Digital Realty Trust Inc

NYSE:DLR

Earnings Call Transcript 2018-Q4

[Operator]

Good day and welcome to Digital Realty Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Due to scheduling constraints, today's call will be limited to 1 hour. Please note that this event is being recorded.

I would like to turn the conference over to John Stewart, Senior Vice President of Investor Relations. Please go ahead.

[John Stewart, SVP of IR]

Thank you, Andrea. The speakers on today's call will be CEO Bill Stein and CFO Andy Power. The call may contain forward-looking statements including guidance and the underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

For a further discussion of risks related to our business see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information. Reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website.

Before I turn the call over to our CEO, Bill Stein, I'd like to hit the tops of the waves on our full year 2018 results. First, we delivered record bookings over one-third better than the previous all-time high. Next, we closed on the acquisition of Ascenty, expanding our global platform into Latin America and we further extended our sustainability leadership with continued expansion of our renewable energy capacity.

Third, we delivered 8% core FFO per share growth and we delivered double-digit growth in AFFO per share for the third time in the past four years. Last but not least, we further strengthen the balance sheet by recasting our line of credit and locking in long-term fixed rate debt at attractive coupons.

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

[William Stein, CEO]

Thank you, John. Good afternoon and thank you all for joining us. Our formula for long-term value creation is a global connected sustainable framework. We advanced each of these three pillars during the fourth quarter. We extended our global footprint with our entry into Latin America. In December, we closed the acquisition of Ascenty, the leading data center platform in the rapidly growing Brazilian market shown here on page three of our presentation.

Ascenty owns a high quality portfolio of purpose built world class data centers as well as a proprietary fiber network and is run by a best in class management team. Over 90% of the revenue is generated from investment grade or equivalent customers and over 75% of contractual cash rent is denominated in U.S. dollars. This transaction represents a highly strategic extension of our global platform offers a compelling growth opportunity and will be accretive to our long-term growth.

Our top priority is deepening connections with our customers. We are also focused on strengthening connections across our organization. We made several important investments in our human capital during the fourth quarter most notably including the appointment of Greg Wright as Chief Investment Officer and Corey Dyer as Executive Vice President of Global Sales and Marketing.

Greg joins us following a long and distinguished career in investment banking. And he served as lead advisor on several transformational transactions for Digital Realty. Corey brings over 25 years of relevant industry experience, including colocation and interconnection sales leadership experience successfully targeting the enterprise customer segment. With these key additions in place we have filled out the team and are fully primed to press our competitive advantages and power our customers’ digital ambitions around the world.

We also took several significant steps towards further extending our sustainability leadership over the past few months highlighted here on page four. In November, we received NAREIT’s data center Leader in the Light Award for the second consecutive year. We are the first and so far the only data center REIT to receive NAREITs leader in the light award for sustainable real estate practices.

In December, we announced that we earned the U.S. EPA’s Energy Star certification for superior energy performance in 24 data centers in 2018. We also entered in an agreement with Salt River Project to source solar energy to power a portion of the load for our Arizona data center portfolio. In January we issued the first ever data center in Green Euro bond.

And finally, just a couple of weeks ago we announced a long-term renewable power purchase agreement to secure 80 megawatts of solar power on behalf of Facebook to support their renewable energy goals. We are committed to managing our environmental impact in optimizing our use of energy and natural resources because we believe it's the right thing to do and because it matters to our customers.

Most of our top customers have 100% renewable energy targets and our ability to meet their needs for renewable and highly efficient data center solution sets us apart from our competitors.

Let's turn to market fundamentals on page five. Moving from East to West with the sun data center demand remains robust across the Asia Pacific region, driven by local as well as global hyper scale users. In Japan, we recently announced a multi-megawatt multi-year agreement with a leading global cloud service provider to anchor the latest facility on our Osaka Connected campus scheduled for delivery the middle of this year.

As you can see from the occupancy schedule in our supplemental we've also had significant activity in Singapore where we are quickly running out of capacity and recently announced the acquisition of a land parcel on a long-term ground lease to accommodate build out of our next facility at Liang drive on the east side of Singapore, scheduled for delivery the latter half of next year. The supply situation across the region remains largely in check. And given the robust demand backdrop, we expect to continue to invest to support our customers’ growth in existing core markets as well as potentially in select new markets.

In Europe, supply demand dynamics are fairly balanced. Despite the noise around Brexit, we continue to see healthy demand, notably including a sizable global cloud network node deployment in our Crawley Campus in London during the fourth quarter. At Sovereign House in the Docklands we are nearing capacity. And we recently gave the go ahead to break ground on a Cloud House, an adjacent multi-megawatt facility that will offer customers a unique ability to land a new colocation deployment directly adjacent to the city's network dense interconnection hub.

Incidentally, we acquired the freehold interest in Sovereign House during the fourth quarter and we now own this iconic London Docklands asset outright. Across the UK as well as the Continent, pricing is competitive and customers remain focused on flexibility and expansion options along with differentiated connectivity solutions and a track record of operational excellence.

Market vacancy remains in check across the major European markets, while competitors are bringing new supply to market it is being met by healthy demand, particularly from existing customers either expanding their current footprint or looking for new partnerships for their next phase of growth.

In the Americas, competition is similarly intense across the primary data center metros, including Northern Virginia, which is by far the largest and most active Metro in the world. Despite the number of competitors and shovels in the ground, we are well positioned to outperform the competition, given our ability to address the full spectrum of our customers data center needs around the world, our deep installed customer base in Ashburn with a strong preference to expand next to their existing deployments. The longest runway for customers’ campus growth align with our agile delivery capabilities allowing for limited speculative risk.

And last but certainly not least, the strength of our investment grade balance sheet. At the end of the day, we believe customers view our global platform, our operational and financial resiliency and our comprehensive space power and interconnection offerings as key differentiators in the selection of their data center provider.

Let's turn to the macro environment on page six, we are late in the cycle and comps are getting tougher across corporate America. Tough comps and moderating growth are a far cry from a global recession however, as evidenced by continued robust job growth in the U.S. as well as the very respectable growth in cloud revenues during the fourth quarter.

Hyperscale requirements are big and getting bigger so new business could be lumpy from quarter-to-quarter. But we continue to see very healthy demand from our customers. The trends underlying this demand are long-term and secular in nature. People don't stop using personal or professional social media just because it's late in the cycle. In fact, corporate IT outsourcing and cloud adoption are significant drivers of our business. The cloud is gaining traction because it enables corporate enterprise end users to achieve efficiencies and contain costs. During a slowdown, cost containment and achieving efficiencies become paramount.

Constantly given the resiliency of our industry, our business and our balance sheet, we believe we are very well positioned to continue to deliver sustainable growth for our 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.

[Andrew Power, CFO]

Thank you, Bill. Let's begin with our leasing activity here on page eight. During the fourth quarter, we signed total bookings of $44 million, including a $7 million contribution from interconnection. We signed new leases for space and power totaling $37 million, with a weighted average lease term of nearly 10 years, including a $10 million colocation contribution. These results do not include an additional $18 million of previously disclosed bookings by the Ascenty during the fourth quarter.

Ascenty did not sign any deals during the last 10 days of the year after closing, but this volume of activity, particularly relative the size of the base should give you a good idea of why we are so excited about the growth potential for this platform.

Our largest single deal during the fourth quarter was just 6 megawatts, and nearly 40% of our activity was outside of the U.S. Our domestic fourth quarter bookings were likewise diverse, with major contributors from the Bay Area, Houston, Dallas and Chicago markets.

For the full year, we delivered total bookings of $268 million an all-time high and up 35% from the previous record of $199 million in the prior year. Colocation and interconnection bookings were flat year-over-year at $63 million, but third and fourth quarter results were both above the recent average.

We continue to see the traction with accounts expanding with us globally, including a leading regional cloud provider, who expanded their footprint with us most recently in Singapore in the fourth quarter. We've helped this customer expand globally in the U.S., Europe and in Asia Pacific within the last 12 months.

Another example is a global leading SaaS provider that we helped to expand into Japan through our Mitsubishi Corporation Digital Realty joint venture. Digital Realty is assisting this strategic partner in expanding their cloud presence in the region. They are in multiple sites across our global platform and this is their third deployment with us across APAC. One final example, I want to site illustrates our ability to help hyperscale our customers power their digital ambitions.

One of the world's largest SaaS companies required a custom built data center. We signed the deal in Q1 and they commenced using the data center in Q4. Simply put, we were able to build and launch the first data haul for the customer within nine months. We're also pleased with our traction in the Enterprise segment. We are landing business from small, medium and large customers, who are positioned to grow with us. We added a total of more than 150 logos in 2018, more than half of which were enterprise customers and we signed a total of 868 contracts in 2018.

Aarki rank the 19th fastest growing company in North America and number four in the Bay Area on 2018 Technology Fast 500 helps companies grow and re-engage their mobile users. Aarki is standardizing their global data center footprint with Digital Realty to ensure they have the scalable solutions around the world to meet their fast paced timelines, and support end user demand. Most recent colocation expansions were made across Ashburn and Amsterdam.

Dialpad, who designed and developed cloud based platforms for enterprise communications is hosting their AI powered Cloud Phone System in Digital Realty Dallas and New York locations. We help build redundancy within the platform for our customer's end users. Dispatch Track, the number one last mile logistics platform that is currently being used by about 40% of all furniture and appliance deliveries that occur in the Continental United States has a unique requirement of owning its computer infrastructure with specialized hardware for its proprietary algorithms. After quite a bit of research Dispatch Track chose Digital Realty as a partner on this journey.

Digital Realty’s world class infrastructure, commitment to standards in terms of certifications and processes presence across wide geographic locations will help Dispatch Track scale their solution and service their current and future customers better.

Dispatch track is looking forward to consolidating and scaling all of their existing hosted infrastructure at Digital Realty. We continue to see very healthy networks sector business. This quarter a noble win was without scale a strategic partner of Dassault Systèmes at the forefront of cloud computing.

Out Scale’s primary focus is providing infrastructure services, hosted solutions and on premise private cloud as well as related to cloud based service like mapper as a service, rendering solutions, compute, storage and networking to many of the world's most respected companies.

This new and much larger private cage environment for a longtime customer will enable Out Scale to grow and remain focused on their core competencies of providing secure, scalable and compliant infrastructure as a service solutions to over 800 of the world's top corporate customers throughout North America, Europe and Asia.

We continue to see traction with our service exchange platform. Net gain, who helps highly regulated industries such as healthcare, financial and legal services manage their IT infrastructure needed to shorten connection provisions in time and minimize latency between net gain facilities.

We provide a centralized colocation facility for their hybrid cloud architecture to connect to local customers. They were able to connect to major telecom providers to maintain 10 millisecond or less latency between facilities leveraging service exchange for fast, secure access to Azure cloud services and provide a high availability environment for customer application hosting.

Total alliance and channel partners related bookings continue to contribute to our business. And our channel partners sourced nearly 20% of new logos in 2018 and over 25% of new logos during the fourth quarter. Through our channel partner, we landed a Korean IT based marketing and advertising company with a mission to support bringing Korean lifestyle fashion and entertainment imports in our LA data center to support its digital advertising and cloud business.

They chose Digital Realty because they needed the right location with maximum uptime to support their mission critical infrastructure, flexibility to support their private and hybrid cloud environments, access to data center and cloud connectivity and certification compliance.

Our continued partnership and capabilities with IBM around their Direct Link products resulted in more than a 200% year-over-year increase from our total deployments in 2017 and we are working on several opportunities for 2019. Significant 2018 deployments with IBM included adding new IBM block chain and IBM hyper protect deployments allowing IBM customers to deploy their infrastructure and leverage secure, direct low latency access to IBM cloud and these advanced services all within a highly connected ecosystem supported by -- globally by Digital Realty.

Turning to our backlog on page nine. The current backlog of leases signed, but not yet commenced stepped down from the all-time high at the end of the third quarter to $97 million as of year-end, due to an all-time high level commencements during the fourth quarter. The weighted average lag between fourth quarter signings and commencements was a little over three months speaking to the diversity of our fourth quarter signings activity.

Moving on to renewal leasing activity on page 10, we signed $138 million of renewals during the fourth quarter in addition to new leases signed. The weighted average lease term on renewals was five years and cash was rents rolled down 2.6%. For the full year, cash rents rolled up 0.3% a bit better than our slightly negative guidance.

Cash re-leasing spreads were negative for Turnkey as well as colo renewals in the fourth quarter. The colo roll down was entirely due to two top customers who started out in a colo environment early in their life cycle and have grown so significantly that they are both now hyperscaler users.

Our unique product offering with the ability to accommodate single rack colocation and interconnection footprint since all the way up to multi megawatt hyperscale requirements enables us to continue to support the full spectrum of data center solutions for both of these strategic customers.

The turnkey roll down was largely due to the expiration in Houston where a customer renewed their existing footprint on a long-term lease, while simultaneously expanding and taking close to another megawatt of additional capacity likewise, on a long-term lease. This transaction is a prime example of what we mean when we talk about our holistic long-term approach to customer relationship management.

As you're probably aware, we expect cash re-leasing spreads will be negative in the high-single digits in 2019, primarily due to size of above market expirations within the legacy DFT portfolio, this roll down was fully baked into our underwriting at the time of the acquisition. As we work away past these pending renewals, we do expect to reach an inflection point and return to positive re-leasing spreads, driven by modest market rent growth and a steady progress. We have made cycling through peak vintage lease expirations.

In terms of our fourth quarter operating performance overall portfolio occupancy slipped 50 basis points to 89% due to a single non-data center customer who moved out of an entire Class B office building they were using as a call center on a campus earmarked for future redevelopment in Dallas. Needless to say, the square footage impact on reporter occupancy is far more pronounced than the economic impact given the low rent for a call center redevelopment candidate in Dallas.

Property operating expenses picked up sequentially, primarily due to the timing of some repairs and maintenance projects we had expected to close out earlier in the year, along with the growth of our portfolio with more than 50 megawatts of capacity placed in service during the fourth quarter.

Turning to our economic risk mitigation strategies on page 11, the U.S. dollar strengthened somewhat over the past 90 days and FX represented roughly a 50 basis points headwind to the year-over-year growth in our fourth quarter results. We manage currency risk by issuing locally to nominate 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 addition to managing 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 to matching the duration of our long lived assets with long-term fixed rate debt a 100 basis point move in LIBOR would have a 1% impact to our full year FFO per share. Our near-term funding and refinancing risk is very well managed.

In terms of earnings growth, core FFO per share was up approximately 8% year-over-year for the fourth quarter and the full year. We were a couple of pennies above consensus for the fourth quarter and we came at the at the top end of our original guidance range for the full year. We also deliver double-digit AFFO per share growth for the third time in the past four years.

As you may have seen from the press release, we are reiterating the 2019 guidance we rolled a few weeks ago. Almost all the drivers are unchanged except for debt financing. As you may know, just two days after we gave our initial 2019 guidelines the debt capital market seas parted across the pun and we're able to successfully tap the euro bond market for the first evergreen data center euro bond, raising approximately $1 billion of seven year paper at a 2.5% coupon.

Our 2019 refinancing the capital spending needs have been put to bed, but we expect to remain nimble for the rest of the year. And we may look to capitalize on favorable market conditions to lock in long-term fixed rate financing and attractive coupons across the currencies that support our assets to proactively manage future liabilities.

Please keep in mind that our 2019 guidance includes a $0.20 impact from the adoption of the new lease accounting standard. We don't typically give explicit AFFO per share guidance, but given the hit to the bottom line from the change in accounting policy it's worth noting that we expect to deliver mid-single digit growth in AFFO per share.

Please also keep in mind, this mid-single digit growth includes the 2% dilution from Ascenty and also absorbs a 100 to 200 basis points FX headwind. Excluding FX and accounting changes, we expect to deliver per share growth in line with our long-term sweet spot in the mid to high-single digits.

In terms of the quarterly distribution, the first half of 2019 should represent roughly 49% of the full year results. While the second half should contribute roughly 51%. In terms of the quarterly dividend that payout policy is ultimately a board level decision. Given the actual cash flow growth in 2018, along with the projected growth in 2019, we would expect to see continued growth in the per share dividend just so as we have each and every year since our IPO in 2004.

Last but certainly not least, let's turn to the balance sheet on page 13. It's been another busy few months for the Digital Realty capital markets team characterized by consistent execution against financing strategy on maximizing the menu of available capital options while minimizing the related costs.

First and foremost in late September, we executed a forwarded equity offering to fund the Ascenty acquisition and development CapEx needs. We expect to receive approximately $1.1 billion of net proceeds when we settle the forward sale agreements. In early October, we issued approximately $520 million of 12 year sterling bonds at a 3.75% coupon.

In late October, we recast our $3.3 billion global senior unsecured credit facilities tightening pricing for the line of credit by 10 basis points, extending the maturity date another three years to 2024 and upsizing availability by $350 million. We also completed a roughly $300 million five year revolving credit facility denominated in Japanese yen define our joint venture with Mitsubishi Corporation.

Shortly before year end, we closed on the Ascenty acquisition. The transaction was initially funded with $600 million of proceeds from a non-recourse five year secured term loan, $300 million of digital realty OP units and $1 billion of unsecured corporate borrowings. As you may recall, we expect to ultimately own Ascenty in a joint venture with Brookfield infrastructure, which we expect to close some time in the first quarter.

As you can see from the charts on page 13 leverages are artificially inflated at year end, since 100% of Ascenty debt is reflected on the balance sheet. Whereas our fourth quarter results include just a 10 day contribution from Ascenty.

Pro forma for a full period contribution from Ascenty, the joint venture with Brookfield and the forward equity offering, leverage remains in line with our long-term target of approximately 5 times, while fixed charge coverage remains healthy at north of 4 times. The success of these collective financing activities over the past several months is a reflection of our best-in-class global platform, which provides access to the full menu of public, as well as private capital, sets us apart from our peers enables us to prudently fund our growth.

As I mentioned a moment ago, we've already addressed our 2019 refinancing and capital spending needs, but we will continue to monitor the global debt capital markets consistent with our strategy of proactively managing the right side of our balance sheet with an eye towards longer duration financings across the currencies that support our assets. As you can see from the pro forma maturity schedule on page 15 the recent financings have extended our weighted average debt maturity to six years, and lowered our weighted average coupon to 3.6%.

Nearly half our debt is non-U.S. dollar denominated acting as a national FX hedge for our investments outside the U.S., roughly 90% of our debt is fixed rate to guard against a rising rate environment and over 95% of our debt is unsecured providing the greatest flexibility for capital recycling.

Finally, as you can see from the left side of page 15, we have a clear runway with less than $1 billion of maturities in any year until 2023 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. Andrea, would you please begin the Q&A session?

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

[Jordan Sadler, KeyBanc Capital Markets]

Thank you and good afternoon. First, I'd like to see if you guys could drill down a little bit on the expectations of the pipeline as we -- and maybe level set us in terms of expectations for 2019. I know 2018 was a record year. We finished kind of on a dull note. I think a couple weeks ago you sounded a little bit optimistic at a recent conference and I'm just -- how should we be thinking about leasing volumes for 2019?

[Andrew Power, CFO]

Hey thanks Jordan, this is Andy, I’ll tackle that because I think you're referring to my most recent conference. Obviously we ended 2018 with what I would call very respectable quarter $44 million overall signings capping off a record year 35% year-over-year increase, which was a record -- on a record at $268 million. A lot of successes in there across regions be it in Europe, Asia Pacific, North America or markets specific and across product lines. And at the same time I think we entered 2019 with a similar amount of optimism on the overall demand backdrop.

Bill, myself, Corey, Chris and the team we’ve been spending a lot of time with customers in just the first handful weeks of the year we hear a lot of positive feedback of what their demand profiles look like and then how we're really lining up in terms of our footprint and capabilities to be their trusted partner around the globe.

[Jordan Sadler, KeyBanc Capital Markets]

Okay. And so relative to 2018 you think 2018 was not necessarily an anomaly, sort of what it sounds like.

[Andrew Power, CFO]

I would say listen, we sat this time in the beginning of 2018, I certainly didn’t have the expectation that we're going to do 35% increase year-over-year and put record $268 million. But as we look at exiting 2018 and look at what's out in front of us in 2019 in terms of where we're seeing opportunities and we're overall honestly quite bringing on new inventory capacity such as the Osaka, Japan, Sydney Australia, our Frankfurt Hampshire and the London campuses, numerous colo footprints and then some of the usual names you've heard about North America be it Ashburn or otherwise I think we feel like we're pretty well positioned heading into this year.

[Operator]

Our next question comes from Jon Atkin of RBC Capital Markets. Please go ahead.

[Jonathan Atkin, RBC Capital Markets]

Thanks. So kind of a related question just about overall hyperscale demand and how it benefits the data center sector. And you talked about having inventory in a lot of the key markets, but I'm wondering from a competitive standpoint how do you think about the mix of business that goes to unlisted players versus listed data center operators such as yourself. And then, maybe drill down on kind of sales given the hiring of Corey into the organization. Any kind of thoughts on channel strategy or any changes whatsoever contemplated in kind of your go to market approach. Thanks.

[William Stein, CEO]

Hey, thanks, John. I guess, what I would say at least what I have observed is that the private guys win the business when at least Digital doesn’t have inventory in the market. So it’s a question of availability. And I do think that we are the preferred partner to most of the hyperscale players.

[Andrew Power, CFO]

I’d add-on for that for half a second for turning your second question, Jon. I think in addition to what we’re seeing -- hearing from our customers very recently in terms of demand backdrop, I think we’re also hearing a overall outlook of potential vendor consolidation where they want to do business with fewer parties over the long run really global organizations that can scale with them and meet their needs across numerous markets and product offerings, which we think we line up very well on.

In terms of changes to go to market and the like, Corey and Greg, just started with us literally the first week of January. We had already pushed up our sales kick-off we had a great kick-off that first week and our team is out of the gates here running hard for 2019. I'm sure Corey, is going to be digging in here and look at the things as ways to improve and obviously has a deep background across colocation interconnection capabilities and really penetrating the enterprise customer base an area where we're always looking to step up our game.

[Jonathan Atkin, RBC Capital Markets]

Thanks. And then quickly on, there was an interconnect announcement related to Ashburn in Chicago that you put out a couple weeks ago. And wanted to maybe get your thoughts on that overall prospects for cross Connect growth as well as your SDN partnership with Megaport? Thanks.

[William Stein, CEO]

No, absolutely. Thanks for the question John as always. So a couple elements to it. Yeah, the most recent announcement we just made inside of the Ashburn in Chicago markets are around expanding our internet exchange. And so, that was a lot of customer driven demand in those two markets. And because of the fact that, we have a comprehensive interconnection portfolio comprised of both the internet exchange and the service exchange, which meets a lot of our larger customer demands.

I would tell you, the reasoning and why we went into Chicago in particular is the ownership of 350 East Cermak and how that building is becoming a bellwether of the broader workloads and interconnection requirements, and then associated Ashburn, that is the epicenter of where a lot of these clouds are building out. And so getting access to all of the networks via the IX was kind of the backdrop of why we were pushed into those markets. And just further solidifying the broader architectures that not only the hyperscalers are bringing to us, but also the enterprise.

And so secondly to the partnership with Megaport, which is the underlying fabric on our service exchange. I mean, it's been a great partnership where it's really generated a lot of new revenue for us where it's -- we're having a different value based dialogue with a brand new ecosystem of enterprise customers coming in to consume cloud. And so it's an underpinning of our strategy going forward. And we've had a huge uptick in not only the dialogue, but also utilization of the platform. And so we're very happy with the outcome of that.

And again, just to echo the sentiment of Andy and having Corey join the team were just getting focus on leveraging that even further in our dialogue so that we can represent the comprehensive portfolio that we have in these markets and all the inner connection capability that we have is really a unique differentiator for us.

[Operator]

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

[Simon Flannery, Morgan Stanley]

Right. Thank you very much. Good evening. I think you referenced the opportunity to go into some new markets. Could you -- you've obviously been expanding a lot in some existing markets, particularly in Asia as well recently. Can you just talk about how we should think about that in 2019, and are you likely to do that organically developing new land or do you think M&A will be the path to get to get into those markets? And any updates on a few weeks of Ascenty under your belt any learnings that you've had since they've come onboard? Thanks.

[William Stein, CEO]

Thanks, Simon. So I think as you know, we don't target slices of the geographic pie by region. We look to allocate capital where we see the best risk adjusted returns. We're always looking at potential markets and we want to be prepared if there are good opportunities, but our criteria just remind you is that we're customer led into major new markets and we're looking for appropriate risk adjusted returns in these new markets. I'll turn it over to Andy to handle the Ascenty question.

[Andrew Power, CFO]

Simon, could you just repeat the Ascenty question, make sure I didn’t miss it?

[Simon Flannery, Morgan Stanley]

Yes, you talked about the bookings, when you came on board, but just you’ve had it for six or seven weeks just how is the integration going and any more color that you've had on the opportunity since you've taken control.

[Andrew Power, CFO]

Great, thank you, Simon. So we closed I think the last week before the holidays, the 21st of December. We've had our first board meeting with the team, we've -- Brookfield has cleared it's our regulatory approvals and we're working towards finalizing their closing, which should happen in the next month or so.

We've been out in front of customers on a joint basis and have had some really terrific feedback from existing customers of legacy Digital Realty, legacy Ascenty and crossover, we've really gotten going on the rules of engagement for the Digital Realty 100 plus sales reps.

In terms of feeding demand into that region, and we're also doing some late work on the supply chain design, constructional operational capabilities to really try to bring that benefit to the Ascenty platform. Albeit it's been a fast and furious couple weeks under our ownership to-date, but so far so good and seeing some positive signs, but obviously have a lot more to report on this topic in another 90 days or so.

[Simon Flannery, Morgan Stanley]

Great, thank you.

[Operator]

Our next question comes from Colby Synesael of Cowen & Company. Please go ahead.

[Colby Synesael, Cowen & Company]

Great, thank you. In your comments, prepared remarks you mentioned the renewal spreads, how they're going to be down in the high-single digits. This you should be the trough and I think you said you expect them to go back to positive in 2020 and beyond. Just tied up the pricing is it your sense that pricing is going to start to trough I mean pricing, if you look at it on a like-for-like basis seems like it's been coming down for the last few years. I'm just trying to get a sense of where you think we are because as I did notice, for example, in your returns, you're now getting to 9% to 12%, whereas you've historically guided to 10% to 12%.

And then secondly, as it relates to bookings or leasing for 2019, I appreciate you don't want to give us a hard commitment on what that number could look like. But when you think about it from a geographical dispersion perspective, is it fair to assume that we should see a notable percentage coming from international in 2019 than in 2018? Thank you.

[Andrew Power, CFO]

Thanks, Colby. Let me see if I can dissect the multi-pronged of that mixture tackle at all. So a couple concepts. So first on renewal spreads, we've -- we exited the year on a full year basis cash positive just slightly and a couple points of higher than on a GAAP basis. We called out some anomalies in the actual note that happened in the fourth quarter, but happy to expand upon those specific details.

But cash positive for the full year and even greater that a gap positive we did call on our 2019 guidance released at the beginning of the year a cash negative mark-to-market really related primarily due to a large legacy customer we inherited in our acquisition of DFT. The outcome or underwriting of that event has not changed since our closing or initial acquisition. So same facts and circumstances just that timing looks like it's going to be coming fruition certainly in 2019.

And beyond that plus I'd say another larger Power Base Building or PBB renewal that likely to get completed in the first quarter of 2019. We feel that we're kind of really working our way through the bulk of the larger customer bulk renewals including early renewals pushing out their maturities for 5, 7, 10 and 15 years. When you look at the next kind of top customers that have several of renewals in those customers have, I'd say a different, different either vintage of lease, one of those customers in fact typically only sign five year leases. So has not had a 10, 15 year run of bumps in their leases and much less chance to be way out of market.

Hence our commentary, where we think the sensitive pickers moving to the pipe on here, when it comes to the expirations this year. Dovetailing to your overall -- that was renewal, so cash, upon cash upon expiration dovetailing to your question on pricing overall. If you look at our scale pricing, which I think is really more tied to that renewal comment. If we went market-by-market this quarter, I would say our scale pricing was really kind of flat to slightly up. Now, partly that is due to the overall mix in diversity of business.

In North America, we were less concentrated with larger deals specifically in Ashburn and had more numerous wins in San Francisco, Dallas, Houston, and Chicago. But when you look apples to apples of signing in those same markets, and is close in terms of size. Those rates actually look flat to suddenly up. I think, I said in a earlier conference this year looking at Ashburn, for our third quarter signing where we did a lot of larger deals, our rates versus the prior 12 months were within like 100 basis points. So definitely speaking to a crescendo on the rates.

Now, I'm not saying that there isn't a competitor that's going to throw in a low price out there, just to win a business. But I think we bring a lot to the table as Bill, mentioned with our global platform that’s multi-product our installed and growing customer base that wants to expand with adjacency, longest runway for a growth in a competitive market like Ashburn and other things agile to supply chain and counterparty risk as well.

I think last but not least, you really are touching on development returns and also bookings compositions. I think if you look at our development cycle what you're seeing are two things. There's a concentration of our current products in the development project pipeline are larger deals 20, 25 megawatt deals, 10 to 15 year lease terms, AAA minus rated credit counter parties, triple net leases. Hence they're pushing those North America returns down closer to the nines.

And then outside the U.S., which is becoming a much larger share of our new growth be it on that table you’ll see it in Singapore, but also Osaka and the same thing over in Europe. The returns are a little lower, but you're also seeing those returns in an interest rate environment in those countries that is much, much lower than the U.S. And you could see that in the fact that we did seven year euro bonds two weeks ago at a 2.5% coupon. I think, I kind of hit them all there for you.

[Operator]

Our next question comes from Erik Rasmussen of Stifel. Please go ahead.

[Erik Rasmussen, Stifel]

Yes, thanks. So maybe just want to focus again on Northern Virginia. There is a lot of capital coming into the major markets especially Northern Virginia, which is shaping a lot of the development. But what are your thoughts on the private companies making these major investments for plan data center space? And how that impacts the overall industry and general fears of potential oversupply?

[William Stein, CEO]

Thanks, Erik. We've commented on this before. While there is a tremendous amount of supply obviously in Northern Virginia, there's an equal amount of demand, so absorption has been very strong. As I said earlier and Andy mentioned this too, if the hyperscale players have to choose between a private provider with whom they've done little to no business and Digital with whom they've done a substantial amount of business and they are also keen to bring their product to market as quickly as possible at least it’s been our experience that they would prefer to do business with the provider that offers the shortest cycle for providing a product.

So that has to do with both contract and reliable construction deliveries and knowing that the building is going to operate as expected.

[Erik Rasmussen, Stifel]

Great. And just maybe my follow up, kind of efficiencies in the past you talked about efficiencies in the various ways to control, bill cost to manage returns. But how much of those efficiencies can you still pull from? And are we coming towards the end where you may start to see some headwind because you don't have those same levers to pull. Thank you.

[William Stein, CEO]

So I think our team has done an excellent job of bringing out the cost from data centers design. But I think you note correctly that we're approaching a level where it's going to be difficult to take out more costs without impacting residual value. I think we're fortunate and that we've established that our VMI or vendor managed inventory and program in place with most of our major suppliers. And what that means is we have three year contracts in place that lock in pricing for critical equipment like generators switch gear, UPS modules. And so, we haven't been affected by rising steel prices because of those programs.

It's also I think important for you to keep in mind that we are still the only data center REIT with investment grade ratings from all the major rating agencies and that gives us a competitive advantage in a rising rate environment. And finally, we've been able to derisk labor inflation by keeping our contractors on site. So to sum up we have the benefits of buying in bulk across a global sales funnel.

[Operator]

Our next question comes from Michael Rollins of Citi. Please go ahead.

[Michael Rollins, Citigroup]

Hi. Two questions if I could. First, I noticed that you took out the goal for asset monetization relative to prior guidance tables. And I was wondering if you could size the potential for asset monetization and optimization of the portfolio and what kind of market is out there for the assets that would be up for consideration?

And then just switching gears as you look at the hyperscale deployment that you've accommodated over the last couple of years, is there a way to quantify any magnetic effect those deployments are having to also get to additional enterprise bookings in a similar or nearby campus that either wanted to be close to the cloud or employ a hybrid cloud architecture? Thanks.

[Andrew Power, CFO]

Hey. Thanks, Michael. I'll tackle the first question then I'll pass it over to Chris on the second one. So asset monetization still is really very much part of our DNA here. It's in our heritage, and I think you could see that by the fact that even on the portfolio optimization and capital recycling track for some time, I think we sold about $800 plus million of assets outright in the last handful of years. I'm pretty sure that's more than any other data center provider out there.

And also we are big fans of having our fishing pool in all the different pools of capital, both public and private. And that includes outright or joint venture ownership. And we've deployed joint venture ownership across multiple formats. So I would say we look through our portfolio and try to find areas where we want to focus and defocus and also opportunities to further optimize our capital structure through the use of private capital.

I think, you could expect us to continue to focus our investment in the major markets where we see additional runway for growth the Ashburn’s and Santa Clara type markets or Dallas and Chicago’s, in North America, the Frankfurt's, London's, Dublin's, Amsterdam's in Europe and Osaka, Tokyo, Singapore and Sydney in Australia and Asia. And I think we'll see less of a focus on some of those other markets in terms of where we put further dollars or continue to invest.

And with -- I'd say now over 200 data centers almost entirely unencumbered, the majority of which own fee simple. I think we've got a credible amount of flexibility to optimize our portfolio efficiently track various forms of capital and to recycle capital when we find it appropriate.

Chris, do you want to hit the hyperscale and overall echo system question?

[Chris Sharp, Chief Technology Officer]

Yes, thanks Andy. Appreciate the question, Michael. So there's a couple elements to that. So it is somewhat hard to quantify. But still a lot of the industry research and papers out there are still indicating the fact that the enterprise 80 plus percent of that enterprises looking to achieve that hybrid multi cloud.

So one of the things we've often looked at, and we constantly track is not only the amount of uptake on the service exchange, which allows private connectivity to all of the major cloud providers on a very open platform, which we’ve referenced in the past and at a couple of conferences where you have access to 109 cloud on ramps associated with that platform, which is very, demonstrably and allowing customers to efficiently achieve the hybrid connectivity or access to these hyperscale services.

And then I'd say the other key indicator that we've been watching a lot is the proximity, right? And so allowing enterprises to deploy chasing point in Ashburn where you could be immersed in the largest cloud epicenter in the world is a major differentiator, which is why you see a lot of the construction and the build in the amount of infrastructure pipeline that we have in that market. Because it's just a key indicator of the amount of uptick that we have associated with that.

I don't have any specific metrics on how to quantify the attach rate to that at this point in time, but that's something that we constantly track and are really putting in a very tight model to our sales team to ensure that they're having that dialogue with the enterprise customers that they know which clouds they're betting their business on.

And how easily and efficiently consume them either via the service exchange, which is private connectivity or which is unique to our connected campus. The proximity of being deployed right next door to it, which Andy had referenced in the script earlier with IBM, which is a very unique model where customers can be right next door to the actual cloud services they're consuming.

So we see a lot of that uptick coming to the market and we see no ending sight for a lot of that hybrid multi-cloud architectures.

[Operator]

Our next question comes from Robert Guttman of Guggenheim Securities. Please go ahead.

[Robert Guttman, Guggenheim Securities]

Hi. Thanks for taking the question. Can you talk about the state of power availability in Northern Virginia and whether or not that is any constraint on market growth there? And secondly, last year's the full year’s leasing in North America was largely focused in Northern Virginia. I was wondering if when you're looking at the sales pipeline how does -- how did the rest of the markets look in U.S. versus a similar comparison the same time last year in terms of pipeline.

[William Stein, CEO]

Thanks, Robert. I'll jump on the first question and I think Andy will pick up the second piece. But, as far as power availability in Northern Virginia one of the things that we often really start to look at is how we master plan the multiple campuses that we've built out there. And one of the key elements of that master plan is working with the local power providers and early on establishing a demand profile associated with not only what we have today, but where we're headed.

And a part of that is investing and ensuring that we get the proper substations built inside of the market, which is very unique to digital and from our long heritage in building out these campuses to ensure that we don't run out of any power. So not only with the campuses that we have populated today, but the future expansion campuses we're already in deep dialogue with a lot of local utility providers to ensure that we have proper access and redundant access in these core markets even outside of Northern Virginia.

So we see nothing impacting our ability to meet our customer demand with the master plan facilities that we have today and also the future expansion that we have in that market. And I'll hand it over to Andy for the second part.

[Andrew Power, CFO]

Thanks, Rob. So I mean if you look back at the fourth quarter or -- and a little bit of 2018 in terms of North America composition, fourth quarter was really not about Ashburn at all for us it was much more diverse. So we had north of a megawatt size in the San Francisco property area, we had signings in Houston close to a megawatt, Dallas, also in Chicago. And if I also go back a handful of quarters, I can certainly recall other major signing in the Chicago market as well as on the Dallas campus.

Now those signings obviously get a little bit round out when you do a 25 megawatt deal in any given quarter. But it wasn't solely isolated to Ashburn or Northern Virginia. When I turn to looking at North America for 2019, I do think you'll still see a consistent demand for that Ashburn, Virginia robust demand market. But I think the conversations at Digital range a little more broadly all the way up into our newest delivery Toronto campus also out to some Santa Clara discussions. I know there has been some activity growing on our Richardson campus in Dallas.

And then a market that's been a little bit of a sleeper going back a year or two is the New York City metro or northern New Jersey market where we've seen a pickup in financial services related demand on a few locations in that market. So definitely seeing the demand spread out a little bit to more pockets within North America portfolio in 2019 it feels like that it did in prior years.

And going back, I apologize, I think I skipped one of Colby’s questions ask about outlook for 2019 international versus non-international. Obviously we have the Ascenty portfolio, which is going to be go from count zero towards our $268 million record signings in 2018 and be a part of the picture in 2019. But putting that aside and really comparing apples to apples when I look at the inventory backdrop be it our campuses in Frankfurt, Amsterdam and London. Some of the enterprise customer demand we're seeing in Dublin are new announcements, which we had in Sydney, Australia in terms of new deliveries and also in Osaka, Japan.

I think what -- in the last year or two it was probably more of a 75% to 80% signings in North America and remainder outside of the U.S. or North America. I think you could see that complexion should become much more global. And I can tell you that was a major theme as we kicked off the year from a strategy to really kind of speak selling to our strengths of the global multi-product platform.

[Operator]

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

[William Stein, CEO]

Thank you, Andrea. I'd like to wrap up our call today by recapping our 2018 highlights, as outlined here on the last page of our presentation. We advanced our top priority of deepening connections with our customers delivering record bookings of $268 million, a 35% increase from the previous all-time high the prior year.

We further expanded our global platform with our entry into Latin America. And we further extended our sustainability leadership with the addition of 90 megawatts of renewable energy capacity. We delivered 8% growth in FFO per share at the top end of our original guidance, and we delivered double-digit growth in AFFO per share setting the stage for continued growth in our dividend.

Last but not least, we further strengthened our balance sheet, raising $1.1 billion of common equity to fund our future growth, refinancing our $3.3 billion credit facilities and issuing over $1 billion of long-term investment grade corporate bonds at very attractive coupons.

As I do every quarter, I'd like to conclude today by saying thank you to the entire Digital Realty team whose hard work and dedication is directly responsible for this consistent execution. Thank you all for joining us. And we look forward to seeing many of you in Florida in March.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.