Executive Summary / Key Takeaways

• Digital Realty ($DLR) is a leading global data center provider, strategically positioned to capitalize on the secular tailwinds of digital transformation, cloud computing, and the accelerating adoption of AI through its comprehensive PlatformDIGITAL offering.
• The company delivered a record core FFO per share of $1.89 in Q3 2025, marking a 13% year-over-year increase, driven by robust leasing, strong re-leasing spreads, and growing fee income, leading to its third consecutive guidance increase for the year.
• Technological differentiators like high-density Colo 2.0, ServiceFabric, and Private AI Exchange provide a competitive edge, enabling customers to deploy high-performance computing and AI workloads efficiently across a global, interconnected footprint.
• Digital Realty's diversified funding model, including its recently launched U.S. Hyperscale Data Center Fund with over $3 billion in equity commitments, provides significant dry powder to meet the surging demand for large capacity blocks without overextending its balance sheet.
• Despite macroeconomic uncertainties and challenges in power availability, the company maintains a strong outlook, projecting approximately 10% year-over-year core FFO per share growth for 2025 and targeting continued top-line growth for 2026, supported by a record backlog and strategic capital allocation.

The Digital Foundation: Global Scale Meets AI Ambition

Digital Realty Trust, Inc. ($DLR) stands as a foundational pillar of the digital economy, operating as a leading global provider of data center, colocation, and interconnection solutions. Since its inception as a REIT, the company has consistently focused on maximizing long-term growth in earnings and funds from operations (FFO) per share, driven by a strategy of prudent capital allocation, product diversification, and expanding global reach. This approach has positioned Digital Realty at the nexus of accelerating digital transformation, the pervasive expansion of cloud computing, and the burgeoning demands of artificial intelligence (AI).

The company's core offering, PlatformDIGITAL, is designed to address the complex needs of a diverse customer base, ranging from global cloud platforms and regional service providers to multinational enterprises. This platform provides scalable, connected infrastructure across key metros worldwide, enabling customers to connect with each other and service their own end-users. In an industry increasingly defined by data gravity—the phenomenon where data attracts more data and applications—PlatformDIGITAL offers a secure meeting place and a proven Pervasive Datacenter Architecture (PDx) methodology to efficiently manage these challenges.

The competitive landscape for data centers is dynamic, with established players like Equinix (EQIX), Iron Mountain (IRM), and Digital Bridge Group (DBRG) alongside new market entrants. Digital Realty differentiates itself by focusing on major markets with robust and diverse demand, serving cloud availability zones, network providers, and enterprises with locationally and latency-sensitive workloads. This contrasts with some newer entrants who are developing massive, remote campuses, often for single-use cases, in pursuit of readily available and abundant power. Digital Realty's established presence in leading metros, deep relationships with utilities and local governments, and proven development track record provide a distinct advantage in bringing new supply online efficiently.

Technological Edge: Powering Next-Generation Workloads

Digital Realty's strategic advantage is significantly bolstered by its technological differentiators, which are critical for supporting the evolving demands of modern IT and AI. The company has invested heavily in developing and deploying advanced solutions that enhance performance, flexibility, and efficiency for its customers.

A key offering is high-density Colo 2.0, a cooling solution designed to support power densities of up to 150 kilowatts per rack. This capability is crucial for high-performance computing (HPC) and AI environments, enabling customers to deploy next-generation chipsets like NVIDIA's (NVDA) Rubin and Grace Blackwell. This solution is available across 30 metros and 170 facilities, with deployment possible in approximately 14 weeks, providing a significant runway in existing facilities to meet customer needs. The tangible benefit for customers is the ability to densify their deployments, supporting advanced AI workloads within Digital Realty's existing, highly connected infrastructure.

The ServiceFabric platform is another core differentiator, expanding its reach to over 100 new third-party data centers and more than 75 new cloud on-ramps through strategic collaborations. This enriches global connectivity options for enterprises, facilitating seamless integration with multiple cloud platforms and partners. The company also offers Private AI Exchange, an open platform available through ServiceFabric, which enables enterprises to integrate their data with AI capabilities and other technology solutions. This fosters a network effect, where customers can improve efficiency by interconnecting with partners on PlatformDIGITAL.

Furthermore, Digital Realty's Pathways product provides bulk fiber offerings, driven by multi-megawatt customers requiring high-volume data movement for digital transformation, cloud, and AI. This is unique due to the company's campus master planning and integrated infrastructure design, which considers space, power, and interconnection holistically. The Digital Realty Innovation Lab plays a crucial role in this ecosystem, bringing partners together to pre-engineer and set standards, ensuring customers achieve optimal outcomes from their infrastructure deployments. These technological advancements collectively contribute to Digital Realty's competitive moat, enabling it to offer superior solutions for high-density, low-latency, and highly interconnected workloads, directly impacting its ability to attract and retain high-value customers and drive stronger financial performance.

Operational Excellence and Financial Momentum

Digital Realty's operational execution has translated into robust financial performance, particularly in 2025. For the third quarter ended September 30, 2025, the company reported a record core FFO per share of $1.89, representing a strong 13% increase year-over-year. On a constant currency basis, core FFO per share grew 11% to $1.85. This performance was underpinned by a 10% increase in total operating revenues to $1.58 billion, and a 14% rise in adjusted EBITDA year-over-year. Rental and other services revenue, the primary driver, increased by $122.36 million to $1.54 billion in Q3 2025 compared to Q3 2024.

The company's leasing activity demonstrates significant momentum across its diverse product offerings. In Q3 2025, new leases signed totaled $201 million (100% share) or $162 million (Digital Realty share). The 0-1 megawatt plus interconnection segment continued its strong performance, contributing $85 million in new leases, with interconnection bookings reaching a second consecutive record at $20 million, up 13% from the previous quarter. This segment saw over 18% of its Q3 signings related to AI, indicating growing enterprise AI adoption. Larger than 1 megawatt leases contributed $76 million, with an average pricing exceeding $200 per kilowatt. Re-leasing spreads were notably strong, with a blended 8% cash increase on renewals in Q3 2025. Specifically, greater than 1 megawatt renewals achieved an exceptional 20% cash re-leasing spread, driven by deals in Singapore, Chicago, Northern Virginia, and New Jersey. Total churn remained low at 1.6% in Q3 2025.

Digital Realty's global footprint is expanding strategically. In Q1 2025, the company entered Indonesia through a joint venture, Digital Realty Persama, to develop and operate data centers in Jakarta, adding 32 megawatts of IT load capacity. It also launched the Heracleion One data center in Crete, enhancing connectivity between Europe, Asia, the Middle East, and East Africa. The company continues to attract new customers, adding a near-record 156 new logos in Q3 2025. Customer wins highlight the platform's versatility, from Oxford Quantum Circuits deploying New York's first Quantum AI computer in JFK10, to a global technology company leveraging liquid cooling for HPC/AI, and a new AI inference and training company utilizing PlatformDIGITAL's connectivity.

Capital Strategy and Financial Outlook

Digital Realty's capital strategy is designed to fuel its growth while maintaining financial discipline. The company's target financial ratios include a debt-to-Adjusted EBITDA ratio around 5.5x, fixed charge coverage greater than three times, and floating rate debt less than 20% of total outstanding debt. As of September 30, 2025, leverage stood at 4.9x, well below its long-term target, and liquidity remained robust at nearly $7 billion. This excludes an additional $15 billion of private capital arranged through joint ventures and its U.S. Hyperscale Data Center Fund.

The U.S. Hyperscale Data Center Fund, launched in the first half of 2025, has successfully raised over $3 billion in equity commitments to date, targeting $2.5 billion from limited partners. This fund is designed to support approximately $10 billion of hyperscale data center investments, with Digital Realty maintaining a 20% to 60% ownership interest in individual assets. In May 2025, the company received $937 million in gross proceeds from contributing operating data centers and development projects to this fund, recognizing an $873 million gain on disposition. This diversified funding model allows Digital Realty to meet the surging demand for large capacity blocks without overextending its balance sheet, enhancing returns through fees.

For the full year 2025, Digital Realty has increased its core FFO guidance range to $7.32 to $7.38 per share, reflecting approximately 10% year-over-year growth at the midpoint. On a constant currency basis, core FFO per share growth is expected to be over 8%. The company also raised its revenue and adjusted EBITDA guidance ranges by $75 million each. Capital expenditures for the remainder of 2025 are projected to be between $1.20 billion and $1.70 billion, with gross CapEx for the full year expected to reach approximately $4.5 billion. The development pipeline stands at $9.7 billion with an 11.6% expected stabilized yield, and a runway of roughly 5 gigawatts of sellable IT load for future growth.

Looking to 2026, Digital Realty targets continued 10% top-line growth, supported by a healthy backlog of over $550 million scheduled to commence. However, management anticipates headwinds, including the refinancing of EUR 1.1 billion notes at 2.5% in January 2026, the contribution of additional stabilized assets to the hyperscale fund, and potentially lower interest income due to expected rate cuts. Despite these, the company remains confident in its growth trajectory, having strategically de-risked its 2026 plan.

Risks and Competitive Dynamics

While Digital Realty's outlook is strong, several risks warrant investor attention. The company is currently under an SEC investigation regarding the adequacy of its cybersecurity risk disclosures, though it does not expect the total potential cost to be material. Power availability and permitting challenges remain significant hurdles in bringing new supply online, impacting the pace of development. The cost of electric power, a major operating expense, could increase due to new taxation or regulation, which may not be fully passed on to customers. Geopolitical instability and changes in political conditions in the countries of operation also pose risks.

In the competitive arena, Digital Realty's global footprint and full-spectrum offering provide a distinct advantage. Its operational excellence and focus on data gravity solutions differentiate it from competitors like Equinix, which emphasizes interconnection ecosystems, and Iron Mountain, with its hybrid storage focus. Digital Realty's ability to secure power and navigate complex permitting processes, owing to its established relationships, is a key competitive strength, especially as utilities raise the bar for entry. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's strong performance in the 0-1 megawatt segment suggests it is gaining market share. Digital Realty's development yields in the Americas, at nearly 14%, outpace those in EMEA and APAC, reflecting the intense demand and pricing power in the U.S. market. The company's strategy of "picking its spots" rather than chasing volume at the expense of returns allows it to maintain superior yields compared to the average data center competitor.

Conclusion

Digital Realty is firmly entrenched as a global leader in digital infrastructure, strategically positioned to capitalize on the relentless expansion of AI and digital transformation. The company's record-breaking financial performance in 2025, driven by robust leasing across its full-spectrum platform and disciplined expense management, underscores the effectiveness of its strategy. With PlatformDIGITAL and its advanced technological differentiators, Digital Realty offers compelling solutions for both high-density AI workloads and broader enterprise needs, fostering an interconnected ecosystem that drives customer value.

The diversified funding model, highlighted by the successful U.S. Hyperscale Data Center Fund, provides ample capital to meet surging demand for data center capacity, ensuring long-term sustainable growth. While challenges such as power constraints and macroeconomic uncertainties persist, Digital Realty's established market presence, operational expertise, and proactive risk mitigation strategies enable it to maintain a strong competitive stance. The company's commitment to accelerating bottom-line growth, supported by a substantial backlog and strategic capital allocation, positions it as a compelling investment for those seeking exposure to the foundational real estate behind the digital world's ongoing evolution.