DIGITAL REALTY TRUST, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Leasing Volume: New leasing volume of $521 million at share shattered records, with backlog of signed but not commenced leases up to nearly $860 million. Greater than 1 megawatt leasing and interconnection segment both had record bookings.
• Pricing: Strong fundamentals led to improved pricing on data center capacity, with record rates on new greater than 1 megawatt leases, 4% escalators on new leases, and 15% uplift in cash renewal spreads.
• Development Pipeline: Development pipeline increased by nearly 50% sequentially to 644 megawatts under construction, 74% pre-leased with a 12% average expected yield.
• ESG Progress: Led in green building IT capacity, Swiss data centers achieved certifications, issued an EUR850 million green bond, and maintained sustainability linked pricing.
• PlatformDIGITAL: Record export activity, 50% higher year-over-year, with Americas to EMEA and APAC to Americas exports leading.

Segment Performance:

• Data Center Leasing: New leasing volume at Digital Realty's share was $521 million, with over $450 million in the greater than 1 megawatt category. 0-1 megawatt leasing totaled $50 million, and interconnection bookings were $16 million. The backlog of signed but not commenced leases reached nearly $860 million. Greater than 1 megawatt leasing was the primary driver, while the 0-1 megawatt to 1 megawatt plus interconnection segment also set record bookings.
• Revenue Contribution: Greater than 1 megawatt leasing was the main driver, with the interconnection segment also posting record bookings, contributing to the overall strong financial performance.

Guidance:

• Core FFO: Raised core FFO guidance range for 2024 to $6.65 to $6.75 per share.
• Revenue and Adjusted EBITDA: Adjusted total revenue and EBITDA guidance due to strong leasing volumes and pricing.
• Renewal Spreads: Increased full-year renewal spread guidance to 8% to 10% from 5% to 7%.
• Same-Store Guidance: Tightened same-store guidance to 2.75% to 3.25%.
• Development Spend: Tightened net share development spend range to $2.2 billion to $2.4 billion.

Risks:

• Uncertainties in Demand Pull Forward: Potential for demand pull forward affecting future volumes, though management doesn't see massive pull forward.
• Build Cost Inflation: Some inflationary trends in build costs, though rental rate movements have outpaced these.
• Utility Price Impact: Elevated utility prices in EMEA impacting same capital cash NOI.

Question and Answer: Q: How much demand is at risk of pull forward and power readiness in pipeline?

A: Andy Power says some pull forward but not massive, with over 3 gigawatts of capacity including shell capacity ready in various markets.

Q: Design changes for AI power densities and build costs on leases?

A: Andrew Power mentions inflationary build costs, Chris Sharp talks about HD Colo supporting high power densities like NVIDIA H100 systems.

Q: New normal for leasing and AI bookings driving growth?

A: Andrew Power says core demand fundamentals preexist, AI is 50% of bookings, and 0-1 megawatt interconnection has record bookings with new logos.

Q: CapEx implications and balance sheet leverage?

A: Matt Mercier says CapEx range narrowed, balance sheet strong with $5 billion liquidity and net debt-to-EBITDA at 5.4 times.

Q: Package deals and escalations in leases?

A: Andrew Power says escalations are pushed on all levers, package deals are episodic but cash renewal spreads are strong.

Q: Power delivery in Northern Virginia and new markets?

A: Andrew Power and Greg Wright discuss power delivery timelines in Northern Virginia and focus on existing markets for development.

Q: Development yields and contracts on pipeline?

A: Andrew Power says development yields at 12%, close to 75% pre-leased, and working to maintain or improve yields.

Q: AI contribution and enterprise bookings?

A: Christopher Sharp mentions NVIDIA collaboration and Colin McLean talks about enterprise segment growth with new logos and strong exports.

Q: Ensuring timely delivery of development work?

A: Andrew Power discusses supply chain management, team scaling, and capital partnerships to ensure timely delivery.