Earnings Call Transcript - DLR Q2 2023

Operator, Operator

Good afternoon, and welcome to the Digital Realty Second Quarter 2023 Earnings Call. Please note this event is being recorded. During today's presentation, all parties will be in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Callers will be limited to one question, plus a follow-up, and we'll aim to conclude at the bottom of the hour. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Please go ahead.

Jordan Sadler, SVP of Public and Private Investor Relations

Thank you, operator, and welcome everyone to Digital Realty's second quarter 2023 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, who are also on the call and will be available for Q&A. Management may make 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 certain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our second quarter. First, our customer value proposition continues to resonate. We delivered yet another strong quarter of leasing in our zero to one megawatt plus interconnection segment and saw a healthy rebound in greater than a megawatt leasing. And second, this past quarter confirmed the continued inflection of fundamentals we have been speaking about for much of the past year, supported by a strong pricing environment. Releasing spreads were the strongest in three years, and stabilized same cash NOI grew by 5.6%, marking the second consecutive quarter with positive growth and the best growth in almost nine years. And third, we bolstered our total liquidity, which now stands at more than $4 billion and further diversified our capital sources, reducing our leverage well off of peak levels through more than $2 billion of dispositions and JVs and over $1 billion of equity issued under our ATM. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Andrew Power, President and CEO

Thanks, Jordan, and thanks to everyone for joining our call. Against the backdrop of an extraordinarily dynamic first half of the year, we have remained focused on advancing our strategic priorities and delivering on behalf of our more than 5,000 customers. Digital Realty made strong progress in the second quarter with improved operational results, progress on our funding plan and increased liquidity, continued organizational improvements, and an increasing recognition of the critical role that data centers will play in support of both digital transformation and artificial intelligence. We posted sequential growth in revenue, adjusted EBITDA and CFFO per share, while improving development returns, bolstering liquidity, and deleveraging the balance sheet. During the quarter, we made progress on each of the three key strategic priorities that I laid out earlier this year. First, we strengthened our customer value proposition by enhancing our communities of interest with more connectivity options, posting record double-digit interconnection revenue growth and the second highest quarter of new logo additions in company history. Second, we innovated and integrated, delivering enhancements designed to support high-performance compute, including AI, by enabling data centers to support liquid cooling solutions while also broadening our existing partnership with NVIDIA with the certification of our first DGx H100 ready data center and integrating with additional organizational enhancements designed to deliver a consistent structure and experience while leveraging data to improve our effectiveness and efficiency. Third, we accessed diverse capital sources during the quarter, including the sale of a non-core asset in Texas at an attractive 4.4% cap rate and equity raised under our ATM. Subsequent to the end of the quarter, we formed a stabilized hyperscale data center joint venture with a new private capital partner that acquired an interest in two facilities in Chicago. Today, we announced a similar joint venture transaction alongside a second new private capital partner for three stabilized hyperscale data centers in Northern Virginia. Just a little more than halfway through the year, we are now well ahead of the midpoint of our original funding plan for 2023, and we remain focused on positioning Digital Realty's balance sheet to support the growing opportunity that lies ahead. The current state of the data center infrastructure landscape is very healthy. There is widespread demand for our data center capacity across various regions and products. However, there is limited new supply due to decreased power availability and tight financial conditions. The global expansion of cloud computing paired with the continuous digital transformation of enterprises underscores the escalating importance of both data and AI in shaping demand. Presently, we are collaborating with numerous clients on AI-focused requests for proposals and implementations. The initial surge is anticipated in power-intensive training applications followed by a rise in inferencing applications including access to private data sets, which are expected to necessitate enhanced performance and reduce latency. Additionally, the integral nature of these models is necessitating larger capacity blocks which align seamlessly with our extensive product suite. As the global meeting place for data exchange and a full spectrum provider of data center solutions, Digital Realty stands at a strategic vantage point. This allows us to cater to the needs of enterprises, facilitating their efficient integration of AI applications within their digital transformation journeys. In the second quarter, we unveiled Data Gravity Index 2.0, which represents our extended commitment to data science. This tool is designed to assess the effects of enterprise data generation and consumption in both public clouds and private data centers, offering enterprises a framework to manage and drive insights from their data. Additionally, our innovative approaches in Data Gravity and comprehensive data center architecture were recognized as we secured a patent for these. Our patent further offers enterprises a roadmap to ensure their architectures remain relevant in the future. The evidence is clear; we have shifted from a physical economy to a digital economy, which now is entering a new form, the data economy. Our research shows that the surge in server demand can be attributed to the rising needs of both public and private cloud infrastructure, further augmented by AI training and inference processes. Simultaneously, demand for storage devices is poised to grow due to data regulation. Let's move to our second quarter results. This quarter continued the inflection in the fundamental recovery we've been highlighting in our core portfolio over the past several quarters. Our pipeline remains strong during the quarter, helping to drive a sequential rebound in leasing volume but also supporting strong pricing with releasing spreads positive again across all product types and in all regions. New leasing during the quarter was $114 million with continued strength in the zero to one megawatt plus interconnection leasing, which represented 43% of total signings. Greater than a megawatt increased by over 60% sequentially, led by one of our strongest quarters ever in EMEA. Strong demand trends and reduced availability along with growing recognition of our value proposition continue to be supportive of pricing and are enhancing our expected returns. In the second quarter, we saw releasing spreads climb to nearly 7% on a cash basis, helping to drive the best same capital cash NOI growth that we've seen since I joined Digital Realty in 2015. During the second quarter, churn remained low at 1.5%, and we added 133 new customers, our second best quarter ever and a nice continuation of the 100 plus new logo streak we have going. This is a strong validation of the stability of enterprise IT spend and digital transformation that we are seeing and of the value that customers recognize in Platform Digital. Our key wins included an innovative sustainability-oriented infrastructure provider that tapped into stranded energy to support module edge compute sites, chose Digital Realty for AI applications, utilizing Platform Digital's network control and data hub solutions. Data intensive workloads are being deployed on Platform Digital by a major US federal agency to reduce costs and improve sustainability while interconnecting with their key ecosystem partners. A leading European bank chose Platform Digital to help simplify and secure their hybrid IT strategy in compliance with data sovereignty regulations while leveraging the available cloud connectivity. A Fortune 500 quick-serve restaurant chain is updating their internal infrastructure on Platform Digital to improve reliability and security, support existing systems and connect with cloud solutions to support the strong growth of their e-commerce business. A global 2000 pharmaceuticals sourcing and distribution services company is expanding to a new Platform Digital location to ensure global data governance compliance. A global 2000 auto manufacturer chose Platform Digital to upgrade their network architecture in Central Europe by adding key points of presence for the largest and most important production centers. Moving over to our largest market, Northern Virginia, in the years since we learned that the power constraints in this market will continue to work constructively with the power provider to confirm the commitments that we've made to our customers and provide growth capacity for our customers through new development and select churn opportunities. Over the course of the last several months, with the support of our local utility partners, we've been able to identify nearly 100 megawatts of incremental billable capacity that we expect to be able to bring to market prior to 2026. This includes 40 megawatts of available capacity underway within the current development pipeline and the potential to move forward on almost another 60 megawatts. In addition to the Ashburn focus capacity, we've made meaningful progress on our 192 megawatt development site in Manassas which is now nearly in position to begin development. We are optimistic about the near-term potential to offer this availability to our customers. Moving on to our investment activity. As we outlined in February, 2023 was poised to be an active year for our investments team, and some of the fruit of their labor has been harvested since our last call. During the second quarter, we acquired the land and shell associated with the previously leased data center in Amsterdam, where we previously held a leasehold interest for $18 million. In a separate future-proofing transaction, we purchased additional land adjacent to our highly connected Schiphol campus in Amsterdam, which could support another 40 megawatts of potential IT load providing ample runway for both enterprise and service provider growth. We also closed on the first non-core disposition of the year in mid-May at a 4.4% cap rate resulting in $150 million of net proceeds to Digital Realty. In July, we saw a significant acceleration in our capital recycling initiatives, closing on two separate stabilized hyperscale joint ventures in Chicago and Ashburn. These deals were executed at just over 6% cash cap rate on average and raised more than $2 billion of net proceeds for Digital Realty. These transactions are an important validation of our current strategy as we remain focused on delivering shareholder value through the development of new data centers at double-digit unlevered returns and the monetization of stabilized hyperscale assets at a premium. But equally as important, we've substantially bolstered and diversified our sources of private capital so that we can execute on the opportunities that lie ahead without being overly reliant on any individual avenue of capital while also increasing the efficiency of our balance sheet. While we've had remarkable traction on these transactions and all due credit goes to Greg Wright, his top-notch team and the rest of our platform for executing through a tumultuous capital markets environment, we are not resting on our laurels. We are well ahead of our plan on our stabilized hyperscale joint venture plan, but we see ample demand for the hyperscale development joint venture bucket that we have previously discussed, and we'll provide updates as appropriate. Before moving on, I'm also delighted to welcome Reliance Industries Company as our newest partner in our joint venture in India. The expanded partnership builds on the strong foundation laid by the existing partnership, through the addition of Jio's massive digital connectivity ecosystem and strong enterprise relationships with 80% of large private enterprises in India. Before turning it over to Matt, I'd like to touch on our ESG progress during the quarter. During the second quarter, we issued our fifth annual ESG report outlining our initiatives for 2022. The report highlights the progress we have made toward our science-based targets, committing to reducing our global carbon emissions by 68% by 2030. We've enabled our success by contracting for renewable energy wherever possible so that we have 1 gigawatt of solar and wind energy under contract in the US. This has enabled us to match 126 of our data centers with 100% renewable energy. In the second quarter, we also received a certificate of adherence from the climate neutral data center pack. As a founding member of the pack, Digital Realty worked with independent auditors to certify that we are on track to meet the overarching goal of the pack for the industry to become climate neutral by 2030. 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.

Matthew Mercier, CFO

Thank you, Andy. Let me jump right into our second quarter results. We signed $114 million of new leases in the second quarter, with broad-based strength across the zero to one megawatt plus interconnection segment in each region. We leased approximately $50 million in the zero to one megawatt plus interconnection category, accounting for 43% of total bookings and becoming a larger part of our overall bookings since last year. Interconnection bookings were strong once again at over $12 million, concluding a record 12-month period. Zero to one megawatt bookings, excluding interconnection, were among our strongest ever at $37 million. Digital Realty has come a long way over the past four years, more than tripling our bookings in the zero to one megawatt plus interconnection segment through a combination of organic and inorganic growth. These results demonstrate that our full spectrum strategy is working. Greater than a megawatt bookings totaled $61 million in the quarter, a meaningful bounce back from last quarter's timing-oriented pause. EMEA was the standout, including strong contributions from Johannesburg, Paris, and across our global portfolio. We also continue to over-index towards CPI-based escalators within our new leases, with 35% of the newly signed leases in the quarter containing inflation-linked increases with fixed rate escalators on the balance. Pricing has improved in many markets, with our largest market, Northern Virginia, seeing nearly a doubling of rates over the past year in response to supply constraints. Illustrating the changing tide in Ashburn, during the quarter, we opportunistically took back 8 megawatts of lease capacity from an existing customer and released it to another customer at a substantial premium. The original lease was signed in the first quarter of last year. Accordingly, our new leasing for the quarter only represents the uplift in rent achieved versus the prior lease rather than the full annualized value of the new lease. While we have previously tempered enthusiasm around the potential mark-to-market opportunity in Northern Virginia, we are encouraged by this recent transaction and our increased development potential and growing colocation and connectivity offering in this market. Aside from the shift seen in Northern Virginia, we have also seen an improvement in rates across the Americas as well as in EMEA and APAC. Looking forward, our demand funnel remains healthy with strength across product types and geographies. We expect ongoing and newly approved development capacity to be an important contributor to our growth through next year. Turning to our backlog slide, the current backlog of signed but not yet commenced leases was $437 million at quarter end as commencements were once again well over $100 million, balanced by new leasing. We expect the remaining $150 million of commencements in the second half of 2023 to be somewhat evenly weighted between the third and fourth quarters. The lag between signings and commencements in the quarter was 11 months as certain hyperscale customers await build-out completions. During the second quarter, we signed $211 million of renewal leases with pricing increases of 6.9% on a cash basis, our strongest renewal pricing in three years. This strength was shared across both product segments and across our three regions, continuing the broad-based improvement we saw last quarter with renewal rates trending over 5% during the first half combined. We are raising our full year guidance for renewal spreads to better reflect the success year-to-date in today's improved fundamental environment. Renewal spreads in the zero to one megawatt category continued to climb for the sixth consecutive quarter to an increase of 4.8% in the second quarter on $133 million of volume. Greater than 1 megawatt renewals were even stronger in the second quarter as cash releasing spreads increased by a considerable 8.7% on $73 million of renewals, the largest increase within this category since the third quarter of 2019. Turning to our operating results, our operating and financial performance in the second quarter was a bit better than our expectations highlighted by many of the same factors we highlighted last quarter. The continued improvement in our core operating performance, another record quarter of interconnection revenue, and well-controlled expenses. In terms of earnings growth, we reported second quarter core FFO of $1.68 per share, 2% better versus the prior quarter and consensus expectations. On a constant currency basis, core FFO was $1.69 per share relative to the $1.72 we reported in the second quarter of 2022. Total revenue was up 20% year-over-year and 2% sequentially. The year-over-year revenue growth was impacted by both the inclusion of Teraco this year and the significant volatility in utility costs and reimbursements, particularly in Europe over the past 12 months. Most of these energy costs are directly passed through to our customers. Excluding utility reimbursements, total revenue was up 12% year-over-year. Critically, our rental revenues in the second quarter included a $25 million one-time write-off of non-cash straight-line rent and the $6 million bad debt reserve related to a tenant that declared bankruptcy during the quarter. We also wrote off $3 million of non-cash straight-line rent related to the re-leasing opportunity we executed in Northern Virginia. These write-offs of non-cash straight-line rent of approximately $28 million combined are excluded from core FFO per share. Interconnection revenue was at a record level in the quarter, increasing by 12% year-over-year and 3% sequentially. Excluding Teraco, interconnection revenue was up 8% year-over-year, reflecting the ongoing organic strength in our core footprint. Bookings were higher in all three regions and ServiceFabric activations doubled in the quarter. Other than utility costs, expenses were well-contained as rental property operating expenses and insurance were both flat sequentially, resulting in adjusted EBITDA growth of 14% year-over-year and 4% sequentially. Improvement in our stabilized same capital operating performance continued in the second quarter, with year-over-year cash NOI up 5.6% and 1.7% sequentially. This marked the strongest year-over-year growth in our same capital pool since 2014, demonstrating the turn in fundamentals that we have been highlighting. The improvement was driven by an 80 basis point increase in occupancy as commencements outpaced churn with upside from rent escalators and stronger-than-expected releasing spreads. While we're very encouraged by the improvement we've seen to date in this metric, and the trend does indeed appear to be our friend, our enthusiasm for the second half of 2023 is tempered by the uncertainty related to a recent customer bankruptcy filing. We expect to know more about the potential impact by the time we report third quarter results. Turning to the balance sheet, as Andy outlined in his remarks, as of this week, we are meaningfully ahead of the funding plan that we laid out for you in February. We have already closed on approximately $2.2 billion of asset sales and stabilized joint ventures and expect to make additional progress on development joint ventures in the second half of this year. Specifically, earlier in July, we closed on the sale of a 65% interest in two stabilized hyperscale data centers on our Chicago campus, raising $743 million of gross proceeds. As announced this afternoon, we sold an 80% interest in three stabilized hyperscale data centers on our Ashburn campus, raising another $1.3 billion of gross proceeds. Including proceeds from the sale of the non-core asset in Texas we announced last month, we've raised over $2 billion in capital at a blended average cap rate of just over 6% so far this year. In addition to this capital recycling activity, during the second quarter, we raised $1.1 billion of proceeds from the sale of 11 million shares of equity under our ATM. Included in this total was approximately 3.5 million shares or $335 million that was structured as forward equity issuance. These shares were settled earlier this week. Our reported leverage ratio at the quarter end was 6.8 times, while fixed charge coverage was 4.2 times. Pro forma for the JV transactions and the settlement of the forward equity outstanding at quarter end, leverage was 6.3 times, putting us on track toward our near 6 times target by year-end. Moving on to our debt profile, our weighted average debt maturity is nearly five years, and our weighted average interest rate is 2.7%. Approximately 84% of our debt is non-US dollar denominated, reflecting the growth of our global platform. Approximately 83% of our net debt is fixed rate, and 97% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, we have minimal near-term debt maturities, with only $100 million maturing during the rest of this year and a well-laddered maturity schedule throughout the out years. Lastly, let's turn to our guidance. We are affirming our full year revenue guidance range of $5.5 billion to $5.6 billion and adjusted EBITDA guidance of $2.7 billion at the midpoint, as the recent acceleration in capital recycling has been balanced by better-than-expected releasing spreads and same capital cash NOI. We are, however, adjusting our core FFO and constant currency core FFO per share guidance ranges for the full year 2023 by $0.10 per share to a new range of $6.55 to $6.65 to reflect the following: $0.03 per share tied to the acceleration of our funding plan, including greater-than-expected stabilized joint venture sales and over $1 billion of equity issuance; $0.05 to $0.07 per share for the write-off of unpaid rent and additional near-term uncertainty related to recent customer bankruptcy; and about $0.01 per share of lower non-cash straight-line rent tied to the opportunistic termination and releasing in Northern Virginia. Given the continued progress on the turn in our fundamentals during the quarter, we are also updating the organic operating metrics supporting our full year guidance, including cash and GAAP re-leasing spreads moving up to greater than 4% and greater than 8%, respectively. An increase in our same capital cash NOI growth guidance by 100 basis points to a revised range of 4% to 5%, despite the potential impact of the customer bankruptcy this quarter, partly balanced by a reduction in our year-end portfolio occupancy assumption to 84% to 85%, largely reflecting the greater-than-anticipated sales of stabilized hyperscale assets into joint ventures. Given the better-than-expected execution on our funding plan to date, we have also updated our guidance for dispositions in JV capital. We now expect total dispositions in JV capital raised to fall within the range of our current $2.2 billion, up to $3 billion. We've also reduced the amount of long-term debt financing needed to support our full year funding plan, given the nearly $4 billion of liquidity currently available as a result of asset sales, JVs, and ATM equity raised. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

Operator, Operator

We will now open the call for questions. Our first question comes from David Barden of Bank of America. Please go ahead.

Unidentified Participant, Analyst

Good afternoon, everyone. Thanks for taking my question. You have Alex Waters on for Dave. Congrats on the new JV deal. Just wanted to know if you could walk us through kind of what line of sight you have for the development JV pipeline. And then looking into 2024, can you speak to how comfortable you are with the funding pipeline? And then secondly, on the core business, you've had strong releasing spreads on the greater than 1 megawatt side. Just curious on what your expectations are for this bucket heading into the second half of the year and into 2024. Thanks.

Andrew Power, President and CEO

Hey thanks, Alex. Appreciate the kind words. I'm going to turn it to Greg to speak to where we're going next in terms of capital raising on development JVs, maybe tie in what's happened in the back half of this year into 2024. And I can pick up on the core portfolio.

Gregory Wright, Chief Investment Officer

Sounds good. Thanks, Alex. Look, with respect to the development JV guidance, we're still comfortable with our full-year development JV guidance that we provided previously. That's roughly $750 million give or take. And that's obviously the plug, if you will, between the $1.5 billion to $2.5 billion last time, which now becomes $2.2 billion to $3 billion. Look, we remain engaged on these transactions over the second half of the year. What we're seeing out there just as with the stabilized joint ventures, there's strong demand for the development joint ventures, particularly given that these JVs offer the highest returns, but they have a lot of moving parts, though. So, I'd say we remain optimistic and on track for those. With that, I'll turn it back over to Matt and Andy.

Andrew Power, President and CEO

Thanks, Alex. I think for your second question, it was about the core operating results we saw in the quarter year-to-date and how what we see in the back of the year, if I'm correct. We're certainly pleased on multiple fronts on the value proposition and pricing power coming through. We saw that in our new lease signings and ROIs as well as our cash mark-to-market, which flows through to our same-store growth. We had a quite strong quarter on those stats, and you saw that we updated our guidance for the full year. So as of right now, we think that these trends on the cash mark-to-markets and pricing power will continue into the back half of 2023.

Matthew Mercier, CFO

Yeah, I might just add that, again this quarter we saw all of our greater than megawatt renewals were in positive territory, and that includes across all regions as well.

Operator, Operator

The next question comes from Jon Petersen of Jefferies. Please go ahead.

Jon Petersen, Analyst

Great. Thank you very much for taking the questions. Good job on the execution on the JV deal. I wanted to ask about the 8 megawatts where you had an uplift in rents. I know you talked about it, but I'm sorry, can you maybe break down like what kind of drove your ability to push those rents higher? And if you were to take that out, what were the rents per kilowatt hour in the greater than 1 megawatt in America?

Andrew Power, President and CEO

Thanks, John. I'll go over the dynamics. I'll let Matt share the actual rate on the new deal to give you a sense of the market. This market is very tight on supply, and we've been working with our existing customer base to identify any idle capacity or customers without immediate needs. As a result, we were able to take back capacity from one customer after releasing them from a contract signed about a year ago at a much lower rate. We then assisted another customer with immediate needs and signed a new deal at a significantly higher rate. Matt, why don’t you detail the statistics?

Matthew Mercier, CFO

Yes, just to clarify, the deal we're discussing here is not reflected in our renewal statistics. Instead, we're presenting the net incremental revenue that we expect to recognize in our signing statistics. This will be clearer when you review Page 8 of our supplemental materials. Specifically, in North America for deals over a megawatt, you will notice the 300 KW rate. This is because we are only displaying the incremental revenue and not the related megawatts. If we considered that deal at 100%, the 300 KW would adjust to 148 KW. However, it still represents a significant increase compared to the existing lease, which is over 50% higher than our current rate.

Jon Petersen, Analyst

I'm sorry, that's 148KW on the 8-megawatt deal or 148KW excluding the 8-megawatt deal?

Matthew Mercier, CFO

Including, that would be our blended rate, if you look at Page 8 in our supplemental versus the 300KW, okay.

Jon Petersen, Analyst

Okay. And then just one follow-up, just to stick with NOVA. So, with the power constraints there, as long as nothing has changed, it seems like nothing new could really come online until 2026. Are you already seeing leasing demand for people that are wanting to sign leases and commit that far in advance?

Andrew Power, President and CEO

So, John, the NOVA market, the facts, I would say, remain the same in terms of transmission lines and arrival of utility power, which has really created an environment of demand well outpacing supply. We're, I'd say, less right now focused on signings that don't commence until 2026 based on the uncertainty of when in 2026 exactly that power rise. Honestly, making sure that we're maximizing the opportunity at hand for us. That market has seen dramatic price improvement. We've signed deals in the larger categories, call it, 140 or north of that per kilowatt. Again, that market was in the 70s, not so long ago. The good news, as we reported given our breadth and history in that market, we've been able to work with our utility provider and really cobble together incremental growth capacity for our customers across our campuses. If you add them all up, prior to the 2026 arrival, call it, by 2025, if not sooner, you're approaching, call it, 100 megawatts of growth capacity in Ashburn, which is in addition to our growth capacity that we have in Manassas.

Operator, Operator

The next question comes from Michael Elias of TD Cowen. Please go ahead.

Michael Elias, Analyst

Great, thanks for taking the question guys. To start, in recent months we've seen the volume and size of deals increase. And to that point, there are many requirements on the market right now that are over 100 megawatts. As you consider the strategy moving forward, is it your intention to compete for these deals? And if so, are you willing to pursue these deals with or without a development JV lined up with the understanding that these projects will drive long-term shareholder value? And then I have a follow-up.

Andrew Power, President and CEO

So, I can tell you, we didn't sign any 100 megawatt deals in this quarter. We are certainly around some of these opportunities. We're very focused on maximizing our footprint for its highest and best use in helping our customers the best way we can. Some of those deals have led themselves towards the AI domain for trading models, the need for large scales of contiguous capacity. I can tell you, looking at our footprint, we have extensive locations around the globe that we can help those types of customers. We've made great progress both in our capital sources, as you saw just in literally the month of July; we really got back into firmer footing to support our customers' growth. Adding to that a development partner, I think we'll put even more fuel on fire to support that growth. So, I think when it comes to bigger and bigger deals, we got to make sure that they land in the right locations for Digital Realty and ensure we're maximizing the opportunity in terms of what I call is really precious capacity in our land bank, in our sales and in our inventory runway.

Michael Elias, Analyst

Great. And then just to piggyback on that point about maximizing the opportunity. If I go back to the third quarter of 2022, you guys were clear that you were sharpening the lens to which you looked at investments with the intention of driving higher risk-adjusted returns. As we think about hyperscale deals in which you lease an entire facility to a single hyperscaler on a turnkey basis, could you give us a framework for thinking about what the appropriate spread between your unlevered development yield and your cost of capital should be to make it worth it to lease it to the hyperscaler? Thank you.

Andrew Power, President and CEO

Thanks, Michael. I think Jordan can see the future because we thought he was going to ask this question. But honestly, we haven't been thinking about that because we've been raising the bar and demand has been outpacing the supply; anything that even feels skinny or close to not just reaching our cost of capital has not made it on to where we're investing our dollars. You can see that in our development lifecycle where you have the whole schedule of the 377 plus megawatts underway, north of 10% ROI. That includes the Americas region, which is a call at 9% and still weighted down by projects that were open book yield on cost projects, almost legacy in vain that are weighing down those averages. I can tell you these opportunities we're seeing even for larger capacity blocks in these tight markets, be it Northern Virginia, be it Singapore, be it Frankfurt or elsewhere, we're certainly getting into double digits unlevered ROIs, which I think exceeds the risk-adjusted deployment of capital, and it really is coming down more to supply-demand dynamics than just premiums. If you look at the great work our investments team did on transacting on some of these JVs and the new partners we brought in, called the six-ish cap area, I think you're seeing a lot of value creation in our model.

Operator, Operator

The next question comes from Jon Atkin of RBC. Please go ahead.

Jonathan Atkin, Analyst

Thank you. I have a couple of questions. First, you mentioned that you won't be issuing any more debt this year. Considering the potential asset sales and other factors, should we expect any additional transactions? Also, how should we view the leverage trajectory moving towards the higher end of the fives? Secondly, I want to ask about India. Is your partner planning to contribute any assets in the future? Thank you.

Andrew Power, President and CEO

Matt can speak to the funding in our sources and uses in the guidance and leverage, and then Chris and I can touch on the India piece.

Matthew Mercier, CFO

Yes, so thanks Jon. There's a couple of aspects here I think are important. One to reiterate, as of today, we've got $4 billion of liquidity, thanks to the execution of the broader team. If you look at where our funding needs are going forward, this year based on looking at our lifecycle and remaining to be spent, our guidance in terms of what's left to be spent, we're talking about somewhere in the $1.2 to $1.3 billion left to spend this year. So that gives us a pretty significant runway into 2024 to be able to fund the continued growth and opportunities that we see going forward. On top of that, as we also noted, we're not stopping in terms of the execution on asset sales as well as the potential that we're continuing to seek for development joint venture partners that will give us an even broader access to capital and be able to help us to fund not only some of that capital need into 2024 but also potentially this year as well, which rounds out into your question on leverage. We've made considerable progress again on that front as well. As I noted in the prepared remarks, you look at us on a pro forma basis, we're at 6.3% now, so made considerable progress on that. You layer on top of that our expected view of continuing to grow our EBITDA as we've left that guidance line unchanged, again, as well as continue to seek development joint venture partners that will continue to help us on that deleveraging process. We feel pretty good about progress to date on both liquidity and leverage. And I'll turn it over to Greg on the India JV topic.

Gregory Wright, Chief Investment Officer

Regarding India, it's less about the assets and more about the significant development opportunities in a large growing market. It's fundamentally about establishing a strong partnership. Perhaps Chris can elaborate on Jio and its contributions to this collaboration.

Christopher Sharp, Chief Technology Officer

Absolutely. I appreciate the conversation, Jon. So, it's a culmination of expertise, right, where Brookfield brings local investing expertise, Digital Realty brings the data center expertise to that market. I think what Jio brings is that local operating expertise, and many of you may already know, but Jio is one of the largest mobile media platforms throughout India. Their extensive reach and ability to interconnect critical enterprises or other destinations is something that's going to allow us not to deliver a like-for-like product. I think Greg and I have been discussing for many years our goal to differentiate our ability to be successful within India. This partnership with Reliance and Jio has really elevated our ability to service the broader enterprise customer base, which, quite frankly, is unique in the market alongside many large hyperscale customers as well. We're still in early innings, so you'll see it evolve over time, but we're pretty excited about the opportunity in India.

Jonathan Atkin, Analyst

If I could quickly add on interconnect trends and anything to expect going forward in terms of just the trajectory, any particular reason why it might see pressure because of grooming or acceleration because of new use cases, and is AI playing a role at all in the interconnect at this point? Thanks.

Andrew Power, President and CEO

Sure. I appreciate it, Jon. Just to further jump into that. Yes, interconnection, I think, is something that's evolving rather quickly. AI is definitely evolving, and it's still in its early stages to date. Some of the activities we've been doing around ServiceFabric, which is tailored to streamlining the technical barriers placed upon the customers to access all of these destinations where data resides, is indeed at the core of artificial intelligence, which I believe your question is touching upon; you have to have access to data. So, being able to be a part of one of the largest open platforms that allows customers to access these data oceans, both public and private deployments, I think the platform is starting to pay off. Early innings with AI, but we're very excited about demand that this is going to represent inside of our portfolio. As we evolved, we've stabilized as we did with the foundation of cloud, we'll be able to maintain steady-state with these customers evolving AI as well.

Operator, Operator

The next question comes from David Guarino of Green Street. Please go ahead.

David Guarino, Analyst

Thanks. So looking at your development tables, you guys are developing assets at 10% stabilized yields, and it feels like if that stays, you can sell assets at fixed cap rates. That's a pretty healthy spread on the development profit margin. So, I guess I was just wondering, since you've already hit your initial disposition target that range you set out, why do you see the need to do more JV development at this point? Why not just look to sell more stabilized assets?

Gregory Wright, Chief Investment Officer

David, it's Greg here. When you consider the hyperscale business opportunity today, it exceeds our balance sheet, even at $55 billion. This indicates that we need to secure third-party capital to meet the global customer demands in this sector. Although we have surpassed our initial guidance, we view forming strategic partnerships as the best approach to fund this business and create shareholder value. Therefore, we will continue to support it through development, as we believe this is the most prudent path forward.

David Guarino, Analyst

Okay. And then maybe switching topics on the tenant bankruptcy, Matt, you were talking about, which I think is a former public data center company. Can you walk us through what eventually happens to that space? Are you guys just waiting now to renegotiate with the tenants? And I guess, how soon, if that's not the case, can you start releasing that space?

Andrew Power, President and CEO

David, just to add on to the last question, and I could touch on the second part of your question. Our balance sheet today has, call it, north of 3 gigawatts of growth capacity around the world. We see that expanding, and having the balance sheet to help fund alongside great partners is another part of becoming more efficient and more quickly drive returns and results to our bottom lines. In a market and an opportunity backdrop that keeps getting larger, it was large to begin with; cloud computing accelerated that with hyperscale demand, and AI is just an incremental lift to this wave of demand. Hence, we believe the best way to tackle this opportunity and support our customers while driving those results to the bottom line is in partnerships on the capital front. When it comes to the customer bankruptcy, obviously, this customer is amidst bankruptcy proceedings, so I can't share too much. The typical playbook is the creditors essentially have to run a process for the assets or the business, and as part of that, make decisions on either accepting or rejecting leases. We have not, to date, had any leases rejected. While they have rejected other providers' or landlords' leases, I don't think you can assume that every one of our leases, despite that fact, will be accepted. From a strategic lens, this is why years ago we increased our capabilities and ability to expand in the colocation interconnection offering and support end customers. If and when we sell to customers with issues, we can step in and support the end customers and have adequate financial outcomes and the necessary capabilities. So, there’s a little bit of wait and see as this customer works its way through bankruptcy, and I think we'll have more to report by the third quarter call.

Operator, Operator

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

Michael Rollins, Analyst

Thanks and good afternoon. Just a couple of follow-ups. So first, as you're looking at the portfolio, what's the value of data center assets that you own that could be considered for future joint ventures? So, what's left in terms of opportunity for recycling? And then also, can you just provide us an update on how you're doing and the opportunities to improve, whether it's overall occupancy or same capital occupancy within the portfolio? Thanks.

Andrew Power, President and CEO

Hyperscale continues to represent a significant portion of our business regarding our installed base and plays a vital role in our current development pipeline. With the establishment of Digital Core REIT, we estimated approximately $15 billion in value that aligns with similar transactions we announced in July, which are fully stabilized and focused on hyperscale with long weighted average lease lengths. These are core assets from our campus, though they are among the slowest organic growers within our portfolio, having less interconnection and fewer customers. The more recent portfolios we sold had around ten customers each, whereas we support 5,000 customers at Digital Realty. We believe there are ample opportunities to further develop these partnerships like the strong ones we just announced, and we aim to maintain full ownership of the highest growth segments of our business. Now, Matt, could you elaborate on the same-store growth and the strategies we're implementing to drive it?

Matthew Mercier, CFO

Yes, I want to highlight a few points. First, we have made significant progress this year compared to last year, with an 80 basis point increase in our stabilized pool. We expect continued improvement throughout this year and into next year. This will come from two main areas: first, targeting larger customers, given the increasing demand for capacity across our global portfolio, and second, exploring opportunities to convert some existing spaces into productized colocation leases that cater to the rising enterprise demand, which will help us achieve a higher return in a market where we aim to expand further.

Operator, Operator

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

Frank Louthan, Analyst

Great. Thank you. Can you comment on the situation in Singapore, I guess, with the government allowing a few new players coming in? How do you think that affects the pricing there? And then looking at the capital recycling, kind of where do you go from here? I know you are continuing to look at other diversification strategies. Is this kind of sort of finish this out? Or what are some other areas of capital sources that you can look at to reach that goal? Thanks.

Andrew Power, President and CEO

So on the first one on Singapore, I think what you're seeing is that supply will still be metered out at very small and rational clips. After years of no supply, the big unveiling is literally four different players getting 20-megawatt increments, which is relatively modest. Our latest data center build in that market was almost double that size of a need. This is not only happening in Singapore. You're seeing power constraints, from transmission or generation, moratoriums, broader environmental concerns just making the supply constraints more rational. That's why we're quite pleased that we have on our balance sheet, a long runway of growth for our customers with our campuses across 50-plus metros on six continents and the supply chain to support their growth. This is all against a backdrop where the demand is outpacing the supply. Greg, do you want to reiterate where we go next on the capital recycling?

Gregory Wright, Chief Investment Officer

Yes. Thanks. Look, I think as we said, we're going to continue to focus our efforts on the remainder of this year on our development joint ventures we talked about. But to answer your question specifically, you asked about other sources of capital, how we think about it. Look, I think overall we've done a good job so far. As we said, we have the dedicated core REIT in Singapore. We've obviously just announced two transactions we would characterize as distinguished blue chip investment partners in both GI and TPG. We continue to see strong interest across the board, so not just in Singapore, but we see infrastructure funds, sovereign wealth funds, pension funds, insurance companies and the like. So we're seeing broad-based demand here, looking at transactions, both stabilized core assets and development assets. We remain bullish on that. When we look at that again, we think that's the prudent way to fund our growth going forward.

Operator, Operator

The next question comes from Eric Luebchow of Wells Fargo. Please go ahead.

Eric Luebchow, Analyst

Great. Thanks for taking the question. So Andy, I think you've talked about getting down to 5.5 times leverage longer-term. So maybe you could just walk through the path to get there beyond this year. How much incremental capital recycling or JVs or other forms of capital do you think you might need if you look past this year? And is the goal here to ultimately become more self-funding so that you can share more of the economics yourself instead of using development partners?

Matthew Mercier, CFO

Yes, our long-term goal is to reduce our leverage closer to 5.5 times. We have made significant progress, and this year we aim to be nearer to 6 times. Taking into account what we've accomplished with the $2 billion from our joint ventures in stabilized assets and the $1 billion in equity we've raised, we currently stand at a pro forma leverage of 6.3%. We anticipate that as we continue to lease out our backlog, our EBITDA will grow, and our ongoing development joint ventures will play a critical role in reaching the 5.5 times target as we move into 2024. However, we are not yet in a position to provide guidance for 2024; these are the primary factors we will focus on to enhance our financial stability and leverage situation.

Gregory Wright, Chief Investment Officer

Look, Eric, as you've mentioned, we've been fortunate to see strong demand and execution this year. We're already 30% of the way through, and we have other transactions in progress. However, as we've stated before, the good news for us is that these non-core assets are a very small part of our portfolio. We are disciplined in ensuring we receive what we believe is fair value. Therefore, we will maintain that approach and continue to pursue these assets. We are also seeing demand for them, so we will keep working on it and keep you updated as we have more information to share.

Operator, Operator

The next question comes from Irvin Liu of Evercore ISI. Please go ahead.

Irvin Liu, Analyst

Hi, thank you for the question. I have one and a follow-up. So within your improved bookings this quarter, are you able to call out whether there was any sort of contribution from AI or any AI-related deployments from our customers?

Andrew Power, President and CEO

Hi, Irvin, that's a great question. I'm going to turn it over to our CRO, who really grabbed the baton and ran through the finish line strong, Colin McLean, to talk about what we saw on the AI front and maybe just give a little bit more color on the quarter in terms of bookings and new customers.

Colin McLean, Chief Revenue Officer

Yes, thanks, Andy. Appreciate the question, Irvin. AI is certainly becoming a growing part of our conversation in the pipeline overall. The overall pipeline is strong, healthy and diverse across the board, particularly strong in the zero to one megawatt side. A growing part of that AI is definitely a discussion not just in the hyperscale piece of the business, but also the zero to one megawatt, and we've had some strong contributions on that front. We feel like both the results and the pipeline itself, the demand, is a testimony and validation of our pivot to serve the entirety of the client needs, network, enterprise, and hyperscalers. Both on the AI front and frankly, the cloud, hybrid IT, we're seeing some really growing success and growing conversations with clients. We remain optimistic about meeting the pervasive needs of clients as well as AI. This is going to be a growing part of our portfolio moving forward.

Irvin Liu, Analyst

Got it. Thank you for the color there. So my second question is on the strong pricing that you saw over the past two quarters. Can you share with us how pricing trended quarter-to-quarter and the overall linearity of pricing trends now that we're one month into Q3?

Andrew Power, President and CEO

I would say that our commentary has been consistent over several quarters. The supply-demand dynamics have shifted positively for us, and our value proposition has been increasingly well received by our customers. Most of our new signings have come from our growing installed customer base. Additionally, we achieved our second highest quarter with 133 new customers. This growth has been broad-based across different regions and product types. In the less than a megawatt category, we've seen steady growth with like-for-like increases. For the greater than megawatt segment, the demand remains robust, though it has been a bit more volatile in a positive direction, as large capacity blocks are becoming scarcer, and we do not anticipate supply bottlenecks in the near term.

Operator, Operator

That concludes the question-and-answer portion of today's call. I'd now like to turn the call back over to President and CEO, Andy Power, for his closing remarks.

Andrew Power, President and CEO

Thank you, Andrea. Digital Realty had a strong second quarter. Our results demonstrate that our meeting place value proposition is resonating with customers. Just since our last call, we raised over $3 billion of new capital, positioning the company for the tremendous opportunities that lie ahead. We posted strong organic operating results with the results confirming the continued inflection in our core data center business. I'd like to thank everyone for joining us today and recognize our dedicated and exceptional team at Digital Realty, who keep the digital world turning. Thank you.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.