Digital Realty Trust - Q4 2025

Transcript

Operator (participant)

Afternoon and welcome to the Digital Realty Fourth Quarter 2025 Earnings Call. Please note that this event is being recorded. During today's presentation, all participants will be in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question, and we will aim to conclude at the top of the hour. I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead.

Frank Louthan (Managing Director and Senior Equity Research Analyst)

This is AI. That's.

Jordan Sadler (SVP of Public and Private Investor Relations)

Thank you, operator, and welcome everyone to Digital Realty's Fourth Quarter 2025 earnings conference call. Joining me on today's call are President and CEO Andy Power and CFO Matt Mercier. Chief Investment Officer Greg Wright, Chief Technology Officer Chris Sharp, and Chief Revenue Officer Colin McLean are also on the call and will be available for Q&A. Management will be making forward-looking statements including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to the most directly comparable GAAP measure are included in the supplemental package furnished to the SEC and available on our website.

Before I turn the call over to Andy, let me offer a few key takeaways from our fourth quarter results. First, we posted $1.86 of Core FFO per share in the fourth quarter and $7.39 for full year 2025, up 10% over 2024. Our initial guidance for 2026 implies nearly 8% bottom line per share growth at the midpoint, despite outperforming our original 2025 guidance by almost 500 basis points. Second, we concluded our second consecutive year with more than $1 billion of total bookings at 100% share, leaving us with a record backlog of nearly $1.4 billion at 100% share. We also posted another record quarter of 0-1 MW-plus interconnection bookings and a record year in 2025, as our team demonstrated its resolve to meet our goal to double Digital.

Lastly, we ended the year with over $3.2 billion of LP equity commitments to our oversubscribed inaugural closed-end fund, marking our official entry into the private markets and evolving Digital Realty's funding strategy to support the growth of hyperscale data center capacity. With that, I'd like to turn the call over to our President and CEO Andy Power.

Andy Power (President and CEO)

Thanks, Jordan, and thanks to everyone for joining our call. 2025 was a pivotal year for the data center industry and for Digital Realty. Data centers moved firmly into the global spotlight as AI adoption accelerated, cloud platforms continued to scale, and power became the industry's primary constraint. Against that backdrop, the Digital Realty team delivered exceptional execution. We closed the year with record financial performance exceeding the full-year guidance we laid out last February and finishing ahead of the targets we set for ourselves across revenue, EBITDA, and Core FFO per share. Just as importantly, the strategy we articulated over the last several years focused on a global, full-spectrum, and connectivity-rich platform, and operational excellence with disciplined capital allocation is clearly gaining momentum. Throughout 2025, demand remained robust across our full product range, and our leasing reflected that breadth.

For the second consecutive year in our history, Digital Realty signed over $1 billion of new leases with $1.2 billion of bookings in 2025, representing a pace that is nearly 70% above the average bookings achieved over the preceding five-year period. Our 0-1 MW-Plus interconnection product set continued to outperform and take share, posting nearly $340 million of bookings, easily a full-year record and 35%+ above 2024 levels, as customers sought proximity, scale, and dense connectivity in the critical tier-one markets that we serve. This segment benefited from the continued expansion of PlatformDIGITAL into 31 countries and 56 markets at year-end, as well as the evolution of our product set. Our high-density colocation offering enables customers to deploy more compute in the same footprint while maintaining efficiency and reliability.

ServiceFabric adoption also accelerated meaningfully during the year, now enabling access to over 300 cloud on-ramps and more than 700 interconnected data centers globally, further strengthening the network effects of PlatformDIGITAL. These dynamics help drive a robust inflow of new logos, with nearly 600 added for the second consecutive year. Greater than a MW bookings got off to a great start early in the year when we signed the largest lease in the company's history. Momentum continued through the fourth quarter with solid hyperscale activity across our footprint, particularly in the Americas. On a 100% share basis, hyperscale leasing exceeded $800 million in 2025, highlighting the underlying strength and durability of hyperscale demand.

Also in 2025, we saw early but encouraging customer adoption of our Private AI Exchange platform, a growing set of AI-driven networking use cases that enable enterprises to connect compute, data, and models privately and dynamically across clouds, campuses, and partners. By leveraging the scale of our interconnection portfolio, customers are beginning to move beyond static architectures to support low-latency, secure, and cost-efficient AI inference workflows that span multiple environments. With inference expected to scale in 2026, we see continued expansion of these Private AI Exchange use cases as a durable driver of interconnection demand. Building on this momentum, our data and AI strategy is centered on delivering AI-ready infrastructure in the tier-one metros where performance, adjacency, and sovereignty matter most.

Our roadmap positions us to meet accelerating inference demand with pre-installed liquid cooling capacity, higher density deployments, and a unified platform that provides the coverage, capacity, connectivity, and control enterprises require for long-term AI execution. Finally, we continue to expand our footprint in the APAC region. Last March, we expanded into Indonesia through a joint venture that owns a robust connectivity hub in Jakarta. In January, we announced our continued Southeast Asian expansion with the acquisition of one of Malaysia's most highly connected data centers. Together, these investments further strengthen our presence in fast-growing APAC markets and extend the reach of PlatformDIGITAL into regions where digital demand is accelerating. We continue to believe that not all data centers are created equal. Different types of data centers can be thought of as different tools for different jobs.

Our portfolio is largely focused on locations that matter most to our customers and their stakeholders. interconnection hubs in or near where clouds and data converge create network effects, making the platform more valuable for every participant. The value generated by these network effects, together with our ability to support hyperscale requirements and higher power density workloads, underscores the advantage of Digital Realty's connected campus approach. The key to these network effects is interconnection. Digital has continued to enhance the value that we provide through both physical and virtual products available at our data centers. Customers can use this connectivity to connect to others within the same data center via Cross Connect or another data center across the globe via ServiceFabric and everything in between.

Customers can connect with their business partners in our data centers and expand their connectivity when they add sites or deepen their integration with cloud, data, and AI ecosystems. The importance of this connectivity grows as enterprise AI and use of inference accelerates. Inference thrives where data and networks meet, and our position in major population and GDP centers, together with our robust and diverse connectivity, makes us particularly well-positioned to host and scale inference workloads as enterprises continue to operationalize AI. The introduction of ChatGPT a few years ago and the ensuing race between Gemini, Claude, Grok, and others marked the beginning of a new chapter in the digital age, one defined by the convergence of AI, cloud, data, and interconnection at a global scale. Cloud platforms continue to grow at remarkable rates, even at their extraordinary scale, underscoring the depth and durability of this demand.

Looking ahead, cloud and AI demand are expected to continue to compound, with AI-specific services growing even faster as generative and inference workloads become embedded directly into business processes. We're positioned for the next phase of infrastructure enablement, where enterprise AI demands infrastructure that behaves like the cloud: reliable, secure, and always on. As cloud and AI demands scale, a combination of power availability and ability to execute have become the defining constraints across global digital infrastructure, shaping the timelines for how new data center capacity comes online. In most of our core markets, new supply will continue to arrive gradually as both generation and transmission upgrades continue. Hyperscalers are increasingly making leasing decisions based on who can secure and deliver power capacity on a predictable schedule.

As a result, customers are prioritizing operators with verified visibility into the future supply of power and a track record of on-time or even accelerated delivery. Digital Realty continues to leverage its global footprint, 20+-year track record, and 5-GW power bank to position incremental capacity for development in some of the world's most power-constrained markets. Before I move on, let me highlight a few recent wins that demonstrate how customers across the globe are using the connectivity in our data centers to deploy critical workloads to create value for their enterprise. A technology services company and new logo is leveraging PlatformDIGITAL in four U.S. locations to create a distributed AI inference-ready ecosystem to support advanced artificial intelligence workloads for a growing enterprise demand.

A leading technology and communications company is expanding its footprint to two additional European markets on PlatformDIGITAL to enable network-optimized platforms leveraging the interconnected digital infrastructure to reach customers faster and at scale. A global industrial technology and engineering company based in Germany and a new logo for PlatformDIGITAL is enabling advanced data analytics and AI initiatives, leveraging the high-performance digital ecosystems available in a Dallas data center. A leading European AI company and a new logo for Digital Realty is deploying an edge inference node on PlatformDIGITAL, leveraging the network and emerging AI ecosystem available on our Paris campus. A leading multinational manufacturing company is expanding its footprint on PlatformDIGITAL to enable advanced data and AI workloads, leveraging high-density and interconnected digital infrastructure available on our Seoul campus.

These wins demonstrate the continued momentum of our enterprise offering and the value of deploying critical workloads within our connected global communities. With that, I'll now turn the call over to our CFO, Matt Mercier.

Matt Mercier (CFO)

Thank you, Andy. As Andy noted, 2025 was a transformative year for Digital Realty. Over the last 12 months, we posted record financial results and saw a meaningful acceleration in top and bottom-line growth. In the fourth quarter, Digital Realty again posted strong double-digit growth in revenue and Adjusted EBITDA, reflecting the momentum in our 0-1 MW-plus interconnection business, commencements from our substantial backlog, strong releasing spreads, modest churn, and continued strong growth in fee income. We achieved these strong results while keeping our leverage below five turns and maintaining significant liquidity to invest in data center projects across our 5-GW runway of buildable IT capacity. Core FFO per share grew by 8% year-over-year, while leasing posted a top five quarter in DLR history, with the 0-1 MW-plus interconnection category setting a new quarterly leasing record.

During the fourth quarter, we signed leases representing $400 million of annualized rent at 100% share or $175 million at Digital Realty share. Demand for data center capacity continues to be robust, both for larger capacity blocks to support growth in cloud and AI and smaller but also scaling colocation capacity, which often supports enterprise digital transformation workloads. Data center supply remains tight, especially within our footprint. New leasing activity was particularly strong in the Americas, representing 65% of DLR's share of bookings in the quarter. Our 0-1 MW-plus interconnection product set continued its strong momentum, posting a new leasing record of $96 million, 7% higher than the previous record set in Q2 of 2025. Over the course of 2025, we've averaged $85 million of quarterly leasing in this category, a reflection of our growing value proposition and the consistency of our team's efforts.

Leasing was driven by regional records in North America and EMEA, led by strength in the smaller 0-500 kW deal tranche. The 0-1 MW-plus interconnection product continues to be a significant focus for Digital Realty, and we are encouraged by the growing strength and momentum of our execution. interconnection bookings approached last quarter's record at $18.9 million. Strength in the quarter was driven by record bookings in EMEA and momentum within our ServiceFabric product. interconnection bookings stepped up noticeably in the second half of 2025, resulting in a 22% increase year-over-year. We signed $78 million within the greater-than-a-MW category at our share, with continued strength in the Americas. Pricing in this product segment remained strong, averaging over $180 per kW in the quarter.

Manassas, Virginia, was the top contributor to the greater-than-a-MW signings this quarter, while hyperscalers also signed leases in Tokyo, Osaka, and Paris. Availability across our nearly 800 MWs in-place portfolio in Northern Virginia remains very limited. With strong demand queuing for the 300 MWs of capacity, we are readying for delivery in the 2027 to 2029 time frame. Our total backlog reached a record at year-end of nearly $1.4 billion, reflecting the robust data center fundamentals we are experiencing and our ability to capitalize on this demand. Many remain understandably focused on the pro-rata share view of leasing that we have historically provided to enhance transparency and modeling, but we feel it is important to understand the complete picture. The total backlog is a better representation of the aggregate demand being captured across PlatformDIGITAL and, in turn, an important driver of the overall economics enjoyed by DLR shareholders.

While the evolution of our funding strategy has impacted some items on our income statement, bottom-line economics remain paramount. This evolution has enabled us to more than double our fee income in 2025 while expanding our operational reach to better serve our customers. At Digital Realty, the backlog was $817 million at quarter-end, as $209 million of commencements exceeded the $175 million of new bookings in the quarter. Looking ahead to 2026, we have $634 million of leases scheduled to commence somewhat rapidly throughout this year and then another $152 million of leases to commence in 2027 and beyond. Our backlog provides us with strong visibility and predictability. During the fourth quarter, we signed $269 million of renewal leases at a blended 6.1% increase on a cash basis.

As usual, renewals were heavily weighted towards our shorter 0-1 MW leases, with $175 million of colocation renewals at a 4.3% uplift. Greater-than-a-MW renewals totaled $88 million at a robust 8.1% cash releasing spread, driven by deals in Northern Virginia, Chicago, and Dublin. For the full year 2025, cash releasing spreads were 6.7%, surpassing the high end of our guidance range. As for earnings, we reported Core FFO of $1.86 per share for the fourth quarter, up 8% year-over-year, reflecting strong core growth and continued growth in fee income, offset by seasonally higher expenses. For the full year, we reported Core FFO per share of $7.39, just above the high end of our guidance range and 10% higher than 2024.

Same capital cash NOI growth continued to be strong in the fourth quarter, increasing by 8.6% year-over-year, driven by 8.2% growth in data center revenue. On a constant currency basis, same capital cash NOI rose 4.5% in the quarter. For the year, same capital cash NOI also grew by 4.5%, consistent with our most recent guidance increase. Before going any further, I want to inform you of some upcoming disclosure enhancements that we expect to make beginning next quarter to better align our reporting with how we manage the business. While we have long provided both power and square footage metrics in our disclosures, we will be transitioning the focus toward power-based metrics. Key elements of our reporting, including leasing and development activity, are already based on power, and we will now bring occupancy in line by highlighting it on an IT load basis.

Based on square feet, same capital and total portfolio occupancy ended the year at 83.7% and 84.7%, respectively. However, on an IT Load basis, same capital and total portfolio occupancy was approximately 91% and 89%, both improving over 50 basis points year-over-year. We believe that this update will better reflect the dynamics of our current business while providing a clearer and more consistent view of utilization across our platform. We also expect to make some modest updates to our quarterly supplemental, pruning unnecessary data points. The objective is to retain our industry-leading transparency, better align reporting with how the business is managed, and improve the overall digestibility of the supplemental. Moving on to our investment activity, we spent $930 million on development CapEx in the quarter, net of our partner share, bringing full-year spend to $3 billion.

Recurring CapEx increased to $169 million in the seasonally high fourth quarter. During the quarter, we delivered about 90 MWs of new capacity, 75% of which was pre-leased, while we started about 135 MWs of new data center projects, increasing our total development to 769 MWs under construction. At quarter-end, our gross data center development pipeline underway sit at just over $10 billion at an 11.9% expected stabilized yield. For the full year, we delivered approximately 289 MWs of new capacity, reflecting strong execution across our development pipeline in support of customer demand, even as labor and supply chains got tighter. During the fourth quarter, we sold a non-core facility in Dallas for $33 million and acquired land near Portland, Tel Aviv, and Lisbon for future development.

Turning to the balance sheet, we were active again in the capital markets during the fourth quarter, raising EUR 1.4 billion in a dual tranche green Eurobond offering. The first tranche was for EUR 600 million at 3.75% due 2033, and the second tranche was for EUR 800 million at 4.25% due 2037. We used a portion of the net proceeds to redeem EUR 1.075 billion of Eurobonds, carrying a 2.5% coupon that was scheduled to mature in January. The 160 basis point spread between the new and redeemed issues will cause a modest interest expense headwind starting in the first quarter of 2026. Our only remaining debt maturity for 2026 is a modest CHF 275 million Swiss franc note that matures late this year. Looking further out, our maturities remain well laddered through 2037.

Leverage remained at 4.9x, well below our long-term target of 5.5x, while balance sheet liquidity remained robust at nearly $7 billion. In addition, we maintain approximately $15 billion of dry powder to support hyperscale data center development and investment through our private capital initiatives. As a quick update surrounding the fund, by year-end, we had closed EUR 3.225 billion of LP equity into our inaugural closed-end fund, and we anticipate the final EUR 25 million closing prior to our next call.

In late December, we contributed another 40% stake in the five stabilized seed assets into the fund, increasing the fund stake to 80% and resulting in an additional EUR 427 million of net proceeds to Digital Realty. We are excited to move on to the next stage of our private capital strategy as we work to further support the perpetual capitalization of hyperscale data centers alongside Digital Realty's public shareholders.

Our balance sheet is positioned to fuel growth opportunities for our customers around the globe, consistent with our long-term financing strategy. Let me conclude with our guidance. We are establishing a core FFO guidance range for the full year 2026 of $7.90-$8 per share. The midpoint represents 8% year-over-year growth, reflecting underlying strength in our business balanced by a continued ramp in new investment spending that is geared toward extending our runway for growth. On a normalized and constant currency basis, we anticipate total revenue and Adjusted EBITDA growth of more than 10% in 2026. Same capital cash NOI growth is expected to grow 4%-5% on a constant currency basis.

We also expect cash renewal spreads of between 6%-8%, with upside partly mitigated by the high mix of 0-1 MW leases expiring, together with a portion of fixed-rate renewals in our greater-than-a-MW portfolio. Power-based occupancy should improve by another 50-100 basis points from the approximate 89% at year-end 2025. CapEx net of partner contributions are expected to rise to between $3.25 billion and $3.75 billion, with development yields expected to remain in the double digits. We will also continue to recycle capital with $500 million-$1 billion of dispositions in JV capital expected this year. This concludes our prepared remarks, and now we will be pleased to take your questions. Operator, would you please begin the Q&A session?

Operator (participant)

Certainly. We will now open the call for questions. In the interest of time and to allow a larger number of people to ask questions, callers will be limited to one question. Our first question for today comes from the line of Eric Luebchow from Wells Fargo. Your question, please.

Eric Luebchow (Director and Senior Equity Analyst)

Hi. Great. Appreciate you taking the question. Andy, I think you mentioned early in the call that you're starting to see a pickup in activity, especially in the Americas, with some of the hyperscalers. So maybe you could just kind of give us a landscape of what the bookings conversations looked like earlier in the year. You're starting to see the hyperscalers look a little bit further out for power than they perhaps did in 2025. And maybe just give us a rundown of some of the key campuses where you're starting to see that large footprint demand. Thank you.

Andy Power (President and CEO)

Sure. Thanks, Eric. So we were really happy about how we ended this year, which was a great year overall. Back-to-back, north of $1 billion total signings, third highest total signings fourth quarter, $400 million. And hyperscaler was a big contribution to that. The same suspects are keeping recurring here. So Northern Virginia, incredibly sought-after capacity. Beyond that, you have the likes of Charlotte, Atlanta, Dallas, as called the top of the list here in the Americas. Although particularly towards the U.S., I can tell you that we're seeing more globalization of the demand. And you can see that in the contributions from Europe having a bigger contribution in the greater-than-a-MW category. As the year went on and as we continue moving into 2026, what is quite attractive is the diversity of demand.

As it relates to our numbers, I think now we're at 7 straight consecutive quarters where our largest signing is from a different hyperscaler or different customer, excuse me. And when we're looking at customers looking at those larger capacity blocks in those markets I just referenced, I can tell you you're seeing more customers call for the same capacity blocks. There's the consistent looking at the front end. The nearest deliveries are the most popular, but they are looking out a little further on the horizon than they had, certainly, six months or 12 months prior.

Operator (participant)

Thank you. And our next question comes from the line of Michael Rollins from Citi. Your question, please.

Michael Rollins (Managing Director)

Thanks and good afternoon. Andy, you mentioned earlier the expectation for inference to scale in 2026. I'm curious if you could put some further context around what you're seeing and what that's going to look like, both for the industry and for Digital Realty?

Andy Power (President and CEO)

Sure. Thanks, Michael. So I think we're seeing that play out on both our hyperscale and our enterprise business. Certainly, on the hyperscalers, the desire for the capacity blocks in the cloud-zonal markets that I just referenced is certainly becoming more and more of a priority. I can tell you the dialogue on the designs with our customers, the latest evolutions of cloud, is a mix-up of cloud and AI inside the same exact building. So they're looking at cooling that's a mixture of air and liquid and blending both use cases together in the same locations, which certainly leads towards inference. I believe we're still a good ways away from what inference really called proliferates in a corporate enterprise context that have the same service-level agreements and uptime requirements that cloud exists today.

But as AI rolls into much more, call it, time-sensitive and critical applications, be it robotics, health and safety, research, and science, I don't see why the use of AI is not going to be just as critical as cloud data. In our enterprise business, we had a fantastic year. We had multiple records. Record fourth quarter, that was up over the prior record two quarters before that. We were, call it, 35% higher in the enterprise category year-over-year, great mix of new logos and existing customers. And now, two quarters doesn't make a trend, but I would say the contribution within that 0-1 MW and interconnection category was, again, call it, just over 18%, nearly 19%. So you're seeing more enterprises coming to Digital Realty and thinking about AI use cases. But I think this is going to be a long-tail demand to evolve.

Operator (participant)

Thank you. And our next question comes from the line of Timothy Horan from Oppenheimer. Your question, please.

Timothy Horan (Managing Director and Senior Analyst)

Thanks, guys. The hyperscale is giving pretty incredible guidance for capex next year, and it looks like the outlook's not going to change much. Are you seeing any? What does that kind of mean for the business model? Are you seeing any bottlenecks that are really going to impede your growth at all or any changes to bottlenecks? And what do you kind of think that means for your pricing power the next few years?

Andy Power (President and CEO)

Thanks, Tim. So maybe I'll call and expand on the hyperscaler demand, and then I'll come back on the bottlenecks. But I mean, what's, call it, happening here is less of the waves of one customer ramping and another customer, call it, on the sidelines, and there's more consistency and diversity of the customers all seeking capacity. And you're seeing that in the commitments to accelerating their buildouts for this infrastructure from their earnings calls, and we're seeing it in terms of their interest growing for our large capacity blocks. But I'll let Colin touch on that, and I can circle back to some of the bottlenecks we're seeing in the business.

Jordan Sadler (SVP of Public and Private Investor Relations)

Yeah. Thanks, Andy. Tim, regarding the interest from our hyperscale partners, you saw a strong contribution in Q4 in terms of performance, our largest booking being nearly 100 MW. And I can tell you, wherever we have large capacity blocks, whether it's Northern Virginia or Paris or Osaka or Tokyo or Atlanta or Charlotte, there's keen interest from our hyperscale partners to deploy in that infrastructure. So really, over 2026 through 2028, we're seeing continued conversations where we have that continuous blocks of capacity for our hyperscale partners. And again, as Andy's talked about multiple times, this is not just AI. This is also zonal cloud deployments that continue to be resilient as it relates to the demand profile that we're seeing.

Andy Power (President and CEO)

Just on the bottlenecks and the cost equations, Tim, there's no question this race for scaling critical digital infrastructure, support cloud computing, support AI comes with a cost. It's a cost of labor. It's a cost of, in our build costs. Listen, we pick our spots where we think we can have the greatest value to our customers, those hyperscalers in particular. That's based on our track record, our supply chain, our runway for growth. That's been able to garner significant interest and attractive rates and ultimately returns.

Operator (participant)

Thank you. And our next question comes from the line of Richard Choe from JPMorgan. Your question, please.

Richard Choe (VP of Equity Research)

Hi. I just wanted to ask about the recurring CapEx and capitalized leasing costs. It kind of had a big move up for this year from $300-ish last year to over $400. What's going on there?

Jordan Sadler (SVP of Public and Private Investor Relations)

Yeah. Thanks, Richard. I think you're referring to, just to be clear, 2025 and then versus 2026 guide. So we came in for 2025. We came in a little bit light in terms of where we were on guidance towards the low end. So despite our typical Q4 pickup and so some of that increase for 2026 is a carryover of some of the projects that didn't complete in 2025. And the rest is basically us looking to continue to build out our space and improve our portfolio for what has been a strong enterprise leasing, as we've talked about as part of the call, in terms of putting up records in our 0-1.

I would say it's all within, I think, around 7% of our revenue, which is, I think, pretty well in line with where the industry is on that metric.

Operator (participant)

Thank you. Our next question comes from the line of Irvin Liu from Evercore ISI. Your question, please.

Irvin Liu (Equity Analyst)

Hi. Thank you for the question, and congrats on the nice set of numbers and your outlook. Just in the context of your greater-than-5 GWs of developable capacity, any sense on the timing of when we should see this capacity become available for lease? If I'm comparing your development lifecycle on page 25 of your supplementals versus a quarter ago, I think the implied availability seems to be kind of consistent on a quarter-over-quarter basis. So should we be expecting a step function increase in sellable inventory as we progress through the year? Thank you.

Andy Power (President and CEO)

Thank you, Irvin, for the kind words. That schedule is consistent like conveyor belt of activity. We are delivering great projects, often ahead of schedule for our customers. I think that's another defining reason our customers are picking us in this environment where it is not easy to bring on infrastructure. At the same time, we are greenlighting suites into now a record $10+ billion of projects underway at attractive double-digit returns. We're activating shells, and we're adding all the way to the left of that schedule with incremental land capacity. We are continuing to, call it, replenish as fast as we deliver, if not faster.

Something in one column can very expeditiously move to the right column, i.e., activating the new shell on land that is pad-ready or going live with suites and shells that either are completed or underway, and obviously, leasing and delivery and so on. I would not interpret anything on that schedule other than we're continuing to accelerate our runway for growth for, yes, both our enterprise customers that are a small amount of those MWs, but certainly our hyperscale customers that are seeing those large capacity blocks in numerous markets around the world as very attractive.

Operator (participant)

Thank you. And our next question comes from the line of Ari Klein from BMO Capital Markets. Your question, please.

Ari Klein (VP of Equity Research)

Thank you. Following up on 0-1, how much of the strength in that business do you think is from share gain versus underlying demand strength? And then curious, if you expanded the lens a little bit to 0-2 or 0-3, does it look any different? Or maybe how are deal sizes evolving, and do you think that increases with enterprise AI adoption or inference? Thanks.

Andy Power (President and CEO)

Thanks, Ari. I'm going to have Colin, call it, unpack that answer for you.

Frank Louthan (Managing Director and Senior Equity Research Analyst)

Thanks, Ari. Appreciate the question. So just quick reminder, record quarter in Q4. That's 3 of the last 5 record quarters in 0-1. Strong contributions on the channel side, which is really driving that business forward. Strong contributions from new logos, which was really a big piece of the pie. So as it relates to your question on the demand cycle as well as taking market share, we are unquestionably taking market share with our focus around execution. We started the year saying this was a big part of our go-to-market, and we were successful in that. Undoubtedly, the ability for us to deliver high contiguous capacity in a mixed-density environment where we're seeing more and more enterprises have larger pieces of their pie and high-density-oriented solutions is absolutely a core part of our value proposition.

They also have commented consistently the ability to support the full spectrum of capabilities. So cabinet, suite, hall, building is significant across a global scale because that's where they have to serve their needs is really effective, supported by a strong interconnection story, which, again, we second-highest quarter on record. So that's coming together, produces results and consistency that, again, we've seen now quarter-over-quarter.

Andy Power (President and CEO)

And then, Ari, your two other pieces of your question. I mean, we're always dissecting the bands here of business. And obviously, the trend has been to larger capacity blocks. You've certainly seen that up in the hyperscale level, but also it's playing out in a smaller level in enterprise, more power density. All these things, I think, are incremental win to our sales to take more market share, which has been playing out for some time over the last several quarters. If you look at just the last 8 quarters at, let's call it, 1 MW to 3 MWs, you probably average up to $10 million a quarter that could fall in that category. But it's ranged. It's been as low as just under $2 million, and it's been as high as, call it, $15 million or $16 million.

So there's always scenarios where an enterprise customer wants north of a MW to land with Digital. And there's definitely been a gradual densification and increasing the size of the deal bands.

Operator (participant)

Thank you. And our next question comes from the line of Frank Louthan from Raymond James. Your question, please.

Frank Louthan (Managing Director and Senior Equity Research Analyst)

Great. Thank you. So if we look out past 2026, there's a fair amount of capacity coming on in the industry in 2027 and 2028. I just wanted to see what your thoughts are on how that might affect your bookings and demand. And then how far out have you secured the labor for your capital growth that you have under contract now? Thanks.

Andy Power (President and CEO)

So Frank, so going in reverse order, anything that we're essentially building, we've, call it, got some type of security around workforce, supply chain, etc. So that is certainly the entirety of that $10+ billion under construction projects, as well as shells that may not be part of that live data hall delivery piece of the equation. And the labor, I will confess, it's getting more challenging by the day. I think we're a great partner to work with, given our consistency. We just didn't show up yesterday to build a data center. We've been doing this for years. We try to bundle our work for our customers. We try to make it consistent so they go from one building on our campus to the next. And so I think that makes us a very attractive partner for the vendor landscape.

When we look at 2027 and 2028, we're not seeing a tremendous amount of competitive unleased capacity. We are seeing that those 2027s are pretty exceptional and sought after for our customers, with multiple customers seeking those capacity blocks. And I think 2028 is going to be at that same level of attractiveness. The thing to remember here, Frank, is we're probably one of the few in the industry, actually, call it, taking a little bit more risk in the development of this and getting pad-ready, long land, greenlighting shells, and even greenlighting suites before we have a customer in hand. Most of all the other private capital folks are waiting for that lease to get signed, right, because that lease secures the financing and the lion's share of the dollars of their project, right?

That has accrued to our benefit because customers have come and said, "I need this desperately. Can you help me?" And we're able to deliver that because we didn't wait for them to say, "Here's the ink on my lease," way, way back in time when you would have had to start it. So I think we're still looking at an outlook here that is attractive demand, rational and rationed supply, and great places where we can help our customers.

Operator (participant)

Thank you. And our next question comes from the line of Nick Del Deo from MoffettNathanson. Your question, please.

Nick Del Deo (Managing Director)

Sure. Hey, thanks for taking my question. There have been a couple of high-profile data center transactions recently at very attractive valuations, to the extent that we can tell based on info that's leaked out. And debt securitizations from private players imply really rich valuations too. Do you think there's a meaningful disconnect between public and private data center valuations? And if you do, are there steps that you can take to narrow or capitalize on any gap, like leaning on your private capital initiatives harder?

Andy Power (President and CEO)

Thanks. If I want to let Greg give his view on that answer, I've got my own view. We'll see if it's the same.

Greg Wright (Chief Investment Officer)

Sure. Thanks for the question, Nick. Look, I think there's a couple of things you have to look at. And one is the mix of the asset base because where this pricing really becomes distorted, it depends on the asset that's being purchased, how much of it is, for example, land versus cash-generating asset. And that obviously is going to skew the multiple. So that's not necessarily a disconnect between public and private market pricing. It can just be the mix of assets, if you will. But we would agree. We think our valuations continue to be strong. But look, I think what's driving that, when you look at the underlying dynamics of the business right now, you're looking at a demand profile that's going to expect it to increase 2.5-3x over the next five years.

You're looking at a supply environment, and this is across the globe, whether it's power, whether it's NIMBYism, whether it's zoning, whatever it may be, it's severely constrained. Those things are going to drive value for existing product in the market. Look, it's hard to say that there's a big disconnect because you haven't had, for example, one stabilized asset versus another stabilized asset. We'd go back and make those adjustments for risk premiums and the like. Look, I think it depends on the mix of the assets. Some obviously are more expensive than others, depending on where it is geographically. Most of the differential and multiple has to do with asset mix.

Andy Power (President and CEO)

And just to add on to that, Nick, what are we doing about it? Well, that goes back to, call it, evolving our financing strategy, our funding strategy, right? So the successfully oversubscribed initial fund on the backs of other private capital partnerships, totaling $15+ billion of data center investments at our ready, in addition to our strong liquidity and balance sheet, essentially lets us to, call it, pull on both private and public capital levers to fund the growth of our customers and our balance sheet for specifically hyperscale. And I think if you look in totality, we now have, call it, record backlog, $1.4 billion of backlog for our customers. We are executing well above expectations in our 0-1. We just had a record year and have the momentum carrying in. And all those things are now flowing to the bottom line.

They flowed to the bottom line throughout quarter by quarter in 2025 and set us up for a strong 2026. We want to keep that acceleration going.

Operator (participant)

Thank you. Our next question comes from the line of Jon Petersen from Jefferies. Your question, please.

Jon Petersen (Managing Director)

Oh, great. Thank you. I was hoping you could talk a little more about the investments in Malaysia, Israel, and Portugal. Those look like smaller, more interconnection-focused facilities. But I know maybe in some of those markets, there's also some larger hyperscaler projects that are going on. So maybe just talk about the decision-making when you enter a new market on going with more interconnection-focused colo versus building larger hyperscale data centers.

Greg Wright (Chief Investment Officer)

Yeah. Thanks, Jon. This is Greg. Look, I think, look, you're highlighting the point that acquisitions remain a key component of our growth strategy across the globe. And two, you've highlighted here, we're continuing to execute on strategic APAC acquisitions, for example, in Malaysia. Well, as you know, we play across the product spectrum. And we've always said getting network-dense, highly connected assets in key markets is a key component of our strategy. So if you take a look at the recent Malaysia transaction, right, that's a key emerging market strategically located in Southeast Asia. Cyberjaya is about 25 kilometers south of Kuala Lumpur. It's a traditional data center hub. And the asset we acquired is the most well-connected asset in the market.

Not only did we buy the initial asset, but we bought expansion land immediately next door that would give us 10x expansion capacity for the existing asset. That's Malaysia, not materially different than what we did in Indonesia. I mean, the team's been busy in APAC here over the last year when we went into Jakarta. Slightly different, but we went in and we partnered with a group that had one of the most highly connected assets in the market with significant expansion potential. When we look at that, as you know, buying those kinds of assets has always been a key component of our strategy. Again, as you go over to EMEA, same thing, right? Portugal, it's a highly connected asset, terminations from subsea cable landing stations and the like with the ability to grow.

Israel, same thing, most highly connected asset in the area of Petah Tikva, which is the most highly connected area of Israel. So again, there's a similar theme there. And that stream plays into how we play across the product spectrum and go for those kinds of assets. Now, finally, the last market, and even the U.S., if you look at it over the last year, right, we've had strategic colo/enterprise acquisitions in Charlotte, in LA, and the like. Now, that's all, obviously, that all touched on colo and network-dense, highly connected assets. That doesn't exclude hyperscale, right? If you look in the U.S. as well, over the last year, we acquired multiple land parcels in the U.S. in tier one markets that's supporting our hyperscale business in the areas as Andy and Colin mentioned earlier, Atlanta, Charlotte, Dallas, Portland, and Chicago.

I would say our strategy is consistent with playing across the globe and across the product spectrum.

Operator (participant)

Thank you. Our next question comes from the line of John Hodulik from UBS. Your question, please.

John Hodulik (Managing Director and Senior Equity Research Analyst)

Yeah, great. Maybe two quick ones. First, a follow-up to those last comments. Just given how strong demand is for AI compute infrastructure, including, as we just heard tonight, $380 billion just between Amazon and Google alone this year, any updated thoughts on potentially building out some large footprint sites in, say, more remote, power-capable markets? That's number one. And then there seemed to be a growing list of efforts to reduce the impact of the data center industry on consumer electric rates by either requiring behind-the-meter solutions or deprioritization. Does this change your guys' view on the reliance on the grid for power in future developments? Thanks.

Andy Power (President and CEO)

Thanks, John. So I think some of the names that Greg just ran out at the end of his, call it, world tour of where we're making strategic acquisitions, both to support our interconnection enterprise customers and our hyperscalers, the theme of, call it, cloud-zonal markets that are numerous cloud customers, numerous sources of demand, is consistent. That's a Charlotte up-and-coming. That's an Atlanta. That's a Dallas, Chicago, Hillsboro, most of which we already had either the leading interconnection or enterprise footprint and supported some form of hyperscale and now growing. They're all getting bigger. So whether it's 200-MW land sites, 400-MW land sites, and they're going to continue to get bigger.

And that's where I think we have a major role to help our customers where it's tougher, where the stakes are raised for what the utilities are requiring, where the size of the dollars are just getting much bigger and beyond what many can fund. That ties into your second comment here. We, as an industry, are facing a tremendous amount of, call it, NIMBYism or pushback on data centers. And I think it's unfair. And I think it's not the right it's not reality when it pertains to Digital Realty in particular. We've been long-term major contributors to the communities that we live, build, and operate in. Our investments in the grid are stabilizing the grid. We often do demand response for those customers in those utilities, which those hot summer days or those cold winter nights benefit also on those same grids.

We've not given up on the grid utility source. We are thinking anything we're thinking about, "behind the meter," is some form of bridging of some form of duration and can be various sizes to help the grid as it brings the reinforcement for transmission, for distribution. I think in times like this, we're doing our best to clear up the misconception, make sure our story is told, our impact, whether it is the jobs that I think it's 6-to-1 jobs come from a data center that benefit the local communities, whether it is a limited use or impact on water. I think Digital Realty's 300+ data centers use less than 18 California golf courses' worth of water. I think there's close to 16,000 golf courses in just the U.S. We need to fix the misconception.

But when it's times like it's hard like this, this is where our customers value what we do, right? Our value add shines. And we're continuing to deliver.

Operator (participant)

Thank you. Our next question comes from the line of Michael Elias from TD Cowen. Your question, please.

Michael Elias (Senior Equity Research Analyst)

Great. Thanks for taking the question. A lot of focus on hyperscale demand. But I'd take it a different way and ask about enterprise. Andy, you were talking about the bands widening in terms of enterprise. One of the themes that came up more recently in industry was enterprise AI demand. More specifically, let's call it the 5-15-MW capacity blocks. Just curious, what are you seeing there? Are you seeing a pickup in that kind of activity? And maybe as part of that, do you think that that is a leading indicator potentially into more inference-specific demand? Thanks.

Andy Power (President and CEO)

Thanks, Michael. Let me touch on it for a second. I want to call him to really dig in on that. I think that and I was just talking to a CTO of a major financial institution a couple of days ago. I think that lends it to our sweet spot here. We are about building an attractive community of interest or ecosystem for 5,000+ customers and rapidly growing. That certainly includes the hyperscalers in 30, 40, 50, 60 locations. But it also includes enterprises of all sizes, shapes, and forms around the globe. Unlike a lot of the private competition that would rather build one data center, lease the whole thing to one customer because the financing's easier, etc., we want to curate our buildings and our campuses with multiple customers that can grow.

We think that's the best way to deliver for all the customers as well as drive long-term value. But I'll turn it to Colin to talk a little bit about some of that enterprise engagement.

Matt Mercier (CFO)

Yeah. Thanks, Michael. Appreciate the question. So just again, highlighting record performance in Q4 and continued strong pipeline. So we have as strong a pipeline in 0-1 as we've seen. And that's made up of larger contiguous blocks, unquestionably. So our enterprise clients are seeing more and more value in contiguous blocks above 500 kW. And there's an emerging conversation, to your point, around that kind of 5-MW block as inference starts to emerge. So we feel like that we're well set up for that, again, coming from our heritage and the ability to support mixed densities across the globe, 300+ data centers. So those conversations are very active.

I would say the ability to deliver that connectivity at scale as well as we've announced our private AI connectivity story, which is really helping the narrative, I think, with our enterprise clients who really value our expertise and how we can deliver that consistently across the globe. I will add, though, just in terms of contributions within 0-1, we saw a really strong continued push under 500 kW in Q4, which, again, speaks to resiliency of ability to scale up and down the platform, whether it's large footprint contiguous or smaller, more network-oriented deployments across our portfolio.

Operator (participant)

Thank you. And our final question for today comes from the line of Michael Funk from Bank of America. Your question, please.

Michael Funk (Senior Equity Research Analyst)

Yeah, Greg. I just have one question, Andy. So based on the strong releasing spreads that you've reported and that you're forecasting for 2026, what is your capacity and interest to go shorter duration on contract and/or maybe shift to higher rates each year for the escalators? Love to hear your thoughts on that.

Andy Power (President and CEO)

Thanks, Michael. Maybe I'll let Matt pick that up here. Just at a high level, I can tell you we've been pushing on the escalators. We're living in an inflationary environment. We're working through that, right? I'm not talking on a national stage. I'm talking about data centers are racing to deliver infrastructure. That is inflationary to our cost base and our operating model. This is critical what we're doing. We've essentially—I don't know if we have that stat off the top of our heads, but pushing to escalators of, call it, minimum 3%, as high as 4% or just above that, CPI-linked. So that's certainly something that we've been trying to push through our base upon renewals, on new deals, given the broader environment. Matt, anything else you want to add there?

Matt Mercier (CFO)

I mean, I think Andy covered. But I mean, just to maybe round out and I know your commentary is, I think, more directed towards our greater-than-a-MW. But our 0-1 MW, typically, we're closer to market. Those are shorter-term contracts, typically rolling up at inflation or CPI. So we generally have an opportunity to do that on a more recurring basis. And then for our larger contracts, those don't come up that frequently in terms of the amount of volume that churn just given that they're already long-term leases. Some of those also have embedded renewal options. But I think we're looking at ways to continue to make sure that we're getting the right price for the value that we're delivering to our customers each and every year. As we look at not only new deals but our renewals.

Operator (participant)

Thank you. And our next question comes from the line of Vikram Malhotra from Mizuho. Your question, please.

Vikram Malhotra (Managing Director)

Thanks for squeezing me in. I just wanted to clarify two things. I guess you've mentioned record pipelines in the 0-1 MW. Maybe you can just expand upon that for the larger segment. And if you can just marry that with what's available capacity that you have to lease and bringing on over the next two years in some of your major markets by MW, that would be helpful. Thanks.

Andy Power (President and CEO)

Thanks, Vikram. I mean, I think the commentary is, call it, record pipeline across both segments and obviously then into totality here. This is coming off the back of a really strong year when it comes to 0-1, up 35%. I think we lost there for a second. Up 35% on a year-over-year basis and back-to-back billion-plus years of new signings. I think the major markets I ran through, hundreds of MWs in Northern Virginia that are prized possessions for our customers, Charlotte, Atlanta. Let's not forget, again, this demand is globalizing with the hyperscalers. I think you're going to see a continuation of demand growing into Europe, South America. Asia has been a great contributor as well. So we're really delighted to be able to help these customers support their long-term growth here.

Operator (participant)

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to President and CEO Andy Power for any further remarks.

Andy Power (President and CEO)

Thank you, Jonathan. The fourth quarter capped a very strong year for Digital Realty. We delivered record financial performance for our investors while executing with the reliability that our customers expect. We posted another year with over $1 billion of total leasing, including record performance in our 0-1 MW-plus interconnection business and an $800+ million backlog that provides tremendous visibility through this year and into next. We continue to expand our footprint and evolved our funding strategy with the successful raise of our inaugural hyperscale data center fund. Operationally, we remain in a very strong position to serve our growing roster of nearly 6,000 customers with our 3 GWs of in-place data center capacity and another 5 GWs of development capacity in our core markets around the world. Digital Realty has never been better positioned.

I owe that to my fellow Digital Realty teammates who have worked hard to deliver these results and have already started 2026 off on the right foot. Thank you all. Thanks to all of you who have joined us today for the call.

Operator (participant)

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.