Digital Realty Trust Inc (DLR) — Q4 2024 Earnings Call Transcript

Thank you, operator, and welcome everyone to Digital Realty's fourth quarter 2024 earnings conference call. Joining me on today's call are President and CEO, Andy Power; and CFO, Matt Mercier. Chief Investment Officer, Greg Wright; 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 certain 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 fourth quarter results. First, we posted a second consecutive quarter of record leasing in our 0 to 1 megawatt plus interconnection segment, contributing to a record $1 billion of total leasing completed in 2024. The 0 to 1 megawatt product continues to be a significant focus for Digital Realty, and we are encouraged by the growing strength and momentum of our execution. Second, in the quarter, we raised over $2 billion of new debt and equity capital as well as over $500 million of net proceeds from asset sales and JV contributions, boosting our liquidity to over $6 billion and reducing our leverage to 4.8 times at year-end. And third, we posted 6% core FFO per share growth in the fourth quarter, foreshadowing our expectations for 2025. 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. 2024 was a breakout year for Digital Realty as we capitalized on the surge in demand for data center infrastructure, positioned the company for the opportunity that lies ahead and continued to execute on the key strategic priorities that we outlined on this call two years ago, to enhance our long-term sustainable growth. Back then, we said that we would strengthen our customer value proposition and we are doing just that. The evidence from 2024 lies in over $1 billion of bookings, a convincing new record for us with several large hyperscale transactions and nearly $250 million from the 0 to 1 megawatt plus interconnection category. Not to be outdone by new bookings, we also saw record lease renewal activity in 2024, which also approached $1 billion with cash rents rolling up 9% on average. We added a record number of new logos during the year, nearly 600 while expanding our connectivity-rich solutions. We expanded the capacity of our total portfolio by over 200 megawatts in 2024, while scaling our development pipeline by over 75% to over $7 billion of projects underway that are 70% pre-leased in order to serve our customers' growing data center needs. I also talked about innovating and integrating across our unmatched global portfolio. We've rolled out new products and services such as high-density Colo 2.0, a cooling solution to support densities of up to 150 kilowatts per rack, the expansion of ServiceFabric to 38 metros around the world, and private AI Exchange, an open platform available through ServiceFabric, which enables enterprises to seamlessly integrate their data with AI capabilities and other technology solutions. By combining these leading-edge solutions with our global full-spectrum strategy of connective campuses that offer colo, scale, and hyperscale capacity, customers can count on Digital Realty to meet all of their data center needs. Finally, we vowed to diversify and bolster our capital sources to expand our capacity to support our customers' growing requirements, improve capital efficiency, and reduce our leverage while increasing the returns to Digital Realty shareholders. We've done this by adding to the menu of debt and equity capital options, opportunistically recycling capital out of stabilized and non-core assets, and partnering with a diverse and high-quality list of private capital providers. Some of these activities have resulted in short-term headwinds to our results, but all of them have enhanced our operating momentum and financial position, enabling us to accelerate our bottom-line per share growth. But there is still tremendous opportunity to be seized upon as we lead this dynamic in an increasingly global industry. Demand for data center capacity remains robust, both for larger AI-oriented capacity blocks and to support growth in cloud and digital transformation, while data center supply remains tight. Highlights for the fourth quarter include $100 million of new leases signed at Digital Realty's share, driven by a 16% sequential uplift in the 0 to 1 megawatt plus interconnection bookings for a new record of $76 million. Unsurprisingly, greater than a megawatt bookings dipped sequentially following last quarter's blowout, though the pipeline remains strong. Looking inside our 0 to 1 megawatt bookings, we experienced strong and balanced growth in both the Americas and in EMEA, with both regions achieving new records in the quarter. We continue to see a growing healthy mix of various-sized deployments within our 0 to 1 megawatt business, reflecting how our full-spectrum strategy enabled Digital to provide solutions for large and small deployments along with everything in between. Some customers might simply need a network node to utilize our robust connectivity in the Central City Hub, while smaller enterprises might choose to locate a sub-1-megawatt deployment for compute or storage requirements in a facility outside of the city center. Interconnection bookings were also strong at $15 million, nearly matching last quarter's record. Finally, the strength and breadth of data center demand and the progress of our go-to-market initiatives are also reflected in our addition of a record 166 new logos. We continue to see healthy inter-region activity across our global platform. Hyperscalers drove a portion of this activity with our largest global customers driving record export activity to other regions around the world. EMEA exports were again at record levels with heightened transatlantic bookings for deployments landing in the Americas. Our record bookings in 2024 pushed our backlog of booked but not yet billed leases up to roughly $800 million at year-end, providing strong revenue visibility for this year and beyond. As Jordan mentioned, we also continue to bolster our balance sheet and diversify our capital sources during the fourth quarter with support from asset sales, hyperscale development joint ventures, and highly successful debt and equity raises. These activities helped to push leverage below five times. Matt will provide more details on these activities in just a few minutes. Over the past few weeks, we have seen commitments for data center spending continue to grow. The new administration announced a $500 billion effort to support American-based AI development and others around the world are following suit. Earlier this week, I was pleased to join French President Emmanuel Macron in Paris, along with US Vice President, JD Vance, and many other heads of state and industry leaders for France's AI Action Summit, which was geared toward convening the international community to discuss the use of AI for the common good. As I highlighted two years ago on my first earnings call as CEO, technology begets technology. In the past, innovation has typically led to greater efficiencies that ultimately spur incremental demand. At the time, we noted that we are at the precipice of the next wave of innovation that we thought might drive the next decade of data center demand. In 2024, we signed data center leases that were 80% higher than the next highest year, driven by steady growth in cloud and digital transformation as well as a surge in AI-related use cases. Today, we see a similar dynamic playing out to what we've witnessed in the past. And the rates renovation remains in full effect, while recent efficiency gains appear poised to facilitate the proliferation of AI to the enterprise. We heard from hyperscalers earlier this reporting season, and none seem ready to moderate their pace of investment as data center infrastructure remains a critical resource to support AI innovation. Within our sales organization, we continue to see robust demand for data center capacity, including large capacity blocks driven by digital transformation, cloud, and AI. AI innovation is occurring on both the hardware and software side and Digital Realty is pleased to support and enable this innovation. One of our wins this quarter was Tenstorrent, a developer of scalable AI accelerators for both cloud and edge computing. During the fourth quarter, Tenstorrent leveraged PlatformDIGITAL to host their R&D lab in a 2-megawatt high-density colocation suite in a new metro that addresses their stringent engineering and time-to-market requirements. As they develop their leading-edge chips, Tenstorrent works with a number of partners, consistent with our median play strategy, they improve their efficiency by interconnecting with their partners on PlatformDIGITAL. So together, we partnered to deploy an AI-hosted desktop solution for AI model development and testing that included another Tenstorrent partner, resulting in another new logo to PlatformDIGITAL. That's an example of the network effect of being the meeting place. Other key wins in the quarter include a Global 2000 international banking group expanding on PlatformDIGITAL to improve cloud connectivity and localizing data for hybrid cloud. A world-renowned research and cultural institution was brought to us by a partner as they upgrade their HPC infrastructure, supporting biology and physics research workloads by taking advantage of PlatformDIGITAL's high-density colocation capabilities. And the Global 2000 insurance and reinsurance provider is expanding their presence on PlatformDIGITAL to take advantage of robust networks and cloud ecosystems. Before turning it over to Matt, I'd like to touch on our global ESG progress. During the fourth quarter, Teraco, our South African affiliate, started construction on a 120-megawatt utility-scale solar power plant, the first time a data center operator will own and utilize a solar power plant to support its data center load. The plant is expected to begin generating power in late 2026. This project will upgrade existing transmission infrastructure and enables the plant to add renewable energy into the grid and to be distributed to Teraco's campuses, improving its reliability and keeping Teraco on course to meet its clean-energy goals. In Chicago, we signed community solar agreements for a share of three separate solar projects totaling nearly 20 megawatts under the Illinois Shines Program. This new and local clean energy supply for our data centers in Chicago supports our 100% clean and renewable energy coverage there. Both actions in the fourth quarter add to Digital Realty's leadership and commitment to renewable energy. We now have more than 150 data centers around the world that are matched with 100% renewable electricity, with more than 1.5 gigawatts of contracted solar and wind capacity. But sustainability is not just about renewable energy. We are also excited about our collaboration with Ecolab to deploy an AI-driven water conservation solution in 35 of our US data centers to further enhance our water use efficiency. We expect this solution to reduce water use by up to 15% at those sites, while also extending the life of our equipment. Finally, Digital Realty was awarded NAREIT's Leader in the Light award for the eighth consecutive year while our VP of Sustainability, Aaron Binkley, will serve as Chair of NAREIT's Real Estate Sustainability Council in 2025. Big congratulations to Aaron. And with that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Thank you, Andy. As Andy mentioned earlier, 2024 was a pivotal year for Digital Realty. Over the past year, we achieved record leasing results and expanded our development capacity by more than 75%, while also reducing our leverage from 6.2 times to 4.8 times. This success stemmed from our strategy to enhance and diversify our capital sources. By recycling capital from stabilized, slower-growth hyperscale and non-core assets and attracting private investment for hyperscale development, along with support from our public shareholders, we managed to meet seemingly contradictory goals. We significantly increased development to better cater to our customers' needs while lowering our balance sheet leverage below our long-term target, leading to a notable acceleration in our bottom-line growth by the fourth quarter. Currently, with over $6 billion of liquidity, lower-than-target leverage, and a wide range of capital sources, we are well-positioned to support ongoing investments and pursue attractive future opportunities. Like any significant accomplishment, this required immense teamwork, and I want to express my gratitude to my fellow Digital Realty teammates for their contributions in 2024. Now, moving on to the fourth quarter results, we signed $100 million in new leases during this period, highlighted by a record $76 million in our 0 to 1 megawatt plus interconnection segment, surpassing the previous quarter's record by 16%. Additionally, we signed $23 million in the greater than 1-megawatt category, mainly concentrated in EMEA and APAC, following last quarter's exceptional performance in the Americas. Pricing in the 0 to 1 megawatt category remained strong, driven by deals in APAC and the Americas, while pricing in the greater than 1 megawatt category was influenced by a modest sample size and market mix. Importantly, nearly 60% of the leases signed included annual rent escalators of 4% or greater or were tied to CPI, which supports our aim for sustainable long-term growth. At year-end, our backlog totaled $797 million, slightly below the third-quarter record as $147 million in commencements exceeded new bookings. Looking ahead, nearly $400 million of our backlog is scheduled to commence in 2025, with about two-thirds set to start by midyear. Furthermore, we already have over $300 million slated to commence in 2026 and another $100 million for 2027, establishing a solid foundation for multiyear growth. In the quarter, we signed $250 million in renewal leases with a blended cash basis increase of 4.7%. Renewals were largely consistent with our original 4% to 6% cash release uplift guidance provided a year ago. For the full year 2024, re-leasing spreads reached 9%, boosted by package deals highlighted in prior calls. Excluding those deals, our full-year renewal spreads remained robust at 5.2%, aligning with the guidance provided for 2025. Breaking down renewals by product category, cash renewal spreads in the 0 to 1 megawatt segment were a healthy 4.9% in the fourth quarter, while re-leasing spreads in the greater than 1 megawatt segment increased by 3.7%. Churn for the quarter was well-managed at 2%. Regarding earnings, we reported fourth-quarter core FFO of $1.73 per share, reflecting a 6.1% year-over-year increase due to continued revenue and adjusted EBITDA growth. Data center revenue rose by 8% year-over-year, as the combination of strong renewal spreads, rent escalators, and new lease commencements outweighed the impact of over $1 billion in dispositions throughout 2024. Adjusted EBITDA saw a year-over-year increase of 7.4%, in line with our data center revenue growth. For the full year 2024, our normalized total revenue and adjusted EBITDA growth was 10% and 13%, respectively. Same capital cash NOI growth rose by 1.4% year-over-year in the fourth quarter, with 2.5% growth in data center revenue countered by higher property operating costs. For the entirety of 2024, same capital cash NOI grew by 2.8%, about 200 basis points higher when adjusted for the unusually high utility margin achieved in 2023. Shifting to our investment activities, we invested approximately $3 billion in development CapEx on a gross basis, including partner contributions, and around $2 billion on a net basis to Digital Realty in 2024. In the fourth quarter, due to strong demand for data center capacity, we filled all of our deliveries with new starts, finishing the year with 644 megawatts under construction. Specifically, we delivered 42 megawatts of new capacity in the quarter while adding another 42 megawatts of new starts. The overall pipeline is 70% pre-leased, with average expected yields rising to 12.1%. As seen in the third quarter's record bookings, nearly all ongoing development in the Americas is also pre-leased, with expected stabilized yields slightly increasing to 13.7%. Some development capacity remains in both EMEA and APAC, with expectations for double-digit stabilized yields. Now, focusing on our balance sheet, we made strides in the fourth quarter to improve our financial position, bringing leverage below our long-term target and significantly enhancing our liquidity with nearly $3 billion raised since September. In November, we successfully issued $1.15 billion of 1.875% five-year exchangeable notes and repaid the remaining $500 million of our US dollar term loan. We also raised over $900 million of equity under our previous ATM program in the fourth quarter. In January, we issued another EUR850 million of 3.875% notes maturing in 2035 and repaid GBP400 million in gilts at 4.25%. This leaves us with only EUR650 million in debt maturing through the end of 2025. Looking ahead, our maturities are well-distributed through 2035. Our net debt to adjusted EBITDA ratio decreased to 4.8 times by the end of 2024, and we currently have over $6 billion in total liquidity available. As for our debt profile, at year-end, our weighted average debt maturity was over four years, and our weighted average interest rate fell to 2.7%. Approximately 83% of our debt is non-US dollar denominated, reflecting the global nature of our platform and our foreign exchange hedging strategy. About 91% of our net debt is fixed-rate, and 96% of our debt is unsecured, offering significant flexibility for capital recycling. In conclusion, we are setting our core FFO guidance range for the full year 2025 at $7.05 to $7.15 per share on a constant-currency basis. The midpoint indicates a 5.7% year-over-year growth, illustrating the strength of our business, balanced with a significant increase in development spending and a considerable reduction in our overall leverage. On a normalized and constant-currency basis, we expect total revenue and adjusted EBITDA growth to exceed 10% in 2025, reflecting our company's strong fundamentals. Same capital cash NOI growth is anticipated to be between 3.5% and 4.5% on a constant-currency basis. Regarding other guidance items, we foresee a continued positive operating environment for data centers. Cash renewals are projected to increase by about 4% to 6%, though some upside is tempered by relatively high expiring rates in our greater than 1 megawatt portfolio. We expect occupancy to improve by another 100 to 200 basis points. CapEx, net of partner contributions, is projected to rise to between $3 billion and $3.5 billion, and gross CapEx is expected to reach about $4.5 billion, with development yields anticipated to stay in double digits. We will also continue capital recycling, with $500 million to $1 billion in expected dispositions and joint venture capital this year. This concludes our prepared remarks, and we now welcome your questions.

Thank you all very much, I really appreciate it. I'd like to start by asking Chris for his perspective on DeepSeek. Andy, you mentioned this briefly in your opening remarks, but we've typically discussed a framework of tokens to watts to dollars. It would be beneficial to understand how your discussions with the hyperscalers, following their recent reports and increasing CapEx forecasts, fit into this framework and how they might improve the outlook for Digital Realty rather than raise any concerns. Thank you.

Thanks, Dave. I'll pass it to Chris shortly to discuss some of those elements. You made a great point. Following the DeepSeek news, we had the chance to hear from several of our top customers, and they consistently acknowledged this as a significant achievement. This new player in the field is improving efficiency, but it doesn’t shift the focus away from the substantial investment our leading customers need to put into their AI infrastructure. The CapEx numbers exceeding $300 billion continue to grow rapidly year-over-year for several years now. We’ve received similar feedback in earnings calls like this one, and our team has been in close contact with our customers in the weeks leading up to and following DeepSeek. Therefore, I don’t see any change in the overall demand for digital solutions. Chris, could you elaborate on some of the details?

Yeah, I appreciate the question, David. It's just that I agree with you, the tokens, watts, dollars is a good way and a good framework to look at the overall industry. I think we're going to continue to see AI being democratized not only through software models such as DeepSeek in which they represented the efficiencies, but also with like GPUs and there is going to be step functions that we'll continue to see in the industry. But this shift will drive higher and higher AI utilization to more and more customers, ultimately creating more and more demand for our facilities. And I would emphasize that a lot of our facilities, as we've talked about in the past are AI-ready with HD Colo and some of the elements that Andy mentioned in his prepared remarks. These will continue to be in a place where we can continue to support as inference comes to market or even private AI. And essentially, at the end of the day, we believe Jevons paradox will outpace Moore's law essentially.

Hi. I wanted to ask about the cash renewal outlook, it was 4% to 6% for this year. That's where you start off last year, but you ended up at 9%. Could we see a similar result or would that take more packaged deals to get there?

Thanks for the question. Last year, we started our guidance at 4% to 6%, and we are in a similar position for 2025 with our guidance today. The reason we surpassed expectations in 2024 and reached 9% was due to packaged deals that we were able to advance from later years into 2024. Our guidance does not anticipate any similar occurrences within the 4% to 6% range for 2025. Additionally, as discussed regarding 2024, we are still experiencing somewhat elevated expiry rates in 2025. While we continue to see positive mark-to-market results, the mark-to-market environment is expected to improve as we move into future years.

Hi. Thank you for the question. I wanted to ask about your expectations for bookings moving forward. I know that bookings can be quite inconsistent and that you don't typically provide guidance on this, but you did reach $1 billion this year or slightly more. Given what you're observing in the current pipeline and your 3.5 gigawatts of buildable capacity, do you believe that this $1 billion annual bookings rate can be achieved again over any upcoming 12-month period?

Thank you, Irvin. I believe we need to categorize these into larger capacity blocks and everything else. Last year, we achieved a record of $1 billion in new signs, nearly double our previous record, which has resulted in a development pipeline that is 70% pre-leased with just over a 12% ROI. As shown by our bookings backlog, implementation is expected to begin in 2025, with many contributions becoming visible in 2026 and beyond. In terms of larger capacity blocks, as leasing increases, any subsequent leasing will correlate with deliveries that are scheduled for a later date. Approximately 40% of our unleased development pipeline consists of Colo megawatts, which typically won't be pre-leased far in advance. We have 500 megawatts of shell already built, which is great and will form the next batch. However, our delivery timelines indicate that these won’t be ready until late this year or into 2026, so there’s no immediate urgency to fill them. It’s important that we carefully select the right customers and outcomes to create successful, diverse campuses that support our clients. The quicker these are delivered, the more valuable they become to those clients. On the other hand, in our 0 to 1 megawatt interconnection category, we are pleased to report another record, with $76 million in 4Q, representing a 16% increase quarter-over-quarter, contributing to a record annual total. This segment has sufficient capacity for continued sales and we anticipate further record achievements in 2025.

Thanks. So you've been messaging last year the guide that you gave today kind of in the mid-single-digits and you also had indicated that you do expect this trend to accelerate. So as we look forward beyond this year, what sorts of acceleration curve should we think about when it comes to core FFO per share given the conversion of your significant bookings to billings over the next several quarters? Thanks.

Thanks, Jon. I mean, I'll turn it to Matt to give you much of the puzzle pieces for the call thereafter 2025, but we stand by what we said earlier in the year, and I think we see all that in the guidance here, which is, call it normalized growth at the top line and EBITDA line in double digits, flowing down to a bottom-line mid-single digits or even better on a constant-currency basis. And Matt can give you some of the possible pieces of where we go from there for 2025 into 2026 with acceleration.

Thank you for your question, Jon. I believe this aligns with our previous messaging. We are on track for mid-single-digit growth in 2025 and expect continued improvement in the years following. Much of what we accomplished in 2024 has laid the groundwork for this growth. We have the necessary inventory, with 200 megawatts currently under development and another 500 megawatts ready. Additionally, we have $700 million in backlog scheduled to start over the next two years. Our outlook for product performance is also improving as we approach the end of current leases, contributing to better same-store growth as well. Furthermore, our position includes $6 billion in liquidity and leverage below our targets. All these factors together place us in a strong position to continue enhancing our bottom-line growth in 2024, 2025, and beyond.

Thanks and good afternoon. Two topics. First, just digging a little bit more into the under 1 megawatt business. When you look at the improving performance and the back-to-back records that you recorded on leasing, do you see that as a rising tide that's just lifting all boats, including yours or do you see Digital taking share? And if you can expand on the characteristics within each of those? And then just secondly, on the net-debt leverage coming down, as you look at the incremental capacity that you have, is this solely directed at organic development opportunities or are you preserving some flexibility for some potential inorganic activity at some point? Thanks.

Thanks, Mike. So I'll hand it over to Colin. But maybe just in reverse order, we are very focused on using our now very ample liquidity and strong balance sheet as well as numerous levers to continue to fund organic development activities. So that is the main priority. When it goes to the under 1 megawatt, I mean, you're really just seeing this momentum unlock throughout 2024, and I believe it's going to continue into 2025. It was broad-based. We’re looking at a number one quarter for Americas and EMEA, in addition to a number one quarter overall, it had great diversity of wins on different size breaks. The price action was strong on the new sign-ins. The price action was also strong almost 5% on the renewals in that category. I'll let Colin speak a little bit about the diversity of the demand and the outlook as well.

Thank you, Michael, for your question and for your comments about the quarter. We are very pleased with the performance in the 0 to 1 megawatt segment, as it reflects our strategy and showcases the full range of offerings to our clients. Our clients are recognizing the importance of our global reach in core markets, particularly with large contiguous blocks. We experienced a diverse range of demand; over 50% of our bookings in the 0 to 1 megawatt category came from this large enterprise segment. We also had a strong quarter with service providers, with both customer types complementing one another. Enterprises are attracting service providers and vice versa. Additionally, we are satisfied with our emphasis on the channel side. We see 2024 as a pivotal year for the channel, and we anticipate this momentum will carry on into the future.

Hey guys, thanks for taking the question. More of a clarification, as you think about growth for next year, I think you guys have talked about sort of organic growth that's 10% plus. I'm just wondering maybe for Matt, if we can think through what's embedded in the 5.8% to 5.9% around FX headwinds, potentially lower utility reimbursements, and any other factors that may be mitigating some of the reported growth next year? Thanks.

We are experiencing approximately 200 basis points of foreign exchange headwinds, which translates to a decrease of just under 1% in core funds from operations. This situation supports what Andy mentioned about our projected top line revenue growth leading to adjusted EBITDA, which we are estimating to exceed 10% on a normalized basis for 2025. This normalization includes two key factors: the foreign exchange impact I referenced and adjustments for asset sales and joint venture activities. These activities have occurred in 2024, particularly in the fourth quarter and the first quarter, and we expect similar events in 2025 related to our projected $500 million to $1 billion in private capital dispositions. Ultimately, we aim to sustain that over 10% growth from our top line to adjusted EBITDA.

Thank you. There has been a lot of talk within the industry around inference, particularly post-DeepSeek. And I was hoping maybe you can describe how you see that potential demand around inference evolving. And whether you'd expect it to be more beneficial to your 0 to 1 megawatt business or greater than 1 megawatt business? Thanks.

Thanks, Ari. I'll hand it back to Chris. I think a stat that we didn't put in the prepared remarks that we forgot to call out, 38% of megawatts we signed during the quarter were AI related and obviously we had a very much enterprise-heavy quarter given the record contributions in the 0 to 1 megawatt interconnection category. So certainly starting to see our fair share of AI come to the core markets coming to enterprises, certainly come to inference. But I believe we're still at the tip of an iceberg here, and I'll let Chris expand upon that.

Yeah, I definitely appreciate the question, Ari. It's definitely early innings of AI, right? And so I think a lot of the inference we see today is around augmenting current capabilities. So I think as you see some of these newer feature sets coming through AI by model, where you're seeing video and other things coming to market, that's going to drive a higher and higher demand in the overall. So what is required? So these capacity blocks that Colin was referencing earlier become more and more important. So maybe it doesn't fall in that sub-1 megawatt because we're actually seeing that these will be larger capacity blocks that may be larger than 1 megawatt. But just to kind of press upon the demands of inference, it will still have more and more proximity to the end consumer. I think that's the important piece that we always look at and where we apply our capital, is that long-term durability of where that inference matures because that's where the actual consumption or monetization of the AI will happen. And that's why we're very excited about how that will be maturing over time. I would also be remiss not to mention the other element of this that we're very excited about is private AI, right? So inference, you'll see that coming from a lot of the hyperscalers bringing their capability to market. But then on the averse of that, you're going to see a lot of private AI capabilities coming in where that too has an inference element to it. But we're very excited about our AI-ready capabilities in our facilities to support that broad spectrum of not only capacity blocks but power density demand as well.

Thanks. I want to go back to that less than 1-megawatt new leasing activity. Can you just comment maybe on the majority of the deals signed? Were those in legacy assets, which will hopefully provide a much-needed boost to same-store occupancy when the leases commence? Or were the majority of those deals signed in maybe the newer construction assets that are better catered towards the current deployment requirements today?

Thanks, David. It's quite extensive. The top markets include Northern Virginia, London, Los Angeles, Frankfurt, and Chicago globally. In London, Los Angeles, and Chicago, that's aligned with the 600 West segment, including El Segundo. Our entire London portfolio, whether in the Docklands or Woking, has seen much more enterprise activity. We haven't built a brand new asset in a long time, probably since I started Digital nearly 10 years ago. These are clearly oriented toward Colo use cases across various business sectors like financial services, insurance, and healthcare, which we've mentioned previously. When I assess the overall volume of signings, particularly those that fall into first or second generation, it has remained steady, if not slightly increased as the year comes to a close. However, regarding same-store occupancy, we experienced a minor setback with one of the transactions converting from fully leased to vacant, coupled with not having a complete customer base there, but this presents an opportunity. We are actively working on filling that capacity, aiming for better economic outcomes while also focusing on expanding our enterprise customer base.

Sorry about that. Thank you. Can you give us an idea going forward, so what percentage of your facilities you're going to set aside for sort of less than 1 megawatt, where do you see that going? And within that less than 1 megawatt, what percentage of that floor space are you building that is for high-power density compute versus just regular machines? Thanks.

Thanks. Frank, for quite some time now, especially over the last few years, we have been focusing on ensuring that our customers are looking for enterprise cohort capabilities, whether that's network-oriented, public and private cloud, or high-performance computing, which offers significant opportunities for growth within our portfolio. There are specific locations that are clearly network-oriented, such as the 56 Marietta in Atlanta. However, on our campuses, we are designing with the flexibility to accommodate their power requirements. We are increasingly moving towards spaces where we can scale and construct substantial projects due to the success we have experienced in various markets, specifically for those customers, maintaining dedicated buildings to minimize the mix and diversity within those structures. This is a priority for us, and you will continue to see us focus on this. We have seen approximately 22% growth in this final category over the past year, and we anticipate further acceleration next year.

Good afternoon. Thanks for taking my question. Andy, I think at the top of the script, you mentioned the Stargate announcement. Some of your customers are directly or indirectly involved in that announcement on some of your largest customers in fact. So what conversations have you had with some of these customers since that announcement about their interest in sort of maintaining or expanding their relationship with Digital Realty in the future? And then maybe you can make a broader comment on hyperscalers and their willingness to look out even further into the future in terms of pre-leasing capacity. Do you think that's kind of on the margin a little bit greater or lesser than it was maybe three months ago? Thank you.

Thank you, Jim. Regarding the Stargate announcement, I would characterize it as twofold; it was a partial disclosure of activities that took place in previous quarters and also demonstrates our customers' commitment to invest heavily in infrastructure. I believe some of this was not fully clear while we were finalizing agreements with our largest clients. Last year, I mentioned that in the three quarters where we achieved record signings, a different major hyperscale customer emerged as a record signer each quarter, indicating diversity. Observing this year, I believe we could see another new customer each quarter as we move towards 2025. However, the current demand is reaching a point where it isn't consistently high every day throughout the year. The approvals for these larger infrastructure packages with costly GPUs are going to the highest levels within the companies, and such approvals are not frequent. While we see ongoing growth, there will inevitably be periods each month where we experience a slowdown before demand picks back up. This pattern aligns with what we experienced in 2024. We are well-prepared to support our clients with large capacity projects, and we currently have significant data capacity in our development pipeline, which includes 500 megawatts of shell capacity. Additionally, we have increased our land holdings with near-term delivery opportunities to more than 3 gigawatts of potential growth.

Hi, I appreciate it. I wanted to discuss the capital recycling or joint venture outlook for the year. I know you mentioned amounts between $500 million and $1 billion, but could you elaborate on the possible combination of outright sales, joint ventures, and new programmatic fund-like structures you have referenced before? How do we anticipate the balance of that this year compared to using other capital sources like issuing equity? Thank you.

Thanks, Eric. I’ll let Matt give you a quick breakdown of the numbers and then flip it over to Greg to give you a quick follow-up on where we are on our strategic capital initiatives?

Thanks, Eric. To put it simply, if we break it down, we're estimating that approximately $300 million to $400 million will be dedicated to our ongoing efforts in selling non-core assets. The remaining amount will focus on the continued growth of our private capital initiatives. Now, I'll let Greg provide some additional insights.

Thank you, Matt, and thank you, Eric. I want to highlight a couple of points. Andy and Matt have informed investors for some time about our plans to diversify and enhance our capital sources. As you mentioned, the fund represents the next logical step in this process. At this stage, I can say that things are progressing well. We look forward to updating you as we continue to make progress and have more information to share. We believe this is the next logical step and appreciate the flexibility it provides.

Yeah. Thanks for taking the question. So you laid out mid-single-digit core FFO constant currency growth in 2025, and it sounds like there is a lot of momentum in the business for acceleration beyond that. But what are some of the factors that maybe could derail this thesis as you think about some of the things that might impact the business? Thanks.

If you look at our components here, most of the big signings are not flow through to 2025. So any big signings we do from here, which we anticipate doing are really building out growth in 2026 and '27. So our near-term execution opportunity goes back to where we've been very successful recently and need to continue in the 0 to 1 megawatt interconnection, filling that vacancy in our portfolio that does not have that pre-lease window of that scale. Continue to execute on commercialization, we've delivered a tremendous amount of value to our customers. And obviously, we need to make sure the commercials are adequately rewarding, which you see through our cash mark-to-markets. Continue to expand the value prop through our interconnection signings, which we had a strong fourth quarter, coming off a record third quarter, but continue on that growth. And then obviously, making sure we use these tools that we've built over the last 18 months in terms of how we fund this business, in terms of continuing to be able to spend and accelerating $4.5 billion of gross CapEx, but use our own liquidity, retain capital and obviously development private capital partnerships, as well to make sure this all flows to the bottom line like we are guiding in 2025 and looking to do better than that in 2026.

Good evening. Thank you for the question. I wanted to clarify two points you mentioned. First, regarding the pace at which tenants are looking to sign deals and how actively you want to pursue these engagements. It seems that in the segment below 1 megawatt, there is an upward trend, and I hope that continues. However, for the segment above 1 megawatt, as you indicated, it appears to be quite variable. Given this combination, do you think the next two to three years could see a different level of deal velocity and size in your bookings compared to the past seven years? I'm not asking for a specific number, just a perspective on the next few years in contrast to the previous period. Secondly, concerning pricing power, with the increased activity, could you elaborate on your outlook for pricing power going forward? Thank you.

Thank you, Vikram. A lot to unpack in there, let me try to address your points. 0 to 1 megawatt enterprise colocation interconnection, we see a growing market where we're taking more and more share. And we believe we'll continue to do that with a very compelling value proposition. We have the power densities and runway for growth for our customers to expand with us across 50 metropolitan areas and the connectivity solutions for today and tomorrow for these customers. So I think you're going to continue to see that, call it stair-stepping of improvement, walking and tackling in a positive robust backdrop, even before I think the days of inference becoming tremendously robust with enterprise happens. The other megawatt is certainly going to be lumpy because when we sign a 100-megawatt deal or a 50-megawatt deal in one quarter versus another, it swings it. The point I was just trying to make is based on the deliveries of our inventory timing, there isn't a panicky rush to trade off volume from commercials, right? So we are trying to create the right match with the right customers and the right financial outcomes for those capacity blocks because we've seen as time goes by that the sooner the capacity delivers, the more value it becomes and helpful to those customers. On the pricing power, I don't have a lot of data points given the composition of greater than 1-megawatt signings in the quarter. But I can tell you in our most active market, we're still quoting to multiple customers or large capacity blocks, call it, 200-ish type rates for what we view as incredibly valuable to these customers. In the smaller 0 to 1 category, I think you can see the cash mark-to-markets are close to just under 5% and our pricing is helped in there pretty firmly. Order back is a big step up in volume in that category.

Thank you very much. Good evening. I wonder if you could just talk a little bit on the supply chain side of things. What's the latest situation with getting power to your new developments? Any other items in the supply chain? Are you generally able to hit your timelines, hit your cost per megawatts? And any color around that would be great.

Thank you, Simon. In my view, the supply chain for power is extremely tight, and everyone needs their orders delivered faster than usual across almost all markets. We are leveraging our relationships and scale, and being creative to find ways to expedite solutions for our customers whenever we can. However, I believe that if more power was delivered to our campuses more quickly, we would see increased demand because customers require it. Regarding the broader supply chain for physical components, we currently own about 3.5 to 3.6 gigawatts of land and shell on our balance sheet, which we've held for some time. This isn't something we've recently acquired; it has been managed through the initial permitting stage and site preparation, putting us in a strong position to continue deliveries. Our supply chain with vendors also seems tight, and we will observe any potential impacts from discussions around tariffs related to data center land. However, our outlook appears favorable given our proactive approach to supply chain procurement.

Hey, thanks for taking my question. Your development yield in the Americas is almost 14% now that stepped up pretty nicely last quarter. You're sort of in the 10% to 11% zone in EMEA and APAC. Should we expect to see the development yields in EMEA and APAC start to move up and narrow that gap some versus the Americas? Or do you see there being factors that restrain where you can get in those regions?

Thanks, Nick. So I mean, that's a product of the Americas region having the most accentuated from me and well outpacing supply on the larger capacity blocks. Now, we do have a sizable colo footprint in EMEA, which is obviously a higher ROI piece of our business. But when we look at the megawatt, it's those learning capacity blocks that right now are swinging rates and returns. So I believe that you're going to see AI globalize. I don't know if it will be to the same extent of growth and build-out you've seen or we'll see in the United States. But based on, including meetings I was part of this week, dialogue with customers, I think that you're going to see and kind of follow the footsteps of cloud and data sovereignty and cloud to cloud, you're going to see that go up. And I can tell you, as that does come to fruition, it's going to come to fruition in markets that have the same issues as the United States in terms of power, transmission, and other supply chain elements.

Great, thanks for squeezing me in here. Andy, you've done a great job expanding yields and you're getting to 13.7% yields in the Americas. If I ask you to put your prognostication hat on, where do you see development yields? And as part of that spot market pricing for hyperscale data center deals going, particularly in light of where the private market is clearing deals? Any color there would be great. Thanks.

Thank you, Michael. I believe there is a private market competitor willing to accept a lower economic yield than what we currently have in our North American schedule. We are fortunate to have several private capital partners providing us with valuable insights. Therefore, I don't think their returns are significantly lower; they still demonstrate healthy and profitable returns. We may excel because we are choosing our investments wisely. We are not solely focused on volume at the expense of price and return, which has enabled us to maintain our returns several hundred basis points higher than the average competitor.

Yeah. Thanks for taking the question. Quick question for Matt. What type of core FFO contribution do you expect from the JV portfolio in '25? And then I saw you recently closed Blackstone Phase 2. Maybe could you give us an update on how you're expecting that JV to impact the JV metrics in '25? Thanks.

Sure. In regard to the broader disposition of JV Capital, we do not anticipate it will significantly affect our core FFO growth in 2025. This is due to factors such as timing and size, leading to some variability. We are not projecting a substantial impact. Regarding the broader joint venture private capital, we've observed an increase in our fee income, particularly in the fourth quarter, which was largely associated with the closing of our Blackstone Phase 2 and the related development fees. Additionally, we completed an acquisition within our SREIT, which also contributed to our fee income. Now that the full Blackstone deal is closed, we expect further fee income to support our growth in 2025, especially as those assets stabilize and we shift from development fees to more recurring asset management and property management fees. This is how we are planning for the upcoming year.

Thank you, operator. Digital Realty had a remarkable 2024, reflecting strong demand for cloud, digital transformation, and AI. Digital Realty is ready to support these customers' requirements as well as private AI and a potential avalanche of AI inference demand we anticipate around the world. We set a number of new records throughout our business, executed on our key priorities, and positioned the company for an acceleration of bottom-line growth in 2025 and beyond. I am extremely proud of how our team executed to deliver this year's results and I'm excited about the future and remain focused on seizing all the opportunities at hand. I'd like to thank everyone for joining us today. I would like to thank our dedicated and exceptional team at Digital Realty, who keep the digital world turning. Thank you.