Thank you, operator. Welcome to Digital Realty’s third-quarter 2024 earnings call. Today, I’m joined by our president and CEO, Andy Power; CFO, Matt Mercier; chief investment officer, Greg Wright; chief technology officer, Chris Sharp; and chief revenue officer, Colin McLean. They will also participate in the Q&A session.

Management will share forward-looking statements that involve risks and uncertainties. For more details on these risks, please refer to our 10-K and SEC filings. Non-GAAP financial information will also be discussed.

Stellar Leasing Achievements in Q3

Digital Realty has set an impressive new benchmark for itself this quarter. New leasing volume reached $521 million, smashing previous records and expectations. In fact, the leasing activity in Q3 surpassed the total from all of 2023, bringing our backlog of signed but not yet commenced leases to a remarkable $860 million.

This spike in activity was driven primarily by leases of over 1 megawatt, though smaller leases also saw record bookings. As a result of the strong fundamentals, we observed improved pricing for data center capacity, evident with record rates on new leases and average 4% escalators on most new agreements. Additionally, cash renewal spreads saw a record increase of 15% for the quarter. Our development pipeline now stands at 644 megawatts, a nearly 50% increase from the last quarter, with a strong 74% pre-leased status and a 12% average expected yield.

Now, I’d like to pass the call to our president and CEO, Andy Power.

Andrew P. Power — President and Chief Executive Officer

Thanks, Jordan, and thank you everyone for joining us. This quarter has indeed set records across various metrics. Our results reflect strong demand for data center capacity, particularly in larger capacities that cater to growth in cloud services and digital transformation.

We have a thriving global presence across six continents, with a land bank capable of supporting over 3 gigawatts of added development. Our investment-grade balance sheet and diverse capital partners position us well to meet the increasing demands from leading technology firms.

In detail, we signed $521 million in new leases—more than double our prior record. The North American market was notably robust, with a 75% increase in new leasing compared to last quarter, alongside a 30% increase in pricing. The major lease contributions came from our hyperscale locations in Manassas, Ashburn, and Chicago.

It’s also essential to highlight our success in the 0-1 megawatt interconnection segment, which saw over $66 million in new bookings. We set a record in this category, showcasing strong demand and validating our product strategy. Additionally, we welcomed a record 149 new clients this quarter.

Through our platform, PlatformDIGITAL, we’ve simplified global data center management for our clients. Our export activity this Q3 surpassed last year’s figures by more than 50%, indicating strong international growth. Presently, with a backlog valued at $859 million in leases commencing within the next two years, we are well-positioned to meet future demands.

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Digital Realty Reports Strong Growth and Strategic Developments in Q3

Digital Realty continues to see growth in both revenue and operations, aligning with increasing customer demands. In the third quarter, the company made significant moves to scale its development pipeline, increasing live construction capacity by nearly 50% to 644 megawatts. Additionally, it holds 3 gigawatts of buildable capacity across land and properties in shell condition.

Last quarter, Digital Realty enhanced its European presence by acquiring a well-connected enterprise data center campus in Slough. They also improved their financial stability through favorable debt issuance and ATM offerings. Matt will provide further insights on these strategic initiatives shortly. Various hyperscale companies are currently taking extraordinary measures to secure power for their growing computing needs, such as plans to reactivate 3-Mile Island, partnerships to create small modular reactors with utilities, and agreements to purchase yet-to-be-built nuclear energy from multiple SMRs. These strategies reflect a robust long-term demand for data center capacity and underline the importance of securing power sources now, as many new power plants will take years to complete. However, power acquisition is just one layer of the broader data center infrastructure landscape.

Digital Realty’s expertise in supply chain management, construction, and operations becomes critical for clients navigating the intricacies of data center solutions. While larger deals often take the spotlight, many customers are starting to appreciate the value Digital Realty adds to private cloud and hybrid IT environments globally. This last quarter highlighted several new contracts, including major partnerships:

A Global 2000 telecom provider collaborated with a major client to utilize PlatformDIGITAL for a tailored cloud solution.
A leading healthcare organization, a new client, opted for our services to modernize its infrastructure while ensuring compliance with personal health data regulations.
An international financial institution, crucial for global finance, chose PlatformDIGITAL for secure cloud access.
A prominent technology company expanded its footprint using PlatformDIGITAL to enhance its autonomous driving initiatives.
A major Japanese electronics manufacturer joined our platform through a partner to upgrade their tech capabilities.
A global cloud optimization provider is ramping up capacity using PlatformDIGITAL across multiple regions.

Shifting gears, let’s discuss our environment, social, and governance (ESG) initiatives. In the third quarter, Digital Realty remained a leader in green IT capacity, adding 178 megawatts of certified capacity in the last year. Our Zurich data centers achieved a notable milestone by receiving the first Swiss Data Center Efficiency Association Gold Plus certification. Achievements in ESG have not gone unnoticed; the company received accolades such as BroadGroup’s 2024 AI Data Center of the Year award and Frost & Sullivan’s 2024 Japan Data Center Services Company of the Year award for our joint venture, MC Digital Realty.

In the realm of green finance, Digital Realty issued EUR 850 million in green bonds this quarter, reinforcing our commitment to linking funding to sustainable projects. A sustainability-focused component remains a key feature of our new credit facility, showcasing our dedication to minimizing environmental impact while pursuing sustainable growth. Now, I’ll hand the conversation over to our CFO, Matt Mercier.

Matt Mercier — Chief Financial Officer

Thank you, Andy. I will dive into our third quarter performance now. We signed $521 million in new leases, with $450 million in the greater than 1 megawatt category, mainly originating from the Americas. Additionally, we secured $50 million in 0-1 megawatt leases and $16 million from interconnection agreements.

These results set new records for Digital Realty. Importantly, over 75% of the dollar value of these leases contained annual rent increases of 4% or more, enhancing our long-term revenue outlook associated with hyperscale leases. Our backlog increased by over 60% sequentially, reaching $859 million at the end of September, driven by robust leasing activity, which dramatically surpassed the record $180 million in lease commencements this quarter. This backlog now represents 20% of our annualized data center revenues, and we expect more than 85% of these leases to initiate by the end of 2026.

Looking forward, $100 million of our backlog is set to commence by year-end 2023, another $350 million is scheduled for 2024, and over $300 million is lined up for 2026, positioning us for sustained growth. This quarter, we also recorded $258 million in lease renewals with a strong 15.2% increase on a cash basis, pushing our year-to-date cash renewal spreads to 10.5%. A noteworthy package deal advanced a large renewal ahead of schedule, contributing to this strong performance. Excluding that deal, overall renewal spreads remained healthy at 5.8%, aligning with our guidance of 5% to 7% for 2024.

While large package deals can reflect current market trends, they also introduce variability. Breaking down the renewals, cash renewal spreads in the 0-1 megawatt segment were 4.5% higher in the third quarter, while the greater than 1 megawatt segment saw an over 30% rise. Even when excluding the larger package, the greater than 1 megawatt segment’s renewals were still robust at 8.6%. We maintained a low churn rate of 1.5% for the quarter.

On the earnings front, we reported a third-quarter core FFO of $1.67 per share, reflecting continued revenue and adjusted EBITDA growth. Data center revenue grew 7.5% year-over-year, driven by improved renewal spreads, rent escalations, and the impact of 2023 lease commencements, offsetting the effects of $2.5 billion in capital recycling initiated earlier this year. Adjusted EBITDA increased 11% year on year, primarily due to nearly 200 basis points of improvement in our performance metrics.

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Digital Realty Reports Strong Q3 Financial Results and Growth in Data Center Development

Key Financial Metrics Show Positive Trends Amid Cost Pressures

Digital Realty showcased a solid performance in the third quarter, driven by higher revenues from data centers and interconnections, despite facing challenges related to increased operating costs. Same capital NOI saw a modest growth of 0.8% year over year, primarily supported by a 2.5% increase in data center revenue. However, these gains were partially offset by rising property operating costs and a roughly 200 basis points addition to bad debt reserves this quarter. For the year to date, same-capital cash NOI has increased by 2.6%, although it remains negatively affected by about 200 basis points from power margin headwinds due to soaring utility prices across EMEA in 2023.

Investment Activities Strengthen Development Pipeline

In the third quarter, Digital Realty invested $651 million in consolidated development projects, amounting to a gross spend of $855 million at a 100% share. The demand for data center capacity led to a doubling of ongoing projects in the Americas, alongside an expansion of initiatives in EMEA, resulting in nearly a 50% increase in the overall development pipeline. At the end of the quarter, the company had 644 megawatts actively under construction.

Specifically, the quarter saw the delivery of 36 megawatts of new capacity. Meanwhile, the pipeline saw the addition of another 244 megawatts of new projects at 100% share. Presently, 74% of the total pipeline is pre-leased, an increase from 66% at the close of Q2, with an average expected yield of 12%. Notably, nearly all development activity in the Americas is pre-leased, anticipating a stabilized yield of 13.6%. Additional development projects are underway in both EMEA and APAC, with yields projected to exceed 10%.

Strong Financial Position and Guidance Updates

Year-to-date, Digital Realty has allocated $2.4 billion to development capex at a 100% share, complemented by nearly $900 million in partner contributions, ensuring alignment with their full-year spending goals. The company’s balance sheet improved in Q3, with more than $800 million raised through equity on the at-the-market (ATM) program. On the debt front, Digital Realty repaid $250 million in gilts in July and issued an €850 million green bond in September.

Moreover, the company expanded its credit facilities to $4.5 billion in September, ending the third quarter with nearly $5 billion in total liquidity. The net debt-to-EBITDA ratio stood at 5.4 times, supported by a weighted average debt maturity exceeding four years and an average interest rate of 2.8%. Approximately 85% of the debt is non-U.S. dollar denominated, highlighting the global growth of their platform and the effectiveness of their FX hedging strategy. Additionally, 96% of the debt remains unsecured, providing extensive flexibility for capital reuse.

Outlook for 2024 and Beyond

Digital Realty has revised its core FFO guidance for 2024 to a range of $6.65 to $6.75 per share, raising the lower end by $0.05 while keeping the upper range intact. This adjustment reflects the strength observed in leasing and strong renewal pricing, slightly offset by customer bankruptcies in the latter half of this year. The company is also adjusting total revenue guidance, indicating a dip in utility expense reimbursements and an increase in adjusted EBITDA due to better-than-anticipated leasing volumes and pricing.

The full-year cash renewal rate has been increased to a new range of 8% to 10%, compared to the prior expectation of 5% to 7%. The same-store guidance has been tightened to between 2.75% and 3.25%. As for investment plans for 2024, the range for net share development spend has been narrowed to $2.2 billion to $2.4 billion, with recurring maintenance capex ranges remaining unchanged.

As we look toward the fourth quarter, core FFO per share is expected to rise, supported by robust leasing momentum. Importantly, the long-term outlook for Digital Realty appears promising, with growth anticipated to accelerate from 2024 levels, fueled by a favorable environment for data centers and a strong backlog. This report concludes the prepared remarks, and we are now ready for your questions. Operator, please initiate the Q&A session.

Questions & Answers:

Operator

[Operator instructions]. Our first question is from Michael Rollins with Citi. Please go ahead.

Michael Rollins — Analyst

Thank you, team. Good afternoon. It was noted previously that we may see another record by year’s end. This surpasses that, so congratulations to all.

Could you elaborate on how much current demand might overshadow Digital Realty’s inherent opportunities? Regarding the capacity pipeline, how much of it is power-ready for the market? Thank you.

Andrew P. Power — President and Chief Executive Officer

Thank you, Mike. I appreciate your questions. In a quarter of this magnitude, even a couple of significant deals that might have slipped would significantly impact our fourth quarter perspective. While some pull forward may exist, we have substantial capacity still available.

Specifically, some of our top deals in high-demand markets, like Manassas, Ashburn, and Chicago, have yet to activate their capacity completely. Meanwhile, we have over 3 gigawatts of power-ready capacity poised for activation in diverse locations such as Dallas and Frankfurt, among others.

Moreover, we have recently acquired adjacent land near our Richardson campus in Dallas, which is expected to add 80 megawatts of capacity. Thus, I would not categorize this as a major pull forward; rather, it seems to us that demand is being understandably restrained by multiple factors.

Operator

The next question is from Jon Petersen with Jefferies. Please go ahead.

Jon Petersen — Analyst

Thanks, impressive results this quarter. Good job, team.

It appears the large leases may be linked to AI and advanced GPU technology. Can you provide insights on the necessary design changes to meet these power needs? Also, while rental rates seem high, did construction costs also increase for this quarter’s leases?

Andrew P. Power — President and Chief Executive Officer

Digital Realty Reports Exceptional Growth Driven by AI Demand

Andrew P. Power — President and Chief Executive Officer

Thanks, Jon. This impressive quarter reflects the hard work of our global leadership team at Digital Realty. Moving forward into the second half, I’ll pass it over to Chris and Colin to discuss the contributions of AI and our ongoing projects. We have noticed some inflationary trends in construction costs, leading to increased power densities.

Incremental capital expenditures (capex) are necessary, but these costs represent only a slight increase in percentage terms. Importantly, rental rates are significantly outpacing these inflationary pressures. Colin, could you elaborate on AI’s impact on our offerings, and then Chris can provide insights into our technology infrastructure initiatives.

Colin McLean — Chief Revenue Officer

Of course. Thanks, Andy. AI’s impact was substantial, with approximately 50% of our total bookings attributed to this sector. Our existing capacity, which we have built our reputation on, has proven valuable for these applications.

Large capacity blocks are in high demand across our key markets, as clients seek to capitalize on these opportunities. Additionally, our HD Colo program, created by Chris and his team, is helping expand our offerings in the sub-1 megawatt framework. Chris, would you like to expand on this?

Chris Sharp — Chief Technology Officer

Thank you, Colin. I’m happy to share more about our approach. For years now, we’ve been evolving our designs for data centers to support the growing cloud infrastructure and AI technologies. A major focus has been on increasing modularity, particularly regarding cooling systems, to optimize air usage.

We’re anticipating a shift toward liquid cooling, allowing us to retrofit our facilities efficiently based on demand. As we consider these advancements, it’s also essential to understand the connection between data center environments and AI applications, including inference and recursive models.

Our HD Colo offering, established some time ago, is noteworthy. Within just 12 weeks across 30 markets and 170 facilities, we can support 150 kilowatts per rack. This capacity can accommodate three NVIDIA H100 systems in one rack, reflecting the evolving market demands.

Operator

The next question will come from David Barden at Bank of America. Please go ahead.

David Barden — Analyst

Hi, everyone. Thanks for taking my questions. This quarter has shown impressive results, especially following a record-setting first quarter and a less-than-stellar second quarter. Can you set expectations for what this new normal looks like? Additionally, could you comment on the consistency of AI bookings, which accounted for 50% in both the first and third quarters? What factors are driving this trend?

Andrew P. Power — President and Chief Executive Officer

Thanks, David. I’ll address the second question first. We estimate that AI will continue to be a strong growth area based on our extensive infrastructure data and client applications.

Customers are signing long-term contracts, often spanning 10 to 15 years, allowing us to adapt our infrastructure as needed. Overall demand has been robust, buoyed by trends in digital transformation, hybrid IT, and cloud computing. For instance, we reported $66 million in new interconnections within the 0-1 megawatt range, marking a 20% increase from previous records, along with nearly 150 new client logos.

Regarding your question on the new normal, it’s pivotal to note that prior record highs in the first quarter were fueled by 10% more megawatts and 60% higher prices. This latest quarter reflects a 70% increase in volume, combined with 30% higher prices from previous records. Both price and volume are key drivers of our growth.

However, I do not expect to replicate this record in Q4, particularly with the holiday season approaching. Nevertheless, our inventory gives us the potential to achieve similar records in the future. We have not yet reached our peak potential at Digital Realty.

Moreover, many of our signings are translating into long-term contracts with significant escalations effective in late 2025 and 2026. Ultimately, this should lead to sustained growth from the top line to the bottom line.

Lastly, focusing solely on signing fluctuations can be misleading. Our record backlog—currently around 20% of our revenue base—will likely continue to grow, further reducing the risks of our revenue run rate in the coming years.

Operator

Next…

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Strong Backlog Positions Company for Future Growth

Jonathan Atkin — Analyst

Thank you. Given your strong backlog and inventory situation, could you discuss the impact on future capital expenditure (capex) levels due to the demand and deliveries ahead, as well as your goals regarding balance sheet leverage? Thank you.

Andrew P. Power — President and Chief Executive Officer

Thanks, Jon. I’ll let Matt address those details.

Matt Mercier — Chief Financial Officer

Sure, thanks, Jon. As we look towards 2024, we have refined our capex estimates. We remain within our projected range, and for 2025, while more definitive guidance will be issued in the fourth quarter, I doubt our capex will be lower than what we’re anticipating for 2024. As for our balance sheet, we are currently at our leverage targets, with $5 billion in liquidity. Our strategic planning allows us to stay within these leverage targets through 2025.

Operator

The next question is from Richard Choe with J.P. Morgan. Please go ahead.

Richard Choe — Analyst

Hi. I’d like to follow up on the large package deals you’ve recently completed. How many more such deals are possible? Also, is the 4% increase in these large contracts reflective of all deals you’re engaging in?

Andrew P. Power — President and Chief Executive Officer

Thanks, Richard. Regarding the 4% escalation, we have been proactive in adjusting rates and returns across our contracts. This approach has placed us as frontrunners, especially during times of rising Consumer Price Index (CPI). Our focus on larger, lucrative contracts is essential for gaining positive traction. We appreciate the stability of our existing client relationships, which span numerous locations globally. While predicting specific large deals is challenging, our diverse relationships enhance our business opportunities.

Operator

The next question is from Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow — Analyst

Thank you for taking my question. I noted you have about 3 gigawatts of undeveloped land in Shell. With the rapid pace of your current deals, how will you sustain that development potential? Also, could you update us on power delivery in Northern Virginia, particularly with extended wait times for power in that region?

Andrew P. Power — President and Chief Executive Officer

Thanks, Eric. I’ll start with Northern Virginia. We have significant capacity from recent signings in the area. For instance, we have identical buildings with nearly 100-megawatt IT loads in both Digital Dallas and Manassas, expected to come online by late 2025 or early 2026. Additionally, there are plans for another 230 megawatts, which should enhance our delivery capabilities by 2027. This means we will have a strong growth trajectory moving forward.

Gregory S. Wright — Chief Investment Officer

Thanks, Andy. To add to Eric’s inquiry, we currently hold over 3 gigawatts of buildable capacity in our existing markets, which is substantial. Our strategy primarily involves acquiring land in these established areas. We are also cautiously exploring new markets globally, primarily in North America, Europe, and parts of Africa, as we seek balanced risk-adjusted returns.

Operator

The next question is from Frank Louthan with Raymond James. Please proceed.

Frank Louthan — Analyst

Thank you. Earlier, you discussed avoiding certain markets where data center demand has increased but long-term prospects are uncertain. Are you still maintaining this cautious approach in evaluating these markets?

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Digital Realty Reports Strong Growth Amid Diverse Market Demand

Analysis of Customer Demand and Market Expansion

Andrew P. Power — President and Chief Executive Officer

Thanks, Frank. Our strategy is to concentrate on markets with strong and varied demand, especially in enterprise digital transformation, hybrid IT, and cloud services, as well as emerging AI-related opportunities. We have established ourselves in 50 metropolitan areas, providing a solid runway for growth, with over 3 gigawatts of additional capacity available.

We are expanding our operations in areas where we already have a presence, but with a focus on enhancing scale and connectivity. Importantly, we avoid pursuing demand in markets that we view as unsustainable long-term. While there are opportunities for isolated projects, our goal remains long-term sustainable growth driven by diverse customer demand. This will ensure we maintain pricing power when it comes to contract renewals.

Mid-Term Growth Projections and Financial Stability

Operator

The next question is from Irvin Liu with Evercore ISI. Please go ahead.

Irvin Liu — Evercore ISI — Analyst

Hi. Congratulations on the impressive bookings. You mentioned a potential acceleration several times. Regarding your expected growth of mid-single digits in 2025, are there signs that point to a possible upside? How should we interpret your medium-term growth algorithm?

Andrew P. Power — President and Chief Executive Officer

Thanks, Irvin. I’ll turn it over to Matt for detailed insights on our financial outlook for 2025.

Matt Mercier — Chief Financial Officer

Thank you, Irvin. We have maintained a consistent forecast of mid-single-digit growth for 2025, despite a 1.5 turn deleveraging over the past 12 to 18 months. Our focus continues to enhance the company’s long-term sustainable growth profile, evident in our recent results.

Some initiatives yield quicker financial returns, particularly contract renewals in the range of 0-1 megawatts. Conversely, larger contracts take longer to reflect in the financials, but our backlog already stands at $350 million for 2025 and $300 million for 2026. This marks a significant increase compared to last year’s projections, supporting our confidence in achieving our growth targets.

Customer Bookings and Revenue Highlights

Operator

The next question is from Jim Schneider with Goldman Sachs. Please go ahead.

Jim Schneider — Analyst

Good afternoon. Can you discuss the nature of the bookings this quarter? Specifically, how concentrated are these bookings across different customers? Did any of the significant new customers contribute to this quarter’s performance?

Andrew P. Power — President and Chief Executive Officer

Thanks, Jim. I’ll pass the question to Colin to elaborate on the details.

Colin McLean — Chief Revenue Officer

Thank you, Jim. We recorded a productive quarter with contributions from both new and existing customers. Approximately 1,000 customers booked services in Q3, including 149 new businesses primarily within the commercial sector.

In total, 52% of our $66 million in bookings came from large enterprises, marking a historic high. This aligns with the diverse demand we are witnessing across digital transformation, cloud computing, and AI initiatives. Our Q4 pipeline is at an all-time high, particularly for contracts of 0-1 megawatt capacity. The majority, over 80%, of our bookings stemmed from our key 20 markets, reinforcing our strategic focus and flexibility to meet clients’ varying needs.

Enterprise Sector Insights

Operator

The next question is from Michael Elias with TD Cowen. Please go ahead.

Michael Elias — Analyst

Great. Thank you for taking my question. Congratulations to the entire Digital Realty team on an excellent quarter. I would like to shift our discussion to the enterprise sector. Can you elaborate on what changes contributed to the increased bookings there? Did market conditions improve, or did you adapt your approach? Additionally, how are you managing pricing for enterprise customers during renewals?

Digital Realty Reports Strong Growth Amid Competitive Market Dynamics

Andrew P. Power — President and Chief Executive Officer

Thank you, Michael. Before diving into specifics on pricing and margins, I want to highlight the importance of our strategic priorities. Colin briefly mentioned this, and it’s essential to our long-term success. Our aim has always been to offer unmatched value to our customers, and we are seeing that effort pay off.

This quarter represents a significant milestone for us. However, we are focused on continued improvements rather than resting on our current achievements. We plan to build upon our momentum for the benefit of our customers and the growth of the company.

In the 0-1 megawatt category, we’ve seen cash mark-to-market changes of approximately 4.5% on a last twelve months (LTM) basis and a quarter-over-quarter increase of around 70 basis points. We are committed to enhancing our interconnection offerings to maximize customer value, even with this quarter marking a record for interconnection signings.

Our focus remains on addressing customer infrastructure needs and power densities, acting as their comprehensive global partner. This includes support across various deployment workflows, from enterprise hybrid IT to cloud solutions and the expanding area of AI. Colin deserves special recognition for his contributions in this area.

Colin McLean — Chief Revenue Officer

Thank you, Andy. It’s vital to recognize that our achievements are the result of years of transformation. We are evolving into a platform-oriented company catering to both service providers and enterprises. Enhancements to our platform will help attract new enterprise clients.

This quarter, we introduced new onramps in Dallas, Zurich, and Amsterdam, which are substantial steps in this direction. Digital transformation is in full swing, yet we feel it’s still early in this journey. The continued growth of our PlatformDIGITAL offering reflects its value to enterprises.

A noteworthy indicator of our progress is that a record 43% of our exports fall within the 0-1 megawatt category. This demonstrates that customers are not just engaging with us but are also expanding their use across various geographies.

Operator

The next question is from Georgi Dinkov with Mizuho. Please go ahead.

Georgi Dinkov — Mizuho Securities — Analyst

Hi, thanks for the update, and congratulations on your strong results. I see that development yields have risen to 12%, up from the previous quarter. Given the robust market rent growth, do you foresee further increases in development yields, and are there any limits on how high they can climb? Can you also elaborate on the structure of contracts within your development pipeline regarding land and renewal caps? Thank you.

Andrew P. Power — President and Chief Executive Officer

Thanks, Georgi. Our increased development capital expenditures, now 50% higher, reflect strong demand. We currently have over 75% of our developments preleased, and North America stands at an impressive 97% preleased.

Notably, some of our North American signings are on the longer side of our standard terms, involving significant capacity deliveries. For example, last quarter, we secured a nearly 50-megawatt deal that spans close to two years.

We aim to optimize yields further through careful scaling of our infrastructure and by leveraging the right rates in our pricing strategies. We are also examining all commercial levers, from rates and escalations to property tax considerations and renewal options.

Operator

The next question is from Matt Niknam with Deutsche Bank. Please go ahead.

Matthew Niknam — Analyst

Thanks for taking my question, and congratulations on a strong quarter. To narrow it down, I’d like to know more about your dealings in the AI sector. You mentioned that AI represents about half of your bookings. Is this primarily driven by traditional hyperscalers and newer AI developers, or is there also a contribution from enterprise clients and public sector players?

Andrew P. Power — President and Chief Executive Officer

Thanks for your question, Matt. Indeed, a significant portion of our bookings can be attributed to AI, but the demand isn’t limited solely to hyperscalers. Chris, could you share more specifics about the breakdown in these bookings and the broader AI demand we’ve seen this quarter?

Chris Sharp — Chief Technology Officer

Absolutely, Matt. AI is a rapidly growing area, and our client base spans multiple sectors. While our experience with NVIDIA has been notable, an exciting recent development is our involvement in launching the largest DGX supercomputer in Europe alongside the Novo Nordisk Foundation.

CEO Jensen Huang emphasized the importance of intelligent systems during the event, reflecting how essential private AI deployments are becoming in our portfolio. Notably, we’re able to support these initiatives sustainably, as our facilities operate on 100% renewable power.

Operator

The next question comes from David Guarino with Green Street. Please proceed.

David Guarino — Green Street Advisors — Analyst

Thanks. On your greater than 1-megawatt leasing in the Americas, I see that rents on a GAAP basis reached nearly $225 per kilowatt this quarter. I’m curious if rates in markets like Manassas and Chicago fall below that figure or if Ashburn is approaching that $225 or even $250 mark. Can you provide clarity on the rental rates across different markets?

Digital Realty Reports Strong 3Q Performance Amid Rising Data Center Demand

Key Market Insights from Andrew P. Power

Andrew P. Power — President and Chief Executive Officer

Today, we discussed GAAP rates, emphasizing the importance of lease duration and its implications. In Ashburn, several customers are now facing rates between 175 and 200, with some slightly exceeding 200 for capacity blocks of 8 megawatts or higher. While this trend may not replicate immediately across the board, other markets are beginning to catch up. Historically, regions like Chicago and Dallas lagged behind Ashburn, which has now surpassed Santa Clara in terms of demand.

Over time, I anticipate a convergence of these markets at these elevated rates.

Ensuring Timely and Budget-Friendly Project Delivery

David Guarino — Green Street Advisors — Analyst

Thanks for that insight.

Nick Del Deo — Analyst

Hi, I appreciate you taking my question. With so much development in the pipeline, could you share how you plan to keep everything on schedule and within budget?

Andrew P. Power — President and Chief Executive Officer

Thanks, Nick. Our focus has remained clear for the past 20 years. We’ve consistently operated in these markets, working closely with communities and utility providers. As opportunities arose, we scaled our operations, enhancing our supply chain and fostering solid relationships with vendors to ensure future resilience. If certain equipment is needed in one location, we can adapt quickly, taking advantage of economies of scale.

Moreover, we’re expanding our team and investing in training to support operational efficiency as we deliver increased capacity to clients. This business is inherently capital-intensive, and we have supplemented our public equity with strategic private investments to stabilize and enhance our growth trajectory. Our team’s efforts will continue to yield positive rates and returns over time, which we believe will benefit our customers and shareholders.

Closing Remarks and Future Outlook

Operator

That brings us to the end of the Q&A session. I now turn the call back over to President and CEO, Andy Power, for his final comments.

Andrew P. Power — President and Chief Executive Officer

Thank you, Gary. Digital Realty had a successful third quarter, reflecting a robust demand environment. We’ve set several records this period, adjusted our guidance upwards, and are in a strong position for growth heading into 2025 and beyond. I’m proud of our team’s execution in achieving these results.

We remain optimistic about the increasing demand for data centers and our strategic position within the market. Most importantly, we’re dedicated to effectively capitalizing on current opportunities. Thank you for joining us today, and a special thanks to our dedicated and exceptional team at Digital Realty for their hard work.

Thank you.

Operator

[Operator signoff]

Call Participants

Jordan Sadler — Senior Vice President, Public and Private Investor Relations

Andrew P. Power — President and Chief Executive Officer

Matt Mercier — Chief Financial Officer

Michael Rollins — Analyst

Andy Power — President and Chief Executive Officer

Jon Petersen — Analyst

Colin McLean — Chief Revenue Officer

Chris Sharp — Chief Technology Officer

David Barden — Analyst

Jonathan Atkin — Analyst

Richard Choe — Analyst

Eric Luebchow — Analyst

Gregory S. Wright — Chief Investment Officer

Frank Louthan — Analyst

Irvin Liu — Evercore ISI — Analyst

Jim Schneider — Analyst

Michael Elias — Analyst

Georgi Dinkov — Mizuho Securities — Analyst

Matthew Niknam — Analyst

David Guarino — Green Street Advisors — Analyst

Nick Del Deo — Analyst

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“Digital Realty Trust (DLR) Reports Q3 2024 Financial Results: Earnings Call Highlights”

Daily Market Recaps (no fluff)

Incredible Growth: Digital Realty Shatters Leasing Records

Key Remarks from Management:

Stellar Leasing Achievements in Q3

Digital Realty Reports Strong Growth and Strategic Developments in Q3

Digital Realty Reports Strong Q3 Financial Results and Growth in Data Center Development

Key Financial Metrics Show Positive Trends Amid Cost Pressures

Investment Activities Strengthen Development Pipeline

Strong Financial Position and Guidance Updates

Outlook for 2024 and Beyond

Questions & Answers:

Digital Realty Reports Exceptional Growth Driven by AI Demand

Strong Backlog Positions Company for Future Growth

Digital Realty Reports Strong Growth Amid Diverse Market Demand

Analysis of Customer Demand and Market Expansion

Mid-Term Growth Projections and Financial Stability

Customer Bookings and Revenue Highlights

Enterprise Sector Insights

Digital Realty Reports Strong Growth Amid Competitive Market Dynamics

Digital Realty Reports Strong 3Q Performance Amid Rising Data Center Demand

Key Market Insights from Andrew P. Power

Ensuring Timely and Budget-Friendly Project Delivery

Closing Remarks and Future Outlook

Call Participants

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