Citi: Digital Realty posts record bookings as Citi raises earnings forecasts; expansion spending is also accelerating

Why did third-quarter bookings change growth expectations?

Digital Realty’s new third-quarter bookings represented 627 million dollars in annualized rent, a sharp increase from 162 million dollars a year earlier and 62.5% above Citi’s previous forecast. Power capacity leased during the quarter was 184.8 megawatts, above the expected 153.6 megawatts.
Citi believes cloud adoption, AI deployment and supply constraints together support demand, benefiting both the retail business and the hyperscale customer portfolio. Management said the company also has approximately 1.5 gigawatts of capacity that can be booked and commence rent by the end of 2028.
There is a lag between bookings and revenue contribution: projects that actually commenced rent in the third quarter represented 184 million dollars in annualized revenue, below Citi’s forecast of 280 million dollars and the second quarter’s 198 million dollars.

Third-quarter revenue was 1.902 billion dollars, up 20.6% year over year and 8.3% above Citi’s forecast, but down 1.1% quarter over quarter. Fee revenue fell from 249 million dollars in the second quarter to 75 million dollars.
Core funds from operations per share were 2.10 dollars, above Citi’s forecast of 1.94 dollars. Of the beat, 0.10 dollars per share came from better EBITDA and 0.09 dollars from higher capitalized interest, partially offset by other items.
Cash rents on renewals rose 11.8% over expiring leases, above Citi’s forecast of 7.4% and the year-earlier figure of 8.0%, but below the second quarter’s 25.6%. Tenant churn was 0.6%, also below the bank’s forecast of 1.5%.

Citi raised its 2027 core funds from operations per share forecast from 9.05 dollars to 9.43 dollars, approximately 13% above its 2026 forecast of 8.34 dollars. The bank expects double-digit growth in this metric in each of the coming years.
The 2027 revenue forecast was raised from 8.296 billion dollars to 8.401 billion dollars. Citi points to strong bookings, the backlog, rents and renewal pricing, and contributions from joint ventures and fee businesses; its 2027 fee revenue forecast was raised from 198 million dollars to 300 million dollars.
The midpoint of the company’s 2026 revenue guidance was 7.29 billion dollars, above the Visible Alpha consensus of 7.111 billion dollars; the midpoint of core funds from operations per share guidance, at 8.33 dollars, was below the consensus of 8.49 dollars. Citi noted that 2026 expectations may not be comparable because of differing treatment of a large excess profit-sharing payment in the second quarter.
Citi maintained its buy rating and raised its price target from 226 dollars to 234 dollars.

Third-quarter capital spending was 1.382 billion dollars, compared with 687 million dollars a year earlier. Free cash flow, calculated as operating cash flow less capital spending, was negative 604 million dollars for the quarter. Cash at quarter-end was 803 million dollars, down from 1.865 billion dollars at the end of the second quarter.
Citi expects 2026 capital spending to reach 5.345 billion dollars and free cash flow to be negative 2.282 billion dollars. It expects total debt to rise from 19.657 billion dollars at the end of 2026 to 26.943 billion dollars at the end of 2028.
The company is expanding its access to equity and debt capital to support data center development. Citi also noted that rising interest rates would increase the cost of capital and could dilute future funds from operations per share; older data center assets may also require higher maintenance spending.