Good afternoon and welcome to the Digital Realty First 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.

Thank you, Shawn. The speakers on today's call are CEO, Bill Stein; and CFO, Andy Power. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and 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 the 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. With that, I'd like to turn the call over to Bill.

Thank you, John. Good afternoon and thank you all for joining us. The last 90 days have been unlike anything that we've experienced in our lifetime, and our hearts go out to all those who have been directly impacted by COVID-19 especially those who've lost loved ones. No one has been immune to this crisis, but the data center industry has been fortunate to remain open for business while huge portions of the global economy have been put on hold. As you probably know, data centers have been classified as critical infrastructure and essential businesses by government agencies around the world. Our top priority is, of course, the health and safety of our employees, customers and partners. The entire data center industry has delivered a strong track record of operational excellence and uptime throughout this crisis. Digital Realty has made 100% uptime. And while we have deferred preventative maintenance and have asked customers to limit site visits to critical activities, our doors have remained open and our data centers continue to provide the trusted foundation for the digital economy. Business continuity is our core competency. We have a full-fledged pandemic playbook to ensure that we maintain service levels while prioritizing the health and safety of our employees, customers and partners. We have received very high marks from our customers for our professional protocol and proactive communications throughout the crisis. For this, we owe a debt of gratitude to our operations team and particularly our frontline employees in critical data center roles. Despite the challenging environment, they have continued coming to work so that industries, governments and families can continue to connect, keep in touch and keep commerce and information flowing. We are deeply appreciative of their efforts. Let's turn to our sustainable growth initiatives here on page four. In early…

Thank you, Bill. Let's pick up here on page 10. As you may have seen from our supplemental reporting package, given the compressed time frame post-closing and the complexity of reconciling different reporting practices with both teams working remotely, we've included the partial period contribution from Interxion in our financial statements, but we have not included Interxion's portfolio statistics in the supplemental until next quarter. We've also tabled most of the changes to our disclosure package we discussed last quarter. We continue to see the lines blurring between product types, and we believe the distinction is becoming less meaningful. As a result, we still expect to evolve our disclosure in the coming quarters to more closely align with our customers' buying behavior and the way we manage the business. We also expect to fully reflect the Interxion portfolio statistics within our disclosure next quarter as well. Nonetheless, we provided a few pro forma data points in summary form here on page 10 to help frame the power of the combined business. I would like to point out that we slightly tweaked our definition of adjusted EBITDA this quarter to include our pro rata share of unconsolidated joint venture taxes and interest expense. We use net debt to adjusted EBITDA as our primary leverage governor, and we calculate leverage on a look-through basis. In other words, we include our pro rata share of unconsolidated JV debt in the numerator. And we believe that including our pro rata share of unconsolidated JV, joint venture, EBITDA in the denominator is the intellectually honest approach. Our pro rata share of joint venture interest expense and taxes has historically been negligible, but it's becoming more meaningful as we expand our strategic private capital initiative through ventures like Ascenty in Latin America and MC Digital Realty…

[Operator Instructions] Our first question today will come from Jonathan Atkin with RBC Capital Markets. Please go ahead.

Thanks for taking the question. This is Bora Lee [ph] on for Jon. I guess first of all, given the widespread pause in place in Singapore for new permitting and moratorium on permitting in place in Amsterdam, are there any other markets where this is happening? And do you have any update on when these restrictions might be lifted?

Thanks for the question. This is Andy speaking. I think given the Digital team on the call is in different locations right now to social distancing, Bill asked that I quarterback handing off the questions. I think I actually can start the first one and let that team chime in. So, Singapore, obviously, is a country that was early out of the woods and now kind of back in lockdown, so -- and having some impact to our delivery time there. And Amsterdam, a different story, not really COVID-related. It's more of the government's restrictions on certain locations. I would say, in Amsterdam, we've done a very nice job about being ahead of the game there with planning for an existing now multiple campuses with our combination with Interxion, in addition to tying up some lands that are outside the restricted area. I don't -- I'm not aware of restrictions that are akin to the Amsterdam scenario really elsewhere in the portfolio. There's obviously markets where we're running up to supply constraints. I think that Amsterdam scenario is -- lends itself to the incumbent players, like Digital, and keep some of the new entrants out for sure. We are seeing more COVID-related impacts that have government intertwined. Toronto is a market where we have our campus is under construction, building out future capacity, and that the government kind of leaned in and put a halt for some time before reopening, in particular, Hillsboro, Oregon, where we're building out a campus that's significantly pre-leased. That less government restrictions, I'd say, some -- we saw a significant amount of absenteeism that caused some delay in the labor side. But again, this is just a handful of select markets where we saw some potential disruptions to our deliveries that will impact our 2020, which we try to lay out in the script. I wouldn't say it's a widespread phenomenon within our portfolio at Digital.

Okay. And for my follow-up question, a few days ago, you announced the launch of Digital Realty Data Hub featuring NVIDIA for the rapid deployment of AI and machine learning workloads. Could you provide further color on this announcement? Are there similar ones yet to come? And what are some illustrative customer use cases that DLR is seeing or expects to see?

Thank you. I'll toss that to Bill, start there.

Thanks, Andy. So, we're absolutely delighted to partner with NVIDIA to extend machine and deep learning to data center to accelerate artificial intelligence. Digital is an early stage partner with NVIDIA. And together, we've pre-certified 24 locations around the world. Our Data Hub solution featuring NVIDIA DGX PODs provides buyers with a validated reference architecture and solution starter kit for rapid AI deployments on PlatformDIGITAL around the world. The combination of NVIDIA DGX and PlatformDIGITAL enables a secure and performance data center architecture for enterprises at any scale. We do have a pipeline of similar ones. In addition to NVIDIA, we've released solution offers with Cisco, IBM and Vapor IO. This is part of the PlatformDIGITAL road map that we published last November when we launched the platform. We're seeing multiple customer use cases across many industries. We've captured multiple customer wins across financial services, transportation and logistics and IT service industries. All of these customers are looking to unbound data processing and exchange limitations to enable intelligent insights for their business. Initial use cases include complex trade analytics and risk, AI-based cybersecurity and route optimization for connected vehicles.

Great. Thank you very much.

Our next question will come from Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Thank you and good afternoon. I hope everybody is doing well. First question, I guess I'm interested in what you've seen in terms of demand, the pipeline and the funnel as a result directly or amidst COVID, first and foremost. So, I know the first quarter, there wasn't much going on in terms of time, which we had coronavirus, although globally, certainly, there might have been. It happened a little bit earlier in the quarter. But I'm speaking more specifically to what's gone on in -- took place in March, the end of March and then into April and sort of the velocity you've seen and maybe you could parse that across your customer base a little bit. Thank you.

Hey thanks, Jordan. I hope you and your family are healthy and safe as well. I'm going to toss it over to Corey to talk pipeline in response to your question there.

Hey Jordan, thanks a lot and I appreciate the sentiment on -- for everybody and how COVID is affecting everyone across the globe. I'll probably answer kind of in two parts, a little bit about just what our pipeline looks like and then separately, I'll try to give you a sense of what the COVID impact of that was, if that makes sense for you, Jordan. But I would tell you that from a demand perspective overall, it's really been a strong demand. It's really picked up and continued through when we did our launch of PlatformDIGITAL in Q4. Q1 has kind of continued on that momentum. It was really well received by customers, partners in the industry. You guys -- we just mentioned the NVIDIA sign off, which is just another example of customers and partners adhering to our platform and some of the unique values that we have. Bill, in his opening remarks, mentioned that IDC MarketScape ranked us as a leader in the data center space. And then we saw the same follow-through on our enterprise new logos. So, the new logos, we had -- 75% of them were enterprise. Still staying on kind of that demand aspect and looking forward to Q2, really strong pipeline that we have, continuing that momentum around PlatformDIGITAL that we just started on. And so when we look at it kind of late-stage pipeline, quarter-on-quarter, it's up over 50%, 100% year-on-year. We go and look at new logo pipeline, it's similar kind of robust metrics. And then looked at the enterprise to see if we had anything there thinking who would maybe be the most impacted, Jordan. And a really strong pipeline on our enterprise side. So, happy with it across the board. The concern we have is just as you would expect. We've got some enterprises that are being impacted by it. And those that you would expect where we saw some slowdowns there. But on a net, it was taken up by new enterprise opportunities, CSPs, content network and really interconnection growth across the board. So, I would tell you that the industry, you would expect to get affected work. But on net for us, we still have plenty of demand and a strong pipeline going forward. Jordan, I hope that helps.

That's helpful. And then maybe one for you, Andy, on the guide. I think pretty disappointing relative to where The Street is and where expectations were. And I know you had to layer in quite a bit between Interxion and COVID, and I appreciate the $0.25 headwinds. But even relative to the $1.57 you printed in 1Q, just annualizing the $0.25 of headwinds, it seems to point to very limited growth from new business and I know we're already in the year. But I guess it just seems a bit light. And I guess the other sort of comment would be around the re-leasing spreads. The Digital portfolio is a much larger portfolio than Interxion's. I know we've previously talked about maybe being shrewd the most difficult times, and I feel like fundamentals are only have only gotten better, increased demand, less ability to supply. What sort of -- what am I missing?

So, thanks, Jordan. Let me try and tackle this. So -- and one quick clarification. The first quarter came in above our internal expectations at $1.53. I think you might have said $1.57. So close enough for what -- where you're getting at here. So -- and we certainly had a complicated quarter for our friends on -- in the research community to follow us. I think when we're tracking the 23 or so analysts that cover us, I think we -- we only got to around seven that we're able to get all the moving parts, including interaction closing orderly into the numbers. So where we saw consensus, if you did the math, including the interaction in the share count and the like, was closer to 630-ish. And relative to beginning of the year and today, I think the things that changed that we try to highlight in our prepared remarks are -- roughly total a little over $0.25 of impact. Three buckets, the first two buckets being the major components. First one is we took this time in the context of certainly uncertain times, probably more so outside of our industry, but broader capital markets disruption and the like to do some balance sheet management. We opportunistically issued $650 million under our ATM, and we plan to bring our equity forward down sooner. That, I would say is, call it, $0.08 or so of the $0.25, and that was intentional. And that was intentional in the broader backdrop that was intentional because we also see investment opportunities to fund future growth. Hence, we've kind of took a more conservative balance sheet posture. The second major component, what I'd call on the FX and COVID impact maybe, call it, $0.13 or so in total. And I'd say it's roughly…

And our next question will come from Michael Rollins with Citi. Please go ahead.

Hi, good afternoon. Since this might be one of the last quarters that your reporting metrics for the heritage DLR business, back when you filed the S-4 for the transaction with Interxion, it was inferred from there that organic growth for the -- just heritage Digital business would be about 5%. Can you frame what that growth rate looks like that's embedded in the guidance for 2020 in terms of the expectation for heritage Digital revenue growth?

I think -- honestly, if you look at the results so far, Interxion really only contributed, call it, two weeks or so of contribution. So, the first quarter results is primarily Digital. And just to reiterate, we did really do the facts and circumstances of moving to a work-from-home environment literally the day we closed Interxion. Put all of our statistics in here, excluding Interxion's, you could see the entire legacy or classic Digital business fundamentals. And in terms of contribution to guidance, I was not on the fourth quarter call, but Matt Mercier stepped in and did a very nice job, I thought, in laying out some kind of guide rails for legacy Digital, including on a standalone basis, what our top line would be and adjusting for the ins and outs of our dispositions and capital recycling, what we've called organic revenue growth in the mid-single-digits in 2020, which I would affirm is still accurate. And I would also -- we also stated that we had industry-leading EBITDA margins, which I would also affirm is still accurate. And I think that -- I'd say that's accurate, even pro forma for our Interxion combination, which obviously is a lower EBITDA margin business. So, just the comments were made back in February in terms of our organic growth profile, I would say, flow through into the guidance. And I would say the organic growth of the Digital business was a major driver of the outperformance from our internal perspective in the first quarter, which was a largely Digital-only quarter.

Thanks.

And now our next question will come from Erik Rasmussen with Stifel. Please go ahead.

Thank you. Maybe just with the Q1 and sort of breaking things down with the -- your Q1 results, the $823 million. Can you just maybe break that down in terms of the organic DLR versus what Interxion's contribution? Obviously, we go back into the math, but just wanted to get a sense of what those numbers were. And was -- were there anything else? And then with that, I thought you were going to be consolidating the Westin Exchange. What's -- what was the can you just maybe comment on what that was in the quarter?

Sure. Thanks, Erik. So, just to be clear, you're asking kind of to unpackage the $823 million of revenue in the quarter in terms of contribution from each of the major transactions. The -- is -- that was your question, correct?

Yes. Thank you.

So, of the $823 million, and I'm kind of bridging you between the quarter's changes, I would say, Interxion was probably like a $40 million -- almost $47-ish million contribution and the rest was really the ins and outs of Digital. And I think we put a cap rate and a return on the Westin purchase, about a 5.8% return so that you can kind of back into flipping that from an unconsolidated joint venture to a consolidated joint venture investment. And Erik, we're also more than happy to follow up post the call or work through any of the granularity. We understand when you joint venture and recycle $1.4 billion of capital in the last 90-plus days, buy out a partner on a $700 million asset and close a $8.5 billion strategic combination in Europe, it's not a simple quarter from anyone's modeling perspective.

No, definitely. I appreciate that. And I will do that. And then maybe just my follow-up on Northern Virginia, it seems to be recovering and we're hearing of improved demand. How are you seeing this market and your opportunities? And can you comment on other markets where you're seeing an improvement versus what you thought just 90 days ago? And that's maybe just not here in the U.S., but obviously, now with Interxion, you have a lot more visibility into that European base as well.

Sure. So, maybe I'll start off with like a little kind of market tour, and I'll ask Corey to chime in a little bit on what he's seeing on the customer standpoint. Northern Virginia was a very strong quarter. It was, I believe, our top quarter top market in terms of overall signings. It was strong on the colocation or connection front. Some great startings at pretty attractive pricings into our colo suites on that campus. We also were very successful in backfilling into that market, numerous recently vacated suites. So, that's kind of high flow-through leasing activity because the suite is already built and constructed. And lastly, it was the home of our largest transaction for the quarter where we imported from out of region, a fairly sizable transaction all on the hyperscale front. So all around, pretty strong. I would say it's not a market that is completely out of the woods. I would attribute our success there due to a few things. One, our offering is really an entire platform offering, numerous of our sales into any market are going to include numerous products and numerous geos at the same time. Two, we have a very large installed and growing customer base that wants to grow with adjacency; and then three, in Northern Virginia, we have, I believe, the longest runway of future-proofing our customers' growth in terms of capacity, potential build-out. And I would say, while more commodity-like providers on the periphery in North Virginia are certainly cutting rates, that kind of almost internal competitive [Indiscernible] for our customers to get specific suites on various products within the various campuses in Ashburn certainly accrued itself to our platform and generate better economics. If you can turn to kind of quickly the rest of North America, brighter…

You gave him pretty much a rock star world tour of what we've got going on, so I was trying to think of what to add. I guess I would say, Andy, is the only thing to add is that we're really happy with what we've seen in Ashburn, if that's the base question here. We've had deals each of the last couple of quarters that have helped us. And we're continuing to see demand in that area that we're going to continue to source and take care of. It puts us in a position to think about expanding and growing more there. And then as you said, if you looked across our regions, each of our regions was really successful this year or in this last quarter, as well as AP just going gangbusters for us. So, I think you did a great job summarizing it. But we're happy with how PlatformDIGITAL has been received by customers. We're seeing a lot more multi-metro deals come through and a big pickup on the enterprise wins with new logos. So, I appreciate it, Andy.

Great. Thank you.

Our next question will come from Richard Choe with JPMorgan. Please go ahead.

Hi. I just wanted to ask about the base business. And given that there's so many puts and takes on the financial side, just to focus on what's going on with the underlying business. It seems like $70 million in signings has been pretty steady over the past four quarters. Is that the new normal? And is it fair to say, even though Northern Virginia contributed, it doesn't seem like you had a kind of out of trend win there. And later on, that could boost that overall signings number from $70 million to a much bigger number.

Thanks Richard. So, I would say -- I mean we've showed a pretty consistent stair step up over now several quarters. And each and every quarter has gotten a little bit better in terms of its volume and composition on multiple fronts. So, we're at just under 75, excluding anything for Interxion and it was very diverse. As we mentioned, APAC was a big contributor. It was -- Northern Virginia was a solid contributor, but I wouldn't say it took -- stole the entire show. And I think that if you got to really to peel the onion, going back to some of Corey's and Bill's comments, either in our prepared remarks, very healthy new logos. When you add up -- our new logos up, we're up to 120 new logos. So I don't -- usually don't like to annualize that, but on a 4% -- 4,000 customers, we're talking like almost 12% new logo generation growth from the combined platform. So, very pleased on numerous other key performance indicators and I think you heard a little bit about Corey's outlook on the pipeline, moving it into 2Q.

And as a follow-up, the interaction of 10 million signings; is that kind of the normal level? Or was that kind of them having a very good quarter? And how should we think about that going forward?

I'm pretty sure -- I don't believe David's ever given a signings pipeline or even a signings number. So, I'm not going to be the first one to unpack that on public air here. But I'm sure some transactions probably didn't get done during the quarter. I would say Europe, in particular, was in the middle of the COVID crisis a lot sooner than the United States. But I was pretty pleased when I saw close to 10 million of signings with that healthy consistency, numerous -- across numerous markets and so connectivity rich.

It's a nice contribution. Thank you.

Our next question will come from Colby Synesael with Cowen. Please go ahead.

Great. Thank you for taking my questions. The first one, just you guys have talked about in the past a goal of getting to maybe 5%, 7% core FFO per share. When you think about 2021 and getting past some of the things that you've talked about that are impacting you specifically in 2020, is that still a fair approximation for where you would aspire to see growth going, particularly with the leasing numbers that have been so strong? And then secondly, well, I appreciate you don't guide to AFFO, I was hoping you could give us a little bit of color on some of the metrics that go into it, such as straight-line and market rent amortization. I mean some of us do focus a little bit more on that metric as well. Thank you.

Thanks Colby. So, I think our growth objectives for the business remain consistent. The only ounce of caution I put then is we're obviously in a whole brand-new world here that could have interim drag or longer-term acceleration, overall digital transformation that could further emphasize the growth of our business. But I think that mid to high single-digits kind of growth in our recurring cash flows or FFO, AFFO per share is still the bogey to -- or hurdle to shoot for and overcome. Going to the adjustments to FFO and to AFFO, really straight-line rents is just a GAAP phenomenon where we essentially kind of include the rental escalations or bumps. And depending on where the customers' contracts are in their life cycle, it can have a positive or negative impact. And depending on what type of -- whether customers ramping into our space or not can obviously have an impact. And the above and below market amortization is also a non-cash impact as well. So, I'm happy to -- with 4,000 customers in the breadth of our business, there's a lot of ins and outs that go into that number. If you want to ask another -- I'm not sure -- maybe I'm not hitting the heart of what you're seeking to understand there in terms of the impact.

Sure. Well, just given the interaction and how that's a slightly different business than what you guys had what your business predominantly is, I was just wondering if there's any color you can give. But maybe more simply, would you expect AFFO to be notably below, above, similar to your core FFO? Maybe that's an easier way of asking it. And then, I guess, since if you're not able to answer that question, just curious, just in terms of COVID-19, if you're seeing, as a result of that, some of the larger hyperscalers are shifting more to an outsourced model opposed to a self-build model, given perhaps their own desires to reduce their own CapEx expense in this environment?

Yes, I think the more elegant answer to your first question is what's a combination of consolidating our highly connected colocation facility, the Westin Building and our combination with Interxion. Our mix of business is certainly moving much more towards a more granular customer base, more network-oriented customers. We're obviously going after the enterprise customer in hybrid multi-cloud environments. And that customer mix is going to have less -- much, much less of, call it, 15-year steady Eddie bump contracts, which is going to be at the end of the day, narrow, I believe, the gap between our FFO and AFFO per share over time versus if -- going back to our legacy, much more legacy business even -- kind of tell us kind of five years back. And then going to your second question on -- maybe I'll turn this over to Corey or Chris to answer about the second question, about customer behaviors or the buying patterns of the hyperscalers.

Yes, I can help out with this one, Andy. And I think on the hyperscalers, Colby, there are requirements. They've got them all across the globe. So we're well positioned to help out where they need to look at it. And they generally handle that demand with a combination of like their self-build and their -- and then outsourcing to groups like us. Many of the hyperscaler requirements also involve compute nodes combined with connectivity. And I think we're really well positioned just to take care of them from a full spectrum of data center solutions, both highly connected and wholesale. And I think, while you might hear that some of them want to in-source for whatever different reasons or build their own, we haven't seen that come through in the pipeline yet, and we haven't seen that come through in any kind of change in our customer conversations and our engagements with them, is what I'd I tell you, Colby. Thanks.

Okay. Thank you.

This will conclude our question-and-answer session. I would now like to turn the call back over to CEO, Bill Stein for any closing remarks. Bill, please go ahead.

Thanks Shawn. I'd like to wrap up our call today by recapping our highlights for the first quarter as outlined here on the last page of our presentation. First, we enhanced the value of our platform, successfully closing on our highly strategic combination with Interxion as well as the acquisition of the Westin Building in Seattle and the Mapletree portfolio sale. Second, we also underscored our commitment to delivering sustainable growth for all stakeholders with community outreach initiatives, a renewable wind energy contract and new additions to our Board. Third, we maintain steadfast support for our customers, prioritizing health and safety while maintaining service levels. Last but not least, we further strengthened our balance sheet with the opportunistic issuance of $650 million of equity capital. I'd like to conclude today's call by saying thank you to the entire Digital Realty family, but particularly our frontline team members in critical data center facility roles, who have kept the digital world turning in the midst of this global pandemic. I hope you all stay safe and healthy and we hope to see many of you in person again soon. Thank you.

The conference has now concluded. Thank you for joining today's presentation. You may now disconnect.