Digital Realty Trust, Inc.

New York Stock Exchange
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Bullish +75

Digital Realty Trust Rides Record AI Leasing Wave

💰 Digital Realty Trust reported record new leases of $707 million at 100% share in Q1, marking its second-best booking quarter ever.

🚀 A historic 200 MW AI inference lease was secured in Charlotte, validating the company's hub-and-spoke strategy for AI workloads.

📈 Interconnection bookings surged 24% to $186 million as demand for high-connectivity ecosystems within the portfolio strengthens.

📝 The total backlog reached a record $1.8 billion, providing multi-year visibility into future revenue with scheduled commencements through 2028.

🏗️ Development pipeline value expanded to approximately $16.5 billion with about 1.2 GW of capacity currently under construction.

💵 Core funds from operations (FFO) came in at $2.04 per share, representing a 15% year-over-year increase and beating expectations.

📢 Management raised 2026 FFO per share guidance by $0.10 to $8.10, projecting roughly 9% growth compared to 2025.

🔽 Leverage improved significantly with debt-to-EBITDA falling to a multi-year low of 4.7 times and AFFO payout ratio easing to 64%.

💸 The company raised over $8 billion in private capital through joint ventures, allowing flexible funding for growth without excessive leverage.

🌍 Digital Realty expanded its global footprint with acquisitions in Sofia, land deals in Portugal and Milan, and entry into Cyberjaya in Malaysia.

⚠️ Operating expenses rose faster than trend compared to the prior year, which compressed constant-currency same-capital cash NOI growth to 2.5%.

⏳ Average lease commencement lags have stretched to around 19 months due to the complexity of large-scale megadeals like the Charlotte deal.

🔋 Management highlighted risks regarding conflict-driven energy price volatility and supply chain uncertainty despite utility cost pass-throughs.

🤖 Executive commentary emphasized that robust demand, high preleasing rates, and ample capital position the company well for the AI-driven data center cycle.

📉 Revenue and adjusted EBITDA both grew at strong double-digit rates driven by improving pricing and utilization metrics.

Bullish Signals
  • Digital Realty Trust achieved a record $707 million in new leases at 100% share, marking the second-best bookings quarter in company history.
  • Management raised full-year guidance for core Funds From Operations (FFO) to $8.10 per share for 2026, implying approximately 9% year-over-year growth.
  • The development pipeline expanded significantly to about $16.5 billion in value, a 60% increase from the prior year, with roughly 61% of new capacity already preleased at an expected yield of 11.4%.
  • Debt to adjusted EBITDA fell to a multi-year low of 4.7 times while the AFFO payout ratio eased to 64%, indicating a strengthened balance sheet and increased retained cash flow for expansion.
  • Digital Realty successfully closed a $3.25 billion U.S. hyperscale fund, bringing total joint-venture and incremental private capital capacity to over $8 billion to fuel growth without excessive leverage.
Risk Factors
  • Operating expenses rose faster than the prior-year trend, compressing constant-currency same-capital cash NOI growth to just 2.5% despite nominal gains of 7.9%.
  • Lease commencement lags have stretched to approximately 19 months due to very large, complex deals like the 200 MW Charlotte transaction, delaying revenue recognition.
  • Industry risks include conflict-driven energy price volatility and broader supply chain uncertainty, which could indirectly influence customer behavior despite hedging efforts.
  • Management warned that higher operating costs will create quarter-to-quarter volatility in financial performance metrics.
  • Average lease commencement lags for the 200 MW Charlotte deal specifically extend revenue realization by nearly two years after signing.
Full Analysis
Digital Realty Trust (DLR) reported its Q1 earnings on April 25, driven by record leasing activity in a surge of AI demand. The company secured $707 million in new leases at full share, with $423 million attributable to Digital Realty specifically, marking the second-best quarter ever and roughly 70% higher than the next highest period. A major highlight was a 200 MW AI inference-focused lease in Charlotte, the largest megawatt transaction in company history, which validates their hub-and-spoke strategy of building scale campuses near network hubs rather than relying solely on legacy markets. Beyond mega-deals, zero-to-one megawatt signings and interconnection bookings reached a record $98 million, up more than 40% from the first quarter of 2025, with AI-oriented demand comprising about 21% of this segment. The company added 116 new customer logos, indicating growth extends beyond just hyperscale tenants. Consequently, total backlog swelled to a record $1.8 billion (or $1.0 billion at Digital Realty's share), providing visibility into future revenue with scheduled commencements of $44 million in 2026 and significant amounts continuing through 2028. Operating performance saw core funds from operations reach $2.04 per share, a 15% increase year over year that led management to raise 2026 guidance to $8.10 per share, implying roughly 9% growth versus 2025. Revenue and adjusted EBITDA grew at strong double-digit rates due to improving pricing and utilization, though operating expenses rose faster than trends, compressing constant-currency same-capital cash NOI growth to 2.5% on a constant currency basis. On the balance sheet, debt to adjusted EBITDA fell to a multi-year low of 4.7 times, and the AFFO payout ratio eased to approximately 64%. The company raised $910 million in development capex net of partners after closing a $3.25 billion U.S. hyperscale fund and having over $8 billion of private capital capacity available for growth. Digital Realty also expanded its global footprint by acquiring Telepoint in Sofia, securing land in Portugal and Milan, and entering Cyberjaya in Malaysia to serve latency-sensitive workloads.