Digital Realty's Private-Capital Pivot and Record Renewals Signal a New Growth Era
With record bookings, a 25%+ renewal spread, and strategic deals (Blackstone, Columbia Capital), DLR extends its double-digit FFO growth runway.
DLR · Earnings Call · 2026-07-23
A Quarter of Records
Digital Realty (DLR) reported a standout Q2 2026, with core FFO up 14% year-over-year (excluding net promote income) and the third consecutive record quarter in 0-1 megawatt plus interconnection bookings. “Our business is firing on all cylinders,” — Andrew Power, President and Chief Executive Officer · 2026-07-23 CEO Andy Power noted, crediting broad-based momentum across colo, connectivity, and hyperscale. The company also signed a record 25%-plus cash renewal spreads, a direct result of supply-demand imbalances in key metros. “Renewal activity was exceptional during the quarter. We signed over $261 million of renewals with cash re-leasing spreads over 25%,” — Matt Mercier, Chief Financial Officer · 2026-07-23 CFO Matt Mercier explained. This pushed total backlog to a new high of $1.9 billion (100% share), roughly 30% of in-place data center revenue, derisking multiple years of growth. The tape already reflects this optimism: DLR is down only 6.5% from its April 2026 peak despite the broader market's tariff-driven volatility, and the stock has been flat over the last 90 days.Strategic Pivot to Private Capital
The quarter's most significant development was the acceleration of DLR's private capital strategy. The company announced the acquisition of Blackstone's 64% stake in three fully leased hyperscale data centers in Northern Virginia (288 MW) for cash and stock, effectively consolidating ownership of assets it had built and leased. This move, combined with the planned acquisition of Columbia Capital—a 30-year-old digital infrastructure asset manager with over $9 billion in fund commitments—signals a deliberate shift to manage more assets off-balance-sheet while harvesting promote income. “Digital Realty's momentum accelerated in the second quarter with record core FFO per share, supporting another increase to our full year guidance,” — Andrew Power, President and Chief Executive Officer · 2026-07-23 Power concluded. The promote income, now a recurring (though episodic) contributor, stems from successful development and lease-up within JV structures. Matt Mercier highlighted that normalized fee income is already around $45 million per quarter and should scale as $10–12 billion of private capital gets deployed. This model allows DLR to expand its development pipeline without over-levering the balance sheet—leverage remained at 4.7x, below the 5.5x threshold.Renewal Spreads Signal Pricing Power
Renewal spreads of 25%+ (with 44% of renewals in the >1 MW segment achieving 66.7% cash mark-to-market) are not just a one-off. Management attributes this to an improving mark-to-market opportunity across the portfolio, with expiring rates stepping down over the next few years while market rates march up.This pricing power is underpinned by structural supply constraints—power availability, permitting, and community pushback—that DLR is navigating with its first-mover land bank in markets like Kansas City, where it secured 600 MW of utility power and a runway to 2 GW. The company also continues to benefit from Renewal spreads in APAC, particularly Singapore, where constrained supply meets high demand.This recovery reflects the final settlement and most significant portion of that claim... While we might not see this every quarter, especially at this outsized percentage, I would say we definitely see a healthy opportunity to reprice our contracts going forward on a regular basis.