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Digital Realty CFO on building relationships

Having worked as an adviser to the US data centre investor for a decade before joining benefited Andrew Power when he became CFO five years ago

When taking up a CFO role it helps if you’ve had a longstanding relationship with the organisation you’re joining. Andrew Power could certainly lay claim to know the business of Digital Realty Trust, the $40bn market cap data centre investor, when he was hired in 2015 having worked on its IPO a decade earlier.

Then he was an investment banker, advising on the flotation, “I was the lowest rank on the working group, building the model but also fetching the coffee at the same time,” he says.

Since the listing, Digital Realty has seen its market value grow more than ten-fold, reflecting the global need for centres to store data that is being consumed at an ever-faster pace.

Power says the San Francisco-based REIT (real estate investment trust) was set up as a vehicle to fund investments in the intersection of real estate and technology during the dotcom boom, which with Airbnb and its peers is now a well-established sector. “It was considered neither fish nor fowl at the time, when the State of California’s pension fund decided to invest in it,” he informs.

It was one of many tech firms Power was involved with as an investment banker specialising in the space. He says he had the good fortune of “being dropped into numerous complicated, high intensity, fast moving situations with high stakes at the table. I got to see it from many different angles and levels,” he says.

Just about every fundraising thereafter for Digital Realty had Power’s involvement. “I helped the company from the outside with a lot of firsts, whether it was going public, raising capital, M&A, investment grade ratings, investor days and the like,” he says.

Power joined the group to take up the top finance role in 2015. “The company had come a long way in the preceding 10 years, where I’d been helping from the outside. It still was a rocket ship that had just been doing some low altitude test flights and was ready to set off for outer space in many regards,” adds the American.

“I think the business size [enterprise value] was then less than $15bn and now we’re closer to $55bn. The country count has probably doubled during that time, as has the complexity of where our customers are going, and where we’re driving the business,” says Power.

Since his arrival, he says Digital Realty has undertaken a lot of transformation work to develop it into a global player with 4,000 clients. “We’ve scaled up in terms of rent and coverage and size of footprint per customer.

“We’ve extended our product offering to more multiple megawatt dedicated data halls, hyperscale, all the way to helping the enterprise customers with their most critical pain points and doing that through a lot of organic and inorganic activity, including M&A,” says Power.

Value creator

Power’s time in investment banking, after gaining a degree in Analytical Finance from Wake Forest University, in North Caroline, gave him plenty of insight into business models that were working well, especially in areas of driven by the so-called fourth industrial revolution.

Power describes his time in investment banking, at Citigroup and then Bank of America Merrill Lynch, as always stimulating. “Every day I was going to learn something, make a difference, move the needle, and help some customer in one way or another, as well as our firm,” he says .

But at the same time there was a nagging feeling that he wanted to move from the advisor role into the “doer role, like moving from being the chef to being the diner,” says Power. The opportunity arose when long time Digital Realty CFO William Stein became CEO of the group and was seeking a successor to run finance.

Moving to Digital Realty gave Power the chance to leverage legacy skill sets, in raising capital, talking to investors and “doing it in an environment where we’re going down the road at 100 miles per hour while still putting on the hubcaps along the way,” he quips.

“My experience of such a diversity of opportunities across different types of industries, companies, financing structures, investment grade, non-investment grade, multiple currencies, you name it, allowed me to think outside the box,” says Power.

A big part of the strategy involved expanding into new geographies, thinking about new financing structures, and adding new product offerings. “It’s a whole host of complexity that I would say is not your typical nine to five, corporate CFO job,” he says.

In that respect, Power says he has enjoyed building out his skill set, as over time, incremental responsibilities “kind of drifted to me, which I was eager to take as learning experiences and growth opportunities for me and my team.

“In my five years at Digital Realty, I ran sales and marketing for a little over a year. I ran operations for around six to nine months. I have information technology underneath me because I really wanted to fix our ERP systems, and I’ve got all the international operations that are needed, as well as commercial functions.

“So over time, it’s been a fruitful environment to not just get everything thrown at you, but to build upon what I’ve been successful at. And it takes on adjacencies, where I can bring my expertise as well, and help the organisation thrive,” he adds.

Power sees the CFO role as especially important in tech companies, as a gatekeeper of insights from data that can help drive rapid growth. “As companies like Digital Realty and others inside the data centre industry, are revolutionising our economy, moving to a digital transformation economy, almost like the next industrial revolution, the CFO has a big part to play in both the front and back end,” he says.

“We are a critical part of a very complex technical solution that requires significant capital intensity on their and our part. So to sit down with some of our big customers and say here’s how we’re going to make this project work with you financially in addition to operationally and tactically, I think is a nice hand in glove.

“Many of the projects we are helping companies with are game changers, whether their infrastructure is online, uninterrupted, connected, affects their performance, or their cost. It’s often mission-critical to their businesses surviving,” he says.

Urgent response

The coronavirus pandemic has if anything tested the strength of the date centre sector, given the increased reliance on connectivity and increased digital consumption in a time of remote living and working. “Think of hospital systems, home schooling, breadth of consumer and business use right now. I think we play a small but very important part in that,” says Power.

“It’s been very important that our team members in these dire circumstances have risen to the challenge. We’re very grateful to them for rising to the occasion.

On 30 October Digital Realty released third quarter results that revealed adjusted EBITDA of $568m, a two percent increase from the previous quarter and17percent increase over the same quarter last year. Q3 revenues rose three percent from the previous quarter to $1bn, up 27 percent from the same period last year.

“I don’t think our activity or success coming on the heels of the record quarter was driven by the pandemic. But I do believe in what I hear from our customers that digital transformation is going to get accelerated on the back of this- when you have more forces and supply chains disaggregated and everyone has to rethink how they’re using technology for good times and bad.

“This capital intensity is continuing to ramp up and it’s going into more and more countries and currencies. It’s going to not only developed markets but developing markets like our entry into South America, in Brazil, which will ultimately grow into Chile and Mexico. It’s also likely to go into markets like India,” he says.

Last year Digital Realty acquired European data centre provider Interxion for $8.4bn, which Power describes as “a critical milestone across EMEA, that took us to be the number one across the region when it comes to connectivity and added growth in Africa,” says Power.

Although the global expansion of the model will create more demands on the group, including a need for greater capitalisation of the business, Power has been working on finessing the finance function to support the strategy.

“We’re certainly taking a leadership approach when it comes to our core ERP accounting functions, moving to what will be one of the first Oracle Cloud-only deployments to unify our quote to report or accounting systems.

“It’s part of our own digital transformation aimed at making it easier for our customers, employees, partners or vendors to transact with us in a seamless fashion. We’re making sure our housekeeping is evolving and the main storage systems can rise up to the challenge of growing complexity that we see for the business,” he adds.

Looking ahead, Power says there will be continued use of financings to maintain scale. “We are focused on keeping all options open and having numerous different shapes and forms of financings, both equity and debt, public and private, variations by jurisdiction of country and literally having all these options that are that are in our playbook being used at some point,” he says.

One of Power’s first capital raisings at Digital Realty was a green bond. “We believe we’re the largest issuer as a REIT of any green bonds, across US dollars and Eurobonds as well. It took a lot of listening to our customers to make that a priority strategically.

“It’s important to our customers and investors with sustainable SRI initiatives, and because it’s the right thing to do, for how we design, build, own and operate our facilities, how we procure resources like energy and water.

“All this flows through the CFO role: how we are putting our money where our mouth is, and how we finance our business at the same time,” he adds.

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