Digital Realty Trust Inc (DLR) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to the Digital Realty Third Quarter 2020 Earnings Call. (Operator Instruction]. 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, Andrea. 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 underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website.

Before I turn the call over to Bill, I'd like to hit the tops of the waves on our third quarter results. We built upon the recent momentum in our business, landing a record number of new logos across broad and robust bookings that were well diversified by customer type and geographic region. We delivered solid financial results with core FFO per share of $0.05 ahead of consensus, and we raised our outlook for revenue, EBITDA and core FFO per share for the second time this year. We extended our global platform entering Croatia with the acquisition of Altus IT and securing customer growth in existing markets across EMEA with key land purchases and new builds. Last but not least, we further strengthened the balance sheet, raising over $2 billion of long-term capital and retiring nearly $2 billion of high coupon debt and preferred equity.

With that, I'd like to turn the call over to Bill.

Thanks, John. Good afternoon, and thank you all for joining us. Our formula for long-term value creation is a global, connected, sustainable framework. And despite the pandemic, our third results demonstrate the strength of this framework. Our business is increasingly global, with nearly 60% of third quarter bookings outside North America. And we landed a record 130 new logos from around the world. Bookings were also well diversified by customer type with enterprise co-location and interconnection accounting for nearly half the total. This robust and diverse business mix demonstrates the power of our global platform and further validates our strategic vision of being the only global provider dedicated to the full customer spectrum.

Let's turn to our health and safety measures on Page 3. We remain focused on keeping our employees, customers and partners safe during this pandemic. We remain fully operational across our 284 data centers, and we continue to support our customers' growth by bringing additional capacity online, while expanding our global platform. We've implemented enhanced safety protocols such as requiring masks, social distancing, engaging specialty cleaning services and maintaining rotational 24/7 staff coverage by leaning on local personnel.

As the pandemic continues, we are seeing signs of permanent adjustments that are likely to be long-term tailwinds for our business. More enterprises are embracing a distributed workforce, with a growing work from home component. While a recent Gartner survey of nearly 2,000 CIOs around the world found that accelerating digital innovation and leveraging emerging technologies are key priorities during the pandemic.

Of course, I would be remiss, I did not again extend our gratitude to our employees in critical data center roles who continue to come into work every day at our facilities around the world. They make possible the service and support we provide our customers. Thank you to the terrific on-site Digital Realty team.

Let's turn to our sustainable growth initiatives here on Page 4. In April, we reached a wind energy agreement to supply approximately 30% of our power needs in the Dallas, Texas area with renewable energy. In late August, we further expanded our renewable energy capacity in Texas by sourcing approximately 65 megawatts of solar power. Once the solar project is fully operational by mid-2021, our entire Dallas portfolio will be powered by 70% renewable energy. We completed our first wind-power transaction in 2016, and we have since gone on to contract 240 megawatts of wind and solar energy in Texas. We remain committed to manage our environmental impact, optimizing our use of energy and natural resources, serving a social purpose, and delivering sustainable growth for all stakeholders.

Let's turn to our investment activity on Page 5. We continue to expand our global platform, with a small but highly strategic acquisition in Southeastern Europe, along with land purchases and groundbreakings in existing markets across the continent. In early September, we announced that we had acquired Altus IT, the leading carrier-neutral data center provider in Croatia, expanding our connectivity footprint into the Balkans and Eastern Europe. And establish a gateway to Southeastern Europe through access to one of the most interconnected data centers in the region. This transaction was also a prime example of how seamlessly the classic Interxion and classic Digital Realty teams are working together. In Zurich, we're breaking ground on a new data center, 2 of our 5 biggest deals during the third quarter landed in Zurich. And the expansion of our campus will provide runway for customer growth at the leading cloud and interconnection hub in Switzerland.

We also recently acquired land parcels within 1 kilometer of our highly interconnected campuses in Vienna as well as Madrid. These strategic land holdings will provide additional capacity enabling local and global service providers to seamlessly expand adjacent to their existing deployments. In early July, we announced the opening of the first phase of MRS3, our data center in Marseille. Interxion’s Marseille campus is one of the world's leading digital hubs for intercontinental data traffic with over 150 network service providers. The new facility will offer customers expanded access to the vibrant community in Marseille, including numerous connectivity providers, digital media and cloud segments along with local as well as global enterprises.

Finally, in mid-July, we announced that we acquired the freehold to the land under Interxion’s Hanauer Landstraße campus in Frankfurt. In addition, we are also under contract to acquire the Neckermann site, a separate parcel within a kilometer of Interxion's existing campus that will support the development of up to 180 megawatts of IT capacity. We believe that we are creating significant value by combining the leasehold and freehold positions on one of the most highly connected campuses in Europe, while the adjacent expansion capacity provides runway to support customer growth in a key European metro for years to come.

Let's turn to Page 6 for an update on the Interxion integration. As you've heard me say before, integration is our top priority for 2020, and we continue to make solid progress despite the pandemic. Both teams have risen to the occasion and have come together to continue to serve our customers' needs throughout this crisis. It is great to see this collaboration. Andy will cover our customer wins in more detail. But both sales engines are working well together, and we have begun to realize some of the cross-selling opportunities we envisioned when contemplating this transaction. We remain on track to meet our synergy targets and underwriting budgets. Talent retention is also running ahead of plan at over 95% with no loss of key personnel.

Along those lines, as we announced when we first broke the news of our combination with Interxion 1 year ago today, early next year, David Rubert will be transitioning within Digital Realty from his day-to-day responsibilities as Chief Executive of EMEA and will be moving into a global strategic adviser role. In this capacity, David will be responsible for the development and oversight of our corporate strategy, including the company's effort to organize and execute a program to identify and develop high-value communities of interest across our global platform. David plans to remain on the Board of Directors of our Dutch holding company, and he will continue to play a leadership role on certain of our key global customer accounts, bringing to bear his long-standing relationships and thought leadership in addition to supporting our team on new market and product development as recently demonstrated in Eastern Europe.

Upon David's transition, legacy Digital MD, EMEA, Jeff Tapley, and Legacy Interxion MD, Jan-Pieter Anten, will continue to oversee the company's EMEA business. I would like to thank David for his tremendous contributions and his successful efforts to integrate our businesses. We look forward to benefiting from his strategic insights for years to come.

Let's turn to demand drivers on Page 7. We are fortunate to be operating in a business levered to secular demand drivers. As a leading global data center provider, we have a unique vantage point that enables us to detect secular trends as they emerge. Our customers are solving some of the most complex infrastructure connectivity and workload use cases across network peering, hyperscale, low latency, high-performance computing, big data and artificial intelligence. Over the past several years, we've seen a growing trend of leading multinational enterprises deploying and connecting large private data infrastructure footprints across multiple global sites. We've conducted research, built a global database and devise a method to measure, quantify and forecast the growing intensity of the enterprise data creation life cycle and its gravitational impact on IT infrastructure. We recently published our findings as the Data Gravity Index. A report designed to assist both enterprise and service provider customers as they shift their infrastructure strategies to address challenges presented by data gravity. Our global data center platform is uniquely positioned to help customers address these data gravity challenges. Given the resiliency of the demand drivers underpinning our business, and the relevance of our platform in meeting these needs, we believe we are well positioned to continue to deliver sustainable growth for customers, shareholders and employees whatever the macro environment may hold in store.

With that, I'd like to turn the call over to Andy to take you through our financial results.

Thank you, Bill. Let's pick up here on Page 9. As Bill mentioned in his comments, the Interxion integration is coming along on schedule, and we are seeing the power of the combined organization, with more than 280 data centers in 48 metros across 23 countries on 6 continents. The power of the global platform is on full display for our installed base of 4,000 global customers and growing.

Let's turn to our leasing activity on Page 10. We signed total bookings of $89 million, including a $14 million contribution from interconnection, which along with the $29 million of network and enterprise oriented deals of a megawatt or less accounted for a record contribution of nearly half our total bookings. The weighted average lease term was over 6 years, we landed a record 130 new logos during the third quarter, including 40 sourced by Interxion, again, demonstrating the power of our global platform.

Activity was well balanced across all 3 regions, with the Americas and EMEA, each contributing about 40% of total bookings, while Asia Pacific accounted for nearly 20%. Singapore was the star in Asia Pacific, while Zurich, Frankfurt and Marseille were standouts in EMEA. In the Americas, we again experienced strength in the New York metro area as well as Chicago and Toronto. In Northern Virginia, we've leased more than 90 megawatts over the previous 9 months, we signed just over $2 million GAAP during the third quarter. As our active development pipeline remains 100% pre-leased, while our in-service portfolio remains nearly 94% leased. We do expect to get back 17 megawatts of state of the art capacity in Ashburn at the end of this year. And together with the existing vacancy within our in-service portfolio, this will give us a total of 40 megawatts of available inventory to meet demand and support customer growth for the next several quarters until we're able to bring additional capacity online around the middle of next year. Although we aren't entirely out of the competitive woods just yet, we remain very well positioned to continue to hit above our weight. Given the strength of our global platform and sales force, the large and growing installed customer base seeking growth with adjacency on our connected Ashburn campuses. And finally, our ability to future-proof our customers' growth with our strategic land holdings, providing the longest runway to support their future growth.

In terms of specific wins during the quarter and around the world, in Marseille, we won a significant connectivity deal with PCCW to land the PEACE subsea cable at our MRS2 data center. This is a highly strategic deal as it enables our customers to directly access this 12,000 kilometer high capacity cable that will provide the shortest and most direct subsea data route from North Asia to Europe. In Hong Kong, we are excited to support a Fortune 500 multinational professional services firm with the implementation of a data hub deployment on PlatformDIGITAL. In London, the classic Digital Realty and classic Interxion teams work closely together to add Canonical, a leading U.K.-based software and IT service provider and the publisher of Ubuntu, a leading linux distribution.

Boosteroid, a cloud gaming platform expanded their platform across Western Europe in the third quarter, with a deal that involved 4 metros, Paris, Marseille, Madrid and London. G-Core, a gaming CDN expanded their use of PlatformDIGITAL in 4 locations across North America and Europe for their growing infrastructure demands and new AI platform.

Staying with the gaming theme, in the Bay Area, we helped the Blade Group, a cloud-based gaming company enabled data-intensive gaming. While in Ashburn, Capital Online selected PlatformDIGITAL to support their cloud development platform for gaming, e-commerce, education and big data. Finally, in Brussels, we are helping Ahold Delhaize, a leading global grocery retailer, migrate from their legacy on-prem facility to PlatformDIGITAL for multi-cloud access and flexibility for future expansion.

Turning to our backlog on Page 12. The current backlog of leases signed but not yet commenced stands at $229 million. The step down from the $251 million last quarter reflects record commences of nearly $100 million during the third quarter, offset by the $75 million of combined space and power leases signed. The lag between signings and commencements was a bit longer than our long-term historical average at roughly 6.5 months.

Moving on to renewal leasing activity on Page 13. We signed $160 million of renewals during the third quarter in addition to new leases signed. The weighted average lease term on renewals signed during the third quarter was a little less than 2 years reflecting a mix of activities skewed heavily towards deployments smaller than 1 megawatt. Cash rents on renewals were essentially flat, down just 20 basis points across all categories, and cash rents on renewals above and below 1 megawatt were both essentially unchanged, an encouraging sign for pricing. We retained 78% of expiring leases essentially in line with our long-term trend, but dragged down a bit by a network customer who churned out of powered shell capacity at our downtown Los Angeles interconnection hub. Similar to our strategy, we've successfully executed with recaptured sell space in Chicago. We expect to redevelop this scarce inventory within a highly desirable interconnection hub into significantly higher-yielding co-location capacity.

In terms of third quarter operating performance, overall portfolio occupancy improved 20 basis points driven by fully leased development projects placed in service, primarily in Chicago and Hillsboro. Same capital occupancy was unchanged from the second quarter and same capital cash NOI growth was in line with expectations at negative 1.9%. As a reminder, Interxion and the Westin Building are not included in the 2020 same-store pool but we expect both acquisitions will be accretive to organic growth going forward.

Turning to our economic risk mitigation strategies on Page 14. The U.S. dollar softened over the summer before steadying at those lower levels, providing a bit of an FX tailwind in the third quarter relative to prior year average. Overall, FX represented roughly a 100 basis point tailwind to the year-over-year growth in our reported results from the top to the bottom line. As a reminder, we manage currency risk by issuing locally denominated debt to act as a natural hedge so only our net assets within a given region are exposed to currency risk from an economic perspective.

In terms of vertical concentration, as you can see from the pie chart on the upper right, we are fortunate to be primarily serving customers whose businesses are thriving in the current environment, with limited exposure to sectors most negatively impacted. Rent collections remain in line with our historical average, and requests for rent relief have largely subsided. In addition to managing credit risk and foreign currency exposure, we also mitigate interest rate risk by proactively terming out short-term variable rate debt with longer-term fixed rate financing. Given our strategy of matching the duration of our long-life assets with long-term fixed rate debt, a 100 basis point move in LIBOR would have roughly a 50 basis point impact on full year FFO per share. Our near-term funding and refinancing risk is very well managed and our capital plan is fully funded.

In terms of earnings growth, core FFO per share was down 8% year-over-year, but $0.05 ahead of consensus driven by a beat on the top line as well as lower property taxes and a lower share count due to the late September settlement of the $1 billion forward equity offering, offset by higher-than-expected corporate taxes due to the higher statutory rates in the U.K. As you may have seen from the press release, we are raising guidance for revenue, EBITDA and core FFO per share again this quarter reflecting the third quarter outperformance. We now expect to be at or above the high end of our original ranges for all 3 measures.

In terms of the quarterly run rate, as you can see from the bridge chart on Page 15, we expect to be flat to down in $0.05 in the fourth quarter, primarily due to the higher weighted average share count as the additional shares from the forward equity offering will be outstanding for the entire fourth quarter compared to just 6 days in the third quarter. As you update your earnings models and begin to roll forward to next year, please keep in mind our 2021 results will entail a couple of partial period complications. For starters, we will, of course, report a full year contribution from Interxion next year compared to just 3 quarters this year, which we expect will help drive double-digit revenue growth. On the other hand, the sooner we return to a more normalized operating environment next year, the tougher the comps as current period results are benefiting from the deferral of some overhead and OpEx as well as maintenance CapEx.

Finally, the additional shares from settlement of the forward equity offering and midyear ATM issuance will be outstanding for the full year in 2021 compared to a partial period in 2020. As a result, although we expect to roll out formal guidance early next year, we are currently targeting mid-single-digit growth in both earnings and cash flow per share.

Last, but certainly not least, let's turn to the balance sheet on Page 16. As expected, the third quarter activity on the ATM and settlement of the forward equity offering brought leverage back down in line with our target range. Net debt to adjusted EBITDA stepped down to 5.6x, while fixed charge coverage remains healthy at 4.4x. We also capitalized on favorable conditions in the debt capital markets and executed several proactive liability management trades during the third quarter. In mid-September, we raised $750 million of long 11-year green euro bonds at 1% and $300 million of 2-year floating rate notes at an initial coupon of 0%, achieving all-time low coupons for Digital Realty. We also retired $1.2 billion of bonds due in 2022 and 2023 at a blended coupon of 4.1% as well as $500 million of preferred equity at a blended coupon of 6.1%.

We had $970 million of cash on the balance sheet at September 30, although one of the preferred redemptions and one of the bond redemptions straddled quarter end, and approximately $650 million of that cash was used to fund those redemptions in mid-October. This successful execution against our financing strategy reflects the strength of our global platform, which provides access to the full menu of public as well as private capital, sets us apart from our peers and enables us to prudently fund our growth. As you can see from the chart on Page 16, we've extended our weighted average debt maturity out to 6.5 years and ratcheted our weighted average coupon down to 2.5%. In a little over 70% of our debt is non U.S. dollar denominated, acting as a natural FX hedge for our investments outside the U.S.

Over 90% of our debt is fixed rate to guard against a rising rate environment, and 98% of our debt is unsecured, providing the greatest flexibility for capital recycling. Finally, as you can see from the left side of Page 16, we have a clear runway with virtually no near-term debt maturities and no bar too tall in the out years. Our balance sheet is poised to weather a storm but also positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy.

This concludes our prepared remarks. And now we will be pleased to take your questions. Andrew, would you please begin the Q&A session?

[Operator Instruction] The first question comes from Michael Rollins of Citi.

Just curious, if you could talk a little bit more about pro forma revenue growth in a couple of context. First, if you were to look at the third quarter, what would be the year-over-year constant currency growth by region, whether you're looking at Europe, U.S., Asia, just to get a sense of where each of these businesses are growing as if you owned all of these assets 1 year ago in terms of what you acquired or what you divested. And then secondly, as you look at the guidance or the indications or the aspirations you just described for 2021, can you further unpack with that double-digit revenue growth what would be the organic part of that versus the benefit of the acquisition? And maybe walk through a little bit more detail of the pluses and minuses that are affecting the core FFO per share.

Thanks, Michael. So this is Andy. Let me maybe try to take that in reverse order, and I'll see if I can get to all the details by region. So the -- I think the second part of your question was speaking to what next year's growth looks like and we shared a little bit of preview, although obviously, our official guidance won't come out until early next year. Really, there's no on -- we were speaking to the bottom line, our core FFO per share growth. So there's no apples and oranges benefit because the cost of our Interxion acquisition is kind of baked in the share count and obviously, the debt. So it's not like there's inorganic growth supplementing those numbers. If you kind of deconstruct it, from the top line, I mean, I think you can look at our signings volume.

Probably the last 2 quarters is the best trend, given that those are 2 quarters where we reported Digital plus Interxion together for 100% of the quarter’s in terms of P&L contribution and signings. This quarter is obviously a strong $89 million. The prior quarter was the record $144 million. The 2 of them kind of average out to low 100s, 115 or so. And coincidentally, our revenue in the quarter is now right at $1 billion. So that makes the math easy for what kind of revenue growth would be kind of going forward, call it, in the low teens. You obviously have to net any churn, but I still think you arrive at a high single-digits revenue number at the top line for the aggregate business and that obviously nets down to that mid-single digits core FFO per share growth model.

I think a headwind or 2, to obviously think about is we're having -- there's less spend this year from obvious things, less T&E, delay in maintenance of OpEx, right, that we're going to kind of just critical staffing. And assuming we are all fortunate to be in a better place versus this virus next year, we would assume a lot of those costs, if not all of them, in some capacity, return.

Breaking that -- going back to your first part of the question and looking at the revenue contributions. I don't -- I apologize, I don't have a segment-by-segment P&L in front of me. But I think I can get to the crux of it, if we just look at our development schedule, which is just under 200 megawatts of capacity under construction, 56% pre-leased. Those returns, it creeped up a little bit in our favor this quarter relative to last quarter. And you can see relative to our existing mix of business, a disproportionate share of our new capacity coming online is outside the U.S. relative to our installed base. And what's not on that schedule, given it's an unconsolidated joint venture, is Latin America. And I think that would further amplify that math based on the activity we're doing with Ascenty. So obviously, our growth relative to the installed base is much larger in EMEA, in Latin America and Asia Pacific given the amount of new capacity that we signed or we're bringing online in those markets relative to those bases relative and makes sense, obviously, the North American market is by far the most mature and is our largest portion of the pie.

Your next question comes from Jon Atkin of RBC.

I wanted to ask kind of a big picture question about energy and sustainability. And then a question about lease expirations. So I wondered if you could maybe dive down a little bit into future initiatives around sustainability and kind of future milestones that you're working towards? And then the -- in the supplemental, it looks like the lease expirations next year increase, and a lot of that is in kind of the sub-1 megawatt range, although it does tend to -- there is a bump up in expirations in the annual rent across all categories. And I wondered, as we think about 2021, how do we kind of frame that from the standpoint of lease roll downs or increases in rent or churn or whatnot?

Bill, I don't know if you want to take the first part, and I can take the second part on expirations?

Yes. Yes, sure. Thanks, Jonathan. Okay. Here at Digital, we're committed to going well above and beyond minimum renewable standards. We think that the consistent renewable sourcing efforts allow us to decouple the growth of our portfolio from the growth in our carbon footprint. Our approach prioritizes cost competitive, net new renewable energy sourced within the same grid regions where our data centers are located. We work with electric utilities to support them in bringing new renewables on the grid, and our customers strongly prefer local net new renewals, and our approach reflects that. We do not use unbundled commodity renewable energy credits, these are called RECs to meet our long-term objectives. We prize what's called additionality in our approach. That's a concept where more renewables are brought online because of our actions. And also when we sign on to a project early on in its development cycle, it's important to recognize that as an investment-grade counterparty, this enables that project to both be financed and built.

Andy, you want to handle the renewals question?

Yes. Thanks, Bill. So Jon, obviously, we're still in 2021 budget season, but I don't -- I do look at kind of what's ahead in 2021 in terms of expirations as being favorable in terms of volume, mix, mark-to-market relative to our history, which I've shared for some time in some of our investor calls that you've obviously hosted. If you kind of go to our exploration table in our supp, I look at them really 2 discrete buckets. The first one being, call it that, 0 to 1 megawatt category with about 17% of our expirations in 2021, which is concentrated in our most highly connected, highest pricing power, sticky, albeit shorter-term co-location contract bucket. Pro forma for our combination, about half of that, contracts coming due in that is from legacy Interxion in the Westin portfolio. So we do expect to continue to see very strong pricing power there. And the other half is really from our legacy North America co-lo portfolio. Overall, the markets are, call it, major metros, the Londons, the New York cities, Frankfurt, San Francisco, Paris in terms of the top markets coming due in that bucket.

If you do look at what I think maybe was the emphasis of your question was kind of looking at the greater than a megawatt bucket. That category is a little bit less than 8% as you can see on the supp and it has stepped down about 300 basis points from, I think, the peak was the third quarter of '18, about -- just over 11%. Other than Ashburn in that category of expirations north of 1 megawatt. No market other than Ashburn is greater than 1%, so it's pretty diverse. And if -- when you -- I know it's a little bit of tough comparison because we broaden our definition or changed our definition slightly when we changed our disclosures a couple of quarters ago. But if you look at the rates per kilowatts, we look at the rates on expiring contracts having come down, call it, $15 or so dollars per kilowatt in that time period from that prior peak. So setting us up for a more favorable comparison.

And then last but not least, as I highlighted in the prepared remarks, that really the most concentrated expiration that is just under 70 megawatts fortunately, it is in the Ashburn market, obviously, our largest market, and it probably couldn't come at a better time, given how well our team has done in leasing that market. 90 megawatts over the last 9 months, really, kudos to the broader global organization on that.

So I know -- I'm certainly aware of customers right now that are anxiously awaiting for that adjacent hall in their buildings in one of our connected campus to become available. So I think we'll be able to weather our way through that. After that, concentration of the next largest, call it, chunk would be less than 4.5 megawatts from any single customer and half of that expiration’s in Santa Clara, which is a really tight market for us. So hopefully, that provides a little bit more color and a little bit more about the kind of conviction as what we see ahead in the expirations.

Our next question comes from Jordan Sadler of KeyBanc Capital Markets.

So I wanted to start with sort of capital, you would be hard not to notice the move in the stock year-to-date. And the extraordinarily low-cost of debt, which you guys have availed yourselves of. Digital has historically been pretty active on the M&A and investment front. So maybe you could tell us what you're seeing in the market today and the opportunity set for inorganic growth as you see it?

Maybe I hand that off to Greg to speak to, call it, the broader M&A landscape.

Okay. Sorry about that. Look, I think the current market we're seeing today, which I don't think will surprise you, you're seeing demand for the data center assets is really strong. This was previously really a niche asset class that I would say is going mainstream or has gone mainstream. We're seeing more core-light capital coming to the sector given the strong supply and demand fundamentals and how well the sectors performed during the pandemic, and both of those things, I think, combined with the creditworthiness of the customer base, all of those underlying elements drive for more core-light capital. So look, we think you're going to continue to see a focus on data centers and asset class. This capital is capital that was previously invested in areas like offices or strip malls, and they started to migrate towards our space.

So I would say the environment is increasingly strong right now. So I mean, again, I think we'll continue to see strong demand for the sector for quite some time, Jordan, on the M&A front. I think we've seen some of these private portfolios trade and they continue to trade at decent levels. For example, I mean, you saw the asset that we sold last quarter in the Netherlands, we sold that. It was a non-core asset, and we saw it, we sold it for roughly a 6.7% cap rate. So look, I think when you look at the overall environment right now, I would say there's a lot of interest and a lot of demand, which should bode well for the sector.

And just maybe as a follow-up along the same lines. In terms of, let's say, the next dollar of investment, where would you be focused from an M&A front? Is it increased market share in a mature market like North America? Or is it adding new market?

Look, I think there's -- I think when you look at our global strategy, I think it's different for each market, Jordan. I think, look, clearly, in Asia right now, the way we've been growing is organic growth in our existing markets through land acquisition and in development of near-term in our existing land bank, right? I mean we've rolled out products across 7 of the APAC markets.

For example, we created the first network neutral data center in South Korea. We build out a campus of 100-plus megs in Tokyo. I think it was 5 or 10 megs in Osaka. We powered on a 50-megawatt building in Singapore, which is our third asset there. I think you also saw us announce our second site in Hong Kong. So clearly, when we look at Asia right now, it's a harder market to grow in, right, because it's much more fragmented, but we like it. I think in terms of Europe and EMEA, I think you've got to look at -- the first thing you have to look at is really our under construction pipeline which we had at legacy Digital as well as the legacy Interxion, but you look at markets like Frankfurt, Amsterdam, Zurich, Marseille, Stockholm. We have assets in each of those markets under construction and are really being driven by customer demand. As well as in those -- in that same Europe EMEA markets, organic growth, again, in existing markets through the land acquisition or development of our existing land pipeline, things -- places like Madrid, Frankfurt, Vienna and Paris. Clearly, in that market, too, as you saw in this press release, we'll have select dispositions and capital recycling.

And you'll see some redevelopment, right, in our Hanauer campus that Bill mentioned, one of the beauties of that transaction as we get -- we're going to have a redevelopment opportunity for several buildings that we didn't previously own. I think when you keep going back then across the globe, and you look at South America, Andy mentioned, again, it's really been organic growth for land acquisitions and development in South America. Again, like all markets, that's really a customer-driven approach. So you talked about incremental dollars. A lot of times where we go is dictated on where our customers want to be, right? And that was -- there are no 2 places that are better examples of that than both Chile and Mexico. Obviously, Brazil was the same. And then when you come back to the U.S., which is a more developed market, again, you'll see development in select markets. But I think you'll see -- continue to see acquisition of highly connected assets with what we would call established communities of interest in buildings such as the Westin. And again, there, just like in Europe, you'll see select capital recycling. So when I think -- when you talk about incremental dollars, that's just a quick snapshot of how we're thinking about things across the globe.

Our next question is from Matt Niknam of Deutsche Bank.

So my question is on hyperscale. So one of your peers this morning was talking about getting more aggressive, lowering the yields they're targeting for hyperscale deals down to the 8% to 10% range. So I'm wondering if you can talk a little bit about the pricing and competitive backdrop you're seeing in the hyperscale arena and whether things are getting more competitive relative to what they've been like in the past. And then just a quick follow-up on enterprise. You talked about record new logo growth and heightened deal velocity at a time when a lot of your peers are actually talking about more growth coming from the embedded base. So I'm just wondering what's enabling you to win new share? Where are these new customers coming from?

Thanks, Matt. Maybe I'll start off on hyperscale, and I'll toss it to Corey to speak to what I really thought was a really fantastic quarter when it came to enterprise, in particular. The -- I mean, I think the hyperscale arena is something that we've excelled at for several quarters on end here. And I think I got a hunch, the competitor that you're referring to and I think I know it's a new leadership regime, but I would say that's -- they've been a pretty fierce competitor for some time and aggressive. I've not seen a change in the posture from our day-to-day activities. I think it goes back to Digital, our platform has been able to win more than its fair share by coming to the table with many ways to support these global hyperscalers whether it is being across numerous countries and markets where they want us to grow, whether it's entering new markets, as Greg mentioned, side-by-side with them, where there is no truly established player that delivers to our capabilities, whether it is owning the adjacent land holdings, it really allows us to future-proof their growth.

And other things like making sure we are delivering the health and safety standards they require and making sure we're operating these facilities to the level that they require as if it was their own building. And they have high expectations, and I think Digital strives to exceed across the board. And I think you see that paying dividends in our results this last quarter, as I mentioned a second ago, our returns on our development, which are obviously weighted very much to our success within the hyperscale arena actually went up across a couple of markets. And I think our success in the Ashburn market over the last few quarters, which is a hotly contested market, we've been able that to be 100% pre-leased and rather full speaks to our success within that category for sure. So I think that's kind of capsulates that, I don't think there's been a real dynamic shift in the competitive landscape. I would even say the customers continue to mature and want to thin down their buying groups with more global partners, trusted infrastructure partners like the Digital. But Corey, maybe you can pick it up and really speak to what we've been doing on the enterprise front.

Yes. Thanks, Matt, for the question, and Andy, for transitioning it to me. On the enterprise front, Matt, I think you asked a little bit about where the new logos are coming from and just where the enterprise wins are coming from. And I'd tell you, Andy referenced earlier, a record number of new logos. And then we're just excited about the quality of the new logos and what the growth and the future that they can drive as you think through like some of the notable wins we talked about, we're a global markets company. That was one of the world's largest financial derivative exchanges we’ve signed and commenced during the quarter. We also had a mobile marketing platform that fuels many of the popular mobile games that are with studio and marketing technology and a major participant in the investment industry. So we just had a really broad base of wins in the enterprise lately. As you take -- you think through it, we also kind of keep track of service exchange ports. So that went up for us. And then interesting, this quarter, more than 50% of our new bookings this quarter, as Andy mentioned, were from deals less than 1 megawatt, which is generally a sign that the enterprises are coming to you.

And then if you think longer term, Matt, about where we're going, there's a lot of studies out there that show 80%, 85% of the enterprise are thinking about going hybrid cloud strategy. And so as you think about that, migrating to hybrid clouds implies that they're going to put some of it in the public cloud, but a majority of it in their kind of co-location facilities like us. So we don't see -- so we see that as another advantage and something that's going to continue to drive more enterprise growth for us. And then there's probably a little bit of COVID ex -- of expediting kind of the transition to a distributor architecture for the enterprises, which, again, we're really well-positioned to take advantage of. So above and beyond that, we're doing a lot with our go-to-market that we're changing that we did in the last couple of years. That's had huge success for us. And then the channel that we've built here in the last couple of years have been amazing for us too. We're getting now more than 20% of our business out of the channel. So feel like we're really just kind of hitting on all cylinders when it comes to the enterprise right now, and I feel really happy with what we're doing and where we're progressing the business.

I hope that helps, Matt.

Our next question comes from Jon Petersen of Jefferies.

Great. So on Europe, I'm wondering if you could break out the -- how much of the leasing was legacy Interxion versus legacy Digital. So we can get an idea of like apples-to-apples versus prior years, if that's possible. I know it gets more difficult every quarter we get away from the merger. And then also, I didn't go back to look at all your supplementals, but I think this is only the second time that wholesale leasing in Europe was greater than North America. Just curious how long you think this trend of kind of strong wholesale/hyperscale demand in Europe will last and when we start to see -- if we start to see a shift back to Americas in the coming quarters.

Thanks, Jon. So to answer both of those questions. The lion's share of the activity landed within legacy Interxion sites within EMEA. We did have a very strong contribution from the legacy Digital co-lo sites. But overall, GAAP wise, it was, call it, less than 10% of the EMEA contribution. So -- and which should be expected, obviously, the legacy footprints are weighted -- their legacy footprint in EMEA was a fair bit larger than our legacy footprint in EMEA.

And then your question on North America versus EMEA, I mean, going -- I think this kind of goes back to the first question Michael Rollins had asked about. We're certainly seeing outsized growth relative to our installed base in these -- our non-U.S. markets. Although, I do at the same time, you have to put it into context, we're coming off a quarter in North America where we absorbed a tremendous amount of capacity in North America and including Ashburn. So I'm not sure I'd point in the direction that EMEA overall is going to be larger, especially in the plus megawatt category for some extended duration. But we're definitely pleased with the success of our combined EMEA platform. And I think from what I'm seeing, we're not done for the year in that category yet as well. I know another way we're differentiating ourselves with some of these hyperscalers is kind of continue to support them in more and more EMEA markets. Not just the traditional FLAP markets. So leaving the FLAPs has been a great place to where we've had success in EMEA as well.

Our next question comes from Sami Badri of Crédit Suisse.

I just wanted to touch up a little bit on Slide #13 regarding the re-leasing spreads and this clearly shows a material improvement versus the last couple of quarters. And I just wanted to round out to see if this is essentially your cleared runway out of all the re-leasing spreads, at least the majority of the vintages that you guys were trying to process through the last couple of quarters from prior acquisitions. Is it safe to say now that this is kind of the new range in this plus 1%, plus or minus 1% range on re-leasing spreads for rental changes on a cash basis?

Thanks, Sami. So -- and congratulations here are in order and some of the higher rankings. So good work there and glad to see that got recognized. But to answer your question, obviously, that those data points are pointing in our favor a bit in terms of our cash mark to markets. You saw that in the quarter. Basically flat below 20 basis point negative in the less than megawatt category. But basically flat across both and flat overall of what we put up in terms of renewals in the third quarter. We also improved our characterization of our mark-to-markets in our guidance from the beginning of the year, we were down low single digits in terms of our expectations for our cash mark-to-market. And now we've -- in the words of John Stewart are slightly negative. So moving in the right direction for sure there.

I would put an asterisk or caveat just to be more than transparent that you can see in the document here. The weightings, this particular quarter were overall much more in the, call it, most highly-connected, network-oriented megawatt or less type category. That obviously blends in our favor those are locations, both legacy Digital and legacy Interxion with some of our strongest pricing power and the overall sample set in the greater the megawatt category was certainly on the smaller side.

So I don't think we're ready to put the victory flag up behind us on this topic. But I do -- I am taking some conviction that we're moving in a better direction here, which is a product in some regards of not only the market fundamentals, but also the recharacterization or complexion of our portfolio that is much more diversified across both U.S. and non-U.S. markets, more connected and highly-connected and network-oriented destinations. And so I do think those things, in addition to the market fundamentals are helping us on the cash mark-to-markets.

Got it. Just one other follow-up regarding channel that came up earlier. I think if -- someone said that 20% of bookings are coming from the channel. And I just wanted to check on one additional detail there. Has this percentage of contribution from the channel gone up with Interxion? Or was it always essentially in the 20% range every quarter? And with Interxion under the hood, does that mean that this mix could potentially increase over time?

Corey, do you want to pick up on that? And I can fill in with some details as well.

Yes. So Sam, thanks for the question. What I would tell you is that our percentage of our sales from a legacy Digital perspective has continued to grow, well over 20%. With the Interxion, that might moderate it a little bit. But I think it gives, to your point, a huge opportunity for us as we build out the channel globally. And we continue to take the same learnings we've had across North America throughout the globe. So I think there's a huge opportunity for us. I think that was your question, sorry, if I didn't answer it.

Our next question comes from Brendan Lynch of Barclays.

I've seen a number of press releases recently where you're referencing your Data Gravity Index. I'm wondering how this has changed your communication with clients. Is it new to them? Or is it something that they already understand? And does at least any different type of deployment than the client otherwise would have?

Chris, why don't you share a little bit about what we're doing around Data Gravity and what that means to our customers. And obviously, Corey, please chime in as well.

No absolutely. Thanks, Brendan, for the question. No, it's a very unique formula that's been evolving over 10 years. And what it really does is it identifies key challenges facing enterprises today around the power requirements and the growth of data. So that we can design solutions to alleviate it. And so I think it's something that's unique to -- Digital has unique assets to really solve for this kind of ever-evolving problem that's being generated around the massive amount of data being created. And so what's unique in the fact that Digital can allow customers to be in proximity to these data oceans that already exist within Digital Realty. And so they have the efficiencies or proximities to those data oceans and then we also provide, most recently, we just did a press release with PathAI, where they can now be placed in a space where they can do analytics against that. And so the artificial intelligence trend that's happening in the industry is another underpinning element of what the Data Gravity Index represents is how customers can get in proximity to existing data and then also do analytics through AI with our unique asset class and product portfolio.

And so it's a bit of an educational basis that we really just want customers to be aware of the buyers’ dynamic and helps them solve for the burgeoning underpinning of data and the amount of data that's being grown and I think there's some great statistics out there where enterprises are going to be creating more and more of their own data in a very distributed manner. And so that's where you see us being able to solve for, not only in our traditional types of offering for these data gravity problems and the burgeoning sets of data, but also some of the emerging edge workloads as well and being able to tie all that together in our comprehensive set of product offerings and interconnection capabilities. That's really what's underpinning that data gravity kind of formula and just educating our customers of that. And I don't know if, Corey, if you had anything else you wanted to touch upon?

No, Chris, you did a great job on framing up what it is. What I would also add to that maybe is it really helps us have a point of view and some perspective for customers as they think through the changing architecture that they're going to need to go through to and then you just go into a much more distributed world. And so you're going to have to start thinking about how you handle data not just interconnection, right? And the data that is going to matter to all of us. It's what really drives all of our businesses. So if you got some customers that are curious about it, I've got a whole bunch of people and team members here that are more than happy to go get engaged with you to talk about how you can take advantage of it.

Our next question comes from Colby Synesael of Cowen.

One is, I just wanted to if you can get an update on the European asset sale that you guys have talked about from a timing and size perspective, I've seen some reports of like that, that might be moving forward. And then secondly, I appreciate the color you gave on 2021 core FFO per share growth of mid-single digits. I was wondering if you can just give us a little bit more color in terms of what is assumed in there as it relates to equity needs, leverage, CapEx, those types of things that obviously have a pretty big impact as well.

Greg, why don't you start with where we are on dispositions, our philosophy there, and then I'll pick up in on the second question?

Well, look, I'm not sure we've ever talked about a specific -- we had -- we sold our one asset here in Europe here, as we mentioned in the quarter, in the Netherlands, we thought was attractive cap rate for the asset. But look, I think when we -- when you think about our philosophy or approach when it comes the portfolio optimization, I mean, look, we've talked that we remain focused on capital recycling and portfolio optimization. As I mentioned earlier, we think it's a strong market right now to sell assets. And once we sell those assets out of what, for us, again, they're still good assets. There's not just core to Digital. Our ability to then turn around and recycle those proceeds and deploy capital into other assets that further align with our strategy. Again, we want to do smart deals that maximize shareholder value, and that's where we're focused. So look, I think, look, over time, the guidance we gave, I guess it’s been -- it wasn’t official guidance, but when we talked to the market, I guess, it's been close to 2 years ago, we said a few billion over a few years. We're about halfway through that now. And look, we've been pleased with the results so far. But again, the good news is we do that -- we don't have to do this. We only do this when we think we're going to get fair pricing and it makes strategic sense for us. Luckily, Andy and John and the team have the balance sheet in good shape. So that we're never forced to have to do asset sales, but we do them, again, when it's a fair price and make strategic sense to Digital.

And can I just ask one quick follow-up to that, which is your own valuation has gone up since the last asset sale you did with Maple Tree. And I'm just wondering if that factors into your decision-making when you think about the accretion dilution aspect to these potential sales and the cap rates you can get?

It does. 100%. I mean, we look at -- we look and see where we're trading. A lot of times for these assets, we'll run marketed processes, so we get a true market check. But yes, it definitely factors into our thinking where our stock is trading and what our redeployment strategy will be. Yes, you can -- you best believe it factors into our thought and approach.

And then, Colby, just real quick on your second question. Obviously, we're not pulling forward our call with our guidance for next year, call it, 180 days or whatever it is. But I think I think the point that probably most relevant to the heart of your question was funding sources and thoughts. Greg touched on it a little bit, but I think I would kind of encapsulate it in the following snapshot. Obviously, we're -- stand today at our targeted leverage levels, and that's with a substantial backlog of non income-producing assets that are going to be coming online and producing EBITDA here shortly. To kind of grow our EBITDA without much capital requirements to finish those projects. Two, as you saw, we've got about a little north -- about a little over $300 million of cash sitting on the balance sheet, which is just the net of the capital raise relative to the data preferred redeemed. So there's kind of cash sitting there, not earning anything as we speak. But obviously, we'll go towards our funding sources for the next 12-plus months. We all -- we have redeemed about $500 million of perpetual preferred in the last 2 months. So we do have perpetual preferred capacity in those coupons we've been quoted in -- or close to 4%. Greg touched on potential dispositions. In the, call it, if we get to the high end of our guidance, that's called another $500-ish million of size. So also -- those are unlevered, also contributing equity sources. And then longer term, I think we're going back to that question you just had raised of always continuing to expand our capital partners with sources of private capital where we can put in fully value maximized, fully leased, long-term assets and retain management control. And we have also not been shy of prudently using the ATM on the margins here. So I think we've got a lot of arrows in our quiver here in terms of capital sources to fund some pretty attractive opportunities we see in the front view mirror here. Thanks, Colby.

This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Bill Stein, for his closing remarks. Bill, please go ahead.

Thank you, Andrea. I'd like to wrap our call today by recapping our highlights for the third quarter, as outlined here on the last page of our presentation. First, we further strengthened our connections with our customers. Landing a record number of new logos in the quarter with a book of new business remarkably well balanced across customer type and geographic region. We also delivered solid current period financial results, beating consensus and raising guidance for the second time this year.

We further extended our global platform providing customers a gateway into Southeastern Europe and our runway for growth across the continent with strategic land acquisitions and new development starts. Last but not least, we further strengthened our balance sheet with exceptional execution on $2.5 billion of long-term capital raises, and we used the proceeds to retire $2 billion of high coupon debt and preferred equity.

I'd like to conclude today by saying thank you to the entire Digital Realty family. And particularly our frontline team members in critical data center facility roles who have kept the digital world turning in the midst of a global pandemic. I hope all of you stay safe and healthy and we hope to see many of you in person again soon. Thank you.

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