Q1 2026 Earnings Call Transcript

Good afternoon, and welcome to the Digital Realty First Quarter 2026 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 Trust's First Quarter 2026 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 first quarter results. First, we delivered the second highest bookings quarter ever for Digital Realty, underscoring the diversity and durability of demand across our platform. We signed the largest megawatt lease in company history while simultaneously setting another quarterly record in the 0-1 megawatt plus interconnection category. Second, 0-1 megawatt signings boosted our 2026 outlook, while the greater than a megawatt leasing increased our total backlog to a total of $1.8 billion or $1 billion at Digital Realty's share, providing strong visibility for our growth into 2027 and 2028. Third, our development pipeline increased by over 50% sequentially to 1.2 gigawatts under construction and is now 61% pre-leased at an 11.4% average expected yield, mainly driven by successful leasing and our continued efforts to position capacity to support our customers' growing requirements.

And finally, we exceeded our earnings expectations, posting Core FFO of $2.04 per share for the first quarter, delivering strong double-digit year-over-year growth. Given strong execution across our product offering, visibility from our backlog and confidence in our operating outlook, we are raising our 2026 Core FFO per share guidance range, implying 9% growth at the midpoint. 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. Digital Realty got off to a record start in the first quarter of 2026, a clear continuation of the momentum we built throughout 2025. Demand for digital infrastructure remains robust, execution across PlatformDIGITAL remains crisp and our strategy continued to resonate with customers who are navigating increasingly complex power, performance and connectivity requirements as well as mission-critical on-time delivery challenges. We continue to gain market share in our 0-1 plus interconnection product category while providing needed hyperscale capacity in our greater than a megawatt category on an expanding playing field.

As the global economy continues to digitize, data center infrastructure has moved from being a supporting layer to being foundational. AI adoption is accelerating compute intensity, cloud demand remains resilient and enterprises are continuing to embrace technology to improve productivity and efficiency across their core operations. At the same time, power availability, labor and supply chain risks and community concerns have become meaningful constraints on our industry, creating a widening gap between theoretical demand and deployable capacity. Against that backdrop, only a limited number of providers can deliver fit-for-purpose capacity, future scalability and deep connectivity across multiple metros and regions with the certainty that customers require.

Customers are coming to Digital Realty seeking capacity close to users and clouds to interconnect within and across markets and the ability to scale as requirements evolve, particularly as AI-driven workloads move from experimentation to production. This demand environment translated into strong leasing activity during the first quarter, reflecting both the breadth of customer needs and the value of our global platform. We signed over $700 million of new leases in the quarter or $423 million at our share, representing Digital's second highest leasing quarter and nearly 70% above our next highest quarter.

Strength was broad-based in the quarter with another record of $98 million of leasing within our 0-1 megawatt plus interconnection product where proximity, connectivity and access to relevant enterprises and service providers matter most. Notably, a record 21% of 0-1 megawatt bookings were AI-oriented requirements. We continue to increase our market share in this category while growing our customer base with 116 new logos added in the quarter. During the first quarter, we continue to see both enterprises and hyperscalers continue to spread across PlatformDIGITAL.

A few examples include: a global biotech company is optimizing its AI infrastructure on PlatformDIGITAL to enable AI modeling, factory design and diagnostics for safety and reliability. A global social and AI platform is expanding on PlatformDIGITAL with a new AI inference node to serve a regional customer base and also expanding edge capabilities across global metros, while deploying a new subsea cable interconnection node. A multinational pharmaceutical company is deploying its AI infrastructure on PlatformDIGITAL to meet growing R&D, infrastructure and computing needs. A leading technology services company is leveraging PlatformDIGITAL to create a distributed inference AI-ready ecosystem to support advanced AI workloads for growing enterprise demand.

A global cloud computing and content distribution provider is expanding their footprint on PlatformDIGITAL by leveraging the market-leading connectivity available to support edge PoP expansions. And a technology services company chose PlatformDIGITAL to enable cloud-based platforms by leveraging their available connectivity, security and architecture to support their future growth. These deployments highlight the strength of PlatformDIGITAL in supporting increasingly distributed connectivity-intensive workloads, enabling customers to deploy, connect and scale critical infrastructure across a global interconnected platform.

The momentum in our interconnection-led product set is being reinforced by the continued expansion of our global connectivity footprint. In Europe, we expanded our footprint in the quarter by entering Sofia, Bulgaria through the acquisition of Telepoint, one of Southeast Europe's most important emerging interconnection hubs. This addition deepens our presence along the Eastern Mediterranean connectivity corridor and complements our existing markets in Southern Europe. At the same time, recent land acquisitions in Portugal and Milan position us to extend this connectivity-rich capacity along critical subsea and terrestrial routes, complementing existing assets in Marseille, Athens, Greece and our soon-to-be opened facility in Barcelona, reinforcing our ability to serve customers that require low latency access, geographic diversity and scalable interconnection across the region.

In APAC, we are taking a similar approach to expanding connectivity in strategically important markets. Our entry into Malaysia will add a highly network dense facility in Cyberjaya that complements our established presence in Singapore, Jakarta and other key regional hubs. This expands our customers' ability to deploy infrastructure close to end users while maintaining seamless connectivity across markets and provides a clear path for future scalability as requirements continue to evolve. Taken together, these investments reflect a consistent strategy globally, building interconnected campuses in the right locations to support customers as their IT architectures are infused with AI-oriented workloads become more distributed, more latency sensitive and increasingly connectivity-driven.

Switching gears to the greater than a megawatt category, we signed the largest single lease in Digital Realty history this quarter, a 200-megawatt AI inference-oriented lease with a AA-rated hyperscaler in Charlotte. This was a milestone transaction for Digital Realty, representing the largest lease in our history and our first hyperscale deployment in this market, validating our hub-and-spoke expansion strategy in Charlotte and complementing the connectivity hub we have long operated and are currently expanding in Uptown. The breadth of our greater than 1 megawatt activity in the quarter was also notable as signings in this category exceeded the level achieved in the prior 3 quarters, even when excluding the record lease.

We signed 10-plus megawatt leases in each of Dallas, Sao Paulo and Tokyo during the quarter, highlighting the accelerating pace at which large AI workloads are moving into scaled production environments and the continued global appetite for compute. Given record low vacancies in most of our existing data center markets, we continue to target land and power opportunities adjacent to our connected campuses, allowing us to support large-scale deployments while remaining connected to core cloud and connectivity networks. To meet those needs, we are expanding our ability to deliver hyperscale capacity where land, power and certainty of execution matter most.

In the first quarter, we demonstrated the ability and expertise necessary to source, position and then lease hyperscale IT capacity for development in less than 18 months. Building on this success in Charlotte, we have a second 200-megawatt building that will follow Building 1, and we launched construction on another 200-megawatt development site in Atlanta. We also have in position today or are preparing substantial capacity for development in Dallas, Northern Virginia, Hillsboro, Sao Paulo, Frankfurt, Paris, Tokyo, Osaka and Seoul. Given the significant development starts in the first quarter, our development pipeline scaled by more than 60% to $16.5 billion at 100% share at strong double-digit unlevered returns.

While this marks a historic ramp in our ongoing activity, we remain disciplined and well positioned to continue to meet this opportunity. As we think about our ability to support our customers' long-term growth needs, the combination of land holdings, power availability, supply chain execution and capital all matter, and each must be sourced in a deliberate and scalable manner. Over the last several years, we have been strengthening each of these disciplines so that we can continue to deliver capacity reliably, particularly as projects become larger, more capital-intensive and thereby more complex to execute.

That same discipline has guided the evolution of our capital strategy. In early 2023, we announced a plan to diversify our capital sources by utilizing more private capital, including joint ventures in our plans. We then evolved that approach with our first U.S. hyperscale closed-end fund, significantly expanding the pool of capital available to support hyperscale development while preserving alignment through our retained ownership and management role. During the first quarter, we continued to scale our strategic private capital platform, shifting to broaden our foundation to support the capitalization of stabilized hyperscale data centers.

The objective is straightforward to align long-duration institutional capital with the long-lived nature of our assets and our customers' digital infrastructure needs. By continuing to diversify, evolve and expand our capital sources, we are enhancing our ability to secure land, power and equipment to scale development responsibly and to deliver capacity when and where our customers need it, while continuing to drive attractive risk-adjusted returns for our shareholders. And with that, I'll now turn the call over to our CFO, Matt Mercier.

Thank you, Andy. As Andy outlined, the first quarter reflected strong demand across our platform, combined with disciplined execution, resulting in record quarterly financial results. In the first quarter, Digital Realty again posted strong double-digit growth in revenue and adjusted EBITDA, reflecting continued momentum in our 0 to 1 megawatt plus interconnection business, commencements from our growing backlog, healthy re-leasing spreads, modest churn and a favorable FX environment. We achieved these strong results while maintaining significant dry powder to expand and invest in our now 6 gigawatt development pipeline and simultaneously reducing our leverage to a multiyear low of 4.7x at quarter end.

Overall, the strong environment and our favorable positioning are translating into better-than-anticipated execution and results, and we are continuing to lean into the opportunity we are seeing with discipline. During the first quarter, we signed leases representing $707 million of annualized rent at 100% share, or $423 million at Digital Realty's share. This represented the strongest leasing start to the year in Digital Realty history. And as Andy noted, demand remains robust across our product categories.

New leasing was particularly strong in the Americas, which represented over 75% DLR's share of bookings in the quarter, while we also posted a new quarterly leasing record in the APAC region. Our 0-1 megawatt plus interconnection product set continued its strong momentum, posting $98 million of new signings, marking a third quarterly record in the past year and reflecting a 40-plus percent increase in 0-1 bookings versus first quarter 2025. The 0-1 megawatt plus interconnection category was driven by a record pace in the Americas region and a meaningful step-up in the largest capacity band within the product category reflecting an acceleration of larger enterprise deployments.

Further highlighting this strength, we also saw a new record level of activity in the 1-3 megawatt leasing band in the quarter. Interconnection bookings remained strong at $18.6 million, 24% higher than a year ago. The APAC and North America regions led this growth, driven by demand for our bulk fiber and ServiceFabric products. The record lease signing in Charlotte was the biggest contributor to the $280 million of Americas leasing performance in our greater than a megawatt category.

Pricing in this product segment remained healthy, averaging $181 per kilowatt in the quarter, validating the expansion of our hyperscale product in this market. The total backlog at the end of the first quarter reached a new record of $1.8 billion, reflecting the robust data center fundamentals we are experiencing and our ability to capitalize on this demand. At Digital Realty's share, the backlog reached a new record of $1 billion at quarter end as $423 million of new bookings exceeded the strong $204 million of commencements in the quarter. Looking ahead, we have $544 million of leases scheduled to commence somewhat ratably throughout this year with $247 million of leases to commence in 2027 and another $242 million commencing in 2028 and beyond.

While the successful execution of our 0-1 megawatt plus interconnection segment is helping to accelerate near-term growth our scaling backlog is improving our visibility over the long term, helping to support strong, sustainable growth. During the first quarter, we signed $193 million of renewal leases at a blended 5% increase on a cash basis. Renewals were heavily weighted toward our shorter-term 0-1 megawatt leases, which represented over 80% of our total renewal activity with $157 million of colocation renewals at 4.3% uplift. Greater than a megawatt renewals dipped to just $32 million in the quarter at a 74% cash re-leasing spread, driven by deals in Vienna, London and Silicon Valley.

As for earnings, we reported Core FFO of $2.04 per share for the first quarter, up 15% year-over-year, reflecting the ongoing benefit of strong data center leasing and development-related lease commencements, along with increased fee income associated with our growth in our strategic private capital platform. Same capital cash NOI growth continued to be strong in the first quarter, increasing by 7.9% year-over-year, as strong data center rental revenue growth was balanced by elevated operating expense growth. On a constant currency basis, same capital cash NOI rose 2.5% in the quarter, largely reflecting the above-trend operating expense growth versus the prior year period.

Given the conflict in the Middle East, energy costs and supply chain risks are once again in the spotlight. While Digital Realty does not maintain a meaningful presence in the Middle East and has limited direct economic exposure, we recognize that many of our customers may be directly or indirectly impacted by rising input costs. In terms of direct exposure, approximately 90% of our utility expense is reimbursed by customers, meaning fluctuations in energy prices largely flow through rather than directly impacting our bottom line. For the remaining 10%, primarily consisting of smaller colocation deployments, a large majority of our electricity is hedged forward through 2026 and beyond, while most of our contracts provide the ability to adjust pricing, giving us flexibility to respond to changing market conditions.

As a result, while energy is critical operationally, Digital Realty's direct earnings exposure remains limited and manageable. As we previewed on this call last quarter, we enhanced our supplemental report this quarter to align with how we manage the business. We have now fully transitioned the occupancy metrics of our operating portfolio toward power-based metrics, removing legacy metrics focused on square feet from our supplemental earnings disclosure. Now the operating portfolio KPIs are consistent with the metrics we use to report new leasing and data center development.

We also made some other enhancements to our quarterly supplemental by streamlining our debt reporting metrics, the new and renewal leasing pages and occupancy analysis page. The objective was to continue to provide industry-leading transparency while making our disclosures easier to digest. Moving on to our investment activity. We spent $910 million on development CapEx in the quarter, net of our partner share.

During the quarter, we delivered 63 megawatts of new capacity, 84% of which was pre-leased, while we started about 464 megawatts of new data center capacity that was nearly 50% pre-leased, increasing our total development to 1.2 gigawatts under construction. At quarter end, our gross data center pipeline under construction stood at approximately $16.5 billion, up more than 60% from year-end, reflecting the strong leasing activity executed by our team and the momentum we continue to see in our sales funnel. Consistent with last quarter, nearly 80% of this volume is situated in the Americas region, reflecting the demand for AI-oriented workloads from our largest customers.

Notably, while Northern Virginia remains our largest development market for the moment, the Dallas and Chicago markets were eclipsed by both Charlotte and Atlanta as we activated multi-hundred megawatt developments in each of these markets. Accordingly, we continue to invest in our platform through organic new market entries that enhance our global productivity offering as well as meaningful existing market expansions that are designed to meet our customers' long-term capacity and connectivity requirements. Along these lines, in the first quarter, we bolstered our hyperscale capacity with the acquisition of 873-acre strategic land parcel in the Greater Atlanta Metro that is expected to support a gigawatt data center campus and a 30-acre land parcel in Hillsboro that is expected to support 160 megawatts of IT capacity, adding to the 85 megawatts assemblage that we announced in this market last quarter.

In addition, we have previously announced, during the first quarter, we made 3 strategic market entrances in Milan, Italy, Sofia, Bulgaria and Cyberjaya, Malaysia, each of which bolsters our global connectivity footprint. Year-to-date, we've also sold small noncore facilities in Boston and Atlanta. Turning to the balance sheet. The first quarter was highlighted by a multiyear low in our leverage as debt to adjusted EBITDA dipped to 4.7x at quarter end, supported by meaningful adjusted EBITDA growth and a further ramp-up in retained capital as our AFFO payout ratio fell to 64%.

This decline in leverage, despite the continued ramp in our development pipeline is intentional and deliberate, consistent with our key strategic priority of bolstering and diversifying our capital sources that we laid out 3 years ago. In March, we put the finishing touches on our USD 3.25 billion hyperscale data center fund, leaving us with approximately $10 billion to support hyperscale data center development and investment. And we continue to bolster our strategic private capital platform as we build investment capacity to support the massive hyperscale data center opportunity that we continue to see before us.

In addition, we maintain substantial incremental dry powder within our $8-plus billion hyperscale development joint venture, which has been highly successful to date and remains ahead of plan. 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 guidance. We are raising our 2026 core FFO per share guidance range by $0.10 to $8 to $8.10 per share, principally reflecting better-than-expected execution across our data center portfolio early in the year.

The midpoint of the updated guide represents 9% growth over 2025, reflecting underlying strength in our 0-1 megawatt plus interconnection business, balanced by the continued ramp in our investment spending that is geared towards supporting our hyperscale customers and extending our runway for growth. We also expect cash renewal spreads of 6.5% to 8.5%, up 50 basis points from last quarter. The stronger greater than the megawatt renewal prospects are balanced by the larger contribution from 0 to 1 megawatt leases renewing. Power-based occupancy is still expected to improve by 50 to 100 basis points from year-end 2025. Same capital cash NOI growth of 4% to 5% on a constant currency basis.

CapEx net of partner contributions are poised to increase by another $250 million at the midpoint to a range of $3.5 billion to $4 billion. And we also continue to expect to recycle capital with $500 million to $1 billion of dispositions and JV capital slated for later this year. This concludes our prepared remarks. Now we'll be pleased to take your questions.

Operator, would you please begin the Q&A session?

[Operator Instructions] Our first question will come from the line of Erik Rasmussen from Stifel.

Congrats on the strong results, especially leasing. Maybe you could just comment on the economics that you're seeing with AI deals versus prior hyperscale deals? Maybe comment on pricing escalators. And maybe just one last with the -- as AI demand continues to show strength, what's the portfolio look like with training versus inference? And at what point do you think we might be at an inflection?

Thanks, Erik. So speaking to economics, I don't think we're seeing a dramatic difference between the use cases. And I think that specifically goes to the markets where we're supporting these use cases that can have cloud hyperscale use cases for compute or likely more likely AI inference than training given the proximity to data, GDP, and population. The economics really are coming down to a robust and diverse demand backdrop in markets where it continues to be challenging to bring on supply.

Fortunately, we've been very well positioned there, and you've seen those fall through to our results with robustness in rates. On the bigger end side of the equation, our hyperscale contracts are, call it, 15 years and escalators are certainly 3% or maybe even higher in certain scenarios. Going to your second question, maybe I'll tag team this with Chris a little bit. I think we are obviously supporting hyperscale use cases for cloud computing.

We had a large AI inference was our largest lease of the quarter for the hyperscaler, but we're also seeing budding use cases in the enterprise. Not only did we have a record quarter to start the year off a second record at the end of last year, but we ticked up further AI being, call it, 21% in that 0-1 megawatt. And I honestly think we're just getting going here based on the actual enterprise adoption and where this could certainly take us on a broad basis. And I think our portfolio is well situated.

Chris, if you want to maybe speak to the inference inflection point?

Yes. No, absolutely. I appreciate the question. But demand has definitely converted from pilot to production.

We've seen that both in Andy's prepared remarks and just referencing the 200-megawatt build. That is inference. And then what we also see in the Enterprise segment is customers are migrating to larger committed capacity blocks. I think that's a key element to be successful in bringing that type of scaled inference to market.

And our portfolio, we've been talking about for some time now is workload agnostic, right? We can provide low latency metro proximity dense interconnection, which is absolutely a requirement for this inference inflection. And I think one of the points I think everybody would appreciate on this call is as agents come to market, it's a demand multiplier. And so that represents to us a 5x to 30x more tokens per task, and that's the fundamentals of what AI is delivering.

That is going to really drive another inflection point, not just on the training to inference, but then as agents and agentics comes into the market, we're very excited about that. And I think the last piece I would just say is the economics associated with private AI, where you really start to see a change in the consumption of being able to own the infrastructure and then rent the spike, if you will, that's going to represent another material savings that what we saw with cloud and cloud hybrid kind of connectivity and multi-cloud. And so we're at the inflection point of multiple kinds of trends coming into the market, but very excited about our portfolio, not only supporting the hyperscaler and the large portions, but also that enterprise demand as well.

Our next question will come from the line of Frank Louthan from RJF.

I wanted to talk to you about the expansion of the land bank. Can you give us an idea of the additional gigawatt that you've secured? How many locations is that? And what is sort of the time frame that the power is available for it in the regions, that would be great.

Thanks, Frank. So I'll have Greg work you through the great work the team has been doing. But I mean, just to set the table here, we're talking -- our underdevelopment now is called up dramatically, call it, 60%, $16.5 billion while maintaining the pre-leasing. So bringing forth capacity for customers from the enterprise to the hyperscalers and that at the same time, we're now increasing our growth capacity up to 6 gigawatts.

So we're call it active in the near term and building for long-term growth. But Greg, why don't you walk through some of the highlights there?

Yes. Thanks, Frank. Look, this asset is one contiguous piece of parcel. It's large.

It's, call it, north of 870 acres, Frank, but it's all contiguous. It's in the greater Atlanta metropolitan area. In terms of power, we're still working through things with the power company, and we'll give you additional guidance on that later, but we're looking at a couple of different alternatives there on the power front. So I would say stay tuned on that front.

But when we look at where it's located. Look, we do think it's a product-agnostic market where you're seeing availability in the zones and the like heading up that way. So we feel very fortunate. We work this site for quite some time, but we really think it is a rare large-scale parcel of land.

We also, during the quarter, obviously acquired land in Hillsboro in Portland as well to support hyperscale development. So look, it was a very active quarter, as you can see.

Our next question come from the line of Matt Niknam from Truist Securities.

Congrats on the quarter. I had a question about the commencement lag for new leases signed. So I know it was about 19 months this quarter. It's a little over 2x what you've seen in recent periods.

And I'm curious if this is primarily due to the record lease that was signed? Or is the extension -- are you seeing extensions driven by utility power delivery delays in bigger markets? Are customers just booking capacity even more in advance? I'm just trying to get a better sense of what drove that.

Yes. Thanks, Matt. This is also Matt. So I think you nailed it effectively.

I mean this is driven by what was our largest lease this quarter and our largest lease in the company history. That project was essentially just started, as you can see that it showed up on our development life cycle, over 200 megawatts that will be delivering over a phased period starting next year into '28. So I think we feel great about that project. And again, that's -- given that it just started, that's why you're seeing a slightly elongated period of time between sign and commence.

Our next question comes from the line of Vikram Malhotra from Mizuho.

Sorry about that. I just wanted to check on the 0-1 megawatt segment, you've had really strong strength. I remember at our conference last year, you had sort of talked about a run rate to $90 million. Given the strength, I'm sort of wondering, is there a pathway now to $100 million? And can you extrapolate and remind us like what does that mean for the interconnection business to flow through?

Thanks, Vikram. Maybe I'll tag to this with Colin. So we are very pleased with the continued momentum to get out of the gates in the first quarter, which obviously can have some seasonal lull given various activities and put up another quarter up from the prior quarter. This quarter was up 40% year-over-year, and we're coming off a record 2025 that in itself was up 35%.

Interconnection was a major contributor for that, not a top quarter contribution for interconnection, but a top 5. And there's a lot of good pieces to this. And I'll have Colin speak a little bit to what's next because I think what you'll hear from them is we're not anywhere near done yet.

Yes. Thanks, Andy. And Vikram, thanks for the question and the acknowledgment. Yes, we're pleased with our execution of really seeing how this manifests itself in the enterprise space.

So strong bookings, record 3 of the last 4 quarters, and that's really across our platform. Our resiliency in core markets continues to remain strong. We had a strong booking quarter in Silicon Valley and Chicago and Frankfurt and then seeing multiple industries show up in a key way across our portfolio. So our value proposition of being an open neutral global platform is really taking shape in the enterprise space, both in the bookings, which you clearly saw and in the pipeline.

And the use cases that are showing up consistently across the board, hybrid multi-cloud, which is the de facto standard for deployment, data localization and sovereignty and AI, as Andy highlighted, that's becoming an emerging part of our portfolio of conversations, north of 20% bookings for this quarter. And we're getting to show that off in keen ways like the Digital Realty Innovation Lab, which we just launched another one in Japan. We're really pleased about that. And so the success and the response we're getting from customers and partners alike, we're really pleased with.

Our next question comes from the line of Michael Elias from TD Securities.

And also congratulations on the quarter. This one is a bit of a 2-parter part for Andy and then also for Sharpe GPT. In the past, I believe, Andy, your commentary had been that while there were fixed price renewal options in the larger contracts, if there was a change in design, the renewal option was less relevant. One of the things that we're seeing is some of the largest hyperscalers are signaling intentions for a hybrid design, i.e.

AI and cloud design in a single data center. Maybe for Sharpe, to the extent we see that, do you think that means that we'll see kind of the existing set of cloud data centers essentially how it go through a change in design? And if that is the case, then for Andy, do you think that increases the long-term opportunity set to reprice contracts?

Thanks, Mike. So I mean, Chris can expand a little bit on the change in design dynamics. But as just a refresher, when markets were not at this position of supply-demand dynamics, we essentially had contracts some inherited would prevent us to get to the full mark-to-market potential upon renewal. And we handicapped how many of those would actually be hit as we move through those expiration schedules.

And what we've seen over time is the odds continue to move in our favor on those essential caps. And some of that is often the customer just changing normal configurations or different durations of renewal. But in the backdrop of a rapidly changing design with a mix of GPUs and CPUs and both and percentage of liquid cooling, air cooling and just the pervasiveness of growth, more often than not, we're seeing the customers even with an advantageous renewal option, not take advantage of that and say, hey, let's work together. And that is obviously an opportunity for us to bring those rates to market more and more often.

This quarter, we had good results in that category, no question, but it was a small sample set. And you can see we raised the outlook a little bit for our cash mark-to-markets because we think we're going to be seeing even stronger cash mark-to-markets largely driven from that category come through the back half of this year. And then Sharp, do you want to add anything about what you're seeing on the forefront design changes?

Yes, 100%. And I think I appreciate the question, Michael. Your reference to the silicon and the advancement of the silicon, it's across the entire stack. It's not just about the GPUs, it's about the CPUs.

There's even new equipment coming to market for inference, particularly. So there is a broad spectrum of infrastructure that's kind of driving that demand. And I would tell you, there's 2 key underlying things that we've always been watching in the market for some time now. Modularity has been one that I've had the opportunity to talk with you all about for some time now, which allows us to densify that power and cooling according to that workload.

And so I think that's a key element that we've been working with our HD Colo program and being able to retrofit and kind of pre-engineer the ability to go up to 150 kilowatts of rack in a roughly quick period of time. And then I think the second thing is AI, it's additive to cloud today because I think what you're realizing now is cloud is comprised of a lot of data assets and AI absolutely requires that data. So we're seeing a lot of additional demand with AI infrastructure trying to be proximate to those availability zones, which is where Greg is talking about some of these expanded hub-and-spoke land banks that we've been bringing to market.

A lot of that is being married together in a contiguous way. And I think the last piece I would say is it all has to be engineered from the start for bulk connectivity, right? Beyond the 4 walls of the data center, it's about a connected campus, which we pioneered in this industry for some time now. That's what's representing, I think, a unique footprint for our customers, not only to get benefit out of the leases they have today, but as they renew those, some of the new designs we're bringing to market for them tomorrow.

Our next question will come from the line of Jon Petersen from Jefferies.

Congrats on the great leasing quarter. I wanted to talk about organic growth. So the constant currency cash NOI growth was 2.5% this quarter. I think you mentioned that operating expenses were a bit higher, which I think people's knee-jerk reaction is going to be energy costs, but you talked through that and how it's not that.

So can you talk through what the operating expense line items are that are maybe pulling down organic growth to be a little slower than we might expect?

Yes. Sure, Jon. So I mean, it was largely a result of a low operating expense comp in the prior year same quarter. So that was driven by R&M and labor largely.

And we expect that to start to smooth out as you go through the next 3 quarters, kind of in line with what we were talking about on our renewals. So as you can see, we've -- despite that being at 2.5% in the first quarter, we're still talking about being, call it, 4.5% or 4% to 5% for the year for our guidance. We haven't moved that at all. So the first quarter came in as we expected as per our budget, and we expect an increasing or accelerating same-store growth as you go through the next 3 quarters.

Our next question will come from the line of Eric Luebchow from Wells Fargo.

There have been a lot of reports recently around data center delays and projects getting pushed out. So maybe can you talk about any incremental constraints around the supply chain, whether it's utility power, equipment, labor availability, local community pushback, anything that's maybe extending construction time lines at all? And then second, maybe you could talk about how the supply chain constraints are kind of translated into market rent growth. Are you still seeing positive momentum there and you still think market rents are growing above development cost inflation?

Thanks, Eric. So just taking in reverse just the punchline, we're still seeing market rent growth outpacing inflationary pressure in build costs. And circling back to some of the reasons for that, we are at a point where you're just seeing incredible demand and competition over supply chain, labor, certain parts of the country having shortages of skilled labor electricians. There's just we, as an industry, are moving at incredible pace to deliver critical digital infrastructure.

And obviously, that puts pressure on the cost, but we seeing rates ahead of that. At the same time, some of these things are making our value add and being able to have that 20-plus year track record and consistency of building and operating in our markets shine in the eyes of our customers and all constituents. So our execution, our say-do ratio is something we pride ourselves in digital, and I think that shines through time and time again. And we're working through every step of the way with all the constituents, be it utility partners that may have delays on their deliveries, on how we can get creative and certainly making sure that we're navigating when mistakes are incredibly high like this that Digital Realty's value proposition.

And then obviously, that flows through to the value we delivered to our customers and ultimately shareholders.

Our next question will come from the line of Michael Rollins from Citi.

So I was thinking about some of the opening comments about the diversity of leasing. Of course, you have the 200-megawatt lease, but you said there was also multiple 10-plus megawatt leases and record 1 to 3 megawatt leases. So I'm curious, as you look at the AI composition of the over 1 mega leasing, how far down the size level is AI going right now? And what does that mean for then trying to fill any remaining capacity that's available in your portfolio now that you have the new disclosures on utilization on power versus the square footage?

And if I could just squeeze in one other quick thing, just a clarification on the guidance. So it looks like Core FFO per share on a constant currency basis was 11% year-over-year. And given the commencements that you're planning for this year and the midpoint of guidance, I think you mentioned was 9%. Why does Core FFO per share need to slow on average for the remaining 9 months of the year versus what you did in the first quarter on a constant currency basis?

I'll have Matt hit the guidance question, and I'll come back to the diversity of demand we're seeing and AI implications.

Yes. Mike, thanks. So look, I think, first off, we're obviously -- we put ourselves in a great position. We're coming out an exceptional start to the year, record 0 to 1, one of the highest -- second highest signings in greater than a megawatt, really putting us in place to be able to improve our guidance this early in the year.

And as you noted, we are expecting a step down, call it, in the second quarter, starting to rebound in the third and ending on a high note, giving us -- putting us in a position to really continue this overall growth into '27 and beyond. A couple of reasons. I mentioned one kind of related to same-store as well. In the first quarter, we expect our OpEx to start to ramp in the second and third quarter.

Second, we expect to continue our investments, first tied to our increase in our development spend as well as the potential for other land to continue our growth runway. And then we still have capital recycling that we plan to do, which is also in our guidance, all those having an impact in terms of the trend of our quarterly Core FFO. But I think the punchline is we've increased our guidance and expect close to 9% growth for the year.

And Mike, to go to your first part of your question, called diversity of demand. So we put up total signings just shy of our prior record that was not that long ago, north of $700 million. And not only that, but it was that in total is, call it, 70% higher than our third place, call it, next or next highest quarter. Super pleased to sign the largest lease in the company's history to AA-rated hyperscaler AI inference.

But you step right behind that, and as we mentioned, we also signed 10-plus megawatt leases in Dallas, in Sao Paulo, in Tokyo, speaking to that diversity of demand. If you go to the other end of the spectrum on size, record 0 to 1 megawatt interconnection off of record the prior quarter. Within that, the AI contribution stepped up to, call it, 21%. So you're seeing AI in the tens to hundreds of megawatts, and you're seeing AI in the less than a megawatt category.

And I'm kind of quickly skipping over what's in between. We are rapidly call it, filling capacity at both vacant and also what we have under construction. As you saw, not only did our development pipeline step up dramatically to $16.5 billion, but the pre-leasing remained constant, which is quite a feat. But also, I looked at the biggest vacancy capacity we have in our stabilized portfolio, going back to John's question a second ago.

And a lot of that vacancy is already pre-leased and just hasn't commenced yet, hence, hasn't showed up in that, call it, just north of 90% occupancy that we report. So I would say we're attacking this on both ends of the spectrum, call it, trying to continue to raise the bar in 2026 and also build that record backlog now $1.8 billion that's going to deliver in '27 and even in '28.

Our next question will come from the line of Irvin Liu from Evercore ISI.

I would also like to extend my congrats on the strong bookings. Andy, you brought up a second 200-megawatt building in Charlotte and another 200-megawatt facility in Atlanta. With these developments in mind, can you just give us a sense on how you think your greater than 1 megawatt bookings will trend for the balance of the year?

Thanks, Irvin. So we are really excited of everything we got going on for digital in Charlotte. And it's a really strategic move because we long operated the interconnection hub supporting enterprise customers in downtown Charlotte or I guess, uptown Charlotte. And we've been recently expanding that.

And what's quite astonishing is like 18 months ago or less, we literally announced what we just leased is 200 megawatts, the first half of that campus abutting the Charlotte Airport. So we got another 200 megawatts that we view is very attractive to our customers that's under construction. And then in Atlanta, we talked a little bit about a larger project. But before that, we have, call it, another 200 megawatts, call it 2028 delivery, great location.

That campus will have an extension of our colo interconnect footprint, but also be priced for the hyperscale customers looking to grow their cloud availability zones through AI inference in that market. Those are just 2 snapshots. I can tell you to the left of that development cycle, whether it's shells or land, things we're working on, there's numerous other markets where we're, call it, well positioning for incremental demand even for the large hyperscale use cases. And we kind of rattled through that in the prepared remarks.

Northern Virginia, this is actually a light Northern Virginia leasing quarter. You can kind of see that in the weighted average rates. But we got, call it, 275 megawatts that I don't think is leased yet, but it's priced in Northern Virginia in the, call it, '27, '28 timing category. Dallas is a similar story.

And then leaving the states quickly go to Frankfurt, Paris, Amsterdam, Seoul, Tokyo, Osaka and down in Sao Paulo and Johannesburg. There's numerous markets for larger capacity blocks, which we kind of illustrated in the -- on the map in the slide deck. So we think that we're going to be able to continue to build upon this record pipeline for the company we have and continue to derisk that growth algorithm for years to come.

Our next question will come from the line of Timothy Horan from Oppenheimer.

A lot of moving parts. Can you give us what you think your total inventory of space and power is both leased and what's under development? And what do you think you can kind of grow that at? Or do you have a target where it could be 5, 10 years from now?

Sure. So speaking of gigawatts, Tim, we have just shy roughly 3 gigawatts is operating today, all right? On top of that, not operating, we have another 6 gigawatts that we own today. Within that 6 gigawatts under construction from anywhere from moving dirt to opening doors and commissioning, there's 1.2 gigawatts.

So that means fairly near term, that's a 40% expansion, 1.2 over 3 gigawatts to our, call it, installed base today. And as you've seen, that 1.2 just went up to 1.2. It's pretty highly pre-leased, 60-ish percent pre-leased. We're leased to that, and we're also activating more development as we speak. So we think that there's a pretty darn good runway.

And I can tell you our investment team is also busy adding along the way.

Our next question will come from the line of Aryeh Klein from BMO Capital Markets.

It looks like the cost per megawatt in the Americas development pipeline increased to about $14 million from $12.5 million per megawatt. Wondering if you can talk about that. And then also, there seems to be a lot more NIMBYism and local pushback. When you look at the 6 gigawatts of future capacity, any of that what you would characterize as in markets that may be tougher to deliver in or just in general, how you're approaching dealing with that?

Thanks, Aryeh. I mean I touched on this a little bit on the cost per megawatt. I mean you're seeing, obviously, inflation in build costs and it's a product of land values have risen over time. There is a significant amount of construction and tightness on supply chains.

And you also have a little bit design moving more to, call it, higher-priced designs with, call it, more liquid cooling infrastructure. So those are all influencing the basis per megawatt. The good thing is, given the demand and supply backdrop, we are able to have great market rates, exceed those inflationary pressures to at least maintain rates or returns, I should say. And you could see that we're able to call it now at record under development, still have, call it, close to 11% unlevered returns on our investment.

On to your second question around broader reaction or industry reaction to data center digital infrastructure and what digital is doing about it. That is just the reality of the times we're living in right now. We've obviously seen this moment over the last several quarters. And the burden is on ourselves as a leader in this industry to make sure our value proposition to all stakeholders is well articulated, well advanced and our doors are open to the communities.

I think I'm very proud of Digital's heritage and history and what we do every day of being dedicated community members on all fronts and active in those communities with the jobs that we have inside our data centers. I think we need to continue to make sure the message is clear. When it comes to electrification, we are investing our own dollars to make the grid more reliable and sustainable. And when those hot summer nights happen in your neighborhood, we go back to our, call it, backup generation to take pressure off the grid.

And we're supporting a customer base who's been quite public and vocal about making their support to lower the cost of course electricity. Two, we've long been big real estate taxpayers. And I think that makes some of our communities we operate in have the best roads, schools, the most teachers and sports fields. But the new news is we're a big job driver, too.

If you look at the stats for not just digital, but the industry, we're enough job that's more than, call it, the top 15 automakers in the United States as an industry. Probably most people wouldn't think about that in its space. And that's in addition, those are the permanent jobs in addition to the engineers, electricians that are building the data centers today. And then lastly, what Digital Realty is about is mission-critical workloads, things that are keeping, call it, the devices running, the financial systems flowing, health care systems operating, research happening, those mission-critical workloads for cloud computing, for AI inference, that's what we're about.

But again, I think repetition doesn't spoil the prayer, and I think Digital Realty needs to continue to have that leading voice on this topic everywhere we operate.

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

Thank you, operator. Digital Realty saw a record start to 2026 with Core FFO coming in better than we expected and translating into a full year guidance raise. We posted record 0-1 megawatt plus interconnection bookings in our combined with stronger greater than a megawatt leasing, including our largest lease to date. This activity pushed our backlog to a new all-time high, improving our visibility for long-term growth.

At the same time, we grew our footprint of highly connected assets in the Mediterranean and APAC regions, while adding land for hyperscale development, underscoring our commitment to serve our customers' needs across our global full spectrum platform. We also scaled our development pipeline to new heights, and we've done all this while bringing our leverage down to multiyear lows. These outstanding results are a team effort, and I'm incredibly proud of our talented and dedicated colleagues who continue to execute at a high level. I'm excited by the opportunities that lie ahead, yet remain focused on delivering for our customers and shareholders.

Thank you all for joining us today.

The conference has now concluded. Thank you for joining today's presentation. You may now disconnect. Everyone, have a great day.