This 2025 Global Property CEO Conference. I'm Nick Joseph here with Mike Rollins with Citi Research, and we are pleased to have with us Digital Realty and CEO Andy Power. The session is for Citi clients only, and disclosures have been made available at the Corporate Access Desk. To ask a question, you can raise your hand or go to LiveQA.com and enter code GPC25 to submit any questions. Andy, we'll turn it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A.
Great. Thank you, Nick, for having us back here. To my right is Jordan Sadler, Head of Public and Private Investor Relations. To my left is our CFO, Matt Mercier, and I'm Andy Power, President and CEO of Digital. Here at Digital, we support 5,000 customers, including the leading technology companies around the world and corporate enterprises in 50-plus metropolitan areas on six continents with their digital infrastructure needs, space power, and interconnection . We've been a 20-year-old public company and been coming to this conference for a long time now, and are on the back of a pretty landmark year for our company on multiple fronts, which goes into, I would say, our future. One, First and foremost, we're accelerating our growth.
That's at the top line, and that is especially at the bottom line with inflection in our Core FFO per share growth coming into this year on the heels of a record signings year, strong pricing power, record 600 new customers to our platform in the last calendar year. So acceleration to the growth is key, and we're not done yet in 2025. Two, we've been building our backlog to de-risk that. So backlog sits at 20% of our revenue base at attractive returns, much of which is going into a $7.5 billion, largely 70+% pre-leased development pipeline at 12% ROI today.
In the meantime, we've also had great success at our most core and top priority of our 0- 1 MW interconnection enterprise business, where we had a record third quarter in that category of new signings, followed by a record fourth quarter, record new logos that have dated back several quarters of 100-plus customers per quarter added to our platform, and 25% increase in those new signings of that category year- over- year. And 2026, I believe, will be even better than that. And lastly, we have the balance sheet and the funding to support all this growth. Having deleveraged the balance sheet to less than five times, called 4.8x net debt to EBITDA, $6+ billion of liquidity.
And on the eve of this conference, we announced the next evolution in our funding model with our first hyperscale fund achievement, with the first 800+ of commitments on the way to a $2.5 billion hyperscale fund.
Great. That gives us a lot to dig into. Just maybe first on the fund that you've created, can you give us more details in terms of the size of the fund and how you plan to invest those dollars?
So taking a step back, Mike, this has been an evolution of our funding model for the last few years, where we saw an addressable market for hyperscale that was just tremendously capital intensive and only getting bigger and bigger and bigger. That is certainly the heritage of our company. We started at the hyperscale and worked our way into the enterprise colocation interconnection services, but we said we need more arrows in our quiver. We need a bigger boat to navigate this capital intensity. Historically, we've done it in more one-off ventures or partnerships on private capital, both stabilized and then development. And this is the next evolution of that funding model. This first vehicle will be seeded with a handful of stabilized assets and also some development assets and will be largely pre-specified, but will have some unspecified capital as well to deploy along the way.
We're super excited having the first round of new LPs and think we'll be adding more to that. And again, it's another arrow in our quiver to fund this extensive hyperscale growth. This vehicle by itself, really U.S. focused in nature.
And so $2.5 billion is the target for the fund?
$2.5 billion of third-party equity.
Can you leverage the fund as well? We should think about the capacity as significantly larger than that?
Correct. To double it.
And so that's $5 billion that you can, some specified, some unspecified projects, put towards development, and then you're able to lever those development projects themselves as well?
When I double it, that would include the leverage at the project.
It includes it. Okay. Great. Just wanted to get a sense of the size of the opportunity. So maybe relative to the opportunity, if you can share with us what you're seeing in terms of the size of demand and sales pipeline, and maybe just provide some perspective on how that compares to past years and how much is coming from AI.
Sure. So maybe split the categories into both enterprise colo and the hyperscale buckets, and the latter being the lion's share of the capital at this minute. If you look back, as I mentioned, Matt and team and Jordan have been able to navigate the balance sheet down to a sub 5x leverage, which is quite amazing by itself, but even more amazing when we took our development capacity at the time north of 50% up in terms of MWs to now stand at a total project spend of $7.5 billion. So much of that is pre-leased. It's 70% pre-leased. Within that is colo capacity as well. So the hyperscale portion is even higher pre-leased, including our North America region that's close to 97% pre-leased.
As you turn the page from 2024 into 2025, I think we see a consistency of, on the hyperscale side, large contiguous capacity blocks in the core markets as being very precious to those customers. And the nearer the delivery, the more precious it is to those customers. And the reason why is obviously the larger the capacity block, more well-suited for their near-term AI needs, be it training. But in the core markets where we're servicing them, they see fungibility with their availability zone needs for their cloud compute as well. So you call it get two birds with one stone when you come with us in these core markets in terms of their customers' needs. The mix of the customers are shifting. We're fortunate to serve 5,000 customers in a whole and all the biggest customers that are really out there.
And we've had a very diverse set of wins from these customers in this pipeline. And I think it's consistent relatively year- over- year in terms of pipeline.
Great. And then in terms of just recent developments, customer conversations, has anything changed as there's been some press around lower-cost LLMs or possibly one hyperscaler canceling some of the capacity that they were looking to take? Can you just share some context of how your conversations are going?
So I think there's two elements in there that I'll try to comment on, somewhat related, somewhat separately. The rumor mill and the noise is somewhat of an accolade to our strategy or merits to our strategy, where in the last years of AI becoming more of a mainstay theme, we stuck to the core markets, the markets where we see not only robust, but diverse demand. We stuck to a strategy of colocation, enterprise interconnection, prioritization, despite what looked like great opportunities at hyperscale at the same time. And we also widened out our customer list at the top of the queue.
If you look at our record $1 billion of new signings last year, the three biggest quarters had three different customers all having the largest major signing in that quarter, none of which was our top customer, and one of which was not even a top 20 customer. Those lists of major hyperscale customers that are coming to Digital have been expanding in recent times, which gives you diversity in demand. I think that's very apropos to what we're seeing is rumors of one horse maybe pulling back in the race while other names are called pulling ahead in terms of demand. As it relates to the element several weeks ago with the advent of DeepSeek, I think I looked at two things. I looked at what our customers said and have done since that.
You have a series of earnings calls with each and one of those executives of those customers had CapEx budgets that were not decreasing or flat, but increasing, and pretty much an unwavering view that we need to continue to invest in infrastructure in this AI arms race. At the same time, I also believe that that news shows that there's probably a potential for greater democratization of AI and chips and GPUs down the road here and hopefully pulls forward what comes next in this AI movie as we move from training, as we move to inference, as we move to enterprise applications and use cases, which yes, it may have pulled it forward. I believe it's still a long tail of demand that's going to be out there.
I just look at that at our own use of AI at Digital as well as asking many folks at this conference of who's using, how they're using it, the applicability. I just think it's going to take time for those more complicated use cases to really roll out.
Poll the room. Question. Serious.
Jordan wants me to poll the room how many folks are using Copilot.
Show of hands. Who's using Copilot today?
Not many.
Okay. So a question that we've been getting from a number of clients relates to then taking the opportunity set and then just trying to think about the pace of annual leasing for Digital Realty. And it's specifically around the hyperscale. We'll talk about the under 1 MW opportunity in a few moments. But just given the wide range of outcomes over the last few quarters in terms of the bookings numbers, and so if you look at this, whether you do it on a MWs basis or a dollars basis, is there a right level that investors should expect on an annual basis for your model and with the opportunity that's in front of you?
When you dissect it to our most strategic priority, which we put in data in the O-1 MW and interconnection category, we grew that last year 25% year- over- year. We set quotas for another double-digit growth in that category, and we see a long runway of that type of growth or CAGR compounding in that segment given a massive addressable market, a category where we can add tremendous value to our customers that, as I mentioned, we're adding new customers all the time in addition to many existing customers that want to grow with us at Digital. Outside of that segment, as you get to the larger and just much larger capacity blocks, it becomes much more difficult to handicap.
At the same time, I by no means view that the $1 billion we did in a string of four quarters is the top ticket for our productivity as an organization. Quite frankly, if you would have just taken the back half of the year, that would have been a record by itself, materially above the prior record. And I say that with the view that this infrastructure that we're providing has a long tail of demand for our customers. We are positioned in the best markets that have the most diverse demand and value add to those customers in terms of the supply constraints. And every segment keeps getting larger. The small ones are becoming mediums. The mediums are becoming largest. The largest are becoming extra larges. And some of the size of the capacity blocks are off the T-shirt charts.
We have a 3.6 GW owned or under control runway of shell and land bank. So I can't promise you it's going to be the next set of four quarters, but I think the overall productivity. We have the organizational bandwidth, the key ingredients in the right markets in a market that needs this infrastructure to put up that productivity over time.
Just to dig into your comments just for a few more moments. So just in terms of timing, you mentioned you have 20% of the rent in backlog. You're highly pre-leased on the $7.5 billion that you're building. So does that inherently mean that anything you're selling today is really for late 2026 and 2027? And is that part of what might be complicating the sales process over the next couple of quarters?
The enterprise colo piece is much shorter cycle to commencements. So that's filling as we go, and that's a moving machine. We're delivering new capacity. We're filling new capacity. So that's happening live. That's the 250+ bookings we did last year. But you're correct. Anything that's large or really large, it's just building our backlog that isn't going northern, and it's building a further runway of growth for the company.
And then you mentioned about the hyperscale market expanding. Can you give us a sense of how many customers you kind of consider in that core opportunity set that would fit into large capacity blocks of demand and where you might see that in terms of opportunity over the next few years?
I mean, we're still in a universe that's probably 10 or less rea,listically. But you don't need 40 or 100 types of those customers to create competitive tension, especially in a backdrop of supply constraints, to have a healthy equilibrium in terms of rates and returns. And quite frankly, all you really need is two at the same time. So having more of these customers seeking similar needs, especially at the same or near times, creates competitive tension for our product that we're able to garner great rates and returns.
You mentioned the 3.6 GWs of runway room, shell and land. How do you think about the energy availability and any permitting constraints that certain markets may create, a nd the pace of which that could become available as sellable capacity to your customers?
In today's framework, all of that land has a path to power in the reasonable future. Now, I'd say a gig of it is the most nearest horizon, the 2026, the 2027, the 2028, starting to dip into the 2029s. But we've been adding to that, and we've been adding. It's not been a LIFO or FIFO version. The most recent land we bought is not the last land we're going to develop. So we've been filling in gaps where we bring assemblages together in places where we're already operating. We did that in Richardson a quarter or two ago and added in other markets as well. So we're not sitting idly here and making sure that our customers have this runway for growth, which is us having the key ingredients in terms of land, access to power, ability to build, as well as the funding model to execute.
And then maybe just switching gears to the under one MW-plus interconnection, you talked about the acceleration. What specifically is driving that success for Digital Realty? And how much do you look at it as an expanding market opportunity versus the share that you're taking?
I look at it as a combination of both, but probably more share-taking at the end of the day. If you look at our history as a company, which I touched on where we started to where we are, we had to make some tremendous foundational moves of putting the puzzle pieces together to be stretching across six continents, 50 metropolitan areas with the capabilities to deliver enterprise colo. We had to unite our brands. We had to evolve our go-to-market. We had to bring in new sales leadership. We've done many things in terms of reorienting our approach to partners. And I think success in that category has happened slowly, and then more recently all at once. And at the same time, what gives me such optimism is the record quarter in the third quarter followed by a record in the fourth.
I honestly believe that was a fork and knife way to success where we just rolled up our sleeves. We drove the culture of the company to focus on this as the priority, and we delivered results, and the things we're doing now in the midst of two record quarters are really what's going to even pave a brighter future and give you that conviction for 2025 and 2026. In a quarter where we had good results in our partners and alliances, we brought in a new head of partners and alliances to take us to the next level. We are evolving our sales segmentation to push more account coverage in a flow business to commercial inside sales so sellers can spend more time on higher propensity, higher value, multi-market, multi-product type accounts.
We've reoriented our marketing dollars to not just be as focused on new logo hunting, but to mine that installed base. We have 5,000 existing customers. We have over 1,000 key cohort customers that we know can grow with us to the second, third site, or incremental product. Our systems roadmap, we have been investing a lot in our systems. The benefits of a unified one-customer portal, Salesforce inventory tracking system, all those things are not even going to deliver to our internal or external customers until 2026. So I look at that as we got a tremendous opportunity. It's a fantastic category, and we have a major, major right to win in.
I had a handful of questions come in through live QA, so we'll try to get to some of those.
No balance sheet questions for Matt and Jordan?
No balance sheet ones yet, but if you want to enter one in, I'll ask it for you.
[crosstalk]Those two years.
To what extent do you feel comfortable holding back new build inventory to potentially capture better pricing down the road versus pre-leasing more aggressively?
I think this is germane to commentary from the call. We're not holding any inventory hostage, and we're not treating all inventory the same. We have some markets; we're in 50 markets, right? So we have some markets where we do not have the strongest hand in all 50, and we have some markets with truly precious to our customers' capacity, and all we're doing is setting up and being judicious when you have a record year that you've leased so much and you've built so much development pipeline that's already spoken for, and your next delivery doesn't come on until 2026. Let's let the customers all take a fair swing at that opportunity. We're not here to pick our favorite customer one over another. We're here to support all their growth, and we want to get them to the table.
That competition, we don't have patience on that precious inventory is what we're doing essentially.
Maybe that's a segue just to broader pricing trends. What are you seeing in terms of pricing? I realize it's market by market, but if you can give us some general sense of how that's flowing.
Do you want to talk cash, mark-to-markets, or are you thinking just market pricing?
Let's take both.
I mean, you never give them options to take both at the time.
So I can do mark to market.
Matt will touch on mark-to-market. Maybe I'll do spot rate trends. Go ahead.
So I mean, a mark to market, so we guided towards 4%-6% this year. I think a couple of things that are important to keep in mind are, and that's coming off of what we basically the same point where we started in 2024 was 4%-6%. Now we outperformed that in 2024, but that was largely due to two what we call package deals that we were able to execute on within the year that pushed us to roughly 9% all in on our mark to markets. If you'd excluded those, we had been down to 5%, which is right where we started. And coming in again to 2025, we've got a similar place 4%-6%. The reason for that is largely you've actually seen our expiring rents are pretty similar, actually slightly higher when you look forward.
I'm talking mainly in our greater than a megawatt, slightly higher in 2025 than the same place we were in 2024. But I think what's probably more important is as you start to look out in the outer years, you see those expiring rates start to step down, which puts us in a position where even if market rates remain flat, which we don't assume that they're going to do, but puts us in a position where we see an improving outlook for mark- to- market over the next four plus years. That should help accrue to our overall, call it, stabilized growth. On the zero- one, which generally tends to be the majority of our roll within a given calendar year, we're still seeing good mark to markets. We just came off of a quarter where we were almost close to 5%.
We see that in, call it that generally in that 3%-5% areas where we're mark to market on the zero- one category. We see that continuing over the next several years as well.
On the larger stuff, the larger hyperscale stuff, I think the context is very important here. We're still in an inflationary environment, right? So costs are going up. We're still in an environment where cost of capital is staying steady, not eroding, right? All these headlines you see of people wanting to invest in data centers, they're not running for low returns in data centers. I have no one come bang down my door saying, "Can you please invest in low-return data centers?" Right? So that's a broader backdrop. Two, we deliberately focus on markets where we saw robust and diverse demand and supply constraints of some shape or form, right? These markets versus markets we do not play in or did not choose to proceed are different and have different characteristics. And then most of these markets, we have established customers that have locationally sensitive workloads.
They have cloud AZs with radius restrictions of growth. They have needs to be there that it's not just about the price that is driving them to these locations. So yes, there may be a market like Northern Virginia where we're out in the market at rates now in the $200 range that you'd say, "Hey, that didn't increase from last month." It's at a healthy place to be in. Now, there's a lot of other markets that never got at that high that have been coalescing into the $150 area, including the international markets, which did not have a major benefit from AI to date, but has the propensity to change as the nationalistic themes go of data sovereignty, just like it did with cloud sovereignty. So I think market rents still have room to run, broadly speaking, in the core markets we are in 2025.
Very helpful. And just one more follow-up on the package deals. Is there some room for package deals in 2025 to give you a little help or upside on that renewal spread?
Those events are very much star, sun, moon aligning events where you have the combination of an existing relationship with existing contracts that are not new contracts, i.e., not already at market, also intersecting with the customer having a need that really only we can provide. We caught lightning in a bottle two times last year. I'm not forecasting a third time in 2025. We always, in good times and back in bad times, we always try to have holistic relationships and conversations with our customers, bringing everything to the table, places we can work together to partner. So that's always on the docket.
And maybe things won't happen to the grand size and scale, but I can tell you, as we're helping customers in smaller increments, we're talking out further in their expiration schedule about, "Hey, how do we talk about those expirations in 18 months a little sooner?" So we're actively on the balls of our feet on that topic, but I can't promise anything.
We've been getting some questions over the last couple of days just on the forward financial prospects and just how the model works for Digital Realty in terms of translating this demand into Core FFO per share growth beyond the 2025 guidance that you provided. Can you give us an update on the multi-year opportunity to improve Core FFO per share growth?
Sure. Yeah, so let's start with kind of breakdown maybe 2025 as, call it, a baseline. So we start kind of at the foundation. We talk generally about roughly 4% growth in our stabilized pool. So that's coming from the mark to markets, some level of occupancy improvement that we've also guided to t hat's around 100 basis points. So that gives us a great solid foundation for growth in 25. Then, sort of offsetting that slightly, is we do have headwinds from refinancing. Roughly $1 billion of debt maturities that we have over the next several years. Given today's rates, those are generally speaking about 1% headwind that's going to offset that as we refinance that debt in a higher interest rate environment. We've talked about that as being a headwind, call it a year ago. That's going to continue for some period of time.
And then, on top of that, we've got what we talked about also, which is a healthy development pipeline starting to bring online the call it $350 million of backlog into revenue this year. That's giving us basically another call it roughly 3% to our growth profile that's getting to that call it 6% rounding up slightly at the midpoint to our bottom line Core FFO growth. What we see going forward, and this goes back to kind of my mark to market questions, is within that stabilized pool, we see an improving outlook on mark- to- market that should give us an opportunity to continue to push that forward up into the right.
And we've got still a robust demand environment that is going to allow us to continue to lease into it at healthy yields and deliver that 3%+ growth from our, call it, development pipeline, potentially pushing further, but also balancing that with capital needs that are going to need to go in to spend to bring that capacity online and some of the private capital or JV partners that are sharing in that. So all that being said is we're looking at 6% growth in 2025, and we see an opportunity to continue to improve on that as we mentioned in terms of improving, accelerating growth in 2026 and beyond.
And then when you think about capital allocation, what role does now you have more financial capacity with the fund that you're creating? Where does capital recycling fit into the priorities for Digital Realty?
I think we're whittled down. Although we are consistent portfolio managers of where we own and operate and invest, I think we're whittling down to the non-core to a much smaller component. What's exciting to me is not just the big transactions that we've accomplished in bolstering our liquidity and being able to grow our investment opportunities with a stronger balance sheet, but evolving that into something that, yes, a $2.5 billion first fund is potentially modest in the scheme of our category, but it's a foundational building block of what could be a tremendous call it asset management business around our hyperscale. We have all the key ingredients to do that and the track record when it comes to our category. And that doesn't mean we're divorced from doing hyperscale on our own balance sheet whatsoever, but we just see this opportunity.
It's all around us, and it's growing rapidly to harness the private capital with multiple different vehicles, both stabilized and development along the way that I think it's going to be scaled to many, many billions quite rapidly.
Maybe just to reconcile that to the guidance, so the stabilized hyperscale asset monetizations into the fund for this year are embedded in our $500 million-$1 billion full-year guidance. Matt, don't want to leave you without a balance sheet question. On leverage, you're below, I think previously you've talked about a mid five times leverage ratio. You're now below five. What is the right target for Digital Realty? As just debt products are evolving, do you see that influencing the level of leverage that you want to employ in your business?
I mean, the simple answer is, I mean, we still view the five and a half times as a good target for Digital Realty. We are below that today, as you mentioned, we're 4.8. But that's with a view that as we look forward, we see, again, a lot of what we're bringing together, a lot of what we talked about today, we see a strong development pipeline that's growing. We see good demand backdrop from our customers. And we want to be ahead in terms of our ability to fund and be ahead of the capital needs that we have today.
We're sitting here today with $6 billion of liquidity below leverage target and an ability to kind of see through and fund what is our 2025 capital needs and likely into 2026, especially considering that doesn't even include in terms of liquidity, the $500 million-$1 billion that we've talked about in our guide that we expect to come in from some of the non-core asset sales and the private capital initiatives that we've also discussed.
As you look at the growth opportunities ahead, as well as the investments that you want to make in development, what does this mean for the dividend policy going forward?
Yeah. I mean, so it's a good question in terms of how we're looking at funding and being able to fund the business going forward. I think our call it key priorities are around maximizing our operating cash flow because we see that as an efficient use of funding, cost of capital for us, given the 12%+ development yields that we have overall today. Increasing our EBITDA, giving us leverage capacity on a normalized basis, our EBITDA has grown + 10%. So that's another avenue for source of capital. The executing on the call it private capital, non-core asset sales is another avenue. And ultimately, bringing those all together so that we're reducing overall our need reliance on public capital to fund our growth.
So I think our dividend policy in general is to pay out 100% of our taxable income, which we've been able to do and also use that as part of the non-core recycling as well as some of the joint ventures. So I think that policy will continue going forward.
All right. And now we have 45 seconds here, so we'll do rapid fire quickly. What will Same-Store NOI Growth be for data center sector overall next year in 2026?
We're guiding to roughly call it midpoint 4%. So I think 4+% .
Next year. Great. And then will there be more fewer the same number of public data center companies one year from now?