管理層發言
Good afternoon, and welcome to the Digital Realty Second Quarter 2026 Earnings Call. Please note, this event is being recorded. 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's Second 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; and 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 measures 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 second quarter results. First, we had an extraordinarily productive quarter, reflecting strong execution across our key growth vectors, which translated into meaningful upside versus our expectations across revenues, adjusted EBITDA and core FFO. Core FFO, excluding net promote income, reached $2.13 per share in the second quarter, exceeding our expectations and delivering 14% year-over-year growth. Accordingly, we are once again raising our 2026 core FFO per share guidance range, implying 10% constant currency growth at the midpoint. Second, bookings in the quarter were impressive overall with record 0-1 megawatt plus interconnection signings that surpassed the $100 million mark. But the real standout this quarter was renewal spreads, which surged to a record 25-plus percent. And just after quarter end, we signed 2 hyperscale leases, further demonstrating the momentum in our greater than a megawatt category.
Third, strong bookings pushed our total backlog to a new record of $1.9 billion at 100% share or $1.4 billion at Digital Realty's share before accounting for the post-quarter signings. The backlog was roughly 30% of in-place data center revenue at the end of June, which should support multiple years of double-digit growth. And finally, we announced 4 strategic transactions across our 4 growth pillars of colo and connectivity, hyperscale and strategic private capital. These transactions strengthen Digital Realty's value proposition and are expected to bolster Digital Realty's runway for growth for years to come. 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. There's a lot of good news to share this quarter, driven by broad-based momentum across our business, our global full spectrum strategy and our team's incredible execution. Our business is firing on all cylinders, and this quarter showcases the strength and scalability of our platform. Over the last several years, we've been planning and executing to deliver full spectrum data center infrastructure solutions to our large and growing customer base. These efforts are clearly bearing fruit. And at the same time, we continue to sow the seeds to deliver the capacity our customers require and to capture the opportunity for which Digital Realty is uniquely positioned. Digital Realty delivered record results in the second quarter of 2026, reflecting continued execution across multiple regions, products and customer segments. We also continue to benefit from the strongest development and leasing pipelines in the company's history, providing confidence in our ability to meet future customer requirements well beyond 2026.
Our strategic focus is on our 3 core pillars of growth: colocation and connectivity; hyperscale; and strategic private capital. Together, these complementary components are driving strong performance today and fortifying our foundation for the long term, while enhancing our ability to support the robust demand for digital infrastructure and AI around the world. Let me begin by focusing on colocation and connectivity, which remains one of the most differentiated aspects of the Digital Realty platform. As AI deployments continue to evolve, we believe customers increasingly value environments that combine power, proximity and connectivity. During the second quarter, we delivered yet another bookings record in our colocation and interconnection business. Approximately 2 years ago, bookings in our 0-1 megawatt plus interconnection business were averaging about $50 million per quarter. We set a goal of doubling that level over time by focusing on the growing importance of highly connected digital infrastructure.
During the second quarter, we achieved that objective for the first time, delivering $108 million of bookings in our 0-1 megawatt plus interconnection business and marking a third consecutive quarterly record. This milestone reflects strong demand and continued success in capturing highly connected enterprise and service provider deployments. Today, our customers can access a global community of approximately 6,000 cloud, network, enterprise and service provider customers across more than 300 data centers worldwide. We are also seeing increasing levels of engagement from customers deploying AI-enabled applications. Many AI deployments require organizations to connect data, networks, cloud platforms, and end users in efficient and scalable ways and this dynamic plays directly to the strengths of PlatformDIGITAL. Turning to hyperscale. Demand for large-scale deployments remains healthy and increasingly global, though the pace and scale of activity vary across regions.
Activity during the quarter was led by the Americas with particularly strong contributions from South America, while APAC continues to support a growing pipeline of larger opportunities. We also continue to see customer engagement across Europe, albeit a generally smaller scale, reinforcing the broad-based nature of demand for digital infrastructure. Subsequent to quarter end, we signed 2 additional hyperscale leases in the U.S., representing another $410 million of annualized GAAP base rent at 100% share or $205 million at Digital Realty share. While hyperscale leasing can be episodic from quarter-to-quarter, we remain encouraged by both the breadth of customer activity and the strength of our pipeline. In late June, we announced the acquisition of Blackstone's ownership interest in 3 fully leased hyperscale data centers in Northern Virginia, totaling 288 megawatts of IT capacity. The transaction accretively increased our ownership in a set of best-in-class facilities that we have designed, constructed and leased and does so at an attractive entry point while continuing to partner with Blackstone on the remaining 400-plus megawatts in our development venture.
Also in late June, we announced the expansion into the Kansas City Metro, securing 600 megawatts of utility power that begins to ramp in early 2028 with a long-term runway of up to 2 gigawatts of utility power. The timing of power delivery aligns well with customer deployment requirements and reflects the importance of proactively securing capacity ahead of demand. Kansas City benefits from strong connectivity, supported by extensive long-haul fiber infrastructure, more than 25 network providers and less than 10 millisecond latency to more than 50% of the U.S. population. Combined with its central location and substantial power availability, this market is proving an important hub for AI and cloud workloads with several hyperscaler self-build deployments already underway. Together, these actions enhance our growth trajectory and extend our development runway. Coupled with the strength of our leasing pipeline, they reinforce our ability to support the expanding hyperscale cloud and AI infrastructure needs around the world.
Turning to our strategic private capital business. Digital Realty has employed private capital to fuel the company's growth for over a decade through a series of financial and strategic joint ventures and more recently, the successful formation of our $3.25 billion U.S. hyperscale data center fund that closed earlier this year. Using private capital Digital Realty can scale hyperscale development capacity beyond the limits of our balance sheet to better serve the needs of our largest customers. This approach delivers near-term growth through fee income, expands our product availability and investment capacity and enhances the return on invested capital to DLR shareholders. In June, we entered into an agreement to acquire 100% of Columbia Capital, a 30-plus year leading asset management platform in the digital infrastructure space. The Columbia Capital transaction will meaningfully scale our private capital platform, adding more than $9 billion of fund commitments and a well-established base of hundreds of investors, including sovereign wealth funds, pension funds, insurance companies, endowments and other institutional investors.
Strategically, Columbia Capital expands our expertise and visibility into adjacent sectors that underpin our data center business, including fiber, mobility and enterprise technology, while allowing us to participate in those opportunities alongside third-party capital rather than relying solely on our balance sheet. Columbia's experienced investment team and established portfolio complement Digital Realty's global operating platform and will strengthen investment capabilities to take advantage of the expanding AI infrastructure ecosystem. Lastly, this transaction will strengthen our earnings profile and position Digital Realty to drive additional long-term value creation. During the second quarter, we continue to see both enterprises and hyperscalers expand across PlatformDIGITAL. A few examples include: a multinational financial firm is growing its PlatformDIGITAL footprint by deploying private AI inference capabilities to enable data exchange across financial, network and cloud ecosystem partners.
A GPU-as-a-Service provider, together with a global AI infrastructure company are deploying in PlatformDIGITAL's new data center in Barcelona to increase networking capacity and reduce costs while creating a distributed inference AI-ready ecosystem to support advanced AI workloads for growing enterprise demand. A global financial services company chose PlatformDIGITAL to support next-generation AI infrastructure and inference enabled workloads, leveraging interconnected digital ecosystems. And a global cloud computing and content distribution provider is expanding into a new metro by leveraging the leading connectivity propositions available on PlatformDIGITAL. Before turning the call over to Matt, I'd like to spend a moment on the increased public attention that data centers are receiving and how Digital Realty is doing its part to engage constructively and operate responsibly and sustainably.
As an industry, we are becoming significantly more visible. That's understandable. Demand for digital infrastructure continues to grow rapidly and data centers are increasingly recognized as critical infrastructure. Despite the growing role data centers play in our daily lives and the fact that we've been operating as a public company focused on data centers for more than 2 decades, most people have never visited one and may not fully appreciate the critical role these facilities play in enabling modern society. The reality is that Digital Realty's data centers support nearly every aspect of the modern economy. Every cloud application, video call, online class, financial transaction, AI query, streaming service, healthcare record and social media interaction ultimately depends on digital infrastructure. Whether you're working remotely, connecting with your family across the world, ordering and paying for coffee, food or anything else through an app or online, navigating the globe, using connected devices to track calories, glucose levels or overall wellness, monitoring your home via doorbell cam, keeping track of your finances in the market or running a small, medium or large business, data centers provide the physical foundation that makes those experiences possible.
For Digital Realty, that's something to be proud of. Digital Realty data centers increasingly support economic growth innovation, education, healthcare, communication and national competitiveness. They also create high-quality jobs, generate substantial tax revenue for local municipalities that support schools and public safety, support improved resiliency for the utility grid and often serve as a catalyst for broader economic development within the communities where they operate. In our 2 decades of operating data centers, we have seen these benefits firsthand across the markets we serve around the world. As the data center market grows, we believe it is equally important that our industry continues to grow responsibly. At Digital Realty, we are committed to partnering with our customers, communities, utilities and policymakers, and we believe our recently published impact report provides transparency on our performance and serves as a useful scorecard for how we're performing against those objectives.
Let me touch on a few highlights from the report. During 2025, we achieved 93% renewable energy coverage globally, matched 205 sites with 100% renewable and emissions-free energy and expanded our contracted renewable energy portfolio to approximately 1.7 gigawatts. These efforts reflect our commitment to supporting customer growth, while remaining a responsible partner to the communities and energy systems in which we operate. Our data centers also play a constructive role in supporting grid reliability, mitigating risks during periods of peak demand, and helping ensure the grid remains reliable for everyone. In other words, we're not simply consumers of electricity, we also support the resiliency of the broader energy system when it is most needed. From 2023 to 2025, we expanded our portfolio capacity by more than 24% while limiting water consumption growth to just 3% with nearly half of our water sourced from non-potable supplies.
Our 300-plus data centers globally use less water than 18 California golf courses, while there are 16,000 golf courses in the U.S. alone. We are proving that digital infrastructure can scale sustainably while using resources more efficiently. And with that, I'll now turn the call over to our CFO, Matt Mercier.
Thank you, Andy. Digital Realty delivered double-digit growth across virtually every major operating and financial metric during the second quarter, reflecting continued momentum in our colocation and interconnection business, substantial commencements from our growing backlog, exceptional re-leasing spreads, modest churn and increasing fee income. We achieved these results while continuing to invest with conviction in future growth, expanding our development and investment platform and simultaneously maintaining leverage at 4.7x at quarter end, well below our long-term threshold. Overall, the strong operating environment and our favorable positioning continued to translate into better-than-expected results. We are seeing the strength reflected not only in current earnings but also in our growing backlog and expanding development pipeline, which have improved visibility into future revenue and earnings growth.
Turning to leasing activity. We posted another strong quarter of bookings across our platform highlighted by record signings in our 0-1 megawatt plus interconnection business and robust demand across our hyperscale product set. In the 0-1 megawatt plus interconnection category, we generated a record $108 million of bookings during the quarter, representing an 11% increase over the prior record set last quarter. Leasing activity in this segment was strong across all 3 regions, though EMEA achieved a new quarterly record. In contrast to the first quarter, the smallest power bands were the most prominent driver in 2Q with record levels of activity in our sub 300-kilowatt band. The 0-1 megawatt business continues to provide an attractive combination of near-term revenue conversion, pricing power and recurring growth. Interconnection bookings of $20.5 million in the quarter also marked a new record, up 18% from the prior year as these bookings benefit from the overall growth in our 0-1 megawatt category.
The greater than 1 megawatt product category also saw healthy leasing activity in the quarter, led by the Americas, including a record contribution from Sao Paulo. Customer engagements remain robust across this vertical and we continue to source and action capacity throughout our global portfolio. Subsequent to quarter end, we signed 2 additional hyperscale leases, representing approximately $410 million of annualized rent or $205 million at Digital Realty share. Renewal activity was exceptional during the quarter. We signed over $261 million of renewals with cash re-leasing spreads over 25%, reflecting the growing supply-demand imbalance in certain markets, the embedded value within our portfolio and our ability to capture pricing as contracts roll. Combined with the modest churn and strong new leasing activity, these spreads should continue to support attractive organic growth. Renewals in the 0-1 megawatt category accounted for 55% of total renewals and were also a strong contributor with 5.2% cash mark-to-market.
Greater than 1 megawatt renewals accounted for 44% of the total and delivered a remarkable 66.7% mark-to-market. Renewal strength was strongest in the APAC region with outsized spreads realized in Singapore. These renewals highlight the continued imbalance between supply and demand for premium data center capacity and underscore the attractive repricing opportunities that are periodically presented to us in our most highly constrained markets. While the second quarter reflects an exceptional renewal outcome, it also provides a compelling illustration of the value embedded within our lease expiration schedule and the pricing opportunities available in our most supply constrained markets. Moving to the backlog. Our total backlog reached a new record of $1.9 billion at the end of the second quarter, further enhancing our visibility of future revenue growth. This excludes the benefit of the new $410 million of hyperscale leases signed in July.
At Digital Realty's share, the backlog increased by 75% since the beginning of the year to a record $1.4 billion. This backlog now represents approximately 30% of our in-place data center rent, highlighting the potential growth that will unfold in the coming years as developments are successfully delivered. During the quarter, we commenced $208 million of annualized rent, marking our third strongest commencement quarter on record. Looking ahead, commencements will accelerate meaningfully as $635 million of annualized rent is scheduled to commence in the second half of 2026, with 45% starting in the third quarter and 55% in the fourth. Looking into 2027, we have $480 million scheduled to commence with another $312 million already slated for 2028 and beyond. These future commencements reflect continued strong execution across our leasing, development and delivery platforms, enhanced by the strategic transactions completed during the second quarter.
With the substantial portion of future revenue already under contract, we entered the second half of 2026 with a high degree of confidence in our growth outlook and a strong foundation for continued earnings growth into 2027 and 2028. As for earnings, we reported core FFO of $2.65 per share for the second quarter, including a $0.52 benefit from net promote income. Excluding net promote income, core FFO was a record $2.13 per share, up 14% year-over-year, reflecting strong execution, elevated commencements, growing fee income associated with our strategic private capital platform and seasonally low repair and maintenance expenses. Core FFO also included $0.02 of upside from FX and a $0.07 per share net benefit from business interruption insurance proceeds from lost rent related to an incident in Singapore. Let me provide some additional detail. As noted, we benefited from 2 significant sources of upside in the quarter.
First, we received $113 million of proceeds or $94 million net of tax associated with an insurance recovery from an event and claim made in 2024. This recovery reflects the final settlement and most significant portion of that claim that was recognized during the quarter. In terms of financial statement geography, the $113 million recovery was recognized in interest and other income whereas the related $19 million tax liability was recorded as income tax expense. Of the $94 million net gain, approximately $67 million was related to property damage and therefore, excluded from core FFO. The remaining $27 million or approximately $0.07 per share represented the business interruption component or payment for lost rent, which was included in core FFO. The $0.07 was contemplated in our full year guidance. The timing was imprecise. Second, Digital Realty realized roughly $200 million of promote income associated with the Blackstone transaction this quarter, reflecting the value creation generated through the development and lease-up of the 3 joint venture assets.
The $188 million or $0.52 per share recognized in our core FFO reconciliation is net of $14 million of related expenses. The gross promote income was recognized in fee income and therefore, included in total revenue, whereas the related expenses are reflected in other expenses. While promote income is new to Digital Realty, it should be viewed as a value creation-oriented gain, reflecting successful outcomes for our JV partners and investors that may be realized periodically over time. The promote demonstrates the value creation potential from combining our development capabilities and operating platform with our strategic private capital business. Given the potential for additional promote income in the future, it is judged as core FFO. However, since this promote was not reflected in our 2026 guidance, we have presented core FFO results both including and excluding its impact. Looking forward to the third quarter, we expect reported core FFO excluding promote to moderate slightly as strong commencements are partly balanced by the seasonal ramp in net utility and R&M expenses, a pickup in CapEx spending and asset recycling activity as well as elimination of the $0.02 FX benefit we enjoyed in 2Q.
Same capital cash NOI growth strengthened further in the second quarter, increasing 8.9% year-over-year, driven by 8.2% revenue growth and disciplined expense management. On a constant currency basis, same capital cash NOI increased 7.2%, reflecting higher occupancy, robust renewal spreads and strength in interconnection. Moving on to investment activity. We invested $1.1 billion in development CapEx during the quarter, net of our partner share, bringing year-to-date capital spending to $2 billion. We also completed a handful of meaningful land acquisitions in the quarter in Kansas City, Marseille and Atlanta that expanded our future development capacity along with the acquisition of operating and development assets in Malaysia. These activities reflect our continued focus on disciplined capital allocation, expanding capacity in markets where we see the strongest customer demand and positioning the platform for future growth.
During the quarter, we delivered 76 megawatts of new IT capacity, approximately 60% of which was pre-leased. At the same time, we commenced development of 312 megawatts of capacity including significant available inventory in Northern Virginia and Marseille to support future customer deployments. These development starts reflect both the strength of customer demand and our confidence in the opportunities we see across the platform. As a result, our development pipeline expanded to 1.4 gigawatts under construction at a total cost of $20 billion, representing a 100% increase during the first half of 2026. Pro forma, the hyperscale leasing completed in July, the development pipeline is now 63% pre-leased at an 11.5% average expected stabilized yield. More than 80% of our active development pipeline is located in the Americas, reflecting outsized demand from hyperscale cloud and AI-oriented workloads.
While Northern Virginia remains our largest development market, we also have significant activity underway in Charlotte, Atlanta and Sao Paulo and expect to begin construction in Kansas City during the second half of the year, further expanding our capacity in markets where we see the strongest long-term demand. Collectively, these projects provide both near-term deployment opportunities and substantial runway for future growth. Turning to the Blackstone transaction. We paid $1.2 billion in cash and issued 12.3 million shares valued at approximately $2.3 billion for Blackstone's blended 64% equity interest, 3 fully leased hyperscale data centers in Northern Virginia, totaling 288 megawatts of capacity. We also assumed our partner share of a $725 million loan and the remaining CapEx necessary to finalize the construction and fit-out of these assets. From a timing perspective, we expect the first 2 facilities to fully stabilize during the first half of 2027, with the third expected to stabilize during the first half of 2028.
Despite closing on these assets pre-stabilization, we are still raising full year 2026 guidance by another 1.5%. We also expect this transaction to be accretive to core FFO per share in both 2027 and 2028 to help support our outlook for multiple years of double-digit core FFO per share growth. In addition to this transaction, we also announced our plans to acquire a 16% interest in Teraco for roughly $650 million of DLR common stock and Columbia Capital for approximately $485 million, which are expected to close in the second half of the year. Turning to the balance sheet. The second quarter was highlighted by a continued multiyear trough in leverage as debt-to-adjusted EBITDA remained at just 4.7x at quarter end despite completing nearly $6 billion of net new investment activity during the quarter. Notably, leverage falls below 4.6x when adjusting for the timing of the Blackstone JV transaction, which closed on the last day of the second quarter.
Over the past 12 months, leverage has declined by approximately 0.4 turns, reflecting the strength of our operating performance, increased retained capital and tactical equity issuance to support our expanded opportunity set. We maintain approximately $6 billion of liquidity today and ample incremental borrowing capacity below our long-term 5.5x leverage threshold. We also continue to expand our strategic private capital platform as we build investment capacity to support the significant hyperscale opportunity ahead of us. Along with the dry powder that remains with our hyperscale development joint venture, we estimate that we have over $12 billion of remaining capacity to support hyperscale data center development. Taken together, these initiatives strengthen our ability to support customer demand, fund our expanding development pipeline and capitalize on future growth opportunities while maintaining financial flexibility and balance sheet strength.
Let me conclude with guidance. We are raising our 2026 core FFO per share guidance, excluding net promote income by $0.15 at the low end and $0.10 at the high end to a new range of $8.15 to $8.20 per share, reflecting the continued strong execution across our data center portfolio and our high visibility for the remainder of the year. The midpoint of the updated range represents double-digit growth over 2025, which would mark our second consecutive year of double-digit core FFO per share growth. We also expect cash renewal spreads of 9% to 11%, up another 250 basis points from last quarter, driven by strong performance year-to-date with a healthy outlook for the remainder of the year. Same capital cash NOI growth of 4.25% to 5.25% on a constant currency basis, up 25 basis points. CapEx, net of partner contributions is expected to increase by $750 million from last quarter to $4.25 billion to $4.75 billion, driven by our recent leasing success and the strong demand outlook.
And we are also continuing to recycle capital to fund this new investment and have added another $500 million to our dispositions and JV capital guidance. Importantly, our current backlog of contracted commencements, development pipeline and recent strategic transactions give us increased confidence in our ability to extend our double-digit core FFO per share growth runway into 2027 and beyond. This concludes our prepared remarks, and now we will be pleased to take your questions. Operator, would you please begin the Q&A session?
分析師問答
Our first question comes from the line of Eric Luebchow with Wells Fargo.
Maybe we could just touch on your comment, Matt, about double-digit FFO growth for multiple years to come, and you could help us walk through some of the puts and takes. First of all, obviously, the Blackstone, Teraco, Columbia Capital deals, you talked about meaningful accretion starting next year. So if you could walk through any of the accretion math for us there. And then it certainly sounds like given the success you've had in leasing year-to-date, that CapEx is going to be meaningfully higher next year. So just if you could kind of talk through the balancing act between accretion on deals, continued growth and then capital funding to hit that double-digit growth target, that would be helpful.
Yes. Thanks, Eric. We've set the stage in terms of our growth algorithm that you're seeing happen this year with our guidance raise that's now putting this at 10%. We're executing across several growth levers to stack up these multiple years of 10% growth. Taking some examples, we had renewal execution this quarter that gives us an opportunity to drive higher value out of our operating portfolio in a very supply-constrained environment. We continue to execute on our hyperscale leasing, which is building a deeper multiyear backlog. We're also setting another record in our 0-1 and interconnection demand, which is driving not only more immediate revenue growth, but also improving our long-term revenue base. And then you add the private capital, which is giving us an ability to fund additional capacity while also generating fee income. So it's all these things coming together that you've seen this year that gives us confidence in our ability to extend that double-digit core FFO growth per share into not only this year, but into 2027 and beyond.
And our next question comes from the line of Nick Del Deo with MoffettNathanson.
Looking out over the next several years, how should we think about the evolution of your asset mix, kind of split between network-dense colo on balance sheet, hyperscaler large footprint facilities and assets held in various off-balance sheet vehicles. You're obviously pushing hard in all 3 areas. I'm curious as to how that is going to shift if we look out 3 years or 5 years or whatever you think the appropriate time frame is.
Thanks, Nick. These items are all firing on all cylinders. First and foremost, colo and connectivity has been a part of rolling out incremental inventory in our core markets. We've also added numerous markets in recent quarters, entering Malaysia and Indonesia and in Europe expanding to Lisbon and building a new data center in Barcelona. Rome and Milan are coming up as well. We're entering more markets and increasing our addressable market execution. We've had 3 consecutive quarters of records in the 0-1 megawatt category. This quarter was certainly a milestone of 20% year-over-year growth. If you go back 2 years, productivity and signings in that category were roughly half of today's level. That activity, by and large, is on balance sheet, increasing our mix in that category as we add new customers, including 142 new logos this quarter, and expand services with existing customers. At the same time, we've been able to expand and support our hyperscale customers.
They are off to a great start to the year with roughly $1.4 billion of signings including the $400 million signing in early July, which already eclipses total signings from last year on a comparable basis while we're only halfway through 2026. That hyperscale activity feeds our development pipeline and hasn't yet fully hit our P&L because many of those signings go into developments. We are raising private capital to create recycling vehicles; a great example is our inaugural U.S. hyperscale fund that closed at $3.25 billion and has substantial dry powder. We seeded it with about $1 billion of assets. So you can see the playbook: supporting the full customer spectrum and using private capital as a lever to better fund our capital base and serve customers.
And our next question comes from the line of Michael Rollins with Citi.
I'm curious if you could help us appreciate the timing for the development pipeline that you have, how much power has been fully committed to you and is coming on for each of the next few years. Just to understand how much is left that you have to sell and over which periods? And then also, you mentioned the strength of the fee income and the opportunity going forward. Is there a simple algorithm you can walk us through on how that fee income should scale for Digital Realty over the next few years?
Thanks, Mike. I'll touch on the development first, and then I'll hand it off to Matt to walk through sequencing in fee income. As of June 30, we have about $20 billion of projects under development at full share, targeted at an 11.5% expected return. The leasing we did in early July increased pre-leasing of that capacity to about 63% pre-leased. That represents roughly 1.4 gigawatts under development, which is about a 45% expansion relative to the approximately 3 gigawatts we operate today. It's a significant, highly pre-leased, high-return portfolio diversified across multiple markets and it will contribute materially to future growth. The overall growth runway we reference now stands at about 9 gigawatts of potential capacity for our customers globally. Near term, we're in active dialogue with customers on roughly 1.5 gigawatts of 2027 and 2028 deliveries. This is a moving target, as customers sign and we mobilize land and power quickly; for example, a 200 megawatt lease into Charlotte was signed after we closed on the land roughly 18 months earlier. We're continuing to support customer runway and build the development pipeline, which drives the backlog Matt described. Matt, do you want to discuss fee income?
Yes, Mike. On fee income, the major components are management fees, development or construction fee income, and fit-out fee income, which can be more episodic. Management and development fees are starting to become more recurring as we expand our private capital business. In the second quarter, normalizing for the promote, fee income was around $45 million. Looking forward, the $10 billion to $12 billion of capital available to deploy within our private capital structures should drive development income as those assets are constructed, which will then transition into recurring operating management fees. I expect that to play out over the next one to two years as assets come online and to provide runway even within our current private capital vehicles, with potential to scale further with future private capital initiatives.
Our next question comes from the line of Madison Rezaei with Bernstein.
As the AI build-out broadens beyond the traditional cloud majors, are you signing leases with a wider set of hyperscale counterparties — thinking neoclouds, AI-native platforms, sovereign entities — or are you still concentrating the greater than 1 megawatt book among a short list of IG names? And to the extent you're broadening this out, how are you underwriting contracts given the wide spread in credit profiles?
Thanks, Madison. For smaller network-oriented deployments and enterprises doing private AI, we are supporting a diverse set of customers across many markets but without any sizable concentration at a single site. The 0-1 megawatt category was a major contributor this quarter, and roughly 20% of the $108 million in that category was AI-related. For larger footprint blocks, we largely support traditional investment-grade hyperscalers. Over the last 10 quarters, our top signing came from six different hyperscalers, all strong investment-grade names with diverse businesses. These large customers are growing across multiple markets, and we continue to support them in a campus-style fashion.
And our next question comes from the line of Jonathan Atkin with RBC Capital Markets.
Related to that, and leading into my question, as you think about customer credit and doing business with LLMs and a broader array of neoclouds, are you in principle open to it? Or are you looking for a look-through into the underlying customer? And then as you look at your sales pipeline, any new trends to call out around demand verticals or types of workloads contributing to near-term sales?
Thanks, John. This is more hypothetical than reality for us today. We support many smaller network nodes and enterprises doing private AI across many markets, but none represent a material concentration. The $1.4 billion of signings in the first half of the year and early July are primarily with traditional hyperscalers. We have not been booking material activity from hypothetical smaller neoclouds at scale.
Thanks, Jonathan. We're pleased with our 0-1 megawatt and larger megawatt progress. The 0-1 category is in its third straight quarter of record bookings, and we are taking market share across geographies and use cases. A couple of trends: AI gets the headline and is a growing part of our pipeline, but digital transformation and cloud remain very resilient. We're seeing data localization, sovereignty and repatriation themes, with private and public cloud both strong. Interconnection is a growing part of the overall solution proposition — we had record interconnection bookings this quarter. ServiceFabric and self-service capabilities are becoming consistent parts of client conversations. We're also seeing a channel-centric orientation in how we deliver value; we had a record channel quarter with nearly 40% of bookings coming through channel partners. Finally, new logo contributions remain strong; we now have north of 6,000 customers participating in PlatformDIGITAL.
And our next question comes from the line of Jon Petersen with Jefferies.
I wanted to ask about Kansas City. You talked about 600 megawatts. Can you help with timing for how quickly you could sign leases and deliver capacity there? More broadly, is this an example that you are broadening the markets you target and moving some previously secondary markets into core opportunities?
Thanks, Jon. I'll have Greg address the market specifics. In general, though, Kansas City has strong attributes and is analogous to Charlotte, where we were able to develop quickly once we had power and land secured.
Thanks, Jon. We did extensive work on Kansas City before going in, analyzing digitization metrics and connectivity. It's centrally located in the U.S., enabling low latency coverage to a large portion of the population. There's substantial fiber presence and many network providers. We believe this market can quickly become the seventh largest data center market in the U.S. and a Midwest hub for AI and cloud workloads. Timing-wise, the power ramp begins in 2028 and ramps linearly from there. We're talking about over 1,400 acres with a long-term potential of over 2 gigawatts of power. We are excited about the market and customer demand.
And our next question comes from the line of Michael Ng with Goldman Sachs.
I wanted to ask about the very strong cash rental rate renewals in the greater than 1 megawatt. You talked about outsized spreads realized in Singapore. Was there something unusual about that market, perhaps leases expiring at unusually low rates, or is this really a function of supply/demand tightness and something we could see in other places in the future?
Thanks, Michael. There are two points. First, Singapore is a very supply-constrained market in high demand and highly connected. In one case, a customer had a fixed renewal rate and wanted a longer term, which enabled us to negotiate to market. More broadly, this is an example of a supply-demand imbalance where we have the ability to reprice leases. Our expiring rates are declining over the next several years while market rates are moving up. While we may not see such outsized percentages every quarter, there's a healthy ongoing opportunity to reprice contracts in our operating portfolio.
And our next question comes from the line of Richard Choe with JPMorgan.
I wanted to follow up on connectivity and interconnection. What are you seeing in terms of connectivity and interconnection needs with AI inference or agents? How does that apply to private AI deployments you're seeing and how might that change as this evolves?
Thanks, Richard. Interconnection had a record quarter, up 17% year-over-year, over $20 million. ServiceFabric and increased customer adoption and usage are important contributors. AI — particularly inference and agentic workloads — is also driving demand. I'll ask Chris to add technical context.
Appreciate the question, Richard. We're in the early innings. There's been significant build-out and transition into inference; in 2026, inference tokens outnumber training tokens, and the next evolution is agentic capabilities which require bidirectional, low-latency connectivity. Our product offerings across digital transformation, cloud, AI and private AI can meet these needs. Early demand has been fiber-centric and has shown up in our record bookings. What's emerging now is the monetization of inference and agentic services delivered to end customers. The combination of high power and rich interconnection is a unique value proposition because customers need both. Pre-engineering capacity with power and interconnection lets us deliver this value quickly, and that is what our customers are asking for.
And our next question comes from the line of Joseph Osha with Guggenheim.
Further to the strength in renewal spreads, looking at your disclosures, it seems the math actually gets better in 2027 and into 2028 based on the magnitude of rolling leases and pricing. I wanted your reaction — it seems like comps get easier next year. As a related question, might political activity in New York State and Loudoun County provide additional tailwind to pricing in those regions?
Thanks, Joe. You're spot on that the mark-to-market opportunity improves against a backdrop where our expirations decline and market rates rise. We've been putting up new records in various markets, including on large lease contracts. The broader environment is making it more challenging to deliver the critical digital infrastructure customers need, which increases the value of our installed base and capabilities. We engage with communities to communicate the benefits of data centers, and our experience over decades focused on delivering digital infrastructure positions us well as challenges arise. Thank you, operator. Digital Realty's momentum accelerated in the second quarter with record core FFO per share, supporting another increase to our full year guidance. Strong operating performance, a record backlog and healthy customer demand gives us increasing confidence in our ability to deliver double-digit earnings growth in 2027 and beyond.
We delivered record 0-1 megawatt plus interconnection bookings and generated strong hyperscale leasing in the quarter that continued into July, which drove our backlog to a new all-time high, derisking future growth. We also announced a few meaningful and strategic investments that will strengthen our 3 core pillars of growth. Collectively, these actions will enhance our ability to serve our customers, fund future growth and create long-term value for our shareholders. These outstanding results are a team effort, and I am incredibly proud of our talented colleagues around the world who continue to execute at a high level. I'm excited about the opportunity ahead and confident in Digital Realty's ability to deliver value for our customers, partners and shareholders. Thank you all for joining us today, and thank you to our dedicated and exceptional team who keeps the digital world turning.
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