Digital Realty at Nareit REITweek: AI and Power Challenges

On Tuesday, 03 June 2025, Digital Realty Trust Inc. (NYSE:DLR) presented at the Nareit REITweek: 2025 Investor Conference. The company highlighted robust demand driven by digital transformation and AI, while acknowledging challenges in power procurement. CEO Andy Power emphasized AI’s potential for future growth, despite current infrastructure hurdles.

Key Takeaways

• Digital Realty achieved a record $1 billion in bookings last year, driven by digital transformation and AI.
• The company is addressing power procurement challenges due to underinvestment in US infrastructure.
• Digital Realty is reducing leverage and diversifying funding through joint ventures and funds.
• AI is expected to play a significant role in long-term growth, particularly in the enterprise segment.
• The company is targeting a 6% growth in FFO per share for the current year.

Financial Results

• Record bookings of $1 billion were reported for the past year.
• Approximately 10% of recent signings were related to AI use cases.
• Leverage has been reduced from 7x to close to 5x.
• Digital Realty’s liquidity stands at about $6 billion.
• Over $2 billion in commitments have been secured for the first fund.
• A joint venture with Blackstone could result in $3-5 billion of investment.
• The company aims for a 6% FFO per share growth this year.

Operational Updates

• Digital Realty supports 5,000 customers across 50 metropolitan areas on six continents.
• The company operates over 300 data centers with nearly 3 gigawatts of capacity.
• Approximately 4 gigawatts of growth or under development capacity is under control.
• The majority of AI activity is centered in the United States.
• Investments are being made in solar power, notably in South Africa.

Future Outlook

• Continued growth in hyperscale capacity is anticipated.
• AI, in its early stages, is expected to offer long-term demand growth.
• Sovereign AI initiatives are predicted to drive growth in global markets.
• Digital Realty is focused on consistent FFO per share growth.

Q&A Highlights

• Discussions covered reliance on front-of-meter vs. behind-the-meter power solutions.
• Concerns about data center obsolescence and capital expenditure were addressed.
• Efforts to deleverage and diversify funding sources were emphasized, with joint ventures playing a key role.

Readers are encouraged to refer to the full transcript for a comprehensive understanding of Digital Realty’s strategic insights and operational details.

Full transcript - Nareit REITweek: 2025 Investor Conference:

John Hovlik, Communications Infrastructure Analyst, UBS: Thank you all for joining us. My name is John Hovlik. I’m the communications infrastructure analyst for UBS, and I’m joined today by Andy Power, the president and CEO of Digital Realty Trust. Andy, thanks for being here.

Andy Power, President and CEO, Digital Realty Trust: Thanks for having me.

John Hovlik, Communications Infrastructure Analyst, UBS: So we’ve got thirty minutes for for q and a, I have a number of questions I’m I’m gonna go through here. We we we are also gonna leave time at the end to, take questions from the audience. So if you have any questions, please raise your hand and and and we’ll get to you. So so, Andy, starting sort of big picture, can you give us a quick overview of Digital Realty and why investors should invest in the company today?

Andy Power, President and CEO, Digital Realty Trust: Sure. So Digital Realty supports 5,000 customers across 50 metropolitan areas on six continents with their data center and connectivity infrastructure. We are essentially supporting three secular tailwinds of demand: digital transformation, cloud computing and now artificial intelligence. And we are the largest global provider with north of 300 data centers operating close to three gigawatts of capacity with another incremental close to four gigawatts of growth or under development capacity under our control or on our balance sheet. We’ve been a twenty year public company, so we’ve been to this conference a few times.

We were at the data center game well before folks were talking about GPUs and AI. And we’re about building and operating the infrastructure to support our customers’ future and growth.

John Hovlik, Communications Infrastructure Analyst, UBS: I think it’s a great place to start on the demand side. You’re coming off a strong year for new leasing. What’s driven the recent performance? And how sustainable is the current demand environment?

Andy Power, President and CEO, Digital Realty Trust: So these are long term secular tailwinds of demand that we are essentially supporting that are foundational technology for our customers. Last year, we had a record $1,000,000,000 of bookings. Underneath that, there was records in our zero to one megawatt enterprise colo and interconnection category, multiple records in consecutive quarters as well as records in our greater than megawatt hyperscale numerous megawatt category for our customers. We are still supporting customers moving from on prem data center solutions into purpose built infrastructure today. And that wave is still running for many, many years to come.

We are still seeing the build out of cloud computing, the globalization of cloud, incremental services being offered via the cloud. And you look at our top customers, many of those are the cloud hyperscalers with us in thirty, forty, 50, 60 different locations around the world. And we are just getting started at what AI infrastructure will mean in terms of incremental growth. So I said for a long time, I think these trends are all up into the right. They’re not a perfect linear line.

So there’ll be some volatility along the way. But the way we pursue our strategy, how we go about it, the customers we support and pursue and the platform we offer them, I think, is tremendous durability to monetize that growth.

John Hovlik, Communications Infrastructure Analyst, UBS: So Jensen Huang last week CEO of NVIDIA last week on their earnings call suggested that AI workloads are transitioning from training to inference. So where is the demand for inference sort of materializing within the data center? Are you seeing that demand today?

Andy Power, President and CEO, Digital Realty Trust: I think that’s a very relevant statement. But I think that statement somewhat overstates where we are in this build out of infrastructure. I think it’s very relevant because it is really the next stage of AI, which is going to be the mass utilization and the B2B enterprise use cases. And our portfolio is not in every city. We’re not in every NFL city.

We focus where there are workloads or applications that are locationally or latency sensitive and they have clustered and a phenomenon of data gravity has brought numerous customers of diverse industries as well as all the cloud providers in these 50 metropolitan areas. I think the transition to inference as being like a rapid shift, it may have started to change quickly, but it has to be in its nascency. I don’t see I see very little usage of the AI products out there today such as Copilot by enterprise. I don’t see a fraction of the agents that could be helping each and every one of us in our day to day work. I have not seen any of the potential of use of this technology in the robotics for manufacturing, consumer experience in our daily lives.

So I think this is a long tail of incremental demand that we at Digital believe will accrue to these where the locational sense of workloads and the cloud live today inside our four walls.

John Hovlik, Communications Infrastructure Analyst, UBS: Do you think over time it sort of starts to really be a driver in that zero to one segment

Andy Power, President and CEO, Digital Realty Trust: of yours? So we’ve had great success really executing in that zero to one enterprise segment. And I would say our success is on the backs of many years of investing and building this platform and stretching it globally and innovating our product and changing and evolving our go to market. And quite frankly, more recently, just very focused and consistent execution, which you saw really in a string of three quarters to date. But I would say two things are not there yet.

One, the AI portion of that uplift is still yet to be seen. We had, I think, a second highest quarter in that category. And I think 10% of our signings were from AI use cases. And I think 10% may be an exaggeration because those were certainly skewing towards larger deal bands. So if you counted the number of transactions we did in that, it has to be way less than 10% in that category.

Part of this is the solutions are just being built. The products aren’t even on the shelves when it comes to enterprise use of AI in its full extent. So I do think this can be a more meaningful contributor to the growth in that category. But we’re not sitting here waiting for that to happen because we’re executing on those customers, those hundreds of new logos that landed us with us this past quarter or the 600 that landed us with us last year who are adopting new clouds and embracing digital transformation for their infrastructure and more importantly becoming AI ready for that infrastructure and the inference and those applications to come. That makes sense.

John Hovlik, Communications Infrastructure Analyst, UBS: Maybe sticking with AI, on the training side, how should we sort of think of the demand curve there? Obviously, there’s been a lot of noise in the last, let’s say, two months about the demand curve there. But how much runway do you think we still have left on the training side? And how does that impact how you guys sort of deploy resources from a sort of geographic standpoint?

Andy Power, President and CEO, Digital Realty Trust: If you look at the estimations of the chips being sold and ultimately shipped today, whether it’s training or inference, you’d see a large continuation of growth for large capacity blocks for the hyperscale cloud customers. And I would say while it’s a global data center industry and we are supporting global customer bases, the lion’s share of AI we’ve experienced is happening in The United States today. So I believe you haven’t even seen the full extent of globalization for the use cases. You’ve seen a lot of announcements. But if you’re announcing the data center right now, it’s going to be years until that’s coming online, especially a large scale one.

We have had a tweak to our strategy over the last few years. One, was pivoting this company to put in the enterprise connectivity solutions and colo first in our pursuit. And we wanted to gain market share and we’ve been doing that and we’ll continue to do that. But when we took our approach to hyperscale, which is germane to where data center demand in large capacity boxes landed today, we said, you know what, we need to find places where we can add the most value to our customers and not be all things to all customers and be everywhere. Fortunately, of our 50 plus metropolitan areas, more than half are places we have a tremendous value add for those hyperscale customers.

And as you saw from our major signings last year and going into the first quarter of this year, places where we already had those customers infrastructure in those key markets, places where we had a distinguished longest runway for our customers to grow on our campuses, places that are more challenging to do business. We could really help our customers. And that’s where we’ve intersected demand. And I’m sure some of that demand landed to be training, but these contracts are fifteen years long. That training may evolve to inference.

It may be a mashup of inference and cloud. So we’re essentially building the infrastructure for the evolution of their infrastructure over time.

John Hovlik, Communications Infrastructure Analyst, UBS: Yeah, it makes sense. Again, sticking with AI, Jensen also spoke about sovereign AI initiatives around the world becoming a meaningful driver. That was one of the sort of other big sort of outtakes from his earnings call. And you talked a little bit about globalization and most of the activity being here in The U. S.

Is it starting to permeate these other markets? Because you’re one of the few data center companies we talked to that has a real truly global footprint.

Andy Power, President and CEO, Digital Realty Trust: So literally two Mondays ago, I spent my morning in Paris meeting with one of two sovereign clouds for the country of France about their growth and their infrastructure and their sovereign cloud, which is growing adjacent to multinational public cloud intentionally, and spent my afternoon with my second visit with the French government about bringing AI infrastructure more rapidly and scaling to Europe and certainly France. So the initiative is there. The focus is there. If you look at the history of cloud and data sovereignty, you would see a similar proliferation of US focused build out, globalization with Europe and Asia following. So I believe over time you’re going to see a similar phenomenon.

Things move at different paces in different countries, obviously. But I think there’s a pretty much unified theme is that almost all these countries want to be part of this AI and technological arms race. And no one wants to be left behind. No one wants the infrastructure all to be homed in The US. And I think you’re going to see a continuation just to let the Data Sovereignty Cloud with the globalization for AI on multiple parts of the world.

John Hovlik, Communications Infrastructure Analyst, UBS: I mean, first of was that the first sort of AI sovereignty meeting you’ve had? And do you think it permeates to the level where you’re doing like there needs to be an AI cloud in The UK, in the major markets in France, or in Europe, major markets in Asia, India. I mean, that

Andy Power, President and CEO, Digital Realty Trust: That’s not the that wasn’t the first AI or excuse me, that’s not the first sovereign cloud conversations we had nor the first sovereign clouds we’ve landed here at digital. But if I look at the umpteen countries across Europe, I’ve only seen this in a handful to date come to full fruition of partnering with a public cloud provider, bringing together the expertise and system integrators that need to be facilitating this, setting the security standards for what really needs to land in a sovereign cloud versus a public cloud, getting the funding to come together for projects like this. So for this all a string of activity, I still think it is incredibly nascent to where the potential could be.

John Hovlik, Communications Infrastructure Analyst, UBS: Got you. And where we are and it used to be today’s news, now it seems with AI and yesterday’s news. So where are we would you say we are in terms of the move to cloud in general? So which, again, before ChatGPT and AI sort of burst on the scene, that was the main topic of conversation. I mean, what inning are we at in terms of cloud adoption with major enterprises globally?

Andy Power, President and CEO, Digital Realty Trust: It still feels like we’re early innings the true potential. Just the amount of on prem workloads, the amount of mainframe uses today still boggles the mind. And I think that the earliest days of cloud, you obviously had one particular leader, then you had the multi cloud, you had the acceptance of hybrid cloud. And different clouds and providers are getting excelling in different categories. And I think AI is going to further reinvent that wheel in terms of, call it, best of breeds in different applications or use cases.

And I think this is going to be an evolving technology landscape. But I think more is better. More is better for the end user, the individual. More is better for the enterprise business. More is better for the data center landscape.

And more is definitely better for digital realty. So

John Hovlik, Communications Infrastructure Analyst, UBS: one of the big topics of conversation in the data center space is power procurement. And then power is finding power to power these massive workloads, both on the cloud side and the AI side. And we saw the announcement this morning from Meta and Constellation. How is the line of sight from a power procurement standpoint that DLR is seeing? Are things getting better?

Or is it or what’s the situation today?

Andy Power, President and CEO, Digital Realty Trust: Things are getting better every day because time is passing and activity is proceeding and people are focused and resources are being marshaled. But nothing there was no easy button to fix these problems. I was in Ashburn just last week and it was great to see the high transmission poles for the Mars substation erected landing on our Digital Dulles campus. Now there weren’t any power lines running through them yet, but the poles are up. So we are stepping inching and inching closer to pain point reliefs.

But this is a complicated problem we have here. There’s been an underinvestment in the critical power infrastructure in The United States for many, many years. The industries have been less, less power when the need for power has just skyrocketed for technological advancements. And this cuts through federal, state, municipal, environmental, numerous issues we’re talking about here. So I think you’re going to not see one quick fix here and it requires ourselves and the energy industry to innovate, which we’ve been doing at digital.

When the shortage in that very market I mentioned came on the scene, we went to our own infrastructure and said, where can we move around electrons and find idle capacity? And that was labeled us to pull forward and use more electricity by looking at what we had and wasn’t efficiently deployed. Longer term, in certain places like South Africa, we’re investing directly in solar, which will be wheeled to our data centers through the grid and one project will likely be behind the meter. In between those timelines of the longer term and yesterday, we’re looking at other stop gaps for long term bridges for power until the utility infrastructure can catch up.

John Hovlik, Communications Infrastructure Analyst, UBS: That was going be my follow-up question. Just rest of the world. I mean, how is or the situation that we have in The U. S, is that similar outside The US? Or do you foresee a situation where they’re going to have similar problems that we’re having now in meeting this demand?

Andy Power, President and CEO, Digital Realty Trust: You’ve seen similar problems. The same problems that happened in The US were happening outside The US First, came to The US then spread back the rest of the world, whether it was moratoriums in certain countries like Singapore or the skiffle grid in Amsterdam saying no more data centers, just the same problems are repeating themselves. A lot of it is the power infrastructure. The power infrastructure goes from generation. We’ve been moving from call it towards a greening of our generation.

I mentioned the transmission. Then you have the substation components which have supply chain elements associated with it. And you also have the major markets are abutting against some nimbyism around the data center. People are losing focus about what we’re offering in our data centers. It’s critical infrastructure.

There are technologies that are running the hospitals and the ambulances, solving diseases, innovation, there’s change in the world and needs to be near GDP populations, critical infrastructure network connectivity. But all those things are creating supply bottlenecks along the way.

John Hovlik, Communications Infrastructure Analyst, UBS: Right. And what is the sort of the difficulties in achieving power and the supply constraints doing to overall sort of IRRs in your business? Is it changing the return equation at all? You could I mean, are you investing more?

Andy Power, President and CEO, Digital Realty Trust: You could say it diluted initially diluted the IR because we were pushing out the expectations. But I would say it also kind of increased it or accreted the IOR because the demand inflection has happened in a time of supply constraints. And you’ve seen a pretty strong uptick in rates that translated into much higher returns. So I think the net benefit has turned this into a more healthy economic equation.

John Hovlik, Communications Infrastructure Analyst, UBS: Right. That’s a great segue to pricing. So can you talk about sort of what you’ve seen recently or maybe give us a little history in terms of the pricing environment? I’d say both in the sort of zero to one megawatts and the sort of one megawatt plus sort of markets.

Andy Power, President and CEO, Digital Realty Trust: In the zero to one megawatt category, you’ve seen a more consistent, less volatile, positive and increasingly positive pricing dynamic. We’re in excess of inflation. It’s been able to pass through on prices on renewals of existing contracts without increases to churn as well as rates on new offerings. Those contracts typically have a shorter duration to begin with, so we have more bites at the apple to keep the repricing. We are delivering, I would say, even higher value add to those customers.

They’re buying a platform offer here at Digital, multiple markets, multiple products with us. They are by and large most customers that are never going to build their own data center. And so it’s a long tailwind of demand. And I’d say the data center is turning from a security feature to a cost optimizer and a revenue generator. It’s becoming the center of your infrastructure when it was never that before.

So its relevance is even greater. On the hyperscale side, similar trends but has been more exposed to a positive inflection as the rush for the large capacity blocks have happened when the large capacity blocks have been even more greatly constrained and likely to continue to be more greatly constrained. And along the way, you’ve seen the buyer base also widen out a bit and that each incremental buyer even if it’s one, two or three or four extra buyers buying in the 50 or 100 megawatt tranches makes it more competitive and puts more pricing power towards the incumbent providers. We’ve had of the five last quarters, were near records or just very sizable quarters. And the largest signing in each of those quarters was from a different top customer.

And none of those top customers or those four is our current top customer to see a broadening of the hyperscale buyer base.

John Hovlik, Communications Infrastructure Analyst, UBS: Makes a lot of sense. So we’ve got ten more minutes left in the session. And I’ve got a few more here on my list. But if anybody has a question, please you can ask it at one of the standing microphones. So as we you know what?

There’s a question from the audience.

Andy Power, President and CEO, Digital Realty Trust: Why don’t

John Hovlik, Communications Infrastructure Analyst, UBS: we right there. Maybe if you could if you could use the microphone over there, that’d be great.

Unidentified speaker: Hi. Thank you for your time. One of the things I was wondering is do you find that at least moving forward, powering data centers will rely more on front of the meter or behind the meter solutions?

Andy Power, President and CEO, Digital Realty Trust: I think you’re going to see a behind the meter solution become more prevalent, but I don’t think you’re anywhere going to see a world where the majority of data centers are being powered behind the meter. The grid is a valuable asset of resiliency, sharing of infrastructure. So I think you’re going to see the concept of more long term bridges, I. E, as we wait for load studies to get done, as we wait for infrastructure to get built up, as we wait for substations to get delivered, that behind the meter solution will become more relevant. But I don’t think you’re going to see a total divorcing from the grid.

And it’s put honestly, it’s preference by the hyperscalers to rely on it.

Unidentified speaker: Just as a quick follow-up question, do you have any comments regarding some of the review going on in the PJM region and other RTOs and ISOs, particularly with what’s happening regarding the feasibility of front of the meter solutions, especially because now behind the meter just seems that it’s far past the timeline and capital costs many of these hyperscalers are willing to commit to?

Andy Power, President and CEO, Digital Realty Trust: I’m not going to comment on multiple regulatory bodies or utilities. We’re all incented. We’re all in the same boat here. By and large, we want this country to build better technology. We want the world to be building better technology that improves all of our lives here.

And we’re all together, whether you’re building the molecule of the electron or the transmission of the electron or the distribution or the data center or the consumption inside the server, we’re all in the same boat to get this right. Thank you.

John Hovlik, Communications Infrastructure Analyst, UBS: There’s a question over here.

Andy Power, President and CEO, Digital Realty Trust: So I’ll repeat the question. Just so I think in a nutshell, the question was, can you speak to given things are moving quickly here, can you speak to obsolescence risk inside the data center And related CapEx. Thank you, Jordan. By and large, the infrastructure we are building, owning, and operating, if you take a step back, is not tremendous rocket scientist. It is a highly improved piece of commercial infrastructure with heavy floor loads, redundancy of power feeds, fiber optic connectivity, and cooling features.

The biggest evolution is right now playing out on the cooling because the power densities are starting to ratchet up for use cases. The misnomer is that all power densities for all data centers and every single bit and byte is going to be at science experiment type power densities to work. And that is not very likely, in my opinion, going to happen. And the main solution for cooling is almost going back to the future, which is using water as the cooling agent. And we’re just bringing the water closer to the heat for dissipation of that heat.

Our experience has been relatively first off, we’ve done liquid cooling for many, many years ago with numerous customers. They weren’t the majority by any means, but we’ve done this for many years. This isn’t the first time we’ve done this. Two, we still see customers in our capacity refreshing the existing infrastructure with the latest CPUs and not going to the most outlandish power densities you can go to. We have new customers signing with us in 100 megawatt blocks that we give them the option, do you want to go 80% liquid or fiftyfifty?

And they’re picking fiftyfifty for fifteen years of a contract term. And the cost to retrofit, which we have done, which is often borne by the customer because sometimes they’re in the contract or they even come to an end of a contract and they don’t want to move, has not been a massive upgrade to the infrastructure. Don’t think I think that there’s tremendous innovation happening inside the server, the CPU and the GPU and the networking gear. I’m not sure the physical infrastructure to dissipate heat is as earth shattering as you might think.

John Hovlik, Communications Infrastructure Analyst, UBS: Any questions from the audience? I’ve got a couple of follow ups, Andy. So the company has made a lot of progress in recent years deleveraging the balance sheet and diversifying your sources of capital. How should investors think about the level of development spending going forward and the funding sources? So

Andy Power, President and CEO, Digital Realty Trust: we’ve made great progress at essentially burning the candle at both ends here, bringing the leverage down from seven times to close to five times, building liquidity up to, call it, dollars 6,000,000,000 today and adding to our stable of funding, first with development or joint venture partners and now with our first fund. That’s a little bit different than we’ve done with venture partners. This is numerous highly sophisticated LPs doing their work on us, diligence in digital, placing their trust in us to invest on their behalf for what a vehicle now we announced. We’re just north of $2,000,000,000 of commitments, we just closed on $900,000,000 or so of proceeds on the first phase of this transaction. And we think we’ll continue to grow the fund.

That’s a foundational stepping stone, allowing us to scale a hyperscale private capital management business where we think we have a clear path to be a leader in that segment, giving investors the opportunity to not have to invest in a commingle fund, to not have to invest amongst other infrastructure investments or other telecommunications, and to invest alongside digital in a pure play data center investment for hyperscale, which we’ve been doing exclusively and only for twenty plus years as a business time tested, cycle tested when it comes to the experience of the company. And it allows us, in response to demand, to pull forward as much as fast as possible of the call four gigawatts of demand. And just using rough numbers, four gigawatts could be $40.50 dollars or more billion of potential investment over time across those 50 metropolitan areas. And we’re adding to that growth as we speak. The land that we’ve been procuring have been strategic additions to our connectivity footprints or hyperscale lands in those same type of markets I described, location and latency sensitive, cloud zonal markets that have time envelopes that are where the customer is most focused on today.

John Hovlik, Communications Infrastructure Analyst, UBS: Got it. So and the JVs are sort of a new investment vehicle for you guys, our source of funding vehicle. How big can the management fees that you guys generate from these projects become in this sort of overall sort of P and L?

Andy Power, President and CEO, Digital Realty Trust: So I just quoted, call it, we’re north of two on the way to a target of 2.5, probably max just over three. That’s equity. So that could be close to $10,000,000,000 of investment. We announced a joint venture with Blackstone that I mean, that by itself could be another $35,000,000,000 of investment. I look at today, and there another REIT in the halls of NAREIT in the industrial space that has a $90,000,000,000 called private capital management platform in the industrial space.

And the last time I checked is your typical warehouse was a lot less expensive or valuable than your average hyperscale data center. And in a backdrop, if you listen to numerous industry sources or Nvidia’s and others where the runway of growth of this infrastructure is quite stupendous.

John Hovlik, Communications Infrastructure Analyst, UBS: Okay. And lastly, the last question. Just putting it all together, both the sort of demand environment, what we’re seeing in pricing, deleveraging the new sources of capital, just how should investors think of the opportunity for FFO per share growth in ’twenty five and the sort of growth curve beyond?

Andy Power, President and CEO, Digital Realty Trust: John, we should have started there because that is the guiding light. And that’s what’s what passed is not prologue here for digital in that manner. We had to do a lot of things over the last several years in terms of changing the strategy and the execution of the company, the funding we talked about. And last and maybe most important is making all this growth, pricing power, organic growth and development flow to the bottom line efficiently. And I think even before last year this time, we basically said we’re on a new trajectory and threw out number of about 5%.

We’re now out with guidance now for this year about 6% constant currency. We had a first quarter in that guidance that is called confirming that path. And we’re looking for a year next year that’s going be better. And we’re looking for that runway of consistent compounding of our FFO per share growth for extend as long as possible in that territory.

John Hovlik, Communications Infrastructure Analyst, UBS: That’s fantastic. I think that’s all the time we have. Andy, thanks for joining us today.

Andy Power, President and CEO, Digital Realty Trust: Thank you.

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