Good afternoon. And welcome to the Digital Realty Second Quarter 2021 Earnings Call. Please note this event is being recorded. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question plus a follow-up and we will conclude promptly at the bottom of the hour. I would now like to turn the call over to John Stewart, Digital Realty’s Senior Vice President of Investor Relations. John, please go ahead.

Thank you, Andrea. The speakers on today’s call are CEO, Bill Stein; and CFO, Andy Power. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Corey Dyer, are also on the call and will be available for Q&A. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain 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 Bill, I’d like to hit the tops of the waves on our second quarter results. We continue to enhance our product mix, with a record contribution from our sub-1-megawatt plus interconnection category. We extended our sustainability leadership with the publication of our third Annual ESG Report. We raised revenue and EBITDA guidance for the second quarter in a row, setting the stage for accelerating growth in cash flow. Last but not least, we further strengthened the balance sheet with the redemption of high coupon preferred stock and the issuance of low cost long-term fixed rate debt. With that, I’d like to turn the call over to Bill.

Thanks, John. Good afternoon and thank you all for joining us. Our formula for long-term value creation is a global connected sustainable framework. We continue to advance along these lines during the second quarter. Our business continues to globalize, and once again, we generated solid performance and strong bookings across all regions. Our full spectrum product offering continues to blossom, with record sub-1-megawatt bookings in the second quarter and regional highs in both EMEA and APAC. Together with interconnection, the sub-1-megawatt category comprise nearly half of our total bookings, demonstrating customers' enthusiastic adoption of PlatformDIGITAL to help accomplish their digital transformation initiatives. I’ll discuss our sustainable growth initiatives on page three. In June, we were awarded the Green Lease Leader Gold Award from the Institute for Market Transformation and the U.S. Department of Energy for the third year. We remain the only data center provider to receive this award, which recognizes Digital Realty as a leader in the real estate industry that incorporates green leasing provisions to better align our interests with our customers and drive high performance and healthy buildings. During the second quarter, we published our third Annual ESG Report, detailing our 2020 sustainability initiatives, including the utilization of renewable energy for 100% of our energy needs across our entire portfolio in Europe, as well as our U.S. colocation portfolio, and reaching 50% of our global needs. We also reported progress towards our science-based target, ensuring a deep focus on our renewable energy, energy efficiency and supply chain sustainability initiatives. Our ESG Report highlights many of our ongoing initiatives including our diversity, equity and inclusion efforts, along with our community involvement. Digital Realty is committed to being an active member of and giving back to the communities where we operate globally. We encourage and celebrate community involvement and employee engagement activities through our Do Better Together initiative. We also recently underscored our commitment to transparency and accountability on our diversity, equity and inclusion journey with the publication of our EEO-1 report. Events over the past year and a half have demonstrated that now more than ever ESG belongs at the forefront of our business. I’m proud of our leadership in this area as we advance our broader goal of delivering sustainable growth for all of our stakeholders, investors, customers, employees and the communities we serve around the world. Let’s turn to our investment activity on page four. We are continuing to invest in our global platform, with 39 projects underway around the world as of June 30th, totaling nearly 300 megawatts of incremental capacity, most of which is scheduled for delivery over the next 12 months. We’re investing most heavily in EMEA, with 19 projects totaling over 150 megawatts of capacity under construction. Most of this capacity is highly connected, including projects in Frankfurt, Marcé, Paris, and Zurich. Demand remains strong across these metros and each continues to attract service providers, as well as enterprise customers from around the world, many of which contributed to a truly stand-up performance by the region during the second quarter in the up to 1-megawatt category. In North America, over half of our capacity under construction is concentrated in two hot markets, Portland and Toronto that can sometimes be overlooked in favor of more traditional North American data center metros. We’ve had tremendous recent success in these two metros. We have 30-megawatts under construction in Portland or more specifically Hillsborough that are now fully pre-leased. While our Toronto connected campus continues to gain momentum as the premier Canadian hub for global cloud service providers and enterprise customers. Finally, in Asia-Pacific, we are accelerating our organic growth in this underserved region. We opened our third data center in Singapore, a 50-megawatt facility that received permitting prior to the moratorium on new data center construction. Demand for this scarce capacity is robust and we have another 18 megawatts largely pre-sold and scheduled to open this quarter. Also coming soon in this region are a pair of MC Digital Realty data centers in Japan. With the world’s eyes currently on Tokyo for the Olympics, we are opening a new Tokyo facility that’s poised to win the gold medal. We’re also opening another data center in Osaka this quarter, along with our first data center and the first carrier-neutral offering in Seoul, Korea during the fourth quarter. We are very excited about the opportunity in Seoul and earlier this morning, we announced that we’ve acquired another land parcel to expand our connected campus, enabling us to accommodate the hyperscale demand that has been clamoring for capacity and our first highly connected facility. Finally, earlier this month, we announced our intention to enter India in partnership with Brookfield Infrastructure, given the success of our existing partnership on the Ascenty platform in Latin America, the complementary skills and expertise that we both bring to this partnership, and with the significant growth opportunity available in India, we are excited to expand our footprint in this robust and dynamic market. Let’s turn to the macro environment on page five. We are fortunate to be operating in a business levered to secular demand drivers. Our leadership position provides us with a unique advantage point to detect secular trends as they emerge globally on PlatformDIGITAL. The first of these trends is the growing importance of data gravity for Global 2000 Enterprises. Last year, we introduced the Data Gravity Index, our market intelligence tool, which forecasts the rolling intensity of enterprise data creation lifecycle and its gravitational impact on global IT infrastructure between key global markets. Earlier this year, we took the next step and published an industry manifesto enabling connected data communities to guide cross-industry collaboration, tackle data gravity head-on and unlock a new era of growth opportunity for all companies. Earlier this week, we announced a collaboration with Zayo to further interconnection business through the creation of an open fabric of fabrics. With data sets exploding and data gravity challenges expanding, this initiative will enable multinational enterprises to connect these data oceans through fabric and orchestration. Third-party research continues to support data gravity’s growing importance. Market intelligence firm Gartner recently conducted its sixth annual survey of Chief Data Officers and less than 35% of these executives reported their business have achieved their data sharing objectives, including data exchange with external data sources that drive revenue-generating business outcomes. Issues often arise due to multiple data hosting and processing meeting places, together with the need for appropriate security controls and the inability to overcome latency challenges with direct private interconnection between many counterparties. PlatformDIGITAL was designed to solve these problems. Digital transformation is compounding as enterprise data and connectivity problem. Recent research indicates that enterprise workflows utilize an average of 400 unique data sources by exchanging data with 27 external cloud products, Digital Realty’s enterprise and service provider customers are turning to PlatformDIGITAL to overcome these issues by deploying their own data hubs and using interconnection to securely exchange data in and across multiple metros. Our leadership position is resonating with industry experts and influencers. For the second consecutive year, Digital Realty was named a global leader by IDC MarketScape for Data Center Colocation and Interconnection Services, further acknowledgment of our consistently improving customer capabilities. This recognition reflects our execution against the PlatformDIGITAL roadmap, providing unique differentiated value for customers with our fit-for-purpose, full spectrum, global capabilities. Earlier this month, Cloudscene again ranked Digital Realty as the strongest provider of Data Center Ecosystems in EMEA for the second consecutive year. Digital Realty was ranked second in both North America, as well as Latin America, and jumped up three spots to number seven in Asia. Also in July, Kagame published their analysis of edge infrastructure capabilities. Digital Realty ranked as an industry leader on multiple criteria across three broad categories. Our capabilities were ranked highest in vendor positioning and evaluation criteria comparison and second among the key criteria comparison. Given the resiliency of the demand drivers underpinning our business and the relevance of our platform to meeting customers' needs, we believe we are well positioned to continue to deliver sustainable growth for customers, shareholders and employees, whatever the macro environment may hold and store. With that, I’d like to turn the call over to Andy to take you through our financial results.

Thank you, Bill. Let’s turn to our leasing activity on page seven. We signed total bookings of $113 million in the second quarter, including a $13 million contribution from interconnection. Network and enterprise-oriented deals of 1-megawatt or less reached an all-time high of $41 million, demonstrating our consistent momentum and the growing success of PlatformDIGITAL as we continue to capture a greater share of enterprise demand. The weighted average lease term was over eight years. We landed 109 new logos during the second quarter with strong showings across all regions. Again, demonstrating the power of a global platform. The geographic and product mix of our new activity was quite healthy, with APAC and EMEA each contributing approximately 20%, the Americas representing nearly 50%, and interconnection responsible for a little over 10%. The megawatt or less plus interconnection category accounted for almost half our total bookings, with particular strength in the cloud, content and financial services verticals. In terms of specific wins during the quarter and around the world, we landed a top five cloud service provider to anchor our new Tokyo campus. Close on the heels of this magnetic customer deployment, Japan’s most popular social media application selected PlatformDIGITAL on the same campus. NAVER, the leading Korea based cloud provider serving the greater APAC region selected our new carrier-neutral facility in Singapore to support data intensive workloads for their high-performance computing and AI-intensive technology based platform. A European broadcaster is leveraging PlatformDIGITAL in Vienna and Frankfurt to rewire their network in favor of data intensive interconnection with benefits in performance, scalability, and cost savings. A Global 2000 Enterprise Data Platform is adopting PlatformDIGITAL in Amsterdam, Dublin, and Frankfurt to orchestrate workloads across hundreds of ecosystem applications, delivering improved performance, security, cost savings, and simplicity. In London, PlatformDIGITAL is supporting a top three global money center bank's fortification of their business continuity capabilities, without compromising their data-intensive interconnection requirements. On the continent, our connectivity and operational capabilities are helping two independent FinTech customers improve performance, and enhance access to their connected data communities. Finally, in North America, a life sciences digital marketing firm chose PlatformDIGITAL to improve their network architecture and enable future growth. Turning to our backlog on page nine. The current backlog of leases signed but not yet commenced ticked down from $307 million to $303 million as commencement slightly eclipsed space and power leases signed during the quarter. The line between signings and commencement was a bit longer than our long-term historical average at just over seven months. Moving on to renewal leasing activity on page 10. We signed $178 million of renewals during the second quarter in addition to new leases signed. The weighted average lease term on renewals signed during the second quarter was just under three years. Again, reflecting a greater mix of enterprise deals smaller than 1-megawatt. We retained 77% of expiring leases, while cash releasing spreads on renewals were slightly positive, also reflective of the greater mix of sub-1-megawatt renewals in the total. In terms of second quarter operating performance, overall portfolio occupancy ticked down by 60 basis points, as we brought additional capacity online across six metros during the quarter. Same capital cash NOI growth was negative 1.5% in the second quarter, largely driven by the churn in Ashburn at the beginning of the year. As a reminder, the Western building in Seattle, the Interxion platform in EMEA, Lamda Hellix in Greece and Altus IT in Croatia, are not yet included in the same store pool. So these same capital comparisons are less representative of our underlying business today than usual. Let’s turn to our economic risk mitigation strategies on page 11. The U.S. dollar fluctuated during the second quarter, but remained below the prior year average providing a bit of an FX tailwind. As a reminder, we manage currency risk by issuing locally denominated debt to act as a natural hedge. So only our net assets within a given region are exposed to currency risk from an economic perspective. In addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed rate financing, given our strategy and matching the duration of our long-lived assets with long-term fixed-rate debt. A 100 basis point move in benchmark rates would roughly have a 75-basis-point impact on full year FFO per share. In terms of earnings growth, second quarter core FFO per share was flat year-over-year, but down 8% from last quarter, driven by a $0.12 non-cash deferred tax charge related to the higher corporate tax rate in the U.K., which came into effect during the second quarter. Excluding the tax charge, which was not previously contemplated in our guidance, we outperformed our internal forecast due to a beat on the top line with a slight assist from FX tailwinds, as well as operating expense savings, partially due to lower property level spending in the COVID-19 environment. For the second time this year, we are raising our full year outlook for total revenue and adjusted EBITDA to reflect the underlying momentum in our business. The deferred tax charge does run through core FFO per share, but as you can see from the press release, we are lowering the midpoint by just $0.05, which all else equal would imply a $0.07 raise excluding the deferred tax charge. Since it is non-cash, the deferred tax charge does not hit AFFO. Most of the drivers of our guidance table are unchanged. But I would like to point out that we are lowering our expected recurrent CapEx spend for the remainder of the year, setting the stage for accelerated growth in cash flow. As you can see from the bridge chart on page 12, we expect our bottom-line result to improve sequentially over the balance of the year, as the deferred tax charge comes out of the quarterly run rate and the momentum in our underlying business continues to accelerate. We do still expect to see some normalization in our cost structure, with an increase in property-level operating expenses that have been deferred due to COVID along with an uptick in G&A expense as we return to the office and resume a more normal travel schedule, so your models should reflect these higher costs. Last but certainly not least, let’s turn the balance sheet on page 13. As you may recall, we closed on the sale of a portfolio of non-core assets in Europe for $680 million late in the first quarter, which impacted second quarter adjusted EBITDA to the tune of approximately $10 million. As a result, net debt-to-adjusted EBITDA was slightly elevated at 6 times as the end of the second quarter, but is expected to come back down in line with our long-term range over the course of the year, through a combination of proceeds from asset sales and growth in cash flows as signed leases commence. Fixed charge coverage ticked down slightly, also reflecting the near-term impact from asset sales, but remains well above our target and closer to all-time high at 5.4 times, reflecting the results of our proactive liability management. We continue to execute our financial strategy of maximizing the menu of available capital options while minimizing the related costs and extending the duration of our liabilities to match our long-lived assets. In mid-May, we redeemed $200 million of preferred stock at 0.625%, which brought total preferred equity redemptions over the prior 12 months to $700 million and a weighted average coupon of just over 6.25, effectively lowering leverage by 0.3 terms. In mid-June, we issued 0.5 million shares under our ATM program raising approximately $77 million. In early July, we raised another $26 million with the sale of the balance of our Megaport stock. We also took our first trip to the Swiss bond market in early July, raising approximately $595 million in a dual tranche offering of Swiss green bonds with a weighted average maturity of a little over six and a half years and a weighted average coupon of approximately 0.37%. This successful execution against our financial strategy reflects the strength of a global platform, which provides access to the full menu of public as well as private capital, sets us apart from our peers and enables us to prudently fund our growth. As you can see from the chart on page 13, our weighted average debt maturity is nearly six and a half years, and our weighted average coupon is down to 2.2%. Over 70% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and serving as a natural FX hedge for our investment outside the U.S. 90% of our debt is fixed rate to guard against a rising rate environment and 98% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see on the left side of page 13, we have a clear runway with nominal near-term debt maturities and no bar too tall in the out years. Our balance sheet is poised to weather a storm, but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. This concludes our prepared remarks and now we’d be pleased to take your questions. Andrea, would you please begin the Q&A session.

And our first question comes from Jon Atkins of RBC. Please go ahead.

Thanks. I got one question and then a follow up. First on M&A, Interxion is now more than a year under your belt and then you announced kind of the JV expansion into India. I wondered if you could maybe symbolize your strategy for organic growth as it pertains to the potential purchases of existing platforms or assets. Sometimes there can be assets out there with dislocated valuations, so I thought it would be worth asking about that topic and getting a refresh? Thanks.

Sure. Jon, happy to provide a refresh. First of all, we don’t comment on M&A speculation, particularly as it relates to specific opportunities in the marketplace. But to refresh everyone’s memory, we try to do only strategic deals. And by that, I mean, we’re looking for investments that enhance either our geographic footprint or our product offering, thinking about specific deals. When you look back on Interxion, I think, we were fortunate with there we were able to do both. We were able to enhance our geographic penetration and add significantly to the colocation mix in Europe. As it relates to the CyrusOne situation, which I think is what you probably were alluding to, we think that’s a good platform. We have all the respect in the world for both Bruce Duncan and Steve and Dave Ferdman. But it gives us more of what we already have. And so I just don’t think that’s something that would be of interest to us.

And then on asset recycling that Andy mentioned towards the end, there was a press item from June about the potential formation of a Singapore REIT. And I wonder if you could give us an update as to what’s happening and kind of the rationale?

Thanks, Jon. So I think there are two concepts kind of interlinked in your question. So non-core capital recycling, we’ve been doing a fair bit of that, most recently executed on a portfolio in EMEA close to $700 million. That was not core or strategically digital. And it’s kind of similar to a transaction we did back in, I think, 2019. So call it, folks in our portfolio, we see the most robust and diverse customer growth. So that’s one leg of the stool that you can see will continue on, we activated this year, again, in terms of funding our business plan by recycling that capital into more strategic projects. We’ve also done what I will call it private capital partnerships. So similarly with that same transaction back in 2019 with Mapletree, we raised 80% stake and $1 billion of core assets, assets that we never really want to part with and we maintain operational control of as a minority partner. And so, I think, you’ll see us continue to do both. But there’s a big difference in our minds. Non-core things that we’re willing to call it 100% and we wish the new owners well, and core really keeping those assets as part of our collective platform and just trying to recycle capital of the slower growth assets. Both of which I think at the end of the day, hopefully, accelerates our growth and allows us to redeploy that capital into higher return opportunities.

Anything specifically about the price item from I think Bloomberg and data center knowledge about forming a REIT in Singapore?

I can say that this ties to both questions. Interestingly, Singapore REITs have been the purchasers of our two largest portfolio sales. They haven’t been the only buyers, as we've also completed other individual asset sales to non-core private buyers. Regarding any similar vehicle, we would consider it in the context of extending our brand and sponsorship. While I can’t comment on the specific rumor, it does connect to both concepts in some way.

The next question comes from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

Thank you. Good afternoon. I wanted to follow up on the investment opportunity. Bill, you mentioned that for acquisitions to be strategic, accretive, and growth-enhancing, they should meet certain criteria. If we can fulfill those criteria, it seems that even a domestic acquisition could be viable. The aspect I'm grappling with is the growth-enhancing part. While strategic makes sense even with some overlap, and I understand accretive, I'm curious about how market share impacts growth outlook. If we control a larger share of the market, especially in large hyperscale Tier 1 markets in the U.S., do you believe that would help alleviate some of the downside rent pressures we've observed in that sector?

Sure. When I think about our goals, especially in light of our recent announcement that we purchased land in Seoul, Korea, I want to highlight that we already have a carrier-neutral data center in downtown Seoul, and we're planning to build out a campus in the suburbs. Our aim is to replicate our successful model from other markets by creating a connected campus with a strong carrier-neutral network. Currently, there aren't many comparable platforms globally, especially not in Asia. What we are doing in Seoul is part of a broader strategy where we are exploring similar opportunities in various regions of Asia and beyond, establishing our presence with network-dense facilities and campuses. To clarify our criteria, these new ventures need to hold strategic significance either geographically or in terms of product offerings, and we prefer that they contribute positively to our short-term earnings and foster growth, similar to how Interxion and Ascenty performed. Additionally, we ensure these projects are prudently financed.

I got two…

Alright.

Yes. I got two out of three right.

You did. We’re not heavily leveraged, in other words, to make…

Okay.

But to put a finer point on it, we’re not going to lever up these assets to make the numbers work.

Okay. Andy, if you have anything else, I will follow up.

I believe part of your question was about whether pricing power can lead to increased market share. There are certainly opportunities for that on occasion. For instance, if you consider our DuPont Fabros transaction, it was an example of moving market share where we strengthened our relationships with various customers to manage short-term supply effectively. This strategy might be more applicable in overall supply-constrained markets, particularly outside the U.S. or in specific areas like Santa Clara, for example. However, I am not entirely sure. Your perspective might align with other larger players focused domestically, regarding whether M&A can enhance pricing power. In the current environment, I do not observe the same events unfolding, but that's the situation we face in America.

That's helpful. Bill, can you give us some insight into the potential size of the India joint venture opportunity? Specifically, are we looking at a platform purchase similar to Ascenty as you did with Brookfield, or is this more of a new venture?

I’m going to hand that one over to Greg.

Thank you, Jordan. The India joint venture is actually a hybrid model. We have a strong relationship with Brookfield, and our experience with Ascenty was great. When we acquired Ascenty, we entered an existing platform that included 14 assets, with eight under construction and six operational, along with an established team. This venture will be different. We're entering into a 50-50 partnership with joint branding, as mentioned in our press releases. We already have some team members in the joint venture, but we are focused on building a new platform in India, aiming to establish a standalone entity with a robust management team that drives the business. Our approach in India will not just replicate existing products; instead, we intend to offer differentiated products. We believe that having Brookfield as a partner—considering their presence in the tower space and the dynamics in India's mobile market—provides an excellent opportunity. The overall governance structure will be similar to Ascenty, but the fundamental idea here is that we are building a platform rather than acquiring one. That’s how I would summarize it.

The next question comes from Sami Badri of Credit Suisse. Please go ahead.

Thank you. My first question is about leasing spreads. In the slide regarding leasing spreads greater than 1 megawatt, I noticed a significant improvement, moving from down 11% to just down 1%. Could you elaborate on this? The second part of my question is whether you are mostly finished with those high negative renewal spreads we've discussed in previous quarters. Are we in the clear, or should we expect some volatility? Thank you.

Thanks, Sami. Let me address that. In terms of like-for-like megawatt, we saw an improvement from a decline of nearly 11% in the previous quarters to around 30 megawatts, while 23.5 megawatts came through this quarter, remaining essentially flat with a slight decrease of 90 basis points. Overall, there was a minor improvement of 0.1% positive and over 2% positive in GAAP. So, we are definitely moving in the right direction. However, I wouldn’t say we should be celebrating just yet. We are still working through certain contracts that are above market, so we've kept our full-year guidance language slightly negative. In that category, 82% of the megawatts that renewed were positive, so that resulted in nearly 2% positive. It really was just one or two negative instances that brought the category down to flat. Additionally, the over-to-up situation shows a greater than percent positive cash mark-to-markets for the megawatts renewed. It’s still episodic but trending better, and I don't believe this quarter represents a significant turning point. We have gradually improved this year compared to last, and we expect that trend to continue based on the mix we see ahead. Could you please remind me of your second question?

I think you kind of already hit it, but the second part of the question was just kind of, are you guys essentially going into the clear regarding a lot of the high negative renewal spreads leases that came with the DFT portfolio? You kind of answered it, but that was the second question?

I don’t think, I won’t kind of go through my victories piece here. I don’t think we’re fully out of the woods, but where the trend is moving in our direction and we benefit from an incredibly diverse platform and as you look at our expirations going into this year, rest of this year or 2022 and beyond. The mix just is improving, right? The bars have gotten shorter. The concentration in the greater than megawatt is becoming more international, places where we’ve had greater pricing power. So, not fully in the clear, but I feel like we’re inching our way into better territory every day.

Got it. Thank you.

The next question comes from Brendan Lynch of Barclays. Please go ahead.

Great. Thanks for taking my question. Maybe, Andy, I’ll just follow up on that renewal issue. It does seem like things are going better now. Is it possible that a few years out renewals could actually be a tailwind or are the escalator structured, so that it’s generally neutral at best?

I believe there is definitely potential for fewer out cash mark-to-markets to create a positive tailwind. When we examine the diversity of our product, it is quite sticky. We tend to achieve better renewal rates in many markets compared to new deal rates because our customers have a strong tendency to stay with us. Our interconnection capabilities enhance this stickiness. In markets where we are adding new capacity, we are encountering physical limitations such as power supply, land access, and governmental restrictions in some countries. Additionally, inflation and its effects on new entrants and overall cost structures suggest a landscape with increased pricing power, particularly for us compared to new competitors.

Great. That’s helpful. And maybe a question for Chris as well. Chris, maybe you can give us just a little bit of insight on the fabric of fabrics platform and kind of simplify that for us if you can?

No. Absolutely. Appreciate it. Yeah. So it’s a continuation. We’ve been investing in PlatformDIGITAL to make it more robust, where we have over 4,000 customers today. And as Andy alluded to earlier on Bill’s comments earlier that we’re adding 100 new customers every quarter. So, what we’ve talked about with the fabric of fabrics and the partnership that we pulled together with Zayo is that these capabilities are proven to be very successful with our enterprise customers. And I think what we’re talking about here today is about expanding those capabilities and those connectivity capabilities to a broader set of customers. And so I think that’s one of the core things that we’re really starting to drive and it’s resonating well with our customers and that a lot of enterprises are out there looking for an open platform to really achieve their goals and remove complexity out of their deployments. And so that’s what the PlatformDIGITAL is and what fabric of fabrics means as we pulled together a carrier-grade partner with Zayo and there the first partner that we’ve executed this with and you will see other partners coming online to expand that value focused on our customers’ success.

The next question comes from Mike Funk of Bank of America. Please go ahead.

Yeah. Thank you for the questions, and good evening, everyone. First was the basic just math question to check my facts. So, I think, in the first quarter you did core FFO of 167 a share. I think you guided same kind of down $0.10 sequentially due to a number of factors. But the $0.12 non-cash charge wasn’t in that guide, right? So, if you strip that out, you actually were really only down about a penny quarter-over-quarter, right, for the core FFO. And if you think about rolling that forward the second half of the year saying you really had an $0.08 core FFO each, why wouldn’t that core FFO per share a be excluding the $0.12. Why wouldn’t that recur in 3Q and 4Q? What’s going to change in those two quarters stripping out that one-time charge?

So, two data points. One, we are increasing the guidance, net of the $0.12, right? So the $0.12 is a non-cash deferred tax hit. Sensibly, we’re revaluing a liability that due to the U.K. changing its corporate tax rates by 600 basis points that $35 million or $0.12 flows through one-time and it’s non-cash, does not hit AFFO, which you can see that I think the lowest payout ratio we’ve had in five quarters now. So, by the fact that we’ve increased the guidance notwithstanding that $0.12, it’s essentially would have been a raise. And if you backed out the $0.12 to the midpoint of our new guidance you’re close to, what would be 6% year-over-year growth on the core FFO. The reason it doesn’t all the beat in this quarter to heart of your question like it doesn’t all flow-through some of the beat which is OpEx timing, so timing relative to some of the OpEx spend which got pushed out from 2Q into back half of the year.

And that was related to some of the deferred OpEx in 2020, is that still what you’re talking about?

Correct. Correct. I would call COVID-related…

Okay.

…catch up a little bit.

Got it. Understood. And then let me a little bit of commentary on the leasing environment. I know there was a lot of concern about leasing this quarter for the industry, but came in very strong, given the visibility you have into the back half of the year would have it might be. What are you seeing in terms of demand from hyperscalers and/or demand picking back up from enterprise customers?

I think, Corey, why don’t you pick us up there?

Thank you, Mike, for the question. Regarding enterprise demand, we noted in our opening remarks that over $50 million of our business came from sub-1-megawatt interconnections, which represents about 50% of our bookings and acts as a strong indicator of our enterprise business. Additionally, we recorded our best channel quarter ever and an increase in multi-site, multi-region customers, reflecting the robustness of enterprise demand. For the second half of the year, we anticipate strong demand across all regions as businesses address data gravity and hybrid IT architecture needs, primarily driven by enterprise customers. We observed strengths in APAC, EMEA, and North America, and our funnel indicates solid opportunities across various industries, including financial services and cloud. We're excited about our current position and confident that enterprise demand will persist. Andy, do you want to address the hyperscale aspect?

I’ll quickly add that we had a strong quarter with our larger hyperscale customers in the Americas, particularly with a top five cloud service provider landing in Sao Paulo, but most of our success came from Hillsboro and Toronto. We also had wins from the top five hyperscalers in both Paris and Frankfurt, and in the APAC region, a leading Japanese social media platform partnered with us in Tokyo, along with another top five cloud service provider. This helps solidify our position in our Tokyo campus. There are two significant factors here: the extensive effort to create a global platform for these hyperscalers across nearly 50 metropolitan areas on six continents has certainly boosted our leasing activity, and we are making significant progress with next-gen hyperscalers. A couple of quarters ago, we secured a hyperscale win with a Singaporean technology firm, and we’ve also mentioned our collaboration with the Japanese social media company and the Korean company NAVER. We are definitely expanding our customer base beyond just the top five cloud service providers.

The next question comes from Michael Rollins of Citi. Please go ahead.

Thanks and good afternoon. Just a couple of questions. First, if you look at the bookings trajectory and just some of the commentary we just heard, as well as just the backlog position. Should 2022 be a better year for organic revenue growth and core FFO per share growth relative to 2021? And then, secondly, on a separate topic, just curious as you have a range of assets in your portfolio, some very young, some older, what are you seeing in terms of the maintenance capital and the pricing on facilities that are a bit more tenured relative to maybe similar facilities that are a bit newer in vintage? Thanks.

Sure, Michael, let me address those questions in reverse order. Regarding maintenance capital, as a facility ages, we inevitably face end-of-life issues with various components, similar to any infrastructure or real estate. We replace roofs and chillers as we reach their 20 or 30-year marks, one by one. The positive aspect is that we have built this portfolio over many years, continually adding newer products. This strategy allows us to keep our recurring capital expenditure at a relatively modest impact on our adjusted funds from operations. In fact, we have slightly reduced our guidance for this year. There haven’t been any significant increases, and we conduct a lot of maintenance throughout the year to avoid any upcoming infrastructure problems. From a pricing perspective, smaller nuances exist with regards to PV efficiencies or power densities, which we are innovating and applying in our older facilities. However, the primary drivers of pricing are supply and demand in the market. Data centers becoming available in demand-driven areas like Santa Clara, Singapore, or Frankfurt are creating opportunities as customers prioritize availability over specific timelines. Addressing your first question about 2022, we’re still in the first half of the year, so it's too early to discuss projections for the second half. However, several factors could accelerate our overall growth. Firstly, our cash mark-to-market position has been improving this year compared to last year, and I see potential for continued improvement. Secondly, this year, we reclaimed a significant amount of capacity which is currently in the process of being released. This downtime impacts our numbers now, but you’ll see this capacity contribute to revenue in 2022 more than it did in 2021. Additionally, we've had nearly eight consecutive strong quarters of leasing, which, although we need to account for changes in our denominator, indicates consistent performance. These factors, combined with an attractive development pipeline, suggest a positive outlook for 2022 compared to 2021.

The next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Great. Thank you very much. Good afternoon. Great to see the enterprise coming back this quarter. Do you think we’re pretty much back to normal now in terms of your operations? I know there’s been COVID and picking up again in certain regions. Any comments around supply chain inflationary impacts and how that might be affecting you?

Let me respond to that question by highlighting some important points. Corey, would you like to elaborate on enterprise demand? I was encouraged by the fact that we exceeded $90 million in EMEA, with zero to 1 megawatt accounting for 30% of our bookings. After that, Chris and I can address the effects of inflation on our customers and our supply chain.

Thank you. I discussed our strong pipeline for enterprise success, emphasizing that it is not only robust but also well-qualified in terms of quality. I feel positive about our enterprise position and the follow-up opportunities. The shift towards hybrid IT and the rise in remote work have notably increased enterprise demand. Our channel initiatives are well-aligned to support this growth. Instead of repeating my earlier points, I want to reaffirm that enterprise demand remains strong, and we are positioned favorably moving forward. The pandemic over the past couple of years has accelerated this trend, placing us in a good position for the future.

Yeah. No. Thanks, Corey, and I appreciate the question, Simon. I think from a supply chain and what we’ve seen in the industry, we haven’t seen any material impacts or delays at this point in time. We work extensively with our customers to understand their needs and the requirements for the infrastructure in their deployments and so we align their orders to manufacturing dates. There have been some delays, but most of the time we can signal that right in the beginning of the sales cycle to ensure that they can order them and not miss any kind of delivery dates from that perspective. But again it’s something we constantly watch with the different types of manufacturers out there. And I think, Andy, referenced this earlier, our VMI program with the infrastructure that we leverage and delivering our own services. We’re way ahead of that and I think we’ve really differentiate ourselves with the weight in the market that we can execute I think beyond most of the other companies out there. So, it’s something that we watch closely, but no material impacts to-date.

The next question comes from Erik Rasmussen of Stifel. Please go ahead.

Yeah. Thanks for taking the questions. So, Q2 leasing was somewhat steady in the quarter. I know you called out U.S. and hyperscale came back, and then I think the strength on the less than 1-megawatt category. But were there any limitations with overall capacity in certain markets or is there anything else to sort of call out that could have put a damper on or kept a lid on sort of your leasing in the quarter?

In any given quarter, there are always certain markets that are tighter from an inventory perspective. We previously noted how we entered Ashburn at a fortunate time since the market has softened. Currently, there are a few markets that seem tighter. For example, we haven’t had much activity in Santa Clara for several quarters due to tight conditions, and we are waiting for new capacity to come online. In Atlanta, we are primarily focused on the colo connectivity at 56 Marietta, which is a highly connected data center in the Southeast and is currently fully occupied. We are anticipating an annex building to add several megawatts of colo capacity. Internationally, Frankfurt has required careful planning to accommodate customers in certain markets. In Singapore, while we are not completely sold out, we have increased our rates due to a significant supply and demand imbalance. We are examining any opportunities to reprioritize for enterprise colocation and connectivity in that market. These are the key markets that come to mind. Overall, across 47 metros while developing new capacity, I expect there are one or two others that may be in a similar situation.

The last question comes from Frank Louthan of Raymond James. Please go ahead.

Thank you very much. Regarding Singapore, we have seen a nice boost this year due to supply restrictions. However, at some point, this situation will likely stabilize. What terms are you securing with the increased prices? Are customers opting for shorter lease durations due to the price increases? Do you foresee any pullback in 12 to 24 months, or do you believe this will be a longer-term trend?

Customers are not looking for shorter contract durations since we set those at higher rates. The activity in Singapore is reflected in our APAC rates, which have increased again quarter-over-quarter. I have strong confidence in Singapore's market; once prices go up, they may not decrease. Being an island state, Singapore is heavily government-regulated, and companies operate under long-term ground leases with the government. They take a careful and calculated approach to the supply chain, determining who gets land and when data center capacity can come online, striving to curate the right providers in an environmentally sustainable manner. This contributes to my belief that the market will remain stable, especially considering the island's natural resource limitations.

Great. All right. Thank you very much.

Thanks, Frank.

This concludes the question-and-answer portion of today’s call. I would now like to turn the call back over to CEO, Bill Stein, for his closing remarks. Please go ahead.

Thank you, Andrea. I’d like to wrap up our call today by recapping our highlights for the second quarter. As outlined here on the last page of our presentation. One, we continue to enhance our product mix, with record bookings within our sub-1 megawatt plus interconnection category demonstrating the progress we’ve made in offering the full product spectrum to our customers globally. We are also committed to delivering sustainable growth for all stakeholders and we provided additional transparency with the publication of our third Annual ESG Report. We’ve also raised full year revenue and EBITDA guidance for the second quarter in a row, setting the stage for accelerating growth in cash flow. Last, but not least, we further strengthened our balance sheet, redeeming high coupon preferred equity and raising very attractively priced long-term fixed rate financing to support customer growth around the world. I’d like to wrap up today by saying thank you to the entire Digital Realty family, whose hard work and dedication is directly responsible for this consistent execution. I hope all of you stay healthy and safe, and enjoy the rest of your summer. We hope to see many of you in person again later this year. Thank you.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.