Digital Realty Trust, Inc. (DLR) Earnings

Management highlights

- Core Financial Results * Excluding net promote income, Core FFO reached a record $2.13 per share, up 14% year-over-year, beating internal expectations. * Reported Core FFO including net promote income was $2.65 per share, with a $0.52 benefit from net promote income tied to the Blackstone transaction. * Same capital cash NOI increased 8.9% year-over-year, and 7.2% on a constant currency basis, driven by higher occupancy, strong renewal spreads, and growing interconnection revenue. * Total backlog reached a new record of $1.9 billion at 100% share ($1.4 billion at Digital Realty share), representing ~30% of in-place data center revenue at quarter end, up 75% since the start of 2026. - Growth Pillar Execution * Colocation and Connectivity: Achieved the company's two-year goal of doubling 0-1 megawatt interconnection bookings from the $50 million quarterly average to $108 million this quarter, marking the third consecutive quarterly record. EMEA set a new quarterly bookings record, with sub-300 kW deployments driving the most activity. The platform serves ~6,000 global cloud, network, and enterprise customers across 300+ data centers, with growing demand from AI-enabled application deployments. * Hyperscale: Closed the acquisition of Blackstone's 64% equity interest in three fully leased 288 MW hyperscale data centers in Northern Virginia for $1.2 billion cash plus $2.3 billion in shares. Secured 600 MW of utility power in Kansas City (with a long-term runway up to 2 GW total) to support growing AI and hyperscale demand, leveraging the market's central location, low latency, and strong fiber connectivity. The company's total development pipeline expanded 100% in H1 2026 to 1.4 GW under construction at a total cost of $20 billion, 63% pre-leased with an 11.5% average expected stabilized yield, 80% located in the Americas. * Strategic Private Capital: Agreed to acquire 100% of Columbia Capital, a leading digital infrastructure asset management platform, for ~$485 million, expected to close in H2 2026. The transaction adds over $9 billion in fund commitments and hundreds of institutional investors, expands the company's adjacent sector expertise in fiber, mobility, and enterprise technology, and strengthens long-term earnings. Private capital allows the company to scale development beyond balance sheet limits, generates fee income, and improves returns for shareholders. - Sustainability and Community Engagement * Published a 2025 impact report showing 93% global renewable energy coverage, 205 sites matched to 100% renewable energy, and a 1.7 GW contracted renewable energy portfolio. Expanded portfolio capacity by 24% from 2023-2025 while limiting water consumption growth to 3%, with nearly half of water from non-potable sources. Data centers actively support grid reliability during peak demand periods. - Balance Sheet Strength * Leverage remained at 4.7x debt to adjusted EBITDA at quarter end, well below the company's long-term threshold, and down 0.4x over the prior 12 months. The company maintains ~$6 billion in total liquidity to fund growth and maintain financial flexibility.

Guidance

- Raised 2026 Core FFO per share guidance (excluding net promote income) by 15 cents at the low end and 10 cents at the high end, to a new range of $8.15 to $8.20 per share. The midpoint of the range represents 10% year-over-year growth, marking the second consecutive year of double-digit Core FFO per share growth. - Updated full-year 2026 cash renewal spread guidance to 9% to 11%, an increase of 250 basis points from the prior guidance, driven by strong year-to-date performance. - Increased constant currency same capital cash NOI growth guidance to 4.25% to 5.25%, an upward revision of 25 basis points. - Raised 2026 CapEx guidance (net of partner contributions) by $750 million to a new range of $4.25 billion to $4.75 billion, reflecting stronger than expected leasing activity and demand outlook. Disposition and JV capital guidance was increased by $500 million to support capital recycling for new investments. - Management confirmed confidence in extending double-digit Core FFO per share growth into 2027 and beyond, with the Blackstone acquisition expected to be accretive to Core FFO per share in both 2027 and 2028.

Segment performance

1. 0-1 Megawatt Plus Interconnection: Generated a record $108 million in bookings for the quarter, an 11% increase over the prior quarter's record. This segment accounted for 55% of total renewal activity in the quarter, with a 5.2% cash mark-to-market on renewals. It contributed 14% year-over-year growth to Core FFO excluding net promote income, and delivered near-term revenue conversion, strong pricing power, and recurring growth. Interconnection bookings alone hit a record $20.5 million, up 18% year-over-year. 2. Greater Than 1 Megawatt (Hyperscale): Saw healthy leasing activity led by the Americas (with a record contribution from Sao Paulo). This segment accounted for 44% of total renewal activity in the quarter, delivering an exceptional 66.7% mark-to-market on renewals. Subsequent to quarter end, two additional hyperscale leases were signed representing $410 million of annualized rent at 100% share ($205 million at Digital Realty share). Overall renewal spreads across all segments surged to a record 25%+ in the quarter.

Risks & headwinds

No new material standalone risks were explicitly discussed in the prepared remarks or Q&A. Management noted that forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially, and referenced risks disclosed in the company's prior SEC filings (including 10-K filings). General industry-level constraints related to permitting and new development approvals in major markets were acknowledged as creating broader supply tightness that increases the value of the company's existing installed base.

Analyst Q&A

• Q: Can you walk through how Digital Realty will balance accretion from recent strategic transactions, continued CapEx growth, and capital funding to sustain multiple years of double-digit FFO per share growth? /

  A: Multiple complementary growth levers are aligned to support sustained double-digit growth. Strong renewal execution in supply-constrained markets unlocks higher value from the existing operating portfolio. Solid hyperscale leasing has built a deep multi-year revenue backlog, while 0-1 megawatt and interconnection demand continues to hit records, driving both immediate revenue growth and a stronger long-term revenue base. Private capital enables funding of additional capacity while generating incremental recurring fee income, and all these levers have delivered results in 2026, supporting confidence in growth through 2027 and beyond.

• Q: How will Digital Realty's asset mix shift between on-balance sheet network-dense colocation, on-balance sheet hyperscale facilities, and off-balance sheet private capital-held assets over the next 3-5 years? /

  A: All three segments will grow simultaneously. Network-dense colocation will continue expanding into new markets, with on-balance sheet growth driving an increasing share of overall revenue from this segment, with 2x signing growth over the past two years and 142 new logos added this quarter. Hyperscale demand has already eclipsed full-year 2025 signings by the first half of 2026, with most new capacity funded in part by off-balance sheet private capital vehicles such as the $3.25 billion inaugural U.S. Hyperscale Fund, which allows capital recycling to fund new development. The company supports the full customer spectrum and uses private capital as a tool to optimize balance sheet capacity.

• Q: Is Digital Realty broadening its greater-than-1-megawatt customer base to include lower-credit neo-clouds and AI-native platforms, or is it still focused on investment-grade traditional hyperscalers? How does it underwrite new counterparty credit profiles? /

  A: The company already supports a diverse set of smaller AI-focused and private AI deployments within the 0-1 megawatt segment, where these customers made up roughly 20% of this quarter's $108 million in bookings, adding incremental ecosystem demand. For large greater-than-1-megawatt footprints, Digital Realty continues to focus exclusively on traditional, strong investment-grade hyperscale customers. Over the past 10 quarters, the company's 10 largest signings came from six different investment-grade hyperscale customers across multiple global markets, with no meaningful exposure to lower-credit newer market entrants for large-scale leases.

• Q: What drove the outsized greater-than-1-megawatt renewal spread in Singapore, and could this happen in other supply-constrained markets? /

  A: The high renewal spread was primarily a function of extreme supply-demand tightness in Singapore, a high-demand, high-connectivity market where available premium capacity is very limited. One expiring lease included a fixed renewal rate, but the customer requested a longer term, which allowed negotiation to current market rates. This outcome reflects a broader industry trend of growing supply-demand imbalance across many of Digital Realty's core markets, where expiring legacy rates are well below current market rates, creating ongoing repricing opportunities. While 66.7% is an outsized quarterly result, healthy repricing upside is expected to be a regular dynamic across the portfolio going forward.