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Should You Hold Digital Realty (DLR) Stock in Your Portfolio?
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Digital Realty’s (DLR - Free Report) portfolio of data centers globally is well-positioned to benefit from the growing reliance on technology and an acceleration in digital transformation strategies by enterprises.
High growth in cloud computing, the Internet of Things and big data and the elevated demand 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. As infrastructure providers for this rapidly growing digital economy, data center landlords such as Digital Realty and Equinix, Inc. (EQIX - Free Report) are well-placed for sustainable growth.
Particularly with superior assets, Digital Realty is likely to capitalize on this upbeat trend, which will aid its long-term growth. Moreover, in uncertain periods, with a more resilient and predictable stream of earnings compared with other asset categories, data centers are likely to gain preference among investors.
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 more than 300 data centers in 50 plus 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.
Digital Realty is making efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. As of Dec 31, 2023, it had 8.5 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.
Digital Realty has a solid balance sheet with ample liquidity and diversified sources of capital. 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.
As a result of its proactive balance sheet management, Digital Realty exited the fourth quarter of 2023 with cash and cash equivalents of $1.63 billion. Its debt maturity schedule is well-laddered, with a weighted average maturity of 4.4 years and a 2.7% weighted average coupon as of Dec 31, 2023.
With proceeds from asset sales and growth in cash flows as the signed leases commence, the company is expected to experience an improvement in net debt-to-adjusted EBITDA.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Digital Realty remains committed to that. The company increased its dividend three times in the past five years, and its payout has grown 3.07% over the same time period. Given its solid operating platform and balance sheet management efforts, DLR remains well-poised to sustain the dividend payment.
However, Digital Realty faces stiff competition in its industry. Given the solid growth potential of the data center real estate market, competition is expected to increase in the upcoming period from existing players and the entry of new players. Amid this, there is likely to be aggressive pricing pressure in the data center market.
A high interest rate environment is a concern for Digital Realty. Elevated interest rates imply high borrowing costs for the company, which can hinder its ability to acquire or develop its real estate holdings. It has a substantial debt burden, and the total debt outstanding as of Dec 31, 2023 was $17.4 billion. Its debt-to-capital ratio is 48.98%, higher than the industry’s average of 47.88%. Further, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
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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Should You Hold Digital Realty (DLR) Stock in Your Portfolio?
Digital Realty’s (DLR - Free Report) portfolio of data centers globally is well-positioned to benefit from the growing reliance on technology and an acceleration in digital transformation strategies by enterprises.
High growth in cloud computing, the Internet of Things and big data and the elevated demand 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. As infrastructure providers for this rapidly growing digital economy, data center landlords such as Digital Realty and Equinix, Inc. (EQIX - Free Report) are well-placed for sustainable growth.
Particularly with superior assets, Digital Realty is likely to capitalize on this upbeat trend, which will aid its long-term growth. Moreover, in uncertain periods, with a more resilient and predictable stream of earnings compared with other asset categories, data centers are likely to gain preference among investors.
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 more than 300 data centers in 50 plus 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.
Digital Realty is making efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. As of Dec 31, 2023, it had 8.5 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.
Digital Realty has a solid balance sheet with ample liquidity and diversified sources of capital. 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.
As a result of its proactive balance sheet management, Digital Realty exited the fourth quarter of 2023 with cash and cash equivalents of $1.63 billion. Its debt maturity schedule is well-laddered, with a weighted average maturity of 4.4 years and a 2.7% weighted average coupon as of Dec 31, 2023.
With proceeds from asset sales and growth in cash flows as the signed leases commence, the company is expected to experience an improvement in net debt-to-adjusted EBITDA.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Digital Realty remains committed to that. The company increased its dividend three times in the past five years, and its payout has grown 3.07% over the same time period. Given its solid operating platform and balance sheet management efforts, DLR remains well-poised to sustain the dividend payment.
However, Digital Realty faces stiff competition in its industry. Given the solid growth potential of the data center real estate market, competition is expected to increase in the upcoming period from existing players and the entry of new players. Amid this, there is likely to be aggressive pricing pressure in the data center market.
A high interest rate environment is a concern for Digital Realty. Elevated interest rates imply high borrowing costs for the company, which can hinder its ability to acquire or develop its real estate holdings. It has a substantial debt burden, and the total debt outstanding as of Dec 31, 2023 was $17.4 billion. Its debt-to-capital ratio is 48.98%, higher than the industry’s average of 47.88%. Further, with high interest rates in place, the dividend payout might seem less attractive than the yields on fixed-income and money market accounts.
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.