Earnings call: Digital Realty reports strong Q3 leasing activity and bolsters balance sheet

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Earnings call: Digital Realty reports strong Q3 leasing activity and bolsters balance sheet
Credit: © Reuters.

Digital Realty (NYSE: DLR ) reported robust leasing activity and record overall bookings in the 0-1 megawatt plus interconnection segment in the third quarter of 2023, according to the company's earnings call. The data center provider also saw an acceleration in the greater than megawatt segment, improvements in fundamental metrics, and has raised nearly $4 billion of capital to date.

InvestingPro data shows that Digital Realty's market cap is $37.39 billion, and it has a P/E ratio of 91.47. The company's revenue for the last 12 months (LTM2023.Q2) was $5.1 billion, with a growth of 13.37%. Gross profit for the same period was $2.7 billion, demonstrating a gross profit margin of 54.48%.

Key takeaways from the call include:

  • Digital Realty reported same capital cash NOI growth at 9.4% and cash releasing spreads at 7%.
  • The company saw increased demand for its highly connected campuses in core markets, particularly for AI and high-performance compute deployments.
  • Digital Realty has identified approximately 100 megawatts of development capacity in Loudoun County, with 56 megawatts already underway.
  • The company completed $2.3 billion in joint ventures and noncore asset sales in the third quarter.
  • Full-year revenue guidance was adjusted down by about 1% to a range of $5.475 billion to $5.525 billion due to lower tenant utility reimbursements.
  • Digital Realty plans to focus on targeted large-scale projects, primarily in North America and Europe.
  • The company has raised over $3.5 billion of new capital so far this year and plans to continue deleveraging while reinvesting to support customer growth.

According to InvestingPro Tips, Digital Realty has a high earnings quality, with free cash flow exceeding net income. The company's revenue growth has been accelerating, and it has raised its dividend for 19 consecutive years. Analysts anticipate sales growth in the current year and predict the company will be profitable this year. For more insightful tips, you can visit the InvestingPro DLR page.

Digital Realty also provided updates on its development plans and investment activities, highlighting progress on their 192-megawatt development site in Manassas, set to support the construction of two buildings starting in 2024. The company completed $2.3 billion in joint ventures and noncore asset sales, including the sale of two facilities totaling nearly $200 million.

The company tightened its core FFO per share guidance range for 2023 to $6.58 to $6.62 per share, maintaining the midpoint of $6.60 per share. However, the range for adjusted EBITDA remained at $2.7 billion. Development spend guidance for 2023 was increased to $2.7 billion to $2.9 billion, and dispositions and JV capital guidance was updated to $2.7 billion to $3.2 billion.

Digital Realty announced plans to change its funding strategy to drive more bottom line growth, targeting projects in North America and Europe. The company also discussed an increase in accounts receivable, primarily tied to VAT receivables resulting from increased construction in EMEA.

During the call, Gregory Wright confirmed that the previously stated guidance of $750 million for a development joint venture is still accurate. Andrew Power discussed the unlevered return environment and noted that the development schedule has seen double-digit growth, with North America home to the largest deals.

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