Everybody, I'm David Barden. I head up Telecommunications and Comm Infrastructure Research for Bank of America. And I'm here with the Chief Financial Officer of Digital Realty, Matt Mercier. Thank you for joining us, Matt.
Thanks for having me.
So gosh, you guys, what a difference a year makes. It's been pretty strong. I think maybe, you know, we're gonna talk mostly about the business and operations, but I think it's worth kind of just taking a step back and saying you've given some guidance that you wanna go from the 0%-1% AFFO per share growth that you're expecting to generate in 2024 to somewhere in the mid-single digits in 2025 . Talk us through how that happens.
Sure. So, I mean, just to, you know, give a little bit of the history, right? I mean, we've done a lot over the last year to, I think, put us in a pretty solid position, you know, what we're in today in terms of, we've done a lot with the balance sheet in terms of bringing down leverage from seven times, now we're down to 5.3 times. You know, a big part of doing that was part of an effort to, you know, bolster and diversify our sources of capital.
And that was a lot of work that, you know, Greg in particular and his team did around our capital recycling efforts, as well as establishing and growing our joint venture platform, which we did throughout last year in terms of our, you know, a number of stabilized joint venture opportunities and executions, as well as establishing some of our first, you know, what I'd say are pure development-oriented JVs. So that's been part of this journey that we've been on over the last year and a half, I think, to really put us in now what I'd call going from a little bit of defense, now we're a little bit more on offense. And that's been.
You know, all those things have had some impact on bottom line growth in a time where operating fundamentals have been, you know, about as strong as I think we've seen in a number of years, where, you know, pricing's now swung in our favor. We're seeing positive renewal spreads. So I think, you know, that sets the stage now that we've gone through the majority of that capital recycling effort. We've got positive pricing, you know, positive pricing across the majority of our major markets. That's flowed through now towards our same-capital stabilized portfolio growth, which has been positive for the last two years.
We were, I think, plus 5% last year, guided towards. We've been guided towards call it a 3% midpoint, which had some power pricing impact that we've talked about. You know, so we'll continue, you know, and we expect that to continue as part of that stable base of growth into 2025. And then on top of that, we've got our development pipeline, where we've seen yields that have continued to increase. Again, part of that due to pricing that we've seen improve, given where the supply-demand fundamentals are. So we've talked about all that. Putting all that together, we've in essence talked about a baseline of 5% growth in 2025.
And we, you know, we see an opportunity for that to improve. As you look out, you see not only our backlog of development that will start to come online into 2025, into 2026 at those higher yields, but you also see, you know, through our lease expiration, you see, I think, an opportunity for improved organic growth into those outer years, you know, in light of where the overall pricing dynamic is throughout most of our major markets today.
So kind of a mid-single digit for 2025 and kind of an expectation that some of the offense that you're playing today could manifest itself in kind of drifting higher from there into the high single digits?
Yeah, I mean, I think you see us, you know, based on where, again, supply-demand is today in terms of, in terms of pricing, where our setup is in terms of where we think renewal spreads can improve in outer years. I think, you know, again, that 5% sort of baseline growth has and is setting us up for accelerating growth beyond that.
Okay, so that was a good kind of setting the table, big answer. So let's dissect it a little bit. Equity issuance has been both a defense and an offense, it seems like. You know, when you were issuing at $97 to address balance sheet issues that were surfaced by the rating agencies, it was defense, but more recently, it's been maybe taking advantage of the strong stock price performance. What are the criteria for potential for additional equity issuance, or are we done, and we're just not gonna do it anymore?
So look, I think you're right in terms of, like, now we're in a position where the balance sheet is in a much better place, you know, than it was a year, eighteen months ago. So we now have what I'd say is a full, you know, full set of available capital sources available to us. And those available capital sources have also been growing. Again, back to, you know, now that the balance sheet's in place, you know, we're gonna be able to be back into the debt capital markets.
We're, you know, now that we're out of, you know, largely out of sort of the JV capital recycling. I mean, we'll still do some, but some of the material ones, you know, we'll see improving EBITDA, which gives us, you know, an ability to leverage that as well. You know, growing the cash flow, you know, from the business will be another source. You know, and I think then you've got, you know, equity as a, as really part of what I'd call, and what we've talked about over the last several quarters, as being, you know, largely demand-driven. So, you know, largely looking at that development pipeline that's getting 10-plus% yields today, and an option in terms of funding that potential, in addition to the array of other capital sources that are available to us.
So, just to parse that answer down a little bit, there's always this appetite, of course, to say, "Okay, well, there's this great return opportunity, but if I chase that opportunity, I push the growth out another year or two." And that's been a criticism of Digital Realty. Looking backwards, was that there was never a deal that they didn't like to do. Sometimes they were dilutive. That pushed out the growth, and the growth just never showed up. Is there, you know, a commitment of focus on management's part to achieve growth, in addition to taking advantage of these developments?
Yeah. Yeah, I mean, that's a good point, David. I mean, we're you know, one of those other elements on the equity is we're making sure that you know, whatever we do, our in essence, our first, second, and third priority is generating bottom line growth in twenty-five and beyond. So that's gonna you know, we're gonna take into consideration whatever we do to fund our you know, development, our growth, is not gonna have a material impact on being able to generate that bottom line growth that we've been talking about you know, in particular for twenty-five, but also beyond.
Right. I think that is important. So you talked about the positive developments on the balance sheet, getting from, I think it was 7.3 down to 5.8 now, in terms of net leverage to EBITDA. You know, the tower companies have comfortably lived between five and seven. You have a publicly traded peer that's kind of three and a half to four. Like, where, where do you want that 5.8 to go? Where, where's comfortable for Digital Realty to live on the balance sheet?
Yeah, so we're at five three.
5.3. Sorry, I read my 3.8 wrong.
Yeah, no.
I didn't bring my reading glasses.
And so, I mean, the short answer is we're. You know, we've had a long-term target of around five and a half times net debt to EBITDA. You know, that's been over, I think, you know, almost for the majority of the time we've been investment grade. So, and, you know, and yes, we've had periods of time where we'd go up, sometimes be below, but I think, you know, I think that five and a half times has proven to be kind of a good place for us on average, to be from a leverage position.
Part of that's taking into consideration, again, where, you know, our discussions and history with the rating agencies, you know, our views to, you know, where sort of an optimal capital, you know, where it is from a pricing perspective on, you know, debt and equity and kinda looking at, okay, you know. We might have some ambition to get BBB+, and what does that get us? We think, you know, again, five and a half times is the right leverage as of today. You look at our operating business versus you talked about some of our peers, I think
We have an ability to have slightly higher leverage 'cause we, you know, generally speaking, have
Higher
longer-term contracts.
Higher customers.
Yeah. Longer term contracts, you know, own the majority of our portfolio. So that gives us some benefit there from a leverage perspective. And, you know, wrapping that all together, I think, you know, we still view five and a half area to be the right sort of long-term position from a leverage perspective.
So I guess my last one, specifically on the balance sheet, was just you've got about $1 billion and maybe change maturities coming due in 2025 and 2026 each. What do we think about doing about those? Just refi them? If so, what do you think the rates are, we should be expecting?
Oh, yeah, I mean, so we've got, you know, as of today, we've got roughly $4 billion of liquidity. You know, as we look at, you know, in particular, as we look at those maturities, the most likely path is some form of refinancing. You know, as I'm sure most in this room or others, you know, the debt capital markets have been alive and well, you know. Now, and now that we're, you know, and again, this is coming back to now that we're in a position where our leverage is back, you know, back in a good place. Our ability to be able to issue, especially in this case, it's gonna be leverage neutral.
You know, we'll have access to our, you know, global markets that we've had in the past across USD, Euro, and GBP, as well as some other currencies that we've issued in. In terms of where rates are, you know, that's somewhat dependent on the currency that we issue in.
But I'd say between Euro and USD, which are sort of the most likely candidates and where the majority of our debt capital is coming from, you're anywhere from, call it, the low fours to the mid fives today, on a, you call it on an average ten-year type basis, which is likely where we'd look to issue, as we kinda look out over the next couple of years and look at our debt maturity, making sure that that stays, you know, laddered and acceptable over a long period of time.
Perfect. All right, so let's just get to the JV side of things. You know, kind of a big ambition, one of the things you guys executed on and continue to execute on. Where are we in the $7 billion Blackstone relationship?
Yeah. So you know, that was a relationship that was established at the end of last year. That $7 billion, in essence, covers three markets, and it's ultimately would cover around 500 MW of capacity, you know. And that's gonna take you know several years, most likely, before that's you know before that $7 billion is fully deployed. We closed in the first half of 2024. We closed on call it phase I of that JV, which was sites in Paris and in Manassas. We expect to close the second phase of that joint venture in the second half of this year.
You know, in which case, we'd close on the full transaction. You know, there's of that 500 MW, you know, we probably expect around 20% that would come online in 2025. And then, you know, depending on demand, demand-driven activity, as well as ability to bring power and to most of those sites, which is available today, you know, that'll dictate sort of the remaining build-out of that capacity over the next couple of years. So we're well on our way with that transaction. I think, you know, we're in a position where we've got a pipeline across all of those sites and spaces.
And we, you know, we expect, you know, we expect to be able to have a positive outcome with that. And again, that's kinda taking a little bit of a step back. I mean, the reason for doing that is, you know, the hyperscale demand currently is just quite large. And I think for. You know, the way that we've looked at it is for Digital, you know, a little bit back to some of your equity questions, for Digital to be able to take that on itself would mean, you know, ultimately you're being - you're in the capital markets more. You've got. That has more of an impact on near-term growth because you do have to fund that.
And I think, you know, so between that and just the size of the opportunity that we think is out there, you know, we saw it as a prudent way to manage that, to bring in additional capital partners, to partner on that development activity and that funding, across, you know, across what is a large and growing hyperscale universe.
So along those lines, do you have ambition to find new JV partners, or maybe the other way around? Given the space that you're in, are you getting a lot of phone calls asking to be a JV partner?
I, you know, it's. I would say, you know, we've done a lot of work. I mean, we've cultivated a number of JV partners. You know, Blackstone was one of several JVs. You know, JVs are not new to us in terms of our overall landscape within our organization. I mean, we've looked at joint ventures over, you know, in terms of how we incorporate those into our business from, generally speaking, kind of two lenses. One is called financial capital partners, which you could put Blackstone in there, although they're somewhat turning into an operator themselves, obviously, as well.
But for this discussion, we'll say from a capital partner perspective, we're managing the majority, if not all of that joint venture activity. And then we have other joint ventures within our portfolio, you know, that I would call are more operationally strategic in terms of the partners that we're looking to leverage. And those examples would be like Ascenty down in South America, Teraco in South Africa, and Mitsubishi in Japan.
So it's in places where you're looking at local, you know, need to have some level of local expertise, local knowledge to help navigate, you know, those country-specific, you know, rules and regulations, or they're helping bring some level of customer and local enterprise expertise, hopefully, as well as some pipeline into that mix, so bringing some additional elements from an operational and strategic perspective into those joint ventures, so we've now done a mix of both of those within our overall company, both, you know, call it those operational strategic JVs, as well as financial and capital partner-oriented joint ventures. In terms of going forward, I think, you know, I think there's still. There's definitely an appetite.
You know, the data centers have over the last years. You've, I think you opened, you know, What a Difference a Year Makes. The number of, I think, people that are looking to enter this space to put capital to work within data centers has only increased.
So there's no shortage, I think, of people and partners that would be willing and able to put capital to work within this space. We're not, you know, in that position where we're, you know, in the same place we were at last year, so I think we can be a little bit more selective in terms of the types of opportunities that we put to work from a joint venture perspective versus keep on balance sheet. Again, keeping all the things in mind that we've talked about so far about keeping an eye on bottom-line growth. I think joint ventures will always be part of our strategy and part of our capital funding needs going forward.
But I would say it's likely that it would be. You know, we won't have the same likely level of activity that we've had, at least in the last, call it eighteen months, you know, in 2025.
So I guess, you know, one critique of the JV structure or strategy is that, well, if you only waited, given your balance sheet, you could have done it a hundred percent. You know, I think that the counter to that is, you know, hyperscalers and AI wait for no man. These things are gonna get built. Could you talk a little bit about the returns that you get from these JVs relative to on-balance sheet versus JV? 'Cause you've got the management fee component that, you know, is incremental to that.
Yeah, I mean, so one of the other benefits of JVs is that, you know, one, we're still, so we're still participating in these ventures. We're generally, you know, some are 50%. Those have been more on the strategic side. On some of the more, you know, called financial or capital-oriented JVs, you know, we're generally in the 20% in terms of our ownership. So we're still able to participate in this growth and development. And again, we're also, you know, we're also not JVing a material amount of our overall capacity that's available to us.
Using the Blackstone as an example, you know, that was ultimately looking at roughly, I think it was between 15% and 20% of the capacity that we had available at that time, right? We're still. We still had 80% of our development capacity that we're keeping on Digital's balance sheet at 100%. We're not JVing the entire, you know, in essence, we're not JVing the entire company. We're still keeping the majority of that opportunity for us. And too, to your point, we're getting, you know, we're getting management fees on top of that that's helping to. That's accreting to our overall return on that capital invested.
So those are specific and dependent on each joint venture and what you're able to negotiate, but you're generally getting a couple of hundred basis points, if not a little bit more, of incremental return on our capital as a result of the fees that we're able to generate. And in some cases, on top of that, not in all joint ventures, but in some we're getting, you know, promote opportunities as well, which are more on the back end.
So thank you for that. So let's maybe shift gears a little bit now more to the operating side of the business. So just to start off, I think, you know, after first quarter, you had record leasing. I think Andy came out, the CEO, and said, that roughly half of that was AI related. And I think that, you know, the market has really gravitated to your company, your business, your stock, because there's a sense that, you know, you are in a really good spot to monetize this AI training environment. Could you kind of just describe a little bit about what the conversations you're having with the hyperscalers look like, and how many people are showing up now that there's all this capital that wants to be part of this industry?
Yeah, I mean, the demand environment is about as robust, you know, as I've seen in my time at Digital, and I've been here for, let's say, over a decade. So you know, this is about as robust as I've ever seen, and it's coming at a time, and that demand is, it's not just, I know AI gets a lot of the headlines, a lot of the attention. So I think it's important to, you know, kind of remember that, you know, this was already starting even last year, where we were still seeing a robust amount of demand, and that was from the more traditional workloads: clouds, digital transformation. AI came along and was, you know, adding on top of that.
And that was also happening at a time when supply was starting to become more restricted across a number of our major markets. That's for a variety of reasons, but you know, the one that gets the most, we'll call it attention, is around power constraints. So, you know, that has led to some other things, which I'm sure we'll talk about. But in terms of the overall demand profile, I mean, it continues to remain robust, as you mentioned. You know, as a couple of data points we had a record quarter in the first quarter, it was over $250 million of signings. We followed that up in the second quarter, where we're a little low, little north of $160 million.
Year to date, we were at, call it, you know, over $400 million of signings, which is, in essence, double what we did the same period, you know, first six months of last year. And that has. The pipeline continues to be robust. You know, we've talked about. I think, you know, Andy was asked a couple of times, or maybe like a few times over the last two quarters, you know: "What can we expect?
Do you expect another record?" And I think he's used some version of the words like: "You know, it's hard to do back-to-back records," but in terms of what we're seeing in overall pipeline, it's not out of the question that we could see, you know, we could see another period this year where there's the potential for, you know, to be able to top what we did in the first quarter. So, you know, in essence, just some anecdotes in terms of like, you know, the demand environment continues to remain very healthy.
You know, I'd be leery of kind of setting the expectation to hit the lottery, you know, for getting this one quarter right, in terms of leasing. But you know, is $200 million a quarter, in terms of new leasing revenues, kind of a good baseline, the new normal, if you would? Or is it. Obviously, it's gonna be lumpy, but is that, like, the new normal?
I mean, you know, we just did like... I mean, we just did a hundred and sixty, so you're already. I don't know if I would say two hundred is like a new normal.
That's $250, though, so.
so
I'm just averaging.
Yeah, I got it. I understand. You know, look, again, I go back to. If you look at our, if you look at the kind of two lines of business we have, right? Which is we have our zero-to-one megawatt business, where we've done call it close to $50 million a quarter for the last, you know, probably 4-6 quarters. You know, that. And that business, you know, that business tends to be, you know, more steady, right? So we've got that stable, stable base of signings. You know, we've, you know, as part of our business, we've continued to, I think, penetrate, grow, and take share within, call it that zero-to-one megawatt, which is more of the retail-oriented, enterprise-oriented workloads. And that's still a focus of ours.
We haven't taken our eye off the ball in light of, you know, what has been a market that gets, you know, a lot of the discussion gets for the larger deployments. You know, you then shift over to the greater than a megawatt. I mean, even with AI, you know, that continues to be, you know, that continues to be, and we expect will be a lumpy business. But it's also been a lumpy business that's been boosted by what has been an AI demand wave over the last several quarters. So, you know, I don't want. I'm, you know, we don't really give signing guidance on in terms of a quarterly cadence. I mean, you've seen what, to your point, what we've done the last two quarters.
You know, we feel good about the pipeline and, you know, we think right now we're in an environment where there's very healthy demand for the greater than megawatt segment, and steady and growing demand for the zero-to-one megawatt segment.
So could you talk a little about. I get this question a lot, about, okay, two things. One is, how much different is an AI data center to build than a regular data center, if there is such a thing? The cooling, all, you know, all that sort of stuff. And then the second question is, how long is it gonna take for these, you know, these record bookings to turn into record revenues?
Okay. So two, they're related, but not, not exactly.
I can ask them differently if you'd rather.
No, I got it. I mean, in terms of, we'll call it the, you know, development design, the big difference, which I'm sure is not saying anything profound, is around density. You know, the AI workloads, you know, are looking at higher densities in terms of, you know, watts per square foot, you know, watts per cabinet.
So does that mean you build smaller buildings, or you just have a much bigger power need for the same size building?
You generally, I mean, you know, so there's a couple things there. One is, I mean, we've been able to satisfy AI workloads within our traditional designs today. So we've been able to satisfy that, you know, augmenting with things like rear door heat exchangers. In places where we do have water, we have the ability to bring in liquid cooling. I mean, liquid cooling is still, you know, we expect that to be, you know, what will be the go forward, most likely main type of cooling for an AI deployment. But today, that's still, it's still relatively new in terms of its deployment within most data centers, not just Digital's specifically.
So I think you're gonna see liquid cooling largely more in new deployments, new builds. But within our portfolio, we've also got the ability, because we've got sites that have water-cooled chillers, that we have an ability to be able to, over time, augment those to satisfy liquid cooling as that comes around. I think the other point that's important is not all data center needs, data center applications, data center workloads are AI, right? So we expect to be able to. You know, we're continuing to see cloud, general enterprise workloads. You know, not every type of application is gonna need a GPU in order to service it. So I think that's part of, again, an overall portfolio strategy and mix that we expect to see going forward.
So I think, you know, that's where and Digital has been in the business and had been dealing with more of the hyperscale customers for a long period of time. We had already been called part of what has been a growing density need. So the, you know, the hyperscalers were typically the ones that were pushing density envelope. They were utilizing more, you know, a higher percentage of their workloads for a period of time. So we had sort of a center stage in terms of where densities were already going, having a little bit being able to be a little bit more in front of that in terms of we're already building larger facilities for workloads that had, you know, densities that were starting to to increase over time because it's the same type of customers.
And I think these hyperscale customers are also looking for fungibility in their workloads, to be able to toggle, you know, over time between what might be AI workloads and what might be more traditional workloads. And I think we've had the experience and the benefit of being able to design and accommodate those different workloads, given sort of our heritage and the amount of data center space that we've designed and delivered over the last, you know, call it decade plus of our tenure.
And then how long does it take to get these things up and running?
Yeah. I mean, so that's ultimately gonna depend on the size of the facility, you know, bringing power to the site, but let's just if you're assuming that we start from land today, we have all the power we need to be able to bring that site online. I mean, I'll say on average, it's, you know, we can usually bring on a full data center within, again, from land to production, within eighteen to twenty-four months. If we've already got the shell, it's even faster.
You know, generally speaking, that could be a time range between eight to nine, you know, nine to 18 months before, you know, we're delivering the capacities, certificate of occupancy, and we start commencing revenue.
So, you know, Digital Realty has been in such a good spot, and able to raise prices, because not just the demand curve has shifted, but that the supply curve has not shifted. And Economics 101 has led to these price increases, and the supply has been constrained. I wanna kind of walk through, you know, what is and what isn't, you know, a constraint, and maybe they all are, but. Number one is land. And what I think one of the, and this goes to the power question next, but one of the things I think Andy has said that I thought was super interesting was that a few years ago, maybe 65% of the absorption was in, say, the top five markets in the U.S., domestic absorption, and that what he saw last year was closer to 80%.
That people, you know, that computers are pack animals. They like to, you know, live, work, and play near each other, lowers latency, reduces instances of fault. Is land an obstacle or for others, for you, for everybody?
I mean, I think that's ultimately somewhat market dependent. But we are—I mean, you are starting to see land in general. I mean, between land and then power, I think those are some of the two main constraints. On top of that, you've got, you know, regulatory issues in some cases, you know, which you, depending on whether you want to put, like, a version of NIMBYism in there.
You know, as those are additional constraints. But you know, even in Ashburn, the amount of land that's available is shrinking. You know, you go across, you know, Chicago is becoming more constrained. That's also a power issue. Silicon Valley's been constrained for a number of years, and that's only gotten worse. That's largely a power-oriented problem as well. You know, you go to other international markets, Singapore, you know, that's a land-constrained place as well, but that's not necessarily new, just given the size of that country. They're also running into some power constraints. But I would say, you know, land has become more constrained.
But as of today, I think power is still, generally speaking, probably the most constraining factor across major markets. And part of that mix of land and power is where you have seen some demand go over into what, I'll use the terms, you know, tertiary, secondary, tertiary markets.
But, you know, back to where you referenced to some things that Andy said, I think our view, you know, continues to be that we think that, you know, our focusing on the major markets is the right strategic play for us, just given our, one, our presence in most of these markets, and two, the diversity of demand that we expect and that we see. I think just will accrue to us over the long term and being able to generate that long-term sustainable growth that we need.
You know, our history has suggested that going you know, while some of these markets, some of these secondary, tertiary markets could, you know, become you know, bigger markets over time, that you're generally, you know, you're generally looking at a reduced demand set that's available for you in those markets, which has more pricing volatility over a longer period of time. And so we're more cautious on those markets and sticking to sort of our core global markets. I mean, we're in fifty-plus markets today, so it's not like we have a limited set of places that we can choose from in terms of where we deploy and where we're able to put customers. And so we think, you know, focusing on those core markets makes the most sense for us.
So I've you know, we've talked a lot about this topic, and we've talked about the notion of land bank, and then now we've started talking about the notion of power bank. And you know, if you have land and power available to you, you maybe have a moat around your business, you have an advantage. And one of the concerns is that a lot of this AI training doesn't necessarily have to happen in a low-latency environment, doesn't necessarily have to happen where the power is expensive, and so it could easily get commoditized, you know, moved out to Wisconsin, where the first guy to buy a farm next to a utility with some fiber could just be the next guy who gets that business. Are you seeing that happen?
Is there a commoditization of the industry about to happen?
I mean, and I think this that goes kinda back to the point I was making in terms of, like, what. I don't think we're seeing a commoditization at this point. I think what you're seeing is there's a lot of demand out there, and customers, you know, want access to that now. They, as I'm sure you've heard and seen from, you know, a lot of the commentary around these hyperscale providers, their, you know, their view is that this is, in essence, it's a version of winner take all. They're going after it now, and they're looking for whatever capacity is available and, you know, large block, contiguous capacity. In some cases, that's meant that they've had to go.
I think if they had their druthers, which is, again, coming back full circle, they would prefer to stick in the major markets where they've already got availability zones, deployments, where they can traverse between traditional workloads and AI. But in the absence of available capacity there, they've looked at other markets. And that, again, is going back to, you know, our view is that I think there's more risk, you know, with going to those markets over a longer period of time, in terms of, you know, the potential for, you know, what other demand is out there when renewals happen. You know, what does that mean for pricing over the long run?
So we think there's more volatility, you know, potential there, and that's part of why we haven't, you know, traversed into a lot of these newer markets headfirst. You know, we're taking a view that we've got capacity in most of our core markets today, that, you know, where we can, and especially in light of some of the power constraints that we've got, that we're able to satisfy customer demand within those core markets. We're able to, I think, generate what we expect will be healthy returns, which will accrue to our bottom line over time. And so sticking to the core markets as a result of some of those things is what our strategy has been.
And I'm gonna run out of time, but I wanna ask one more question, but this one is just on another supply constraint. What about the supply chain? You know, even if you're building a data center somewhere in Wisconsin, where maybe power and land are not a constraint, if you don't have the supply chain, you know, if you're not in the line already In the line. you're not gonna get it on time.
Yeah, it's, I mean, you have to be ahead of the curve in terms of where you are on in terms of the supply chain and getting. There's still, you know, there's always been long lead times for the major large mechanical electrical equipment. It's gotten better since, call it, pandemic levels, but it is still elongated, you know, from, call it, historical levels in terms of- especially if you're talking about transformers, you know, switchgear, generators. I mean, you're at least twelve plus months out on most of that, if not longer, when you're talking about, in some cases, transformers and some of the major electrical gear.
So if you're not planning ahead for your, you know, when your capacity's gonna be available and when your build is gonna come online, you're behind. And so we've, you know, again, this is part of, I think, the benefit of our heritage and history is that, you know, we've been building, you know, hundreds of megawatts, typically a year, of data center capacity.
We've had the experience of being, you know, being in the queue with the large vendors, planning ahead for when we're expecting deliveries, putting together VMIs with a number of our major manufacturers, and making sure that, you know, we're managing that supply chain so that we can deliver the capacity that's under development, you know, when it's needed and when it's contracted with our customers, given that, you know, call it 60% plus of our underway development today is already pre-leased.
Right. So I guess my last question, just quick, is, you know, if we look backwards 10 years ago, you know, when the cloud was beginning to boom, you guys were super well-positioned. Fast-forward 10 years, these giant cloud providers had a lot of negotiating leverage. They used it to their advantage. You had negative re-leasing spreads as these 10-year leases ended. Now, we're at the dawn of this new boom. Do we need to be worried that 10 years from now, we're gonna have a problem, or, have we learned lessons, or we know things today that we think history won't repeat itself?
Look, I mean, I think, you know, where we're at is, you know, this, the constraints that we've talked about in terms of, you know, power, supply chain, land, others, you know, these are, I think, are constraints that aren't gonna be solved in the near term, probably in the near to mid-term. So I think we're in a position, especially, again, back to focus on major global markets, you know, where our view is that we're in a place where we expect to see, you know, a positive supply-demand situation that should lead to long-term pricing power, and that should, you know, ultimately accrue to Digital Realty over that timeframe. You know, to your point, we've seen volatility.
I mean, the majority of the ups and downs that we've seen, I mean, Ashburn gets a lot of the attention just, you know, and rightly so. It's the largest global market out there, and you've seen the pricing go from, call it, down in the eighties, now it's in the one sixties, one sixties plus. So. But it also hasn't reached the peak that it was ten plus, or ten years ago. So I don't think we've sort of hit the, I don't think we've hit the high end of possibilities.
But I also don't think we'll expect to see the type of volatility, just given, again, what we're seeing today and what we see over the near mid to long term in terms of the confluence of healthy demand that we continue to see across our portfolio and across most of our major markets. And, you know, generally speaking, what is environment where it's harder to bring supply online.
Thank you. I really appreciate it, Matt.
Yeah.
Perfect.
Great to be here. Thanks.
Thank you so much.