DIGITAL REALTY TRUST Q2 FY25 earnings call DLR

Digital Realty reported record bookings in its 0-1 megawatt plus interconnection product set, reaching $90 million at Digital Realty's share in Q2 FY25, an 18% increase over the prior record. This success was broad-based across EMEA, Americas, and APAC, driven by consistent growth and accelerating momentum over the past year. The company's focus on strengthening its customer value proposition through connectivity-rich metro campuses and a comprehensive interconnection suite, including physical cross-connects and virtual services, is paying off, leading to increased customer deployments and recurring revenue streams.

The U.S. Hyperscale Data Center Fund has been highly successful, receiving over $3 billion in LP equity commitments from a diverse array of global institutions, well ahead of schedule. This fund is expected to support approximately $10 billion of total data center investment, with Digital Realty maintaining a 20% ownership stake in both operating and development assets. This initiative bolsters the company's strategic position, enabling it to meet growing hyperscale customer needs without overtaxing its balance sheet and extending its FFO growth runway into 2027 and beyond.

Digital Realty boasts a robust development pipeline, with a total capacity runway of 5 gigawatts, including a land bank of 3.7 gigawatts. In Q2 FY25, the company delivered a record 96 megawatts of new capacity, 98% of which was pre-leased, and started construction on 16 megawatts of new projects, leaving 734 megawatts under construction. The gross data center development pipeline stands at $9 billion with an expected stabilized yield of 12.2%, providing strong visibility for multi-year growth.

The company announced a new partnership with Oracle Solution Centers to optimize deployments and accelerate hybrid IT and AI adoption for enterprises. Key customer wins in the quarter included a global financial services company expanding for compliance, a leading blockchain provider deploying edge nodes, a healthcare services company expanding for data resiliency, an autonomous vehicle developer leveraging cloud/network ecosystems, a global cloud provider creating a new edge availability zone, and Lucasfilm expanding for high-performance compute and AI capabilities.

Digital Realty maintained strong execution against its sustainability goals, being recognized as one of the world's most sustainable companies. Highlights from its 2024 Impact Report include 185 data centers matched with 100% renewable energy, 75% of global electricity needs met with renewable energy in 2024 (a 9% YoY increase), a 14% YoY reduction in water usage intensity in its North American colocation portfolio, and 1.9 million square feet of certified sustainable data center developments added in 2024, bringing the cumulative total to 15 million square feet.

The company's balance sheet remains strong, with leverage at 5.1x (below its 5.5x target) and over $7 billion in liquidity. By evolving its funding model to include private capital for hyperscale development, Digital Realty can extend its reach and serve customer needs without over-leveraging. The company also raised EUR 850 million in eurobonds, maintaining a well-laddered maturity schedule, though facing a 325 bps refinancing headwind in Q3 FY25.

The demand environment for data center capacity remains strong and broad-based, driven by secular tailwinds in digital transformation, cloud, and AI. While AI demand is currently U.S.-heavy, management expects it to globalize, similar to cloud adoption. The company positions its large capacity blocks to support hyperscale customers, with current discussions focused on late 2026 and early 2027 deliveries. An executive order streamlining data center permitting and promoting U.S. AI tech stack is viewed as a positive for the industry.