Executive Summary / Key Takeaways

• Digital Realty is strategically positioned to capitalize on the explosive demand for data center capacity driven by digital transformation, cloud adoption, and particularly the surge in AI workloads, leveraging its extensive global footprint and full-spectrum service offering.
• The company's differentiated technological capabilities, including PlatformDIGITAL®, HD Colo 2.0 for high-density compute, and ServiceFabric for enhanced connectivity, provide a competitive edge in delivering scalable, efficient, and interconnected data center solutions required by hyperscalers and enterprises alike.
• Recent financial and operational performance, highlighted by record leasing volumes in 2024, a robust $919 million backlog (DLR share) as of Q1 2025, and improving pricing power, underscore strong underlying business fundamentals and provide significant visibility for future revenue growth.
• Digital Realty has significantly strengthened its balance sheet and diversified its capital sources through strategic capital recycling and the successful launch of its first U.S. hyperscale fund, enhancing its ability to fund a rapidly expanding development pipeline and accelerate bottom-line growth.
• Management's 2025 guidance, forecasting mid-single-digit Core FFO per share growth and over 10% normalized revenue/EBITDA growth, signals an inflection point towards accelerating profitability, supported by backlog conversion and operational execution, positioning the company for sustained growth beyond 2025.

The Foundation of the Digital Economy

Digital Realty Trust, Inc. stands as a foundational pillar of the global digital economy, operating as a leading real estate investment trust focused on owning, acquiring, developing, and operating data centers. Since its inception with the first property acquisition in 2002, the company has strategically built an expansive global platform spanning six continents, providing the critical infrastructure that underpins the digital ambitions of the world's leading companies, from cloud giants and social networks to financial institutions and healthcare providers. This journey has been marked by significant scale, including notable acquisitions like DuPont Fabros Technology and Teraco, establishing Digital Realty's position as a full-spectrum provider capable of meeting diverse customer needs, from individual cabinets to multi-megawatt hyperscale deployments.

The data center industry is currently experiencing unprecedented demand, fueled by the relentless forces of digital transformation, the continued migration to the cloud, and the burgeoning requirements of artificial intelligence (AI). Digital Realty's strategic response has been to evolve its platform into a "meeting place" – a highly connected global network designed to facilitate the complex interdependencies of modern digital workloads. This strategy is not merely about providing physical space; it's deeply rooted in technological differentiation and operational excellence.

At the core of Digital Realty's offering is PlatformDIGITAL®, a global data center platform designed to address the challenges of data gravity and enable seamless connectivity and control across hybrid IT architectures. Complementing this is the recently unveiled HD Colo 2.0, a critical technological advancement specifically engineered to support the extreme power densities demanded by AI and high-performance computing (HPC) workloads. This solution offers advanced high-density deployment support, including liquid-to-chip cooling, across 170 global data centers. Management highlights the capability to deploy these high-density solutions within 12 weeks or less, supporting densities up to 150 kilowatts per rack. This technical capability provides a tangible advantage, allowing Digital Realty to accommodate the latest hardware, such as NVIDIA's (NVDA) GB200 systems, efficiently and at scale.

Furthermore, the company's ServiceFabric™ offering enhances interconnection capabilities, enabling enterprises to integrate data with AI and other technology solutions. Strategic collaborations, such as the partnership with Console Connect, expand ServiceFabric's reach to over 100 new third-party data centers and numerous cloud on-ramps, including hosting 15 Microsoft Azure on-ramps globally. These technological layers are crucial competitive differentiators, providing customers with the scalability, performance, and connectivity required for increasingly complex and latency-sensitive applications.

In the competitive landscape, Digital Realty operates alongside major players like Equinix (EQIX), American Tower (AMT), Crown Castle (CCI), and Iron Mountain (IRM), as well as large cloud providers like AWS (AMZN) and Microsoft Azure (MSFT). While competitors like Equinix boast a vast interconnected network and American Tower/Crown Castle leverage extensive tower infrastructure, Digital Realty differentiates itself through its full-spectrum approach, combining colocation, scale, and hyperscale offerings on a single global platform. Its technological focus on high-density support (HD Colo 2.0) and efficient data architecture (PlatformDIGITAL) provides a competitive edge in specific high-growth segments like AI and hybrid IT, potentially offering better energy efficiency and lower operating costs per unit compared to some rivals. However, the company acknowledges that private institutional investors have compressed capitalization rates in the market, making single-asset acquisitions less attractive and necessitating a strategic focus on development and private capital partnerships to maintain competitive returns. While some competitors may exhibit higher growth rates or margins driven by different business models (e.g., tower companies), Digital Realty's strength lies in its specialized data center expertise, global scale, and ability to deliver complex, power-intensive deployments.

Performance Reflecting Strategic Execution

Digital Realty's recent financial and operational performance underscores the effectiveness of its strategic pivot and its ability to capture robust market demand. The first quarter of 2025 saw total operating revenues increase by 5.7% year-over-year to $1.41 billion, driven by contributions from both stabilized and non-stabilized properties. Stabilized revenue growth benefited from new leasing and renewals, while non-stabilized growth was significantly boosted by the completion and lease-up of development projects in key markets like Northern Virginia, Portland, London, Johannesburg, and Zurich.

Leasing activity remains a key indicator of market demand and Digital Realty's execution. Following a record $1 billion in total leasing in 2024, the first quarter of 2025 saw strong bookings of $242 million at Digital Realty's share. This included $69 million in the 0-1 megawatt plus interconnection segment, marking the second-highest quarter ever for this category and demonstrating continued momentum in enterprise and colocation demand. The greater than 1-megawatt segment contributed $102 million (DLR share), reflecting ongoing strong demand for large capacity blocks, particularly from hyperscalers in North America. Notably, the overall rate on new data center leasing reached a new milestone of $244 per kilowatt per month in Q1 2025, up 10% from the prior record, indicating improving pricing power, especially within the greater than 1-megawatt category. Renewal leasing also remained healthy, with cash renewal spreads of 5.6% in Q1 2025, consistent with management's full-year guidance. Churn remained well-controlled at 1.5%.

This strong leasing performance has translated into a record backlog of signed but not yet commenced leases, exceeding $1.3 billion at 100% share and $919 million at Digital Realty's share as of March 31, 2025. This backlog provides significant revenue visibility, with $440 million scheduled to commence in 2026 and over $100 million in 2027 and beyond. The 2026 backlog alone is more than double the 2025 backlog at the same time last year, signaling accelerating revenue contributions in the coming years.

Financially, the company has made significant strides in strengthening its balance sheet and diversifying its capital sources. The net debt-to-Adjusted EBITDA ratio improved to 4.8 times by year-end 2024 and stood at 5.1 times at March 31, 2025, falling below the long-term target and positioning the company for offense. Total liquidity remained robust at over $5 billion as of March 31, 2025, before considering capital from the new fund. The company has actively managed its debt profile, issuing €850 million of 3.88% Guaranteed Notes due 2035 in January 2025 and refinancing its Global Revolving Credit Facilities ($4.4 billion equivalent) and Yen Revolving Credit Facility (¥42.5 billion) in September 2024, extending maturities to 2029 with extension options. As of March 31, 2025, total outstanding debt was $17.16 billion with a weighted-average interest rate of 2.65% and a weighted average term to initial maturity of 4.4 years. Approximately 93% of net debt is fixed rate (including swaps), mitigating interest rate risk.

A key component of the capital strategy is the formation of private capital partnerships. The launch of the first U.S. hyperscale data center fund in Q1 2025 is a significant milestone, targeting $2.5 billion in LP equity commitments to support up to $10 billion in U.S. hyperscale investments. Digital Realty will retain at least a 20% stake and serve as the general partner, maintaining operational control. The planned contribution of initial assets to this fund in Q2 2025 is expected to satisfy the majority of the company's 2025 disposition guidance of $500 million to $1 billion. This strategy enhances returns through fee income and provides a scalable funding mechanism for the expanding development pipeline.

The development pipeline itself has grown significantly to meet demand, reaching $9.3 billion at a 12.5% expected stabilized yield as of Q1 2025. Capacity under development (DLR share) increased to 814 megawatts, with 63% preleased. Future CapEx for the remainder of 2025 is expected to be between $2.3 billion and $2.8 billion (net of partner contributions), reflecting the accelerated pace of development.

Outlook and Risks

Digital Realty's outlook is one of accelerating growth, underpinned by the strong demand environment, robust backlog, and enhanced financial flexibility. Management's guidance for full-year 2025 forecasts Core FFO per share in the range of $7.05 to $7.15 (constant currency), representing approximately 6% year-over-year growth at the midpoint. This guidance reflects the underlying business strength, balanced by the significant step-up in development spend and the impact of prior deleveraging. On a normalized and constant currency basis, the company anticipates total revenue and Adjusted EBITDA growth of more than 10% in 2025. Same capital cash NOI is expected to grow 3.5% to 4.5% on a constant currency basis, and occupancy is projected to improve by another 100 to 200 basis points.

The record backlog provides strong visibility for this acceleration, particularly flowing into 2026 and beyond. Management is confident that the fundamental environment for data centers remains strong and that their strategy is well-aligned to capture this opportunity.

However, the outlook is not without risks. Macro and geopolitical uncertainty are acknowledged as potential sources of market volatility. Supply chain constraints, particularly concerning power availability, remain a challenge in almost all markets, potentially impacting development timelines. While Digital Realty believes its proactive procurement and relationships mitigate some of the impact from potential tariffs on build costs (estimated at a modest <5%), this remains a factor to monitor. The company is also subject to foreign currency exchange risk, although partially hedged through local currency financing and swaps. Regulatory risks, including potential SEC actions related to cybersecurity disclosure (currently under investigation, with costs not expected to be material based on current information), and the impact of inflation on variable-rate debt are also considerations. An incident at a Singapore data center in September 2024 resulted in damages, though the company expects it to be substantially covered by insurance.

Conclusion

Digital Realty is at an inflection point, poised to translate robust market demand and strategic execution into accelerating bottom-line growth. The company's global platform, differentiated technology suite tailored for high-density AI workloads and hybrid IT, and strengthened balance sheet provide a compelling foundation. Record leasing and a substantial backlog offer clear visibility into future revenue streams, while the diversified capital strategy, including the innovative U.S. hyperscale fund, ensures the ability to fund the expanding development pipeline necessary to meet customer needs.

While market uncertainties and supply constraints persist, Digital Realty's focus on core, supply-constrained markets with diverse demand, coupled with its operational expertise and technological advantages, positions it favorably against competitors. The 2025 guidance signals the beginning of a period of accelerated profitability, with strong momentum building for 2026 and beyond. For investors, Digital Realty represents an opportunity to participate in the secular growth of the digital economy and the AI revolution, backed by a proven operator executing a well-defined strategy to enhance long-term sustainable growth.