Digital Realty Trust, Inc. (DLR) Earnings Call Transcript & Summary

I'm Dave Barden. I head up Telecommunications and Common Infrastructure Research for Bank of America in the U.S. and Canada based here in New York. So thank you all for coming. We're really pleased to have with us today Digital Realty and their CEO, Andy Power, a Bank of America alum; and Jordan Sadler, a KeyBanc alum, who heads up IR for the company. And so thank you both for being here. Appreciate it.

Thanks for having us.

So I guess -- I mean, I'd like to start out by just talking about the kind of just overall demand profile. We'll get to kind of how we fund the business in a few minutes, but the stock has done amazingly well since the summer, big 40% move up. And a lot of it has to do with, I think, a more clear-eyed view of kind of the fundamental base case demand, and then we can talk about some of the upsides to that demand. But one of the more kind of amazing things about the business is that second quarter, you had almost 7% re-leasing -- positive re-leasing spreads for the business, and that is a dramatic U-turn from probably the last 10 years. And so none of the AI stuff, that's not part of this, like something has really changed in the business over the last year to 18 months. Let's start there, and talk about what is really going on in the data center industry?

Sure. So I mean, maybe if I buck it into the 2, call it, categories of demand, starting with like more enterprise-oriented, less-than-megawatt interconnection-rich. Probably close to a year ago on the third quarter call, we obviously were facing an environment, which had economic clouds, potential recession, which does not appear to have come to fruition in '23. I think I was an outlier and wrong in calling out concerns around that.

Bank of America was, too.

And we've -- call it, put up pretty strong results in that category, whether they look at our new modular contribution quarter-over-quarter or less than megawatt interconnection bookings, multimarket, multisite and a pretty strong quarter through the second quarter. And I would say what we're seeing in activity with just less than a month ago it still remains robust and firm in that category, call it hybrid cloud deployments. The hyperscalers, again, like as you described, putting AI aside, have been continuing to grow their footprint in their availability zones in addition to on-ramp locations that's been double down in existing markets, that's been growing into new markets, and that's, call it, been a consistent, robust and diverse demand source as well. All of this has transpired after many years of the same song on demand happening in a world where supply is kind of run out of gas from multiple angles, whether it's our generation or transmission issues, supply chains, environmental concerns, nimbyism, moratoriums in certain countries or jurisdictions, and that didn't show up overnight. I mean, we had some major events along the way. Just over a year ago, Northern Virginia and Dominion Power says no more power until 2026. That [ movie ] really hasn't improved in terms of their delivery times. Since then, Clara on the West Coast has obviously had like an almost 2030 issue on transmission. That pendulum on pricing for both our categories has moved more and more in our favor. On the enterprise side colocation, you've seen our cash mark-to-market is, call it, vested now 4.8% in the last quarter. That's, call it, versus a trailing 12 month of 4.2%. And if you go back multiple years, they're closer to the 2.5% to 3.5% type mix. And then our greater than megawatt contribution has had the greatest inflection certainly anchored or pulled from head by the markets that were most impacted. And the example idea, which is our largest market, is Northern Virginia and Nashville in particular. Those rates have gotten pushed down to the 70s not too long ago. And now in the last quarter, we announced that we've been doing new deals and renewals with various customers and sizable multi-megawatt deployments in the 140s. And those kilowatts or megawatts are incredibly precious. And net-net, I think this phenomenon is going to continue for some time because I don't see the demand abating, the AI, which we can talk about as a -- I believe a rising tide that will lift all ships in the data center industry, and these supply constraints are not dissipating quickly.

Yes. I mean I -- especially with respect to the power unit, it's -- I like to think of it as there's this kind of geometrically compounding amount of demand for data consumption, but the amount of space and power available kind of grows in a linear fashion. And these 2 lines for the first time in the years that I've covered data centers for the last 15 years, seem to have intersected in kind of a non-transient way. Would you agree with that kind of characterization?

Power was not -- by and large, power, is not a problem for our business. And now, it is as crucial as permitting on land. And -- I don't lay this all the feeds data center industry. We have been in a robust economic run for numerous years across numerous sectors, and this is all. It can happen. The CHIPS Act and other manufacturing industrial deployments of capital that are all pointing on the same resources, whether it's power or water resources or talent pools or manufacturing slots. And data centers has certainly been a demonstrative piece of this puzzle, but it kind of makes sense that the demand has out clips the supply.

So kind of thinking in a PE times V type of context. So let's focus on the PE, the re-leasing spreads. So you kind of talked about 4.8% for the sub-megawatt kind of enterprise colo business that, for lack of a better term, kind of the [ Equinix's ] kind of part of the business. And then -- but having delivered an almost 7% re-leasing spread for the total business in the second quarter, obviously, the greater than 1-megawatt is doing a lot better, and that has been a source of volatility historically for Digital Realty, sometimes unpredictable. But you've said that you think that you can assure investors that it will be at least non-0 re-leasing for the year. But given that we are running high single-digit re-leasing spreads for the first half of 2023, why am I not more optimistic than that? Because it sounds like you might have to take your guidance up.

We just bumped the overall. We guide on overall, so the mix of both of those numbers in plus 4%. The less than a megawatt colocation interconnection reached great or numerous data points in that pool of activity, as I mentioned, has inflected not as great of an extent, but that's been a positive for a lot -- much longer, almost forever kind of a category. Listen, we're doing our best handicapping renewals for bigger deals because we don't control when those get signed, right? And they don't show up on the day prior to the expiration and say, hey, I'd like to renew it today, right? So we don't know what mix comes in any given quarter. We did, I believe, call out on our earnings call or prior conferences that our 2Q greater than megawatt had some episodic about a short-term renewal like 2 years, and that was like leading the way premium or that flexibility we afford the customer. But I think my comment is, it feels more and more firming that in that category in any given quarter, it's going to be -- it's on the positive side when I've certainly inquire answers to that question. But there have been a lot more wiggle room, you never know when the negative could come through. So -- and that's because these market rates have run a fair bit and continue to run Jordan, do you want to [indiscernible].

Sort of layer in, in the context of your question, the historical volatility associated with the greater than a megawatt bucket is really downside volatility. We couldn't predict that.

That was the employed, yes.

Exactly. And there's been an inflection this year, obviously, in fundamentals. And what you saw in the second quarter was really that inflection, which is really the upside volatility. And so to your point, what are you going to see in the second half? You're not going to see the same degree of upside or amplitude. But normalization, but on trend in a positive manner.

Yes. I would -- so I would imagine that you've got enough visibility into the portfolio and into the maturity of the various contracts. Now obviously, these companies can come to you at any time and say, I want to get ahead of this. But the pricing floor for almost every market around the world has come up to a point where, is there any real legitimate risk of a downside surprise? Or just not maybe as big an upside surprise as we've seen in the list?

We just have a small sample sets in those [indiscernible].

So far, yes.

All right. I mean we just -- these are chunky contracts, so -- but we could be doing hundreds of renewals. And 1 bucket, and we could be doing handfuls in the other, right? So that's the -- when you zoom into a quarterly basis, but it does not feel like -- it feels like we've got a pretty good shot of exiting this year at the very least. It would have been positive in that category.

Okay. So switching to the V side of the equation. I guess -- so first of all, I think you guys have maybe cautioned that just because of the lack of new supply, Digital Realty supply coming to market in the third quarter, that we shouldn't expect necessarily amazing bookings because there's no new stuff to sell, but it is coming. I just want to kind of make sure, is that -- like third quarter isn't necessarily the bookings quarter we should hang our hat on. We've got new supply coming in the pipeline soon.

I wouldn't be that cautious on the third quarter earnings. I know we got weeks to go. Third quarter, like, will not be the record for Digital Realty, but everything is shaping out to be a pretty darn healthy quarter in my opinion.

And so just in terms of that V, again, can you kind of remind us what's your vacancy or what's your occupancy rate within the portfolio right now?

So the -- state price portfolio is, call it, in the mid to low 80s, and that -- I'll speak to that. I think we still have -- we've made progress in re-leasing that capacity. And by the way, that same-store pool gets adjusted every time we joint venture or sell anything that's 90%, 95% or 100% leased. So -- and the other thing about that pool, we're actively managing this portfolio with the full spectrum of customers. We often have customers that don't renew from certain capacity, 3, 4, 5 megawatts. And rather than re-leasing that like-for-like, we reprioritize and move that towards our colocation mix because it's a much higher, better use an economic return. So that could be an interim hit to occupancy, but at the end of the day, you have a much higher ROI or incremental NOI. We've got almost 400 megawatts of capacity that are actively underdeveloped shovels hit in the ground, regulatory are going to open up soon, just over half of that percent re-leased. And then beyond that, we have land capacity of, call it, north of 3 gigawatts. So that is all, call it, within our controller remit.

So let me go back. So these are things I wanted to kind of check through. So the 50% pre-leased within the 400 megawatts that's in the development pipeline, would you say that that's a normal percentage? Is that a higher-than-normal percentage? Is that drifting northward as people try to take larger deployments sooner and to get ahead of this consumption curve and this power availability curve that we talked about?

The ebbs and flows over time based on what gets add and what gets subtracted by and large, unless it's colo, which you're not doing a lot of pre-leasing into. By and large, anything that's not colo is pretty highly pre-leased by the time the door is open and exits that pool. I would say the trend is more and more towards pre-leasing, and some of that is just the broader supply constraints. More urgency in a store of, hey, I'm going to grab this before somebody else does. And then some of this is obviously new use cases, and AI applications, call it, come on the scene, and they have fewer options where they can put those workloads getting large contiguous capacity blocks. And we're not going spec on a 200-megawatt shell or multiple suites in that size. So that means the leasing is usually ahead of the actual, call it, entering that part of a development cycle.

I would say I've heard that from other data center providers as well that that -- the upfront need is getting more expansive. But one of the pushbacks would be that in industries -- not to pick on cable industry, for instance, where in 2020, 2021, they saw 30% higher than normal broadband net adds, but then there was a hangover effect in 2022 when the broadband just didn't grow at all. So we've seen maybe some of that in wireless where we had 9 million postpaid phone net adds a year for a couple of years, and then that's kind of going to fall to 7 million this year, maybe 5 million or 6 million next year. Are we at all concerned that what we're watching happen is something that's transitory in the sense that IT managers are getting more anxious about availability? They're buying more than they need, and so there's going to be an air pocket where they fill up what they've already kind of pre-leased, and growth slows down and pricing power slows down. Does that happen? Or does it not happen?

I don't think, on the enterprise -- if you parse it between the 2 major buckets, I don't think on the enterprise front, we're seeing that much of any pull forward or a type of degree. And then enterprise colocation customer, they're feeling less of a pinch point on these inventory constraints because their needs are somewhat smaller, right? And on the larger footprint side, I can tell you, we've not been -- our signings we've reported, and not even likely in the third quarter, do not have a massive bubble pull forward related to the new use cases of Equinix. And I think it speaks to -- we've now gotten numerous quarters with consistent, call it, growth in new signings. We're going to enter a phase here where this new use case is a buyer of big, contiguous capacity blocks, and that transition to AI as an incremental demand source will put positive volatility. But we'll do our best to frame the different pieces when we communicate. And listen, there's a long tail after the beginning of AI. We're just at the first innings on the trading piece, let alone go on to inference. So I don't think this volatility of this concern, a pull forward is necessarily a tremendously bad thing for the industry.

Okay. Just a couple of more questions on the power, just the 400 megawatts in development, do you have the power to actually deliver 400 megawatts if you had that demand?

Yes.

Okay.

And by and large, all but, call it, 800, 900 of the 3-plus gigs that I mentioned in land capacity...

That was where I was going to next, yes.

We have the power in a realistic normal time. And that list, the caveated piece is really anchored to this Northern Virginia pinch point...

Right.

On power.

And you think that's about 700 to 800 of the 3 gigs. Is that the digital?

800-plus of digital dollars. Is it 2026 arrival? Or later potentially.

And demand will grow between now and then, so.

We think so.

Okay. So that's super helpful. So then maybe 2 more questions on this. One is the -- as we think about the AI of evolution, right, the -- there's a sense that AI is only going to be 40,000 of cabinets driven by GPU chipsets and liquid-cooled. And if you haven't engineered your data center to 1,000 watts per foot, you're just not part of the game. And so there are companies that are coming to market, private companies primarily, that are trying to create these bespoke types of data centers. So could you talk a little bit about is Digital Realty building in that 400 megawatts of development? Does it -- has it contemplated, or can it contemplate or can it accommodate these heavy workloads? And is the rise of these private companies, these bespoke builds, is that a threat to your position or a recognition that the opportunity is just simply growing at a rate you can't keep up with?

The -- I would challenge a private company telling you that they're leasing the entire buildings and been designing historically to that highest power density and actually doing any business, because I can tell you we do a lot of business with the biggest cloud service providers, and they have not pushed to those type of infrastructure limits yet for all the compute they're doing around the world. We have been doing a few things. Obviously, modifying our design for our new builds, which I believe is going to be the lion's share where this goes because the use cases and the applications and the CPUs in our existing builds are -- we're not emptying out our 300 data centers to refill them with GPUs. And so -- and the innovation is really making it water-ready. So we're not talking liquid immersion. We're talking about replacing blowing air with water closer to the rack or chip. And we've done this before with customers, we've done this in buildings that were not engineered at the outset to do that, so retrofit, and I think there's going to be an evolution. We're in conversations with AI customers that are able to take the infrastructure we have today, be it a building that we built years and years ago, and deploy AI with, call it, bringing, call that, liquid closer to the servers. We're in conversations with customers that want to do this in our new builds. We -- the ship -- like the ship is sailed on capacity that's going to be delivered anytime soon. You can't like go back to -- and if you want the capacity near term and say, we're going to totally redesign this building like on the fly, but they're able to, call it, make the modifications to meet their design objectives. So I don't think that this is -- I think the infrastructure, the physical piece of this is being a bit overstated in terms of what could be potentially proprietary, what could be utilization for different types of data centers. And I think you're going to see just like the total, our data centers that have been supporting hyperscalers, enterprise colo, network dense, more compute-oriented, there's numerous different iterations and flavors of these that, call it, look about heat containment, cold aisle, hot aisle, cooling features, infrastructure redundancy. So I think where this is going is there be matchups of GPUs and CPUs used by enterprises. There'll be more GPU-oriented farms for some of our large hyperscalers, and there'll be everything in between. And I think we have the master of hand to play in supporting all shapes and forms of that.

Just by line -- the last question. Have you had or been approached by, say, the hyperscaler guys for these kinds of builds? Like incremental to the 400 megawatts, which are probably some cloud-centric builds already, has there been conversations about that other 2 gigs of power that you have out there? How to use it and exploit it in new ways?

What we know about these new use cases with AI and training is, the one major factor is the seeking of large contiguous capacity blocks. You cannot break these up over multiple buildings, campuses, metros or parts of the country. That is a key attribute that they're really seeking. And you're only going to find that in large parts, so we'll handle, we haven't already started leasing and selling to other customer, right? So this dialogue with these customers, it goes back to, call it, very at the beginning of this year. I think it ratcheted up and it's important to these customers, call it, late spring, early summertime. And we see numerous customers saying, maybe I really need this. It's important to my strategy, and that big contiguous capacity is crucial. And lastly, what I would say, we are not following these customers out to unproven markets just for big deals without a competitive advantage to our model and our pricing and returns. We're fortunate that the big customers have shown preference to do this in their core markets where they have availability zones or they have infrastructure, where they have teams. And where the future they don't know will unfold, they have other use cases that could fill the capacity there see it in, be it their traditional availability on compute.

Right. It helps to be the incumbent in all the places where computers exist. All right. So kind of over the course of the last roughly 9 months, we've seen positive re-leasing spreads in the sub megawatt and the better than 1-megawatt. In the absence of a recession, the conversation about the pace of digital transformation hasn't really changed. That seems to be a corporate priority for everybody, including Bank of America. And then we have this kind of aha moment regarding the likely step function incremental demand for the business, so the kind of opportunity seems to have really crystallized over the course of the last 9 months. The thing that Digital Realty faced at the beginning of the year was how to harness that and fund it, and how do I take that top line growth and turn it into profit. And so again, round numbers, we've got about, what, $1.5 billion in operating cash flow. We've got a $2 billion CapEx budget. We've got a $1.5 billion dividend, which leaves us with kind of a $2 billion hole per year. It's a little bit bigger this year for some reasons -- development reasons. So in order to kind of fill that hole, as rates have kind of moved up, we've had to get more creative. So we kind of take incremental debt off the table because your intention is to go from the current post divestiture 6.3 leverage. You kind of -- you did a few things to get there, right? You raised $1 billion in equity, $2 billion in stabilized JVs, about $300 million in dispositions. You've talked about a desire to do another couple of hundred million in dispositions, maybe $750 million in development JVs at the margin. So can you tell us our progress on those 2 remaining kind of items? And when we get it done, have we only just plugged the 2023 hole, or we made a dent in 2024?

There's a lot there second. I think 2 things come to mind, and I'll get to the funding of the balance sheet piece in a second, but the -- what recent experience, I think, is further and further validating our 2 things about our strategy, one of which is newer. But one, we ought to capitalize on this AI opportunity not as a trade, but as a sustainable business. So like I said, you heard me speaking about spots, where we go and where we don't go. But also benefit from the next legs of this, we'll pass the trading models, when we're on to inference, when we're on to private data sets, when we're on to enterprise being the major consumers, not the consumer. And I think that speaks to the merits of having this full product spectrum because if this moves in that direction and location or latency sensitivity of any shape or form, the cloud and its available zones lives within Digital Realty. The enterprise is hybrid IT, it lives in the Digital Realty. If it gets as far needed to be proximate to the networks, that is also within Digital Realty. Two, something that wasn't -- it's been in our DNA that I think really crystallized it for me more than anything is this opportunity, be it cloud and AI and everything around it, is so big that the best way to maximize value is both combination of public and private capital working in tandem. And we, as a company, we've been a long-term public company, have been waiting into the private capital world for many, many years, be it strategic joint ventures with financial joint ventures on stabilized assets, another separate publicly listed vehicle for stabilized hyperscale assets. And this year, we obviously needed to delever the balance sheet, and we did that by activating that private parts of our capital sources when times were not great for our public source of equity. And we are very fortunate through the month of July to call it, be able to transact on largely 2 massive hyperscale JVs with financial partners for bringing us to close north of $2.2 billion of capital and getting led to leverage. The next leg of that -- not the last, but the next slide of that, which we've also been talking about for some time, has been the development joint ventures. Yes, with that, you're sharing attractive returns or upside in projects with private capital partners, but we view this opportunity so large and expensive, so long run, and the merits of doing that to lighten our balance sheet to drive further efficiencies. So our organic fundamentals who finally arrived, the pricing power and the mark-to-market, the same-store growth, getting at the flow to the bottom line to, call it, grow our core FFO per share, which obviously hopefully accelerates and improves our cost of capital and the equity on the public side. So I can tell you, I have no pleasure in issuing stock back at the end of May, beginning of June at the prices we did. I still think it was the right risk mitigation move to keep us in the realm of opportunities we saw ahead of us. Since then, we've not issued any other equity under ATM. That's not saying we're taking that off the table, but I think it speaks to the success we've had on the private capital on the JV side and the noncore dispo side, and my commitment and conviction on the development side. And I can't promise you that we're going to announce 1 or 2 of these by the next earnings call, like last earnings call.

I thought it was going to be today.

Right. Apologies for that. The -- but quite honestly, this will be the easiest for the capital that we raise. Just the return opportunities. The opportunity -- I'm proud of our company, and this obviously asked us even put bias aside, this is a tremendous opportunity as private capital partners to invest inside us. This is a privilege, and we are being thoughtful on the right capital partner that brings more to the table than just dollars and cents to be our partner, and it's a great opportunity. And the last thing I'll say, the activity we're doing today, be it hyperscale stabilized JVs, the development JVs, those were necessities of urgency we had to do. Pleased with the valuations, the structures, the partners, the ones we've announced, the ones we will announce. But the end game here is whether it relates to our hyperscale, we still believe we can monetize 3-plus gigawatts, what many of that will be hyperscale, attractive ROIs that are profitable and stay away from chasing business not profitable, and then move to a model that benefits from the access to the private capital in almost a fund-like structure to essentially bring other folks into funding our business and allowing to preserve more of the organic growth in pricing power in our public company.

So I want to talk a little bit about that. So the strong demand drivers and what we talked about for the first half of our conversation have been driving kind of a high single-digit top line growth. The funding vehicles that you've deployed, the equity, the stabilized JVs, the dispositions, have a dilutive effect on those strong top line fundamentals and kind of drive low single-digit AFFO per share growth. On a go-forward basis, either that could continue to address these $2 billion year deficits or the tool that you haven't used yet, this development JV, could be accretive, and it depends on how you decide to use it. If you use the JV to attack the same volume opportunity, but at a lower CapEx rate, you'll generate more cash flow, but it will kind of have a slowing effect on the top line down the road. In the alternative, you could try to mine that 2 gigawatts or 3 gigawatts of opportunity faster and use the development JV is, what I would call a force multiplier, where you spend the same amount of CapEx, but now you're attacking the opportunity faster, you could drive your top line faster and that will fall to the bottom line faster and that will drive more incremental AFFO per share growth. I don't know which ones more important is to kind of attack maybe the deleveraging limit the CapEx or maximize the growth or both?

I would say it's both. This is not going to hit your questions straight on. I'm not trying to avoid it, I just think about it a little bit differently. One, we with urgency, delever this balance sheet this year from close to 7x to closer to 6x, and we are still not done yet, and the destination is closer to 5.5x. But we're not going to do it overnight, and we believe we have the grace to do it through calendar year 2024 in a prudent fashion. So that's a priority, right? That's where the capital comes into the company, its first going, right? At the same time, we look at this development JV as not only contributing to delevering, but in general, something that is going to remove a demonstrable headwind to our bottom line growth by airing, shouldering the weight of non-income-producing -- of hundreds and hundred millions of dollars of non-income-producing value that we've been having as a yield around our value creation path, right? And we're doing that with a view that we've got to get the organic fundamentals that we're seeing in the business to flow to the bottom line and get to an earnings growth that's, call it, mid to high single digits. And I'm of the view that when we get to that arrival and feel confident that arrival stays in that earnings growth profile, that gives us the flexibility as to the quantity we share with partners and don't share with partners, right? Because for every dollar we joint venture, we're giving them a profit of an ROI project that's in double digits unlevered, right? So that's how I think about the algorithm that we're going through, which I know that we're complicated and we're trying to simplify this, but that's what we're driving towards as we exit '23 and going to '24 on to '25. And the quantity of these things we're doing are, like, we're doing a massive amount of JVs this year because we had to delever a whole turn this year, right. They're going to be a smaller, smaller piece of our pie and less of the headwinds to our bottom line growth. And again, we're trying to do this with a framework where the decisions we make about our partners today don't close doors as to what our partners could be in the future at the same time.

The -- one of the vehicles that was really successful for you was digital core REIT, and obviously, they've been going through some challenges with the [ 6 Terra ] bankruptcy. Do you foresee that when that's over and done with that, that comes back on the table as a funding vehicle for you? Or is it kind of matured?

I've been pretty consistent on this point, go back numerous months, and I'm sure I faced a lot of chuckles as people heard my answer to that question and left the room.

[ Absolutely ]

I described that -- I said that vehicle is down, but it's not out. And you've seen recovery of the stock price not all the way to where it should be, but recoveries happened. We're seeing a scenario where a large customer is, I'll call it, appears to be on the final stretches of its bankruptcy proceedings. The fact of circumstance you can read from the public filings seem to be a much rosier outcome than the draconian states people have assumed. And I believe the finality of that solution, which is we're talking within months, not years, it will clear the runway for that vehicle to have its cost of capital reset. And when that happens, I believe it has the path to actively grow its business and we have a tremendous amount of pipeline that they could participate in, and it will be an incredible partner. Very similar to the deals we've done and announced in July, but obviously, a vehicle that we're even closer with these new partners we've kind of onboarded.

And I think at the second quarter, you adjusted guidance of about $0.05 to $0.07 AFFO per share. Were you draconian in that sense of setting that bar?

Was -- at least 2 of it is not likely coming back. That's -- that was called pre-petition claims. So we had to handicap, when this thing comes out of bankruptcy, which leases a digital core get rejected and that impact to us, what leases at Digital Realty got rejected. And then if a lease is rejected, what do we -- how we make on the end customers in this capacity? I mean one of the -- we got in the colocation interconnection business with a view that servicing the whole -- 2 views. One, servicing the whole customer spectrum was the right way to maximize value in this space and really tap into a market that really was looking for an incremental global competitor and giving the customers of this world another choice. And the ancillary benefit we found is we already were dealt a hand with this reseller. We work like sales lease situations that by being in their business, we can mitigate when things go wrong, right? And we've seen this movie before, and we stepped in and support the end customers in the event a lease was rejected. In this scenario, I'm not sure -- well, I'm not sure we were draconian in that. I think we did our best to handicap. I think we're very well prepared to face whatever outcome happens from this bankruptcy.

So if we kind of start wrapping up, what I hear is third quarter leasing, very happy with it. Year-to-date re-leasing, running well ahead of expectations. [ 6 Terra ] outcome could be better than expected. Nondilutive new funding joint ventures with partners coming up in the development side. Possibility of the Digital Realty becomes the funding vehicle again in 2024. Kind of sounds like things are going pretty well.

We're blessed for an industry that has got real demand drivers, with new ones popping on the scene. The value prop supply is constraining and driving the pendulum towards us in terms of pricing rate and returns, as is our value proposition strengthening. And it's nice when the fundamentals are great or improving, but it's also happening at the same time when the capital is exiting legacy asset classes and wants to invest alongside of us. So I think -- I don't think we ever warranted the negative perspective, we were for the beginning of this year. But I think it's -- I think we are seeing some recovery, and we've been a Show Me story, and now we've been showing you. And I can promise you, we're not done yet in this calendar year for sure.

That sounds great. A great place to leave it. Thank you, Andy, and thank you, Jordan, for coming. I appreciate everybody for being here, and thank you for listening.

Thank you.

Thank you.