Digital Realty said artificial intelligence demand is reshaping its leasing dynamics and pushing its growth outlook higher, updating investors at the Bank of America 2026 Media, Communications and Entertainment Conference on September 9 that it now expects double-digit funds-from-operations growth for 2025 and beyond.
The company reported $2.3 billion in signed but not commenced lease backlog as of June 30, 2024, including a $400 million deal closed in July. That backlog represents roughly 31% to 32% of its approximately $5 billion in-place data center revenue base. Executive Jordan Sadler described the shift as a move away from a "high single-digit for longer" posture.
Day-one capacity requests are intensifying. "Customers are asking for 100% of contracted capacity on day one," Sadler said. "Some customers are looking for us to add crews and accelerate commissioning so rooms and data halls can be delivered faster."
Digital Realty's total development pipeline under construction reached $20 billion, doubling from the end of 2023. The company expects initial cash yields of 11.5% on the pipeline, with target unlevered development yields of 10% or more. In Northern Virginia, the company has 50 megawatts available for lease and 96 megawatts in development.
Leasing spreads have surged. Re-leasing spreads across the overall portfolio reached 25% in the quarter, well above the full-year target of 10%. In the hyperscale segment, which accounts for about 60% of the rent base, re-leasing spreads on deals exceeding one megawatt hit 67%, driven by APAC renewals. Expiring hyperscale rates range from $134 to $160 per kilowatt, averaging around $140, while new leases are being signed at $160 to $220.
In the zero-to-one-plus interconnection segment — representing roughly 40% of total rent and serving enterprise and colocation clients — quarterly leasing hit a record $108 million, up 28% year-over-year. Four of the last five quarters were record quarters. AI-related workloads accounted for 21% of this segment, nearly double the historical level of 10% to 11%. Re-leasing spreads in this segment were 5.2%, above the historical range of 2% to 4%.
Occupancy stood at 98%. Corporate leverage was 4.7 times debt-to-EBITDA, with a debt-to-equity ratio of 0.75. Management contrasted this leverage profile with private competitors that utilize 75% to 95% project-level leverage.
On the capital markets side, Digital Realty raised $3.25 billion in limited-partner equity for the first close of a closed-end fund, supporting over $10 billion in investment activity at cost. The company also completed a recapitalization in June 2024 of three fully leased assets from its Blackstone development joint venture, having previously acquired the remaining 64% interest for about $5 billion at a 6.5% cap rate featuring 15-year leases and AA-credit tenants.
For 2024, Digital Realty delivered 10% bottom-line growth against earlier expectations of 6%, with FFO growth coming in at 8% against guidance of low single digits. The company has maintained dividend payments for 23 consecutive years, with a current yield of 2.58%. Its market capitalization stands at approximately $71.6 billion, with shares up 23.9% year-to-date.
About 40% of the hyperscale rent book rolls between now and 2032, providing visibility into future re-leasing cycles. Sadler noted that re-leasing spreads tend to exhibit "long and variable lags" similar to monetary policy, and that the company expects meaningful upside volatility in coming quarters before stabilizing toward the 10% annual target.
