Digital Realty Trust, Inc. (DLR) Earnings & Analysis

Latest quarter

Digital Realty reported Q2 revenue of $1.9 billion, above the $1.7 billion consensus. Core funds from operations (FFO) per share excluding net promote income were $2.13, above the $1.98 consensus.

Revenue rose 28.9% from $1.5 billion a year earlier. The company’s filing attributed growth in stabilized rental and other services revenue to new leases and renewals, higher utility reimbursements and currency movements. It said completed developments and related leasing also added to non-stabilized revenue, partly offset by property sales and contributions.

The filing said fee income and other revenue rose primarily because of $201 million in promote income tied to the June acquisition. Gross margin increased to 61.1% from 55.7%, while operating margin fell to 24.3% from 76.6%. Digital Realty reported diluted earnings per share of $1.21, down from $2.94 a year earlier, and free cash flow of $1.2 billion, compared with $1.7 billion.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Andy Power said customers deploying AI increasingly value environments that combine power, proximity and connectivity. He said demand for large deployments remained global, though activity varied by region, and that the Americas led activity during the quarter. CFO Matt Mercier said leasing in the zero-to-one-megawatt and interconnection category was active across all regions.

Mercier said the company signed over $261 million of renewals with cash releasing spreads over 25%. Asked about pricing, he described a supply-constrained market where Digital Realty could reprice several leases. He said one customer accepted a market rate in exchange for a longer term, and that opportunities to reprice contracts remained across the portfolio.

Power said two hyperscale leases signed after quarter-end represented $205 million of annualized rent at Digital Realty’s share. Mercier said the company’s share of the backlog had reached $1.4 billion at quarter-end, before those leases. He said $635 million of annualized rent was scheduled to commence in the second half of 2026.

Asked about fee income, Mercier said management and development fees were becoming more recurring as the private-capital business expanded, while fit-out fees could be more episodic. Power said private capital lets Digital Realty fund capacity alongside other investors. He also said delivering digital infrastructure was “becoming more and more challenging” and that the company’s installed base and capabilities were valuable to customers.

For the third quarter, Mercier expected core FFO excluding promote income to moderate slightly: commencements would be partly offset by seasonal utility and repair expenses, higher capital spending, asset recycling and the absence of a second-quarter currency benefit. He said second-quarter core FFO included a $0.07 per share benefit from business interruption insurance proceeds.

Guidance

In October, Digital Realty raised its 2026 core FFO per-share outlook excluding net promote income to $8.30 - $8.35, from the $8.15 to $8.20 range given on the Q2 call. The company also raised its constant-currency core FFO per-share outlook excluding net promote to $8.25 - $8.30.

On the Q2 call, Mercier raised the 2026 cash renewal spread outlook to 9% to 11%, from 6.5% to 8.5% on the Q1 call. He also raised the constant-currency same-capital cash net operating income growth outlook to 4.25% to 5.25%, from 4% to 5%.