Digital Realty Trust, Inc.

Good afternoon and welcome to the Digital Realty third quarter 2025 earnings call. Please note this event is being recorded. During today's presentation, all parties will be in a listen-only mode. Following the presentation, we will conduct a question and answer session. Callers will be limited to one question and we will aim to conclude at the top of the hour. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Thank you, Operator, and welcome everyone to Digital Realty's third quarter 2025 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, CR10-K, and subsequent filings with the SEC, this call will contain certain non-GAAP financial information. Reconciliations to the most directly comparable GAAP measure are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our third quarter results. First, we posted $1.89 in core FFO per share, a quarterly record, and 13% higher than the third quarter of last year. Constant currency core FFO per share was $1.85, 11% higher than last year. Other profitability metrics surged as well, with AFFO per share and adjusted EBITDA up 16% and 14% year-over-year, respectively. These strong earnings results were comfortably ahead of expectations resulting in our third quarterly guidance increase so far this year. Second, we have strong visibility to continued growth given our near record backlog and crisp execution. Our backlog grew to 852 million with the lion's share slated to commence to the end of next year while organic growth continues to accelerate. as demonstrated by 8% same capital cash NOI growth year over year. Third, we continue to execute across the full product spectrum and our footprint, with over 200 million of bookings at 100% share, near record 0 to 1 megawatt plus interconnection bookings in the quarter, with a leading power bank of 5 gigawatts of IT load to support our customers and Digital Realty's future growth. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Thanks, Jordan, and thanks to everyone for joining our call. As digital transformation, cloud, and AI continue to grow, our ability to deliver scalable, connected infrastructure across key metros worldwide is more critical than ever. Platform Digital's global reach and full-spectrum product offering are key differentiators enabling us to support the evolving needs of cloud providers, enterprises, and service partners around the world. Over the past two years, the data center industry has experienced unprecedented demand, fueled by the digitization of enterprise business processes, the expansion of cloud, and the ongoing proliferation of AI, resulting in complex hybrid IT architectures. Demand for scalable, connected infrastructure remains robust across a wide range of customer segments, from global cloud platforms to regional service providers and multinational enterprises. Meeting this demand within our markets, however, is becoming increasingly challenging. Power availability, permitting challenges, and infrastructure constraints are making it harder to bring new supply online at the pace our customers require. Digital Realty's established presence in the world's leading metros, deep relationships with utilities and local governments, and proven development track record give us a distinct advantage in navigating these challenges and delivering capacity efficiently and reliably where and when our customers need it. In an attempt to help frame how we see the abundance of data center infrastructure announcements we are all seeing in the markets, I want to make a few comments. It is clear that the world is engaged in a full-scale technology race with a handful of key players aiming to build the most advanced AI models or perhaps even AGI. Three years post-launch, ChatGPT holds the title of the fastest growing app and is already among the most highly used applications in the world with more than 800 million weekly users. Several others, including Meta, Google, Baidu, and XAI, have also developed AI with meaningful scale. With each passing week, we continue to see massive investment announcements and partnerships aimed at scaling the infrastructure necessary to support the world's most powerful AI training models. Given the scale of these announcements, the ongoing development and proliferation of AI offerings the opportunity still appears to be in the very early innings. The preponderance of gigawatt campus announcements to date have generally fallen outside of the major metro markets in digital realty's strategic footprint, as model builders and their providers have urgently sought locations that offer readily available and abundant power, as power is the limiting factor for scaling AI. The anticipated pace and scale these developments are largely unprecedented. Given our experience and track record in the space, we are intrigued as several new market entrants have launched the development of massive and complex remote campuses, often to support a similar use case, workload, or customer. These facilities hold the promises of developing life-changing technologies, and we are optimistic about their prospects. Training workloads geared toward developing the AI models can be described as latency tolerance, as the development of the AI takes precedent over the utilization of the technology, at least for now. Based on conversations that we are having with our customers and industry participants, as well as what we are seeing in our broad portfolio, we are increasingly confident that connectivity will become increasingly important over time. as model success drives implementation and usage requiring lower latency, inference-oriented deployments. Israel Realty has landed a meaningful share of AI-oriented deployments over the last two years. Since mid-2023, AI has averaged more than 50% of our quarterly bookings, and we continue to expect that the 5 gigawatts of IT load that we have in our power bank will be significantly weighted toward AI workloads over the next several years. Critically, our data center capacity is situated in and around the world's most highly connected cloud zonal markets with the highest concentration of population and GDP, and we currently maintain five gigawatts of large contiguous capacity blocks situated across 40 of our strategic metros across the globe. It is harder to build in these locations for a growing list of reasons, and we expect this capacity will continue to be highly sought after as new applications and use cases continue to evolve. Our conviction in our portfolio and in our markets continue to be evidenced through our daily engagement with our 5,000-plus customers. Digital Realty continues to see a robust pipeline of demand, from AI-oriented use cases. And even without a record hyperscale lease, like the one we signed in March of 2025, 50% of our bookings were related to AI use cases in the third quarter. In Q3, we again delivered strong operational and financial performance, underscored by record interconnection bookings, near record new logos, and the second highest level of bookings ever in our zero to one megawatt plus interconnection product set. Core FFO per share set a record $1.89, a robust 13% above last year's third quarter. These strong earnings were driven by 10% operating revenue growth and continued expansion of our high margin fee income together with discipline expense management, resulting in the third consecutive guidance increase this year. Bookings in the third quarter were 201 million at 100 percent share, or 162 million at digital realty share. Like last quarter, our zero to one megawatt plus interconnection category was a strong contributor to our leasing strength, with 85 million in new leases, along with a healthy 76 million of greater than a megawatt leasing. Leasing was globally diversified, broadly consistent with our existing rent roll, with notable activity in Americas, in EMEA, and in APAC. We also added a near-record 156 new logos. Interconnection leasing of $20 million marked a second consecutive record quarter, which was 13% higher than the last quarter's record, underscoring the growing recognition of our connectivity-driven value proposition. Interconnection leasing was buoyed by strength in our AI-oriented fiber offering, reflecting the increased demand for high-volume movement of data amongst customers, as well as momentum in our service fabric product. Matt will provide more details on our results in a few moments. While there's been significant market focus on large-scale AI deployments, Digital Realty's pool of highly sought-after, larger continuous capacity blocks are slated to come online in late 2026, 2027, and beyond. We remain actively engaged with Hyperscale customers on our largest future leasing opportunities, and we continue to see strong momentum in our co-location and connectivity product offering. Enterprise demand for data center infrastructure continues to grow as organizations transition away from traditional on-prem IT environments toward more flexible cloud-connected architectures available within digital realty data centers. This shift is driven by the need to improve scalability, reduce costs, and enable faster innovation. Enterprises are increasingly deploying workloads in co-location and hybrid environments to gain proximity to cloud platforms, partners, and end users, while maintaining control over mission-critical applications and data. Digital Realty's full-spectrum product offerings combined with our global footprint allows us to support this transition providing infrastructure and connectivity enterprises need to modernize their IT strategies, accelerate digital transformation, and AI implementation. We're seeing these trends play out across our customer base as enterprises increasingly turn to digital realty to support their evolving infrastructure needs. Whether it's enabling real-time data exchange across global operations, integrating with multiple cloud platforms, or deploying AI workloads at the edge, our customers are leveraging platform digital to solve complex challenges and accelerate their digital transformation. Let me share a few examples that illustrate how our platform is helping enterprises unlock new capabilities and drive meaningful business outcomes. In September, I was honored to join the CEO and CTO of Oxford Quantum Circuits, for an important milestone during their recent deployment of New York's first quantum AI computer in our JFK 10 data center. Oxford Quantum Circus is taking advantage of Platform Digital's co-location and connectivity capabilities to expand their AI capabilities at scale, solving for efficiency and resource constraints. A leading global technology company chose Platform Digital to employ their global presence, taking advantage of liquid cooling capabilities required for their HPC AI environments. A leading healthcare analytics and technology solutions company is expanding its geographic presence on Platform Digital to solve data localization and sovereignty challenges. A leading higher education research institute is taking advantage of Platform Digital's liquid cooling capabilities required for their HPC and AI deployment. A leading European technology and network provider is expanding on Platform Digital, deploying a sovereign cloud solution in the US to support their customers' compliance needs. A global payments provider and new logo for Digital Realty chose Platform Digital to deploy infrastructure in multiple markets to utilize network and cloud ecosystems while solving for scalability and compliance requirements. And a multinational financial services company is expanding on Platform Digital, taking advantage of Digital Realty's leading financial and network ecosystems. Before I turn it over to Matt, I'd like to briefly highlight our progress on global sustainability. In the third quarter, we received the Echovatus Gold Rating, a prestigious international recognition for business sustainability. This recognition places us in the 97th percentile of all companies assessed, highlighting our position among the top sustainability performers worldwide. We expanded our renewable energy commitment in Illinois by signing additional contracts that support high-impact local community solar projects being developed by Soltage. These locally sourced solar energy projects will help support local power grids and benefit residents in the communities in and around our data centers. Additionally, in the third quarter, we announced long-term renewable energy agreements with Current Hydro to procure 500 gigawatt hours of clean baseload hydropower from three projects along the Ohio River. These agreements highlight our commitment to sourcing new, firm, 24-7, carbon-free energy in the regions where we operate, enabling us to support our customers' needs. And with that, I'll now turn the call over to our CFO, Matt Mercier.

Thank you, Andy. For the second consecutive quarter, Digital Realty posted double-digit growth in revenue, adjusted EBITDA, and core FFO per share. reflecting the momentum in our business driven by commencements from our substantial backlog, strong releasing spreads, modest churn, and growing fee income. We achieved these record results while reducing our leverage and maintaining significant liquidity to invest in data center projects across our five gigawatt runaway of buildable IT capacity. In the third quarter, core FFO per share grew by an attractive 13% year over year, to a new quarterly record, while leasing results were highlighted by their geographic and product breadth, as well as continued strength in the 0 to 1 megawatt plus interconnection category. Looking ahead to the fourth quarter, we increased guidance for the full year once again and expect to begin 2026 with significant momentum and a sizable backlog, which extends our runway for long-term growth. As Andy touched on, we signed leases representing $201 million of annualized rent in the third quarter, bringing year-to-date leasing to $776 million at 100% share. At Digital Realty's share, we signed $162 million of new leases in the third quarter, which was well distributed across our three regions. Our 0-1 megawatt plus interconnection product set continued to demonstrate the strong momentum we have been highlighting. posting 85 million of new bookings in the quarter, led by record bookings in the Americas and strength in EMEA. We also posted record AI bookings in this segment this past quarter, demonstrating the continued emergence of AI-oriented demand among our enterprise customers. Interconnection bookings also marked a new record, besting last quarter's record by 13%. Pricing in the 0 to 1 megawatt plus interconnection category was strong, led by leasing in one of our most highly connected facilities in the U.S. Over the past four quarters, we've leased a robust 319 million in this product set. We signed 76 million within the greater than a megawatt category at our share, while leasing spread across our regions, a notable strength in EMEA. Pricing in the greater than a megawatt product was strong, averaging over $200 per kilowatt in the quarter and reflected activity in our top three performing markets, Silicon Valley, Amsterdam, and Singapore. Building on our leasing momentum, our backlog at digital realty share increased to $852 million at quarter end, with $137 million of commencements more than offset by our new bookings. Looking ahead to the fourth quarter, we expect another 165 million of leases to commence, with another 555 million scheduled to commence throughout 2026. Our large backlog provides us with strong visibility and predictability for the next several quarters. During the third quarter, we signed 192 million of renewal leases at a blended 8% increase on a cash basis. Renewals in the third quarter heavily weighted toward our 0 to 1 megawatt category, with 138 million of renewals at a 4.2% uplift. Greater than a megawatt renewals of 49 million saw an exceptional 20% cash releasing spread, driven by deals in Singapore, Chicago, Northern Virginia, and New Jersey. Year-to-date cash renewals averaged 7%. For the quarter, total churn remained low at 1.6%. As for earnings, we reported record core FFO of $1.89 per share of 13% year-over-year, reflecting strong upside from commencement and positive releasing spreads, continued growth in fee income, and an FX benefit versus last year. On a constant currency basis, we reported core FFO per share of $1.85 in the third quarter, or 11% growth year-over-year. Data center revenue was up 9% year-over-year, but adjusted EBITDA was even greater at 14% year-over-year, driven by the growth in data center revenue and higher fee income. During the quarter, operating expenses continued to increase, reflecting both the growing scale of our business, rising employment costs, and seasonal effects. As we head toward the end of the year, we expect to see the typical seasonal increase in repairs and maintenance expenses along with a seasonal decline in utility expenses and related reimbursements. Same capital cash NOI growth was strong in the third quarter, increasing by 8% year-over-year, driven by 7.8% growth in data center revenue. On a constant currency basis, same capital cash NOI rose 5.2% in the quarter. For the nine months, same capital cash NOI grew by 4.5% on a constant currency basis which prompted us to notch our full-year guidance range up to 4.25% to 4.75%. Moving on to our investment activity, during the third quarter, we spent over $900 million on development CapEx when including our partner share and approximately $700 million on a net basis to digital realty. During the quarter, we delivered about 50 megawatts of new capacity, 85% of which was pre-leased. Well, we started about 50 megawatts of net new data center projects, leaving 730 megawatts under construction. At quarter end, our gross data center development pipeline stood at $9.7 billion at an 11.6% expected stabilized yield. Our runway for future growth, including land, shell, and ongoing development, stands at roughly 5 gigawatts of sellable IT load. For clarification, IT load differs from the gross utility feed figures being touted by newer entrants to the data center development world, as utility feed must also be used to cool a data center and to provide redundancy. During the third quarter, we pruned a few small non-core facilities in Atlanta, Boston, and Miami for a total of $90 million, and earlier in October sold a non-core facility in Dallas for $33 million. We redeployed $67 million of that capital into land in Chicago and Los Angeles to bolster our development capacity. Turning to the balance sheet, leverage fell to 4.9 times, well below our long-term target of 5.5 times. While balance sheet liquidity remained robust at nearly $7 billion, which excludes the $15 billion of private capital we have arranged to support hyperscale development and investment through our joint ventures and new U.S. Hyperscale Data Center Fund. Our next debt maturity is 1.1 billion euro notes at 2.5% in January 2026. Beyond that, we have a smaller 275 million Swiss franc note at 0.2% that matures in the second half of next year. Looking further out, our maturities remain well laddered through 2035. Let me conclude with our guidance. We are increasing our core FFO guidance range for the full year 2025 by roughly 2% at the midpoint to a new range of $7.32 to $7.38 per share to reflect better than expected operating performance and updated FX assumptions for the full year. We are also increasing the midpoint of our constant currency core FFO guidance range by 2% to $7.25 to $7.30 per share. Despite our enthusiasm and outperformance in the quarter, we expect fourth quarter core FFO per share to be tempered by seasonally higher repairs and maintenance expenses, headwinds from a non-core asset sale, and lower interest income associated with lower rates and cash balances. The midpoint of our increased core FFO per share guidance represents approximately 10 percent year-over-year growth, reflecting the momentum in our underlying business and the benefit of the weaker U.S. dollar year-to-date. On a constant currency basis, core FFO per share growth is expected to be over 8% at the midpoint, reflecting a 200-plus basis point improvement from the growth that we forecasted at the beginning of this year. Supporting the bottom line improvements in guidance, we are increasing the midpoint of our revenue and adjusted EBITDA guidance ranges for 2025 by $75 million apiece. We are raising the midpoint of our cash and GAAP releasing spread guidance ranges to 6% and 8%, respectively, to reflect a continued strength in market fundamentals. We are also increasing our constant currency same capital cash NOI growth assumption by 50 basis points at the midpoint to 4.5%. Lastly, we are increasing the midpoint of our G&A assumption by 7.5 million for full year 2025. In summary, we are very proud of our third quarter performance and the continued momentum across our platform. The strength of our zero to one megawatt plus interconnection product set combined with disciplined execution across our five gigawatt power bank and a growing backlog positions us well to deliver durable growth through the rest of 2025 and 2026. We remain focused on executing our strategy to deliver the capacity that our customers require and to maintain the financial discipline to drive long-term value for our stakeholders. This concludes our prepared remarks, and now we'll be pleased to take your questions. Operator, would you please begin the Q&A session?

Now open up the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. If you ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And your first question today will come from Ari Klein with BMO Capital Markets. Please go ahead.

Thanks, and good afternoon. I guess maybe just with the guidance increase, you know, on the core of full growth of 9.5% this year, realize you're not providing 2026 guidance, and there is some FX benefit. But can you just talk to the puts and takes for next year and the ability to stand or even accelerate from current growth levels while balancing development investment requirements?

Thanks, Dario. I'll have Matt hit on that.

Yeah. Hey, Ari. You know, look, I think I'd start off with, obviously, we're proud of the results this year and the beaten race that we put up now for a few quarters, which is resulting in where we are today on a constant currency basis, which is around 8.5% for the years. And, look, looking ahead into 2026, you know, we're on the path to start on a strong footing for looking at continuing to target 10% top-line growth. That's supported by our healthy backlog that we've got of over $550 million and the robust fundamentals that continue to support our business. I'd say some other things to note that are, you could say, are some of the headwinds that we'll see in the first very early in 2026. We do have about $1.3 billion of debt maturing in January. That's at roughly 2.5%. We're also planning to contribute the remaining 40% of the $1.5 billion of stabilized assets to our relatively new North America hyperscale fund. And given the expectation for rate cuts into 2026, which you mentioned, you would usually say is going to be a benefit, but for us, we have relatively considerable cash holdings. You know, that's going to result in likely some lower interest income. All that said, you know, we feel like we have been on a great path here in de-risking our 2026 plan and feel good about continuing our growth going forward.

And your next question today will come from John Peterson with Jefferies. Please go ahead.

Oh, great. Thank you. I was hoping you could talk a little bit more about what you're seeing from hyperscalers in terms of demand in the major metro markets. I think in your prepared remarks, Andy, you mentioned their focus on gigawatt campuses, but are you starting to see examples of any latency-sensitive hyperscaler AI applications coming to DLR markets that you can speak of?

Hey, thanks, John. I'll kick this off and then ask Colin to speak to what we're seeing on the customer dialogue with the hyperscalers. So obviously we're off to a strong start to the year or three or four quarters. This quarter on a total share, we're at the fourth largest quarter, north of 200 million in signings. I think what's been unique or great about it is in the major markets where we're supporting their growth, be it cloud computing and AI, we've seen tremendous diversity of demand. So I think the last seven quarters, our top signings, single signing was with a different customer. So, tremendous diversity of demand. In fact, our two largest signings this quarter were two customers that hadn't signed big deals with us in a while. We're continuing to ready significant capacity blocks that are coming in the most prized locations and more strategic to our customers' locations. And I'll let Colin speak to some of the dialogue he's having on those capacity blocks.

Thanks, Andy. Yeah, John, appreciate the question. Q3 bookings obviously diverse in nature across our three regions. And in terms of conversations with our hyperscalers, I'd say it's, you know, robust dialogue that's leading to the largest pipeline on record for us. So our large contiguous footprint continues to have real value. So they're seeing interest in dialogue for us across our five gigawatts that we have across our markets that we identified previously. So our customers are now starting to look really hard into our 26 and 27 deliveries, which are coming online in the near term. And so that's really producing, I think, some real interest to continue discussions really across AI, but also cloud continues to be a consistent dialogue that we're having with our clients.

And your next question today will come from Mike Funk with Bank of America. Please go ahead.

Yeah, thank you for taking the questions tonight, guys. So, Andy, can you address the 2026 expiration and how you're thinking about the capacity to increase the releasing spreads on those?

Sure. Thanks, Mike. So, I think we're continuing to see more of the same, what we've seen for now, several consecutive quarters. If you kind of cut it into the two main categories we discussed the business in, we're continuing to see strong pricing power in the less than a megawatt category. I think our cash market markets were 4.2% or 4.3% in the quarter or LTM. We think that pricing is going to hold and stay in that territory. And then the bigger stuff you can see, we start to see continued step down, not just 2026, but for a few years, a step down, I think, till about 2029 in our expiring rates. I think they get as low as like 124-ish. And you can see from our new signings in the bigger deal category, we're obviously signing at healthier market rates than that. And I think we're working our way through that and moving customers to market and the value of the capacity blocks we're offering. And that's a product of our portfolio, our value add. But some of that's just a product of the supply-demand dynamics in these markets that are extremely tight. And the backdrop around it is the tightness of these markets feels like it's going to be continuing for some time.

And your next question today will come from Eric Lubcho with Wells Fargo. Please go ahead.

Thanks for taking the question, guys. And you just carry a thumb on the kind of the large capacity blocks. If you could talk about kind of the diversity of hyperscale as you're talking to, there's a lot of kind of newer infants, whether it's Neo clouds, the model developers, the chip companies, or you kind of focusing on, you know, the big four or five that you have historically. And then maybe if you could always also just touch on CapEx, I mean, to the extent you start to win some of these larger requirements,

how should we think about funding it between the managed funds between uh you know cash on the balance sheet uh could that kind of raise the capex expectations above the three to three and a half billion dollar level thank you thanks eric so i'll hand the funding piece uh to matt uh need to talk to the numerous levers we've now assembled here uh through our successful hyperscale fund our joint venture partnerships the balance of liquidity that If you add it all up, it seems to a significant amount of liquidity and dry powder to fund the growth of our platform. But on the customer front, by and large, the bigger the capacity block, the higher the credit quality, the larger the size of the counterparty, and the more established the business. We are certainly supporting some of the neoclouds, but I would say our work with them has been in not in the big, big deal arena. We support them in called megawatt, two megawatt type edge type locations and smaller capacity blocks. So when you think about those, call it the big and nearest term, the 25s, the 50s, the 100s, or even larger, I think the dialogue we're having is with a diverse array of called more traditional hyperscale customers that are called the household names in our top customer roster.

Yeah, and Eric, on the funding, so as you noted, we got it this year at three and three and a half. We're trending on target with that. And while we haven't given specific guidance for next year, what I can tell you is that I expect our, in particular at our growth level, we're going to be spending more in 2026 Now, I'd say a broader portion of that is going to be within our private capital groups, but I still expect that when you come down to even our share level, that you'll see a slight increase or an increase to what we're spending this year as we start to really hit kind of a sweet spot in terms of projects that we have underway to be able to deliver incremental capacity, especially in the back half of 26 into 27.

And your next question today will come from Michael Rollis with Citi. Please go ahead.

Thanks, and good afternoon. Just off the topic of how much you're putting into the JVs and off-balance sheet partnerships relative to what you're doing on your own, how are you thinking about the mix going forward? And are there opportunities to revisit what the right target leverage should be for digital to take more projects on balance sheet and create that, you know, more of that accretion for shareholders. Thanks.

Thanks, Michael.

So, Matt will speak to target leverage, but I don't think we've changed our stripes on that. And one great thing about tapping in these sources of private capital, including our oversubscribed three-plus-billion hyperscale fund in the U.S., is we can deploy different leverage quantities at different project levels alongside that private capital to generate the returns suitable for the project. This is a reminder. This is called an evolution of our funding model here, right? And we started down the road of joint ventures, one-off stabilized, assets and then moved on to development. And then our first inaugural fund is a combination of both. And it's really the beginning of the scaling of our strategic private capital initiatives. And that's in the backdrop of we see a demand landscape that is just quite tremendous, right? You look at the numbers of the gigawatts that are stated to be needed to continue the growth of digital transformation, continue the role of cloud computing, and to really even get off the ground AI built and commercialized. And yet we being an 80 plus billion dollar company still believe that having that private capital business, especially dedicated around hyperscaler, allows us to fuel our growth for our customers and balance that in terms of generating an accelerating bottom line per share growth for our shareholders at digital. So I think it's kind of a best of both worlds, allowing us to do more with our platform, and fund effectively.

Yeah, maybe, Mike, I'll just add briefly. Look, you know, I think our target leverage, five and a half, is a good place to be in terms of balancing, you know, our overall cost of capital and where we are today and where we seek to fund in the future. You know, maybe I'd also add, look, we're at four or nine today, and so that gives us some ability to go up in and potentially go down when necessary based on the capital market environment so that we can continue to fund what is larger builds going forward and a pretty good demand profile that we have.

And your next question today will come from David Guarino with Green Street. Please go ahead.

Hey, thanks. Andy, I just wanted to clarify on the comments you made given these multi-hundred megawatt deals in tertiary markets. Is that something... where you'd reconsider chasing that sort of demand, whether it's on balance sheet or through the fund. There's a playbook to continue sticking the primary markets for digital realty.

Thanks, David. So I think the comment was trying to get a few themes that are hopefully apparent, but want to provide our thoughts on. One, it's certainly showing a credible conviction for the infrastructure needed to launch this technology. And as you go through these lists of announcements, you're still seeing numerous mega announcements that are just talking about training, right? Not even really evolving to inference or certainly commercialization and the use of AI use cases. You're also seeing a diversity of players in that arena, which I think is healthy. It's not necessarily single-threaded to just only one major player building that infrastructure. When it comes to digital, I think we've had great success being across the full product spectrum, call it from supporting our growing enterprise business all the way to our hyperscale customers. We focus on market success. we will receive not just diversity and robustness of demand, but locational and latency sensitivity to the workload. So the answer to your question is we're certainly keeping our eyes on. I can tell you our team is across a tremendous amount of these opportunities. I think our intersection of that would be much more akin to our strategy. Like I said earlier, these cloud availability zone markets, the Northern Virginias, the Santa Claras, the Frankfurts and around the world, they are tight markets and they may be tight for a long time. And I think the adjacencies to those markets make the most sense because we want to be investing in infrastructure that we believe in for the really, really long term. And so that's how we're thinking about it today.

And your next question today will come from John Hodelick with UBS. Please go ahead.

Thank you. Andy, quick question on the power side. Given the constraints you're seeing in terms of accessing the grid, any thought to moving to behind-the-meter power solutions in some of your new projects? Thanks.

Thanks, Sean. So it was not that long ago we made a bigger announcement actually in South Africa where we're building solar in a market which is akin to that same concept. And that's obviously a market that is an incredibly fragile grid. So we're able to really extend our moat in that market with our platform in a supplemental power that is essentially behind the meter. I can tell you we're looking at this in numerous markets, and the context is much more in a bridge fashion. We're uncertain how long that bridge may be, but we hear from our customers the preference in the long run for utility, given the diversity of the power sources, the redundancy of that. But we're happy to help our utility partners with bridge solutions. And you can think about that in some markets that have been challenged with shortages, delays in power sources.

And your next question today will come from Michael Elias with TD Securities. Please go ahead.

Great. Thanks for taking the question. Just building on that point, I'm curious, when I think of your portfolio, you obviously have very valuable capacity in Northern Virginia at Dulles. Is it feasible for you to bring gas to that site to expedite the delivery of additional buildings? And maybe as part of that, just on the M&A side, there are a lot of companies out there that may have some facilities leased, but they have some land banks. How are you thinking about the M&A opportunity in this landscape? Thank you.

So thanks, Michael. So just touching briefly, I mean, we're thinking about all the markets where there's shortages or delays or frustration around the power infrastructure. So it's not just a one site, not just one sub market or market. We're thinking about that, trying to make the solution work. And we're trying to do it in a thoughtful manner, right? We are long-term committed, have been in these markets for many years, will continue to be in these markets. We want to be good stewards to the community, to our customers, but it's not just one of any given markets. It's numerous markets where this could be a tool in our toolkit to accelerate infrastructure deployments. I'll turn it over to Greg to kind of give his thoughts on the M&A market.

Yeah, thanks, Andy. Thanks, Michael. Michael, I'd say our strategy today is consistent with what it has been. And, you know, we continue to see what opportunities in the market that's going to provide us with the best risk-adjusted returns. So, you know, today we're looking at buying land and developing. We're looking at buying buildings that are strategically significant. And we look at buying companies that are strategically significant or there's industrial logic to it. So I would say, you know, we haven't changed anything in terms of our strategy. And I would say in today's market, We have opportunities across all three of those growth problems, if you will, and we continue to assess them.

And your next question today will come from Irvin Liu with Evercore ISI. Please go ahead.

Hi. Thank you for the question. Andy, I wanted to ask about the 5 gigawatts of future developable capacity. Can you help us understand the timetable or the timeline needed for this developable capacity to be become available for lease, you know, how much of this is available for lease, if any, and any sort of customer conversations you had related to this capacity. Thank you.

Sure. Thanks, Irvin. So I'll touch on the most front-of-the-queue capacity box, and then I'll touch on the customer dialogue. but they are they do go a little bit kind of uh together what we've seen um is there is a continuous focus on the here and now and we saw this as we've navigated our way through 2024 and put up a billion plus of new signings uh includes large capacity blocks uh and as we got closer and closer to deliveries of power and obviously our infrastructure and data centers, the interest continued to ratchet up. And we were able to intersect that with a great diversity of customers at attractive rates and ultimately returns. Given how valuable these locations are, these are strategically important to our customers. These are often the locations where our customers are landing major customers inside their facilities. be it cloud or other services that are highly profitable to them, and they're unique in that nature. And just like what transpired a year ago, I think the seasonal-esque nature of this as we approach the, quote, late 26 vintage or the 2027 vintage or 2028 shortly thereafter, the attractiveness becomes more and more attractive to those customers today. and that ensues in the dialogue column. We'll touch on that. That is playing out in Northern Virginia, be it Manassas, Digital Dulles, or call it adjacent to our existing Loudoun campus. That's playing out In Charlotte, in Atlanta, in Dallas, in Santa Clara, that's playing out outside the U.S. In the major flat markets in Europe or in the major Tokyo, Osaka markets in Asia. I'm just rattling off a few. So there's numerous markets that have those called the near-term larger contiguous capacity bond and vintage that the customers are seeking. But go ahead, Colin.

Yeah, thanks, Andy. I think we're very much in that window of prioritization that Andy talked about. This leasing activity for 2026, 2027, 2028 is very much the here and now. I highlighted before, you know, the largest pipeline that we've had on record. By the way, that also suggests a lot of momentum on the zero to one as well, which we saw in our bookings number. But the conversations across these large capacity blocks that, you know, Greg secured for us across North American and the flat markets is really becoming a consistent conversation in the core markets, which is, Andy talked about, these cloud zonal areas are resilient to having consistent demand pop up. So, you know, we're pleased with the conversations and the pipeline that we've generated.

And your next question today will come from David Choi with J.P. Morgan. Please go ahead.

Hi, it's Richard. Just wanted to follow up on that. Given that the long lead times in the industry for capacity, both building and demand for it, as we look, since most of your 2026 capacity is sold out, as you kind of look for the development table in 2027, how big can that be relative to 2026, given that you've been kind of planning this for a while and seeing the demand pipeline? Thank you.

These are big capacity blocks, and the concept is the customers really just almost want to get going with the build. They don't need to be powered on with the entire 100 megawatts or 200 megawatts. and a date certain in 2026 or date 2027. It's just they want the ramping to start commencing, which is a product of power delivery at the site and obviously our delivery alongside it, which we're trying to time out. So this is a sizable amount of that 5 gigawatts when they add it all up. I mean, just those markets I just rattled off across North America and a handful outside the U.S. are called hundreds and hundreds. of megawatts by themselves. And I didn't even really touch on our capabilities and call it Latin America or in South Africa when you add to those numbers.

And your next question today will come from Jim Schneider with Goldman Sachs. Please go ahead.

Good evening. Thanks for taking my question. Relative to some of the larger capacity hyperscale AI deployments you talked about as prospects for commencement in 26 and 27, can we talk about some of the technical requirements underpinning those? I think we know that Ruben and generations beyond from NVIDIA are going to require 800-volt architectures plus... liquid cooling and that's assuming is something that's not present in most of your existing capacity today. So how are you thinking about planning both your new facilities for that and are you thinking about potential for retrofitting any of your prior existing facilities to accommodate those new requirements? Thank you.

Thanks, Jim. Chris, I'll tag team up, but Chris, why don't you start off in terms of what we've done so far being called AI-ready, liquid cooling ready, and then, I mean, if you don't touch it, I can about just recent anecdotes of we've had churn in customers. We're doing air-cooled, switched to liquid with the next generation, just to answer Jim's question. Yeah, no, I appreciate the question, and

I love the way you're thinking about it with, like, new and old, because that's exactly the way that we have different tool sets and different capabilities that we're looking to deploy. But we've been a partner of NVIDIA's for many, many years with their DGX pre-certified program. We're one of the leading partners there. We continue to work with them not on even You said it right, like not the chipset today, but what's going to be out there two and three years out. And so we're always looking at that. And the power distribution piece for the rest of the people on the call on 800 volt, we've been across that for some time now on different types of electrical distribution capabilities that are going to be required. And that's a lot for the new build. And we're always looking at and evolving our modular designs, right? And that modular design is not only in our new footprint, but it's been deployed for many, many years in our existing footprint. So, we're always looking at how we bring liquid and, quite frankly, our architecture for these new builds allows us to align to the densification of that chipset in a very granular fashion. And so for a part of the retrofit, we've been talking about it for a while called HD-Colo. And so that HD-Colo capability is something that we've really been working on, and it's available across 30 metros, 170 facilities, and you can deploy it in roughly 14 weeks. What that allows us to do with our customers is to densify up to 150 kilowatts, and that will support the Rubens, it will support a lot of the Grace Blackwells, so we have a lot of runway in our existing facilities to align when our customers need us to. And so we're always watching exactly how that's going to be coming to market. I think you might have seen some of the press releases and some of the customer announcements around our digital realty innovation lab. Why that was built is to allow us to bring all of our partners together inside of an environment where The data center, unfortunately, today is the point of integration. And so we're trying to pre-engineer and set a bunch of standards so that our customers are able to get outcomes out of this infrastructure as they bring it to market. So as you understand, we've really been ahead of the curve with a lot of these partners and making sure that we can build a repeatable kind of outcome for our customers on a global basis.

And your next question today will come from Frank Luthan with Raymond James. Please go ahead.

Great. Thank you. Can you walk us through what is your average size deployment that you're seeing for enterprises now, and do you think that you're gaining share in that? And then can you give us an idea of what percentage of your new bookings are for AI inferencing workloads? Thanks.

Thanks, Frank.

So I'll try to tackle this in a few parts. So overall, of our total signings, we have about 50%. was AI-related. This quarter in particular, in just the 0 to 1 megawatts, so predominantly enterprise-oriented, we did see a new high-water mark north of 18% of those signings being called AI-related, so high-performance compute. And that number in that category by itself has probably hovered closer to single digits or high single digits for some time. So we are seeing a pickup in that. You're seeing certain sectors, financial services, manufacturing, certain customer types, I would say, moving closer to proof of concept and evolving. I still believe this word inference is beyond nascency, quite honestly, based on the fact that the adoption of this in a commercialized corporate private data site setting, we're not even scratching the surface what we can do with this technology, right? I believe the B2C applications are way outrunning what's going to happen on enterprise platforms. So I don't think – I think our data centers in our markets that are supporting the cloud and enterprise will ultimately be the home for that information applications, but I think we've still got a good runway to get there, especially when people are just putting out press releases that are talking about training today. Because if it's a press release now, it's not a data center for a good while. On average size, I'd say size of deals are catching up or getting a little bit bigger in the enterprise size. They're definitely getting a little more power dense, which is playing into our wheelhouse. And we've been supporting four enterprises, liquid cooling, well before we were talking about chat GPT or GPUs. So we have a lot of experience like that. And then lastly, when it comes to taking market share, the answer is yes, in my opinion.

And your next question today will come from Joe Osho with Guggenheim Partners. Please go ahead.

Hi there. Yeah, my question's pretty simple. If I look at the spreads on the 1 megabot plus side, it's two back-to-back quarters now of double digit, and the most recent one's almost 20%. Are we just seeing maybe a temporary artifact there, or is this kind of the new normal with those spreads being at that level going forward? Thanks.

Yeah, thanks, Joe. Look, I think you're seeing starting to see what we're expecting as we start to look forward and we see the rates that start to drop down over the next several years, as Andy mentioned earlier. I mean, I would say this year was a year to date. It's been a relatively light year in terms of renewals within the greater than a megawatt. We'll start to see that pick up in 26 and 27 as you look at our expiration schedule. But we've also had this year, even this quarter in particular, you'll see that the average rate, if you look at this quarter, was I think north of 180, which reflects the markets that we were in. And despite that, we were still able to get higher rates and robust releasing spreads. So I think we're, again, we're in a robust supply-constrained market, and we think looking forward, our mark-to-market opportunity is in a good position.

And your next question today will come from Cameron McVeigh with Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. I just wanted to ask about future cap expense, and do you envision – CapEx spend going forward? Do you expect it to be geared more towards retrofitting existing data centers for denser deployments or maybe expanding new capacity? And then secondly, do you see this incremental CapEx geared to capture more growth in the zero to one segment or the one plus segment going forward? Thanks.

Thanks, Cameron. So I think Matt's touched on this a little bit. I mean, I think Just to paraphrase, we believe, given the opportunity and the conversion of our, call it shells, or delivery of our suites under construction, shells into data centers and COLA halls, and land into shells and ultimately data centers, CapEx is likely to reflect higher on both the total and our share basis. So that's based on really success-driven. And when it comes to where the money's going, by and large, the dollars are going towards new capacity. The new capacity is well outpaced. We're still doing a great job maintaining, retrofitting where necessary our existing fleet, but the dollars for building a new data center are dwarfing the dollars needed that we need for our portfolio. And when it comes to the types of CapEx that Yes, the dollars amounts are certainly bigger when you call it slant towards bigger deals, 50, 100, 200 megawatt deals. But we've made this strategically the priority at this company to make sure that we don't go dark for our enterprise COLA customers in 50 plus and growing retros around the world. And those enterprises are landing with us with private IT for their digital transformation. hybrid cloud, and then connecting to our top cloud customers. So that virtuous cycle we're building for all the customers that land and expand with digital is part of our value problem.

And your next question today will come from Mahar Yassi with Scotiabank. Please go ahead.

Great. Thank you for taking my question. I wanted to ask you, I mean, since February, you've increased guidance and signed many new contracts. Certainly, we've seen the number of projects in construction in the U.S. overall increase significantly. But when I look at your development CapEx guidance, it has not changed. I'm not suggesting you should spend more, but do you think the drive to build bigger and bigger campuses is moving projects to private developers and reducing your share of what you typically might get. And the second question is, could you qualify maybe the credit quality of the new mega projects that are being built? Do you see the returns being commensurate with taking on much bigger projects with a lower customer count that might not have the same cash flows level that your traditional Fortune 500 companies might have currently? Thank you.

Sure. So lots to unpack in there for I think what's our last question. I'll try to hit it. So our development, we're processing about $10 billion in total on the development lifecycle. So maybe the dollars going out the door, we're only pushing towards the high end of our guidance, which is a decent range of guidance, but we're definitely leaning towards bigger. And it's not a static thing for us, right? Projects are delivering. We had, I think, record commencements last quarter. We have sizable commencements this quarter, meaning projects are moving off that schedule and new projects are getting added to that schedule. We've been intersecting, as addressed in a prior question, this primarily in the major markets where we saw diversity of demand from enterprise to hyperscale and where it was also locationally and latency sensitive workloads. We've not necessarily today chased that out to the one-off locations, but we're very much cognizant of those opportunities and seeing a world where the markets where we're having a distinguished position in are expanding and stretching. And I think that's where you likely see us next to support those types of customers growth. For us, I can't speak of others, but for us, when you talk like these large-scale locations, be it in our major markets or otherwise, we're aligned with making sure the counterparty risk befits the project. So certainly leaning towards the larger, call it trillion-dollar-type companies that are investment-grade. And that doesn't mean we don't do business with, I would say, the neoclouds, but we've not been involved with major one-off projects to those names to date.

That concludes the Q&A portion of today's call. I would now like to turn the call back over to President and CEO Andy Power for his closing remarks. Andy, please go ahead.

Thank you, Nick. Digital Realty delivered another strong quarter, building on our momentum throughout this year. We saw continued strength in our 0 to 1 megawatt plus IX business with record interconnection bookings, underscoring the strength of our global full-spectrum platform. Our backlog grew and now sits at 20% of data center revenue. Our pipeline is at a record level, and we are well-positioned for better long-term sustainable growth. This is a special time in our industry Demand has never been stronger. We've positioned the company to meet the challenges of this moment with a strong and growing value proposition, enhanced innovation, and an evolved funding strategy that enables us to better meet the needs of our customers while improving our overall returns. I'm incredibly proud of our talented and dedicated colleagues who continue to execute at an exceptionally high level, and I thank you all for your hard work. I'm excited by the opportunity that lies ahead and remain focused on delivering for our customers, partners, and shareholders.

Thank you all for joining us today.