What changed in third-quarter results and full-year guidance?

  • Digital Realty’s third-quarter revenue rose 21% year over year to 1.9 billion dollars, while adjusted EBITDA rose 13% to 978 million dollars. Core funds from operations (Core FFO) per share excluding net promote gains was 2.10 dollars, up 11% year over year and above Bernstein’s previous forecast of 1.97 dollars.
  • The company raised its full-year guidance for the third time this year: Core FFO per share excluding net promote gains was raised by 0.15 dollars to 8.30–8.35 dollars, with the midpoint representing year-over-year growth of nearly 13%. Bernstein believes the guidance implies fourth-quarter earnings per share of 2.03–2.08 dollars, below the third quarter’s 2.10 dollars, leaving room for an upside surprise.
  • Other profit measures were not raised in tandem: the company lowered its 2026 adjusted diluted earnings per share guidance from 3.10–3.15 dollars to 2.90–2.95 dollars.

Where did growth in new orders come from?

  • Third-quarter new signings reached a record 627 million dollars on Digital Realty’s share, with leases larger than 1 megawatt accounting for 474 million dollars. Large deals in Seoul, Chennai and Sydney, as well as a previously disclosed Northern Virginia lease, provided support.
  • Signings for 0–1 megawatt leases and interconnection services totaled 152 million dollars, setting a record for the fourth consecutive quarter and rising 40% quarter over quarter and 80% year over year. Of the 0–1 megawatt signings, 44% were AI-related, including a network deployment by an AI lab across 15 sites in Europe, the Middle East and Africa.
  • Record interconnection signings did not immediately translate into equivalent revenue growth: Bernstein noted that the company offered concessions on some connectivity services to expand network coverage, and interconnection revenue consequently grew by less than 1%.
  • Pricing for existing assets is also improving: the cash renewal spread in the third quarter was 11.8%, including 26.3% for leases larger than 1 megawatt and 4.7% for 0–1 megawatt leases.

When can orders translate into earnings?

  • The total signed but not yet billed backlog reached 2.5 billion dollars, or 1.8 billion dollars on the company’s share. Annualized rent that commenced in the third quarter was 207 million dollars. The company expects the pace of rent commencements to accelerate over the next two quarters as newly signed smaller leases commence and more than 250 megawatts of pre-leased capacity is delivered.
  • Projects under construction expanded to 1.5 gigawatts, with an estimated total cost of 22 billion dollars, up 9% quarter over quarter. The projects are 63% pre-leased, with an average expected stabilized yield of 11.6%. Of the 50 megawatts of IT capacity delivered in the third quarter, 95% was pre-leased.
  • Management expects double-digit growth in Core FFO per share in 2027 and beyond. Bernstein is also watching project yields amid construction cost inflation and the pace at which the backlog converts into cash earnings.

Where will expansion funding come from, and how does Bernstein value the company?

  • The company maintained its full-year net development capital expenditure guidance at 4.25 billion–4.75 billion dollars and raised its capital recycling guidance by 500 million dollars to 1.5 billion–2 billion dollars. Management estimates that more than 20 billion dollars is available for future development; this is a combined estimate of financing resources, not a cash balance.
  • Funding sources include a 3.25 billion dollar development fund already raised, an initial cornerstone equity commitment of 1.4 billion dollars for a new permanent investment strategy, and approximately 1.7 billion dollars of bonds issued in October, with a blended coupon of approximately 4%. Net debt to adjusted EBITDA was 5.2 times at the end of the third quarter. Management believes substantial equity financing is unnecessary and that it may even begin to deleverage.
  • Bernstein maintained its Outperform rating, raised its price target from 226 dollars to 229 dollars, and maintained its forward adjusted funds from operations (AFFO) valuation multiple of 27 times. The firm believes growth visibility, financing channels and expected development returns help balance interest-rate and construction-cost pressures.