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Digital Realty (DLR) Rises 9% Year to Date: Will the Trend Last?
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Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 9% in the year-to-date period against the industry’s decline of 8%.
The rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has been one of the key forces driving the performance of data center real estate investment trusts (REITs) like Digital Realty.
A solid tenant base assures stable revenues. It also carries out various development and redevelopment activities, which is encouraging.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
High growth in cloud computing, the Internet of Things and Big Data and the increasing number of companies opting for third-party IT infrastructure are spurring the demand for data center infrastructure. Growth in the artificial intelligence, autonomous vehicles and virtual/augmented reality markets is anticipated to be robust in the upcoming years.
Demand is strong in top-tier data center markets and despite enjoying high occupancy, the top-tier markets are absorbing new construction at a faster pace.
DLR has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, and other enterprise and financial industries. It has a global presence, with 309 data centers in more than 50 metros with decent occupancy. The company is poised for growth with more than 5,000 global customers and growing.
Its tenant roster includes several behemoths and investment grade, and numerous customers use multiple locations across the portfolio. This assures stable revenue generation for the company. For 2024, management expects total revenues to grow 2% and adjusted EBITDA to grow 4% at the midpoint of their guidance ranges.
Also, DLR has a robust development pipeline, which seems encouraging. As of Mar 31, 2024, it had 8.2 million square feet of space under active development and 4.1 million square feet of space held for future development. Further, in recent years, Digital Realty has expanded in the Americas by adding capacity in New York, Northern Virginia and Toronto. For 2024, the company expects to incur capital expenditures for its development activities in the range of $2.0-$2.5 billion.
Its capital-recycling efforts aimed at bolstering balance sheet strength and driving long-term growth are encouraging. For 2024, it expects to carry out dispositions/joint venture capital in the range of $1.0-$1.5 billion.
Digital Realty has a solid balance sheet with ample liquidity and diversified sources of capital. The company exited the first quarter of 2024 with cash and cash equivalents of $1.19 billion. Its debt maturity schedule is well-laddered, with a weighted average maturity of 4.3 years and a 2.8% weighted average coupon as of Mar 31, 2024.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Digital Realty remains committed to the same. The company has increased its dividend three times in the last five years, and the five-year annualized dividend growth rate is 3.07%. Given its solid operating platform and balance-sheet management efforts, the company remains well-poised to sustain the dividend payment.
However, given the industry's strong growth potential, intense competition from existing and new players could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, high interest rates pose a concern for the company.
The Zacks Consensus Estimate for PGRE’s 2024 FFO per share has increased 5.5% upward over the past two months to 77 cents.
The Zacks Consensus Estimate for LAMR’s current-year FFO per share has moved 3.7% northward in the past two months to $8.03.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Digital Realty (DLR) Rises 9% Year to Date: Will the Trend Last?
Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 9% in the year-to-date period against the industry’s decline of 8%.
The rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has been one of the key forces driving the performance of data center real estate investment trusts (REITs) like Digital Realty.
A solid tenant base assures stable revenues. It also carries out various development and redevelopment activities, which is encouraging.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
High growth in cloud computing, the Internet of Things and Big Data and the increasing number of companies opting for third-party IT infrastructure are spurring the demand for data center infrastructure. Growth in the artificial intelligence, autonomous vehicles and virtual/augmented reality markets is anticipated to be robust in the upcoming years.
Demand is strong in top-tier data center markets and despite enjoying high occupancy, the top-tier markets are absorbing new construction at a faster pace.
DLR has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, and other enterprise and financial industries. It has a global presence, with 309 data centers in more than 50 metros with decent occupancy. The company is poised for growth with more than 5,000 global customers and growing.
Its tenant roster includes several behemoths and investment grade, and numerous customers use multiple locations across the portfolio. This assures stable revenue generation for the company. For 2024, management expects total revenues to grow 2% and adjusted EBITDA to grow 4% at the midpoint of their guidance ranges.
Also, DLR has a robust development pipeline, which seems encouraging. As of Mar 31, 2024, it had 8.2 million square feet of space under active development and 4.1 million square feet of space held for future development. Further, in recent years, Digital Realty has expanded in the Americas by adding capacity in New York, Northern Virginia and Toronto. For 2024, the company expects to incur capital expenditures for its development activities in the range of $2.0-$2.5 billion.
Its capital-recycling efforts aimed at bolstering balance sheet strength and driving long-term growth are encouraging. For 2024, it expects to carry out dispositions/joint venture capital in the range of $1.0-$1.5 billion.
Digital Realty has a solid balance sheet with ample liquidity and diversified sources of capital. The company exited the first quarter of 2024 with cash and cash equivalents of $1.19 billion. Its debt maturity schedule is well-laddered, with a weighted average maturity of 4.3 years and a 2.8% weighted average coupon as of Mar 31, 2024.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Digital Realty remains committed to the same. The company has increased its dividend three times in the last five years, and the five-year annualized dividend growth rate is 3.07%. Given its solid operating platform and balance-sheet management efforts, the company remains well-poised to sustain the dividend payment.
However, given the industry's strong growth potential, intense competition from existing and new players could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, high interest rates pose a concern for the company.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Paramount Group (PGRE - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PGRE’s 2024 FFO per share has increased 5.5% upward over the past two months to 77 cents.
The Zacks Consensus Estimate for LAMR’s current-year FFO per share has moved 3.7% northward in the past two months to $8.03.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.