DLR
#Thanks for the question, and thanks for fitting five questions into one question.
Yes, south-side's got that skill.
That's right.
So while I would certainly characterize it as you did, I was not pleased with what I'd call below average scale product signing in the quarter.
We do think that the pace was due to a couple of things that you mentioned, but also, the normal lumpiness that's become part of our business, especially given the new hyper scale demand that out there.
But also, as you said, a more selective approach to making sure that we land the right mix of customers to maximize the long-term value that we think we have inside of our ecosystem.
So this means, as you said, one of the potential reasons for that number is our continued commitment to a disciplined approach to our underwriting criteria and focusing really on top tier markets and not focusing on tertiary markets where some customers may have a desire to go.
And then maintaining a disciplined underwriting and pricing regimen to protect long-term value.
On your second question, really, the overall demand remains strong.
It's evidenced by the July that we've had so far in both sections of our global business as well as the healthy pipeline that I talked about which has the potential for margin expansion as we move on.
We do think that we are on track now resume normal levels in the second half across all parts of the business in 2016.
Specifically though, with regard to your question about demand and cloud demand remaining strong, especially where we are in our global markets, where we operate, it's important to remember that that cloud business is still one of the fastest-growing segments landing in our industry and from analysts from RightScale all the way through to Gartner, they all tend to agree that we are actually in the early innings of this new cloud ecosystem breaking out.
We're also starting to see the green shoes.
We're seeing mass adoption of a diversity of cloud players, not just the major cloud players and early adopters that are out there, which we think, and to get to your last question, we think we're uniquely situated to be able to land.
We do believe that we're the only company in this space that is very focused on providing great scale solutions for folks who need scale solutions, including those cloud service providers, but also providing colocation right next to it at a latency that can't be beat as well as the security that comes with the power of private networking in our interconnection products.
So we really think that the secular demand drivers in the cloud industry are continuing to push them and we are uniquely situated to be able to address it.
Sure.
Let me chime in.
This is <UNK>, since <UNK> has been addressing with some of these already.
So a couple of topics.
One, timing wise, I always love to have a better fiscal second quarter.
I'd rather have a better deal on July 1 than a less attractive deal on June 30.
So and I think you saw a little bit of that with the volume of signs that just got signed the first few days or weeks of the month of July.
And just to put a little more meat on the bone, that is been from a diversity of different types of customers.
It has included hyper scale top three cloud providers, a sizable chunk from other cloud providers that aren't in the top three, and then another chunk from the rest of what we call SMACC or the digital economy or IT service or other transaction verticals.
So we are seeing that our demand signs in the second quarter and July from diverse growing customers sets.
The other thing I think that draw us at a distinction, it's not just about pricing or profitability too.
We're really focused on driving the long term growth in the cash flow and attractiveness and value of our assets and our campuses and our gateways with a diversity of different customers versus some of our peers who may be more focused on being in a non-core market to us or doing a full bill to suit with one customer in one shot.
We always want more exposure and more signings at the right rates from these top cloud providers, but we're focused on the collective portfolio and growing that cash flow and the value of our assets.
<UNK>, just to give you a little bit of color, while we had a good quarter with regard to those top cloud service providers, still 37% the revenue we closed year-to-date has come from other cloud service providers, so we have a diversity of cloud exposure, including 50 new logos that were landed year-to-date inside the SMACC verticals, so we're very happy with that diversity.
Sure.
The breakdown on the $0.10 is really kind of a third, a third, a third story.
The first third is out-performance, which we have already mentioned: top line, G&A, OpEx, that we'd kind of got in the bag from our performance in the quarter.
The second third is kind of flow-through from that operational performance into the back half of the year.
And the last third is due to the overall net accretion from buying the European portfolio acquisition and the funding with the asset sales and the equity and also the repayment of the debt in preferred.
So a third, a third, a third.
The first two third operational related, the last third more accretion from our most recent investment.
On the top line, the two things which kind of held us back from nudging that up at this turn, one was the, we're going to lose some revenue when we sell our fully leased property at St.
Denis here fairly shortly, and number two, we do have some FX headwinds in the top revenue line item which are hedged when it comes down to core FFO per share gains, but on that top line of our guidance, it's going to mute the growth.
Hello, Vince.
The key guys are intending to stay through the balance of the year, and we are working on contracts for them that will tie them up beyond that.
The one thing I would add is that this particular team, really of their own volition, went into this process along with these eight assets to kind of essentially, at the user request, set up a standalone business that could stand on its own if it had to.
So talented individuals across multiple departments coming together with a strong leader and, quite fortunately, it landed in our hands where it was a complementary buyer.
No synergies expected, so very little overlap, if any, and we were able to kind of, we think that the combination of our European portfolio plus data assets and the teams, one plus one we feel is greater than two there.
I, quite frankly, we're fairly cautious when it comes to kind of looking out too far in terms of future rent growth here.
I could say at the larger end of the scale, the biggest buyers that buying in bulk and taking down numerous megawatts have the greatest pricing power and their rates are certainly flat.
They're not seeing any type of rent spike.
If you walk down to the other side of the spectrum and look at our smallest footprint colocation, I think we can look at the cash releasing spreads which is up now 5% for the second quarter and it was a pretty sizable this quarter actually, the amount of leases just in terms of colocation that rolled up.
So when we're able to roll these customers up 5%, we are able to generate some pricing power.
Between those two goalposts, it's very market and customer episodic.
<UNK>, I'm trying to flip to get to that page in our financial supplemental.
The only, I think we may be more accurately mapping towards the NOI buckets this quarter than previously.
I'm not aware of a dramatic change quarter-over-quarter.
Sorry about that.
I think the short number just is a smaller sample site that actually closed during the quarter.
So I think you're going to get back to the previous bars on what signs in July and the rest of the quarter.
We like the short sign to commencement because the cash flow comes, right.
Versus kind of the leasing something that you can't, you have to build and come online in a year to two years, but I don't think, one and a half months is definitely an anomaly.
<UNK>, it was a disproportionate focus on market ready inventory that we were still clearing out so I would agree with <UNK> that while I would love the 1.5 to stick a little bit, you should expect to see it revert to the norm coming up, especially given July.
Thanks, <UNK>.
The competitive environment is, I would characterize it as strong for, especially what we term the hyper scale opportunities that out there, about 3.5 megawatts and above.
And as you know, we are certainly not new to the cloud service provider environment and we continue to get our fair share each and every quarter, but most importantly, our focus is getting them at the right returns for Digital Realty.
So we stay very focused on that.
With the competitive bids, it does put a certain amount of power in these cloud service providers' hands and we find that the closeness that we have with a number of them and extending to all of them as we move forward gives us the ability to have that value for value conversation that I referenced earlier.
So we know that they have a high degree of value on things like inventory availability and large-scale inventory availability as well as connectivity to a colocation facility.
As we unearth those opportunities to these cloud service providers, they see the value, they match the value, and it allows us to not just go to the lowest price, but to go to the best value for Digital Realty.
And so that's really been our focus and it's going to continue to be our focus.
There's a range of revenues (inaudible) closer to (inaudible) probably offset some of these (inaudible) underwriting we remain confident in (inaudible).
<UNK>, could you hear the answer to that last question.
Okay.
I've got it.
It's brilliant, you got here it.
We'll see if I say the same answer twice.
We just fixed our microphones here so if this one goes out, we're in trouble.
In terms of the underwriting, the second part of your question, we still believe in our underwriting of the 13 times EBITDA that we announced when we made the acquisition announcement last May.
So nothing has changed in terms of our outlook there and that's what's included in our revised guidance for 2016.
In terms of revenue, it's really about the gain from a partial-year period on the pre-portfolio is being offset by FX headwinds and revenue lost associated with the safety knee asset and also the portfolio assets that we've now closed on.
Both of those disposed, we lose some revenue in the back half of the year and we have some FX headwinds offsetting the revenue gains from the European portfolio.
Out of that we do.
Sure, so the whole reason with the timing is really just to the moving parts on the sources and uses and we didn't have 100% clarity when we were going to be able to close our four-asset dispose and we think the safety knee disk fill will close shortly but it could be at the beginning of August, could be at the end of August, and we cannot repay that preferred or debt until late summer anyways.
So what we did is we closed on the revolver short-term, we used the revolver to close on the acquisition short-term, and then when all the dust settles and with all of these other uses of capital, we plan to pull down all or substantially all of the equity which is 14.3 million shares including the over allotment option that would exercised.
Probably, I wouldn't say probably before September 30, maybe beginning of September is my guess when all the dust settles here.
I think, just to clarify, and I will let <UNK> clarify as well, because he had some of the commentary.
I don't think that its, we have lots of great customers and we are over 2,000 customers now, including our most recent acquisition.
I don't think we are choosing customers that we don't want to do business with in any regard.
I think all of our customers are great and we want to continue to do more business and grow our customer base.
I think it's making sure we pick our spots on the right opportunities, so building buildings on our campus or within our gateways that we can fill with a diversity of different big and small cloud service providers, other parts of our SMACC vertical, IT service providers, corporate enterprise, that all want to thrive and continue to grow space in there.
We find that as a better opportunity to land versus with in the core market or outside the core market, especially not going after kind of one big swath of leasing slash capital and almost like single tenant bill to suit opportunities.
We think the former versus the latter is more attractive to where we put our capital.
And, <UNK>, just real quick, there are couple of places where we are being more selective moving toward.
As you know from the most recent investor day, our focus on serving enterprise customers through the channel is certainly one of those cases which actually makes the terms that those organizations accept a little bit easier on us and makes the economics a little bit better for us as well as for the end customers down the road.
The second piece is that the ecosystem development that we are undergoing right now will really drive who we pursue in terms of end target customers.
We've moved to a new account targeting solution that allows us to hit not just the top cloud service providers, not just the massive cloud service providers, but really about 500 targeted accounts that we can focus on and then also focus on the channels.
So that is the targeting that I was really referring to.
And the final piece is we do continue to have a great strategy of building up incredible campuses and so we want to make sure that we have a multi-data center campus facility and so we need to attract those types of customers and I will that <UNK> top it off.
Hello, <UNK>.
This is <UNK>.
Even with the absorption of, you're correct, lower margin than existing digital, based on the out-performance we've seen on the EBITDA side, or expense side, year-to-date, and where we're trending up for the remainder of the year, we think we're going to be able to absorb the portfolio and continue to maintain, or I should say, deliver slightly higher than previously disclosed EBITDA margin.
There is a little bit of a magnitude going on here with the portfolio being $900 million relative to digital size.
On the development CapEx spend, I think you're right, we're probably, if you looked at those two goal posts, we're probably closer to the low end than the high end but I wouldn't put it out of reach yet.
But I would say we're probably guiding towards a little bit on that spend towards the low end.
Sure, <UNK>.
I would say, so our bumps are 2% to 3%.
They're not all 3%, just to be clear.
So I think the reason we really changed or increased our same capital of cash NOI growth, we are doing a little bit better on the retention, doing a little bit better on our cash mark-to-market then from a quarter ago and that kind of translates into that kind of 3, 3.5 constant currency growth rate.
You're not, that space and there is a pretty demonstrative footnote at the top, does not have the Telx colocation mark-to-market really running through it, because we wanted to really reflect a true same capital stabilized portfolio.
So you're not getting the 5% plus mark-to-markets like we're seeing on the colo side yet.
Next year, it will be in that pool, but right now, this is just really retention and modest mark-to-market from more of our scale leases that are expiring, a handful of those, and those 2% to 3% rent bumps and then managing the OpEx prudently.
Thank you, Dan.
I'd like to wrap up our call today by recapping our second-quarter highlights as outlined here on page 19.
We had another very productive quarter characterized by solid execution against our strategic plan.
In particular, we further advanced our global footprint with the European portfolio acquisition.
We also delivered solid current-period financial results.
We beat the street by $0.04 with better-than-expected results above and below the NOI line.
We also delivered outsized AFFO per share growth during the quarter.
The quality of our earnings is improving and the growth in cash flow is accelerating.
We raised guidance by $0.10 with an improving outlook for most of our key metrics and solid progress towards our three-year target of 200 basis points of EBITDA margin expansion.
Finally, we further strengthened our balance sheet with proceeds from asset sales and a successful forward equity offering that coincided with our inclusion in the S&P 500 index.
In conclusion, I would like to say thank you to the entire Digital Realty team whose hard work and dedication is directly responsible for this consistent execution against our strategic plan.
Thank you all for joining us and have a great summer.
