Digital Realty Earnings: Data Points Support How Attractive Firm’s Properties Are in a Digital Era

Digital Realty DLR is still transitioning its data center portfolio to focus more on its highly connected campuses that can provide all the options customers want in an increasingly data-centric and connected world, which will be even more critical if and when artificial intelligence, or AI, becomes more widely used. The firm continues to see very strong demand and pricing, and it is selling data centers that are not strategic or connected to campuses. Sales growth remains strong, and we expect profits will follow as the transition to the higher-quality portfolio continues. Nothing disclosed in the quarter leads us to adjust our forecast, and we’re maintaining our $135 fair value estimate.

Digital booked another $150 million in annualized revenue during the quarter, about 4% of the firm’s current annualized revenue (excluding pass-through revenue), and over the past year, bookings have totaled about 12% of the existing revenue stream. Digital finished the quarter with a record $422 million backlog after delivering $127 million into service during the quarter. On average, it’s now taking about a year for new bookings to come online. Pricing also remains strong across the board. Pricing for renewals under 1 megawatt was up 4.4% on a cash basis, and pricing for renewals over 1 megawatt was up 5.6%.

The makeup of the bookings included a record $42 million for space with less than 1 megawatt of power and $12 million in interconnection revenue. We believe these are not only the most profitable revenue sources, but also signs that Digital tenants are coming to Digital for connection needs and proximity to cloud providers, which speaks to the quality and differentiation of a portfolio. The $97 million in bookings for space with more than 1 megawatt of power showcases the diversity of Digital’s portfolio and the ability to also cater to the needs of tenants with greater computing needs who also need interconnectivity, which will be even more critical with AI.