Digital Realty (DLR) Surpasses Q1 FFO Estimates Despite Revenue Shortfall: A Deep Dive into Coin Performance

• Digital Realty Trust (DLR) has reported its first-quarter 2024 core funds from operations (FFO) per share of $1.67, surpassing the Zacks Consensus Estimate of $1.63.
• The results reflect robust leasing activity, but increasing operating expenses have dampened the quarter’s performance.
• DLR’s president & CEO, Andy Power, attributes the strong performance to accelerating demand and successful execution of AI-oriented opportunities.

Digital Realty Trust (DLR) outperforms estimates in Q1 2024, driven by strong leasing activity and AI-oriented opportunities. However, rising operating expenses pose challenges.

Quarter in Detail

Total operating expenses for DLR increased by 1.8% year over year to $1.18 billion. This rise was due to increased property taxes, depreciation and amortization, general and administration costs, transaction and integration expenses, and other expenses. The company signed renewal leases worth $248 million of annualized cash rental revenues during the quarter. The rental rates on these renewal leases increased by 11.8% on a cash basis and 13% on a GAAP basis.

Portfolio Activity

During the first quarter, Digital Realty partnered with Mitsubishi Corporation to form a data center development joint venture. This collaboration aims to capitalize on the growing demand for data infrastructure. Digital Realty also established the first phase of their $7 billion hyperscale data center development JV with Blackstone Inc.

Balance Sheet

As of the end of the first quarter, DLR had $1.19 billion in cash and cash equivalents, down from $1.63 billion recorded as of Dec 31, 2023. The company had $17 billion of total debt outstanding, of which $16.4 billion was unsecured debt and $0.6 billion was secured debt and other. Its net debt-to-adjusted EBITDA was 6.1X, while the fixed charge coverage was 4.0X.

2024 Guidance Revised

DLR maintained its guidance for 2024 core FFO per share in the range of $6.60-$6.75. The company also maintained its expectations for total revenues in the band of $5.55-$5.65 billion. The Same-Capital cash NOI is estimated to grow 2.5-3.5%, revised upward from the prior-guided range of 2-3%.

Conclusion

Despite the challenges posed by rising operating expenses, DLR’s strong leasing activity and successful execution of AI-oriented opportunities have contributed to a positive first quarter. The company’s strategic partnerships and joint ventures are expected to further strengthen its position in the data center market.