Digital Realty Trust - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $1.44B (+0.3% QoQ, +4.8% YoY); diluted EPS was $0.51 (vs $0.09 in Q3 and $0.03 in Q4 2023), and Adjusted EBITDA was $751M (−0.9% QoQ, +7.4% YoY).
• Core FFO/share was $1.73 (vs $1.67 in Q3 and $1.63 in Q4 2023); AFFO/share was $1.36 (vs $1.52 in Q3), with a quarterly dividend of $1.22 and an AFFO payout ratio of 89.5%.
• Bookings totaled $100M annualized GAAP rent, including a record $76M from the 0–1MW plus interconnection category; backlog ended at $797M (signed-not-yet-commenced).
• Introduced 2025 constant-currency Core FFO/share outlook of $7.05–$7.15, with total revenue of $5.8–$5.9B and Adjusted EBITDA of $3.1–$3.2B; leverage declined to 4.8x and liquidity exceeded $6B (capital raised via exchangeable notes, ATM equity, and post-quarter EUR notes).

What Went Well and What Went Wrong

• What Went Well

  • “Record leasing” in 0–1MW plus interconnection with $76M bookings; 166 new logos added (platform expansion).
  • Strong renewal pricing: cash rental rate increases of 4.7% (GAAP +9.1%), supporting same-capital growth trajectory.
  • Balance sheet strengthened: net debt/Adj. EBITDA 4.8x; over $2B raised in debt/equity in Q4; liquidity >$6B (post-quarter further EUR issuance and repayments).
  • CEO on strategy: “global, full spectrum data center strategy” driving “accelerating earnings growth” with AI momentum and interconnection solutions.

• What Went Wrong

  • Adjusted EBITDA dipped slightly QoQ ($751M vs $758M), reflecting mix and transaction/revaluation impacts despite YoY growth.
  • AFFO/share fell to $1.36 from $1.52 QoQ, lifting payout ratio to 89.5% (watch cash coverage vs capex cadence).
  • Net income benefited from $145M gains on sale; underlying Opex elevated (utilities/rental property operating) which can compress core margins in some periods.
  • Company cited FX headwinds and lower utility reimbursements versus 2023 that temper reported growth translation (Q&A and prior calls).

Transcript

Operator (participant)

Good afternoon, and welcome to the Digital Realty Fourth Quarter 2024 earnings call. Please note this event is being recorded. During today's presentation, all parties will be in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question, and we will aim to conclude at the top of the hour. I would now like to turn the call over to Jordan Sadler, Digital Realty Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Jordan Sadler (SVP of Investor Relations)

Thank you, Operator, and welcome everyone to Digital Realty's Fourth Quarter 2024 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website.

Before I turn the call over to Andy, let me offer a few key takeaways from our fourth quarter results. First, we posted a second consecutive quarter of record leasing in our zero to one megawatt plus interconnection segment, contributing to a record $1 billion of total leasing completed in 2024. The zero to one megawatt product continues to be a significant focus for Digital Realty, and we are encouraged by the growing strength and momentum of our execution. Second, in the quarter, we raised over $2 billion of new debt and equity capital, as well as over $500 million of net proceeds from asset sales and JV contributions, boosting our liquidity to over $6 billion and reducing our leverage to 4.8 times at year-end. And third, we posted 6% core FFO for share growth in the fourth quarter, foreshadowing our expectations for 2025.

With that, I'd like to turn the call over to our President and CEO, Andy Power.

Andy Power (President and CEO)

Thanks, Jordan, and thanks to everyone for joining our call. 2024 was a breakout year for Digital Realty, as we capitalized on the surge in demand for data center infrastructure, positioned the company for the opportunity that lies ahead, and continued to execute on the key strategic priorities that we outlined on this call two years ago to enhance our long-term sustainable growth. Back then, we said that we would strengthen our customer value proposition, and we are doing just that. The evidence from 2024 lies in over $1 billion of bookings, a convincing new record for us, with a few seminal hyperscale transactions and nearly $250 million from the zero to one megawatt plus interconnection category, another record. Not to be outdone by new bookings, we also saw record lease renewal activity in 2024, which also approached $1 billion, with cash rents rolling up 9% on average.

We added a record number of new logos during the year, nearly 600, while expanding our connectivity-rich solutions. We expanded the capacity of our total portfolio by over 200 megawatts in 2024, while scaling our development pipeline by over 75% to seven-plus billion of projects underway that are 70% pre-leased in order to serve our customers' growing data center needs. I also talked about innovating and integrating across our unmatched global portfolio, and we've rolled out new products and services such as High-Density Colo 2.0, the cooling solutions to support densities of up to 150 kilowatts per rack, the expansion of ServiceFabric to 38 metros around the world, and Private AI Exchange, an open platform available through ServiceFabric, which enables enterprises to seamlessly integrate their data with AI capabilities and other technology solutions.

By combining these leading-edge solutions with our global full-spectrum strategy of connected campuses that offer colo, scale, and hyperscale capacity, customers can count on Digital Realty to meet all of their data center needs. Finally, we vowed to diversify and bolster our capital sources to expand our capacity to support our customers' growing requirements, improve capital efficiency, and reduce our leverage while increasing the returns to Digital Realty shareholders. We've done this by adding to the menu of debt and equity capital options, opportunistically recycling capital out of stabilized and non-core assets, and partnering with a diverse and high-quality list of private capital providers. Some of these activities have resulted in short-term headwinds to our results, but all of them have enhanced our operating momentum and financial position, enabling us to accelerate our bottom line per share growth.

There is still tremendous opportunity to be seized upon as we lead this dynamic and increasingly global industry. Demand for data center capacity remains robust, both for larger AI-oriented capacity blocks and to support growth in cloud and digital transformation, while data center supply remains tight. Highlights for the fourth quarter include $100 million of new leases signed at Digital Realty, driven by a 16% sequential uplift in the zero to one megawatt plus interconnection bookings for a new record of $76 million. Unsurprisingly, greater than a megawatt bookings dipped sequentially following last quarter's blowout, though the pipeline remains strong. Looking inside our zero to one megawatt bookings, we experienced strong and balanced growth in both the Americas and in EMEA, with both regions achieving new records in the quarter.

We continue to see a growing healthy mix of various size deployments within our Zero to One Megawatt business, reflecting how our full-spectrum strategy enables Digital to provide solutions for large and small deployments, along with everything in between. Some customers might simply need a network node to utilize our robust connectivity in a central city hub, while smaller enterprises might choose to locate some one megawatt deployment for compute or storage requirements in a facility outside of the city center. Interconnection bookings were also strong at $15 million, nearly matching last quarter's record. Finally, the strength and breadth of data center demand and the progress of our go-to-market initiatives are also reflected in our addition of a record 156 new logos. We continue to see healthy inter-region activity across our global platform.

Hyperscalers drove a portion of this activity, with our largest global customers driving record export activity to other regions around the world. EMEA exports were again at record levels, with heightened transatlantic bookings for deployments landing in the Americas. Our record bookings in 2024 pushed our backlog of booked but not yet billed leases up to roughly $800 million at year-end, providing strong revenue visibility for this year and beyond. As Jordan mentioned, we also continue to bolster our balance sheet and diversify our capital sources during the fourth quarter, with support from asset sales, hyperscale development joint ventures, and highly successful debt and equity raises. These activities helped to push leverage below five times. Matt will provide more details on these activities in just a few minutes. Over the past few weeks, we have seen commitments for data center spending continue to grow.

New administration announced a $500 billion effort to support American-based AI development, and others around the world are following suit. Earlier this week, I was pleased to join French President Emmanuel Macron in Paris, along with U.S. Vice President J.D. Vance and many other heads of state and industry leaders for France's AI Action Summit, which was geared toward convening the international community to discuss the use of AI for the common good. As I highlighted two years ago on my first earnings call as CEO, technology begets technology. In the past, innovation has typically led to greater efficiencies that ultimately spur incremental demand. At the time, we noted that we were at the precipice of the next wave of innovation that we thought might drive the next decade of data center demand.

In 2024, we found data center leases that were 80% higher than the next highest year, driven by steady growth in cloud and digital transformation, as well as a surge in AI-related use cases. Today, we see a similar dynamic playing out to what we've witnessed in the past, as the rate of innovation remains in full effect, while recent efficiency gains appear poised to facilitate the proliferation of AI to the enterprise. We heard from hyperscalers earlier this reporting season, and none seem ready to moderate their pace of investment, as data center infrastructure remains a critical resource to support AI innovation. Within our sales organization, we continue to see robust demand for data center capacity, including large capacity blocks driven by digital transformation, cloud, and AI. AI innovation is current on both the hardware and software side, and Digital Realty is pleased to support and enable this innovation.

One of our wins this quarter was TensorStorm, a developer of scalable AI accelerators for both cloud and edge computing. During the fourth quarter, TensorStorm leveraged PlatformDIGITAL to host their R&D lab in a two-megawatt high-density colocation suite in a new metro that addresses their stringent engineering and time-to-market requirements. As they develop their leading-edge chips, TensorStorm works with a number of partners. Consistent with our meeting place strategy, they improve their efficiency by interconnecting with their partners on PlatformDIGITAL. So together, we partnered to deploy an AI-hosted desktop solution for AI model development and testing that included another TensorStorm partner, resulting in another new logo to PlatformDIGITAL. That's an example of the network effect of being the meeting place. Other key wins in the quarter included a Global 2000 International Banking Group expanding on PlatformDIGITAL to improve cloud connectivity and localizing data for hybrid cloud.

A world-renowned research and cultural institution was brought to us by a partner as they upgrade their HPC infrastructure, supporting biology and physics research workloads by taking advantage of PlatformDIGITAL's high-density colocation capabilities, and the Global 2000 insurance and reinsurance provider is expanding their presence on PlatformDIGITAL to take advantage of robust networks and cloud ecosystems. Before turning it over to Matt, I'd like to touch on our global ESG progress. During the fourth quarter, Teraco, our South African affiliate, started construction on a 120 megawatt utility-scale solar power plant, the first time a data center operator will own and utilize a solar power plant to support its data center load. The plant is expected to begin generating power in late 2026.

This project will upgrade existing transmission infrastructure and enable the plant to add renewable energy into the grid and to be distributed to Teraco's campuses, improving its reliability and keeping Teraco on course to meet its clean energy goals. In Chicago, we signed community solar agreements for a share of three separate solar projects totaling nearly 20 megawatts under the Illinois Shines. This new and local clean energy supply for our data centers in Chicago supports our 100% clean and renewable energy coverage there. Both actions in the fourth quarter add to Digital Realty's leadership and commitment to renewable energy. We now have more than 150 data centers around the world that are matched with 100% renewable electricity, with more than 1.5 gigawatts of contracted solar and wind capacity. But sustainability is not just about renewable energy.

We are also excited about our collaboration with Ecolab to deploy an AI-driven water conservation solution in 35 of our U.S. data centers to further enhance our water use efficiency. We expect this solution to reduce water use by up to 15% at those sites, while also extending the life of our equipment. Finally, Digital Realty was awarded Nareit's Leader in the Light Award for the eighth consecutive year. While our VP of Sustainability, Aaron Binkley, will serve as Chair of Nareit's Real Estate Sustainability Council in 2025. Big congratulations to Aaron, and with that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Matt Mercier (CFO)

Thank you, Andy. As Andy noted earlier, 2024 was a transformative year for Digital Realty.

Over the past 12 months, we posted record leasing results and increased the capacity under development by over 75%, while at the same time reducing our leverage from 6.2 times to 4.8 times. This achievement was a direct result of our strategy to bolster and diversify our capital sources. By recycling capital out of stabilized, slower-growth hyperscale and non-core assets and bringing in private capital to support hyperscale development, combined with the support of our public shareholders, we were able to simultaneously accomplish seemingly incompatible goals. We dramatically ramped development to better serve the needs of our customers while deleveraging the balance sheet below our long-term leverage target and, by the fourth quarter, meaningfully accelerating our bottom line growth.

As we sit here today with more than $6 billion of liquidity, below target leverage, and a broad and diverse array of capital sources, we are positioned to fund the investments that are underway and the attractive opportunities that we continue to see ahead. Like other challenges, this achievement took a tremendous amount of teamwork, so I want to thank my fellow Digital Realty teammates for their efforts in 2024. Let's jump into fourth quarter results. We signed $100 million of new leases in the fourth quarter, led by a record $76 million of bookings in our zero to one megawatt plus interconnection segment, which exceeded the prior quarter's record by 16%. We also signed $23 million within the greater-than-a-megawatt category, which was mostly weighted toward EMEA and APAC, following last quarter's outsized strength in the Americas.

Pricing in our zero to one megawatt category was strong, led by transactions in APAC and Americas, while pricing in the greater-than-a-megawatt category reflected the modest sample size and market mix. Importantly, nearly 60% of leases signed include annual rent escalators of 4% or greater or are linked to CPI, which bolsters our objective to drive better long-term sustainable growth. Our backlog at Digital Realty Trust totaled $797 million at year-end, modestly below the third quarter record, as $147 million of commencements exceeded new bookings. Looking ahead of the nearly $400 million backlog that is scheduled to commence in 2025, about two-thirds is slated to commence by mid-year, with the balance starting in the second half. Looking further out, we already have over $300 million scheduled to commence in 2026 and another $100 million slated to commence in 2027, setting a strong foundation for multi-year growth.

During the quarter, we signed $250 million of renewal leases at a blended 4.7% increase on a cash basis. Renewals were fairly straightforward and largely consistent with the original 4% to 6% uplift in cash releasing spread in our original 2024 guidance provided one year ago. For full year 2024, releasing spreads were 9%, aided by package deals that we have highlighted on prior calls. Excluding those deals, our full-year renewal spreads were still a healthy 5.2%, which is consistent with the guidance that we are issuing for 2025. Breaking down renewals by product category, cash renewal spreads in the zero to one megawatt segment were a healthy 4.9% in the fourth quarter, while releasing spreads in the greater-than-a-megawatt segment were up by 3.7%. For the quarter, churn remained well controlled at 2%.

In terms of earnings, we reported fourth quarter Core FFO of $1.73 per share, up 6.1% year-over-year, reflecting continued healthy growth in revenue and Adjusted EBITDA. Data center revenue growth accelerated to 8% year-over-year as the combination of strong renewal spreads, rent escalators, and new lease commencements more than offset the drag associated with more than $1 billion of dispositions throughout 2024. Adjusted EBITDA increased by 7.4% year-over-year, broadly consistent with our growth in data center revenue. Normalized total revenue and Adjusted EBITDA growth were 10% and 13%, respectively, in full year 2024. Same-Capital Cash NOI growth increased by 1.4% year-over-year in the fourth quarter, as 2.5% growth in data center revenue was partially offset by higher property operating costs in the quarter.

For all of 2024, Same-Capital Cash NOI increased by 2.8%, which was approximately 200 basis points higher when normalized for the outsized utility margin realized in 2023. Moving on to our investment activity, during 2024, we spent approximately $3 billion on development CapEx on a gross basis, including our partner's share, and roughly $2 billion on a net basis to Digital Realty. In the fourth quarter, given the strong demand for data center capacity, we backfilled all of our deliveries with new starts, ending the year with the same 644 megawatts under construction. More specifically, we delivered 42 megawatts of new capacity in the quarter, while we added another 42 megawatts of new starts. The overall pipeline is 70% pre-leased, with average expected yields edging up to 12.1%.

Consistent with the third quarter's record bookings, almost all the development underway in the Americas today is pre-leased, with expected stabilized yields ticking up slightly to 13.7%. Some development capacity remains available in both EMEA and APAC, with both currently expecting double-digit stabilized yields. Turning to the balance sheet, we continued to strengthen our balance sheet in the fourth quarter, driving leverage below our long-term target and substantially enhancing our liquidity, with nearly $3 billion of fresh capital raised since the end of September. On the debt side, in November, we successfully issued $1.15 billion of 1.875% five-year exchangeable notes, and we repaid the remaining $500 million outstanding on our U.S. dollar term loan. We also raised over $900 million of equity under our prior ETM program during the fourth quarter.

In January, we issued another €850 million of 3.875% notes due in 2035 and then repaid €400 million gilts at 4.25%. This leaves us with only €650 million in maturing debt through the rest of 2025. Looking further out, our maturities remain well-laddered through 2035. Our net debt to Adjusted EBITDA ratio fell to 4.8 times by year-end 2024, and today we have over $6 billion of total liquidity available. Moving on to our debt profile, at year-end, our weighted average debt maturity was over four years, and our weighted average interest rate ticked down to 2.7%. Approximately 83% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 91% of our net debt is fixed rate, and 96% of our debt is unsecured, providing ample flexibility from capital recycling. Let me conclude with our guidance.

We are establishing our Core FFO guidance range for the full year 2025 at $7.05-$7.15 per share on a constant currency basis. The midpoint represents 5.7% year-over-year growth, reflecting the underlying strength in our business, balanced by a meaningful acceleration in development spend, along with a substantial reduction in our overall leverage. On a normalized and constant currency basis, we anticipate total revenue and Adjusted EBITDA growth of more than 10% in 2025, reflecting the strong underlying fundamentals of our business. Same-Capital Cash NOI is expected to grow 3.5%-4.5% on a constant currency basis. As for other guidance items, we expect a positive operating environment for data centers to continue. Cash renewals are again expected to be up approximately 4%-6%, and upside is partially mitigated by relatively high expiring rates in our greater-than-a-megawatt portfolio.

Occupancy should improve by another 100 to 200 basis points. CapEx, net of partner contributions, are expected to rise to between $3 billion and $3.5 billion, while gross CapEx will reach approximately $4.5 billion, with development yields expected to remain in double digits. And we will also continue to recycle capital, with $500 million-$1 billion of dispositions in JV capital expected this year. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

Operator (participant)

We will now begin the question-and-answer session. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. To ask a question, you may press * then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster. Our first question today is from David Barden with Bank of America. Please go ahead.

David Barden (Managing Director and Head of US and Canada Communications Research)

Hey, guys. Thank you so much. I really appreciate it. I guess that I'd like to start, maybe if Chris is available, to kind of get, Chris, your perspective on how, again, we should be talking about DeepSeek. Andy, you referenced this roughly in some of the prepared remarks at the beginning, but we've historically talked about a framework, tokens to watts to dollars. And I guess it would just be great to hear kind of how your conversations with the hyperscalers, subsequent to their reporting and their growing their CapEx outlooks, how this all fits together to make the outlook for Digital Realty better as opposed to maybe more concerning. Thank you.

Andy Power (President and CEO)

Thanks, Dave.

I'll hand to Chris in a second to talk through some of those elements, but I think you hit the nail on the head. We've just, on the heels of the DeepSeek news, had the opportunity to listen from several of our top customers and really heard nothing but consistency in terms of, yes, this is a great accomplishment. This is a new player in the arena driving more efficiency to the model, but that doesn't take us off the course of the tremendous investment our top customers need to make on building out their AI infrastructure. And I think the CapEx we've tallied up is called more than $300 billion, compounding a tremendous rate year-over-year for now several years.

And so we've heard that publicly on earnings calls like this, and we've obviously heard it from our team, who've had a lot of contact with our customers over the last several weeks, including DeepSeek, certainly and post-DeepSeek. So I don't see there's a wavering in the course here of overall demand coming to Digital. But Chris, why don't you expand upon some more of the intricacies?

Chris Sharp (CTO)

Yeah, I appreciate the question, David. Essentially, I agree with you that tokens, watts, dollars is a good way and a good framework to look at the overall industry. I think we're going to continue to see AI being democratized, not only through software models such as DeepSeek, in which they represented the efficiencies, but also with GPUs.

There's going to be step functions that we'll continue to see in the industry, but this shift will drive higher and higher AI utilization to more and more customers, ultimately creating more and more demand for our facilities. And I would emphasize that a lot of our facilities, as we've talked about in the past, are AI-ready, with HD Colo and some of the elements that Andy mentioned in his prepared remarks. These will continue to be in a place where we can continue to support as inference comes to market or even private AI. And essentially, at the end of the day, we believe Jevons Paradox will outpace Moore's Law, essentially.

Operator (participant)

The next question is from Richard Choe with J.P. Morgan. Please go ahead. Hi. I wanted to ask about the cash renewal outlook. It was 4%-6% for this year.

Richard Choe (Executive Director and Senior Equity Research Analyst)

That's where you started off last year, but you ended up at 9%. Could we see a similar result, or would that take more package deals to get there?

Matt Mercier (CFO)

Yeah, thanks for the question. So as you noted, last year, we started out our guidance, we were at that 4%-6%, as you noted. We're in a similar position here for 2025 in our guidance today. And the reason we outperformed in 2024, getting to that 9%, was we had package deals that we were able to pull forward from out-of-year expirations into 2024. Our guidance does not assume that there's any of that within our 4%-6% number for 2025. And similar to along the lines of discussions we've had in 2024, you're still seeing somewhat of an elevated rates, expiry rates in 2025.

So we're still seeing positive mark-to-markets there, but you're going to be seeing an improving mark-to-market environment as you go out into outer years.

Operator (participant)

The next question is from Irvin Liu with Evercore ISI. Please go ahead.

Irvin Liu (Vice President and Senior Equity Research Analyst)

Hi. Thank you for the question. So I wanted to ask about your bookings expectations looking ahead. And I understand that bookings by nature is a very lumpy metric, and that's not something that you necessarily or you guide to, but you did do $1 billion this year or a little bit above that. Based on what you're seeing in the current pipeline and your 3.5 gigawatts of buildable capacity, do you think this billion-dollar annual bookings rate is repeatable over any future 12-month period?

Andy Power (President and CEO)

Hey, thanks, Irvin. So I think you really got to divide these into the larger capacity blocks and everything else categories.

We obviously got to a record $1 billion in new signings last year, which was close to two times our prior record. That has really created a development pipeline now that's colossal. We're pushing with a 70% pre-leased at just over 12% ROI. You can see from our bookings backlog, it's starting to roll out in 2025, but then a lot more of it starts hitting our P&L in 2026 and FFO contributions coming thereafter. We're on the larger capacity blocks. When you do so much leasing, the next batch of your leasing kind of goes into the deliveries that are just further out. You can see that our unleased development pipeline, the megawatts in there, are about 40% colo megawatts, so they're not going to get pre-leased all that far in advance.

We'll have 500 megawatts of shell either already built or ready, which is fantastic, and that will be the next batch. But you can see our delivery schedules, they're not going to deliver until the end of the year or into 2026. So we're not necessarily in a panicking rush to fill those. We need to make sure that they're procuring to the right customers and the right outcomes to both thriving diverse campuses and help our customers wherever possible. And the sooner they deliver, the more precious they are to those customers. Meanwhile, on the other end of the curve, in our zero-to-one megawatt interconnection category, we were delighted to put up a record in 3Q. We put up another record on $76 million in 4Q. That was up 16% quarter to quarter, contributing to a record full year.

That is a place where we have ample capacity to keep selling into and put incremental records on in 2025 as well.

Operator (participant)

The next question is from Jonathan Atkin with RBC. Please go ahead. Thanks.

Jonathan Atkin (Managing Director and Global Head of Communications Infrastructure Investment Research)

You've been kind of messaging last year, the guide that you gave today, kind of in the mid-single digits, and you also had indicated that you do expect this trend to accelerate. As we look forward beyond this year, what sorts of acceleration curves should we accelerate? Should we think about when it comes to Core FFO per share, given the conversion of your significant bookings to billings over the next several quarters? Thanks.

Andy Power (President and CEO)

Thanks, John.

I mean, I'll turn to Matt to give you much of the puzzle pieces for the call thereafter 2025, but we stand by what we said earlier in the year, and I think we saw that in the guidance here, which is call it normalized growth at the top line, even on line in double digits, flowing down to a bottom line, mid-single digits, or even better on a cost and currency basis. And Matt can give you some of the puzzle pieces and where we go from there for 2025 into 2026 with acceleration.

Matt Mercier (CFO)

Yeah, thanks for your question, John. I mean, this is a, which I think is a good thing. We're consistent with what the messaging has been. We're delivering on the mid-single digits growth in 2025, and we have a view for, as we've noted before, continued improvement and growth in years beyond.

I think a lot of what we did in 2024 has really set the stage for that improving growth. When you consider we've got the inventory to do it, we've got 200 megawatts available under development today with 500 megawatts of shell behind it. We've got $700 million of backlog that could commence just over the next two years. And as I noted on prior question, we've got an improving mark-to-market outlook as we look ahead towards expiring leases, which is part of what you're seeing in also improving same-store growth as well. So on top of that, we put ourselves in a position where we've got $6 billion of liquidity and below-average targets. So I think all that puts together into the mixing bowl to put us in a great position to continue to build on what has been improving bottom line growth in 2024, 2025, and beyond.

Operator (participant)

The next question is from Michael Rollins with Citi. Please go ahead.

Michael Rollins (Managing Director)

Thanks and good afternoon. Two topics. First, just digging a little bit more into the under one-megawatt business. When you look at the improving performance and the back-to-back records that you recorded on leasing, do you see that as a rising tide that's just lifting all boats, including yours? Or do you see Digital taking share? And if you can expand on the characteristics within each of those. And then just secondly, on the net debt leverage coming down, as you look at the incremental capacity that you have, is this solely directed at organic development opportunities, or are you preserving some flexibility for some potential inorganic activity at some point?

Andy Power (President and CEO)

Thanks. Hey, thanks. Mike, so I'll hand it over to Colin, but maybe just in reverse order.

We're very focused on using our now very ample liquidity and strong balance sheet, as well as numerous levers, to continue to fund organic development activity. So that is the main priority. When it goes to under-one megawatt, I mean, you're really just seeing the momentum unlock throughout 2024, and I believe it's going to continue into 2025. It was broad-based. We were the number one quarter for Americas and EMEA, in addition to a number one quarter overall. It had great diversity of wins on different size breaks. The price action was strong on the new sign-ins. The price action was also strong, almost 5% on the renewals in that category. I'll let Colin speak a little bit about the diversity of the demand and some of the new outlook as well.

Yeah, thanks, Michael, for the question, and appreciate the comments on the quarter overall.

Yeah, we were really pleased on the Zero to One Megawatt segment. That's really we feel like it's manifesting well our strategy and how it comes off as the full spectrum of offerings to our clients. I think our clients are really recognizing global reach and core markets and large contiguous blocks really matter. We saw that diversity of demand across the board. This was one of the larger large enterprise segments of the business that we've seen. Over 50% of the Zero to One Megawatt bookings came out of that segment. We also had a really strong service provider quarter as well. Again, those two customer types play off each other. Enterprises attract service providers and vice versa. We're also pleased with our focus on the channel side. 2024 is a landmark year for channel, and we expect that to continue into the future.

Operator (participant)

The next question is from Matt Niknam with Deutsche Bank. Please go ahead.

Matt Niknam (Analyst)

Hey, guys, thanks for taking the question. Just a clarification. As you think about growth for next year, you talked about sort of organic growth that's 10% plus. I'm just wondering maybe for Matt if we can think through what's embedded in the 5.8-5.9 around FX headwinds, potentially lower utility reimbursements, and any other factors that may be mitigating some of the reported growth next year. Thanks.

Andy Power (President and CEO)

Yeah. So in terms of, I mean, you saw what we put in terms of our constant currency. So we're looking at, from an FX perspective, we're looking at roughly 200 basis points of headwind kind of from a probably P&L perspective. That winds its way down to a little less than a percent down to Core FFO.

The other, so that all leads into, I think, what Andy mentioned in terms of when you're looking at top-line revenue down to adjusted EBITDA, we're really looking at in 2025, 10% on a normalized basis. And so that normalized basis is really comprised of two main elements. There's FX, which I just mentioned, was around called 200 basis points. And then we're also normalizing for dispositions, joint venture, transactional activity, which we had both in what closed in 2024. We had some of that in the fourth quarter, as well as some in the first quarter, but also what we're expecting to happen in 2025, which is related to the disposition private capital that we have in our guide of $500 million-$1 billion. I think long-term, we're looking to maintain that, call it top-line to adjusted EBITDA, 10% growth.

Operator (participant)

The next question is from Ari Klein with BMO. Please go ahead.

Ari Klein (Director of Equity Research)

Thank you. There's been a lot of talk within the industry around inference, particularly post-DeepSeek. And I was hoping maybe you can describe how you see that potential demand around inference evolving and whether you'd expect it to be more beneficial to your zero-to-one megawatt business or greater than one megawatt business. Thanks.

Andy Power (President and CEO)

Thanks, Ari. I'll hand it back to Chris. I think a stat we didn't put in the prepared remarks that we forgot to call out, I think, is our 30% of megawatts we signed during the quarter were AI-related. And obviously, we had a very much enterprise-heavy quarter given the record contributions in the zero-to-one megawatt interconnection category. So certainly starting to see our fair share of AI coming to the core markets, coming to enterprise, and certainly coming to inference.

But I believe we're still at the tip of an iceberg here, and I'll let Chris expand upon this.

Chris Sharp (CTO)

Yeah, definitely appreciate the question, Ari. Definitely early innings of AI, right? And so I think a lot of the inference we see today is around augmenting current capability. So I think as you see some of these newer feature sets coming through AI, bimodal, where you're seeing video and other things coming to market, that's going to drive a higher and higher demand in the overall megawatts required. So these capacity blocks that Colin was referencing earlier become more and more important. So maybe it doesn't fall in that sub-one megawatt because we're actually seeing that these will be larger capacity blocks that may be larger than a megawatt.

Just to kind of impress upon the demands of inference, it will still have more and more proximity to the end consumer. I think that's the important piece that we always look at and where we apply our capital is that long-term durability of where that inference matures because that's where the actual consumption or monetization of the AI will happen. And that's why we're very excited about how that's going to be maturing over time. I would also be remiss not to mention the other element of this that we're very excited about is private AI, right? So inference, you'll see that coming from a lot of the hyperscalers bringing their capabilities to market. But then on the reverse of that, you're going to see a lot of private AI capabilities coming in where that too has an inference element to it.

But we're very excited about our AI-ready capabilities and our facilities to support that broad spectrum of not only capacity blocks but power density demands as well.

Operator (participant)

The next question is from David Guarino with Green Street. Please go ahead.

David Guarino (Managing Director and Head of the Data Centers and Towers research)

Thanks. I want to go back to that less than one megawatt leasing activity. Can you comment maybe on the majority of the deals signed? Were those in legacy assets, which will hopefully provide a much-needed boost to same-store occupancy when the leases commence? Or were the majority of those deals signed in maybe the newer construction assets that are catered towards the current deployment requirements today?

Andy Power (President and CEO)

I mean, it's pretty broad-based. I mean, the top markets were Northern Virginia, London, Los Angeles, Frankfurt, Chicago globally. I can tell you London, Los Angeles, and Chicago, those are not, I mean, that's 350 East Cermak.

Cermak, that's 600 West 7th, that's even El Segundo. Our whole London portfolio, whether in the Docklands or in Brooklyn, we've had much more of enterprise play there. We've not been built a new brand new asset in a long, long time, probably until I started Digital close to 10 years ago. So these are colo, obviously oriented use cases across numerous business segments, financial services, insurance, healthcare. You could quote a few along the way. And when I look at the overall quantity of signings that went into so-called first generation or second generation, that has been pretty consistent, if not a little higher, to round out the year. You did bring up the point of same-store occupancy.

We did almost have a little self-inflicted wound there with, I think, one of the remnants of six-carrier transactions converted from 100% of these P&B suites to leave them back with the vacancies plus not anywhere near full customer base there. But that creates an opportunity. And I know we're actively quoting to refill that capacity, obviously a much better economic outcome along with, call it, meeting our core priorities and building out our enterprise customer base along the way.

Operator (participant)

The next question is from Frank Louthen with Raymond James. Please go ahead.

Frank Louthan (Managing Director)

Sorry about that. Thank you. Can you give us an idea going forward? So what percentage of your facilities you're going to set aside for sort of less than a megawatt? Where do you see that going? Within that less than a megawatt, what percentage of that floor space are you building that is for high-power density compute versus just regular machines? Thanks.

Andy Power (President and CEO)

Thanks, Mike. I mean, not just very recently, but for a long time now, the last couple of years, we have been prioritizing making sure our customers see the enterprise colo capabilities be network-oriented or private cloud or high-performance computing, pushing the power densities, have ample runway to grow within our portfolio. There's certainly places that are clearly network-oriented, like a $56 million in Atlanta, for example. But on our campuses, we're building with the modularity and flexibility to span their power density needs.

We're often now moving towards places where we can get them scaled and build a sizable building, given how much success we've had in the category in various markets to have dedicated for those customers on the same campus, obviously dedicated buildings for those customers and have a little bit less mix and matching within upstream within a building. So that's a priority. We've been doing more of that. You're going to continue to see us doing more of that. And that's why that's how we're going to get this growth. We've been putting up, call it, 22-ish% growth in that sign-in category just this last year and looking for further acceleration next year.

The next question is from Jim Schneider with Goldman Sachs. Please go ahead. Good afternoon.

Jim Schneider (Senior Equity Research Analyst)

Thanks for taking my question. Andy, I think at the top of the script, you mentioned the start of the announcement. Some of your customers are directly or indirectly involved in that announcement, some of your largest customers, in fact. So what conversations have you had with some of these customers since the announcement about their interest in sort of maintaining or expanding their relationship with Digital Realty in the future? And then maybe you can make a broader comment on hyperscalers and their willingness to look out even further into the future in terms of pre-leasing capacity, using that kind of on the margin a little bit greater or lesser than it was maybe three months ago. Thank you.

Andy Power (President and CEO)

Thanks, Jim. So the start of the announcement, I would say twofold, really was partial announcement of activity that transpired quarters and months ago.

And also, I put it in the category of conviction from top customers to continue to deploy significant dollars towards infrastructure. So, I don't think that some of that was transpired while we were signing with some of our biggest customers. Just last year, I think I said previously that of the three quarters where we had record signings during the year, we had a different top hyperscale customer be the record signing customer each quarter. So there was diversity. And based on where I'm seeing things go this year, I think we could add a different customer to be the leading horse in any given quarter as we work into 2025.

I will say at the same time, the size of this demand is getting to a place where the spike of demand is not running at full gas 24 hours a day, seven days a week, 365 days a year. These packages with more expensive GPUs and infrastructure or larger capacity blocks are going up to the highest level of the big company's boards for approval, and they don't do that every other week, so while the capacity we see continued up and to the right, there'll certainly be a week or two a month where we'll see a lull, and then they came back, which is part and parcel with exactly what we saw transpire in 2024.

I think we're very well positioned to obviously support those customers in some of the large capacity blocks, which you can see we have, delivering what we call significant data capacity in our development pipeline, 500 megawatts of shells. We just grossed up our land holdings with some near-term delivery opportunities to about over 3 gigawatts of growth.

Operator (participant)

The next question is from Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow (Executive Director and Senior Equity Analyst)

I appreciate it. I just wanted to touch on the capital recycling or JV picture for the year. I know you talked about $500 million-$1 billion. Maybe you could touch a little bit on the potential mix of outright dispositions, JVs, and then new programmatic fund-like structures that you've alluded to in the past, how we think about the mix of that this year versus using other sources of capital like issuing equity. Thank you.

Andy Power (President and CEO)

Thanks, Eric. I'll let Matt give you a quick breakdown of the numbers and then flip it over to Greg to give you a quick highlight of where we are on our specific capital initiatives.

Matt Mercier (CFO)

Yeah, thanks. Thanks, Eric. So I mean, simplistically, we're looking at, if you just break it down, we're looking at roughly $300 million-$400 million of that is going to be associated with continued efforts around our non-core asset disposition, and the remainder of that will be targeted towards the continued expansion of our private capital efforts, and for that, maybe I'll turn it over to Greg to give a little bit more color.

Greg Wright (Chief Investment Officer)

Thanks, Matt, and thanks, Eric. Look, I think there's a couple of things. One is Andy and Matt have told investors for some time now as we look to diversify and bolster our capital sources.

As you mentioned, a fund is clearly the next logical step in this progression. I think all we'd say at this point is it's going very well. And as we continue to make progress and have more to report, we look forward to talking to you about it. But again, we think it's the next logical step and like the flexibility associated with it.

Operator (participant)

The next question is from Eric Rasmussen with Stifel. Please go ahead.

Erik Rasmussen (VP of Technology Sector)

Yeah, thanks for taking the question. So you laid out mid-single digit Core FFO constant currency growth in 2025. And it sounds like there's a lot of momentum in the business for acceleration beyond that. But what are some of the factors that maybe could derail this thesis as you think about some of the things that might impact the business? Thanks.

Andy Power (President and CEO)

And if you look at our components here, most of the big signings are not flow-through to 2025. So any big signings we do from here, which we anticipate doing, are really building out growth in 2026 and 2027. So our near-term execution opportunity goes back to what we've been very successful recently and need to continue in the zero to one megawatt interconnection, filling that vacancy in our portfolio that does not have that pre-lease window of that scale. Continue to execute our commercialization. We've delivered a tremendous amount of value to our customers. And obviously, we need to make sure that the commercials are adequately rewarding, which is seen through our cash mark-to-markets. Continue to expand the value prop through our interconnection signings, which we had a strong fourth quarter, coming off a record third quarter, but continue on that road.

And then obviously, making sure we use these tools that we built over the last 18 months in terms of how we fund this business, in terms of continuing to be able to spend an accelerating $4.5 billion of gross CapEx, but use our own liquidity, retain capital, and obviously development capital partnerships as well to make sure this all flows to the bottom line, like we were guiding in 2025 and looking to do better than that in 2026.

Operator (participant)

The next question is from Vikram Malhotra with Mizuho. Please go ahead. Good evening.

Vikram Malhotra (Managing Director and Senior Equity Research Analyst)

Thanks for taking the question. I guess I just want to clarify two things you mentioned. So one is just the rush or the velocity of deals that tenants are wanting to sign and you're wanting to engage in. It sounds like in the less than one megawatt segment, there's like a, I don't want to call it a renewed rush, but certainly an upward trajectory, and hopefully that continues. But in the larger than one megawatt, it's very lumpy, like you said. And I'm just wondering the combination of those two. Does that put, just hypothetically, the next two, three years in a different zip code of velocity and size of your bookings? I'm not looking for a number. I'm just trying to think over the next few years versus the last, call it, seven years. And then same question on pricing power. With all this velocity, can you expand a little bit on how you're viewing your own pricing power going forward? Thanks.

Andy Power (President and CEO)

Thanks, Vikram. I'll jump back in there. Let me try to be succinct.

Zero to one megawatt enterprise colocation interconnection, we see a growing market where we're taking more and more share. And we will continue to do that with a very compelling value proposition. We have the power densities and runway for growth for our customers to learn and expand with us across 50 metropolitan areas and the connectivity solutions for today and tomorrow for these customers. So I think you're going to continue to see that, call it, scale-stepping of improvement, blocking and tackling in a positive robust backdrop, even before, I think, the days of infrastructure becoming tremendously robust with enterprise happens. The other megawatt is certainly going to be lumpy because when you sign a 100-megawatt deal or 50-megawatt deal in one quarter versus another, it swings it.

The point I was just trying to make is, based on the deliveries of our inventory timing, there isn't a panicky rush to trade-off volume for commercials, right? So we're trying to connect to the right customers and the right financial outcomes for those priced capacity blocks because we've seen, as time goes by, the sooner the capacity delivers, the more value it becomes and helpful to those customers. On the pricing power, I don't have a lot of data points given the composition of greater than megawatt signings in the quarter, but I can tell you, in our largest market, we're still quoting to multiple customers for large capacity blocks, call it 200-ish type rates for what is, to my view, incredibly valuable to these customers.

In the smaller 0 to 1 category, I think you can see our cash margin markets are close to just under 5%, and our pricing has helped in there pretty firmly. In fact, a big step-up in volume in that category.

Operator (participant)

The next question is from Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery (Managing Director and Senior Equity Analyst)

Thank you very much. Good evening. I wonder if you could just talk a little bit on the supply chain side of things. What's the latest situation with getting power to your new developments? Any other items in the supply chain that you're generally able to hit your timelines, hit your cost per megawatts? Any color around that would be great.

Andy Power (President and CEO)

Thank you, Simon. I mean, supply chain, in my opinion, first and foremost with power, remains incredibly tight. And everybody wants something sooner than it can usually get delivered in almost all markets.

We are using our relationships. We're using our scale. We're being creative to find out ways to sell these solutions for those customers wherever possible. But my sense is that the more power we're delivering to where we have our campuses sooner, we'd have more demand because customers need it. The broader supply chain on physical elements was kind of tied, first tied back into it. I mean, we today own 3.5 gigawatts or 3.6 gigawatts of land and shell. We're not going to look for that too. That is on our balance sheet. Much of that's been on our balance sheet for quite a while now. It's not like we just tied it up and have to run the super front-end firmly or get it ready, which puts us in a great position to make sure that we're able to keep delivering.

Our supply chain is, I think, with the vendors, it's on the tight side as well, and we'll see what happens when the talk of tariffs comes to data center land in terms of impact, but our current read of that outlook is we look like we're pretty well insulated given how we've gone ahead in terms of supply chain particularly.

The next question is from Nick Del Deo with MoffettNathanson. Please go ahead.

Nick Del Deo (Managing Director)

Hey, thanks for taking my question. Your development yield in the Americas is almost 14% now. That stepped up pretty nicely last quarter. You're sort of in the 10%-11% zone in EMEA and APAC. Should we expect to see the development yields in EMEA and APAC start to move up and narrow that gap some versus the Americas? Or do you see there being factors that restrain where you can get in those regions?

Andy Power (President and CEO)

Thanks, Nick. So I mean, that's a product of the Americas region having the most accentuated, for me, and well-outpacing supply on the larger capacity blocks. Now, we do have a sizable colo footprint in EMEA, which is obviously a higher ROI piece of our business. But when we look at the megawatt, it's those larger capacity blocks that right now are swaying rates and returns. So I believe that you're going to see AI globalize. I don't know if it'll be the same extent of growth and buildout you've seen or we'll see in the United States.

But based on including meetings I was part of this week, dialogue with customers, I think that you're going to see and kind of following the footsteps of cloud and data sovereignty and cloud or clouds, you're going to see that build up. And I can tell you, if that does come to fruition, it's going to come to fruition in markets that have the same issues as the United States in terms of power transmission and other supply chain elements.

Operator (participant)

The next question is from Michael Elias with TD Cowen. Please go ahead. Great.

Michael Elias (Director and Senior Equity Research Analyst)

Thanks for squeezing me in here. Andy, you've done a great job expanding yields and getting to 13.7% yields in the Americas. If I ask you to put your prognostication hat on, where do you see development yields and, as part of that, spot market pricing for hyperscale data center deals going, particularly in light of where the private market is clearing deals? Any color, that would be great. Thanks.

Andy Power (President and CEO)

Thanks, Mike. I mean, I'm sure there is a private market competitor that will settle for a lower development yield than we have in our North American schedule as we speak. We're very blessed that we have numerous private capital partners to have some good intelligence on this. So I don't think they're all that much lower in terms of returns, and they still look healthy and profitable returns. I think we're being able to outshine that just because we're essentially picking our spots. We're not just chasing volume at the detriment of price and return, which has allowed us to keep our returns probably a couple hundred basis points higher than the average data center competitor.

Operator (participant)

The next question is from Brandon Nispel with KeyBanc Capital Markets. Please go ahead.

Brandon Nispel (Director and Equity Research Analyst)

Yeah. Thanks for taking the question. Quick question from Matt. What type of Core FFO contribution do you expect from the JV portfolio in 2025? And then I saw you recently closed Blackstone Phase 2. Maybe could you give us an update on how you're expecting that JV to impact the JV metrics in 2025? Thanks.

Andy Power (President and CEO)

Sure. So I'll answer it in terms of the broader disposition, JV capital. So we're not expecting that to have a material impact on our bottom line Core FFO growth in 2025. That's a mix of, call it, timing, size, and when things might come to fruition.

There's some variability there. We're not including material impact there. As it relates to, I think, maybe to your point on the broader joint venture private capital, I think where you see that come through is you're seeing our fee income line pick up. You saw that in the fourth quarter, which was largely tied to the closing of our Blackstone Phase 2 and the fees that we got from that, more from the development side. We also closed on an acquisition within our S-REITs, so that had some impact with our fee income as well.

And as we now have the full Blackstone closed and we look to expand on that, I think you'll see additional fee income contribute to our 2025 growth, in particular as those assets start to stabilize and we transition from development fees to more, call it, asset management, property management type recurring fees. So that's how we're taking a look at that for this year.

Operator (participant)

That concludes the Q&A portion of today's call. I'd now like to turn the call back over to Andy Power for his closing remarks. Andy, please go ahead.

Andy Power (President and CEO)

Thank you, Operator. Digital Realty had a remarkable 2024, reflecting strong demand for cloud, digital transformation, and AI. Digital Realty is ready to support these customers' requirements, as well as private AI and a potential avalanche of AI inference demand we anticipate around the world.

We set a number of new records throughout our business, executed our key priorities, and positioned the company for an acceleration of bottom line growth in 2025 and beyond. I am extremely proud of how our team executed to deliver this year's results, and I'm excited about the future and remain focused on seizing all the opportunity at hand. I'd like to thank everyone for joining us today. I would like to thank our dedicated and exceptional team at Digital Realty who keeps the digital world turning. Thank you.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.