Digital Realty Trust Sees Strong Growth in AI and Cloud Sectors
2023-08-01
Digital Realty Trust held its second quarter 2023 earnings call, where key executives discussed the company's strong leasing performance, positive growth in cash NOI, improved liquidity, and progress on strategic priorities. The meeting highlighted the company's strong pipeline dynamics and success in the artificial intelligence (AI) and cloud/hybrid IT sectors.
CEO Andy Power emphasized the company's robust pipeline, particularly in the 0-1 megawatt side, which includes a significant contribution from AI. This indicates a high level of demand and interest in Digital Realty's products and services in these sectors. The company has seen strong contributions in AI from both the hyperscale and 0-1 megawatt segments, demonstrating their ability to cater to the needs of various clients. Power also mentioned growing success and conversations with clients in the AI, cloud, and hybrid IT sectors, indicating optimism about serving the evolving needs of clients. This suggests that AI will be a growing part of the company's portfolio in the future.
The market outlook for Digital Realty is positive, with strong demand for development joint ventures offering high returns. The company remains optimistic and on track for these joint ventures, despite potential longer transaction timelines due to their complexity. Core operating results have been pleasing, with strong new lease signings, ROIs, and cash mark-to-market. The company expects these positive trends to continue into the second half of 2023. Additionally, there have been positive results in greater-than-megawatt renewals and an uplift in rents, especially in a tight supply market. Overall, Digital Realty anticipates continued growth and favorable market conditions.
The key drivers of the business discussed in the meeting include demand from pension funds, insurance companies, and similar institutions for both stabilized core assets and development assets. The company also focuses on capital recycling and joint ventures to raise funds and improve the balance sheet. Execution on leasing and development joint ventures is crucial for driving growth and improving the leverage position. Digital Realty also emphasizes transacting on noncore portfolios to ensure fair value and maintain discipline. Furthermore, the increasing demand for AI-related deployments and technology solutions contributes to improved bookings and attracts new customers.
The meeting highlighted several key performance indicators (KPIs) that are important for Digital Realty. The company's pipeline dynamics, pricing trends, customer base growth, and new logo acquisitions were discussed. The CEO emphasized the strength, health, and diversity of the pipeline, with a particular focus on the 0-1 megawatt side and the growing importance of AI. Strong pricing over the past two quarters indicates that the company's value proposition is well-received by customers. The growth in the customer base, with the majority of signings coming from existing customers, is also a positive indicator.
Digital Realty's outlook for the quarter/year includes affirming its full-year revenue guidance range, adjusted EBITDA guidance, adjusted core FFO and constant-currency core FFO per share guidance, expectations for cash and GAAP releasing spreads, same capital cash NOI growth guidance, year-end portfolio occupancy assumption, and total disposition and JV capital raised. The company has made progress on its strategic initiatives, including executing joint ventures, raising funds through equity, improving the balance sheet and leverage position, pursuing noncore asset transactions, and experiencing growth in AI-related deployments.
The company has significant capital spending plans, with ongoing development projects in various regions. They have a total capacity of 377-plus megawatts and are focused on areas like North America, Northern Virginia, Singapore, Frankfurt, and elsewhere. These projects are expected to generate double-digit unlevered ROIs. Digital Realty aims to continue deleveraging through growing EBITDA and seeking development joint venture partners.
Participants in the earnings call included Jordan Sadler, Senior Vice President of Public and Private Investor Relations; Andy Power, President and CEO; Matt Mercier, CFO; Greg Wright, CIO; Chris Sharp, CTO; and Colin McLean, CRO.
In summary, Digital Realty's second quarter 2023 earnings call highlighted the company's strong performance, growth in the AI and cloud/hybrid IT sectors, and progress on strategic priorities. The company's focus on supporting digital transformation and AI through data centers positions them well for future success. With a positive market outlook, strong leasing performance, and ongoing strategic initiatives, Digital Realty remains poised for continued growth and favorable market conditions.