DLR - NYSE

Good afternoon, and welcome to the Digital Realty Third Quarter 2025 Earnings Call. Please note, this event is being recorded. [Operator Instructions] 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.

Thank you, operator, and welcome, everyone, to Digital Realty's Third 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 third quarter results. First, we posted $1.89 in core FFO per share, a quarterly record and 13% higher than the third quarter of last year. Constant currency core FFO per share was $1.85, 11% higher than last year. Other profitability metrics surged as well with AFFO per share and adjusted EBITDA up 16% and 14% year-over-year, respectively. These strong earnings results were comfortably ahead of expectations, resulting in our third quarterly guidance increased so far this year. Second, we have strong visibility to continued growth given our near-record backlog and crisp execution. Our backlog grew to $852 million, with the lion's share slated to commence through the end of next year, while organic growth continues to accelerate as demonstrated by 8% same capital cash NOI growth year-over-year. Third, we continue to execute across the full product spectrum and our footprint, with over $200 million of bookings at 100% share, near record 0-1 megawatt plus interconnection bookings in the quarter with a leading power bank of 5 gigawatts of IT load to support our customers and Digital Realty's future growth. With that, I'd like to turn the call over to our President and CEO, Andy Power.

Thanks, Jordan, and thanks to everyone for joining our call. As digital transformation, cloud and AI continue to grow, our ability to deliver scalable connected infrastructure across key metros worldwide is more critical than ever. PlatformDIGITAL's global reach and full spectrum product offering are key differentiators, enabling us to support the evolving needs of cloud providers, enterprises and service partners around the world. Over the past 2 years, the data center industry has experienced unprecedented demand fueled by the digitization of enterprise business processes, the expansion of cloud and the ongoing proliferation of AI, resulting in complex hybrid IT architectures. Demand for scalable connected infrastructure remains robust across a wide range of customer segments from global cloud platforms to regional service providers and multinational enterprises. Meeting this demand within our markets, however, is becoming increasingly challenging. Power availability, permitting challenges and infrastructure constraints are making it harder to bring new supply online at the pace our customers require. Digital Realty's established presence in the world's leading metros, deep relationships with utilities and local governments and proven development track record give us a distinct advantage in navigating these challenges and delivering capacity efficiently and reliably where and when our customers need it. In an attempt to help frame how we see the abundance of data center infrastructure announcements we are all seeing in the market, I want to make a few comments. It is clear that the world is engaged in a full-scale technology race with a handful of key players aiming to build the most advanced AI models or perhaps even AGI. Three years post launch, ChatGPT holds the title of the fastest-growing app and is already among the most highly used applications in the world with more than 800 million weekly users. Several others, including Meta, Google, Baidu and xAI have also developed AI with meaningful scale. With each passing week, we continue to see massive investment announcements and partnerships aimed at scaling the infrastructure necessary to support the world's most powerful AI training models. Given the scale of these announcements, the ongoing development and proliferation of AI offerings, the opportunity still appears to be in the very early innings. The preponderance of gigawatt campus announcements to date have generally fallen outside of the major metro markets in Digital Realty's strategic footprint as model builders and their providers have urgently sought locations that offer readily available and abundant power, as power is the limiting factor for scaling AI. The anticipated pace and scale of these developments are largely unprecedented. Given our experience and track record in the space, we are intrigued as several new market entrants have launched the development of massive and complex remote campuses, often to support a single use case, workload or customer. These facilities hold the promise of developing life-changing technologies, and we are optimistic about their prospects. Training workloads geared toward developing the AI models can be described as latency tolerant as the development of the AI takes precedent over the utilization of the technology, at least for now. Based on conversations that we are having with our customers and industry participants, Al as well as what we are seeing in our broad portfolio, we are increasingly confident that connectivity will become increasingly important over time as model success drives implementation and usage requiring lower latency, inference-oriented deployments. Digital Realty has landed a meaningful share of AI-oriented deployments over the last 2 years. Since mid-2023, AI has averaged more than 50% of our quarterly bookings, and we continue to expect that the 5 gigawatts of IT load that we have in our power bank will be significantly weighted toward AI workloads over the next several years. Critically, our data center capacity is situated in and around the world's most highly connected cloud zonal markets with the highest concentration of population and GDP, and we currently maintain 5 gigawatts of large contiguous capacity blocks situated across 40 of our strategic metros across the globe. It is harder to build in these locations for a growing list of reasons, and we expect this capacity will continue to be highly sought after as new applications and use cases continue to evolve. Our conviction in our portfolio and in our markets continue to be evidenced through our daily engagement with our 5,000-plus customers. Digital Realty continues to see a robust pipeline of demand from AI-oriented use cases. And even without a record hyperscale lease like the one we signed in March of 2025, 50% of our bookings were related to AI use cases in the third quarter. In Q3, we again delivered strong operational and financial performance, underscored by record interconnection bookings, near-record new logos and the second highest level of bookings ever in our 0-1 megawatt plus interconnection product set. Core FFO per share set a record $1.89, a robust 13% above last year's third quarter. These strong earnings were driven by 10% operating revenue growth and continued expansion of our high-margin fee income, together with disciplined expense management, resulting in the third consecutive guidance increase this year. Bookings in the third quarter were $201 million at 100% share or $162 million at Digital Realty share. Like last quarter, our 0-1 megawatt plus interconnection category was a strong contributor to our leasing strength with $85 million in new leases, along with a healthy $76 million of greater than a megawatt leasing. Leasing was globally diversified, broadly consistent with our existing rent roll with notable activity in Americas, in EMEA and in APAC. We also added a near-record 156 new logos. Interconnection leasing of $20 million marked a second consecutive record quarter, which was 13% higher than the last quarter's record, underscoring the growing recognition of our connectivity-driven value proposition. Interconnection leasing was buoyed by strength in our AI-oriented fiber offering, reflecting the increased demand for high-volume movement of data amongst customers as well as momentum in our ServiceFabric product. Matt will provide more details on our results in a few moments. While there's been significant market focus on large-scale AI deployments, Digital Realty's pool of highly sought-after larger contiguous capacity blocks are slated to come online in late 2026, 2027 and beyond. We remain actively engaged with hyperscale customers on our largest future leasing opportunities, and we continue to see strong momentum in our colocation and connectivity product offering. Enterprise demand for data center infrastructure continues to grow as organizations transition away from traditional on-prem IT environments toward more flexible cloud-connected architectures available within Digital Realty data centers. This shift is driven by the need to improve scalability, reduce costs and enable faster innovation. Enterprises are increasingly deploying workloads in colocation and hybrid environments to gain proximity to cloud platforms, partners and end users, while maintaining control over mission-critical applications and data. Digital Realty's full spectrum product offering, combined with our global footprint, allows us to support this transition, providing the infrastructure and connectivity enterprises need to modernize their IT strategies, accelerate digital transformation and AI implementation. We're seeing these trends play out across our customer base as enterprises increasingly turn to Digital Realty to support their evolving infrastructure needs. Whether it's enabling real-time data exchange across global operations, integrating with multiple cloud platforms or deploying AI workloads at the edge, our customers are leveraging PlatformDIGITAL to solve complex challenges and accelerate their digital transformation. Let me share a few examples that illustrate how our platform is helping enterprises unlock new capabilities and drive meaningful business outcomes. In September, I was honored to join the CEO and CTO of Oxford Quantum Circuits for an important milestone during their recent deployment of New York's first Quantum AI computer in our JFK10 data center. Oxford Quantum Circuits is taking advantage of PlatformDIGITAL's colocation and connectivity capabilities to expand their AI capabilities at scale, solving for efficiency and resource constraints. A leading global technology company chose PlatformDIGITAL to deploy their global presence, taking advantage of liquid cooling capabilities required for their HPC/AI environments. A leading health care analytics and technology solutions company is expanding its geographic presence on PlatformDIGITAL to solve data localization and sovereignty challenges. A leading higher education research institute is taking advantage of PlatformDIGITAL's liquid cooling capabilities required for their HPC and AI deployment. A leading European technology and network provider is expanding on PlatformDIGITAL, deploying a sovereign cloud solution in the U.S. to support their customers' compliance needs. A global payments provider and new logo for Digital Realty chose PlatformDIGITAL to deploy infrastructure in multiple markets to utilize network and cloud ecosystems while solving for scalability and compliance requirements. And a multinational financial services company is expanding on PlatformDIGITAL, taking advantage of Digital Realty's leading financial and network ecosystems. Before I turn it over to Matt, I'd like to briefly highlight our progress on global sustainability. In the third quarter, we received the EcoVadis Gold rating, a prestigious international recognition for business sustainability. This recognition places us in the 97th percentile of all companies assessed, highlighting our position among the top sustainability performers worldwide. We expanded our renewable energy commitment in Illinois by signing additional contracts that support high-impact, local community solar projects being developed by Soltage. These locally sourced solar energy projects will help support local power grids and benefit residents in the communities in and around our data centers. Additionally, in the third quarter, we announced long-term renewable energy agreements with Current Hydro to procure 500 gigawatt hours of clean baseload hydro power from 3 projects along the Ohio River. These agreements highlight our commitment to sourcing new firm 24/7 carbon-free energy in the regions where we operate, enabling us to support our customers' needs. And with that, I'll now turn the call over to our CFO, Matt Mercier.

Thank you, Andy. For the second consecutive quarter, Digital Realty posted double-digit growth in revenue, adjusted EBITDA and core FFO per share, reflecting the momentum in our business, driven by commencements from our substantial backlog, strong releasing spreads, modest churn and growing fee income. We achieved these record results while reducing our leverage and maintaining significant liquidity to invest in data center projects across our 5 gigawatt runway of buildable IT capacity. In the third quarter, core FFO per share grew by an attractive 13% year-over-year to a new quarterly record, while leasing results were highlighted by their geographic and product breadth as well as continued strength in the 0-1 megawatt plus interconnection category. Looking ahead to the fourth quarter, we increased guidance for the full year once again and expect to begin 2026 with significant momentum in the sizable backlog which extends our runway for long-term growth. As Andy touched on, we signed leases representing $201 million of annualized rent in the third quarter, bringing year-to-date leasing to $776 million at 100% share. At Digital Realty share, we signed $162 million of new leases in the third quarter, which is well distributed across our 3 reasons. Our 0-1 megawatt plus interconnection product set continued to demonstrate the strong momentum we have been highlighting, posting $85 million of new bookings in the quarter, led by record bookings in the Americas and strength in EMEA. We also posted record AI bookings in this segment this past quarter, demonstrating the continued emergence of AI-oriented demand among our enterprise customers. Interconnection bookings also marked a new record, besting last quarter's record by 13%. Pricing in the 0-1 megawatt plus interconnection category was strong, led by leasing in one of our most highly connected facilities in the U.S. Over the past 4 quarters, we've leased a robust $319 million in this product set. We signed $76 million within the greater than a megawatt category at our share, while leasing spread across our regions but notable strength in EMEA. Pricing in the greater than a megawatt product was strong, averaging over $200 per kilowatt in the quarter and reflected activity in our top 3 performing markets: Silicon Valley, Amsterdam and Singapore. Building on our leasing momentum, our backlog at Digital Realty share increased to $852 million at quarter end, with $137 million of commencements more than offset by our new bookings. Looking ahead to the fourth quarter, we expect another $165 million of leases to commence with another $555 million scheduled to commence throughout 2026. Our large backlog provides us with strong visibility and predictability for the next several quarters. During the third quarter, we signed $192 million of renewal leases at a blended 8% increase on a cash basis. Renewals in the third quarter were again heavily weighted toward our 0-1 megawatt category with $138 million of renewals at a 4.2% uplift. Greater than a megawatt renewals of $49 million saw an exceptional 20% cash re-leasing spread, driven by deals in Singapore, Chicago, Northern Virginia and New Jersey. Year-to-date, cash renewals averaged 7%. For the quarter, total churn remained low at 1.6%. As for earnings, we reported record core FFO of $1.89 per share, up 13% year-over-year, reflecting strong upside from commencements and positive re-leasing spreads, continued growth in fee income and an FX benefit versus last year. On a constant currency basis, we reported core FFO per share of $1.85 in the third quarter or 11% growth year-over-year. Data center revenue was up 9% year-over-year, but adjusted EBITDA was even greater at 14% year-over-year, driven by the growth in data center revenue and higher fee income. During the quarter, operating expenses continued to increase, reflecting both the growing scale of our business, rising employment costs and seasonal effects. As we head toward the end of the year, we expect to see the typical seasonal increase in repairs and maintenance expenses along with the seasonal decline in utility expenses and related reimbursements. Same-capital cash NOI growth was strong in the third quarter, increasing by 8% year-over-year, driven by 7.8% growth in data center revenue. On a constant currency basis, same-capital cash NOI rose 5.2% in the quarter. For the 9 months, same-capital cash NOI grew by 4.5% on a constant-currency basis, which prompted us to notch our full year guidance range up to 4.25% to 4.75%. Moving on to our investment activity. During the third quarter, we spent over $900 million on development CapEx when including our partner share and approximately $700 million on a net basis to Digital Realty. During the quarter, we delivered about 50 megawatts of new capacity, 85% of which was pre-leased. While we started about 50 megawatts of net new data center projects leaving 730 megawatts under construction. At quarter end, our gross data center development pipeline stood at $9.7 billion at an 11.6% expected stabilized yield. Our runway for future growth including land, shell and ongoing development stands at roughly 5 gigawatts of sellable IT load. For clarification, IT load difference from the gross utility feed figures being touted by newer entrants to the data center development world as utility feed must also be used to cool a data center and to provide redundancy. During the third quarter, we pruned a few small non-core facilities in Atlanta, Boston and Miami for a total of $90 million. And earlier in October, sold a non-core facility in Dallas for $33 million. We redeployed $67 million of that capital into land in Chicago and Los Angeles to bolster our development capacity. Turning to the balance sheet, leverage fell to 4.9x, well below our long-term target of 5.5x, while balance sheet liquidity remained robust at nearly $7 billion, which excludes the $15 billion of private capital we have arranged to support hyperscale development and investment through our joint ventures and new U.S. hyperscale data center fund. Our next debt maturity is EUR 1.1 billion notes at 2.5% in January 2026. Beyond that, we have a smaller CHF 275 million note at 0.2% that matures in the second half of next year. Looking further out, our maturities remain well laddered through 2035. Let me conclude with our guidance. We are increasing our core FFO guidance range for the full year 2025 by roughly 2% at the midpoint to a new range of $7.32 to $7.38 per share to reflect better-than-expected operating performance and updated FX assumptions for the full year. We are also increasing the midpoint of our constant currency core FFO guidance range by 2% to $7.25 to $7.30 per share. Despite our enthusiasm and outperformance in the quarter, we expect fourth quarter core FFO per share to be tempered by seasonally higher repairs and maintenance expenses, headwinds from a non-core asset sale and lower interest income associated with lower rates and cash balances. The midpoint of our increased core FFO per share guidance represents approximately 10% year-over-year growth, reflecting the momentum in our underlying business and the benefit of the weaker U.S. dollar year-to-date. On a constant currency basis, core FFO per share growth is expected to be over 8% at the midpoint, reflecting a 200-plus basis point improvement from the growth that we forecasted at the beginning of this year. Supporting the bottom line improvements in guidance, we are increasing the midpoint of our revenue and adjusted EBITDA guidance ranges for 2025 by $75 million a piece. We are raising the midpoint of our cash and GAAP re-leasing spread guidance ranges to 6% and 8%, respectively, to reflect the continued strength in market fundamentals. We are also increasing our constant currency same-capital cash NOI growth assumption by 50 basis points at the midpoint to 4.5%. Lastly, we are increasing the midpoint of our G&A assumption by $7.5 million for full year 2025. In summary, we are very proud of our third quarter performance and the continued momentum across our platform. The strength of our 0-1 megawatt plus interconnection product set, combined with disciplined execution across our 5 gigawatt power bank and a growing backlog positions us well to deliver durable growth through the rest of 2025 and 2026. We remain focused on executing our strategy to deliver the capacity that our customers require and to maintain the financial discipline to drive long-term value for our stakeholders. This concludes our prepared remarks. And now we would be pleased to take your questions. Operator, would you please begin the Q&A session?

[Operator Instructions] And your first question today will come from Aryeh Klein with BMO Capital Markets.

I guess maybe just with the guidance increase on the core FFO growth of 9.5% this year, I realize you're not providing 2026 guidance and there is some FX benefit. But can you just talk to the puts and takes for next year and the ability to stay or even accelerate from current growth levels while balancing development investment requirements?

Thanks, Aryeh. I'll have Matt hit on that.

Yes, Aryeh. So look, I think I'd start off with -- obviously, we're proud of the results this year and the beat and raise that we put them now for a few quarters, which is resulting in where we are today on a constant currency basis, which is around 8.5% for the year. And look, looking ahead into 2026, we're on the path to start on a strong footing, looking at continuing to target 10% top line growth. That's supported by our healthy backlog that we've got of over $550 million and the robust fundamentals that continue to support our business. I'd say some of the things to note that are -- you could say are some of the headwinds that we'll see in the first -- very early in 2026, we do have about $1.3 billion of debt maturing in January. That's at roughly 2.5%. We're also planning to contribute the remaining 40% of the $1.5 billion of stabilized assets to our relatively new North America hyperscale fund. And given the expectation for rate cuts into 2026, which you would usually say is going to be a benefit. But for us, we have relatively considerable cash holdings, that's going to result in likely some lower interest income. All that said, we feel like we have been on a great path here in derisking our 2026 plan and feel good about continuing our growth going forward.

And your next question today will come from Jon Petersen with Jefferies.

I was hoping you could talk a little bit more about what you're seeing from hyperscalers in terms of demand in the major metro markets. I think in your prepared remarks, Andy, you mentioned their focus on gigawatt campuses. But are you starting to see examples of any latency-sensitive hyperscaler AI applications coming to DLR markets that you can speak of?

Thanks, Jon. I'll kick this off and then ask Colin to speak to what we're seeing on the customer dialogue with the hyperscalers. So obviously, we're off to a strong start to the year or 3 or 4 quarters. This quarter, on a total share, we're at the fourth largest quarter, north of $200 million of signings. I think what's been unique or great about it is in the major markets where we're supporting their growth, be it cloud computing and AI, we've seen tremendous diversity of demand. So I think the last 7 quarters, our top signing -- single signing was with a different customer. So tremendous diversity of demand. In fact, our 2 largest signings this quarter were 2 customers that hadn't signed big deals with us in a while. We're continuing to ready significant capacity blocks that are coming in the most prized locations and more strategic to our customers' locations. And I'll let Colin speak to some of the dialogue he's having on those capacity blocks.

Thanks, Andy. Yes, Jon, I appreciate the question. Q3 bookings, obviously, diverse in nature across our 3 regions. And in terms of conversations with our hyperscalers, I'd say it's robust dialogue that's leading to the largest pipeline on record for us. So our large contiguous footprint continues to have real value. So they're seeing interest and dialogue for us across our 5 gigawatts that we have across our markets that we identified previously. So our customers are now starting to look really hard into our '26 and '27 deliveries, which are coming online in the near term. And so that's really producing, I think, some real interest to continue discussions really across AI, but also cloud continues to be a consistent dialogue that we're having with our clients.

And your next question today will come from Mike Funk with Bank of America.

Yes. So Andy, can you address the 2026 expirations and how you're thinking about the capacity to increase the re-leasing spreads on those?

Sure. Thanks, Mike. So I think we're continuing to see more of the same what we've seen for now several consecutive quarters. If you kind of cut it into the 2 main categories we, call, discussed the business in, we're continuing to see strong pricing power in the less than a megawatt category. I think our cash mark-to-markets were 4.2% or 4.3% in the quarter or LTM. We think that pricing is going to hold and stay in that territory. And then the bigger stuff, you can see we start to see continued step down, not just 2026, but for a few years, a step down, I think, until about 2029 in our expiring rates. I think they get as low as like 124-ish. And you can see from our new signings in the bigger deal category, we're obviously signing at healthier market rates than that. And listen, I think we're working the way through that and moving customers to market and the value of the capacity blocks we're offering. And that's a product of our portfolio, our value add, but some of that's just a product of the supply-demand dynamics in these markets that are extremely tight. And the backdrop around it is the tightness of these markets feels like it's going to be continuing for some time.

And your next question today will come from Eric Luebchow with Wells Fargo.

Andy, just curious on the kind of the large capacity blocks, if you could talk about kind of the diversity of hyperscalers you're talking to. There's a lot of kind of newer entrants, whether it's neo clouds, the model developers, the chip companies or are you kind of focusing on the big 4 or 5 that you have historically? And then maybe if you could also just touch on CapEx. I mean, to the extent you start to win some of these larger requirements, how should we think about funding it between the managed funds between cash on the balance sheet? Could that kind of raise the CapEx expectations above the $3 billion to $3.5 billion level?

Thanks, Eric. So I'll hand the funding piece to Matt, and he can talk to the numerous levers we've now assembled here through our successful hyperscale fund, our joint venture partnerships, the balance sheet liquidity that if you add it all up, it seems to a significant amount of liquidity and dry powder to fund the growth of our platform. But on the customer front, by and large, the bigger the capacity block, the higher the credit quality, the larger the size of the counterparty and the more established the business. We are certainly supporting some of the neo clouds, but I would say our work with them, and it's been not in the big, big deal arena. We support them in, call it, megawatt, 2 megawatt type edge type locations and smaller capacity blocks. So when you think about those, call it, the big and nearest term, the 25s, the 50s, the 100s or even larger, I think the dialogue we're having is with a diverse array of, call it, more traditional hyperscale customers that are called the household names in our top customer roster.

Yes. And Eric, on the funding, so as you noted, we're -- we guided this year $3 billion to $3.5 billion. We're trending on target with that. And while we haven't given specific guidance for next year, what I can tell you is that I expect our -- in particular, at our growth level, we're going to be spending more in 2026. Now I'd say a broader portion of that is going to be within our private capital groups. But I still expect that when you come down to even our share level that you'll see a slight increase or an increase to what we're spending this year as we start to really hit kind of a sweet spot in terms of projects that we have underway to be able to deliver incremental capacity, especially in the back half of '26 into '27.

And your next question today will come from Michael Rollins with Citi.

Just off the topic of how much you're putting into the JVs and off-balance sheet partnerships relative to what you're doing on your own, how are you thinking about the mix going forward? And are there opportunities to revisit what the right target leverage should be for digital to take more projects on balance sheet and create that -- more of that accretion for shareholders?

Thanks, Michael. So Matt will speak to target leverage, but I don't think we've changed our stripes on that. And one great thing about, call it, tapping in these sources of private capital, including our oversubscribed $3-plus billion hyperscale fund in the U.S. is we can deploy different leverage quantities at different project levels alongside that private capital to generate the returns suitable for the project. This is -- a reminder, this is, call it, an evolution of our funding model here, right? And we started down the road of joint ventures, one-off stabilized assets and then moved on to development. And then our first inaugural fund is a combination of both. And it's really the beginning of the scaling of our strategic private capital initiatives. And that's in the backdrop of we see a demand landscape that is just quite tremendous, right? You look at the numbers of the gigawatts that are stated to be needed to, call it, continue the growth of digital transformation to continue the rollout of cloud computing and to really even get the off-the-ground AI and built and commercialized. And yet we being an $80-plus billion company, still believe that having that, call it, private capital business, especially dedicated around hyperscaler allows us to fuel our growth for our customers and balance that in terms of generating an accelerating bottom line per share growth for our shareholders at Digital. So I think it's kind of a best of both worlds, allowing us to do more with our platform and fund effectively.

Yes. Maybe, Michael, I'll just add briefly. Look, I think our target leverage 5.5 is a good place to be in terms of balancing our overall cost of capital and where we are today and where we seek to fund in the future. Maybe I'd also add, look, we're at 4.9 today, and so that gives us some ability to go up and potentially go down when necessary based on the capital market environment so that we can continue to fund what is larger builds going forward and a pretty good demand profile that we have.

And your next question today will come from David Guarino with Green Street.

Andy, I just wanted to clarify on the comments you made given these multi-hundred megawatt deals in tertiary markets. Is that something where you'd reconsider chasing that sort of demand, whether it's on balance sheet or through the funds? Or is the playbook to continue sticking the primary markets for Digital Realty?

Thanks, David. So I think the comment was trying to get a few themes that are hopefully apparent, but I want to provide our thoughts on. One, it's certainly showing an incredible conviction for the infrastructure needed to launch this technology. And as you go through these list of announcements, we're still seeing numerous mega announcements that are just talking about training, right, not even really evolving to inference or certainly commercialization and the use of AI use cases. You're also seeing a diversity of players in that arena, which I think is healthy. It's not necessarily single threaded to just only one major player building that infrastructure. When it comes to digital, I think we've had a great success being across the full product spectrum, call it, from supporting our growing enterprise business all the way to our hyperscale customers. We focus on markets where we see not just diversity and robustness of demand, but locational and latency sensitivity to the workload. So the answer to your question is we're certainly keeping our eyes on. I can tell you our team is across a tremendous amount of these opportunities. I think our intersection of that would be much more akin to our strategy. Like I said earlier, these cloud availability zone markets, the Northern Virginias, the Santa Claras, the Frankfurts and around the world, they are tight markets, and they may be tight for a long time. And I think the adjacencies to those markets make the most sense because we want to be investing in infrastructure that we believe in for the really, really long term. And so that's how we're thinking about it today.

And your next question today will come from John Hodulik with UBS.

Andy, a quick question on the power side. Given the constraints you're seeing in terms of accessing the grid, any thought to moving to behind-the-meter power solutions in some of your new projects?

Thanks, John. So it was not that long ago, we made a bigger announcement in -- actually in South Africa, where we're building solar in a market, which is akin to that same concept. And that's obviously a market that is an incredibly fragile grid. So we're able to really extend our moat in that market with our platform in a supplemental power that is essentially behind the meter. I can tell you, we're looking at this in numerous markets and the context is much more in a bridge fashion. We don't -- we're uncertain how long that bridge may be, but we hear from our customers the preference in the long run for utility given the diversity of the power sources, the redundancy of that, but we're happy to help our utility partners with bridge solutions. And you can think about that in some markets that have been challenged with shortages, delays in power sources.

And your next question today will come from Michael Elias with TD Securities.

Just building on that point, I'm curious, when I think of your portfolio, you obviously have very valuable capacity in Northern Virginia at Dulles. Is it feasible for you to bring gas to that site to expedite the delivery of additional buildings? And then maybe as part of that, just on the M&A side, there are a lot of companies out there that may have some facilities leased, but they have some land banks. How are you thinking about the M&A opportunity in this landscape?

So thanks, Michael. So just touching brief, I mean we're thinking about all the markets where there's shortages or delays or frustration around the power infrastructure. So it's not just one site, not just one submarket or market, we're thinking about that trying to make the solution work. And we're trying to do it in a thoughtful manner, right? We want to -- we are long-term committed, have been in these markets for many years. We'll continue to be in these markets. We want to be good stewards to the community, to our customers. But it's not just one in any given market. It's numerous markets where this could be a tool in our toolkit to accelerate infrastructure deployments. I'll turn it over to Greg to kind of give his thoughts on the M&A market.

Yes. Thanks, Andy. Thanks, Michael. Michael, I'd say our strategy today is consistent with what it has been. And we continue to see what opportunities in the market that's going to provide us with the best risk-adjusted returns. So today, we're looking at buying land and developing. We're looking at buying buildings if strategically significant. And we look at buying companies if they're strategically significant or there's industrial logic to it. So I would say we haven't changed anything in terms of our strategy. And I would say in today's market, we have opportunities across all 3 of those growth prongs, if you will, and we continue to assess them.

And your next question today will come from Irvin Liu with Evercore ISI.

Andy, I wanted to ask about the 5 gigawatts of future developable capacity. Can you help us understand the timetable or the time line needed for this developable capacity to become available for lease? How much of this is available for lease, if any? And any sort of customer conversations you had related to this capacity?

Sure. Thanks, Irvin. So I'll touch on the most, call it, front of the queue capacity box and then I'll let Colin touch on the customer dialogue. But they do go a little bit kind of together. What we've seen is there is a continuous focus on the here and now. And we saw this as we've navigated our way through 2024 and put up $1 billion plus of new signings, includes some large capacity blocks. And as we got closer and closer to deliveries of power and obviously, our infrastructure and data centers, the interest continued to ratchet up. And we were able to intersect that with a great diversity of customers at attractive rates and ultimately, returns. Given how valuable these locations are, these are strategically important to our customers. These are often the locations where our customers are landing major customers inside of their facilities, be it cloud or other services that are highly profitable to them, and they're unique in that nature. And just like what transpired a year ago, I think the seasonal nature of this as we approach the "late '26 vintage" or the 2027 vintage or 2028 shortly thereafter, the attractiveness becomes more and more attractive to those customers and that ensues in the dialogue Colin will touch on. That is playing out, in Northern Virginia, be it Manassas, Digital Dulles or call it, adjacent to our existing Loudoun campus. That's playing out in Charlotte, in Atlanta, in Dallas and Santa Clara. That's playing out outside the U.S. in the major, call it, flat markets in Europe or in the major Tokyo soccer markets in Asia, and I'm just rattling off a few. So there's numerous markets that have those, call it, the near-term larger contiguous capacity and vintage that the customers are seeking. But go ahead, Colin.

Yes. Thanks, Andy. I think we're very much in that window of prioritization that Andy talked about. This leasing activity for 2026, 2027, 2028 is very much the here and now. I highlighted before the largest pipeline that we've had on record. By the way, that also suggests a lot of momentum on the 0-1 as well, which we saw in our bookings number. But the conversations across this large capacity blocks that Greg secured for us across North American into the flat markets is really becoming a consistent conversation in the core markets, which as Andy talked about, these cloud zonal areas are resilient to having consistent demand pop up. So we're pleased with the conversations and the pipeline that we've generated.

And your next question today will come from David Choe with JPMorgan.

It's Richard. Just wanted to follow up on that. Given that the long lead times in the industry for capacity, both building and demand for it, as we look since most of your 2026 capacity is sold out, as you kind of look for the development deal in 2027, how big can that be relative to '26, given that you've been kind of planning this for a while and seeing the demand pipeline?

These are big capacity blocks. And the concept is the customers really just almost want to get going with the build, right? They don't need to be powered on with the entire 100 megawatts or 200 megawatts and a date certain in 2026 or date 2027. It's just they want the ramping to start commencing, which is a product of power delivery at the site and obviously, our delivery alongside it, which we're trying to time out. So I don't -- this is a sizable amount of that 5 gigawatts when you add it all up. I mean just those markets, I just rattled off across North America and a handful outside the U.S. are call it hundreds and hundreds of megawatts by themselves. And I didn't even really touch on our capabilities in, call it, the Latin America or in South Africa when you add to those numbers.

And your next question today will come from Jim Schneider with Goldman Sachs.

Relative to some of the larger capacity hyperscale AI deployments you talked about as prospects for commencements in '26 and '27. Can you maybe talk about some of the technical requirements underpinning those? I think we know that Rubin and generations beyond from NVIDIA are going to require 800-volt architectures plus liquid cooling, and that's I'm assuming is something that's not present in most of your existing capacity today. So how are you thinking about planning both these new facilities for that? And are you thinking about potential for retrofitting any of your prior -- your existing facilities to accommodate those new requirements?

Thanks, Jim. So Chris and I'll tag team that. But Chris, why don't you start off in terms of what we've done so far being, call it, AI ready, liquid cooling ready. And then I mean, if you don't touch I can about just recent anecdotes of we've had churn and customers, we're doing air cooled, [ switch to liquid ] with the next generation just to answer Jim's question.

Yes. No, I appreciate the question. And I love the way you're thinking about it with like new and old because that's exactly the way that we have different tool sets and different capabilities that we're looking to deploy. But we've been a partner of NVIDIA's for many, many years with their DGX precertified program. We're one of the leading partners there. We continue to work with them on even -- you said it, right, like not the chipset today, but what's going to be out there 2 and 3 years out. And so we're always looking at that. And the power distribution piece for the rest of the people on the call on 800-volt, we've been across that for some time now on different types of electrical distribution capabilities that are going to be required, and that's a lot for the new build. And we're always looking at evolving our modular designs, right? And that modular design is not only in our new footprint, but it's been deployed for many, many years in our existing footprint. So we're always looking at how we bring liquid. And quite frankly, our architecture for these new builds allows us to align to the densification of that chipset in a very granular fashion. And so for a part of the retrofit, we've been talking about for a while called HD colo. And so that HD colo capability is something that we've really been working on, and it's available across 30 metros, 170 facilities, and you can deploy it in roughly 14 weeks. What that allows us to do with our customers is to densify up to 150 kilowatts, and that will support the Rubin. It will support a lot of the Grace Blackwell. So we have a lot of runway in our existing facilities to align when our customers need us to. And so we're always watching exactly how that's going to be coming to market. I think you might have seen some of the press releases and some of the customer announcements around our Digital Realty Innovation lab. Why that was built is to allow us to bring all of our partners together inside of an environment where the data center, unfortunately, today is the point of integration. And so we're trying to pre-engineer and set a bunch of standards so that our customers are able to get outcomes out of this infrastructure as they bring it to market. So as you understand, we've really been ahead of the curve with a lot of these partners and making sure that we can build a repeatable kind of outcome for our customers on a global basis.

And your next question today will come from Frank Louthan with Raymond James.

Great. Can you walk us through what is your average size deployment that you're seeing for enterprises now? And do you think that you're gaining share in that? And then can you give us an idea of what percentage of your new bookings are for AI inferencing workloads?

Thanks, Frank. So I'll try to tackle this in a few parts. So we -- overall, of our total signings we have, about 50% was AI related. This quarter, in particular, in just the 0-1 megawatt, so predominantly enterprise-oriented. We did see a new high watermark of north of 18% of those signings being, call it, AI-related, so high-performance compute. So -- and that number in that category by itself has probably hovered closer to single digits or high single digits for some time. So we are seeing a pickup in that. You're seeing certain sectors, financial services, manufacturing, certain customer types, I would say, moving closer to proof of concept and evolving. I still believe this word inference is beyond nascency, quite honestly, based on the fact that the adoption of this in a commercialized, call it, corporate private data center data site setting is -- we're not even scratching the surface of what we can do with this technology, right? I believe the B2C applications are way out running what's going to happen on enterprise. So I don't think -- I think our data centers in our markets that are supporting the cloud and enterprise will ultimately be the home for that applications. But I think we still got a good runway towards to get there, especially when people are just putting out press releases that are talking about training today because if it's a press release now, it's not a data center for a good while. On average size, we did see, I'd say, size of deals are catching up or getting a little bit bigger than the enterprise size. They're definitely getting a little more power dense, which is playing into our wheelhouse. And we've been supporting for enterprises, liquid cooling well before we were talking about ChatGPT or GPUs. So we have a lot of experience with that. And then lastly, when it comes to taking market share, the answer is yes, in my opinion.

And your next question today will come from Joe Osha with Guggenheim Partners.

My question is pretty simple. If I look at the spreads on the 1 megawatt plus side, it's 2 back-to-back quarters now of double digit and the most recent one is almost 20%. And are we just seeing maybe a temporary artifact there? Or is this kind of the new normal with those spreads being at that level going forward?

Yes. Thanks, Joe. Look, I think you're seeing -- starting to see like what we're expecting as we start to look forward and we see the rates that start to drop down over the next several years, as Andy mentioned earlier. I mean this -- I would say this year was a relative -- or year-to-date, it's been a relatively light year in terms of renewals within the greater than a megawatt. We'll start to see that pick up in '26 and '27 as you look at our expiration schedule. But we've also had this year, even this quarter, in particular, you'll see that the average rate, if you look at this quarter was, I think, north of 180, which reflects the markets that we are in. And despite that, we were still able to get higher rates and robust re-leasing spreads. So I think we're -- again, we're in a robust supply-constrained market. And we think looking forward, our mark-to-market opportunity is in a good position.

And your next question today will come from Cameron McVeigh with Morgan Stanley.

Just wanted to ask about future CapEx spend. And do you envision CapEx spend going forward? Do you expect it to be geared more towards retrofitting existing data centers for denser deployments or maybe expanding new capacity? And then secondly, do you see this incremental CapEx geared to capture more growth in the 0-1 segment or the 1 plus segment going forward?

Thanks, Cameron. So I think Matt touched on this a little bit. I mean, I think just to paraphrase, we believe, given the opportunity and the conversion of our, call it, shells or delivery of our suites under construction, shells in the data centers and colos and land in the shells and ultimately data centers, CapEx is likely to inflect higher on both the total and our share basis. So that's just -- that's based on really success driven. And when it comes to where the money is going, by and large, the dollars are going towards new capacity. The new capacity is well outpacing. We're still doing a great job maintaining, retrofitting where necessary our existing fleet, but the dollars for building a new data center are dwarfing the dollars needed that we need for our portfolio. And when it comes to the types of CapEx, yes, the dollars amounts are certainly bigger when you call it slant towards bigger deals, 50-, 100-, 200-megawatt deals. But we've made this strategically the priority at this company to make sure that we don't go dark for our enterprise colo customers in 50-plus in growing metros around the world. And those enterprises are landing with us with private IT for their digital transformation, hybrid cloud, and they're then connecting to our top cloud customers. So that virtuous cycle, we're building for all the customers that land and expand with digital is part of our value prop.

And your next question today will come from Maher Yaghi with Scotiabank.

Great. I wanted to ask you, I mean, since February, you've increased guidance and signed many new contracts. Certainly, we've seen the number of projects in construction in the U.S. overall increased significantly. But when I look at your development CapEx guidance, it has not changed. I'm not suggesting you should spend more, but do you think the drive to build bigger and bigger campuses is moving projects to private developers and reducing your share of what you typically might get? And the second question is, could you qualify maybe the credit quality of the new mega projects that are being built, do you see the returns being commensurate with taking on much bigger projects with a lower customer count that might not have the same cash flow level that your traditional Fortune 500 companies might have currently?

Sure. So a lot to unpack in there for, I think, what's our last question. I'll try to be -- try to hit it. So our development, we're posting about $10 billion in total on the development life cycle. So maybe the dollars going out the door will only, call it, pushing towards the high end of our guidance, which is a decent range in the guidance. But we're definitely leaning towards bigger, and it's not a static thing for us, right? Projects are delivering. We had, I think, record commencements last quarter. We have sizable commencements this quarter, meaning projects are moving off that schedule and new products are getting added to that schedule. We've been intersecting as addressed in a prior question, this primarily in the major markets where we saw diversity of demand from enterprise to hyperscale, where it was also locationally latency-sensitive workloads. We've not necessarily to date chased that out to the one-off locations, but we're very much cognizant of those opportunities and seeing a world where the markets where we're having a distinguished position in are expanding and stretching. And I think that's where you likely see us next to support those types of customers' growth. For us -- I can't speak of others, but for us, when you talk like these large-scale locations, be it in our major markets or otherwise, we're aligned with making sure the counterparty risk that fits the project. So certainly leaning towards the larger, call it, $1 trillion type companies that are investment grade. And that doesn't mean we don't do business with, I would say, the neo clouds, but we've not been involved with major one-off projects to those names to date.

That concludes The Q&A portion of today's call. I would now like to turn the call back over to President and CEO, Andy Power, for his closing remarks. Andy, please go ahead.

Thank you, Nick. Digital Realty delivered another strong quarter, building on our momentum throughout this year. We saw continued strength in our 0-1 megawatt plus IX business with record interconnection bookings, underscoring the strength of our global full spectrum platform. Our backlog grew and now sits at 20% of data center revenue. Our pipeline is at a record level and we are well positioned for better long-term sustainable growth. This is special time in our industry. Demand has never been stronger. We've positioned the company to meet the challenges of this moment with a strong and growing value proposition, enhanced innovation and an evolved funding strategy that enables us to better meet the needs of our customers while improving our overall returns. I'm incredibly proud of our talented and dedicated colleagues who continue to execute at an exceptionally high level, and I thank you all for your hard work. I'm excited by the opportunity that lies ahead and remain focused on delivering for our customers, partners and shareholders. Thank you all for joining us today.