Should Investors Retain Digital Realty Stock in Their Portfolio?
In This Article:
Digital Realty’s DLR 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. A solid tenant base assures stable revenues. It also carries out strategic investments in land, infrastructure and acquisitions, which is encouraging. Its healthy balance sheet position will likely aid its growth endeavors. However, competition in its industry and concentration of assets remain concerns.
What’s Aiding DLR?
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. 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. The company is poised for growth with more than 5,000 global customers and growing. Its tenant roster includes several behemoths, and numerous customers use multiple locations across the portfolio. This assures stable revenue generation for the company.
Digital Realty is expected to ride on its growth curve backed by strategic investments in land, infrastructure and acquisitions. Following the third-quarter 2024 end, Digital Realty closed on the acquisition of a 6.7-acre parcel in Richardson, TX, for around $15 million to support the development of more than 80 megawatts (MW) of incremental IT capacity. In the third quarter of 2024, Digital Realty acquired the land and shell of one of its existing data centers in Schiphol Rijk, Amsterdam, for approximately €43 million, or $48 million. The site encompasses approximately 15 MW of fully leased capacity.
Digital Realty has a solid balance sheet with ample liquidity and diversified sources of capital. The company exited the third quarter of 2024 with cash and cash equivalents of $2.18 billion. Its debt maturity schedule is well-laddered, with a weighted average maturity of 4.7 years and a 2.8% weighted average coupon as of Sept. 30, 2024. The company has no debt maturities until early 2025.
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. 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.