Digital Realty Trust, Inc. (DLR) September 2026 Conference Transcript

Welcome back to our next session. My name is John Atkin. I cover the Communications Infrastructure Center at RBC. And then with me for the next several minutes of Q&A is the Chief Financial Officer of Digital Realty Trust, Matt Porcier. Matt, welcome. Thank you. Thank you, John. Appreciate being here. So we're going to cover a lot of topics and see how many we get through. Maybe starting with agentic AI and what you're seeing there. Sounds like there are some early demand signals. When do you start to kind of see that show up in bookings, things like CrossConnect, Service Fabric? And when do we get from preseason to early innings to maybe kind of the bulk of the demand?

Yeah, in terms of agentic, I would say we are still in the real innings, but I think we've seen, especially, I mean, even over the last couple of quarters, definitely an uptick in what we're seeing around diverse deployments within our zero to one that are taking up interconnection as well. So maybe to frame it, I mean, I think you're seeing demand is broad and diverse today across our product set, which I'm sure we'll get into in terms of hyperscale, but also in our zero to one, which I would say more of the agentic, although some of those cases I think are starting to see greater than or larger than one megawatt deployments. But we've seen an increase in demand across our enterprise and service provider segment deploying diverse network-oriented deployments across multiple markets globally. And I think we're actually starting to see that pick up in terms of discussions we're having across our global portfolio. So, you know, we've, and I think some of the ways to characterize that are, you know, the last three quarters we've set records in our zero to one megawatt business. That includes records within our interconnection as well, to your question, just last quarter, I think was our record quarter in terms of interconnections. And we're seeing that show up not only in Cross Connects, but also in service out of demand, which still we still see a lot of opportunities. We add partners and capabilities across that across that product, but also in our what we call our bulk fiber type product, which allows customers to be able to bring fiber across not only our campus, but also to other other campuses, even outside. in some cases the the digital realty portfolio and that's part of stitching together what has been you know uh training more training related deployments uh that are outside that bringing them into more of our interconnected uh assets and campuses one of them being here in chicago but across you know across our broader global portfolio as well um so the infrastructure requirement uh to support that growth how does that look like versus a traditional co-location uh i i would you know the one thing i think we've seen you know our like our portfolio i would i would call out two things at least that i've seen one i think you're seeing larger space and power requirements you know in some of these core markets needed to to ultimately support inference and you know inference and more agentic uh ai type workflows um so you know what would what would typically have been a you know a standard you know kind of average 300 kw or below deployment within our zero to one megawatt which would be landing in some of our most interconnected assets across our portfolio we're now seeing you know greater than 500 kw a megawatt and in some cases You know, one to five megawatts is now starting to become more of a standard in terms of what we're seeing some of our enterprises as well as our service provider type customers take in order to support what is becoming a more diversified, inference-oriented type architecture across our platform. And two is back to what I was mentioning before. I think in addition to seeing an increase in cross-connects, we're also seeing an increase in bulk fiber as the bandwidth needs increase to be able to connect to training facilities into these more dense, interconnected, carrier, telco-heavy facilities that we have in multiple markets across the globe.

So, moratorial and pipeline risk is just a broad topic area, and there's many U.S. metros, and then globally, I think you probably see this as well, it gets a little bit less attention from investors, but they've all tightened, or many have tightened data center permitting. Your current pipeline is not at risk, but you did flag concern about replenishing capacity in roughly the 2029 to 2032 period. How many years of pipeline visibility do you have before these constraints materially affect delivery?

I mean, look, I think we've gotten ahead of, you know, I would say we've gotten ahead of the game in terms of what we've done, especially over the last several years, both from a capital as well as a land and power perspective in order to put ourselves in a great position to extend what we see as a great opportunity set for several years to come. So you mentioned we have, you know, maybe a set context, too, as well. We have three gigawatts of operating capacity today. We got, you know, behind that, we've got 1.4 gigawatts under development. So right there, that's a 50% increase in what the portfolio could look like within the next, call it, two years. After that, we've got seven gigawatts of land capacity that we'll be able to bring online over the next, call it, you know, two to five plus years in order to continue our pathway of growth across our global portfolio. You know, we have that 70 gigawatts of land is in various stages of power procurement. There's, you know, probably almost four, three, three and a half to four gigawatts that we have on, you know, in hand today in terms of like ESA is ready, you know, ready in hand. And then we're working through the rest of that. So again, that's, that's already another doubling of our overall capacity that we could bring online over that call it two to five year time horizon um yes i mean there's never i would say there's never been a better time to be in this industry but there's also been another you know it's never been probably harder in terms of bringing on you know power and related capacity but again that's where we've we've been uh i think you know well ahead in bringing bringing land capacity online broadening our capital sources uh and putting us in a great position to be able to continue our momentum of delivering what we've recently talked about, which is called 10% bottom line growth, which we've done last year, we expect to do this year, and expect to continue that for several years to come.

So will the moratoria topic work its way into any of your releasing discussions and even indirectly affect things like renewal spreads? Do you expect that or not?

I mean, look, there's, I think there's a, you know, the problem, the short answer is yes, in some regards. But, you know, look, I think there's a few things that are happening right now, one of which is just, there's just a broad, you know, supply demand imbalance, right. And so we've seen pricing continue to pick up across, you know, the majority of our global markets. I mean, it started a few years ago with Virginia, which was kind of the initial foray, although I would say we're, you know, we've seen, last week I was in Europe, I was in Zurich in London, we did a couple of property tours, including some customers that actually reminded me, I mean, you know, Europe has seen a level of constraints well ahead of what we're seeing in the US, maybe different degrees, but, you know, digital, we've been operating in, you 50 plus markets. We've seen where constraints have come up over the last several years. Europe's one place, Singapore's another. I think one thing that we've seen, which probably goes to where your point is, as demand continues to improve and supply becomes constrained, pricing is what tends to move. So we've seen that in terms of our new signings and our development yields, which have picked up over the last call it year to two years we're seeing that in terms of renewal spreads you know just this last quarter i think we set a record in terms of where renewal spreads were which were over 60 percent are greater than a megawatt categories and very healthy within our zero to one we're seeing on top of that we're seeing an environment at least in our portfolio where over the next couple of years our expiring rents are on a downward trajectory versus market that I expect will continue to increase as a result of where inflation is heading, where interest rates are going, and again, to what has been a very favorable supply-demand backdrop that I think all brings itself to a better pricing environment.

Maybe talk about neoclouds.

I think all 1.4 billion of your signings in first half 26 were IG-rated traditional hyperscalers, and now you've got IG project-level ratings, hyperscale credit backstops for neoclouds and how does that kind of factor into your underwriting framework yeah i mean we've i would say we've probably taken a fairly you know we've uh we've taken a cautious approach it in terms of our exposure to neocloud uh uh excluding i'll say that from the perspective of excluding any sort of backs up arrangements um and look i think that's partly been because of, you know, we've also had an ability given where our supply is and where demand is, you know, we've, we've been able to be call it choosy in terms of the customers that we bring, bring on. And, and so we've, we've been able to, to pick some of the more investment grade, high credit quality customers to bring in our portfolio. We do have, you know, again, we, we do have NeoCloud, we do have some NeoCloud exposure. We've actually seen more of that recently in smaller deployments where we've, you know, somewhat back to your first question, where we've helped them connect some of their training workloads through some of our more interconnected facilities as part of a broad meaning and diversity of workloads that we're seeing across the neocloud, but there's also the overall hyperskillset. So that's where we've, you know, more recently, I think, picked and choose in terms of where we think we can best satisfy their needs in terms of our portfolio, which is more smaller, more connected workloads in some of our more gateway-type facilities.

As you look at your capital plan going forward, what's the rough mix across region and what are you looking for in terms of demand signals or maybe permitting constraints to factor this, but how could that shift versus the current mix of APAC versus EMEA versus America's?

Look, we're still seeing if you went back a couple of years, you would have seen the majority of our actual development pipeline was in Europe. That's now shifted to the U.S. just given the size and scale of AI and cloud deployments that we've seen across the U.S., but we continue to develop across our global portfolio, EMEA and APAC. I think we're seeing a dynamic where APAC as a region feels more welcoming to AI, maybe not in all countries, but especially in contrast to maybe the US at the moment. So I think we're looking to expand our presence there, which has been 10% of our portfolio. We've had a view, we continue to want to expand that. We've done that more recently, but more on our more highly connected assets. So we've bought some assets in Johor and Malaysia with some expansion capacity behind that, but on a relatively smaller scale to what, again, what you're seeing in the U.S. We've continued to do deals across Japan as well. But, you know, a lot of these markets are becoming, again, more constrained. But I think we see great demand at APAC from across our product set, again, both scale, hyperscale, and more of our enterprise connectivity-oriented play. We're seeing more diverse workloads continue to pop up within EMEA. Again, on a smaller scale, last quarter, we set a record within our zero-to-one, within our broader EMEA region. And we're starting to see those workloads start to tick up within a number of the core markets across Europe. And then the U.S. as well, in terms of larger workloads continue to dominate the headlines. But I think we've had a great mix of business across our hyperscale as well as our zero-to-one megawatt interconnectivity portfolio.

You can be globally against a number of private developers that operate much higher leverage than you do. And just given what's going on around cost of capital, what are you seeing kind of on, say, the competitive front and how that might be reflected in discussions with your Hypersco customers?

Look, I think we've, you know, we're, I think this goes back to almost probably like two or three years ago. I mean, we set out on a plan, you know, when I took over CFO, we were seven times levered, and people thought that was high in public market context. So, and we set out on a plan over the last several years, I think, to do, you know, two things related to this. One, we brought our leverage down, and we brought a growth profile up. And two, we broadened our capital sources. So we brought in, we started expanding our private capital business, started that with joint ventures and expanding that from a development perspective. More recently, we did our first closed-end fund last year. We brought in over $3 billion of equity capital. And, you know, I think that's, you know, we saw what was a broadening and increasing scale in terms of capital need in order to support what has been an incredible opportunity set across, again, our global business. And we now, I think, put ourselves in a position to be able to access a broadening set of capital that enables us to tap more recently across, you know, I think what has been the most attractive sort of cost of capital in a global set. So just this Monday, I was in the market. We did a Swiss bond offering, 2%, $600 million of capital, right? Pretty attractive in terms of what you can do in terms of what I think other private players can do. So I think the bottom line is diversity, I think, is key as you start to enter environments here where interest rates are rising rapidly. I mean, they're up over, depending on which one you look at, they're up over 100 basis points year to date. And a lot of that's happened, call it, in the last three months. And I think we've got a great ability to tap across the best pockets of capital to continue growth across our business. And ultimately, that, I think, is also going to accrue to, I think, hopefully a continued better pricing environment from a rents perspective as well.

Audience questions?

Do you see a trend towards, like, project financing, like, bankruptcy people, or balance sheet financing, or, like, data center, you know, that's, like, angry against, like, customer contracts?

Yeah, I think the question was, do we see project finance for data center builds? I mean, the short answer is yes. I mean, so we haven't been as prolific on that front, right? Just given our, you know, we're a public company, we've been able to, you know, we've been able to issue bonds, but within, as we start to look at and think about within, but we have done it within our JV, they call it more private capital vehicles. So, yes, we have done that both through bank and bond project finance markets. I would say maybe this is adding more than you were ultimately looking for, but I would say that access to capital is still abundant and available, but I would say it's becoming more discerning and maybe even more so with where interest rates are going. But particularly from, I think, an underlying customer, you know, set, right, I think the highest investment, you know, there's kind of like almost, I almost view it as like there's three, feels like there's almost becoming like three tiers now. There's the high investment grade customers, you know, double A or single A and above, you know, you can get deals done as long as your contracts are structured appropriately. You then have kind of like lower investment or triple B level. Some of those are getting harder, more discerning in order to get capital against them. And then you have, call it more, neocloud, no ratings. I think that's becoming much harder across, at least from what we see from a broader landscape perspective across the globe.

Other questions? please.

Does the increased uncertainty in the regulatory kind of NIMBYism environment change your views on the right level of investment to make into the pipeline going forward? Okay. So I was told to repeat the question.

So that's why I'm doing it.

Does the increased level of NIMBYism change our view on how much we look to build a pipeline? Look, I would say I would say no in terms of what we're seeing today. The majority of the land in our developable capacity that we have is, broadly speaking, in major core markets across our global portfolio, where we've had a long history of experience, we've seen the demand trends, we're having constant discussions with our customers, we feel very good about the long-term potential for that capacity. I can't say that, you know, I would have maybe that view on if we had, you know, for other people's portfolios, I think, you know, they'll have to make that decision. But I think in terms of our ability to access, I think, demand across multiple product sets and multiple customers, right? We don't, we're not, we're not beholden to 10 or 20 customers. We have now 6,000 across our portfolio, right? we have we're not in five markets you know we're in over 50 markets across the globe so i think i think diversity of demand profile customer base geographies especially in this type of environment i think should accrue to our benefit thanks very much for your time oh thank you Appreciate it.