8-K: Digital Realty Reports Strong Third Quarter Leasing, Raises Core FFO Outlook

Digital Realty announced record leasing activity and increased its Core FFO per share outlook for 2024 following a strong third quarter.

Summary

• Digital Realty reported a net income available to common stockholders of $0.09 per share for the third quarter of 2024, a decrease from $2.31 per share in the same quarter of the previous year.
• The company's Funds From Operations (FFO) was $1.55 per share, consistent with the third quarter of 2023.
• Core FFO per share increased to $1.67, up from $1.62 in the third quarter of 2023.
• Digital Realty signed total bookings expected to generate $521 million in annualized GAAP rental revenue, including $50 million from the 0-1 megawatt category and $16 million from interconnection.
• The company's backlog of signed-but-not-commenced leases reached $859 million of annualized GAAP base rent.
• Rental rates on renewal leases increased by 15.2% on a cash basis and 27.5% on a GAAP basis.
• Digital Realty raised its 2024 Core FFO per share outlook to $6.65 $6.75.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with record leasing, a strong backlog, and increased guidance. While net income was down year-over-year, the overall tone is optimistic due to the company's operational performance and future prospects.

Positives

• Digital Realty experienced record leasing activity, indicating strong demand for its data center solutions.
• The significant increase in backlog provides enhanced visibility and positions the company for future growth.
• Strong renewal rate increases demonstrate the company's pricing power and the value of its services.
• The raised Core FFO per share outlook reflects management's confidence in the company's performance.
• Strategic acquisitions in key markets like Slough and Amsterdam expand the company's global footprint.
• The company successfully raised capital through its ATM program, strengthening its balance sheet.

Negatives

• Net income available to common stockholders decreased significantly compared to the same quarter last year.
• The weighted-average lag between new leases signed and the contractual commencement date was 15 months, which could delay revenue recognition.

Risks

• The company faces risks related to reduced demand for data centers, increased competition, and potential breaches of security.
• There are risks associated with development delays, supply chain disruptions, and the impact of inflation on costs.
• The company is exposed to risks related to customer defaults, changes in political conditions, and difficulties managing international operations.
• The company's performance is subject to financial market fluctuations and changes in foreign currency exchange rates.
• There are risks related to the company's debt levels and its ability to refinance debt when due.

Future Outlook

Digital Realty raised its 2024 Core FFO per share and Constant-Currency Core FFO per share outlook to $6.65 $6.75.

Management Comments

• Digital Realty President & Chief Executive Officer Andy Power stated that the company posted over $520 million of new leasing in the third quarter, more than double the record set in the first quarter.
• Andy Power also noted that the backlog now represents over 20% of annualized in-place data center revenue, enhancing visibility and positioning Digital Realty for accelerating longer-term growth.

Industry Context

The strong leasing activity and increased backlog suggest a robust demand for data center space, aligning with the broader trend of increasing cloud adoption and digital transformation. The company's focus on sustainability also reflects a growing industry trend towards environmentally responsible operations.

Comparison to Industry Standards

• Digital Realty's leasing performance in the third quarter significantly exceeded its previous records, indicating a strong competitive position.
• The company's renewal rate increases of 15.2% on a cash basis and 27.5% on a GAAP basis are notably high, suggesting strong pricing power compared to industry averages.
• The company's focus on sustainability, including its commitment to reduce global emissions by 68% by 2030 and its green bond issuances, positions it as a leader in the data center industry.
• Digital Realty's global footprint, with over 300 data centers in 50+ metros, is comparable to other major players in the data center REIT space, such as Equinix and CyrusOne.
• The company's net debt-to-Adjusted EBITDA ratio of 5.4x is within the range of other large data center REITs, indicating a moderate level of leverage.

Stakeholder Impact

• Shareholders will benefit from the increased Core FFO outlook and the company's strong operational performance.
• Customers will have access to a growing global platform with a focus on sustainability.
• Employees will be part of a company that is experiencing strong growth and is committed to innovation.
• Creditors will benefit from the company's strong financial position and its ability to generate cash flow.

Next Steps

• The company will continue to execute on its strategic priorities, including expanding its global platform and focusing on sustainability.
• Digital Realty will participate in upcoming conferences, including NAREIT REITworld, UBS Global Real Estate Conference, and Jefferies Global Real Estate Conference.
• The company will continue to monitor market conditions and adjust its strategy as needed.

Key Dates

Keywords

data centers, colocation, interconnection, leasing, FFO, EBITDA, backlog, real estate, development, acquisitions, sustainability