Digital Realty Trust, Inc. (NYSE:DLR) Q2 2025 Earnings Call Transcript

Digital Realty Trust, Inc. (NYSE:DLR) Q2 2025 Earnings Call Transcript July 24, 2025

Digital Realty Trust, Inc. beats earnings expectations. Reported EPS is $1.87, expectations were $1.74.

Operator: Good afternoon, and welcome to the Digital Realty Second Quarter 2025 Earnings Call. Please note this event is being recorded. [Operator Instructions] I would now like to turn the call over to Jordan Sadler, Digital Realty’s Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Jordan Sadler: Thank you, operator, and welcome, everyone, to Digital Realty’s Second 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 second quarter results. First, we posted $177 million of new bookings in the quarter at 100% share, including $135 million of Digital Realty share. Record performance in the 0-1 megawatt plus interconnection product set stole the show in the quarter with $90 million of bookings. Second, core FFO surged to a record $1.87 per share, outperforming expectations for the quarter and contributing to an increase in our revenue, adjusted EBITDA and core FFO per share guidance for full year 2025.

And third, we continue to extend our runway for better long-term growth with oversubscribed LP equity commitments for our first U.S. Hyperscale Data Center Fund, additional development site acquisitions in key U.S. markets, and a robust balance sheet that is highlighted by more than $7 billion of liquidity and below target leverage. With that, I’d like to turn the call over to our President and CEO, Andy Power.

Andrew P. Power: Thanks, Jordan, and thanks to everyone for joining our call. As enterprise digital transformation, cloud computing and AI adoption continue to accelerate, Digital Realty’s global platform is uniquely positioned to meet the full spectrum of customer needs while delivering differentiated value. With our 20-year track record of execution as a data center operator, 5 gigawatts of development capacity and more than $15 billion of private capital supported, Digital Realty has the wherewithal to service its growing enterprise and hyperscale customer base for the years to come. Over the past 2.5 years, we have been focused on driving better, long-term sustainable growth in core FFO per share, and we are starting to see the fruits of our labor.

A key pillar of our full spectrum strategy is our 0-1 megawatt plus interconnection business which is anchored by connectivity-rich metro campuses. These campuses, typically located near where data is created and consumed, host mission-critical deployments that support hybrid multi-cloud IT, vital network infrastructure, industry-specific latency-sensitive applications and AI inference among other workloads. The common threat across these use cases is connectivity, and we have made it a priority to enhance our interconnection capabilities and services across the platform. Our focus on strengthening the customer value proposition is delivering results. Bookings in our 0-1 megawatt plus interconnection product set have seen consistent growth with momentum accelerating over the past year even as large AI-oriented leases have been in the spotlight.

At the beginning of last year, we set an ambitious goal to double our colocation bookings, and we’re well on our way to achieving it. In the second quarter, we signed $177 million of gross leases, including $135 million at share. Digital Realty’s share of bookings were led by $90 million in our 0-1 megawatt plus interconnection category, a record result that is 18% higher than our prior record set only 2 quarters ago. Over the past 4 quarters, we have booked over $300 million in this category, up from approximately $200 million in 2023. This quarter’s success wasn’t driven by any single deal or even a dominant metro. Instead, leasing was broad-based with equal contributions from EMEA and the Americas along with a healthy dose from APAC. Importantly, we also delivered record interconnection bookings in the quarter as the momentum we’ve seen in the 0-1 megawatt category is starting to pay off as customers have deployed their gear in our facilities and need to support the underlying workloads with connectivity.

The bottom-line output of this success is our core FFO per share growth. We earned a record $1.87 per share this quarter, a robust 13% increase over last year’s results and 6% higher than last quarter. While the rate of acceleration and bottom-line growth this quarter is notable and demonstrates the significant momentum we have in our business, our growth will be best measured in years. With our backlog at $826 million, we have strong visibility through the end of 2025 and beyond. Matt will provide details on the financials in a few minutes. The demand environment for data center capacity remains strong and broad based, both geographically and by product type, driven by secular tailwinds in digital transformation, cloud and AI. Demand for both sub-1 megawatt and large capacity blocks continues unabated.

For sub-1 megawatt capacity, our pipeline is broad and deep across all regions. And as evidenced by our 4-month book-to- build this quarter, these deals can typically be deployed much more quickly. We continue to position our large capacity blocks to support the growing needs of our hyperscale customers as we work to align development deliveries with the availability of power, and this approach has served us well so far. In North America, near-term capacity blocks continue to be the most in demand, and we’ve had great success in placing our near-term development, so most of the discussions that we are having are focused on late 2026 and early 2027 deliveries. In EMEA, demand from AI deployments is growing, but is still well behind the U.S. Consistent with historical trends, the larger capacity blocks in this region tend to be smaller than those in the U.S. In APAC, hyperscale demand is expanding, particularly in Tokyo and Singapore.

Similar to EMEA, AI deployments are growing in APAC, but lag the U.S. Another sign of the strong demand environment is the tremendous success that we have enjoyed in launching our U.S. Hyperscale Data Center Fund, the latest evolution of our strategic objective to bolster and diversify our capital sources. Since our last earnings report, we have continued to receive commitments to the fund from a broad array of global institutions, including sovereign wealth funds, pension funds, insurance companies, endowments and other institutional investors. We have received more than $3 billion of LP equity commitments to date and are on target for our final closing well ahead of our target raise and our original schedule. We are truly humbled that so many of the world’s leading investors chose to invest their long- term capital in Digital Realty’s inaugural fund.

The early success of our U.S. hyperscale fund improves our strategic position by enabling us to continue to meet the growing and diverse needs of our hyperscale customers without overtaxing our balance sheet. While execution across our colocation and interconnection category will serve as the primary lever for growth in 2025 and 2026, we expect our substantial hyperscale capacity to bolster our backlog and to extend our runway for core FFO growth into 2027 and beyond. In today’s competitive business environment, enterprises need the ability to scale quickly and securely across regions, and that’s exactly what PlatformDIGITAL enables. Many of our customers start with a single deployment but rapidly expand across our global footprint to interconnect with clouds, partners and data at the edge.

This seamless scalability is not only solving real customer challenges, it’s also enhancing our value proposition, evidenced by more customers, lower churn, deeper wallet share and growing recurring revenue streams. This strategic advantage continues to set Digital Realty apart, driving the addition of 139 new logos in the second quarter. Now as we announced this morning, we are providing enterprises with additional state-of-the-art services through our partnership with Oracle Solution Centers to further optimize these deployments and accelerate their hybrid IT and AI adoption. Key customer wins in the quarter include a global financial services company is expanding its presence on PlatformDIGITAL to another metro to solve compliance and data localization challenges.

A leading blockchain provider is deploying edge nodes in multiple locations on PlatformDIGITAL to support decentralized private and public networks. A health care services company is expanding its presence on PlatformDIGITAL to solve its data resiliency and locational challenges. An autonomous vehicle developer is expanding to two more metros on PlatformDIGITAL to take advantage of the available cloud and network ecosystems. A global cloud provider has expanded its presence on PlatformDIGITAL by creating a new edge availability zone to support their growing customer base. And having grown up a Star Wars fan, I’m particularly delighted to share that Lucasfilm is expanding their presence on PlatformDIGITAL, taking advantage of high-performance compute and AI capabilities to solve video rendering, transfer and editing challenges.

Before turning it over to Matt, I’d like to briefly highlight on our progress on global sustainability. In the second quarter, we maintained strong execution against our sustainability goals and were once again recognized by TIME and Statista as one of the world’s most sustainable companies of 2025, a reflection of our continued leadership in the space. In late June, we published our 2024 Impact Report, which showcases Digital’s ongoing commitment to clean energy, resource conservation and other sustainable business practices. Among the highlights in the report, we further expanded our renewable energy supplies with 185 data centers now matched with 100% renewable energy, while 75% of our global electricity needs were met with renewable energy in 2024, a 9% increase from the prior year.

We achieved a 14% year-over-year reduction in water usage intensity in our North American colocation portfolio. By implementing water-free-based cooling systems and water conservation projects. We expanded our portfolio of certified sustainable data center developments, adding 1.9 million square feet in 2024 and bringing our global total to a cumulative 15 million square feet. These initiatives reflect our ongoing commitment to minimize Digital Realty’s environmental footprint while delivering sustainable growth for all of our stakeholders. And with that, I’d now turn the call over to our CFO, Matt Mercier.

Matthew R. Mercier: Thank you, Andy. Digital Realty posted double-digit growth in revenue, adjusted EBITDA and core FFO this quarter, reflecting the momentum that we’ve built up over the past year. These results were driven by record lease commencements, low churn and higher fee income. We achieved these results while substantially increasing our liquidity, maintaining below target leverage and also preserving a large backlog and development capacity that provides strong visibility through the second half of the year and beyond. In the second quarter, core FFO jumped by 13% year-over-year to a new quarterly record, while leasing results were highlighted by a notable new record in our 0-1 megawatt plus interconnection category.

Looking ahead, we’ve increased our guidance for 2025, and we expect to exit the year with significant momentum and a sizable backlog. Digging a bit deeper on leasing. We signed leases representing $177 million of annualized rent in the second quarter, bringing the year-to-date leasing to $575 million at 100% share. At Digital Realty’s share, we signed $135 million of new leases in the second quarter. Of this, $90 million fell within our 0-1 megawatt plus interconnection product set, which exceeded our prior quarterly record by 18%. Relative to the prior 4-quarter average, quarterly leasing in this product set was up by 36%. We signed $45 million within the greater than a megawatt category at our share with leasing spread across our regions.

Our top five leases in this segment range from 2 to 12 megawatts, and saw steady to improved pricing. Notably, average pricing in this segment was skewed lower in the quarter by the exercise of an expansion option by a large enterprise customer in North America, which was committed to more than 3 years ago. Consistent with our objective of improving Digital Realty’s long-term sustainable growth, more than 70% of bookings included fixed rent escalators of at least 4% or were linked to CPI. Our backlog at Digital Realty share totaled $826 million at quarter end as a record $228 million of commencements was only partially offset by our new bookings. Looking ahead to the second half of 2025, we expect another $241 million of leases to commence, which are more heavily weighted towards the fourth quarter.

For 2026, we currently have $461 million scheduled to commence while an incremental $124 million is already slated to commence in 2027 and beyond. providing strong visibility for multiyear growth. During the second quarter, we signed $177 million of renewal leases at a blended 7.3% increase on a cash basis, above the high end of our original 4% to 6% full year guidance. Renewals in the second quarter were again heavily weighted towards our 0-1 megawatt category with $130 million of renewals at a 4.2% uplift. Greater than a megawatt renewals of $41 million saw a robust 14% cash re-leasing spread. For the quarter, total churn continued to decline to just 1% with negligible churn in our greater than a megawatt category. As for earnings, we reported record quarterly core FFO of $1.87 per share, up 13% year-over-year, reflecting strong upside from hyperscale commencements, better-than-expected progress on 0-1 megawatt plus interconnection bookings and $0.03 of FX benefit.

On a constant currency basis, we reported core FFO per share of $1.84 in the second quarter. During the quarter, we saw an approximately $0.03 benefit in fee income tied to large [ scalable ] deliveries of data center capacity, which corresponded with our record leasing commencements. While our operating expenses picked back up from last quarter’s unusually low levels. The uptick was consistent with our growing book of business and repair and maintenance expenses remain on pace for a seasonal ramp in the second half of the year. Data center revenue was up by a robust 11% year-over-year as the combination of strong renewal spreads, rent escalators and new lease commencements more than offset the drag associated with the dispositions completed over the last 12 months.

The increase in adjusted EBITDA was even greater at 13% year-over-year, reflecting the growth in data center revenue and higher fee income. Same-capital cash NOI growth was also healthy in the second quarter, increasing by 4.4% year-over-year, driven by a 5.9% growth in data center revenue. On a constant currency basis, same-capital cash NOI rose 1.8% in the quarter. Results were influenced by a bad debt reserve associated with broader macroeconomic and geopolitical factors and a prior year cash rent payment. For the first half of 2025, same-capital cash NOI was up 3.4%. Moving on to our investment activity. During the second quarter, we spent over $900 million on development CapEx on a gross basis, which includes our partner share and approximately $700 million on a net basis to Digital Realty.

During the quarter, we delivered a record 96 megawatts of new capacity, 98% of which was pre-leased while 16 megawatts of new data center projects started construction, leaving 734 megawatts under construction. At quarter end, our gross data center development pipeline stood at $9 billion and a 12.2% expected stabilized yield. Data center shells under construction increased to 610 megawatts during the quarter, while our land bank grew to 3.7 gigawatts, extending our runway for capacity growth to a record 5 gigawatts. As Andy noted earlier, we are also pleased with the success we’ve had to our U.S. Hyperscale Data Center Fund, which has the potential to support approximately $10 billion of total data center investment from the existing commitments.

In the second quarter, Digital contributed a 40% share of the five existing operating assets, along with an 80% share of two development sites, resulting in a $900 million of gross proceeds to Digital Realty. Subsequent to quarter end, we also sold a noncore data center in Atlanta for $65 million. With the fund contribution and the noncore asset sale completed, we exceeded the midpoint of our prior disposition guidance for 2025. Turning to the balance sheet. By evolving our funding model, we are able to extend our reach and better serve the needs of our hyperscale customers without overly taxing our balance sheet. Leverage remains at 5.1x, still well below our long-term target of 5.5x, while liquidity remained robust at more than $7 billion, excluding the war chest of private capital we have amassed to support hyperscale development.

We raised another EUR 850 million of eurobonds at the same 3.875% coupon as we did in January, but slotted this bond into 2034 to maintain our well-laddered maturity schedule. We used most of these funds last week to pay off the EUR 650 million of maturing 0.625% eurobonds. So unfortunately, we’ll be facing a 325-basis point refinancing headwind beginning in the third quarter. This finishes off our maturing debt for 2025 with our next maturity arriving in January. Looking further out, our maturities remain well-laddered throughout 2035. Moving on to our debt profile. Our weighted average debt maturity increased slightly to 4.6 years and our weighted average interest rate ticked up to 2.7%. Approximately 84% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy.

Approximately 94% of our net debt is fixed rate and 96% of our debt is unsecured, providing ample flexibility for capital recycling. I’ll now turn to our guidance. We are increasing our core FFO guidance range for the full year 2025 by $0.10 to $7.15 to $7.25 per share to reflect better-than-expected operating performance and our updated FX assumptions for the full year. We are also increasing our constant currency core FFO guidance range by $0.05 to $7.10 to $7.20 per share, consistent with the better-than-expected operating performance. The midpoint of our core FFO per share guidance represents approximately 7% year-over-year growth reflecting the momentum in our underlying business, balanced by increased development spend and a reduction in leverage year-over- year.

As a result of the year-to-date outperformance versus our expectations, strong momentum within our 0-1 megawatt business and better-than-expected fee income, along with our updated FX assumptions for the year, we are increasing our revenue and adjusted EBITDA guidance ranges for 2025 by $100 million and $75 million, respectively. We are raising our cash and GAAP re-leasing spread guidance ranges to 5% to 6% and 7% to 8%, respectively, to reflect the performance we have seen year-to-date. We are also increasing our G&A assumption by $15 million while maintaining the rest of our operating assumptions for 2025. In sum, Digital Realty is extraordinarily well positioned with ample momentum to continue to drive the business into the future. Consistent with how we framed it [ nearly ] 18 months ago, our growth has accelerated so far in 2025 and is poised to continue through ’26 and beyond.

Visibility surrounding our growth potential over the next several quarters is supported by our robust backlog of signed but not yet commenced leases, while upside will stem from better-than-expected execution within the colocation product segment. Looking further out, we have crafted a comprehensive funding model for our hyperscale business, including the sourcing of private capital to support more than $15 billion of additional hyperscale development capacity, which will help to support our customers’ sizable and growing data center infrastructure requirements and extend Digital Realty’s runway for growth. This concludes our prepared remarks, and now we’ll be pleased to take your questions. Operator, would you please begin the Q&A session?

Operator: [Operator Instructions] And the first question will come from Jon Petersen with Jefferies.

Q&A Session

Jonathan Michael Petersen: Great. What do you think is driving the inflection in growth in the 0-1 megawatt category? Are we seeing growth in that market overall? Or is it mostly DLR capturing market share? And if it’s market share, can you break down — maybe break it down for us two or three things that DLR has changed in its go-to-market strategy to capture more market share?

Andrew P. Power: Thanks, John. Maybe I’ll tag team this with Colin here. Listen, I think this has been a priority for the company that we’ve doubled down on over the last several years. And now, it took a long way to get here. We had to put the puzzle pieces together in terms of a global footprint, have the highly connected destinations, revamp our go-to-market, a whole host of activities that led up to this. And then I’d say it’s been a growing market where we’ve executed and taken some share over the last several quarters, accelerating with records upon records. And then this quarter is certainly a milestone up, I think, 18% over the prior record at nearly $90 million. I know Colin and his team have continued to not rest on their laurels coming off a strong 2024 and put some incremental changes through the program. So I’ll let him to speak to some of those more recent activities.

Colin McLean: Thanks, Andy. Jon, I appreciate the question and recognizing the progress here. Yes, we were really pleased with the quarter overall. Nearly $90 million in bookings across the platform, strong interconnection, which really speaks to the value of the platform, really strong export quarter across the globe and strong number of customers participating. So you asked the kind of why factor of this. I think our platform itself continues to resonate with clients. So the global reach across core markets, enterprises very much value that core market nature of our portfolio. The fact that we offer the full spectrum of offerings, cabinet-cage suite, building both central as well as up in the suburbs, large capacity blocks, which really matter. In this space, we had particularly strong participation in 300 to 600 KW and 600 KW and above in the enterprise space and really strong interconnection capabilities, both physical and virtual.

Operator: The next question will come from Jonathan Atkin with RBC Capital Markets.

Jonathan Atkin: I wondered if you could talk a little bit about more broadly interconnection bookings, which I think was a record. Anything you can comment on [ what ] drove that, including around pricing as well as how the second half bookings environment is shaping up? And I’ve got a quick follow-up.

Andrew P. Power: I’ll take the second part of that, Jon. Thanks for the question, and I’ll hand it to Chris to talk about the interconnection bookings in the quarter, which was a record. I’d say, we’re continuing the momentum in the second half, especially in that category. So we didn’t pull forward or empty our funnel for the back half of the year off to a good start in just a few weeks, in 3Q, and have a broad-based set of demand in that category from contributions across all the regions, just like the 2Q results penciled with, I believe, was the #1 for the Americas region, #1 for the EMEA region. I think, the number #2 contribution record for — landing into APAC. On that — and that’s in 0-1 megawatt and interconnection. Speaking just to the interconnection results, I’ll let Chris highlight some of the key points.

Christopher Sharp: Yes. I appreciate it, Jonathan. So I think there’s three key factors that underpin the growth, the record growth that you see here today. So I think the sustained 0-1 megawatt bookings that we’ve had past year, those customers are on a journey, right? So they deploy new deployments, then they go to bookings and that bookings comes in as revenue as they start to activate more and more services across the platform. So I think that’s the critical one that we keep seeing that build momentum over time. I think the second piece is just the global pricing standardization. So aligning our interconnection value provides clarity and scale to a lot of our customers. And so you see a lot of that starting to mature into the overall portfolio as well around the globe.

So not just the single market but all the critical environments that we operate in. And I think the third is just the comprehensive interconnection suite. So that’s beyond what just Colin talked about is the physical cross-connects, but those virtual services. I think that virtual element is starting to mature and grow and in a great way where it’s not only for cloud, it’s starting to be resonating for AI. But I think one of the other underpinnings that’s very unique to Digital Realty is just the overall bulk fiber and being able to execute on our Pathways product, where it’s driven by multi-megawatt customers that are on this journey both digital transformation, cloud and artificial intelligence where they need that bulk capability to interconnect in a very efficient fashion.

And so why that’s unique to us at Digital Realty is just that campus master planning and an integrated infrastructure design. So we look across the entire portfolio of not only space and power, but interconnection as well.

Jonathan Atkin: And if I could just squeeze one in. The massive project announcements that one reads about continuing by both existing PC players and new players as well, financial sponsors and so forth, sovereign wealth funds. Gigawatt scale, multibillion, many of these are in remote locations. But what do you see as the impact on the sector and just overall competitive dynamics?

Andrew P. Power: Thanks, Jon. I think your second question was a little cut up there, so I’ll just rephrase it. So I think you’re saying the big announcements of big — call it, big lease signings and gigawatts in various locations. I think it shows a continued commitment to building out infrastructure for artificial intelligence from numerous diverse players in the landscape. And our strategy is quite differentiated when it comes to that. We are continuing to focus on major markets with robust and diverse demand. So hyperscale customers, service providers, network providers, and enterprise, not single-threaded for one-off customer [ islands ] necessarily. Those major markets have locational and latency sensitivity for the workloads and the data.

They may be elongating and stretching, but there are true supply barriers to these markets. We time and time hear from other customers that they have preference for these markets because of the fungibility of demand, i.e., they can use it for cloud computing or machine learning. And we’re catering to a broad base of these types of customers. So — and I also would say, I think a lot of the headlines you’re seeing is still a continuation of a long series of early innings when it comes to AI. And I do that from — looking from an enterprise adoption and use cases that still have not fully come to fruition yet today, which I think will further compound the workloads coming back to these centers of data gravity that we’ve focused on for years.

Operator: The next question will come from Eric Luebchow with Wells Fargo.

Eric Thomas Luebchow: I wanted to get your sense for kind of the large capacity block market in hyperscale in the U.S. I think you talked about power availability kind of moving to late 2026 or early ’27. And just thinking through the timing of the pre-lease windows, if you expect that to kind of snap back in the second half of the year, there to be more opportunities in markets like Virginia, Charlotte, Atlanta or anywhere else where you see opportunity?

Andrew P. Power: Thanks, Eric. So maybe I’ll kick it off and Colin can touch on what he shared last quarter and the update, what we’re seeing now from the hyperscale customer base. So we, at total share, did $177 million of leasing this quarter, which was our sixth largest quarter in the history of the company. The pro rata share is less than that, but that’s a strategic pivot in our funding model. Building a private capital business around hyperscale means that some of the leases are falling into ventures that we do not own 100%, but obviously, are operating on behalf of our customers and garner fees and other economics for doing so. We still see a tremendous runway for growth in that category. As you saw in our current results, we now have a total of 5 gigawatts of, call it, inventory runway from land to shells, north of 600 megawatts today in addition to what’s under construction and highly pre- leased on the development life cycle.

We’re very happy with the success of our inaugural fund, essentially oversubscribed that essentially gives us, call it, in total, $15- plus billion of private capital for hyperscale to fund that journey. When it comes to the nearest term demands of the customers, they — obviously sooner is better, and I’ll let Colin talk to some of what he’s been talking to those hyperscaler customers about.

Colin McLean: Thanks, Andy. We’ve highlighted before that demand overall is very strong. It continues to be strong. Our pipeline is as strong as we have seen. The nature of that is both diverse by customer and global nature, although it’s probably more tilted towards North America where we have the larger capacity blocks. Use cases still very much resonate around AI and cloud. Cloud is still very much at the forefront of how our customers are growing with us overall. And so Andy had mentioned, we have about 1 gigawatt of capacity coming online over the next several years, in particular, in Northern Virginia, our largest market, where we have about 350 megawatts coming online in late ’26 and ’28. There’s very active conversations around this.

We — I highlighted that previously in our last call, those conversations are very much at the forefront of what we are participating in. So we’re working really closely with our hyperscale partners to ensure we can provide the maximum value for their use cases. We’ve mentioned previously that bookings are not always linear, but I can tell you that the pipeline and demand profile continues to very much resonate with our hyperscale partners.

Operator: The next question will come from Michael Funk with Bank of America.

Michael J. Funk: So Andy, a quick simple question. So why would re-leasing spreads move lower from the current level? I know you just raised the guidance for the year. Why would they be lower in the future?

Andrew P. Power: Matt, you take that.

Matthew R. Mercier: Yes. Thanks, Michael. So part of this — a big reason for that is as you can see in the first half of the year, we had some outperformance in our other category, which really pushed probably about 100 basis points of that total that we had for the first half of the year in terms of our overall results. And as we — so that’s why if you strip that out, again, we’d be about 100 basis points lower. We’re not expecting in the second half for the same amount of that other, call it, usually that shell, PBB type space. But we are expecting to continue to see continued strength within not only our 0-1, where we put up basically two plus 4% over the last few quarters plus as you’ve seen also strong results and improving the results within our greater than a megawatt. But the second half and the majority of the year is — tends to be weighted towards that 0-1. So that’s why we’re still within that range, but we’ve pushed up the low end of it.

Operator: The next question will come from Richard Choe with JPMorgan.

Yong Choe: Given the increasing amount of demand and opportunities that you’re seeing, how long — or should we expect the CapEx development range to stay in this $3 billion to $3.5 billion going forward?

Matthew R. Mercier: Yes. Thanks for the question. So look, I think as we — we’ve already increased, if you look back to last year to this year, we’ve increased our CapEx spend 50%, and that’s even considering just our share. I think you’re starting to see that — we’re starting to see us ramp into that, a little lighter than the first half, but we’re expecting that to pick up in the second half. And as we’ve amassed a war chest, if you will, of funding that’s available for us to be able to capture this growing opportunity set, I think there’s clearly the potential for us to continue at a gross level of CapEx to expand that going forward.

Andrew P. Power: Richard, I think that’s important that last part here. We are obviously owning this 5 gigawatts of supply chain conveyor belt from land to shell to deliver suites, be it hyperscale or enterprise colo. And we’ve now, call it, created the levers to accelerate CapEx to meet demand timely, accelerate those deliveries for our customers as they need it, build more colo inventory as they need it and have levers to fund it through our own balance sheet or through our private capital around hyperscale initiatives, ensuring that we continue to accelerate that per share bottom line growth.

Operator: The next question will come from Frank Louthan with Raymond James.

Frank Garrett Louthan: I wanted to ask about the executive order for permitting data center infrastructure. And can you give us some idea, I know it’s early, but at a high level, kind of how do you expect that to help your bookings? And does that potentially open additional opportunities for you over the next few years with that more streamlined potential permitting environment.

Andrew P. Power: Thanks, Frank. So when I look at the — what just came out in the last 24 hours or so, I get two takeaways. One, they’re looking to reduce regulatory barriers for domestic U.S. data center build-outs, that’s one; and two, they’re promoting the U.S. AI tech stack as the dominant technology around the world. Both of which I see as only positives for the industry in this state of demand and in particular, for digital. On the first one, we’re talking about streamlining permitting for data centers, expanding and modernizing the power grid, high-security data center for sensitive, military and other use cases, helping us in the workforce and pipelines for infrastructure jobs for AI and data centers are included in that.

A host of activities that I think will hopefully grease the skids so that we can bring our infrastructure for our customers on in a more seamless, expedited fashion just as our customers need it. And the second one is really trying to enable some of our top customers to export their capabilities, the full stack for American AI technologies, to allies and partners worldwide. And we at Digital are supporting customers — 5,000 customers across 50-plus metros on 6 continents. Now we’ve talked a lot about the AI part of that demand being very U.S.-heavy recently. But I think the second leg of the stool could certainly further accelerate the globalization of these technology trends, and we’re ready for it.

Operator: The next question will come from Michael Elias with TD Cowen.

Michael Elias: Two quick ones, if I can. First, regarding Charlotte, I was wondering if you could give us an update there, specifically around availability of power and then also how conversations are tracking there? And then second, how would you describe your enterprise pipeline specifically within the plus 20-megawatt category?

Andrew P. Power: The enterprise plus 20-megawatt pipeline, I didn’t expect that question. But Greg, why don’t you speak to Charlotte. And Colin, you want to tag team on the customer lens in addition to the pipeline question?

Gregory S. Wright: Yes. Thanks, Michael. Look, I would say Charlotte continues on track as we originally plan from a permitting standpoint, power, building and otherwise. So again, we remain bullish on that market. As you recall, we love the fact that it’s an integral part of our Connected Campus strategy, having the network-dense facility downtown with now a large facility that will support 400 megawatts within 10 miles of downtown. I guess they call it uptown in Charlotte. So I would say everything remains on track there. And I’ll let Colin comment on customer demand. But overall, I’d say it’s — we’re very bullish still.

Colin McLean: Thanks, Greg. Michael, regarding your question in terms of conversations, again, getting back to my point about large contiguous blocks of capacity, Charlotte is very much top of mind for our hyperscalers. As Greg highlighted, they like the architectural design, downtown, densely-connected building, scaling out to a suburb with large amounts of capacity available. So very much interesting conversations in a growing pipeline with our hyperscalers of that variety. Related to the enterprise overall, again, we highlighted quite a bit of success we’ve been building over the last couple of years, executing against our strategy. The $90 million in bookings is complemented by a keen effort to try to emphasize the value proposition we have with these enterprise clients.

Related to future orientation, our enterprise pipeline is the largest on record. That contains both the larger footprint variety I highlighted previously. The bands within the enterprise capacity are seemingly creeping up. We saw really strong success in 300, 600 and 600 and a megawatt. The pipeline also reflects that overall. The megawatt plus business within the enterprise space is a bit more sporadic than I would say the hyperscale overall. We continue to see more conversations on the hyperscale band with our key hyperscale clients versus enterprise.

Operator: The next question will come from Michael Rollins with Citi.

Michael Ian Rollins: Just wanted to go back to some of your comments about the globalization of your footprint. And I’m curious if you could provide some context on why you’re seeing the EMEA and APAC regions trailing behind the U.S. on AI adoption? And are there certain catalysts to watch for or just simply timing for demand in those regions to expand and accelerate for AI workloads?

Andrew P. Power: Thanks, Mike. So just to clarify, we had a great global quarter this quarter in particular. So exports overall, i.e., customers headquartered in one country, exporting to another or another region was a new record for us and a very sizable portion of our total 0-1 megawatt, interconnection signings. And I did call out earlier how — we had a #1 EMEA quarter for landings and the #1 — #2 APAC quarter for landings. On the larger capacity blocks side, hyperscale and certainly more AI related, I think you’ve just seen a preponderance of that activity to be very U.S. heavy. And I think a lot of that — is contributed from the U.S. multinational hyperscale landscape first turn to their home country or home court for rapidly scaling big, big projects.

And I don’t think that means that the AI will not come to outside the U.S. I think there’s examples of that happening in APAC and more to come in EMEA. And we know for a fact that these other countries and continents are making this a priority in terms of, call it, making expedited infrastructure for customers to land on their shores. So — and it kind of dovetails with just how cloud rolled out, started with a very U.S. heavy and then went to a more globalized footprint. So — and maybe this more recent administrative action on AI is another incremental fuel to that fire, really making more pervasive for the U.S. multinationals to push more of their gear and infrastructure to our campuses abroad.

Operator: The next question will come from Aryeh Klein with BMO Capital Markets.

Aryeh Klein: Andy, you talked a little bit about extending the runway for long-term growth. And I’m hoping maybe you can speak to what that growth could look like. This year will be about 7% with some FX benefit. And it seems like next year maybe could accelerate. But how are you thinking about what sustainable growth could look like over a longer-term, multiyear time frame?

Andrew P. Power: So thank you, Aryeh. If you remember not that long ago, we put out the guidance for this year, which I think we gave probably 18 months prior to that guidance. And that guidance was, call it, just over the 5% area. And we’ve articulated that was not the new bogey. That was really the new floor, and we knew we could accelerate from that. We’re obviously having a great first half of the year in terms of beating our internal expectations and ultimately raising our guidance to now just shy of, call it, 7%, depending if you look above — with or without currency adjustments. I think the way I’d frame it is we’re looking to be a consistent compounder in that area, better than that if we can, but at least in that area for as long as possible.

And the tools in our toolkit in addition to the levers on funding that I described are really near term, ’25, ’26 is about how we continue this momentum and execution in the 0-1 megawatt and interconnection. The shortest book-to-builds, falling into already built capacity flows through to the bottom line quickly like interconnection signings. And the longer term, the ’27 and beyond is about those hyperscale bookings because the hyperscale bookings are obviously bigger capacity blocks and they’re falling into capacity that’s not sitting idle today. So those bookings that we do in hyperscale this quarter, next quarter and the quarter after that, are all about, call it, the end of ’26, ’27, ’28 and thereafter.

Operator: The next question will come from Irvin Liu with Evercore ISI.

Jyhhaw Liu: I wanted to ask about your U.S. hyperscale fund. So once fully funded and developed, what sort of implications will this have on your financial model longer term? So any thoughts on what the contribution from a fee income perspective and core FFO per share growth perspective longer term would be very helpful.

Andrew P. Power: Greg, why don’t you take the first part in terms of how the fund works, and then Matt can talk to FFO contributions.

Gregory S. Wright: Sure. Thanks for the question, Irvin. I think as we talked about on prior calls, first of all, how — what is the makeup of the fund and how is it being funded. And as you recall, we contributed five stabilized assets in various markets to provide diversification, which was attractive to investors. In addition to that, now you remember last May, we contributed 40% of those assets to the fund and the other 40% will come in, in January of ’26, which keeps us with our 20%. In terms of the development assets, you may recall, we contributed four parcels of land upfront, which are going to support seven buildings, again, in these — as Andy mentioned earlier, in these Tier 1 latency-sensitive, product-agnostic markets, places like NOVA, Dallas, Charlotte, Atlanta.

So that’s what’s being contributed today. When you look at our total fund today, I would say about roughly 70% or so is earmarked, which leaves us with about 30%, give or take of discretionary capital to go ahead and deploy in developments that haven’t already been identified. So that’s what the fund is and where it is. Maybe I’ll turn it over to Matt now to discuss your other part of your question.

Matthew R. Mercier: Yes. Thanks. So Irvin, look I’d say this in kind of two — I’ll break it into two, trying to be simple buckets, right? So we’ve got — as Greg noted, we’ve got up to $10 billion ultimately to deploy. That’s going to go out over the next few years as we continue to develop these data centers. And we’re going to expect to earn similar returns to what we’re seeing, call it, today on our balance sheet as we disclosed in our supplemental. And that development is going to ramp over time, and we’ll get our, call it, 20% share of that. So it will ramp over the next few years, but it will be relatively minimal at the start, call it, over the next year and then continue to ramp over the next, call it, 3 to 4. The other main side of that is fees, right?

And the largest portion of the fees is going to come from our asset management fee, which is based on our — based on the committed equity and that’s at a market rate. And that will come in sooner. So that’s going to give us some of that near-term benefit.

Operator: The next question will come from David Guarino with Green Street.

David Anthony Guarino: Maybe sticking on the hyperscale fund. Can you talk a little bit about the strategic rationale for keeping a majority stake in the operating assets, but a minority stake in the development assets? And I’m curious, Greg, if maybe that’s a fundraising trend you think we’ll see across the industry with that structure? Or was that maybe just specific to these assets in this deal?

Andrew P. Power: Just to clarify, it’s the same ownership stake in both the stabilized assets and development assets. So the end landing is a minority 20% in both the operating and the development assets, David. Do you want to ask another question, you can go ahead, too.

David Anthony Guarino: Okay, fair enough. Yes, I might have misread that in the presentation then. Yes. So other one, then maybe we’ll kind of switch gears. There’s been this trend we’ve seen probably just the last few quarters or maybe the last year or so about utility companies requiring larger upfront commitments. And I’m wondering, how is that impacting your construction cost per megawatt, and would you view that as a net positive or a net negative for a company as large as Digital Realty?

Andrew P. Power: Thanks, David. Listen, I view that as a maturing of the broader industry around data center infrastructure and power. I mean it’s on the back of these utility companies, especially those who are not quite used to seeing prevalent data center demand, carrying numerous inbounds from numerous shops. And they — in my opinion, what they needed to do and have now done is raise the bar for entry, i.e., they made real counterparties that own land, have real commitments to building the infrastructure for their customers and that often requires security deposits or counterparties of substance. And I think that’s a net positive to rationalization and stabilization of the industry. And given Digital’s track record, I think we show up in front of these utilities as a really good partner.

We never were an issue on this. And now we can, call it, flush out folks that were maybe in the land-flipping game and really try to get to folks that are really dedicated for the long haul in scaling data center infrastructure.

Operator: Next question will come from Jim Schneider with Goldman Sachs.

James Edward Schneider: It’s good to see the momentum in the 0-1 bookings category. If that sustains itself, I’m just wondering given that there’s smaller blocks of space, do you have availability in your existing installations for 2026 such that you could slot in more of that business into 2026 commencements and potentially drive further upside to 2026 financials? Is that a reasonable assumption?

Andrew P. Power: Thanks, Jim. So we had a record last year in that category that was demonstrably higher than the prior year. We’re pacing obviously well ahead in the first half of this year and plan to keep that momentum. And when we set our goals for 2026, albeit being July right now, I can tell you that goals will be another stair-step up in that direct direction. And part and parcel of that is making sure you have the inventory runway for growth. So yes, we have some certainly supply-constrained markets along the way, some of our most sought-after markets. But we’re in 50- plus metropolitan areas around the world and adding new markets like our recent entry into Indonesia. And we also have what we’ve been playing out, and you see a little bit in our same-store pool, the repurposing for higher and best use of our footprint.

So when a customer that has a multi-megawatt hall expires, we look at that and say, you know what, maybe we should be positioning up towards our inventory for our colo. So we are able to, call it, self-help in terms of making sure we have homes for our customers to grow.

Operator: Your next question will come from Vikram Mahotra with Mizuho.

Vikram L. Malhotra: So I just want to dig in more into the 0-1 megawatt kind of pace/capacity. Your peers obviously saying they’re building [ Boulder ] over the next 5 years or 3 years, building next 2 years and hoping to lease up. I guess two parts. One, as you’re growing the bookings pace, can you just elaborate, are you taking share? Is it a bigger TAM as you see it? And then maybe if you can give us a sense of like on a 3-year basis, do you anticipate CapEx having to just ramp up in order to take advantage of what may be a much bigger TAM ultimately down the road?

Andrew P. Power: Thanks, Vikram. So I don’t want to speak to any specific competitor. But listen, I think there’s agreement in the market that this is a very large and attractive addressable market. We’ve invested for years to essentially have a global platform with the capabilities to give a really compelling value to our customers. And you’ve seen that from the 5,000 customers we have today growing with us and doing repeat business. You see that from the 139 we added just this quarter. You see that in the testimonials of the customers I laid out in our prepared remarks. And I think if you even just looked at the #1 and #2 in that category, you’d still see a long tail of business from 3 and on down the list that we’re certainly taking share from along the way.

We made the decision to — about 10 years ago to fully embrace the full product spectrum, right, coming from the hyperscaler into the colo and enterprise world. It took a lot of hard work and investment to get to those capabilities. But I think fully engaging across the full customer spectrum pays dividends. It pays dividends when we look for customers that want to grow into larger footprints with us on our expansive campuses. It pays dividends when we look for customers that want to increase their power densities where we already were serving another larger customer at a higher power density. So I think the trend has been our friend along with a lot of investment and hard work and focused execution in that category.

Operator: Next question will come from Nick Del Deo with Nathanson.

Nicholas Ralph Del Deo: Andy, earlier in the call, you were talking about your strategy of sticking to Tier 1 markets and your expectation that over time, you’ll see demand in those markets compound as enterprise AI adoption picks up. So what’s your latest thinking? And what are you hearing from customers regarding when you think that compounding will really start to kick in? And along those lines, what’s your sense as to the share of AI inferencing use cases that are going to need to be distributed across key metros for latency or other reasons?

Andrew P. Power: Thanks, Nick. So I’m a big believer in what you just outlined or repeated from what I said earlier. But I think the timing is still an unknown. I think our success this quarter, last quarter and several quarters when it comes to the enterprise has been seeing very modest AI contribution. We’re still capitalizing on the trends of outsourcing of data center infrastructure or hybrid multi-IT, digital transformation, and getting AI-ready is more the pervasive theme. Yes, we are doing liquid cooling for trading firms, financial services firms, other industries, pharmaceuticals, but it’s just the tip of the iceberg of the potential. And I think it really ties back to corporate enterprise. I don’t think has gotten anywhere near the pervasiveness of AI adoption and use cases, especially in a private set.

When we look at the data today, it feels like the typical corporate enterprise is using a lot more of its AI testing in the cloud service providers than it’s doing in the private IT infrastructure. But just like the journey on cloud started that way and came back to hybrid, I think you’re going to see the same trend. And we are well positioned when that happens. And between now and whenever that happens, we have a lot of business with both our enterprise and our hyperscale customers to do in the core markets where we offer and support them.

Operator: This concludes the question-and-answer portion of today’s call. I would now like to turn the call back over to President and CEO, Mr. Andy Power, for his closing remarks. Please go ahead, sir.

Andrew P. Power: Thank you, Chuck. First off, as a Texas headquartered company, we want to acknowledge the devastating flooding in Central Texas earlier this month. Our hearts go out to all those impacted, including the family and friends of our former colleague, Mark Walker. Mark played a key role in our investments team and was admired for his pursuit of high standards, intelligence, devotion to his family and [indiscernible]. He left a lasting impact on many of us. Wrapping it up, Digital Realty delivered another strong quarter, building on the momentum from earlier this year. We saw record performance in our 0-1 megawatt plus interconnection business, underscoring the strength of our global full spectrum platform and the demand for data center infrastructure.

Our core FFO per share results were at record levels, and our backlog remains strong and well supported by a deep and diverse pipeline that reflects the global demand for data center capacity. We’ve made meaningful progress in evolving our funding model to support this growth while staying focused on our strategic priorities. These efforts are translating into accelerating bottom line growth and enhancing our visibility into long-term sustainable performance. Scaling our business globally is a team effort, and I’m incredibly proud of our talented and dedicated colleagues who continue to execute at an exceptionally high level. I’m excited by the opportunities that lie ahead, yet remain focused on delivering for our customers, partners and shareholders.

Thank you all for joining us today.

Operator: The conference has now concluded. Thank you for joining today’s presentation. You may now disconnect.