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Digital Realty Terminates CEO Bill Stein, Names CFO As Replacement

A Digital Realty data center in Northern Virginia

The CEO of Digital Realty is leaving the company after 14 years at the helm of the $50B data center giant.

Digital Realty's Board of Directors voted Tuesday to terminate CEO William Stein, saying it was "without cause" and will be effective immediately, according to a Securities and Exchange Commission filing and a statement released Wednesday. He will be replaced by the company's president and chief financial officer, Andrew P. Power. 

Digital Realty is one of the world’s largest data center providers with over 300 facilities globally. Stein, who first joined the firm in 2004 and previously served as CFO and chief investment officer, also resigned from his position on the company’s board. Stein will receive around $15M in separation payments and benefits, according to SEC filings. 

"I want to thank Bill for his exemplary leadership and congratulate him on the tremendous success that he has achieved for Digital Realty and its stakeholders,” Digital Realty Chairman Mary Hogan Preusse said in a written statement. “We wish him all the best in the next phase."

Power came to Digital Realty in 2015, stepping into the CFO role after working in the investment banking sector at Bank of America Merrill Lynch. According to Digital Realty, Power will continue in his role as CFO until the planned announcement of a successor in early 2023.

"Andy has spent the last two decades developing a unique skillset and unparalleled professional relationships that will enable him to excel in his new role as CEO,” Hogan Preusse said. “As president and CFO, Andy has worked tirelessly to help broaden Digital Realty's presence and value proposition, enhance the company's financial flexibility and build the world's largest data center platform."

The transition of power at Digital Realty is not entirely unexpected, according to Green Street analyst David Guarino. He said industry insiders had long assumed that Power would eventually take over the company’s leadership. 

“To anyone following the Digital Realty story, it was widely believed that Andy Power was the prime candidate to one day take over as CEO. In addition to serving as CFO since ’15, he was appointed the title of President in late-’21, which many interpreted as a signal the baton would soon be passed," Guarino wrote in a memo Tuesday.

“Most of the transformation under Mr. Stein’s leadership took place with Mr. Power as CFO, suggesting little change to Digital’s current course – a continued focus on growing the global data center footprint via smaller acquisitions and accretive development projects – is anticipated," the memo continued.

Still, the move comes as the company is facing a number of challenges and growing skepticism among some investors. Although Digital Realty has undergone significant growth in recent years along with the rest of the data center industry, returns have trailed significantly behind rival REIT Equinix and the S&P 500, according to Guarino. The company’s fundamentals have also been questioned by high-profile investor Jim Chanos as part of his much-publicized short of data center REITs

Shares of Digital Realty dropped following the announcement of Stein’s departure, with Wells Fargo analyst Eric Leubchow downgrading the company due to “emerging risks to the 2023 outlook,” according to Seeking Alpha. In a memo, Leubchow highlighted a number of issues that could impact Digital Realty’s performance in the months ahead, including nearly $2B in funding requirements in a high-rate environment, slowing new lease volumes and uncertainty on renewals, and a balance sheet with $1.5B in floating rate debt. 

Leubchow also pointed to the impact of unexpected power constraints in Virginia’s Loudoun County, citing a lack of clarity surrounding Digital Realty’s ability to acquire the power needed to fulfill a 62-megawatt backlog in Ashburn.