Digital Realty Delivers Record Quarter Amid Data Center Boom

What happened

Digital Realty reported second-quarter 2026 Core FFO of $2.13 per share (excluding promote income), representing 14% year-over-year growth and exceeding expectations. Total reported Core FFO reached $2.65 per share including $187.9 million of promote income from joint-venture developments. Revenue rose 29% year-over-year to $1.92 billion, while same-capital cash NOI increased 8.9%. The company booked $306.9 million of annualised GAAP base rent during the quarter and achieved record interconnection signings surpassing $100 million in the 0-1 megawatt category. Two additional hyperscale leases signed in July added $410 million at 100% share. Renewal spreads surged to a record 25%+, while $208 million in annualised rent commenced during Q2. Digital Realty expanded its portfolio through acquisition of a 64% interest in three fully leased Northern Virginia data centers containing 288 megawatts of IT capacity, valued at approximately $7.8 billion and leased to investment-grade hyperscale customers under 15-year contracts. The company also purchased 1,440 acres near Kansas City for approximately $475 million to support up to 2 gigawatts of utility power. Development pipeline expanded to 1.4 gigawatts under construction. Digital Realty raised its full-year 2026 Core FFO guidance (excluding promote) to $8.15–$8.20 per share from $8.00–$8.10, and projected revenue excluding promote of $6.85–$6.95 billion and adjusted EBITDA of $3.75–$3.85 billion.

Why it matters

The results demonstrate Digital Realty's ability to capitalise on surging demand for data center infrastructure driven by AI workloads and hyperscale cloud expansion. Record backlog of $1.9 billion ($1.4 billion at Digital Realty's share) provides multi-year revenue visibility and supports management's confidence in extending double-digit Core FFO growth into 2027 and beyond. Strong renewal spreads of 25%+ indicate pricing power in tight markets, while record interconnection bookings above $100 million showcase the value of the company's connectivity-rich platform for customers requiring low-latency connections. The strategic acquisitions significantly expand capacity in critical markets, positioning Digital Realty to capture ongoing hyperscale demand. Available liquidity of approximately $6 billion and leverage of 4.7 times debt-to-adjusted EBITDA provide financial flexibility for continued expansion. The company raised around $2.5 billion through share sales in H1 2026 to fund growth initiatives. Private capital partnerships enable Digital Realty to develop additional capacity while generating fee income without fully loading the balance sheet.

Bigger picture

Digital Realty's performance reflects the broader data center sector's rapid expansion as AI adoption accelerates enterprise and hyperscale infrastructure requirements. The company finished June with 310 data centers and approximately 3.1 gigawatts of IT capacity globally. Growing supply-demand imbalances in certain markets are supporting record renewal spreads, though competition for land, power, and construction resources is intensifying. Hyperscale providers continue signing large, long-duration leases to secure capacity years in advance. Digital Realty's cloud- and carrier-neutral positioning differentiates it from single-tenant facilities, as enterprises increasingly require interconnection density alongside raw compute capacity. The Kansas City acquisition signals strategic focus on securing power availability, which has emerged as a critical constraint in key markets. Regulatory scrutiny and public opposition to data center development are increasing in certain regions, favouring established operators with existing portfolios and utility relationships. The company's international expansion, including pending transactions to increase Teraco ownership to 77% and add Columbia Capital, positions it to capture growth across multiple geographies. Total debt of $18.6 billion reflects the capital-intensive nature of the business, though management's multi-year growth visibility provides confidence in debt serviceability.

What to watch

Monitor revenue commencements from the record $1.9 billion backlog, which should drive earnings growth through 2027. Track hyperscale leasing momentum, noting that these deals can be episodic and create quarterly volatility. Watch for updates on the pending Teraco and Columbia Capital transactions, which could expand Digital Realty's emerging markets presence and investment capabilities. Observe development pipeline execution as the 1.4 gigawatts under construction progresses toward completion and leasing. Monitor leverage trends and capital allocation decisions as the company balances growth investment with financial flexibility. Watch for regulatory developments in key markets that could impact permitting timelines or community acceptance of new data centers. Track interconnection bookings as a leading indicator of demand for Digital Realty's platform approach versus commodity capacity. Observe renewal spread trends, which provide insight into pricing power and market tightness. Monitor power availability and utility partnerships, particularly for the Kansas City development and other expansion projects. Watch for additional private capital partnerships that could accelerate growth while managing balance sheet impact.