Digital Realty Trust Inc (NYSE:DLR) reported fourth-quarter results that landed squarely on the structural question raised in my February 17 credit analysis: S&P rates Digital Realty BBB+ while Fitch and Moody’s sit one notch lower at BBB and Baa2, respectively. The disagreement centers on whether the company’s shift toward third-party capital and fee income has structurally strengthened its credit profile or remains too early to credit.

Q4 results provide the first full-year data set to test that question.

The Numbers That Support S&P’s View

Core FFO per share reached $1.86 in Q4, a 7.5% increase over Q4 2024, bringing the full-year figure to $7.39 — a 10.1% increase over the prior year. Revenue grew 13.9% year over year to approximately $1.63 billion, driven by continued demand across both hyperscale and enterprise segments.

Fee income reached approximately $45.7 million in Q4, bringing the full-year total to approximately $137.2 million — more than double the $64.9 million generated in 2024. This acceleration followed the oversubscription of Digital Realty’s inaugural closed-end fund, which attracted approximately $3.225 billion in LP equity commitments by year-end.

The company’s balance sheet remained within institutional parameters. Net debt-to-Adjusted EBITDA held at 4.9x, consistent with the prior quarter. In November, Digital Realty issued approximately €1.4 billion ($1.6 billion) of dual-tranche green Eurobonds, and in December, it repaid early approximately €1.075 billion of senior notes originally due in 2026.

These are the metrics S&P’s framework appears to be crediting: diversification of capital sources, scaling fee income, and leverage discipline during a period of elevated development spending.

The Numbers That Support Fitch And Moody’s Caution

GAAP net income per share fell to $0.24 in Q4, down from $0.51 in Q4 2024. The quarter included a $78.5 million impairment provision — the first material impairment in several quarters. Transaction and integration expenses reached $36.1 million in the quarter, contributing to elevated operating costs.

The AFFO payout ratio reached approximately 91% in Q4, up from approximately 69% in Q3 and 90% in Q4 2024. While quarterly AFFO fluctuations can reflect timing of capital expenditures rather than underlying operational weakness, a ratio above 90% leaves limited margin for dividend coverage during periods of elevated development spending.

General and administrative expenses rose to approximately $159.3 million in Q4, up from $124.5 million in Q4 2024 — a 28% increase. For the full year, G&A reached approximately $554.1 million, compared to $473.5 million in 2024.

Capital intensity remains substantial. Development CapEx guidance for 2026 sits at $3.25 to $3.75 billion net of partner contributions, with approximately $930 million deployed in Q4 alone. The signed-but-not-commenced backlog of approximately $817 million at Digital Realty’s share provides revenue visibility, but converting that backlog requires continued capital deployment at scale.

These are the dynamics Fitch and Moody’s may be weighing: the gap between Core FFO strength and GAAP earnings volatility, rising operating costs, and sustained capital intensity required to support the development pipeline.

2026 Guidance: The Test Year

Management introduced 2026 Core FFO guidance of $7.90 to $8.00 per share, implying approximately 8% growth at the midpoint. Revenue guidance of $6.6 to $6.7 billion suggests continued double-digit top-line expansion.

Same-Capital cash NOI growth is guided at 4.0% to 5.0% on a constant-currency basis. Renewal lease spreads are expected at 6.0% to 8.0% on a cash basis, consistent with the 6.1% achieved in Q4.

The question is whether 2026 can demonstrate that the platform model — third-party capital, fee income, and joint ventures — translates into durable per-share accretion without the balance sheet absorbing disproportionate development risk.

If fee income continues to scale while leverage remains at or below 5.0x, it would reinforce S&P’s framework. If GAAP volatility persists or the payout ratio remains elevated, the lower-rated agencies may have reason to maintain their current assessments. The divergence remains defensible — but after Q4, the burden of proof has shifted toward the agencies that have remained unchanged.

What Has Changed Since My February 17 Analysis

At the time of that analysis, the core question was what S&P was crediting that Fitch and Moody’s had not yet recognized. The Q4 data set adds several inputs.

Fee income growth has been confirmed at scale — $137.2 million for the full year, with a clear acceleration in Q4.

The private capital strategy has moved past the fundraising stage. In December, Digital Realty contributed an additional 40% stake in five operating data centers to its fund, receiving approximately $427 million in proceeds.

However, the Q4 impairment of $78.5 million and the elevated AFFO payout ratio introduce new data points that were not present in the February assessment.

What I’d Watch

Two variables would materially shift my reading of this divergence.

First, fee income trajectory. If annualized fee income exceeds $200 million in 2026 while leverage remains at or below 5.0x, S&P’s framework gains further support. If fee income growth decelerates while development CapEx remains above $3 billion, the platform thesis faces a more demanding test.

Second, AFFO payout normalization. Q4’s 91% ratio may reflect timing of capital expenditures, but if the full-year 2026 ratio settles above 85%, it would suggest the development cycle is consuming cash flow at a pace that limits dividend flexibility — a factor the lower-rated agencies are likely monitoring.

Absent either signal, the rating gap may simply persist longer than the market expects.

The one-notch gap remains structurally intact. Q4 did not resolve it — it sharpened it. If S&P were to act first, it would validate the platform model. If Fitch or Moody’s move instead, the divergence resolves the other way.

I am monitoring the divergence. Not upgrading, not dismissing. The notch gap is still earned — and the next move will tell us who was early, and who was merely cautious.

Sources

“Three Agencies Rate Digital Realty — One Sees Something The Others Don’t,” Benzinga, February 17, 2026

Digital Realty Q4 2025 Earnings Release, February 5, 2026

Digital Realty Q4 2025 Earnings Call Transcript, February 5, 2026

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.