Digital Realty raises 2025 core FFO guidance by 2% amid record AI-driven bookings and $852M backlog

Earnings Call Insights: Digital Realty Trust, Inc. (DLR) Q3 2025

MANAGEMENT VIEW

* Andrew Power, President and CEO, highlighted robust demand for scalable connected infrastructure, stating, "PlatformDIGITAL'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." Power emphasized the company's strong position in strategic metros and their advantage in navigating power availability and permitting challenges.
* Power reported, "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."
* The CEO noted record interconnection bookings and a near-record number of new logos added in Q3, reinforcing the company’s momentum in enterprise demand for data center infrastructure.
* Matt Mercier, CFO, stated, "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."

OUTLOOK

* The company increased its core FFO guidance range for 2025 by approximately 2% at the midpoint to $7.32 to $7.38 per share and raised the constant currency core FFO guidance to $7.25 to $7.30 per share.
* Mercier indicated, "Looking ahead to the fourth quarter, we increased guidance for the full year once again and expect to begin 2026 with significant momentum in the sizable backlog which extends our runway for long-term growth."
* Supporting the outlook, revenue and adjusted EBITDA guidance ranges for 2025 were both raised by $75 million at the midpoint, with re-leasing spread guidance midpoints increased to 6% (cash) and 8% (GAAP), and constant currency same-capital cash NOI growth assumption up to 4.5% at the midpoint.

FINANCIAL RESULTS

* Core FFO per share reached a record $1.89, up 13% year-over-year, with constant currency core FFO per share at $1.85, representing 11% year-over-year growth.
* The backlog grew to $852 million at Digital Realty share, up from $826 million in Q2, with $137 million of commencements more than offset by new bookings.
* Q3 bookings totaled $201 million at 100% share, with $162 million at Digital Realty share; the 0-1 megawatt plus interconnection category contributed $85 million in new leases.
* Interconnection leasing set a new record at $20 million, marking a second consecutive record quarter and a 13% increase over the previous quarter.
* Renewal leases signed in Q3 reached $192 million at a blended 8% cash increase, with the greater than a megawatt category achieving a 20% cash re-leasing spread.
* Operating expenses continued to increase due to business scale, employment costs, and seasonal effects, with leverage falling to 4.9x and liquidity at nearly $7 billion.

Q&A

* Aryeh Klein, BMO: Asked about drivers for next year's growth and the ability to maintain or accelerate core FFO growth. Mercier responded, "We're on the path to start on a strong footing, looking at continuing to target 10% top line growth...our healthy backlog that we've got of over $550 million and the robust fundamentals that continue to support our business."
* Jonathan Petersen, Jefferies: Inquired about hyperscaler demand in major metro markets and latency-sensitive AI applications. Power replied that demand is "tremendous" and diverse, with the largest capacity blocks in key locations seeing increasing interest for 2026 and 2027 deliveries. McLean added, "Q3 bookings, obviously, diverse in nature across our 3 regions."
* Michael Funk, BofA: Asked about 2026 expirations and potential for re-leasing spread increases. Power indicated continued strong pricing power in the under one megawatt category and "continued step down...until about 2029 in our expiring rates," with new signings at healthier market rates.
* Eric Luebchow, Wells Fargo: Asked about customer diversity and CapEx funding for large capacity blocks. Power confirmed focus on traditional hyperscale customers for big deals, while Mercier said CapEx is "trending on target" this year but expects higher spend in 2026.
* Michael Rollins, Citi: Queried the mix between JVs/off-balance sheet partnerships and potential leverage targets. Mercier maintained a target leverage of 5.5, with flexibility to adjust as needed.
* David Guarino, Green Street: Asked if DLR would pursue large deals in tertiary markets. Power confirmed continued focus on primary, strategic markets due to their long-term value.
* John Hodulik, UBS: Asked about behind-the-meter power solutions. Power shared examples from South Africa and said such solutions are considered as bridges in markets with grid constraints.
* Additional questions covered timelines for developing 5 GW of capacity, technical requirements for new AI workloads, and the allocation of CapEx between retrofits and new builds.

SENTIMENT ANALYSIS

* Analysts' tone was generally positive but included probing questions on future growth, CapEx allocation, and re-leasing spreads, suggesting cautious optimism with a focus on sustainability of current momentum.
* Management maintained a confident tone in both prepared remarks and Q&A, emphasizing ongoing demand, robust backlog, and strategic positioning. Power noted, "Demand has never been stronger. We've positioned the company to meet the challenges of this moment with a strong and growing value proposition."
* Compared to the previous quarter, management's confidence level remained strong, with a slightly more assertive outlook on AI-related demand and future growth.

QUARTER-OVER-QUARTER COMPARISON

* The Q3 call saw a further guidance increase for core FFO, compared to the Q2 raise, with the Q3 midpoint now at $7.32 to $7.38 per share versus the previous $7.15 to $7.25 range.
* Backlog increased from $826 million in Q2 to $852 million, with strong new bookings and continued record performance in the 0-1 megawatt plus interconnection category.
* AI’s share of bookings remained above 50%, with growing emphasis on future AI workload weighting in the power bank.
* Analysts in both quarters focused on growth durability, CapEx, and market positioning, but Q3 included more questions on technical readiness for next-gen AI deployments and capacity expansion timing.
* Management’s sentiment was consistently confident, but Q3 featured firmer language on future demand, backlog-driven growth, and strategic funding mix.

RISKS AND CONCERNS

* Power and McLean addressed challenges related to power availability, permitting, and infrastructure constraints, noting these factors are making it harder to bring supply online quickly.
* Mercier pointed to seasonal expense increases and potential headwinds from asset sales and lower interest income in Q4.
* Management discussed ongoing evaluation of behind-the-meter power solutions in markets with grid limitations, as well as a cautious approach to pursuing large deals in non-strategic markets to mitigate risk.

FINAL TAKEAWAY

Digital Realty delivered record financial and operational results in Q3 2025, raising full-year guidance for the third time amid robust AI-driven demand and a growing backlog. Management expressed strong confidence in the company's strategic focus on connected, high-demand metro markets and emphasized disciplined financial execution and a flexible funding approach to support long-term sustainable growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/dlr/earnings/transcripts]

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