Digital Realty Trust Inc (DLR) — Q3 2025 Earnings Call Transcript

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, see our 10-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 through 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 0-1 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. 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. Over the past 2 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 market, 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 of 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 single use case, workload, or customer. These facilities hold the promise 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 tolerant 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. Digital Realty has landed a meaningful share of AI-oriented deployments over the last 2 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 5 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 continues 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 0-1 megawatt plus interconnection product set. Core FFO per share set a record at $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 disciplined expense management, resulting in the third consecutive guidance increase this year. Bookings in the third quarter were $201 million at 100% share, or $162 million at Digital Realty share. Like last quarter, our 0-1 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 the 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 ServiceFabric 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 contiguous 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 colocation 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 colocation 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 offering, combined with our global footprint, allows us to support this transition, providing the 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 PlatformDIGITAL 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 JFK10 data center. Oxford Quantum Circuits is taking advantage of PlatformDIGITAL's colocation and connectivity capabilities to expand their AI capabilities at scale, solving for efficiency and resource constraints. A leading global technology company chose PlatformDIGITAL to deploy their global presence, taking advantage of liquid cooling capabilities required for their HPC/AI environments. A leading health care analytics and technology solutions company is expanding its geographic presence on PlatformDIGITAL to solve data localization and sovereignty challenges. A leading higher education research institute is taking advantage of PlatformDIGITAL's liquid cooling capabilities required for their HPC and AI deployment. A leading European technology and network provider is expanding on PlatformDIGITAL, deploying a sovereign cloud solution in the U.S. to support their customers' compliance needs. A global payments provider and new logo for Digital Realty chose PlatformDIGITAL 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 PlatformDIGITAL, 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 EcoVadis 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 hydro power from 3 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 5 gigawatt runway 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 0-1 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 in the 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 share, we signed $162 million of new leases in the third quarter, which is well distributed across our 3 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 0-1 megawatt plus interconnection category was strong, led by leasing in one of our most highly connected facilities in the U.S. Over the past 4 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 but 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 3 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 were again heavily weighted toward our 0-1 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 re-leasing 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, up 13% year-over-year, reflecting strong upside from commencements and positive re-leasing 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 the 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 9 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. While 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 4.9x, well below our long-term target of 5.5x, 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 EUR 1.1 billion notes at 2.5% in January 2026. Beyond that, we have a smaller CHF 275 million 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% 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 a piece. We are raising the midpoint of our cash and GAAP re-leasing spread guidance ranges to 6% and 8%, respectively, to reflect the 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 the 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 0-1 megawatt plus interconnection product set, combined with disciplined execution across our 5 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 would be pleased to take your questions.

I guess maybe just with the guidance increase on the core FFO growth of 9.5% this year, I 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 stay or even accelerate from current growth levels while balancing development investment requirements?

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

Yes, Aryeh. To start, we're proud of this year's results and the positive adjustments we've made over the last few quarters, which have led us to where we are today with an 8.5% growth rate on a constant currency basis. Looking ahead to 2026, we are positioned to begin strongly, aiming for 10% top line growth. This is backed by a healthy backlog exceeding $550 million and strong business fundamentals. However, we do anticipate some challenges early in 2026, including $1.3 billion of debt maturing in January at about 2.5%. We also plan to contribute the remaining 40% of our $1.5 billion of stabilized assets to our relatively new North America hyperscale fund. Although expectations for rate cuts in 2026 might typically be seen as beneficial, our significant cash holdings may lead to lower interest income. Despite these factors, we feel we are effectively mitigating risks in our 2026 plan and are confident about our continued growth moving forward.

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?

Thanks, Jon. I'll start and then have Colin discuss what we're observing in customer interactions with the hyperscalers. We've had a strong beginning to the year, with this quarter marking our fourth largest, generating over $200 million in signings. What's particularly noteworthy is the significant diversity of demand in major markets where we're facilitating growth in cloud computing and AI. In fact, over the last seven quarters, our highest single signing has come from a different customer each time, showcasing this diversity. This quarter, our two largest signings were from customers who hadn't engaged in substantial deals with us for some time. We're also preparing significant capacity blocks in prime locations that are strategic for our customers. Now, I'll let Colin share insights on the discussions he's having regarding those capacity blocks.

Thanks, Andy. Yes, Jon, I appreciate the question. Q3 bookings, obviously, diverse in nature across our 3 regions. And in terms of conversations with our hyperscalers, I'd say it's 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 and dialogue for us across our 5 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.

Yes. So Andy, can you address the 2026 expirations and how you're thinking about the capacity to increase the re-leasing 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 2 main categories we call, discussed the business, we're continuing to see strong pricing power in the less than a megawatt category. I think our cash mark-to-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, until 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. Listen, I think we're working the 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.

Andy, just curious on the kind of the large capacity blocks, if you could talk about kind of the diversity of hyperscalers you're talking to. There's a lot of newer entrants, whether it's neo clouds, the model developers, the chip companies or are you kind of focusing on the big 4 or 5 that you have historically? And then maybe if you could 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 cash on the balance sheet? Could that kind of raise the CapEx expectations above the $3 billion to $3.5 billion level?

Thanks, Eric. So I'll hand the funding piece to Matt, and he can talk to the numerous levers we've now assembled here through our successful hyperscale fund, our joint venture partnerships, the balance sheet liquidity that if you add it 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 neo clouds, but I would say our work with them, and it's been not in the big, big deal arena. We support them in, call it, megawatt, 2 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, call it, more traditional hyperscale customers that are called the household names in our top customer roster.

Yes. Regarding the funding, as you mentioned, we are on track with our guidance of $3 billion to $3.5 billion for this year. While we haven't provided specific guidance for next year, I can say that I anticipate increased spending in 2026, particularly within our private capital groups. Overall, I expect that even at our share level, there will be a slight or increased spending compared to this year as we begin to reach a critical phase in our projects that will enable us to deliver additional capacity, especially in the latter half of 2026 into 2027.

How do you view the mix between your joint ventures and off-balance sheet partnerships compared to your independent projects going forward? Additionally, are there chances to reassess the ideal target leverage for Digital to take on more projects on balance sheet to enhance shareholder value?

Thanks, Michael. Matt will discuss target leverage, but our approach remains the same. One significant aspect of accessing private capital, including our oversubscribed $3 billion hyperscale fund in the U.S., is our ability to utilize varying amounts of leverage at different project levels alongside that private capital to achieve the desired returns for each project. This represents an evolution of our funding model. We began with joint ventures and single stabilized assets before progressing to development. Our inaugural fund blends both approaches and marks the start of scaling our strategic private capital initiatives. We see significant demand for power to support the growth of digital transformation, cloud computing, and the development of AI. As an $80 billion company, we believe that cultivating private capital, particularly in hyperscale, can drive our growth for customers while also enhancing bottom-line share growth for our shareholders at Digital. This approach allows us to maximize our platform's potential and fund efficiently.

Yes. Maybe, Michael, I'll just add briefly. Look, I think our target leverage 5.5 is a good place to be in terms of balancing our overall cost of capital and where we are today and where we seek to fund in the future. Maybe I'd also add, look, we're at 4.9 today, and so that gives us some ability to go up 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.

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 funds? Or is the playbook to continue sticking to 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 I want to provide our thoughts on. One, it's certainly showing an incredible conviction for the infrastructure needed to launch this technology. And as you go through these list of announcements, we'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 a 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 markets where we see 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.

Andy, a 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, John. Recently, we made a significant announcement in South Africa regarding our solar project, which aligns with a similar concept. This market has an extremely fragile grid, and we're able to strengthen our position there with our platform that provides supplemental power, essentially behind the meter. We're exploring this approach in various markets, viewing it more as a temporary solution. While we're not sure how long this temporary phase will last, our customers express a long-term preference for utility options because of the variety and reliability of power sources. We're pleased to assist our utility partners with transitional solutions, especially in markets facing power shortages and delays.

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 then 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, Michael. To briefly address your point, we are considering all the markets facing shortages, delays, or frustrations concerning power infrastructure. Our focus is not limited to one specific location or submarket; we are working on solutions across a variety of markets. We aim to approach this thoughtfully, as we are committed for the long term and have been part of these areas for many years. Our intention is to be responsible members of the community and to serve our customers well. It's not restricted to a single market; there are many where we can leverage our tools to enhance infrastructure deployment. I’ll now pass it over to Greg for his insights on the M&A market.

Yes. Thanks, Andy. Thanks, Michael. Michael, I'd say our strategy today is consistent with what it has been. And we continue to see what opportunities in the market that's going to provide us with the best risk-adjusted returns. So today, we're looking at buying land and developing. We're looking at buying buildings if strategically significant. And we look at buying companies if they're strategically significant or there's industrial logic to it. So I would say we haven't changed anything in terms of our strategy. And I would say in today's market, we have opportunities across all 3 of those growth prongs, if you will, and we continue to assess them.

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 become available for lease? How much of this is available for lease, if any? And any sort of customer conversations you had related to this capacity?

Sure. Thanks, Irvin. So I'll touch on the most, call it, front of the queue capacity box and then I'll let Colin touch on the customer dialogue. But they do go a little bit kind of together. What we've seen 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 $1 billion plus of new signings, which includes some large capacity blocks. 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 of 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 nature of this as we approach the '26 vintage or the 2027 vintage or 2028 shortly thereafter, the attractiveness becomes more and more attractive to those customers, and that ensues in the dialogue Colin will touch on. 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 and Santa Clara. That's playing out outside the U.S. in the major, call it, flat markets in Europe or in the major Tokyo soccer markets in Asia, and I'm just rattling off a few. So there's numerous markets that have those, call it, the near-term larger contiguous capacity and vintage that the customers are seeking. But go ahead, Colin.

Yes. Thanks, Andy. I think we're very much in that window of prioritization that Andy talked about. This leasing activity for 2026, 2027, and 2028 is very much the here and now. I highlighted before the largest pipeline that we've had on record. By the way, that also suggests a lot of momentum on the 0-1 as well, which we saw in our bookings number. But the conversations across this large capacity blocks that Greg secured for us across North America into the flat markets is really becoming a consistent conversation in the core markets, which as Andy talked about, these cloud zonal areas are resilient to having consistent demand pop up. So we're pleased with the conversations and the pipeline that we've generated.

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 deal in 2027, how big can that be relative to '26, given that you've been kind of planning this for a while and seeing the demand pipeline?

These are large capacity blocks. The idea is that customers want to start their construction without needing the full 100 megawatts or 200 megawatts locked in for a specific date in 2026 or 2027. They simply want the ramp-up process to begin, which depends on power delivery at the site and our timing of delivery. This represents a significant portion of the 5 gigawatts when you look at the totals. The markets I mentioned across North America and a few outside the U.S. contribute hundreds of megawatts on their own, and I haven't even discussed our capabilities in Latin America or South Africa, which would further increase those figures.

Regarding the larger capacity hyperscale AI deployments expected to start in '26 and '27, could you discuss some of the technical requirements for those? We understand that the new NVIDIA generations, including Rubin, will need 800-volt architectures and liquid cooling, which I assume are not part of most of your current facilities. How are you planning for these new facilities, and are you considering retrofitting any of your existing ones to meet these new standards?

Thanks, Jim. So Chris and I'll tag team that. But Chris, why don't you start off in terms of what we've done so far being, call it, AI ready, liquid cooling ready. And then I mean, if you don't touch I can about just recent anecdotes of we've had churn and customers, we're doing air cooled, switching to liquid with the next generation just to answer Jim's question.

Yes, I appreciate the question and I like your perspective on new versus old, as it reflects the distinct tool sets and capabilities we're aiming to implement. We have partnered with NVIDIA for many years through their DGX precertified program, where we are a leading collaborator. We're continuously exploring not just the current chipset but also what's on the horizon two to three years from now. We're also focused on power distribution, particularly with our work on 800-volt systems, which we've been addressing for some time in various electrical distribution capabilities essential for new builds. We continually evolve our modular designs, which have been effectively utilized in both our new and existing facilities for many years. Our new builds benefit from an architecture that allows for fine-tuned integration with chipset densification. In terms of retrofitting, we've mentioned our HD colo initiative, which we have actively developed. This capability spans 30 metro areas and 170 facilities, with a deployment time of about 14 weeks. It enables us to densify up to 150 kilowatts, supporting technologies like Rubin and Grace Blackwell. We are well-prepared to respond to customer needs in our existing facilities. We're stay closely attuned to how these solutions will enter the market. You may have seen recent press releases regarding our Digital Realty Innovation lab, which was established to unite all our partners in an environment where data centers serve as integration hubs. Our goal is to pre-engineer standards that empower our customers to achieve effective outcomes as they bring their infrastructure to market. We are committed to staying ahead of the curve with our partners to deliver repeatable results for our customers worldwide.

Great. 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, Frank. I'll break this down into a few parts. Overall, about 50% of our total signings are AI-related. This quarter, specifically in the 0-1 megawatt sector, predominantly for enterprises, we reached a new high with over 18% of those signings being AI-related, focused on high-performance computing. That percentage has typically been in the single digits or high single digits for some time, so we are noticing a significant increase. Certain sectors like financial services and manufacturing are moving closer to proof of concept and evolving. I truly believe that the adoption of AI in corporate private data centers is still in its early stages. B2C applications are progressing at a much faster rate than enterprise applications. I think our data centers will ultimately support these applications, but there's still a long way to go, especially when many companies are just now announcing training initiatives, as those announcements suggest they're not ready for data center deployment yet. In terms of average deal size, we've observed that the size of deals is catching up and growing a bit larger than the typical enterprise size, with deals becoming more power dense, which suits our expertise. We've been supporting enterprises with liquid cooling long before the emergence of ChatGPT or GPUs, so we have substantial experience in that area. Lastly, I believe we are indeed taking market share.

My question is pretty simple. If I look at the spreads on the 1 megawatt plus side, it's 2 back-to-back quarters now of double-digit and the most recent one is almost 20%. And 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?

Thank you, Joe. We are beginning to observe the trends we expected as we look ahead, particularly with rates anticipated to decline over the next several years, as Andy noted earlier. This year has been relatively light for renewals above a megawatt, but we expect an increase in '26 and '27 based on our expiration schedule. Additionally, in this quarter, the average rate exceeded 180, reflecting our market conditions. Despite that, we achieved higher rates and strong re-leasing spreads. We are currently in a strong supply-constrained market, and we believe our mark-to-market opportunities are well positioned for the future.

Just wanted to ask about future CapEx spend. 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 0-1 segment or the 1 plus segment going forward?

Thanks, Cameron. Matt mentioned this briefly, but to summarize, we believe that as we move forward with our ongoing projects, including the construction of new facilities and the enhancement of our data centers, capital expenditures are likely to increase both in total and per our share. This is primarily driven by our successes. Most of the funds are being allocated toward new capacity, which is significantly outpacing our ability to maintain and retrofit existing infrastructure. The investment required for new data centers greatly exceeds what we need for our current assets. Regarding capital expenditures, while the dollar amounts are indeed larger, especially for significant projects in the 50 to 200-megawatt range, we have made it a strategic priority to ensure we remain responsive to our enterprise colo customers in over 50 expanding metropolitan areas globally. These enterprises are partnering with us for their digital transformation and hybrid cloud needs, connecting with our leading cloud clients. This positive cycle of development is central to our value proposition for all customers.

Great. 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 increased 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 flow level that your traditional Fortune 500 companies might have currently?

There is a lot to address in that last question. To summarize, we are projecting about $10 billion in total for our development lifecycle. The spending is likely to trend towards the upper end of our guidance, which covers a substantial range. We are definitely aiming for larger projects, and this is a dynamic process for us. Many projects are progressing well; we experienced record project starts last quarter and have substantial new starts this quarter. This means that projects are advancing on schedule, and we are adding new products. As mentioned earlier, we are primarily focusing on major markets where there is a mix of demand, spanning from enterprise to hyperscale, particularly for latency-sensitive workloads. While we haven't yet pursued opportunities in isolated locations, we are aware of them and see potential for growth in the markets where we have a strong presence. Moving forward, we aim to support the growth of these types of customers. Specifically, regarding large-scale locations, whether in major markets or elsewhere, we are committed to managing counterparty risks aligned with each project. We are leaning towards collaborating with larger, investment-grade companies, typically those valued at around $1 trillion. While we still engage with newer cloud companies, we have not participated in significant individual projects with them so far.

Thank you, Nick. Digital Realty delivered another strong quarter, building on our momentum throughout this year. We saw continued strength in our 0-1 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.