Digital Realty (DLR) Q3 2026 earnings review
Digital Realty signs record leases, but new shares slow profit
Digital Realty, the global data center landlord, signed a record wave of leases while heavy share issuance slowed per-share gains. Revenue rose 21% from a year ago, and chief executive Andy Power lifted the full-year profit outlook for a third straight quarter after results beat what the prior plan implied. However, issuing stock to buy land and properties meant per-share core profit grew 11%, roughly half the 21% jump in total profit dollars.
| Operating revenue | $1,902M +21% from a year ago (+10% from Q2 ex-promote) |
|---|---|
| Core FFO per share, excluding one-offs | $2.10 +11% from a year ago |
| Signed lease bookings (company share) | $627M record; lifts backlog to $1.8B |
| Full-year Core FFO per share outlook | Raised $0.15 middle of the range: $8.325 (+13%) |
⚖️ Verdict: 🟢 Bullish
The story got better because demand broadened across both giant cloud deals and smaller enterprise contracts, lifting the unstarted lease backlog by $400 million to $1.8 billion. Fee income also more than doubled to $75 million without relying on last quarter's one-off buyout fee. The bad news: share count grew 9% from a year ago, and by our math the raised outlook still points to per-share profit dipping to about $2.06 in the fourth quarter.
The question now is whether the $1.8 billion lease backlog and rising fund fees can outrun ongoing share dilution as new buildings open in 2027. Either the new private funds carry more of the construction bill, or continued stock sales keep cutting per-share growth in half. Management's first 2027 outlook next quarter will settle it.
🐂 Bull Case
Record Bookings Lift Backlog To $1.8 Billion
Digital Realty rents out data center space and power to cloud giants and large enterprises. Chief executive Andy Power said the company "extended its track record of execution in the third quarter with record leasing, an expanding backlog, and another quarter of double-digit earnings growth." That leasing activity is the main engine for future revenue.
- New leases signed at Digital Realty's ownership share: a record $627 million of yearly rent, nearly four times a year ago
- Total new leases including partner shares: a record $855 million across 267 megawatts of power capacity
- Unstarted lease backlog at the company's share: a record $1.8 billion, up $400 million from last quarter
- Third-quarter land purchases: $742 million across six markets to support over 2 gigawatts of future capacity
The $400 million jump in the backlog matters because last quarter's increase came partly from buying out a partner's stake, whereas this quarter's gain came from new customer contracts. By our math, about $227 million of previously signed leases started paying rent during the quarter, driving a 20.6% jump in revenue from a year ago.
What to watch: the schedule for when the $1.8 billion backlog starts paying rent in the full third-quarter supplement. A large block starting in 2027 would lock in next year's revenue growth before any new deals are signed.
Smaller Enterprise Leases And Renewals Keep Climbing
While giant cloud contracts grab headlines, the real estate trust relies on smaller enterprise deals and lease renewals for steady, near-term cash flow. In the third quarter, Digital Realty signed a record $152 million of yearly rent "within the 0 - 1 megawatt plus interconnection category", which covers smaller power blocks and direct cables linking customer servers.
Those smaller bookings rose 40.2% from last quarter's record and 79.6% from a year ago. At the same time, tenants renewing existing contracts agreed to pay 11.8% more in cash rent and 17.0% more on an accounting basis across $261 million of renewals. Because smaller leases start paying much faster than new buildings, this demand feeds revenue right away and prompted the company to raise its full-year cash renewal pricing plan to 10.0%–12.0%.
What to watch: fourth-quarter cash renewal rent increases. A reading above 8% would show that pricing power holds up even without the unusual large-lease renewals that boosted the second quarter.
Private Capital Fees Grow Without One-Off Gains
Digital Realty has been building a private investment business where outside partners help pay for expensive data center construction in exchange for management and development fees. Last quarter, a $201 million one-off incentive fee from buying out a joint-venture partner muddied the numbers. This quarter tested whether regular fees could grow on their own.
They did. Third-quarter fee income reached $75.3 million with no one-off incentive fees, more than double the $36.4 million earned a year ago and up 57.1% from last quarter's underlying $47.9 million by our math. After the quarter ended, the Austin-based group also closed $1.4 billion of "initial cornerstone equity commitments to our new perpetual capital strategy focused on stabilized hyperscale data centers in North America", while raising its full-year asset-sale and partner-funding target by $500 million.
What to watch: fourth-quarter fee income and the closing of the Columbia Capital acquisition. Staying above $70 million in quarterly fees would prove that third-party asset management is a durable profit stream.
Cautious Full-Year Plan Raised A Third Time
Three months ago, Digital Realty's full-year outlook pointed to a second-half slowdown. By our math, the July plan left $1.99 to $2.02 per share per quarter for core funds from operations (Core FFO, a standard real estate profit measure) excluding one-off incentive fees, and $1.75 billion to $1.80 billion per quarter for revenue.
Actual third-quarter results topped both implied ranges, with Core FFO at $2.10 per share and revenue at $1.90 billion. That beat shows the July outlook was cautious, so the company raised its full-year Core FFO plan by 15 cents at the middle of the range to $8.30–$8.35 per share. However, beating a conservative forecast does not mean share dilution has stopped hurting per-share growth, because Core FFO per share still slipped 3 cents from the second quarter.
What to watch: fourth-quarter Core FFO per share against the $2.03–$2.08 implied by the new full-year outlook. Another beat above $2.10 would confirm that management routinely sets its quarterly bar low.
🐻 Bear Case
New Shares Cut Per-Share Profit Growth In Half
Power highlighted "another quarter of double-digit earnings growth" as data center demand boomed. While total profit grew fast, Digital Realty paid for its land and building spree by issuing millions of new shares, which spreads the profit across many more owners.
- Total Core FFO excluding incentive fees: $795.3 million, up 21.2% from a year ago
- Core FFO per diluted share excluding incentive fees: $2.10, up 11.1% from a year ago and down 1.4% from last quarter
- Diluted shares and units for Core FFO: 378.8 million, up 8.9% from a year ago and up 5.0% in a single quarter
- Stock sold on the open market: 2.4 million shares in Q3 for $450 million, bringing nine-month sales to 15.9 million shares for $2.9 billion
- South African deal after quarter-end: bought 16% more of Teraco "from certain minority shareholders, principally through the issuance of 3.4 million shares of common stock"
This share issuance cuts the per-share growth rate nearly in half compared with total dollar profit growth. Even as revenue jumped 10.4% from last quarter excluding incentive fees, Core FFO per share fell from $2.13 to $2.10 because the new shares from open-market sales and the second-quarter Northern Virginia buyout took a larger bite.
What to watch: diluted share count in the fourth quarter, which will include the 3.4 million Teraco shares. If share count growth stays near 9% while revenue growth slows toward the implied 12% fourth-quarter pace, per-share profit growth could drop into the single digits.
Longer Wait Times And Big-Tech Reliance
Digital Realty's record leasing quarter leaned heavily on giant data center blocks over one megawatt, which are rented by a small group of major cloud companies. Those large contracts made up $474.2 million, or 75.7%, of the company's $626.6 million in new leases, with $261.3 million concentrated in Asia Pacific alone.
Because these massive halls must be built and wired for power before tenants move in, the average wait between signing a lease and collecting rent was 17 months in the third quarter, compared with roughly 8 months a year ago. Meanwhile, the company spent $742 million on raw land for over 2 gigawatts of future capacity that will take years to develop. That leaves investors paying for land and construction today through share dilution while waiting until 2028 for the rent.
What to watch: the average wait time on new leases and any construction delays in the fourth-quarter report. A wait time stretching past 18 months would widen the gap between upfront capital spending and cash returns.
Risks this quarter didn't answer
Four standing concerns from last quarter could not be checked in the earnings release and await the full financial supplement or the quarterly filing.
- European occupancy: overall occupancy rose to 91.1% from 90.2%, but regional occupancy for Europe, where large-lease signings were just $9.9 million, was not in the release.
- Non-cash rent boosts: accounting income from below-market leases acquired in June more than doubled to $2.1 million in Q3, and the updated multi-year schedule awaits the quarterly filing.
- Columbia Capital deal: the release gave no update on closing the acquisition of the $9 billion investment firm expected in the second half of 2026.
- Customer self-building: whether chief executive Andy Power still has to defend city-center data centers against cloud giants building their own rural campuses awaits the conference call.
💲 Other KPIs
Adjusted funds from operations (AFFO, a cash profit measure that subtracts routine property upkeep) rose 2.8% per share from a year ago, down from 47.0% growth in the promote-boosted second quarter and 7.9% in the first. Upkeep spending jumped 35.6% from a year ago to $105.8 million, holding back cash flow per share.
Debt relative to operating cash flow climbed to 5.2 times from 4.7 times in the first two quarters of 2026 and 4.9 times a year ago. Total debt reached $19.5 billion, up 7.0% from a year ago. In October, the real estate group borrowed another $1.7 billion in euro and Swiss franc bonds at roughly 4.0% interest, beating its earlier 4.5%–5.5% cost estimate.
Operating profit as a share of revenue rose 5.9 percentage points from a year ago, when it sat at 10.0%. Deal and integration costs dropped by 2.9 percentage points of revenue to $49.0 million, more than offsetting a 1.3-point rise in utility power costs. However, overhead costs rose 22.0% to $170.6 million, prompting a $20 million increase to the full-year overhead forecast.
🔮 Guidance
Raised. The company lifted its main per-share profit plan by 15 cents at the middle of the range, pointing to 12.7% growth for the year. By our math, that leaves $2.03–$2.08 for the fourth quarter, down from $2.10 in the third quarter as new shares weigh on the count. It is the third raise this year: +$0.10, +$0.125, +$0.15. Constant-currency Core FFO per share also rose 15 cents to $8.25–$8.30.
Raised. The middle of the revenue target moved up by $187.5 million to about 16.0% full-year growth. By our math, that leaves $1.83 billion for the fourth quarter, which would be a 4.0% drop from the third quarter and 11.8% growth from a year ago. This is the third raise of 2026: +$50M, +$200M, +$187.5M.
Raised. Digital Realty lifted the bottom of its cash operating profit range by $50 million, moving the middle up $25 million. By our math, the outlook leaves $949 million for the fourth quarter, down 2.9% from the third quarter's $978 million and up 10.8% from a year ago. It is the third increase this year: +$50M, +$100M, +$25M.
Cut. Management lowered its accounting profit forecast by 20 cents per share. The entire reduction comes from a 35-cent increase in projected real estate depreciation and property sale adjustments, which rose to $5.65 per share as new buildings and the Northern Virginia acquisition came onto the books. NAREIT-defined FFO per share, which adds back real estate depreciation, rose 15 cents to $8.55–$8.60.
Raised. Cash property profit growth at data centers owned since the start of 2025 was lifted by 0.75 percentage points at the middle of the range. Alongside this, cash renewal rent increases were raised 1 percentage point to 10.0%–12.0% (13.0%–15.0% on an accounting basis), while the year-end occupancy gain was held at 0.75 to 1.25 percentage points.
Raised. The target for selling properties or contributing them into partner funds rose by $500 million for the second straight quarter, following the $1.4 billion initial closing of the North American hyperscale fund. Development capital spending net of partner money was held at $4.25–$4.75 billion, recurring property upkeep was held at $400–$425 million, and overhead expenses were raised by $20 million to $640–$650 million.
❓ Key Questions
How much will new shares slow 2027 per-share growth?
Diluted share count for Core FFO rose 8.9% from a year ago to 378.8 million, before counting 3.4 million shares issued for Teraco in October. Investors need to know what share count underpins the promise of double-digit per-share growth in 2027.
Did European occupancy recover in the third quarter?
European occupancy fell 1.9 percentage points in the first half of 2026 to 81.9%, and third-quarter large-lease signings in Europe were just $9.9 million. The release did not include the regional occupancy breakdown.
What drove the $75 million third-quarter fee income?
Fee income more than doubled from a year ago to $75.3 million without any disclosed incentive fees. Management has not yet broken down how much of that figure is recurring asset-management fees versus one-time development or setup fees.
When does the $261 million Asia-Pacific lease block start?
Asia Pacific accounted for 55% of all large leases signed in the quarter at $261.3 million, and the company-wide wait time to start leases was 17 months. The exact start dates will determine whether that rent helps 2027 or waits until 2028.