Summary

  • Digital Realty’s Q2 2026 diluted FFO denominator exceeded the denominator used for Core FFO and AFFO by exactly 6.957 million shares and units because the FFO calculation assumed Teraco put rights were settled in shares.
  • Only part of that option surface had been exercised: an approximately 16% Teraco stake was due to settle in 3,425,031 Digital Realty shares, while the balance sheet still carried redeemable noncontrolling interests in temporary equity.
  • The resulting numbers are not contradictory. They answer different questions about legal closing, economic ownership and the ownership state assumed by each per-share measure.

The cleanest way into Digital Realty’s second-quarter accounts is not through revenue, bookings or megawatts. It is through subtraction.

The company used 367.605 million weighted-average shares and units to calculate diluted funds from operations, or FFO. It used 360.648 million for diluted Core FFO and adjusted funds from operations, or AFFO. The gap is exactly 6.957 million.

That difference did not come from two views of how many ordinary shares had actually been issued. It came from two views of when an old promise to Teraco’s minority owners should enter a denominator.

Digital Realty acquired an indirect controlling interest of 61.1% in the South African data-centre operator in August 2022 for US$1.7 billion in cash. The company consolidated Teraco from that acquisition. The owners who retained the remaining interest received contractual rights to sell all or part of it back to Digital Realty during a two-year window beginning on 1 February 2026. Digital Realty’s own one-year call window begins on 1 February 2028.

Two holders acted quickly. On 12 May 2026 they delivered irrevocable notice over approximately 16% of Teraco’s outstanding equity. Once the transaction closes, Digital Realty says its ownership will rise from 61% to 77%. The consideration is no longer an open cash-or-stock choice for this exercised slice: the obligation is to settle in 3,425,031 Digital Realty common shares. Their number was fixed using the stock’s volume-weighted average price over the 20 trading days before exercise.

The transaction had not closed by 30 June. It remained subject to customary conditions and regulatory approvals, with settlement expected in the second half of 2026. That left the accounts in an intermediate state. The put had been exercised. The share count had been fixed. The new shares had not been issued.

One contract, three clocks

The first clock is legal. It records the exercised 16% stake and the 3,425,031-share obligation. Digital Realty’s June announcement valued those shares at approximately US$644.4 million using the 18 June closing price; its release rounded the package to roughly US$650 million and 3.4 million shares. A multi-year lock-up governs the sellers’ equity, alongside resale-registration rights.

The second clock is the balance sheet. Because the minority holders can demand redemption outside Digital Realty’s sole control, their interest sits between liabilities and permanent equity as redeemable noncontrolling interest. The reported line was US$1.567282 billion at 30 June, up from US$1.498975 billion at year-end. That full line must not be mistaken for the price of the 16% exercise.

During the first half, contractual redemption value exceeded carrying value, so Digital Realty increased redeemable NCI by approximately US$56.4 million. It recorded the change through additional paid-in capital. The adjustment was not a cash payment, an operating expense, a transaction price or a new liability. The filing says redemption-value changes do not enter the condensed income statement. It separately explains that a cumulative excess of redemption value over fair value can adjust the net-income component used in earnings per share.

The disclosed US$56.4 million went through paid-in capital, so it should not be recast as an undisclosed hit to earnings.

The third clock is the per-share calculation. Digital Realty says U.S. GAAP requires the put right to be assumed settled in shares for diluted EPS. It used the same convention for diluted FFO. Its FFO denominator therefore assumed all put-related shares had returned to Digital Realty, not merely the 3,425,031 shares fixed for the exercised 16%.

That is the source of the 6.957 million-share difference. Q2 diluted FFO used 367.605 million shares and units. Core FFO and AFFO used 360.648 million. Digital Realty excluded the potential future put dilution from the latter measures until settlement.

A denominator also needs a numerator

Adding assumed shares without adding the earnings belonging to the assumed ownership would distort the ratio in the other direction. Digital Realty therefore added US$19.979 million of Teraco noncontrolling share of FFO to the Q2 FFO numerator. Its footnote is unusually explicit: the numerator add-back accompanies a denominator that assumes all shares have been put back to Digital Realty.

Core FFO and AFFO did not adopt that ownership state. They excluded the potential dilution pending settlement and used the smaller 360.648 million denominator. Their numerators also contain their own adjustments. It would therefore be wrong to compare the reported per-share figures and attribute the entire difference to 6.957 million shares.

The useful comparison is narrower. FFO asks what the per-share result looks like after applying a share-settlement convention to the Teraco put and adding back the corresponding minority FFO. Core FFO and AFFO wait for settlement before admitting the potential shares. Both are disclosed policies. Neither denominator is a census of the same legal state.

The 3.425 million and the 6.957 million are not substitutes

The temptation is to subtract the 3,425,031 committed shares from the 6.957 million assumed shares and label the residue as the cost of the approximately 23% minority interest left after Digital Realty reaches 77%. That would manufacture a forecast.

The larger number belongs to a diluted-calculation convention. The smaller number belongs to an exercised transaction whose share count was fixed on a specific pricing window. The remaining holders have not disclosed an exercise, and the eventual valuation date, settlement form and share count are unknown. Even if another put is settled in stock, the relationship need not be linear.

What can be said is more useful. At quarter-end, roughly half of the modeled 6.957 million-share denominator effect had a specified future share count attached to it. The rest remained part of an option surface whose economic consequence was recognised by one per-share measure but excluded by two others.

More ownership, not new control

The transaction also needs a control boundary. Digital Realty already held a controlling interest and already consolidated Teraco. Moving from 61% to 77% transfers a larger share of Teraco’s future gains, losses and cash distributions to Digital Realty’s owners, but it does not mark the first day of control or the first day Teraco enters the group accounts.

On settlement, the exercised slice should leave redeemable noncontrolling interest and become common stock and additional paid-in capital within permanent equity. The minority claim shrinks; issued Digital Realty equity grows. The remaining approximately 23% continues to carry its own contractual path until holders exercise, Digital Realty’s call window opens, or the rights expire under their terms.

That is why the denominator receipt matters. A reader who sees only the announced 3.425 million shares misses the broader dilution convention already embedded in FFO. A reader who sees only the 6.957 million gap may assume shares had already been issued. A reader who sees only the US$56.4 million step-up may mistake equity remeasurement for an expense.

The accounts become coherent when each number is returned to its clock. The put can be economically present, legally exercised in part, unsettled at the reporting date and recognised differently across performance measures—all at once.

Sources