conditions for those mark-to-markets.

Thanks. With this sort of emphasis on a smaller scale business, I’m curious how at the overall portfolio level you sort of triage the opportunity set when you have a limited amount of capital to deploy and kind of where you would prioritize?

That’s a good question, Michael. At the end of the day, we remain well aligned with our portfolio strategy and focus on pursuing larger deals. We're examining mega scale opportunities and considering how each section aligns with our valuation and business objectives. Ultimately, what we evaluate will be consistent regardless of the company's size, as it will inform our projections and allow us to build toward sustainable margins. We're also examining deeper enterprise margins along the way. We're not differentiating valuations at this stage, as we have established costs that we intend to utilize effectively for scalable opportunities in both enterprise and our overall portfolio management.

Thank you. 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. One, we understand our commitment to delivering sustainable growth for all stakeholders and we were honored to be named the EPA Energy Star Partner of the Year for the second year in a row. Two, we continue to enhance the value of our global platform, calling non-core assets and extending connectivity solutions. Three, we delivered very solid current period financial results, beating expectations and raising our full year outlook. Last but not least, we further strengthened our balance sheet, raising attractively priced long-term debt, recycling capital and using proceeds to repair high coupon debt and preferred equity. Our hearts go out to all those impacted by the COVID-19 global pandemic. And as we approach a post-pandemic environment here in the United States, I’d like to once again thank the Digital Realty frontline team members in critical data center facility roles, who have kept the digital world running. I hope all of you stay safe and healthy, and we hope to see many of you in person again later this year. Thank you.