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Digital Realty Trust(DLR) - 2024 Q2 - Earnings Call Transcript
DLRDigital Realty Trust(DLR)2024-07-26 01:42
Financials

Financial Data and Key Metrics Changes - Digital Realty reported 164millioninnewleasingforQ22024,markingoneofthetopquartersinitshistory,contributingtoarecordfirsthalfoftheyear[6][10]−CoreFFOforQ2was164 million in new leasing for Q2 2024, marking one of the top quarters in its history, contributing to a record first half of the year [6][10] - Core FFO for Q2 was 1.65 per share, reflecting healthy organic operating results despite the impact of deleveraging and capital-raising activities [44][53] - Revenue growth was tempered by a decline in utility expense reimbursements, but rental revenue plus interconnection revenues increased by 5% year-over-year [45][46] Business Line Data and Key Metrics Changes - The company signed 164millioninnewleases,withtwo−thirdsinthegreaterthan1megawattcategory,and164 million in new leases, with two-thirds in the greater than 1 megawatt category, and 40 million in the 0 to 1 megawatt leasing segment [39][40] - Cash renewal spreads in the 0 to 1 megawatt segment were up 3.8%, while the greater than 1 megawatt segment saw a 3.9% increase [42] - The company commenced a record 176millionofnewleases,withabacklogof176 million of new leases, with a backlog of 527 million of signed but not yet commenced leases [40][41] Market Data and Key Metrics Changes - Global spending on public cloud services is projected to grow over 20% to reach 675billionin2024,drivensignificantlybyAI−relatedworkloads[17]−Demandfordatacentercapacityremainsstrong,particularlyforlargercapacityblocksincoremarkets,withDallasleadingthewayinQ2[12][10]−ThecompanyreportedstrongdemandacrossNorthAmericanmetros,withinterestalsogrowinginEMEAandAPACregions[26]CompanyStrategyandDevelopmentDirection−DigitalRealtyiswell−positionedtocapitalizeonfavorabledemandduetoitsrobustlandbankandshellcapacitysupportingover3gigawattsofincrementaldevelopment[11]−ThecompanyaimstostrengthenitsvaluepropositioninEuropewiththeacquisitionofaconnectedenterprisedatacentercampusinLondon[14]−Thefocusremainsoncoremarkets,withastrategytoleverageprivatecapitalsourcestofunddevelopmentandenhancegrowth[68][122]Management′sCommentsonOperatingEnvironmentandFutureOutlook−ManagementnotedthatwhileAI−relateddemandhasslightlydecreased,traditionaldemanddriverslikedigitaltransformationandcloudcomputingremainstrong[89]−TheinterplaybetweenAIadvancementsanddatacenterevolutionisexpectedtoshapethetechnologylandscape,withsignificantgrowthanticipatedindigitaltransformationspending[28]−ThecompanymaintainsitscoreFFOguidancefor2024at675 billion in 2024, driven significantly by AI-related workloads [17] - Demand for data center capacity remains strong, particularly for larger capacity blocks in core markets, with Dallas leading the way in Q2 [12][10] - The company reported strong demand across North American metros, with interest also growing in EMEA and APAC regions [26] Company Strategy and Development Direction - Digital Realty is well-positioned to capitalize on favorable demand due to its robust land bank and shell capacity supporting over 3 gigawatts of incremental development [11] - The company aims to strengthen its value proposition in Europe with the acquisition of a connected enterprise data center campus in London [14] - The focus remains on core markets, with a strategy to leverage private capital sources to fund development and enhance growth [68][122] Management's Comments on Operating Environment and Future Outlook - Management noted that while AI-related demand has slightly decreased, traditional demand drivers like digital transformation and cloud computing remain strong [89] - The interplay between AI advancements and data center evolution is expected to shape the technology landscape, with significant growth anticipated in digital transformation spending [28] - The company maintains its core FFO guidance for 2024 at 6.60 to 6.75pershare,reflectingcontinuedstrengthinitscorebusiness[53]OtherImportantInformation−DigitalRealtywasrecognizedasoneoftheworld′smostsustainablecompaniesof2024,with152datacentersnowmatchedwith1006.75 per share, reflecting continued strength in its core business [53] Other Important Information - Digital Realty was recognized as one of the world's most sustainable companies of 2024, with 152 data centers now matched with 100% renewable energy [34][36] - The company has raised approximately 2 billion in equity since the last earnings call, enhancing its balance sheet and liquidity [51] Q&A Session Summary Question: Long-term pipeline for over 1 megawatt category - Management indicated that demand for contiguous capacity blocks remains strong, with no easing in demand for large capacity blocks [57] Question: Renewal rates and market dynamics - Management explained that the sequential decline in rates was primarily due to a mix of deals, with Dallas performing well while Northern Virginia saw no new signings this quarter [60] Question: Private capital recycling opportunities - Management highlighted ongoing efforts to bolster and diversify private capital sources, with significant growth expected in the hyperscale business [64] Question: Speed of delivery on new starts - Management acknowledged that while there are power constraints, they are working to ensure timely delivery of new projects [65] Question: Market rent growth and development costs - Management noted that market rent growth continues to move in their favor, with key markets setting new records [97] Question: Power availability outlook - Management discussed the multifaceted nature of power constraints, indicating that while some issues are being resolved, demand continues to grow [100] Question: Leasing spreads and AI demand - Management expressed confidence in continued positive leasing spreads, driven by robust demand across core markets [111]