Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Digital Realty Trust Inc (DLR, Financial) executed $164 million in new leasing during the second quarter, marking one of the top quarters in its history.
- The company experienced a record level of commencements, leading to meaningful improvements in both total and same capital occupancy.
- Interconnection revenue reached a new record, driven by continued growth in cross-connects.
- Digital Realty Trust Inc (DLR) reduced its leverage to 5.3 times at quarter-end, below its long-term target level.
- The company added 148 new logos in the second quarter, marking a new quarterly record.
Negative Points
- Despite strong leasing activity, there was no contribution from the largest hyperscale market, Northern Virginia.
- The company reported a $168 million impairment related to non-core assets in secondary markets.
- Revenue growth was tempered by a decline in utility expense reimbursements, which is expected to persist throughout the year.
- The weighted average debt maturity is over four years, and the weighted average interest rate is 2.9%, which may pose a risk if interest rates rise.
- The company faces challenges related to the environmental impact of energy-intensive data centers, with data centers consuming almost 2% of global electricity in 2022.
Q & A Highlights
Q: I wanted to ask about the long-term pipeline you're seeing for the over one megawatt category. How far out does this pipeline of deals that you're looking at in the current environment last?
A: We are seeing a continuation of the trends we've been playing out for the last several quarters. The biggest customers are desiring large contiguous capacity blocks, and they want them as soon as possible. We have not seen a slowdown in the demand for those needs in the market. - Andrew Power, President, Chief Executive Officer, Director
Q: I wanted to double-click on renewal rates. Can you help us understand what's driving the sequential declines versus a quarter ago? Was this step-down mostly a function of markets and mix or were there other industry dynamics?
A: The decline in the North America greater than megawatt segment was due to a mix of deals, particularly with outsized strength in the Dallas market and no signings in Northern Virginia. Other core regions had an uptick in rates. - Andrew Power, President, Chief Executive Officer, Director
Q: Can you talk about some of the ideas around working on ways to participate in private capital recycling?
A: We have made great progress in diversifying our private capital sources, accumulating more than $10 billion of colocation hyperscale private ventures. This has moved our balance sheet from a defensive to an offensive posture, allowing us to pull forward some great projects. - Andrew Power, President, Chief Executive Officer, Director and Gregory Wright, Chief Investment Officer
Q: Can you talk about the speed at which you can deliver on your new starts that you've commenced recently?
A: We are continuously delivering capacity and adding new capacity, maintaining our production slots and vendor relationships for timely delivery in our 50+ metros around the world. - Andrew Power, President, Chief Executive Officer, Director
Q: Can you talk about some of the larger greater than one megawatt lease expirations coming up and how many of those have fixed renewal options?
A: Less than half of our greater than a megawatt leases have options with fixed increase development. Typically, renewals must come without any changes, and if there's any additional space or term changes, it opens up the contracts. - Matthew Mercier, Chief Financial Officer
Q: How should we expect CapEx to trend from here, and what's your appetite to add new domestic markets?
A: We remain focused on core markets, seeing robust and diverse customer demand. We are activating our land bank to support growth in these markets. - Andrew Power, President, Chief Executive Officer, Director and Gregory Wright, Chief Investment Officer
Q: Can you revisit the leasing pattern from an AI vs. non-AI perspective and how do we think about this going forward?
A: We are still winning with traditional demand drivers like digital transformation and cloud computing. Even if AI takes a breather, we are insulated from volatility based on our diversified customer base and supply-constrained markets. - Andrew Power, President, Chief Executive Officer, Director
Q: What type of market rent growth are you seeing in key metros, and do you see an opportunity for market rent growth to continue to outstrip development costs?
A: Market rent growth is continuing to move in our favor, especially in key markets like Northern Virginia. We believe this will outstrip any inflationary costs in build costs, maintaining or improving our ROIs. - Andrew Power, President, Chief Executive Officer, Director
Q: Do you think the outlook for power availability is getting more constrained, less constrained, or staying about the same relative to new projects?
A: Power constraints are multifaceted and may not deliver on time. This makes our value proposition even more compelling and valuable. - Andrew Power, President, Chief Executive Officer, Director
Q: Can you talk about the macro impact across different customer sizes within the sub one megawatt base?
A: We are seeing continued interest in our platform across larger customers who buy with more frequency. The mix of new logos is split between commercial and Global 5,000 accounts. - Gregory Wright, Chief Investment Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
