Digital Realty Trust Signals Robust Growth in 2026

Digital Realty Trust ((DLR)) has held its Q4 earnings call. Read on for the main highlights of the call.

Digital Realty Trust’s latest earnings call struck a notably upbeat tone, as management highlighted record bookings, strong double‑digit growth drivers, and a deep development pipeline that they believe will power results well into 2026. While acknowledging higher capital needs, interest costs, and infrastructure bottlenecks, executives repeatedly stressed that demand visibility and balance sheet strength outweigh these headwinds.

Record and Growing Earnings

Digital Realty reported core FFO per share of $1.86 in Q4 and $7.39 for full‑year 2025, marking 10% year‑over‑year growth and underscoring the durability of its earnings base. Q4 core FFO rose 8% versus a year earlier, and management set 2026 guidance at $7.90–$8.00 per share, implying roughly 8% growth at the midpoint despite rising interest expense and higher CapEx.

Sustained, Large Bookings and Backlog

The company delivered its second straight year of more than $1 billion in total bookings, with 2025 reaching $1.2 billion on a 100% share basis. That strength fed a record backlog of nearly $1.4 billion, including $634 million of leases scheduled to commence in 2026 and another $152 million in 2027 and beyond, giving strong visibility into future revenue.

Zero-to-One Megawatt and Interconnection Momentum

Demand in the zero‑to‑one megawatt range and for interconnections, key gateways for AI and cloud workloads, accelerated sharply. Full‑year zero‑to‑one MW and interconnection bookings reached nearly $340 million, a record and roughly 35% above 2024, while interconnection alone grew about 22% year over year, supporting higher‑margin, stickier customer relationships.

Hyperscale Demand Strength

Hyperscale customers remained a powerful growth engine, with leasing exceeding $800 million on a 100% basis in 2025 as cloud and AI giants expand capacity. In Q4, the company signed $78 million of leases in the greater‑than‑1 MW category at its share, with pricing above $180 per kilowatt and robust activity in Northern Virginia, The Americas, Tokyo, Osaka, and Paris.

Operational Delivery and Development Pipeline

Digital Realty delivered approximately 289 MW of new capacity in 2025, including about 90 MW in Q4, roughly three‑quarters of which was pre‑leased at delivery. The company started about 135 MW of new projects in Q4 and now has 769 MW under construction, supporting a gross development pipeline exceeding $10 billion with an expected stabilized yield of about 11.9%.

Improved Utilization Metrics

Management is shifting toward power‑based disclosures, which they argue better reflect economics in a power‑constrained world. On an IT‑load basis, same‑capital occupancy stands around 91% versus 83.7% by square footage, and the total portfolio is roughly 89% occupied, both up more than 50 basis points year on year, with another 50–100 basis points improvement targeted for 2026.

Strong Financial Position and New Funding Channels

The balance sheet remains a key asset, with leverage at 4.9x, comfortably below the long‑term 5.5x target, and available liquidity close to $7 billion. The company is also tapping private capital more deeply, closing $3.225 billion of LP commitments for its first closed‑end fund and citing roughly $15 billion of dry powder across private initiatives, while fee income more than doubled in 2025.

Robust Same-Capital Cash NOI and Renewal Spreads

Underlying cash performance is strong, with same‑capital cash NOI up 8.6% year over year in Q4 and 4.5% for 2025 on a constant‑currency basis. Pricing power is evident in renewals as well, with $269 million of leases renewed in Q4 at a blended 6.1% cash uplift and full‑year cash releasing spreads of 6.7%, comfortably above prior guidance.

Higher Interest Expense Headwind

To extend its maturity profile, Digital Realty raised €1.4 billion through a dual‑tranche Eurobond and used the proceeds to redeem €1.075 billion of older, lower‑coupon notes. The roughly 160‑basis‑point coupon gap will drive a modest interest expense headwind from 2026 onward, slightly trimming FFO but viewed as manageable against the company’s growth trajectory.

Rising Capital Intensity and Near-Term CapEx

The company spent $3.0 billion on development in 2025 and guided 2026 net CapEx to a higher $3.25–$3.75 billion as it races to meet surging AI and cloud demand. Recurring CapEx climbed to $169 million in Q4, with management noting some project carryover from 2025 into 2026 as it invests heavily to preserve its growth runway and market position.

Supply-Chain and Labor Constraints

Scaling a multi‑billion‑dollar build program is becoming more complex as labor and supply‑chain conditions tighten. Management flagged rising construction costs and challenges in securing specialized workforce capacity, which add execution risk to an otherwise attractive development pipeline but are being factored into project planning and pricing.

Power, Regulatory Friction, and New Supply Constraints

Power availability has become the defining constraint for large‑scale data center growth, and customers are prioritizing operators that can prove access to reliable capacity. The sector also faces community pushback and regulatory scrutiny over grid impacts and alternative power solutions, potentially complicating future developments even as demand remains robust.

Timing Effects on 2025 Versus 2026

Some projects that slipped out of 2025 and into 2026 contributed to higher recurring CapEx guidance and created modest quarter‑to‑quarter variability in reported metrics. Seasonal expenses in Q4 also muted the pace of core FFO growth, which came in at 8% year over year versus the 10% increase recorded for the full year.

Tight Availability in Key Markets

In core hubs like Northern Virginia, where Digital Realty has roughly 800 MW in place, near‑term availability remains tight, underscoring the imbalance between supply and demand. Customers are already lined up for around 300 MW of capacity targeted for 2027–2029 delivery, pointing to continued pricing power but also underscoring the need for accelerated build‑out.

Forward-Looking Guidance and Outlook

For 2026, management guided to core FFO of $7.90–$8.00 per share, with normalized constant‑currency revenue and adjusted EBITDA expected to grow more than 10% and same‑capital cash NOI projected to rise 4%–5%. They also anticipate another 50–100 basis‑point improvement in power‑based occupancy, net CapEx of $3.25–$3.75 billion, and $500 million to $1 billion of capital recycling, supported by a $1.4 billion backlog, solid liquidity, and sizable private‑capital reserves.

Digital Realty’s earnings call painted the picture of a company leaning aggressively into a powerful demand cycle for AI and cloud infrastructure while navigating higher capital needs and system bottlenecks. For investors, the mix of steady FFO growth, record bookings, and a de‑risked balance sheet suggests a constructive setup, even as power, regulation, and build‑cost pressures remain key variables to watch.