Q4 2024 Earnings Summary
- Record growth in the under 1 megawatt business segment, with back-to-back record quarters and increasing market share. Digital Realty is experiencing strong demand from both enterprise and service provider customers, attributing this success to their compelling value proposition, global reach, and connectivity solutions across 50 metro areas.
- Significant development pipeline and financial flexibility: The company has over 200 megawatts under development and 500 megawatts of shell capacity. Their pipeline is 70% pre-leased at over 12% ROI, and they have a bookings backlog of $700 million set to commence over the next two years. With over $6 billion of liquidity and leverage below targets, Digital Realty is well-positioned to fund growth initiatives, supporting accelerating core FFO per share growth in 2025 and beyond.
- Strong positioning to capitalize on AI and cloud infrastructure demand: As customers continue to invest heavily in infrastructure to support AI and cloud computing, Digital Realty is supplying large capacity blocks to hyperscale customers. The company expects this trend to continue, benefiting from increased investments by top customers deploying significant dollars towards infrastructure.
- Record bookings in 2024 may not be repeatable in future periods, especially for large capacity blocks, leading to potential slowdown in growth. The company acknowledges that while they achieved a record $1 billion in bookings in 2024, future large-scale bookings depend on deliveries not scheduled until late 2025 or 2026, and they are "not necessarily in a panicky rush to fill those" unleased capacities. This could impact their ability to maintain the same level of bookings going forward. ,
- Increased competition may pressure development yields and returns. The company admits that private market competitors might be willing to accept lower development yields. This could lead to pressure on Digital Realty's yields and profitability as they compete for deals in the market. The CEO stated, "I'm sure there is a private market competitor that will settle for a low development yield than we have in our North America schedule as we speak."
- Limited contribution from joint ventures to FFO growth in 2025. Joint venture activities, such as the recent closing of Blackstone Phase 2, are "not expected to have a material impact on our bottom line core FFO growth in 2025" due to timing and size. This suggests that core FFO per share growth may remain limited despite these ventures. ,
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Core FFO Guidance | FY 2025 | $6.65 to $6.75 per share (FY 2024) | $7.05 to $7.15 per share (FY 2025) | raised |
Cash Renewal Spreads | FY 2025 | 8% to 10% (FY 2024) | increase by 4% to 6% (FY 2025) | cannot compare |
Revenue & Adjusted EBITDA Growth | FY 2025 | no prior guidance | expected to exceed 10% in 2025 | no prior guidance |
Same Capital Cash NOI Growth | FY 2025 | no prior guidance | 3.5% to 4.5% in 2025 | no prior guidance |
Occupancy | FY 2025 | no prior guidance | improvement of 100 to 200 basis points in 2025 | no prior guidance |
Net CapEx | FY 2025 | no prior guidance | $3 billion to $3.5 billion (net of partner contributions) | no prior guidance |
Gross CapEx | FY 2025 | no prior guidance | Approximately $4.5 billion | no prior guidance |
Development Yields | FY 2025 | no prior guidance | Expected to remain in double digits | no prior guidance |
Capital Recycling | FY 2025 | no prior guidance | $500 million to $1 billion of dispositions/JV capital | no prior guidance |
FX Headwinds | FY 2025 | no prior guidance | Approximately 200 basis points headwind (less than 1% impact on core FFO) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Record Leasing Growth & Strong Demand | Noted in Q1‒Q3 as “record” in each quarter (e.g., Q1: >$250M , Q2: >$164M , Q3: $521M ) | In Q4, surpassed $1B total leasing for 2024, continuing the record pace | Consistent focus, sentiment remains bullish |
AI Demand | In Q1, ~50% of bookings ; Q2, ~25% ; Q3, ~50% | Q4 noted 38% of signings were AI-related, still viewed as “early innings” | Recurring driver, shares of AI bookings fluctuate but long-term view is positive |
Development Pipeline & Yields | Yields rose from ~7% to 12‒13% across Q1‒Q3 | In Q4, yields ~12.1% globally, 13.7% in the Americas | Consistent improvement, sentiment remains strong |
Under 1 MW Segment Growth | Showed steady gains in Q1‒Q3 (e.g., >$50M Q2, record $66M Q3) | Hit $76M in Q4, second consecutive record for 0‒1 MW plus interconnection | Continued rise, viewed as a key growth area |
Potential U.S. Ban Risk | Mentioned in Q1 regarding a large customer, with uncertainty but no drastic concerns | No mention in Q4 | No longer discussed, risk seemed to subside |
$168M Impairment | Cited in Q2 for noncore assets , with context of $1.3B gains from recycling | Not mentioned in Q4 | No longer discussed after Q2 |
Volatility in Quarterly Bookings | Explicitly acknowledged in Q3 (record Q1, weak Q2, strong Q3) | In Q4, management noted lumpiness in large deals but stable 0‒1 MW segment | Newly emphasized, recognized pattern of swings |
Increasing Competition | Not discussed in Q1‒Q3 | In Q4, private rivals accept lower yields; DLR maintains higher returns | New topic, highlighting pressure but DLR remains disciplined |
Financial Positioning & FFO Growth | Addressed each quarter (e.g., Q1 core FFO $1.67, Q2–Q3 guidance $6.60‒$6.75) | Q4 projects $7.05–$7.15 for 2025, with leverage at 4.8× and $6B liquidity | Consistent, outlook improving |
Long-Term AI & Cloud Demand | Cited as shaping future growth in Q1‒Q3 (e.g., AI ~50% Q3, cloud CapEx accelerating) | In Q4, viewed as a major driver with AI globalization expected, seeing ongoing hyperscaler investments | Consistent, deemed a major future catalyst |
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AI Demand and DeepSeek Impact
Q: How does DeepSeek and AI developments affect Digital Realty's outlook?
A: Management explained that despite efficiencies introduced by DeepSeek, demand from hyperscalers for AI infrastructure remains strong. Customers continue to invest heavily in AI, with CapEx exceeding $300 billion and compounding at a tremendous rate. Digital Realty's AI-ready facilities are well-positioned to support this growing demand. -
Booking Expectations and Sustainability
Q: Is the $1 billion annual booking rate repeatable in future periods?
A: Management noted they achieved a record $1 billion in bookings in 2024, nearly double the prior record. Future large-scale bookings may be less frequent due to delivery schedules extending into 2026, and they are focusing on curating outcomes for customers rather than rushing to fill capacity. In the 0-1 MW category, they have ample capacity to continue strong bookings in 2025. -
Core FFO Growth Outlook
Q: What is the outlook for core FFO per share growth given bookings conversion?
A: Management reaffirmed mid-single-digit growth in core FFO per share for 2025, with expectations for acceleration beyond that. They highlighted factors such as inventory availability, a $700 million backlog commencing over the next two years, and an improving mark-to-market environment. They aim for normalized top-line and EBITDA growth of over 10%. -
Under 1 Megawatt Leasing Growth
Q: Is the growth in sub-1 MW leasing sustainable, and is Digital Realty gaining share?
A: Management sees momentum in the under 1 MW segment as broad-based and believes they are capturing market share due to their global reach and full spectrum of offerings. Pricing remained strong, with new signings and renewals both performing well. They expect this trend to continue into 2025. -
Capital Recycling and JV Plans
Q: What are the plans for capital recycling, JVs, and potential fund structures?
A: Management plans to generate $500 million to $1 billion through non-core asset dispositions and expansion of private capital efforts. Approximately $300 million to $400 million will come from non-core asset sales, with the remainder from private capital initiatives, including potential fund structures. This approach diversifies and bolsters their capital sources. -
Factors Affecting Future Growth
Q: What could derail the acceleration of growth beyond 2025?
A: Management indicated that most big signings will impact growth in 2026 and beyond. Near-term execution focuses on the 0-1 MW segment, filling portfolio vacancies, and ensuring commercially rewarding terms. Effective use of funding tools and partnerships is crucial to support growth projections. -
Pricing Power and Deal Velocity
Q: How do you view pricing power amid deal velocity in different market segments?
A: In the 0-1 MW segment, management expects continued improvement and is gaining market share. For deals over 1 MW, activity is lumpier, and they are not rushing deals that might compromise commercial terms. Pricing remains firm, with large capacity blocks around $200, reflecting strong value to customers. -
Supply Chain Constraints
Q: What is the current state of supply chain and power availability?
A: Management noted that power supply remains tight across markets, with demand for earlier delivery than possible. Digital Realty is leveraging relationships and scale to find solutions. They own 3.5 gigawatts of land and shell on their balance sheet, positioning them well to continue delivering despite supply chain constraints. -
Development Yields Outlook
Q: Will development yields in EMEA and APAC increase to match the Americas?
A: Current yields in the Americas are almost 14%, higher than in EMEA and APAC. Management expects AI to globalize, potentially increasing growth and yields in these regions. Market factors like power transmission and supply chain elements will impact returns abroad. -
Cash Renewal Outlook
Q: Could cash renewal rates exceed guidance as in the prior year?
A: Management started with guidance of 4% to 6% for 2025, similar to the previous year. In 2024, they achieved 9% due to packaged deals pulled forward. The current guidance does not assume similar packaged deals, though positive mark-to-market conditions persist.