Earnings Call Transcript
DIGITAL REALTY TRUST, INC. (DLR)
Earnings Call Transcript - DLR Q2 2020
Operator, Operator
Good afternoon, and welcome to the Digital Realty Second Quarter 2020 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 and callers will be limited to one question plus a follow-up. Due to time constraints, we will conclude promptly at 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.
John Stewart, SVP of Investor Relations
Thank you, Andrea. The speakers on today's call are CEO, Bill Stein; CFO, Andy Power; Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and EVP of Sales and Marketing, 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 delivered record bookings, more than 50% higher than our previous all-time high. We beat consensus by $0.07 driven by operational outperformance and the beat flowed through to upward revisions to guidance for revenue, EBITDA and core FFO per share. Third, we extended our sustainability leadership with the publication of our second annual ESG report and official recognition as the first Data center ENERGY STAR Partner of the Year. Last but not least, we further strengthened the balance sheet with the issuance of $645 million of common equity and €500 million of 10.5 year bonds at 1.25%. And with that, I'd like to turn the call over to Bill.
Bill Stein, CEO
Thanks, John. Good afternoon and thank you all for joining us. Our formula for long-term value creation is a global connected sustainable framework. Even though we haven't been physically sitting together for the past several months, we've made significant progress, strengthening each of these pillars. As John just mentioned, our second quarter bookings were more than 50% better than our previous all-time high but we're also more than double our previous trailing four-quarter average. We've now seen improvement for six consecutive quarters so we've clearly seen an acceleration in leasing velocity. We are admittedly a bigger organization today and the bar should be higher, following our combination with Interxion and as well Ascenty. But our second quarter results would have been a record for stand-alone Digital Realty as well. A world of remote everything has accelerated digital transformation initiatives and data center demand has benefited. But I believe these results also reflect the past several years of hard work, putting together a highly attractive diversified global platform stability and capable leadership within our broader organization, coupled with solid execution. In particular, I would like to congratulate Corey Dyer and his entire sales team on their exceptional performance. We do expect the second quarter may be the high watermark for the full year and we don't necessarily expect to maintain this velocity every quarter but 2020 is clearly shaping up to be a banner year and we continue to capitalize on the acceleration of digital transformation strategies to build business resilience, which should continue to drive strong demand going forward. Our confidence in the forward outlook is reflected in the upward revisions to guidance for revenue, EBITDA and core FFO per share. Let's turn to the current environment on Page 3. The COVID-19 global pandemic has changed all our lives. Our hearts go out to the global communities we serve especially those that have been most impacted. We stand in solidarity with them. And our focus remains unchanged, keeping our employees, customers and partners safe. We are fortunate to have been as well prepared as we possibly could have been for this pandemic. Our 280 data centers in 45 metropolitan areas across 21 countries on six continents remain fully operational. We are grateful to be in a position where we can help industries communities and families around the globe continue to conduct business and stay in contact with each other during these uncertain times. We also want to again extend our gratitude to our employees in critical data center roles, who continue to come into work every day at our data centers around the world. They make possible the service and support that we provide our customers. Stepping back, our approach to managing and leading through the COVID-19 pandemic is guided by our ESG strategy depicted on page 4. We strive to lead the global data center industry in sustainable environmental performance. We are committed to minimizing our impact on the environment, while simultaneously meeting the needs of our customers, our investors, our employees and the broader society. We take this work seriously because it matters to our customers and because we think it's the right thing to do. Environmental stewardship is incorporated into almost every aspect of our business. Sustainability is a top priority for us year round. The industry, governmental organizations and the press are all taking note. In early April, we were honored to be the first data center provider to receive an EPA Energy Star Partner of the Year Award for Energy Management. In late April, we announced a wind energy agreement to supply approximately 30% of our power needs in the Dallas, Texas area with renewable energy. In early June, Interxion announced that it reduced its cooling system energy consumption by 20%, during the first year of an ongoing project with EkkoSense, a data center optimization specialists. In mid-June, we were recognized as a green lease leader by the U.S. Department of Energy's better Buildings Alliance. We also published our second annual ESG report in mid-June, providing transparency on our ESG performance for 2019, as well as a comprehensive overview of our clean energy commitment, resource conservation, community engagement and philanthropic commitments, diversity and inclusion efforts and other sustainable business practices. In terms of our social efforts, since April, we have committed more than $1 million to partnering with charitable organizations globally combating the COVID-19 pandemic as well as efforts to fight racial injustice. We've also begun a doubling down on our employee matching gift program raising an additional $100,000 on top of our corporate efforts. We are doing our best to play a constructive, proactive role in advancing our broader goal of delivering sustainable growth for all of our stakeholders, investors, customers, employees and the communities that we serve around the globe. Let's turn to our investment activity on Page 5. We continue to expand our global platform with groundbreaking announcements in multiple metros across APAC, the Americas and EMEA. In early July, we announced that we would be building our second data center in Hong Kong, allowing us to cater to diverse multi-site workloads. The facility is expected to be built out and ready for global and regional customers by mid-2021. In mid-June, we broke ground on the first carrier-neutral facility in Korea with the Sangam Digital Media City in Northwest Seoul. We've seen significant pent-up customer demand for carrier-neutral offering in South Korea and we expect to be open for business in the fourth quarter of 2021. In early June, we announced that Ascenty, our Latin American platform and joint venture with Brookfield infrastructure was entering Mexico with two diverse locations, anchored by long-term U.S. dollar-denominated multi-megawatt agreements to support the growth of a leading global cloud provider. In April, Interxion broke ground on Interxion Paris Digital Park, a market expansion project in Paris with up to 85 megawatts of capacity. The first of four new data centers on this site will be Interxion's eighth in Paris and the first phase is scheduled to open in late 2021. In early July, Interxion announced the opening of the first phase of MRS3, its third data center in Marseille. Interxion's Marseille campus is one of the world's leading digital hubs for intercontinental data traffic with over 150 network service providers. The new facility will offer customers expanded access to the vibrant community in Marseille including numerous connectivity providers, digital media and cloud segments along with local as well as global enterprises. Last but not least, in mid-July, we announced that we had acquired the freehold to the land under Hanauer Landstraße campus in Frankfurt. In addition, we are also under contract to acquire the Neckermann site a separate parcel within a kilometer of our existing campus that will support the development of up to 180 megawatts of IT capacity. We believe that we are creating significant value by combining the leasehold and freehold positions on one of the most highly connected campuses in Europe, while the adjacent expansion capacity provides runway to support customer growth in a key European metro for years to come. We also made two significant announcements advancing our collaboration with NVIDIA. In early May we announced the platform digital data Hub featuring NVIDIA DGX A100, POD infrastructure, a joint engineered solution that brings the world's first five Petaflops AI compute system to the enterprise to tackle high-performance computing challenges. Most recently in late July, we announced the joint development of an AI platform as a service offering on platform digital combining core scientific plexus AI workflow orchestrator with the NVIDIA data hub solution to address enterprise data lake performance constraints. These announcements validate our strategy of building a portfolio of engineered partner solutions to help enterprises accelerate digital transformation and remove data gravity barriers. Let's turn to Interxion on page 6. Integration is our top priority for 2020. And despite having to do the hard work of integration virtually during the pandemic, both teams have risen to the occasion. Andy will cover our customer wins in more detail, but we are already seeing the benefits of the significant cross-selling opportunities. We said last quarter, that we believe our combination with Interxion has the potential to change the global data center landscape. And in the interim we've received meaningful third-party validation of our view. In mid-July Cloudscene gave us the top billing in EMEA on their H1, 2020 data center ecosystem leader board, which ranks data center operators based on the composition of their facilities, service providers, network fabrics and cloud on ramps. The combined organization is well placed to meet the growing demand from cloud and content platforms, IT service providers and enterprises seeking co-location, hybrid cloud and hyperscale data center solutions. These are global long-term opportunities that we are ideally positioned to address. We've made steady progress on our corporate integration efforts. And by putting customers first, we've been able to seamlessly come together as one company. There will be more work to do over the next several quarters, but we are pleased with our progress to-date. Let's turn to the macro environment. As we are all aware the pandemic has pumped the brakes on the global economy. As you've heard me say many times before, data center demand is not directly correlated to job growth. And we are fortunate to be operating in a business levered to secular demand drivers, both growing faster than global GDP growth and somewhat insulated from economic volatility. The current environment is accelerating enterprises' digital transformation strategies and data gravity is shaping the way enterprises will deploy, host and connect their infrastructure globally. According to IDC by 2025, enterprises will need to manage the integration of 175 zettabytes of data between their private infrastructure and public clouds. 451 Research conducted a global IT leader survey finding 87% of IT leaders need to maintain local copies of critical data at global points of presence to meet regulatory requirements. We see indicators of enterprises solving data gravity globally across our platform in the volume of new logos as well as expansion bookings within our enterprise vertical. Digital Realty was recently named the global leader in GigaOm's market radar for edge co-location, ranking our strategy as the only outperformer in the platform strategy sub-segment a strong validation of our vision. The roadmap for platform digital is positioned to capture the enterprise opportunity. Given the resiliency of the demand drivers underpinning our business and the relevance of our portfolio to meeting these needs, we believe we are well positioned to continue to deliver sustainable growth for customers, stakeholders and employees, whatever the macro environment may hold in store. With that, I'd like to turn the call over to Andy to take you through our financial results.
Andy Power, CFO
Thank you, Bill. Let's pick up here on page 9. As you may have seen from our supplemental reporting package, we have included Interxion's portfolio statistics in the supplemental this quarter. The highlights here on page 9 of the deck, give you a sense for the power of the combined platform. We also implemented the changes to our disclosure package we've telegraphed for the past several quarters. As we've said, we see the lines blurring between product types. And we believe the traditional distinctions have become less meaningful. The changes we've made to attempt to more closely align our disclosure with our customers' buying behavior. And the way we manage the business. We hope these disclosure enhancements are helpful. We aim to continuously improve the utility and transparency of our financial disclosures. And as always, we welcome additional input from analysts and investors. Let's turn to our leasing activity on page 10. We signed total bookings of $144 million, including an $18 million contribution from Interxion. The second quarter also included a $12 million contribution from Interxion. And along with the $22 million of network and enterprise oriented deals of a megawatt or less, accounted for nearly 25% of total bookings. The weighted average lease term was nearly 11 years. We landed a total of 124 new logos during the second quarter, including 38 sourced by Interxion again, demonstrating the power of our global platform. In terms of regions, demand was particularly robust in Northern Virginia, the New York Metro area, the Pacific Northwest and Mexico City in the Americas, as well as Frankfurt, Paris, London and Marseille, in EMEA. We leased 48 megawatts in Ashburn during the second quarter, bringing our trailing four-quarter total to north of 100 megawatts. This activity has driven lease-up of active development, as well as existing inventory. We generated another 70 basis points of positive net absorption within our Northern Virginia in-service portfolio during the second quarter, up from 90% occupied at year-end to 93.8% as of June 30. And our Northern Virginia active development pipeline is now 100% pre-leased. Despite a somewhat crowded playing field in this market, we believe we certainly hit above our weight due to the strength of our global platform and sales force, the large and growing installed customer base seeking growth with adjacency on our connected campuses. And finally, our ability to future-proof our customers' growth with our strategic land holdings, providing the longest runway to support their future growth. While we have not yet begun to see meaningful improvement in Northern Virginia market rents, the available inventory has been rapidly absorbed and the pendulum is starting to swing back towards tighter availability and healthy competitive tension. In terms of specific wins during the quarter and around the world, the New York metro area was a standout not only is the top destination for network and enterprise oriented deployments during the second quarter, but also with the groundbreaking of our newest connected campus in Northern New Jersey where we will be developing a highly strategic, purpose-built, new infrastructure solution to help a leading data analytics provider optimize data exchange for their employees, customers and partners. In Phoenix, a leading top 12 university is leveraging our network-dense interconnection hub to optimize their hybrid IT controls. As we announced in mid-May, the Shadowserver Foundation, a nonprofit security organization working to make the internet secure for everyone is streamlining its data center network with Digital Realty in the Bay Area. Our Paris team persuaded EcoTel, a French global IT service provider to migrate its infrastructure onto our platform by offering flexible commercials and demonstrating their value as a trusted partner. In London, we added Elite, a local fiber and managed service provider to our carrier community, which will attract other enterprises particularly in digital media who will use Elite for their services. In the Netherlands, DigiTen, a fast-growing software company targeting the online gaming community chose our Skiple Right campus in Amsterdam at its worldwide hub due to low latency connections to the rest of Europe and beyond. A leading U.S. semiconductor manufacturing company deployed across multiple metros is demonstrating the diverse product solutions available on platform digital, leveraging fit-for-purpose interconnection and infrastructure capabilities across three unique sites on our Dallas-connected campus as well as the Amsterdam Business Park. Finally, Hash Power, a leading global content delivery company headquartered in Portugal harnessed the power of our combination with Interxion to rewire their network in Madrid and San Francisco. Turning to our backlog on page 12. The current backlog of leases signed but not yet commenced stands at a record high $251 million. The step-up from $122 million last quarter reflects the $44 million backlog inherited from Interxion, as well as the $132 million of combined space and power leases signed offset by $47 million of combined commencements. The lag between signings and commencements was a bit longer than our historical average at a little less than seven months. Moving on to renewal leasing activity on page 13. We signed $169 million of renewals during the second quarter in addition to new leases signed. We retained 88% of expiring leases above our long-term trend. The weighted average lease term on renewals signed during the second quarter was a little less than six years, while cash rental renewals rolled down 2.8% in line with expectations. Aside from a few select supplies constrained regions in metro areas we have yet to see broad-based rental rate growth across most markets. However, we are continuing to make significant progress cycling through peak vintage renewals. The lion's share of our portfolio has recently been leased at current market rents and we are beginning to see tightening fundamentals and barriers to entry emerging in a growing number of markets around the world. As a result, we expect to see continued, gradual improvement on cash releasing spreads into 2020 and beyond. In terms of second quarter operating performance, overall portfolio occupancy was down 150 basis points to 85.7% entirely due to consolidation of the embedded upside within the Interxion portfolio in our reported statistics for the first time. Same capital occupancy ticked up 20 basis points for the second quarter and same capital cash NOI growth was better-than-expected at negative 1.2% including a 60 basis point FX headwind. As we indicated last quarter barring any unforeseen shocks, we are cautiously optimistic that we put the same-store low watermark for the cycle behind us. As a reminder Interxion and the Westin Building are not included in the 2020 same-store pool. But we expect both acquisitions will be accretive to our organic growth going forward. Turning to our economic risk mitigation strategies on page 14. The U.S. dollar began to weaken in late May, but remained elevated relative to prior year average exchange rates for the full quarter. And FX represented roughly an 80 basis point headwind to the year-over-year growth in our reported results from the top to the bottom line. 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 terms of vertical concentration as you can see from the pie chart on the upper right, we have limited exposure to the businesses most directly impacted by the COVID-19 pandemic. Rent collections remain in line with our historical average and the sum total of customers who have reached out to request rent relief represent approximately 3% of total revenue. 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 of matching the duration of our long-lived assets with long-term fixed rate debt a 100 basis point move in LIBOR would have a roughly 30 basis point impact on full year FFO per share. Our near-term funding and refinancing risk is very well managed and our capital plan is fully funded. In terms of earnings growth, core FFO per share was down 6% year-over-year, but $0.07 ahead of consensus as well as our internal forecast driven by a beat on the top line as well as operating expense savings primarily due to lower property level spending in the COVID-19 environment. A portion of the OpEx savings is likely timing related and represents more of a deferral rather than permanent savings. But the operational outperformance is obviously encouraging. In terms of the quarterly run rate, as you can see from the bridge chart on page 15, we still expect to dip back down by $0.05 to $0.10 in the third quarter before rebounding in the fourth quarter and beyond. In early July, we announced that we intend to redeem $800 million of senior notes due in 2022. We expect to fund the redemption by settling the $1 billion forward equity offering in the third quarter and the higher share count along with the expected catch up in deferred OpEx are primarily responsible for the step back down in the third quarter. As you may have seen from the press release, we are raising the low end of the range for revenue EBITDA and core FFO per share guidance reflecting the second quarter outperformance as well as the strength of our bookings and backlog. We don't typically provide explicit AFFO per share guidance, but given the magnitude of the beat we wanted to offer some additional context. As you may have seen from the earnings release, we are maintaining our full year guidance for non-cash rent adjustments of $20 million to $30 million as well as our recurring CapEx guidance of $220 million to $230 million, although we are admittedly trending towards the low end of the range. The implication here is that we do expect straight-line rental revenue will continue to moderate over the course of the year narrowing the delta between cash and GAAP and enhancing the quality of earnings. But we still expect to spend nearly the same recurring CapEx budget for the full year despite the lower spend year-to-date. The bottom line on the AFFO per share outlook is similar to core FFO per share. The second quarter beat does flow through the full year forecast, but similar to the OpEx running through the P&L a portion of the recurring CapEx savings is likely timing related and represents more of a deferral rather than permanent savings. And we expect the quarterly run rate to dip back down in the second half. Last, but certainly not least. Let's turn to the balance sheet on page 16. The fixed charge coverage remains healthy at 4.6 times while net debt to adjusted EBITDA stood at 5.7 times as of the end of the second quarter. Pro forma for the settlement of the $1 billion forward equity offering net debt-to-adjusted EBITDA remains in line with our targeted range at just over 5 times while fixed charge coverage is just under 5 times. As a result of our proactive balance sheet management prior to the redemption of our bonds due in 2022, we have over $4 billion of liquidity to fund our capital spending including over $500 million of cash on the balance sheet as of June 30th, another $1 billion of equity coming in upon settlement of the forward equity offering and $2.5 billion of availability on our global revolving credit facilities. The successful execution against our financing strategy reflects the strength of our 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, our weighted average debt maturity is over six years and our weighted average coupon is 3%. A little over 60% of our debt is non-U.S. dollar denominated acting as a natural FX hedge for our investments outside the U.S. Over 95% 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 from the left side of page 17, we have a clear runway with virtually no 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'll be pleased to take your questions.
Operator, Operator
We will now begin the question-and-answer session. Our first question comes from Jon Atkins of RBC Capital Markets. Please go ahead.
Jon Atkin, Analyst
Yes, good afternoon. My first question is on kind of leasing. I wondered given the strong performance if there's any kind of credence to the notion that this is sort of a pull forward and kind of your views on that topic and what we might kind of think about in terms of timing first half versus second half on demand. And related to that you did indicate Bill a little bit about pricing but I wondered are you within kind of the midpoint, low point, high point of your targeted yield range on the larger deals that you signed in Northern Virginia and other markets? And then I've got a follow-up.
Andy Power, CFO
Thanks, Jon. This is Andy. I'll start off and then pass it to Corey to discuss the second quarter and provide insights on the latter half of the year. We always strive to finalize deals as quickly as possible at the end of each month and quarter. I don't believe there is anything particularly unusual about this quarter's results, which we're quite pleased with. It reflects the hard work we've invested over several years in building a highly attractive, well-connected, diverse, and truly global portfolio and platform. This, along with consistent and effective organizational talent, leadership, and strong execution, has led to numerous successes across the board, including vault leasing signings and volume. Now, I'll let Corey elaborate on what he observed this quarter, and then we can return to discussing returns on larger deals.
Corey Dyer, EVP of Sales and Marketing
Yes. Thanks Andy. And yes, I would say that it really was not a pull forward on COVID. I would tell you that we really had a great quarter that we've been building it Andy you mentioned it five or six consecutive quarters of growth. A lot of work that the team has been doing to build our platform, position us the correct way and really build trust with all of our customers. So, I wouldn't view this as a pull forward even though we pull deals forward all the time. This is really just the fruits of our labor playing out for us. But when you think about the segments that we actually had a ton of success with. So really good success across the hyperscalers. Again, they value our global platform, the geography, all of the work that we've done for them with our trusted set of hands and our ops team that continues to provide support for them. And then really just a heritage of success and relationships that we've got going with them. From an enterprise and a network perspective, investing in the team, our sales team, our go-to-market, our global capabilities and then we improved our messaging and our positioning around the value. When we launched PlatformDIGITAL back in November, I think you're starting to see the fruits of that; customers, media analysts really just a broad base of people that picked up on that. And then we've had a lot more success with our reps quarter-over-quarter. So, a lot more contribution from the reps. And then finally, I would just say that as we look ahead we think that we're going to really focus on the makeup of our quarter. How do we continue to grow new logos, enterprise wins, or communities of interest interconnection, colocation. And then finally, I think you're also going to see that some of the messaging we brought out has been really picked up and some of the trends that we're driving are starting to drive the industry and how they're thinking and the thinking in the industry around the importance of centers of data and around the importance of data gravity which requires some architectural reconsiderations. So, we expect to see more and more of the industry following our lead in these areas as well. I think I hit most of it Andy but go ahead if there's something else.
Andy Power, CFO
Jon anything else or should we hit?
Jon Atkin, Analyst
Yes, that's good. Could you provide an update on Interxion, particularly regarding the integration aspect, whether it's related to systems or IT integration? Are there any future milestones you can share? Corey, considering your experience with global organizations and the acquisition of a valuable European operation, do you see any opportunities for optimization moving forward? One clear example is cross-connect pricing, which has improved significantly over the past couple of years with one of your major competitors.
Bill Stein, CEO
Yeah, sure. Happy to take part of that, and I'll hand off to Andy. First of all, as you know, we closed the transaction on March 12. So just about the end of the last quarter, and I've said it on several occasions, but the integration of Interxion is our top priority for 2020. And I will tell you that we are absolutely pleased with the progress made to date. Particularly given the impediments created by the pandemic. And I think we've done a good job of identifying synergies, expense synergies, and we're seeing potential revenue synergies as well, which is what we'd hoped, but didn't underwrite. As I mentioned last quarter, I'm very, very happy with the collaboration that's occurred within the two firms. David Ruberg and I speak several times a week. I had the utmost respect for what he brings to the data center business. And I do believe that providing essential services during a global health crisis has had a unifying effect on both teams. Andy, I'll turn it over to you.
Andy Power, CFO
I just want to elaborate a bit more and address the final part of your question regarding cross connects. We're making progress despite challenges with in-person activities, having achieved some significant milestones in recent months with our organizational announcements. Our global team is actively engaged in specific work streams, including our technology integration and the alignment of our IT systems and business processes, alongside workforce development. There have been notable successes in customer referrals, cross-selling, and multisite bidding. Regarding the cross-connects you mentioned, the commercial model for cross-connects has varied in Europe. Over the past few years, Interxion has transitioned to a model that enhances the commercialization of cross-connect opportunities. It's important to note that while about half of our cross-connects are located in EMEA, only around 20% of our interconnection revenue comes from that region. This highlights the opportunity to ensure our customers derive value from our services and that there is a fair commercial arrangement for the value we provide. Corey, I’ll hand it over to you to conclude Jon's point if you have anything more to add.
Corey Dyer, EVP of Sales and Marketing
No, I think you guys covered it well across the board unless there's something that Jonathan that you'd like.
Operator, Operator
Our next question comes from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.
Jordan Sadler, Analyst
Thanks and good afternoon. So first, I just wanted to speak to pricing a little bit. It seems this volume is pretty significant. I noticed sequentially domestically or at least in the Americas pricing seems somewhat stable maybe even better despite the increased volume. But in Europe, it looks like pricing came down quite a bit. I know, maybe not a perfect comp, but I'm curious to what degree the success achieved in the quarter, a function of maybe more aggressive pricing, and maybe in that context, can you talk about what you're doing in terms of thinking in terms of returns and underwriting fee base?
Bill Stein, CEO
Sure, Jordan. Overall, we did not observe much change in the pricing dynamics during the second quarter. This is evident from our development table returns, which remained relatively stable in North America. Comparing quarter to quarter by region can be challenging due to varying mixes that can affect outcomes. However, when we analyze internally, market by market and deal size by deal size, there has been no decline in pricing. Additionally, in Ashburn, we saw a net absorption increase of 70 basis points following nearly 300 from the previous quarter, and our development pipeline is fully leased for over 50 megawatts in that area. When selling the final kilowatt or megawatt of a project, pricing is not an issue, especially not in a quarter with such strong overall volume. In Europe, the situation is influenced by a mix. The previous quarter's reported signings were primarily from legacy digital without any larger scale deals this quarter. Thanks to Interxion, we had two positive components: consistent smaller enterprise or network-oriented deals worth over $10 million, along with some larger multi-megawatt cloud computing nodes in various markets. Comparing EMEA quarter-over-quarter, you would notice a mix shift that likely affected pricing. Overall, we still see good stability in pricing based on our observations in the second quarter.
Jordan Sadler, Analyst
Okay. And then sticking with pricing, the leasing spreads, I think in your prepared remarks you mentioned that you could see some gradual improvements in cash leasing spreads in the second half of 2020 and that dynamic seems to be tightening, but no change in the guidance. And along the same lines, you had a lot of success on the leasing front this quarter. And I would think that that might translate into increased capital spend or development spend and that also kind of remained the same. Any sort of commentary on those pieces?
Andy Power, CFO
Sure. A few points to discuss. First, regarding capital expenditure, we provided our projections during the first quarter call, so that figure has not changed since the beginning of the year or the end of last year. Our progress has been largely expected, and that number falls within the hundreds of millions of dollars range, indicating significant spending. As for leasing, historically, four out of the last five years have shown positive cash leasing spreads. This year, however, we anticipated a slight negative trend, which was evident in the second quarter. Although most of the actual leasing was positive, there were exceptions. One instance involved a multi-site, multi-region network node for a major global account customer, which was strategically important for us and priced attractively due to the customer's value, resulting in smaller increases than usual for deployments of zero to one megawatt. Additionally, one of our enterprise customers signed a new agreement in Europe while renewing in our Southeast region, which contributed positively overall despite the negatives in some areas. We still view this relationship as a strategic advantage, and various factors influenced these results. We're keeping our guidance unchanged since predicting renewals can be challenging, particularly as it hinges on the timing preferences of the customer.
Operator, Operator
Our next question comes from Matt Niknam of Deutsche Bank. Please go ahead.
Matt Niknam, Analyst
Hey, guys. Thank you for taking the questions. Just one and one follow-up. First on enterprise, if you could share any sort of updates on your discussions with enterprises how demand is trending? And I guess the ability of PlatformDIGITAL to sustain this type of new logo growth? I think it's been about 120-plus new logos in the last two quarters. And then secondly follow-up, maybe for Andy. I think you've got about $3.07 a share in core FFO, first half of the year. I think the midpoint is about $6.05. And so, I'm just wondering can you talk about the puts and takes around incremental headwinds embedded in the outlook? And I guess more specifically the COVID-19 deferred OpEx that's driving about half of that drop you expect in 3Q? Thanks.
Bill Stein, CEO
Hey, Corey, maybe you could hit the first question, and then turn it back over to Andy.
Corey Dyer, EVP of Sales and Marketing
Sure. I’ll address the question about enterprise demand and what we're experiencing, as well as the factors contributing to it. There hasn't been a single decisive factor. Our team has done an excellent job supporting customers and enhancing our platform. It's really a combination of various elements coming together. We’ve communicated a strong message about our digital platform, which is being embraced by the industry and our customers. Our improved go-to-market strategy has also played a role. We're pleased with the increased tenure of our sales representatives, which has fostered better relationships with customers. More representatives are meeting their sales quotas, and we’re seeing a rise in multi-site and multi-national deals, along with an increase in average deal size. From the perspective of enterprise demand, I believe that the efforts we’ve invested over the last several years, combined with our enhanced messaging and go-to-market strategy, have positioned us well for sustained growth. Additionally, with the Interxion integration and our interconnection and networking capabilities, we are in a strong position to meet customer needs for those services, which shields us from any specific exposure related to individual industries or geographies. We are optimistic about our current state and feel confident in our demand pipeline. We expect to grow our cloud services and continue fostering demand while investing in data centers. Some may perceive a slowdown in acquiring new logos as we enter unfamiliar markets, but I believe our existing customer base and the breadth of our platform will buffer us against that. Looking ahead, our pipeline certainly supports the guidance Andy has shared. We are in a good position. I hope this clarifies things.
Andy Power, CFO
No, I think you nailed it, but regarding your second question, it's great to have you back covering digital. As for the question on the 307 and why it can't just be multiplied by 2, I don’t know if you’re colluding with our CEO, as he asked me the same thing. I had to remind him of two things, one of which you highlighted. We have been doing some strategic capital management to match our sources and uses, and we are redeeming some notes. However, to fund our capital spending, we were planning to draw down on that $1 billion equity forward. The shares from that equity forward are not included in our share count for the first half of the year; they will come in during the second half of the year as we close it out in the third quarter. As for COVID-19, I want to take a moment to express my sincere gratitude to our global operations team, who have gone above and beyond. During this crisis, we stayed fully operational, but we scaled down our staffing to prioritize the safety of our customers, employees, and partners. We delayed maintenance and repairs that could wait, but we don't believe that these delays will last indefinitely. We are working safely to continue maintaining the equipment, and we expect some of the spending initially planned for the first half of the year to resume in the second half.
Operator, Operator
Our next question comes from Sami Badri of Credit Suisse. Please go ahead.
Sami Badri, Analyst
Hi. Thank you very much for taking my question. My question is mainly to do with the re-leasing spreads on page 13 of your slide deck. And I know you've touched on elements of this already over the call. But I was just looking at the releasing spreads for leases size between zero and one megawatts. And I saw that the re-leasing spread is a little bit negative. And just given the dynamics we're seeing with such a big surge in demand coming specifically from enterprises and really the whole spectrum of constituents within the data center ecosystem as far as customers. I guess the perception would be that that would be a little bit more positive than it would be negative. And is the reason why it's negative potentially, because it may be a very large customer that's distributed into multiple locations? And maybe you could just give us the puts and takes for customers in that specific size band what exactly is the case?
Andy Power, CFO
Thank you, Sami. You are right. Historically, that category would perform closer to a two-plus percent increase. If we take a closer look, there are many renewals occurring at a detailed level. Most of those renewals are positive. You correctly pointed out that there was a specific customer that renewed across three or four global sites with smaller network deployments that collectively lead to a larger deployment. This customer is crucial to our platform due to its size and scale, as well as the value it adds to the other participants and customers in the digital community. We aimed to secure a fair outcome for their renewal to ensure their continued partnership with us. The renewal process took a bit longer for that size of deployment; generally, the rates are slightly lower, but this was more of a strategic renewal that resulted in a minor negative cash mark-to-market.
Sami Badri, Analyst
Great. Thank you for that color. My other question has to do with the interconnection commentary that you gave earlier with EMEA representing about 50% of the portfolio's cross-connects, but only making up about 20% of revenues, I was hoping if you could give us maybe like a time frame or a trajectory some kind of like time-lapse on when you think you would be able to get that 20% of revenue mix maybe even closer to the 50% of revenues reflecting 50% of cross-connects in Europe just so we can understand like the pace or the cadence of transition you're having with your customers in EMEA?
Bill Stein, CEO
Sami, I'll pass this to Chris for more details on our history and the direction we're heading. Unfortunately, I can't provide a timeline for increasing cross-connect prices on this call, as that wouldn't sit well with David Ruberg. However, I can share that our focus is on delivering value to our 4,000 global customers and ensuring fair commercial treatment for that value. Chris, could you elaborate on the cross-connect pricing and its trajectory?
Chris Sharp, CTO
Absolutely, happy to do it Andy, thank you. And thanks for the question Sami. So you're absolutely correct. And I'll echo the sentiments throughout the call is that, we're very happy with the addition of Interxion into our broader portfolio. And I think what that represents to our customer base is, these are major epicenters of value for kind of current and future customers. And so really what's represented within that is, these communities of interest and the amount of interconnection that's been generated over the years that exists and that continues to grow. And I think one of the things that's very important to us and it's just shared vision within the Interxion team as well is that, there has to be a very balanced approach where we want to ensure that we don't cycle our customers' ability to grow and to continue to derive unique value out of this overall platform digital. And so I do think that you'll see a lot of our other existing customer base coming into Europe. So that platform effect will start to build that up. So I think over a period of time you'll definitely see that grow. But we're really conscientious of taking a balanced approach and having a very open platform so that we can allow customers to grow and continually expand. And I think a critical element of a lot of this is not only the interconnection element but the multi-market and the unique advantage of our fit-for-purpose product where you can do both smaller colo and larger scale deployments. So the value of all of that coming together is the unique position that PlatformDIGITAL equips our customers with.
Operator, Operator
Our next question comes from Erik Rasmussen of Stifel. Please go ahead.
Erik Rasmussen, Analyst
Thank you for taking my question. I wanted to gather some broad insights. We have had a very strong first half of the year. Prior to the release of quarterly results, we noticed that Northern Virginia and some other U.S. markets showed good absorption rates. We're now seeing the same trend with your company. What are your thoughts on any potential challenges that could arise during this adjustment period? Do you think we might see a repeat of what occurred in 2018, and how do you believe the current situation might differ based on your observations?
Andy Power, CFO
Thanks, Eric. I’ll start and then hand it over to Corey for a forward-looking perspective. To address your question, we had a very strong quarter in Ashburn, as well as in North America overall. Some highlights include strong performance in the New York City metro area with top enterprise deployments and connectivity projects, particularly a strategic build-to-suit initiative on our Jersey connected campus. In the Pacific Northwest, we continued to support a hyperscaler on a crucial project in the Hillsboro market. In Chicago, we achieved significant wins in the connectivity sector within the financial services industry and also with another hyperscaler expanding on one of our campuses there. This aligns with your inquiry about market dynamics. If we reflect on the past, our business performed well despite challenges, thanks to our global reach, which spans six continents, over 20 countries, and more than 44 metropolitan areas, along with a diverse customer base of over 4,000. This diversity allows us to remain resilient to fluctuations in specific markets or customer situations. Finally, it’s important to note that not all customers are progressing at the same pace; they are at different stages in their infrastructure development. This variability enables us to support customers who may be pausing or exploring growth in new markets. Corey, please feel free to add your insights.
Corey Dyer, EVP of Sales and Marketing
Yes. I'll add to it Andy from an enterprise demand perspective. And I feel like you touched on a good bit of it. If you think about the power of our comprehensive global platform and where we're across a 4,000 global customers, 20 countries, 33 markets, 44 metros. And then you think through the new ideas and solutions we're bringing to our customers, at the same time with this combined Interxion and digital merger that we've done here. It puts us in a really good place to be able to address customers that need and want to continue buying those services. And it really moderates us from any kind of an exposure on an individual or an industry or a geo that's a little bit different. So we're pretty excited about where we are. I also feel like we've got the right kind of funnel and demand going. So we're going to be fine with growing to the cloud and continue to drive the demand that we're seeing and making investments in the data centers right? And so I think that it might be possible that some people see some new logo, sites or maybe a little slowdown there because you're trying to get into new sites that you're not familiar with. But like I said I think we've got enough customers. We've got enough breadth of our platform and our geography that I think we're insulated from it a good bit. And then when I just look at our pipeline going forward, it definitely supports the numbers that Andy has put forward to everybody. So I think we're into place. Hope that helps?
Bill Stein, CEO
Since 2018 we've added the Ascenty platform in Latin America. We've expanded materially in Europe with the acquisition of Interxion. We've added new markets in Asia specifically new development sites in Tokyo and so. And I would expect that in the second half of the year you're going to see additional contributions out of LatAm EMEA and Asia Pac.
Corey Dyer, EVP of Sales and Marketing
Yes, really good point. Thanks, Bill.
Erik Rasmussen, Analyst
Great. That's helpful. And then maybe just my follow-up. You'd mentioned in I think in the press release there was some marginal construction delays. What sort of impacts has that had on the business? And maybe can you comment on which regions that might stand out for that? And how are you going to resolve those? Thank you.
Andy Power, CFO
Sure, Erik. I want to extend a big thank you to our global construction team for their hard work, especially during these challenging times. While I can't say we've fully recovered from delays in areas like Toronto and Hillsboro due to labor issues, I can assure you that we are in a strong position moving forward in terms of getting our teams back to work and meeting our delivery timelines. One area of concern is Singapore, where we are not operating at full capacity due to the local labor situation, but we are making progress there. Overall, I believe we are in a much better situation now compared to a few months ago when we last discussed this issue.
Operator, Operator
Our next question comes from Eric Luebchow of Wells Fargo. Please go ahead.
Eric Luebchow, Analyst
Thank you for including me in this discussion. Bill, you mentioned that significant mergers and acquisitions are probably not on the agenda for the rest of the year. I just want to clarify that the focus is on integrating Interxion, and there are no immediate plans for further acquisitions. If any opportunities do come up, are there specific geographic areas we should consider?
Andy Power, CFO
Yes, Eric. I want to emphasize that Interxion remains our top priority in terms of integration. We are acquiring land parcels globally for development. There may be very minor tuck-in acquisitions, primarily aimed at expanding into new markets or enhancing products. Greg, would you like to add anything?
Greg Wright, CIO
No, Bill, I think you've covered it. As Bill mentioned, integration is our top priority and we have become more risk-averse in this environment. We are acquiring land in locations where our customers need to be, focusing on facilities that align with our PlatformDIGITAL and community of interest strategy. We are carefully monitoring market opportunities and if a strategic asset is smaller and we can create value with the right return, we would consider it. Many people are speculating about acquisitions in this environment concerning distressed opportunities, but we haven't encountered any yet. We are keeping a close watch on the situation. In the long term, we may see distressed opportunities from smaller, less capitalized companies facing upcoming debt obligations. Initially, we expected to see a shift of private capital towards assets outside of the data center space as they became less expensive, which would decrease competition for data centers. However, the private investment community is beginning to recognize the strong underlying trends in our sector, along with the creditworthiness of our customers and the growth potential it holds. They are becoming more informed and looking to invest. As Bill stated, we will continue with this strategy and that remains our focus right now.
Colby Synesael, Analyst
Great. Thanks. Operator: Our final question comes from Colby Synesael of Cowen. Please go ahead. Great. Thanks for getting me in. Two questions if I may. Maybe Greg just to stick with you. I was wondering if you could give us an update on potential asset sales if that's something that has been put more on the back burner because of COVID-19, if you're still moving forward and if there's still a possibility we could see something maybe this year? And then secondly with the U.S. government threatening to close down specific Chinese social media applications and websites, I believe that they've been a big purchaser of data center services over the last few quarters. I'm just curious how you guys get comfortable underwriting the risk of taking on a customer like that in light of all the geopolitical uncertainty that could be impacting them?
Bill Stein, CEO
Greg, do you want to hit the first one and I can hit the second.
Greg Wright, CIO
Yes, sure. Hi, Colby. How are you?
Colby Synesael, Analyst
Good. Thank you.
Greg Wright, CIO
I think it's fair to say that there has been a noticeable increase in discussions and activity regarding asset sales. However, it's still difficult to determine the exact impact on pricing for larger transactions. It's important to highlight how investors are perceiving the sector, particularly regarding long-term trends, creditworthiness, and growth potential. The data center sector is increasingly being recognized as a core asset class, especially as investors are beginning to appreciate this shift during the pandemic. We successfully sold an asset in Europe during the pandemic and achieved the expected pricing. We maintain our guidance of a few billion dollars over several years for noncore assets or markets, of which we've already realized about $1.4 billion. We are fully funded and plan to continue recycling capital opportunistically when the circumstances and pricing are favorable. It's advantageous to avoid any urgency when seeking fair value. Earlier this year, we provided a guidance range of $600 million to $1 billion, and with the Mapletree transaction, we've reached the lower end of that range. While we did not anticipate COVID-19, we are confident in our capital recycling efforts. We recognize that conditions will continue to evolve, and we will keep monitoring the situation, but we feel we are in a solid position.
Bill Stein, CEO
And then Colby on your second one, obviously doesn't have to be specific to a headline in the news, we obviously look at various risks and that's part of our job and our business evaluating risk and return. When it comes to Asia Pacific in general, I mean, I think when we go back to is one we're a global company across 20-plus countries, six continents in numerous markets. And we have a global customer base 4,000-plus customers and rapidly expanding that 124 outages this quarter. I think the diversity of our offering and the diversity of our revenue streams give us a lot of comfort in evaluating risk. If you look at our top customer list, our top 20 customers totaled just under 48% of our annualized recurring revenue. And if you go down that list you got to go past number 19 to find a non-U.S. company just given the size and scale of some of the top cloud service providers and hyperscalers that we're doing business with. Or the number of locations we're doing business with some of the network providers. So you kind of get to like the 1% or less territory when you might run into a customer. So that's a long-winded way of saying we want to welcome all the right customers into our fold. And I think we do the right things in evaluating the right risk, but I think the diversity is what insulates us or protects us to any type of exogenous shots.
Colby Synesael, Analyst
Great. Thank you, and congrats on the strong result.
Bill Stein, CEO
Thank you.
Andy Power, CFO
Thank you.
Operator, Operator
This concludes the question-and-answer portion of today's call. I'd now like to turn the call back over to CEO, Bill Stein for his closing remarks. Please go ahead.
Bill Stein, CEO
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. First, we further strengthened our connections with our customers prioritizing health and safety while maintaining service levels and reaching record highs in our bookings and backlog. Two, we delivered solid current period financial results beating consensus, beating our internal forecast and raising guidance. Third, we also underscored our commitment to delivering sustainable growth for all stakeholders with the publication of our second annual ESG report and our official recognition as the first Data center ENERGY STAR partner of the year. And last, but not least, we further strengthened our balance sheet with excellent execution on the raising of $1.2 billion of long-term capital. I'd like to conclude today by saying thank you to the entire Digital Realty family and particularly our frontline team members in critical data center facility roles who have kept the digital world turning in the midst of a global pandemic. I hope all of you stay safe and healthy. We hope to see many of you in person again soon. Thank you.
Operator, Operator
The conference has now concluded. Thank you for joining today's presentation and you may now disconnect.