Digital Realty Trust Inc (DLR) — Q3 2024 Earnings Call Transcript

Thank you, operator, and welcome, everyone to Digital Realty's third quarter 2024 earnings conference call. Joining me on today's call are President and CEO, Andy Power; CFO, Matt Mercier; Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations 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 Andy, let me offer a few key takeaways from our third quarter. First, new leasing volume of $521 million at our share shattered our prior record and even our own expectations for the realm of possibility in a quarter. In fact, 3Q leasing was more than a full year's growth by previous standards as activity in the quarter exceeded the leasing completed in all of 2023, pushing our backlog of signed, but not commenced leases up to nearly $860 million. While greater than 1 megawatt leasing was the primary driver, over 0 megawatt to 1 megawatt plus interconnection segment also posted record bookings in the quarter. Second, strong fundamentals translated into improved pricing for data center capacity, and this was evident across both new and renewed leases with record rates on new greater than 1 megawatt leases, 4% escalators on the majority of new leases, and a record 15% uplift in cash renewal spreads in the quarter. And third, our development pipeline increased by nearly 50% sequentially to 644 megawatts under construction and is now 74% pre-leased at a 12% average expected yield as a result of successful leasing of shell and land capacity in North America. These results continue to move Digital Realty closer to management's objective to improve longer-term sustainable growth. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Thanks, Jordan, and thanks to everyone for joining our call. I don't often start this way, but this quarter was certainly one for the record books. As Jordan noted, we posted record results across a broad array of metrics. These results are the product of Digital Realty's team capitalizing on a favorable demand backdrop, but are also a testament to our efforts to enhance our value proposition and to drive long-term sustainable growth. Demand for data center capacity remains strong, both for larger capacity blocks in our core markets and to support continued growth in both cloud and digital transformation. We are well positioned to take advantage of this favorable environment, given our full spectrum strategy, our global footprint across six continents and a robust land bank that can support 3 plus gigawatts of incremental development, together with an investment grade balance sheet that is complemented by a diverse group of capital partners and the expertise to put it all together and operate these facilities on behalf of the world's leading technology companies and enterprises. Highlights for the third quarter were abundant and include $521 million of new leases signed at Digital Realty share, more than double our prior record in the first quarter of this year. Greater than 1 megawatt bookings in North America led the way, driven by large hyperscale deals in Manassas, Ashburn and Chicago. New leasing volume in this segment was up more than 75% from the 1Q record, while pricing moved up nearly 30%. Included in our greater than 1 megawatt signings was a large lease in our hyperscale development venture in Manassas. Like all of our JVs, we report these leasing results at our share or 20% in this case. The total leasing into our facilities at 100% share was in excess of $700 million in the third quarter, demonstrating the significant appetite for data center capacity. Given the size of those numbers, it might be easy to overlook a very strategic and important milestone with a sizable record quarter in our 0-1 plus interconnection business, which saw more than $66 million of new bookings, topping our prior record in this product category by over 20%, with particular strength in small deals under 0.5 megawatt, which accounted for 80% of our 0-1 megawatt leasing. Not to be forgotten, new interconnection bookings also hit a record in the quarter. We view these bookings very favorably as it further validates our full spectrum product strategy and provides us with growing momentum in a segment with durable pricing power and steadily increasing customer demand. Our strength in this category was also characterized by a record 149 new logos for the quarter. PlatformDIGITAL offers our customers the convenience and simplicity to manage their global data center needs and is reflected by record export activity in the third quarter, which was more than 50% higher year-over-year with Americas to EMEA exports leading the way, followed by APAC into the Americas. With a record $859 million backlog of favorably priced leases, largely commencing over the next two years, we are positioned for accelerating top line and bottom line growth. In support of our customers' growing requirements, and all of the new leasing accomplished in the quarter, we also substantially scaled our development pipeline in the third quarter, increasing the capacity underway by almost 50% to 644 megawatts under construction today. And we maintained another 3 gigawatts of buildable IT load capacity in land and shell condition. As we noted last quarter, we also strengthened our value proposition in Europe with the acquisition of a densely connected enterprise data center campus in Slough. During the quarter, we also continued to bolster our balance sheet and diversify our capital sources through a combination of favorable debt and ATM issuances. Matt will provide more details on these activities in a few minutes. Over the past few weeks, we've seen several examples of the lengths that some hyperscalers will go to reserve enough power for their fast-growing compute requirements. We've seen a deal to reactivate Three Mile Island, another hyperscaler partnering with an existing utility to develop small modular reactors and the third executing power purchase agreements to purchase nuclear energy for multiple SMRs that have yet to be built. These agreements are similar, in that they are seeking long-term carbon-free energy solutions to help power growing data center portfolios and speak to the longer-term demand outlook for data center capacity. Yet each of these plants is still years away from beginning to generate power, underscoring the value of lower capacity blocks today and perhaps for the next several years. Sourcing available power is just one piece of the data center infrastructure puzzle. Supply chain management, construction management, and operating expertise are all challenges that customers rely on Digital Realty to solve, and they are clearly a critical aspect of the overall value proposition that we bring to the table. While the large hyperscale deals get plenty of focus, customers and partners are recognizing the value that Digital Realty's meeting place can bring to their private cloud and hybrid IT applications around the world. We continue to see a meaningful share of our 0-1 megawatt wins influenced by our partners, expanding our reach into more enterprises around the world. Our wins this quarter include a Global 2000 telecom provider who partners with one of our largest customers choosing PlatformDIGITAL to deploy a distributed cloud solution to alleviate geographic data gravity challenges. A leading health care provider, a new logo for Digital Realty, which also came to us from a partner, modernizing its infrastructure to take advantage of the cloud connectivity available on PlatformDIGITAL, while maintaining data compliance for personal health information privacy. Another new logo, an international financial institution critical to global financial and monetary policy, chose PlatformDIGITAL to secure their cloud requirements while maintaining global access. A Global 2000 technology company is expanding their presence on PlatformDIGITAL in support of its autonomous driving solution. A top 20 Japanese electronics and semiconductor manufacturer is joining PlatformDIGITAL through another partner as part of an integrated tech-refresh initiative where robust connectivity was a critical differentiator. And a global cloud optimization provider is deploying additional capacity on PlatformDIGITAL across two continents to support their expanding enterprise customer base, who require access to rich and scalable connectivity solutions. Before turning it over to Matt, I'd like to touch on our global ESG progress during the third quarter. We continue to lead the industry in green building IT capacity, with 178 megawatts certified in the last 12 months, while our Swiss team achieved the first-ever Swiss Datacenter Efficiency Association Gold Plus certification for our data centers in Zurich. Digital Realty also continued to be recognized for ESG leadership, including Broad Group's Datacloud Global Works 2024 for AI Data Center of the Year, The Tech Capitals, Digital Infrastructure Action Global Award 2024 and Frost & Sullivan recognized our Japanese joint venture, MC Digital Realty with the 2024 Japan Data Center Services Company of the Year Award. Moving to Green Finance, where Digital continues to be a leader in the data center industry. During the quarter, we issued EUR850 million green bond, adding to Digital's long history of support for linking its debt to sustainable projects. Additionally, we maintained a sustainability-linked pricing component on our new credit facility, further demonstrating the company's commitment to ESG. We remain committed to minimizing Digital Realty's impact on the environment while delivering sustainable growth for all of our stakeholders. With that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Thank you, Andy. Let me jump right into our third quarter results. We signed $521 million of new leases in the third quarter, of which $450 million fell into the greater than 1 megawatt category and was heavily weighted toward the Americas. We also signed $50 million of 0-1 megawatt leases and $16 million of interconnection bookings. Each of these figures were new records for Digital Realty. Importantly, more than 75% of the dollar volume of leases signed include annual rent escalators of 4% or greater, which bolsters the growth profile associated with our portfolio of long-term hyperscale leases. Our backlog at Digital Realty share increased by more than 60% sequentially to $859 million at the end of September, as new leasing dramatically outpaced $180 million of record commencements in the quarter. To offer some perspective, the backlog now represents 20% of this quarter's annualized data center revenues and we expect more than 85% of these leases to commence by the end of 2026. Looking ahead, $100 million of the backlog is scheduled to commence by the end of this year, with another $350 million scheduled to commence next year, and over $300 million already slated to commence in 2026, setting us up for accelerating multiyear growth. During the third quarter, we signed $258 million of renewal leases at a 15.2% increase on a cash basis, driving year-to-date cash renewal spreads to 10.5%. Similar to the first quarter, these robust releasing spreads were driven by a package deal that pulled forward a sizable renewal that was not scheduled to expire for several more years. Excluding this package deal, overall renewal spreads were still a healthy 5.8%, which is more consistent with the 5% to 7% guidance we previously provided for 2024. While the package deals demonstrate the levers available to capitalize on the current pricing environment and also reflect our customers' views of the overall market, they are less predictable in nature. Breaking down renewals by product category, cash renewal spreads in the 0-1 megawatt segment were up a healthy 4.5% in the third quarter, while releasing spreads in the greater than 1 megawatt segment were up by over 30%. Excluding the package deal, greater than 1 megawatt renewals were still up 8.6%. For the quarter, churn remained low and well controlled at 1.5%. In terms of earnings, we reported third quarter core FFO of $1.67 per share, reflecting continued healthy growth in revenues and adjusted EBITDA. Data center revenue grew by 7.5% year-over-year as the combination of improved renewal spreads, rent escalators, and year-to-date commencements more than offset the drag associated with the more than $2.5 billion of capital recycling activity since the middle of 2023. Pro forma for the transaction activity, data center revenues were up 10% year-over-year. Adjusted EBITDA increased by 11% year-over-year, principally due to a near 200 basis point improvement in margin from the flow-through of higher data center and interconnection revenues with improved pricing. Same capital NOI growth increased by 0.8% year-over-year in the third quarter, as 2.5% growth in data center revenue was offset by higher property operating costs and roughly 200 basis points of bad debt reserves in the quarter. Year-to-date, same capital cash NOI has increased by 2.6%, which continues to be negatively impacted by about 200 basis points of power margin headwinds year-over-year, given the elevated utility prices in EMEA in 2023. Moving on to our investment activity. We spent $651 million on consolidated development in the third quarter. Gross development spend at 100% share was $855 million in the quarter. Given the strong demand for data center capacity, we doubled our development underway in the Americas and added more projects in EMEA for an almost 50% increase in our pipeline, ending the quarter with 644 megawatts under construction. More specifically, we delivered just 36 megawatts of new capacity in the quarter, while we backfilled the pipeline with another 244 megawatts of new starts at 100% share. The overall pipeline is now 74% preleased, up from 66% at the end of 2Q, with an average expected yield of 12%. Almost all the development underway in the Americas is preleased with an expected stabilized yield of 13.6%. Some development capacity remains in both EMEA and APAC, with both currently expecting stabilized yields over 10%. Over the first nine months of the year, we spent $2.4 billion in development CapEx at 100% share, which has been balanced by nearly $900 million of partner contributions, keeping us on track and well within the range of our original full-year spending expectations. Turning to the balance sheet, we continue to strengthen our balance sheet in the third quarter, with over $800 million of equity raised on the ATM. On the debt side, we paid off $250 million gilts in July and added an EUR850 million green bond in September. We also upsized and extended our credit facilities to $4.5 billion in September. At the end of the third quarter, we had nearly $5 billion of total liquidity, and our net debt-to-EBITDA ratio was 5.4 times. Moving on to our debt profile. Our weighted average debt maturity is over four years, and our weighted average interest rate is 2.8%. Approximately 85% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 89% of our net debt is fixed rate and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have no remaining debt maturities until early 2025, and the maturities remain well-laddered through 2033. Let me conclude with our guidance. We are raising our core FFO guidance range for the full year of 2024 to $6.65 to $6.75 per share, increasing the low end of the range by $0.05 per share and maintaining the high end. The increase in our guide at the midpoint of the range reflects the strength in our year-to-date leasing and commencements and the benefit of stronger than expected renewal pricing, partly balanced by the impact of customer bankruptcies in the second half of this year and balance sheet positioning to capitalize on the robust opportunity we are seeing. We are also adjusting our total revenue guidance to reflect the impact of lower utility expense reimbursements and are increasing our adjusted EBITDA guidance to reflect better than expected leasing volumes and higher pricing. Accordingly, we are also adjusting the following operating assumptions. Reflecting our success on cash renewals to date, we are increasing the full-year range to 8% to 10% from 5% to 7%. We are also tightening full-year same-store guidance to a range of 2.75% to 3.25%. In terms of investing expectations for 2024, we tightened the range of our net share development spend to $2.2 billion to $2.4 billion and maintained our recurring maintenance CapEx ranges. Lastly, on financing, the EUR850 million bond raise was completed slightly ahead of previous expectations but was mitigated by higher short-term rates than we anticipated at the beginning of this year. Looking to the fourth quarter, Core FFO per share remains poised to increase as the momentum from strong year-to-date leasing increasingly contributes to bottom line results. Looking out in 2025 and beyond, Digital Realty's growth remains poised to accelerate from 2024 levels as the fundamental environment for data centers remains strong, and our robust backlog commences. This concludes our prepared remarks, and now, we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

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

Thank you, Mike. I really appreciate it. Regarding your question, in a quarter of this size, the significant deals that were postponed had a notable impact on our outlook for the fourth quarter. I wouldn't say there was no pull forward at all, but we are not at a stage where we can fully capitalize on that yet. Some of our largest signings during the quarter involved selling capacity blocks that are directly adjacent to similarly sized blocks with power deliveries coming up in the markets we focused on: Manassas and Ashburn as our top two, followed by Chicago. In response to your second question, these specific markets are not yet ready; the available capacity in these areas is not powered at the moment, but deliverables are getting closer. We have similar opportunities in several markets, including Dallas, Santa Clara in the U.S., and in EMEA with Frankfurt, Paris, Amsterdam, and Seoul in South Korea, along with locations in South Africa and South America. Together, these account for over 3 gigawatts of capacity, including Shell capacity that can be activated quickly. Furthermore, as you noted in some of the releases, we haven't been idle. We’ve made several attractive acquisitions, including a parcel adjacent to our Richardson campus in Dallas, which brings about 80 megawatts of growth capacity, with more developments to follow. Therefore, I wouldn’t characterize this as a major pull forward. The increasing demand we are witnessing seems to be somewhat restrained due to various factors.

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

Thanks, Jon. It really was a tremendous team effort, especially from the leadership team at Digital Realty, to achieve this quarter's results. Moving to the next point, I'll pass it on to Chris and Colin to address the AI use cases and contributions. We have noticed some inflationary trends in building costs, and increasing power densities is part of our legacy, which necessitates additional capital expenditures. However, this increase represents a relatively small percentage of the overall build costs, closer to single-digit increases, especially when compared to the rental rate movements that have significantly exceeded those inflationary trends. Colin, could you provide some insight into the contribution from AI, and then Chris can update us on our technology infrastructure initiatives?

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

Yeah. No, I appreciate it. And I appreciate the question. This is something that we've been contemplating for many years. So we've seen a lot of the cloud infrastructure densifying, but then as artificial intelligence has come to market, just working on the data center design, and we've talked about this about modularity and the modularity around cooling and being able to maximize the utilization of air, and I think a lot of understand that liquid is coming into play, which is a core component that we've always anticipated and how we can retrofit in an efficient fashion to bring that liquid in to meet this demand on a case-by-case basis. And so I think that's one of the critical elements that we've always watched in the market. I think the other thing is the capacity block. Just the sheer sizes that you just heard Andy walk you through that’s also very aligned to what a lot of the AI use cases are looking for. And I think one of the things we're always watching is how inference comes into play. And part of the data center design is also the interconnectivity of that. And so how we allow those different types of AI environments, be it inference, be it different types of recursive models, where how this advanced solutions are coming to market, that's core to what we've been watching and understanding at a very granular level. And then to Colin's point, I think it's important for us to understand how that gets fitted out within the data center. So we've launched an offering called HD Colo a while back. And I think what's interesting about what we're able to do with HD Colo across 30 markets, 30 metros, 170 facilities within 12 weeks, we're able to build in a capability that takes you to 150 kilowatts a rack. And what’s important about that to put a little context on it, is that supports three NVIDIA H100 systems within a single rack. And so that’s what’s really – we’re seeing in a lot of the form factors coming to market. And I think the state of the play today is the latest GB200s from NVIDIA as well. We’re constantly staying aligned to how we can support a lot of that infrastructure coming to market.

Hey, guys. Thanks so much for taking the question. Okay, that's a great quarter. But Andy, I guess a couple of questions, if I could. So this quarter was so strong in the wake of a record quarter in 1Q, a far from record quarter in 2Q, it kind of, I think, scrambles people's expectations about how we think about what's the new normal and when we were talking about the first half, we were saying, well, it was a record first half. And the average of the first half was about $200 million in new bookings. And now we got this crazy number in the third quarter. Just could you level set people now that we've kind of run the bell about what is the new normal for this? And then the second question was just related to, I think what we just heard, which was that like the first quarter, record quarter, which was 50% AI bookings, the third quarter, a record quarter is also 50% AI bookings which suggests that we're having record everything else too? And could you speak to what is driving that? Thank you.

Thanks, David. I'll address your question starting from the end. It's crucial to note that we are making estimates based on a variety of data related to infrastructure, customer references, applications, and our current AI estimations, which may evolve over time. Our customers are engaged in long-term leases, typically spanning 10 to 15 years, and we have the flexibility to upgrade our infrastructure as needed. The fundamental demand that existed before the rise of generative AI remains significant and is continuing to grow, particularly in areas like digital transformation, hybrid IT, and cloud computing. I anticipate receiving more questions about the $66 million in 0-1 megawatt interconnections, which represents a 20% increase over our previous record and nearly 150 new customers. This growth is not solely due to large capacity contracts; it reflects years of effort on our part, and our improved execution in this area has been a key factor, with more positive developments expected. Regarding your question about the new normal, I’d like to highlight a couple of data points from two quarters ago that are pertinent. The record in the first quarter was achieved with 10% more megawatts and prices that were 60% higher. This new record builds on that, featuring 70% more volume and 30% higher prices compared to the previous record. Both of these factors, volume and price, are instrumental in driving our growth. Looking ahead, I want to emphasize two important points. We will likely not match a record quarter like this one in Q4, particularly with various holidays approaching. However, our inventory levels suggest that we have the capacity to replicate this record in the future. Importantly, I don't believe we've reached the peak for Digital. Additionally, many of the new agreements are evolving into long-term contracts with substantial escalations set to begin in late 2025 and 2026, which we expect will lead to sustained long-term growth from top line to bottom line. Lastly, I tend to focus less on variations in signings and more on our backlog. Following a record commencement quarter, we now have a backlog that represents about 20% of our current revenue. While this may not translate into next quarter's results, I believe this backlog has significant potential to grow and reduce risk in our revenue stream for years ahead.

Thank you. So just given the strong backlog and inventory blocks that you've talked about, just wondering, if you could talk about the implications for future CapEx levels given all the demand and delivery ahead as well as balance sheet leverage goals. Thank you.

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

Thank you, Jon. Regarding our capital expenditures for 2024, we have narrowed it down while remaining within our projected range. Looking ahead to 2025, we'll provide more specific guidance in the fourth quarter. Based on the current megawatts under construction, I do not expect the expenditures to be lower than what we anticipate for 2024. We will share further details as we approach the start of the year. More importantly, from a balance sheet perspective, we have successfully restored our balance sheet and reached our leverage targets, which includes $5 billion in liquidity. We have prudently allocated $325 million with the intention of maintaining these leverage targets.

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

Thank you, Richard. Regarding the escalation, we have been actively exploring all aspects of our business, including rates, returns, and contract durations. I believe we led the way in incorporating more CPI clauses into our contracts as inflation rose, particularly for our larger agreements. Having a few substantial deals with higher escalations positively influences our results. As for your previous question about packaged deals, it's worth noting that this occurs sporadically. The good news is that even excluding our largest mark-to-market evaluations, we are still close to 6% to 7% on the high end of our guidance in terms of cash mark-to-market. The specific deal you mentioned was also supported by solid renewals of related deals. This is largely due to our extensive installed customer base, as demonstrated by our top customer profile, with clients across numerous global locations. Currently, many customers have urgent business needs, allowing us to provide comprehensive solutions that include these packages. While I cannot guarantee specifics for any given year or quarter, this situation illustrates the strength of our relationships and our commitment to utilizing all available resources to enhance our growth strategy.

Great. Appreciate you taking the question. So just curious, I know you have about 3 gigawatts of land in Shell that haven't been developed yet. But given the size and the speed of the deals that you're leasing up now, how are you thinking about maintaining that runway either from new land in existing markets or potentially new markets where you could extend your reach even further? And then separately, you touched on it a little bit on Northern Virginia. I think we've seen some reports here as long as a seven-year wait time for power in parts of that footprint. I think you said you still have some capacity blocks in Manassas and in Ashburn. So maybe just an update on power delivery within your footprint would be helpful. Thank you.

Thank you, Eric. I will address the second part first and then let Greg discuss his efforts this year. In Northern Virginia, I mentioned that these markets were two of our largest capacity signings. We have similar-sized adjacent buildings with almost 100-megawatt IT loads in both Digital Dallas and Manassas. They are scheduled to come online soon, not necessarily in early 2025, but one of them might be operational by late 2025, or possibly by 2026. After that, we have another series of buildings that will add around 230 megawatts. Power for these will be delivered with additional substation components, pushing their availability to about 2027. Altogether, this brings us closer to 400 to 450 megawatts in Digital Dallas and around 200 megawatts in Manassas, leaving us with at least another 0.5 gigawatts in Digital Dallas and an additional 100 megawatts elsewhere in Northern Virginia. We have a long runway for growth, and as these capacity blocks come closer to delivery, they become increasingly valuable. Greg, please elaborate on what we've been working on at the other end of our supply chain.

Yeah. Thanks, Andy. Thanks for the question, Eric. Eric, I think the first thing to highlight is Andy's point about our buildable capacity on balance sheet. So, clearly, within existing markets, we have over 3 gigawatts of buildable capacity. So I think when you think about the context of where new growth is going to come from, that's pretty sizable. I think there are very few that have that kind of pipeline, that we can bring to service in a relatively short period of time. So look, I guess I would summarize that we're buying land primarily in our existing markets. We're buying land, purchasing power and the like, and really across the globe, whether it’s North America, South America, Europe, particularly in the flat markets, Africa, particularly South Africa, Johannesburg and Cape Town, and then throughout the major markets in APAC. So that strategy hasn’t changed. We still think that’s the best risk-adjusted return on our capital. And with that said, we’re selectively looking at new markets, but that will not be the primary driver of our growth on the development front.

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

Thank you, Frank. I believe this aligns well with Greg's response. We are continuing to concentrate on markets where we see strong and varied demand, specifically in enterprise digital transformation, hybrid IT, service providers, data cloud, and different phases of AI demand. We believe this demand has existed for some time in the 50 metropolitan areas where we currently operate, in addition to our capacity growth of over three gigawatts. As Greg mentioned, we are expanding into markets where we already have a presence, but now at a larger scale. We are focusing on areas where we are significant players in connectivity or have strong enterprise partnerships but are currently operating on a smaller scale, viewing these as opportunities to enhance our footprint. Importantly, we are not pursuing demand for the sake of it in markets where we feel long-term demand is uncertain. While there will be opportunities for one-off builds and contracts, we have been a public company for nearly 20 years, and we understand the cycles. Our goal is to achieve long-term sustainable growth, which depends significantly on having robust and diverse customer demand. This ensures that when renewals occur, we can maintain our pricing power and achieve that sustainable growth.

Hi. Thank you for the question and congratulations on the strong bookings. You mentioned that you were set for acceleration multiple times in your prepared remarks. If I remember correctly, you also stated that growth for 2025 should be around mid-single digits. Is it reasonable to assume that based on your current commencement schedule, there might be potential for growth beyond this expectation? If that's the case, how should we think about your medium-term growth strategy?

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

Thanks, Irvin. I was expecting the growth question to come up earlier, but I appreciate it. I've been consistent throughout the year regarding our mid-single digit growth for 2025, which we are using as a foundation, especially considering we've completed 1.5 turns of deleveraging over the past 12 to 18 months. We remain focused on improving the company's long-term sustainable growth profile, as reflected in our results. Some factors contribute to the bottom line more quickly than others; for example, our renewal spreads in the 0-1 segment impact financial results sooner, while larger projects take longer to materialize. Our backlog stands at $350 million for next year and $300 million for 2026. To put this in perspective, that's $200 million more than a year ago for a two-year forecast. This quarter solidifies our plan to reach our goals, providing a strong foundation for accelerated growth not only in 2025 but beyond that. We are confident in our previous statements and even more assured now.

Good afternoon. Thank you for taking my question. I would like to know more about the composition of the bookings for the quarter. Specifically, how many customers contributed to the 60%, 50%, or 80% of that figure? Additionally, can you discuss whether any of the larger customers were new in this quarter?

Thanks, Jim. So why don't I ask Colin to kind of walk through some of the highlights. Maybe Colin you can try to break it down to two categories, one by one.

Sure. Yeah. Thanks for the question, Jim. Appreciate it. Yeah. Obviously, a successful quarter, a lot of impact across the board, both new customers, existing customers and growth. We have about 1,000 customers booked within the platform in Q3. A good chunk of those 149 were new logos. This predominantly came in the commercial segment. We think about the segmentation of customers within global large enterprise in commercial, the large number of new logos come out of that commercial basis, but we're putting more and more focus on large enterprise. So in that $66 million of bookings, we had about 52% of that on a large enterprise, which is an all-time high. So again, that's a growing segment with our business. Again, I think that references to what Andy's talking about the diverse demand that's hitting PlatformDIGITAL across digital transformation, cloud and AI. So we continue to see that characteristic at our pipeline. Current pipeline for Q4 aggregate all-time high, particularly key strong characteristics in the 0-1 megawatt variety. Maybe a little bit more context as to what we're seeing across the platform and just double down on one of the questions that proximity matters. So our core networks in terms of bookings variety 80% plus were in our primary markets, our top 20 markets. So we continue to see strength there, continue to see indirect focus, so about 26% of our bookings were indirect future pipeline, about 30%, so that's going to continue to grow. And frankly, our flexibility to support the various density and scalability requirements for our clients will continue to be a big value proposition for our clients. So this adds up to a pretty robust quarter, very robust in terms of number of customers, new logos, and types of customers landing up on the business.

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

Thank you, Michael. Colin touched on this a bit in his last question, but before I pass it back to him, I want to address your pricing question. This aligns with what I believe Frank asked about spreads and bumps. We have been focused on ensuring we offer a strong value proposition for our customers, which has taken years of effort and building momentum, leading to noticeable growth. This quarter is significant for us, but it won't be a record in that area. We aim to surpass our previous records, as this is a crucial strategic priority for the company due to the long-term value it brings to customers and the growth opportunities it creates. In the 0-1 megawatt signings category, our performance has been stable according to cash mark-to-markets, which are up approximately 4.5% on a last twelve months basis, and about 70 basis points quarter-over-quarter. You can also observe the asking rates. We have more potential for growth in interconnection, ensuring our value to customers is effectively commercialized, even with a record interconnection signing this quarter. We are exploring all options, focusing on delivering more value to our customers, addressing their infrastructure and power needs, and helping them streamline their pain points. Our goal is to be their comprehensive global provider, regardless of the deployment workflow, whether it's enterprise hybrid IT, cloud, or the emerging AI sector. Colin deserves a lot of credit for this, and I'll let him share his insights on this quarter's inflection point.

Yeah. Thanks, Andy. I appreciate it. I think one point to make is this is not one quarter in the making. This is a multiyear transformation, a platform-oriented company servicing service providers and enterprises. And the way that you do that is you make your platform more attractive. So we announced a couple of new expansions this quarter. One in Dallas. We did a couple in Europe, in Zurich and Amsterdam, that's material in attracting enterprises. Andy mentioned that the digital transformation is now in full steam, but we still think it's early innings. So we think that our platform will continue to grow because enterprises see value in PlatformDIGITAL. One key metric that I'll leave you with, that's a really good sign of a platform-oriented approach of our exports were a record 43% 0-1 megawatt. That's material that shows customers sustain value, but they're expanding across the platform into other geographies. So again, strong contribution across the board for the team to bring this to fruition.

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

Thanks, Georgi. So again, this goes back to the accelerated development CapEx sizably 50% higher. And we did that based on demand. So you could see, overall, we're close to north of 75% preleased. In North America, now 97% preleased. Some of the signings in North America, in particular, actually, I've called on the longer end of our sign commencing trail. So they were resigning capacity that the Shell is just getting delivered. Last quarter, we signed nearly a 50-ish megawatt deal in the land state. So they're close to two years, so they elongated. So that means we didn't sell just the nearest term capacity blocks we sold at what the customer needed given the facts and circumstances. We're doing everything we can to maintain, if not improve our yields. That's a product of making sure we're scaling our infrastructure and economies of scale and where we deliver and obviously, seizing upon the right rates and translating to better returns as products in that development life cycle to roll up. In today's market, we're looking to have, again, all the levers of the commercials in the discussion, rates, escalations, real estate, tax base tops, and certainly, renewal options, we’re not entertaining called capping when those contracts come to.

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

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

Yeah. No, I appreciate the question, Matt. And so there's a lot happening across AI, which I think is at the core of your question. So it's not just about the hyperscalers. And I think it’s pretty important to understand that the demand is pretty broad across all of the segments. And one just to particularly highlight, and I don't speak about any customer specific details. But one of the things that we have great history with NVIDIA, right? And so we've been DGX certified, one of the leading providers, 30-plus data centers already pre-certified, but what's important to us is just yesterday, we were able to host Jensen Wong, CEO of NVIDIA, and a kickoff of the largest DGX supercomputer in Europe. And so, it's just very exciting to support Novo Nordisk Foundation in that overall effort. And like, one of the things that I think is pretty interesting that highlight it is that Jensen quoted that it was the factor of intelligence. So something like that is fundamental in showing this private AI deployments are very relevant in coming into our overall portfolio. And the last piece I’d like to just say is just to highlight that Digital Realty is foundational in that, and we’re able to do it in a sustainable way because that facility runs on 100% renewable power.

Thanks. On your greater than 1 megawatt new leasing in the Americas, rents on a GAAP basis were almost 225-kilowatt this quarter. I'm guessing Manassas in Chicago, you called out were below that number. But does that suggest that hyperscale rental rates in Ashburn are pushing close to that 225 or maybe even 250-kilowatt number? Just any color you could share on the relative spread between markets would be helpful.

Those are GAAP rates, just a reminder. You need to consider the lease duration. You know the process, David, including the bumps. They have certainly been pushed over. In Ashburn, we had multiple customers with face rates around 175 to 200 or slightly over 200, for capacity blocks of around 8 megawatts or more. Where do we go from here? I'm not certain you will see this happen again immediately. However, other markets have been catching up, and I believe we will continue to see progress over time. Comparables in Chicago and Dallas have always lagged behind, with Ashburn outpacing Santa Clara and now Ashburn trailing. I expect to see more markets align at these higher rates as time goes on.

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

Thanks, Nick. So, first off, it's very important that we just didn't, call it, the income and just get it yesterday. This company has been solely focused on this business for 20 years now. And we've been in these markets that I really touched on. We've been consistently operating, assembling land, building and delivering for our customers for many, many years. In green to the communities with the utility providers. As we saw this opportunity evolve in scaling, certainly came to mind, and that is what we did. That was feeling our supply chain. Our teams have a great relationship with their vendors and making sure that we are future-proofing those supply chains and being very collaborative with our partners. If one utility, some switch gear that we have in one market, we can bring it to another market, we're bringing those economies of scale. We're certainly scaling our team as well operationally. We're delivering a lot of capacity for our customers, and we're investing in our team, in our systems and actually the great training development of our team along the way. And then lastly, the capital. Massively capital-intensive business and the great work of our organization over the last year to supplement our use of public equity with some great private investment partnerships, both on the stabilizing development. We see a really fantastic runway of capital-intensive growth here interesting the fruits of our labor in terms of the rates and the returns bearing fruit, and we see this playing out for years to come. And we want to make sure that we have stable partners to help fund this business to generate long-term growth for our customers and our shareholders.

Thank you, Gary. Digital Realty posted a remarkable quarter in 3Q, reflecting the strong demand environment and demonstrating how Digital Realty is meeting the challenge to support our customers around the world. We set a number of records throughout our business, raised guidance and positioned the company for accelerating growth in 2025 and beyond. I am extremely proud of how our team executed to deliver this quarter's results. We are excited about the outlook for data center demand and our position in the market. But most importantly, we remain focused on seizing on the opportunity at hand. I'd like to thank everyone for joining us today. I'd like to thank our dedicated and exceptional team at Digital Realty, who keep the digital world turning. Thank you.