Good afternoon, and welcome to the Digital Realty First Quarter 2024 Earnings Call. Please note that this event is being recorded. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Thank you, operator, and welcome, everyone, to Digital Realty's First 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 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 Andy, let me offer a few key takeaways from our first quarter. First, our customer value proposition continues to resonate as reflected by an AI-driven acceleration in leasing activity that drove our overall leasing volume to a new record. First quarter leasing was more than 40% above our prior record, principally driven by an improvement in pricing. Second, our fundamental strength picked up where 2023 left off with record cash re-leasing spreads and strong, stabilized same-capital cash NOI growth of 4.7%, reflecting continued strength in data center fundamentals combined with the benefit of the improvements that we have made to our portfolio over the past year. And third, we've made meaningful progress on our 2024 funding plan, with just over $1 billion of fresh capital raised from asset sales and joint ventures to date, putting us above the low end of our guidance range for 2024, just one-third of the way through the year. As a result of our efforts, reported leverage fell from 6.2x at year-end to 6.1x at March 31 and remains at 5.8x on a pro forma basis, reflecting completed and announced transactions. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Thanks, Jordan, and thanks to everyone for joining our call. Following the successful course we set in 2023, Digital Realty experienced accelerating momentum in the first quarter of 2024, headlined by a collection of multifaceted AI opportunities that drove a number of new leasing records as demand for our capacity in core markets remains elevated while visibility surrounding competitive new supply remains cloudy. At Digital, we continue to focus on our strategic priorities and on delivering on behalf of our expanding list of over 5,000 customers across our more than 50 markets in over 25 countries on six continents. During the first quarter, we posted record leasing results surpassing our prior record by over 40% and exceeding our leasing results for all of 2019 in just this one quarter. We also delivered strong operating results as evidenced by healthy stabilized same-capital growth and the highest re-leasing spreads in the company's history. We continue to innovate and integrate a further expansion of ServiceFabric through the launch of our Service Directory marketplace, which has seen the addition of over 90 members offering more than 150 services, including secure and direct connections to over 225 global cloud on-ramps, creating a vibrant community for seamless interconnection and collaboration. And just last week, we launched Private AI Exchange powered by ServiceFabric, which enables enterprise data to be at the center of an AI architecture, directly adjacent and interconnected with AI capabilities. This architecture is leading the data latency barriers that emerge as data is generated and exchanged with multiple applications across end-to-end AI-enabled digital workflows. We also continued down the path of bolstering our balance sheet and diversifying our capital sources with the expansion of one of our stabilized hyperscale joint ventures and the addition of a new hyperscale development joint venture, together with our first transaction with our perpetual capital partner, Digital Core REIT and well over the year. These transactions help to fund the development pipeline capacity that our customers are seeking while reducing our overall leverage. Operating and financial results in the first quarter were encouraging. We posted sequential growth in our core data center revenues while growing adjusted EBITDA and core FFO per share. Development returns also continued to improve and we further enhanced the product mix of our portfolio while maintaining strong liquidity and lower leverage. Bookings and renewal results were even better with a number of metrics reaching new records, reflecting a strong demand environment and limited new capacity. Total bookings were $252 million, well ahead of our prior quarterly record of $176 million, reflecting the impact from the acceleration of AI and the improved pricing environment. Importantly, when comparing this quarter's leasing to the prior record set in the third quarter of 2022, we leased an incremental 10% of IT load capacity while leases in the greater than 1 megawatt segment for approximately 60% higher than those achieved 18 months prior. Perhaps overshadowed by these record-setting results was another strong quarter in our 0 to 1 megawatt plus interconnection segment, which delivered a third straight quarter of over $50 million. Demand for connectivity-oriented capacity remains healthy and pricing remains firm. Our mark-to-market renewal spreads were up by 11.8%, aided by a record 18.5% increase in our greater than 1 megawatt category. Churn remained low and well controlled at 1.7% for the quarter. Same capital cash NOI growth also remained healthy, growing by 4.7% year-over-year in the quarter, marking our fifth consecutive quarter of positive same capital growth. A year ago, data center demand was strong, driven by the growth of cloud and digital transformation while supply was tightening due to power transmission constraints, supply chain delays, and other factors. Since then, AI has become a significant driver of demand as hyperscalers race to develop, deploy, and implement the technology while enterprises begin to explore the potential of this wave of technological evolution. McKinsey recently forecasted data center demand growth at a double-digit CAGR through 2030. This growing secular demand is broad and deep, with both enterprises and service providers needing significant new data center capacity to accommodate their expanding needs, fueled by trends such as enterprise AI adoption, AI as a service, IoT, and the relentless growth in data creation. Reflecting these trends, I want to highlight two highly strategic AI signs that came to fruition during the quarter. First, we were selected to host one of the most powerful AI supercomputers in one of our data centers in Copenhagen in a collaboration spearheaded by the Novo Nordisk Foundation and the Export and Investment Fund of Denmark. This allows researchers from Denmark's public and private sectors access to a cutting-edge NVIDIA-powered AI supercomputer in addition to NVIDIA's software platforms, training, and expertise. Second, Digital Realty further strengthened its collaboration with Oracle to accelerate the growth and adoption of AI among enterprises, aiming to develop hybrid integrated solutions that address data gravity challenges, expedite time to market for enterprises deploying next-generation AI services, and unlock data and AI-based business outcomes. Oracle will deploy critical GPU-based infrastructure with Digital Realty that leverages PlatformDIGITAL's open, purpose-built global data center solution and caters to enterprise and AI customers critical NVIDIA and AMD deployments, among others. Our 0 to 1 plus interconnection customers also continue to recognize our demonstrable strength and value proposition, whether related to power-dense applications, a network of globally-connected data centers, or other critical infrastructure requirements. During the first quarter, we added over 128 new logos. Our wins included a leading Fortune 500 AI component maker expanding their presence on PlatformDIGITAL to a new EMEA market to support their streaming service capabilities. A global cloud computing and content distribution provider leveraging the leading connectivity proposition of PlatformDIGITAL in Mombasa to support their global edge pop expansion project. A global manufacturing company building an AI HPC environment in Frankfurt to support its autonomous vehicle project. A leading French cloud service provider deploying on PlatformDIGITAL to build out its edge cloud offering across the globe to support their enterprise customers' hybrid infrastructure while delivering low latency performance and retaining mobile data residency. A Fortune 500 technology distributor and IT service provider choosing PlatformDIGITAL in Phoenix to support data exchange and interconnect with key partners. And a Fortune 500 health benefits provider expanding into two additional North American metros to take advantage of cloud and network capabilities available on PlatformDIGITAL. Moving over to a quick update on our largest market, Northern Virginia. During the first quarter, we leased approximately 80 megawatts of capacity in a supply-constrained quarter in Eastern Loudoun County. Demand for our capacity remains strong. While hyperscale leasing is typically lumpy, we continue to see healthy traction on the remaining capacity, and we are focused on helping our customers and partners source the incremental data center infrastructure that they require. During the first quarter, we worked with Dominion Energy to help address the transmission challenge at Ashburn by providing them with an easement to land a southern line at the Mars substation that they plan to construct on a quarter parcel along the 450-acre Digital Dallas campus. We remain cautiously optimistic about getting access to additional power, with Dominion's current forecast for completion of the Southern Line transmission project by late 2025. Today, we have roughly 80 megawatts of remaining capacity available for lease within our first building on our Digital Dallas campus in Loudoun, known as Building 7. We also have almost 200 megawatts available for development for our existing campus in Manassas, which was contributed to our joint venture in the first quarter. As a reminder, Manassas is currently outside of the constrained area and is accessible there. Before turning it over to Matt, I'd like to touch on our ESG progress during the first quarter. We continue to make meaningful progress and be recognized for our strong ESG performance in 2024. We went live with a switch to 100% renewable energy supplies for our Texas, New Jersey, and Sydney data center portfolios, benefiting 30 sites and addressing more than 10% of our mobile electricity footprint. We are recognized by the EPA as Energy Star Partner of the Year with sustained excellence for the fourth year, and we added a new green building certification at our MRS 4 development in Marseille, France. We also announced a partnership with a leading global energy solution provider to use our UPS systems to support Ireland's transition to renewable energy. Additionally, we've announced a significant expansion of our use of HVO diesel, a cleaner fuel made from waste, cooking oils, and fats to power our backup generators. This will up our use of HVO to 20 global sites and 15% of our global portfolio by IT capacity. We remain committed to minimizing Digital Realty's impact on the environment while delivering sustainable growth for all of our stakeholders. With that, I'm pleased to turn the call over to our CFO, Matt Mercier.

Thank you, Andy. Let me jump right into our first quarter results. We signed a record $252 million of new leases in the first quarter, led by $175 million of greater than a megawatt leasing in the Americas and another $53 million of 0 to 1 megawatt plus interconnection leasing, with interconnection bookings remaining firm at $13 million. Turning to our backlog. Given the record leasing, the backlog of signed but not yet commenced leases swelled to a new record of $541 million at quarter end, with new leasing outstripping a record $156 million of commencements during the quarter. Looking ahead, more than half of the record backlog is slated to commence during the remainder of 2024, indicating that commencements are likely to remain elevated. During the first quarter, we signed a record $248 million of renewal leases at a record increase of 11.8% on a cash basis. Re-leasing spreads were once again positive across products and regions, with particular strength in the Americas. Re-leasing spreads have been increasing steadily for well over a year now, and while we expect that they will remain very healthy, they're likely to moderate in this quarter's record given the significant weighting of lease expirations in the 0 to 1-megawatt segment for the remainder of the year. Additionally, we think it is important to consider a normalized view of the headline renewal spreads as two separate items skew our reported spreads higher in the first quarter. First, there was a notable outlier in the other category that should not be considered recurring or repeatable, and removing this transaction would reduce our overall reported spreads by 250 basis points to 9.3% for the quarter. Second, there was a significant early renewal transaction in our greater than 1 megawatt segment that was part of a large package deal as we worked to support this customer's broader data center capacity needs in one of our tightest markets. While this transaction enabled us to opportunistically pull forward some of our below-market expirations from the outer years, our forward year lease expiration schedule remains dominated by our 0 to 1 megawatt segment, which tends to experience spreads in the low to mid-single digits, akin to what we saw in the first quarter. Excluding both the outlier transaction and the packaged deal renewal, re-leasing spreads in the quarter would have been up 3.4% on a cash basis. We feel that this is a more predictable aspect of our portfolio, and we will continue to see opportunities and may periodically be able to capture the growing mark-to-market opportunity in our greater than 1 megawatt portfolio. In terms of earnings growth, we reported first quarter core FFO of $1.67 per share, reflecting strong organic operating results, partly balanced by dilution associated with the stabilized asset sales and joint venture contributions completed early in the year along with the ongoing deleveraging of our balance sheet. Normalizing for the sale or joint venture of $3 billion of stabilized assets completed since the beginning of last year, total revenue growth was 7% year-over-year in the first quarter due to the benefit of improved leasing spreads, along with favorable new leasing. Revenue growth in the quarter was tempered by the decline in utility expense reimbursements as electricity rates fell sharply in EMEA year-over-year. Normalized adjusted EBITDA increased 9% year-over-year, reflecting the strong revenue growth and modest increase in operating expenses. As Andy noted earlier, stabilized same-capital operating performance saw continued strength in the first quarter, with year-over-year cash NOI up 4.7% driven by 4% growth in rental plus interconnection revenues and further supported by expense control. Moving on to our investment activity. We spent $550 million on consolidated development for the first quarter, plus another $23 million for our share of managed unconsolidated joint venture spending while delivering 32 megawatts of new capacity across the globe for our customers. It's worth mentioning, the approximate $300 million of sequential decline in our development spending this quarter, which highlights the effects of the contributions of our three development joint ventures. However, seasonal and other timing-related factors also contributed to less CapEx spending in the first quarter. Turning to the balance sheet. We continue to strengthen our balance sheet in the first quarter with the closing of previously disclosed transactions, including the Cyxtera transaction, the first phase of the Blackstone hyperscale development joint venture, and the sale of an additional 50% share of the two stabilized hyperscale assets in our Chicago joint venture to GI Partners. During the quarter, we also completed a hyperscale development joint venture with Mitsubishi for two assets in the Dallas Metro. In terms of new news, we also sold a piece of land in Sydney, Australia for $65 million, and we provided an easement to Dominion Energy to build the Mars substation on our Digital Dulles campus for $92 million, which all contributed to a reduction in our reported leverage to 6.1x at the end of the first quarter versus 6.2x at the end of 2023. Then in April, we continued to recycle capital by selling 75% of CH2, the third and final stabilized hyperscale facility on our Elk Grove campus at a 6.5 cap rate to GI Partners, raising nearly $400 million. We also sold to Digital Core REIT, an additional 24.9% interest in our Frankfurt site where Digital Core REIT previously owned 25%, raising another $129 million. Additionally, we used some of our cash on hand to pay off the $600 million of maturing euro notes. After adjusting for these transactions, along with the anticipated closing of Phase 2 of the Blackstone transaction later this year, pro forma leverage is 5.8x. We continue to keep significant cash on the balance sheet with approximately $1.2 billion on hand and over $3 billion of total liquidity at March 31 to support ongoing investment opportunities. Moving on to our debt profile. Our weighted average debt maturity is over 4 years, and our weighted average interest rate is 2.9%. Approximately 85% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the earnings in April, we have $316 million of debt maturing through year-end 2024. Beyond that, our maturities remain well managed through 2032. I'll finish with guidance. We are maintaining our core FFO guidance range for the full year 2024 of between $6.60 and $6.75 per share, reflecting the continued improvement we are seeing in our core business. Positive underlying operating trends are partly balanced by potential acceleration in development spending and additional capital recycling, as we move our leverage down towards the long-term target and position the company for the accelerating opportunity in front of us. We are maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, so we are notching up our cash and GAAP re-leasing spreads along with our same capital cash NOI growth expectations, reflecting better-than-expected execution on the leasing front in the first quarter and the strength in fundamental conditions that we continue to see across our portfolio. Specifically, cash re-leasing spreads are now expected to increase 5% to 7% in 2024, up 100 basis points at the midpoint from the prior 4% to 6% range. Same-capital cash NOI is now expected to increase by 2.5% to 3.5%, up 50 basis points from the 2% to 3% range we provided in February. Highlighted in our investor presentations, excluding the nearly 200 basis points of power margin headwinds that we have previously discussed, our same-capital cash NOI growth for 2024 would be 4.5% to 5.5%. While these improvements and stronger core FFO per share realized in the first quarter bode well for the balance of the year, there are a few mitigating factors to consider as you're refining your models. First, we will see a modest drag on the $500-plus million of capital recycling completed in April. Second, we are only one-third of the way into the year, and there is still significant potential for both development spending and asset sales guidance to reach the high end of their guidance ranges. In addition, it is worth pointing out that the interest rate outlook and curve have changed considerably since we provided guidance and remains another source of uncertainty for the balance of this year. Just one final reminder and update. Over the course of 2024 and 2025, we expect that our $6 billion development pipeline will become increasingly accretive as higher-yielding projects are completed and stabilized. The expected yield on our stabilized pipeline ticked up another 20 basis points sequentially, reflecting the addition of higher-yielding projects and the completion or contribution to joint ventures of lower-yielding projects. To help provide increased transparency around this important and evolving aspect of our company, we have enhanced our development life cycle schedule on Page 25 of our supplemental to reflect our proportionate share of total data center development, including our unconsolidated joint ventures; and to provide increased disclosure around our available developable capacity in terms of fixtures. We hope you find this helpful. This concludes our prepared remarks. And now we will be pleased to take your questions. Operator, could you please begin the Q&A session?

Today's first question comes from Jon Petersen with Jefferies.

Great. Let me start with the leasing side. I was curious about how much of the leasing done this quarter was part of some of the joint ventures, like the one with Blackstone. Regarding the yield on development in Northern Virginia or North America, I noticed it increased by 200 basis points to 12.3% from last quarter. Is that a good number to consider for new developments you're currently signing that are around the 12-plus percent range?

So Jon, thanks for the question. I'd say the lion's share of the high percentage was not done into any of the joint ventures. I don't have the exact stat given we have now numerous strategic capital partners across our hyperscale platform, be it stabilized joint ventures. However, I'm very confident that none of the leasing we reported in this quarter went into the deal you identified with Blackstone. We are seeing great traction on those projects, but this quarter, none of that lease went inside. On your second question in terms of improvement in ROIs, particularly in North America, I would say we've definitely moved the needle quite dramatically on that category from some of our build-to-suit projects that we'll call closer to 7% that we joint ventured to now north of 12% ROIs. We are still working through projects that are obviously weighing that down a little bit, and we have projects that are entering that schedule on the higher side as well given the rapid improvement in the rate environment.

And our next question today comes from Jon Atkin with RBC Capital Markets.

So you mentioned the rate environment, and maybe continuing on that theme a little bit in terms of pricing. As we think about next year's core FFO per share growth rate, you gave a little bit of commentary on that in the last call. Any updated thoughts in terms of what we should be considering around puts and takes as that number potentially goes higher, whether it's execution of leases or pricing or renewals or whatnot?

Thanks, Jon. Maybe I'll speak to market rates and where we are able to execute on new leases signed and also renewals first and then hand it over to Matt in terms of FFO trajectory into next year. As you saw from our results, we're obviously benefiting from the overall supply-demand dynamic with robust demand trends, be it enterprise digital transformation, cloud computing, and now AI on top of that, that's playing out in our 0 to 1-megawatt category as well as our greater than megawatt category. That is all happening against a backdrop of supply constraints from numerous sources. We were able to continue to push rates on both the existing contracts that were coming up for renewal as well as on new contracts to higher levels. That is obviously reflected in the leasing results, and we believe that trend is going to remain intact for some time. Matt, why don't you speak to the FFO trajectory, please?

Sure. Thanks, Jon. I would say that based on our first quarter results, our optimism has improved in terms of what we expect to see and what we talked about last quarter regarding improving growth as we look to 2025. A big part of that, I would say, is driven by the successful leasing execution that we saw this quarter, which was $250 million, and the shorter signed commence lag, which is at 7 months. This really sets us up for accelerating revenue and, therefore, bottom-line growth as we exit this year and into next year. But to boil it all down, I would say that the growth algorithm is generally similar to what I discussed last quarter, which is we'd expect to see, call it, plus 4% related to our stabilized same-store portfolio. On top of that, you'd add another, call it, 2-plus percent as we deliver developments into our operating portfolio at yields that are continuing to improve. There'll be some offset, call it, in the 1% area given higher rates and the debt refinancing that we have over the next couple of years. I think that sets us up for mid-single-digit and greater growth going forward.

And our next question today comes from Eric Luebchow with Wells Fargo.

I wanted to dive into Northern Virginia a little bit. Can you maybe just provide an update on the timing of the Dominion transmission upgrades and when you think you can get even more capacity into that market? Then on rental rates in Northern Virginia, I think that probably had a big influence on the 170-plus that you reported in North America. Could you just talk about where you're seeing rental rates in that very supply-constrained market and what that influences your yields, underwriting, and development table?

Sure. Thanks, Eric. Northern Virginia has obviously been a highly dynamic market for some time here. We were very pleased to come together and support our partner at Dominion with a very strategic easement to be the landing of the Mars substation. It is our understanding they are on track to be delivering power and bring power back online by the beginning of 2026 from that southern line. There has not been a divergence in terms of timing from what was previously expressed to us. We have definitely benefited from the increase in rates in that market. Our largest signing was in that market, as well as a few other decent-sized signings. We also had some very great signings in the London market and north of a megawatt signings in Copenhagen. They were not the only contributors in the greater than 1-megawatt category. The rates in this market continue to improve, and as the precious capacity becomes more finite, we now have our attention focused on really 80 megawatts remaining at Digital Dallas and the Manassas campus, which is not impacted by the power delays. Rates in both Manassas and Loudoun County are converging right now, call it in the 165 to 180 type area on a market basis. That would be the cash rate, not a GAAP rate that we report.

And our next question today comes from David Barden with Bank of America.

I guess if I could just explore, Andy, the commentary around how AI is contributing already to your business. A lot of the retail data center-centric companies have said that's not really a thing for them yet. So could you elaborate on how much of that is the hyperscale? Is it really hyperscale? Or are these maybe more bespoke Copenhagen Nordisk Foundation engines that are coming online? What do these builds look like? In what ways are they different than maybe what you've been doing historically? How is that informing how your development is evolving?

Sure. Thanks, David. Let me just give you the tops of the ways, then I'll turn it to Chris on how we're tapping our infrastructure capabilities to really excel in this category. The data points are smaller in the more enterprise-oriented wins, but they are there. I would say less than half a megawatt supported through a partner, a global manufacturing company on its AI journey in Europe. The great win we had with Novo Nordisk supporting them in their NVIDIA-backed chips with a real landmark win with a supercomputer in their market. The largest of our wins in the quarter I would characterize as an AI win as well. Overall, it's probably close to 50% of this quarter's signs, which is up relative to prior quarters. I think there's a lot about what our platform offers that really allows us to capture this demand, maybe even earlier in the evolution of AI than some others, but Chris can speak to that as well.

Yes. I appreciate it, David. There are two lenses to think about here. There’s the hyperscale lens that has AI built within it, and then there’s this other pocket that we see emerging with private AI. These are larger deployments from multiple types of enterprises. It’s important to understand from a design perspective, it starts broader in how we master plan our campuses. The work we have been doing around building out substations and the long-term plan within the market has allowed us to bring a very large capacity block design to market, which is very modular. That modularity is something we continue to ideate with our customers to be able to support the varying power densities. We discussed high-density colocation and are proud of our ability to provide 70 kilowatts, and soon we will be able to support even 150 kilowatts. This ability is paramount for our modular designs and enables us to do that very efficiently. Also, the heritage of the team on a global basis, being able to really meet and ideate with these customer bases is what builds a distinct differentiator for us to capture not only the hyperscale AI, which we see growing and burgeoning alongside our Oracle and other customers, but also these smaller private AI initiatives like Novo Nordisk. We are really at a cusp of a lot of this AI demand coming into PlatformDIGITAL globally.

And our next question today comes from Irvin Liu with Evercore ISI.

Maybe to piggyback on the prior question related to retail and enterprise. Do you see potential for AI tailwinds to perhaps drive meaningful acceleration in your 0 to 1 megawatt segment, similar to what you saw in the greater than 1 megawatt segment this quarter just as AI workloads begin to evolve towards private AI and inferencing?

Sure, Irvin. The here and now, I think AI is having numerous positive implications for the sector. I will have Chris speak to what's next because I don't think we're really at what's next, be it inference, private data sets, or enterprise consumption. In the immediate term, you have existing large customers desiring immediate availability around capacity. We are successfully winning that in our core markets where we see robust and diverse demand. We are not pursuing this demand into unproven locations; we are intersecting it and supporting availability zones or on-ramps where there is network density. You are also seeing new players pop up who clearly are not in front of the queue for those larger capacity blocks, who are trying to secure what we have. They are often able to fit into the more challenging places in our portfolio to sell, so they are taking it due to urgency around their business models. This is the current and even the next quarter, but there's more to come in this AI story. I will let Chris expand upon it in terms of the next chapter.

Yes. Thanks, Irvin. One of the things we've been thinking about for some time now is that data is at the core of a lot of these AI capabilities coming to market. So being able to place that algorithm next to the data in that market is critical. We've been considering that with high-density colocation, which is why I talk about our capabilities to offer this on a rack-by-rack basis. It allows customers to leverage a lot of their existing inventory and architecture to bring AI in proximity to that capability. The recent launch of the Private AI Exchange is focused on removing technical barriers, enabling customers to obtain the right state-of-the-art infrastructure, be it NVIDIA or AMD, while also supporting those power densities in an existing environment. We do see the future of that coming to market in that way. Regarding inference, it is occurring within training today due to time to market, but we anticipate that inference will pick up and form a more extended demand cycle over the years to come.

And our next question comes from Richard Choe with JPMorgan.

You mentioned a pull forward of leases in Northern Virginia. Are you having additional conversations? Should we expect to see more of those?

Thanks, Richard. I'll hand it to Colin here in a second to talk about the broader backdrop for both the enterprise and the hyperscale AI side. However, I wouldn't characterize our Northern Virginia activity as a pull forward. As you could see, the signed to commence time has materially stepped down, reflecting urgency around the capacity blocks. We still have significant runway of precious capacity in the Northern Virginia market between now and 2026 that numerous customers desire, and we are in various stages of negotiation. It’s not just a Northern Virginia story; similar types of opportunities exist in other parts of the North America portfolio, including Santa Clara, Dallas, New Jersey, and equivalent opportunities in the major flat markets of Europe and in parts of Asia Pacific. I believe this trend is going to continue for some time. Now again, you can't predict some of these large capacity blocks executing on consecutive quarters, but I believe it's going to continue. Colin, please speak a little about the pipeline we see on both sides.

Thanks, Andy. I appreciate the question. Overall, I would say our pipeline reflects some of the same characteristics or bookings this quarter. It's pretty AI heavy; as Andy highlighted, 50% of our bookings this quarter were AI. Our pipeline is representative of that. But honestly, there's pretty diverse characterization overall between enterprise, hybrid, IT, cloud compute, and then AI. I think we have a robust platform across the globe, as evidenced by some of our bookings, particularly in London which really jumped up this quarter. If you look at the sub-1-megawatt sector, what’s going on in the digital transformation story and the explosion of data and IT spend, there's pervasive enterprise activation happening globally. This is enabled by our channel, which had about 22% of our business go through channels this quarter, which I think is substantial. These partners are aiding us in tapping into new logos, which you might have seen was 128 this quarter, the fourth highest on record. Overall, I'm quite pleased with the balance we're seeing across the portfolio and the pipeline, and I hope to see that continue in the future.

And our next question comes from Michael Rollins with Citi.

Just curious if you take a step back, where does the overall mark-to-market stand for the portfolio and what is the anticipated duration over which you could achieve that if pricing were to stay at current levels?

I think you asked about the overall mark-to-market on the portfolio, Mike? As I mentioned previously, the in-place rates, even pro forma for our recent positive cash mark-to-market on our schedule, does tick down, call it lower for the next few years, down to the 130s and dips to 100 upon exploration as the low watermark in a few years. I've also commented on the Northern Virginia rates, which call it 155 to 180. Not all markets are at Northern Virginia levels. There are some that exceed it. There seems to be a trend where big deals are gravitating towards that mid-100s type area relatively quickly, it does not appear that this trend will show any signs of pausing.

And our next question today comes from Frank Louthan with Raymond James.

Great. How much are you focused on retail colocation expansion versus wholesale? What's pushing you in one direction or the other?

Frank, it's Greg here. Consistent with past practice, we continue to play across the product spectrum, and it's going to vary by market. We are using our third-party capital model to continue to support our hyperscale customers and grow that element of the business. Demand for that business is projected to increase 2.7 times between now and 2030. Meanwhile, colocation in the enterprise segment is expected to continue growing and will be a large market; people tend to underestimate how large that market is, and anticipated solid growth in that market is around 2.3 times. We are not indicating a zero-sum game; we are not saying we will exclusively do enterprise/colocation versus hyperscale. It will vary by market and according to our customers' needs. We are quite bullish and optimistic about both right now in terms of underlying fundamentals and potential for rent growth.

And our next question comes from Simon Flannery of Morgan Stanley.

Great. It's good to see the leasing in Loudoun County. It looks like the Americas was about 80% of your leasing. Could you just talk a little bit about Europe and Asia Pacific? It seems like AI is starting off in the U.S. You talked about Copenhagen as well. But just help us think about broadening this out beyond the key U.S. markets. Then, Matt, can you update us on what happens once you get to the 5.8x leverage?

Thanks, Simon. I will do a quick non-U.S. world tour. You're correct, that Americas had put up some record results in contribution, and that was not just in the greater than megawatt category. It was also a significant contributor in our less than megawatt category, which is great to see. Outside the U.S., starting in EMEA on the 0 to 1 megawatt category, Frankfurt, Amsterdam, and London stood out. In the greater than 1 megawatt category, which Colin touched on, London contributed significantly this quarter, which has not occurred for a while, also encouraging. We observed good inbound business into Europe from outside the region on both sides, alongside firm pricing. In APAC, while we did not have a significant contribution from the greater than megawatt category this quarter, we saw strong results in pricing and volume for the 0 to 1 megawatt category, with Singapore, Hong Kong, and Seoul leading the charge. The greater than megawatt category reflects fewer markets in APAC that land big deals consistently. However, all in all, I agree that AI has landed on U.S shores sooner than globally and likely will globalize like cloud did.

So on the leverage front, just to step back, as you've seen, we have made considerable progress. A year ago, we were just over 7x, and we're now at a reported 6.1x. That's a complete turn of leverage that we've managed to take out in the last year, thanks to all the work and execution by the broader team. As Greg mentioned, even subsequent to the quarter, we brought in another $500 million through additional joint ventures alongside transaction within our Digital Core REIT showing the diversity of capital sources we now have. We're focused on growing our overall EBITDA and currently have approximately $3 billion in liquidity. We're on our way, and we feel confident about achieving our goal of getting to 5.5x leverage this year, with the majority already completed.

And our next question today comes from Aryeh Klein with BMO Capital Markets.

I guess one of your larger customers is at risk of a potential ban in the U.S. Can you talk about the risks around that and maybe the potential mark-to-market opportunity if it came to that?

Thanks, Aryeh. On all scenarios, we don’t wish to speak to confidential customer information whatsoever. Anyone who's picked up a newspaper can refer to the scenario you're mentioning. Two comments: first, in my personal opinion, I wouldn’t jump to any dire conclusions just yet. There's a lot of innings left in the game and various outcomes that could happen. I won't draw a doomsday scenario for Digital depending on what plays out in the coming months. Even under that scenario, I would group them among all of our hyperscale customers who have maximized the pricing curve when markets softened, and therefore have contracts among our hyperscale customers, all of which are some of the best in terms of markup opportunities. If that doomsday scenario were to unfold, which I’m discounting, we would experience some churn to refill, but probably couldn't come at a better time with a better mark-to-market opportunity for the company.

And our next question comes from Matt Niknam with Deutsche Bank.

Just a bigger picture question. With pricing seeing the type of growth it’s seeing, supply chain constraints that largely plagued the industry a couple of years back seem to mostly have resolved. Can you help us understand what you're witnessing in terms of new hyperscale builds being insourced relative to being outsourced to partners like yourself? More importantly, how can Digital enhance the utility it offers its larger customers in what's looking like a firmer pricing backdrop that is likely to persist for some time?

Matt, I would not characterize the world of supply constraints or obstacles to supply as being in the rearview mirror just yet. We’re not waiting for a COVID supply chain equivalent, and although some frictions exist, such as power transmission, generation, and general sustainability concerns, I believe we can add more value to our customers than before. Even with historical preferences or a tendency to manage supply internally, our customer base increasingly recognizes the benefits of having a global outsourced trusted partner with 20 years of experience in operations and delivery. They are turning to Digital in their time of need amid urgency to address those large capacity blocks, which has been particularly highlighted in the Northern Virginia market but is an emerging trend across the Americas and may evolve globally.

And our next question today comes from Michael Elias with TD Cowen.

Congrats, guys, on a record leasing quarter. Just a quick one for me. I know it's been a while since you have done an acquisition. Maybe for Andy or Greg, curious how you're thinking about the potential for M&A, particularly given where your stock is trading right now.

Going to Greg on that one, Michael. Thank you for the compliment.

Thanks, Michael. Right now, our appetite for acquisitions is not particularly strong unless they are smaller tuck-in strategic acquisitions. We've discussed this before. We believe we already possess the footprint, product, and team to continue driving our existing business and succeeding. Most of our prior acquisition activity was driven by the need for market access, product, or teams in select markets where we didn't have a strong presence. We do not have nearly as much of that today. Over time, we will look into APAC for potential growth, but there are not many logical options for a strategic transaction. While we never say never, at the moment, we prefer buying land and building organically, which presents better risk-adjusted returns than current market multiples. So I don’t anticipate a lot of acquisitions for the foreseeable future, but again, that could change.

And our next question comes from Nick Del Deo with MoffettNathanson.

Andy, earlier you indicated that you're not going to pursue demand into unproven markets, yet you are witnessing significant demand currently. What thresholds would those markets need to cross before becoming interesting to you, particularly if power constraints in key markets persist or worsen? Or are they too far down the priority list to warrant consideration?

Thanks, Nick. Our strategy focuses on supporting workloads, whether enterprise, digital transformation, hybrid, hyperscale, or AI in markets with robust and diverse demand that support location-sensitive applications. The cloud has been prevalent for a long time, and you don’t put availability zones in every NFL city in America or its equivalents globally. You select locations based on GDP, population, infrastructure, and data availability for sustainable growth in our asset class and strategy. New markets may present opportunities over time, but we require similar conviction for investing in them as we do for our core markets. We have a significant capacity for growth – north of 3 gigawatts of shell capacity in those core markets, which gives us plenty of demand to harvest before feeling any urgency to pursue less proven markets.

And our final question today comes from Erik Rasmussen at Stifel.

North America is very strong, especially in the greater than 1 megawatt segment. It seems that much of this was driven by AI. Would you expect some level of outperformance throughout the year in North America, specifically in greater than 1 megawatt, compared to what is seen in other regions? Just looking for a sense of how the year could shape up in terms of bookings.

Thanks, Erik. More on the tactical quarterly bookings. We have a fantastic start on both the less-than-megawatt category and steady progress on 250 million this quarter. We have a record result, and I believe we’re entering a different demand territory right now, especially with large capacity blocks that are deeply sought after. Our team is focused on executing, and we still have three more opportunities in 2024 to showcase those results. Historically, the quote 'it happens slowly and then it happens really fast' resonates; similar to how cloud globalized, this could play out similarly. While I cannot assure that 2024 will be the year AI globalizes like cloud, indicators point towards the reality that it could follow this trend over time. Thank you all for dialing in. We really appreciate it. Digital Realty had a strong first quarter with record leasing results that reflected the growing impact of AI on our business. Fundamental strength continued through the first quarter with healthy same-capital organic growth and robust re-leasing spreads. We've continued to innovate with the expansion of ServiceFabric, new products like our Private AI Exchange, along with modular designs to accommodate increasingly power-dense workloads. Finally, we've closed a number of transactions already this year, bringing in additional private capital and enhancing our ability to deliver new capacity to meet our customers' growing needs. We are excited about this quarter's results and look ahead with continued optimism. The three key demand drivers, AI, cloud, and enterprise digital transformation, are showing no signs of letting up, and we are well-positioned with over 300 data centers across the key markets around the world. I'd like to thank everyone for joining us today and would like to thank our dedicated and exceptional team at Digital Realty, who keep the digital world running. Thank you.

Thank you. This conference has now concluded, and we thank you for joining today's presentation. You may now disconnect your lines, and have a wonderful afternoon.