J.P. Morgan: Digital Realty signing hits record as rents and expansion funding needs accelerate

Which sources of demand are accelerating in the third quarter?

Digital Realty signed a record 855 million dollars of new leases in the third quarter on a full-project basis and 627 million dollars on the company’s ownership-share basis; leases over 1 megawatt accounted for 474 million dollars, with Northern Virginia and Asia-Pacific particularly strong.
Enterprise deployments also expanded: colocation and interconnection bookings totaled 158 million dollars, up from 138 million dollars in the prior quarter and around 100 million dollars in earlier quarters. A leading AI lab deployed across 15 sites in Europe, the Middle East and Africa, establishing an interconnected network.
Third-quarter rental revenue was 1.225 billion dollars, up 17.1% year over year and 4.1% above JPMorgan’s prior forecast; total revenue, however, was 1.902 billion dollars, down 1.1% sequentially, with fee income falling to 75.3 million dollars from 249 million dollars in the prior quarter.

Renewed leases in the third quarter represented 261 million dollars of annualized rental revenue, with cash rents up 11.8% from the original leases; renewals over 1 megawatt saw an increase of 26.3%. The company raised its full-year 2026 cash renewal rent growth guidance by 1 percentage point to 10%–12%.
On the company’s ownership-share basis, signed leases awaiting commencement rose to 1.9 billion dollars at quarter-end. The company expects 371 million dollars to commence during the rest of 2026, 831 million dollars in 2027, and 643 million dollars in 2028 and beyond. New bookings therefore need to convert gradually into revenue as projects are delivered and leases commence.
The company raised its full-year guidance for key financial metrics for the third consecutive quarter: total revenue guidance excluding performance-fee income implies nearly 16% year-over-year growth; the midpoint of core funds from operations (FFO) per share guidance on the same basis rose by 0.15 dollars, implying 12.7% growth.

The company has approximately 1.5 gigawatts of capacity under construction, with an estimated total cost of approximately 22 billion dollars and an expected development yield of 11.6%; the pre-leased share rose from 54% in the second quarter to 63%. Of the 50 megawatts brought online in the third quarter, 95% was pre-leased.
Progress varies by region: projects under construction are 71% pre-leased in North America, just 12% in Europe, the Middle East and Africa, and 75% in Asia-Pacific. Expected construction costs in North America rose from about 14.1 million dollars per megawatt in the prior quarter to 14.5 million dollars, and in Asia-Pacific from about 11.1 million dollars to 15.5 million dollars.
JPMorgan expects capital expenditure of 5.341 billion dollars in 2026, up 67.9% from 2025, and forecasts negative full-year unlevered free cash flow of 1.568 billion dollars in its valuation model.
The company recently raised 540 million dollars through market share issuance and 1.7 billion dollars through debt issuance, and secured an equity commitment of 1.4 billion dollars for a new perpetual capital strategy. It also raised its full-year asset sale or contribution target by 500 million dollars to 1.5 billion–2 billion dollars, to recycle capital from mature assets with long-term investors.

JPMorgan believes the company’s capacity, development projects and renewal pricing power in Northern Virginia and major global markets position it to benefit from cloud and AI-driven data center demand.
The bank raised its 2026 revenue forecast to 7.319 billion dollars, but cut its adjusted EBITDA forecast from 3.891 billion dollars to 3.842 billion dollars; the corresponding margin is expected to be 52.5%, below its previous forecast of 54.5% and the 54.6% recorded in 2025.
The bank maintained its Overweight rating and 235-dollar price target for December 2027. Its discounted cash flow valuation uses a weighted average cost of capital of 6.75%, a perpetual growth rate of 4.5% and a public-market discount of 10%; oversupply resulting from the construction boom could depress data center leasing prices.