David Guarino

David Guarino from Green Street Advisors, LLC asked about the technical viability of high-frequency spectrum for macro towers, the potential timing for new spectrum auctions to reach carriers, and the specific guidance lift from the early Millicom closing.

Answer

President and CEO Brendan Cavanagh stated that higher band spectrum will propagate fine from macro sites but will require new equipment, which is favorable for SBA. He estimated spectrum auctioned by mid-2026 could be in carrier hands within two years, while other bands are likely post-2030. He also specified that the early Millicom closing contributed $16 million to the leasing revenue guidance increase.

David Guarino asked if the wide bid-ask spread on M&A was a recent phenomenon or a longer-term observation. He also questioned how SBA's portfolio would perform in an economic soft patch, given the evolution of the tenant landscape since the last major stress test.

Answer

President and CEO Brendan Cavanagh clarified that the M&A valuation gap has been an observable trend for the last year, coinciding with rising capital costs. He expressed confidence in the business's resilience, emphasizing that its substantial and reliable cash flow ($1.4 billion in AFFO) means any slowdown in incremental leasing would have a relatively small impact on the overall financial stability and shareholder returns.

David Guarino requested further details on the earn-out provision in the Millicom transaction, asking if it was material enough to significantly impact the potential obligations on the balance sheet and about the potential payment timeframe.

Answer

President and CEO Brendan Cavanagh reiterated that the earn-out is not considered material to the overall transaction value. He stated that any potential payment is contingent on achieving financial milestones that would represent a success for both parties, and he did not expect it to fundamentally change the deal's financial profile. He was uncertain about the specific future accounting disclosure.

David Guarino of Green Street Advisors asked about the impact of utility companies requiring larger upfront commitments on construction costs and whether this trend is a net positive or negative for a large player like Digital Realty.

Answer

CEO Andy Power characterized the trend as a net positive that rationalizes the industry. He stated that it raises the bar for entry, requiring real counterparties with substance, which favors established operators like Digital Realty and helps filter out less committed players. He also clarified an earlier point, stating DLR holds a 20% minority stake in both the fund's operating and development assets.

David Guarino from Green Street asked if recent market volatility has impacted cap rates for stabilized data centers and requested the cap rate on the $1.5 billion of assets contributed to the new fund.

Answer

CIO Gregory Wright responded that there has been no meaningful change in cap rates, as rising interest rates have been more than offset by higher growth expectations in the data center sector. He confirmed that the assets contributed to the new U.S. hyperscale fund, valued at just over $1.5 billion, were done at a cap rate in the 'high 5s'.

David Guarino of Green Street asked whether the majority of the strong sub-1 megawatt leasing activity was signed in legacy assets, which would boost same-store occupancy, or in newer construction assets.

Answer

CEO Andrew Power confirmed the activity was broad-based across top markets like Northern Virginia, London, and Chicago. He specifically noted that in markets like Los Angeles and Chicago, the leasing occurred in established, not brand-new, assets. He also mentioned that a recent transaction created a vacancy opportunity in a legacy asset, which the company is actively working to refill at better economics.

David Guarino asked for color on the relative rental rates between markets, noting the high GAAP rate for Americas leasing and speculating if Ashburn hyperscale rates are now approaching the $225-250 per kilowatt range.

Answer

President and CEO Andy Power clarified that the high figure was a GAAP rate, reflecting lease duration and rent bumps. However, he confirmed that face rates in Ashburn for large capacity blocks have reached the $175 to over $200 per kilowatt range. He also expressed his expectation that other markets like Chicago and Dallas will continue to see rates catch up over time.