Digital Realty Trust's Q3 2025: Contradictions Emerge on Hyperscale Demand, Interconnection Bookings, Leasing Activity, Pricing Power, and Enterprise Performance

Date of Call: October 23, 2025

Financials Results

• Revenue: Operating revenue growth ~10% year-over-year; data center revenue up 9% year-over-year

Guidance:

• Full-year core FFO guidance raised to $7.32–$7.38 per share (constant-currency range $7.25–$7.30).
• Midpoint implies roughly 10% year-over-year growth (over 8% on a constant-currency basis).
• Revenue and adjusted EBITDA midpoint each increased by $75 million.
• Same-capital cash NOI growth midpoint raised to 4.5%; cash and GAAP re-leasing spread midpoints set to ~6% and ~8% respectively.
• Expect Q4 headwinds from seasonally higher repairs & maintenance, a non-core asset sale and lower interest income.
• Anticipate modestly higher CapEx in 2026 with significant funding via private capital/funds.

Business Commentary:

• Record Financial Performance:
• Digital Realty Trust reported core FFO per share of $1.89 for Q3, a quarterly record and 13% higher than the third quarter of the previous year.

• This growth was driven by strong operating revenue growth, disciplined expense management, and robust demand across various customer segments.

• Backlog and Visibility:

• The company's backlog grew to $852 million, with a significant portion slated to commence through the end of next year.

• This strong backlog provides visibility into future growth and reflects healthy demand across the company's full product spectrum.

• Interconnection and Enterprise Demand:

• Digital Realty reported $20 million in interconnection leasing, marking a 13% increase from the previous quarter, and achieved $85 million in new leases for the 0-1 megawatt plus category.

• Growth in this area reflects the increasing recognition of Digital Realty's connectivity-driven value proposition and meets enterprise demand for high-volume data movement and interconnection capabilities.

• Sustainability Initiatives:

• Digital Realty received the EcoVadis Gold rating, placing it among the top sustainability performers worldwide.
• The company is expanding its renewable energy commitment by signing long-term agreements for carbon-free energy, aligning with customer needs and sustainability goals.

Sentiment Analysis:

Overall Tone: Positive

• Management reported record core FFO of $1.89 (+13% YoY), double-digit growth in revenue and adjusted EBITDA, a backlog of $852M, record interconnection bookings and noted this is the third consecutive guidance increase, all signalling strong operational momentum and confidence.

Q&A:

• Question from Aryeh Klein (BMO Capital Markets): With the guidance increase and FX benefit, what are the puts and takes for 2026 and the ability to sustain or accelerate growth while balancing development investment? Response: Management is targeting ~10% top-line growth in 2026 supported by a >$550M backlog, while noting near-term headwinds from a Jan‑2026 $1.3B debt maturity, planned fund contributions and likely lower interest income from expected rate cuts — but feels the plan is de‑risked and achievable.

• Question from Jonathan Petersen (Jefferies): What are you seeing from hyperscalers in major metro markets and examples of latency-sensitive hyperscaler AI applications coming to DLR markets? Response: Management reports robust, active dialogue and the largest hyperscaler pipeline on record; hyperscalers are focused on 2026/2027 deliveries across the company's 5GW capacity blocks with growing interest in latency-sensitive, connected deployments.

• Question from Michael Funk (BofA Securities): How are you thinking about the 2026 expirations and capacity to increase re-leasing spreads on those expirations? Response: Pricing power remains strong in the <1MW category (~4% cash uplifts); larger (>1MW) expirations will see stepdowns through 2029, but new large deals are signing at materially healthier market rates given tight supply.

• Question from Eric Luebchow (Wells Fargo): Are you seeing newer entrants (neo clouds, model developers, chip companies) versus the big hyperscalers, and how will CapEx be funded — could it exceed $3–3.5B? Response: Large contiguous blocks are primarily attracting established hyperscalers; neo clouds are supported for smaller deployments; 2025 CapEx of $3–3.5B is on track, and management expects higher spending in 2026 with a significant portion funded via private capital/funds and a modest increase in share-level spend.

• Question from Michael Rollins (Citigroup): How do you see the mix between JVs/private capital and on‑balance sheet projects going forward and target leverage? Response: Digital will continue to deploy private capital/JVs alongside balance-sheet investments to optimize returns; target leverage remains ~5.5x (currently 4.9x) to provide flexibility to fund large builds.

• Question from David Guarino (Green Street): Given mega-hundred‑MW deals in tertiary markets, would you chase that demand or stick to primary markets? Response: Strategy remains centered on primary, latency‑sensitive cloud-zonal markets and adjacent locations; the company will monitor tertiary mega-campus opportunities but is not shifting away from core markets.

• Question from John Hodulik (UBS): Given grid constraints, any thoughts on behind‑the‑meter power solutions for new projects? Response: Behind‑the‑meter and onsite power are being used as bridge solutions in constrained markets (example: South Africa); customers prefer utility supply long-term, so these are supplemental/transitionary approaches.

• Question from Michael Elias (TD Cowen): Is it feasible to bring gas to Dulles to expedite deliveries, and how are you thinking about M&A (land banks, facilities)? Response: The company is evaluating localized power solutions across multiple markets to accelerate delivery; M&A strategy is unchanged—prioritize buying land, strategic buildings or companies when they deliver attractive risk‑adjusted returns, with opportunities across all three.

• Question from Jyhhaw Liu (Evercore ISI): Can you explain the timetable for the 5GW developable capacity to become lease‑ready and customer conversations around it? Response: Much of the front-of‑queue capacity is staged for late‑2026 and 2027 commencements; customers are actively prioritizing those vintages and management reports a record pipeline and strong customer dialogue for 2026–2028.

• Question from Richard Choe (JPMorgan): Given long lead times, how big can 2027 development be relative to 2026? Response: 2027 can be sizable—customers often want staged ramping rather than full immediate power‑on; the 5GW pipeline includes many hundreds of megawatts across key markets, so 2027 builds could be substantial.

• Question from James Schneider (Goldman Sachs): How are you planning for technical requirements like 800‑volt architectures and liquid cooling — can you retrofit existing facilities? Response: Digital is 'AI‑ready': new modular builds accommodate 800‑volt and liquid‑cooling needs, and HD colo retrofit capability exists across ~30 metros/170 facilities (deployable in ~14 weeks) to densify up to ~150 kW supporting next‑gen GPU platforms.

• Question from Frank Louthan (Raymond James): What is the average enterprise deployment size, are you gaining share, and what % of new bookings are AI inferencing workloads? Response: Approximately 50% of total bookings were AI‑related this quarter; in the 0–1MW cohort AI bookings rose to >18%; deal sizes and power density are increasing and management believes Digital is gaining share.

• Question from Joseph Osha (Guggenheim): Are the double‑digit spreads on >1MW re‑leasings temporary or a new normal? Response: Management views current double‑digit >1MW re‑leasing spreads as indicative of tight, supply‑constrained markets and meaningful mark‑to‑market opportunity, with renewals set to increase in 2026–27.

• Question from Cameron McVeigh (Morgan Stanley): Will future CapEx be more towards retrofits for denser deployments or new capacity, and will it target 0–1MW or 1+ segments? Response: CapEx is expected to increase and will be primarily directed to new capacity (big builds); retrofit work continues but is smaller in dollar terms; investments will support both 0–1MW and larger segments, with emphasis on delivering new capacity.

• Question from Maher Yaghi (Scotiabank): With many new campus projects by private developers, is Digital losing share and are the credit/returns of mega projects sufficient? Response: Development spend may trend to the high end of guidance as projects deliver; Digital focuses on major markets and aligns with investment‑grade counterparties for large campuses, while limiting exposure to one‑off neo‑cloud projects.