Digital Realty today announced its Q2 2021 earnings and provided updates on its colocation and hyperscale data center leasing activity, development pipeline, and geographic expansion of its portfolio, including in South Korea, Australia, and India.

In Q2 2021, Digital Realty reported revenue of $1.1bn, which was unchanged quarter-over-quarter, and adjusted EBITDA of $603m, a 2% decrease quarter-over-quarter.

Leasing Activity in Q2 2021 – Digital Realty

In Q2 2021, new lease signings were $113m, down 3% from the $117m of signings during Q1 2021. In total, the new lease signings represented 58.7 megawatts of power capacity and 558k sqft. On pricing, new lease rates were $142 per kilowatt, representing a 4% decline from $148 per kilowatt in the prior quarter.

Digital Realty – Historical Signings – as of Q2 2021

Digital Realty Historical Bookings Q2 2021
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Decomposing Digital Realty’s lease signings further by hyperscale, colocation, and interconnection:

  • Hyperscale: over 1-megawatt signings were $59.0m, equivalent to 52% of total signings
  • Colocation: under 1-megawatt signings were $41.2m (an all-time high for Digital Realty), equivalent to 36% of total signings
  • Interconnection: contributed $12.6m, equivalent to 11% of total signings

Geographic Breakdown – New Leases

Digital Realty’s mix of new lease signings was weighted towards the Americas during Q2 2021. Specifically, the Americas contributed 55%, while EMEA and Asia Pacific added 24% and 21%, respectively (excluding interconnection).

  • Americas: new lease signings were $55.8m, for 41.8 megawatts of power capacity and 382k sqft
  • EMEA: new lease signings were $24.0m, for 10.1 megawatts of power capacity and 112k sqft
  • Asia Pacific: new lease signings were $20.9m, for 6.8 megawatts of power capacity and 64k sqft

Within these geographic regions, Digital Realty had particular leasing success in Hillsboro/Portland (24+ megawatts), Northern Virginia (6+ megawatts), Tokyo, Japan (6+ megawatts), and Toronto, Canada (5+ megawatts). Additionally, Singapore is a noteworthy market because its tight supply has allowed Digital Realty to significantly raise its lease pricing.

Renewal Leases

Digital Realty signed renewal leases representing $178m of rental revenue during Q2 2021. The weighted-average lease term on renewals signed during Q2 2021 was <3 years, again reflecting a greater mix of colocation deals of <1-megawatt. On a cash basis, these lease renewals were up 0.1%, whereas on a GAAP basis, lease renewals were up 2.1%.

Development Pipeline – Digital Realty

As of Q2 2021, Digital Realty’s data center development pipeline (excluding 20 powered shell investments) comprised $3.8bn, with 288 megawatts of power capacity under construction. Overall, these projects are 42% pre-leased and have a blended target development yield of 11.0%.

Notably, Digital Realty is investing in development projects most heavily in EMEA, with 50%+ of the company’s expansion taking place in this region. Whereas the remainder of the company’s pipeline is split relatively evenly between North America and Asia Pacific. Additionally, Digital Realty’s development yields by region show a meaningful variance:

  • North America: 9.5% development yield, for 67.9 megawatts of power capacity across 865k sqft
  • EMEA (primarily Europe): 11.7% development yield, for 149 megawatts of power capacity across 1.7 million sqft
  • Asia Pacific: 10.9% development yield, for 70.6 megawatts of power capacity across 717k sqft

Overall, Digital Realty is allocating 50%+ of its development capital expenditures to five metros. Specifically, these cities include Paris, France; Frankfurt, Germany; Hillsboro (Portland), U.S.; Osaka, Japan; and Tokyo, Japan.

Geographic Expansions – Growing Beyond the United States

As part of its Q2 2021 earnings release, Digital Realty notes that it generates ~60% of its rental revenue in U.S. dollars.

Digital Realty – Currency Exposure By Revenue – Q2 2021

Digital Realty Exposure By Revenue Q2 2021

However, the company is making a concerted effort to increase its exposure to markets in which it is currently underweight. In particular, Digital Realty made announcements in Q2 2021 to expand in South Korea, Australia, and India.

South Korea – Digital Seoul 2 (ICN11)

During Q2 2021, Digital Realty acquired a five-acre land parcel in Seoul, South Korea. For this parcel, the company paid ~$66m, equivalent to $13.5m per acre.

The parcel is located at Gurae-dong, Gimpo City in northwest Seoul, ~14 miles from Digital Seoul 1 (ICN10), Digital Realty’s first facility in South Korea. Currently, Digital Seoul 1 (ICN10) is under construction and scheduled for delivery in Q4 2021.

Digital Realty’s new land parcel will support the development of a multi-story facility with up to 64 megawatts of critical IT capacity across 970k sqft. The facility, dubbed Digital Seoul 2 (ICN11), is expected to be fully operational by the first half of 2023. Upon completion, Digital Realty will target hyperscale customers which have shown strong demand to-date in Seoul, South Korea.

Sydney, Australia – Land Parcel

During Q2 2021, Digital Realty purchased an 18.5-acre land parcel in Sydney, Australia for $65m, equivalent to $3.5m per acre. Notably, this land parcel will support the development of 97 megawatts of IT load.

India – Joint Venture

In mid-July 2021, Digital Realty and Brookfield Infrastructure Partners announced the establishment of a 50%/50% joint venture to develop and operate data centers in India. Indeed, this partnership will operate under the brand BAM Digital Realty.

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