Digital Realty's Q1 Core FFO Tops Estimates, 2025 View Raised

Digital Realty Trust DLR reported first-quarter 2025 core funds from operations (FFO) per share of $1.77, beating the Zacks Consensus Estimate of $1.73. The FFO also increased 6% year over year.

Results reflect steady leasing momentum with better rental rates amid rising demand. However, higher operating expenses undermined the performance to an extent. The company raised its 2025 core FFO guidance range.

The company registered operating revenues of $1.41 billion in the first quarter, missing the Zacks Consensus Estimate of $1.42 billion. However, on a year-over-year basis, operating revenues increased 5.7%. DLR also reported "Same-Capital" cash net operating income (NOI) growth of 3.9%.

Per Digital Realty’s president & CEO, Andy Power, "Robust demand across our key product segments drove strong leasing and acceleration in Core FFO per share growth in the first quarter."

DLR’s First Quarter in Detail

In the reported quarter, signed total bookings were estimated to generate $242 million of annualized GAAP rental revenues, including a $54 million contribution from the 0-1 megawatt category and a $15 million contribution from interconnection. The weighted average lag between the new leases signed in the first quarter and the contractual commencement date was 10 months.

Digital Realty signed renewal leases, marking $147 million of annualized cash rental revenues during the January-March quarter. Rental rates on renewal leases signed during the quarter rose 5.6% on a cash basis and 7.1% on a GAAP basis.

Total operating expenses increased 2.5% year over year to $1.21 billion. The rise was attributable to the increase in expenses related to rental property operating, property taxes, insurance, general and administration costs, severance, equity acceleration and legal expenses, and transaction and integration expenses. However, adjusted EBITDA of $791.2 million in the quarter marked an 11.3% increase year over year.

DLR’s Portfolio Activity

During the January-March period, Digital Realty acquired three land parcels in Charlotte, NC. The first one, acquired for $20 million, is a 48-acre parcel located adjacent to the recently acquired 156-acre campus. The enlarged campus will now be able to develop up to 400 megawatts of IT capacity.

The other two land parcels, acquired for $16 million, are located adjacent to DLR’s existing connectivity hub in Uptown Charlotte, resulting in an expanded IT capacity of around 12 megawatts for cloud, enterprise and colocation customers.

During the reported quarter, Digital Realty forayed into the Indonesian market through a 50-50 joint venture with Bersama Digital Infrastructure Asia (BDIA) for $95 million. The newly formed entity, Digital Realty Bersama, will develop and operate data centers across Indonesia, enhancing the company's presence in the rapidly growing Asia-Pacific region.

Following the quarter end, DLR completed acquiring around 100 acres of land for $120 million in the Atlanta metro area with an expected IT capacity of more than 200 megawatts.

DLR’s Balance Sheet Position

Digital Realty exited the first quarter of 2025 with cash and cash equivalents of $2.32 billion, down from $3.87 billion recorded as of Dec. 31, 2024.

As of March 31, 2025, this data center REIT had $17 billion of total debt outstanding, of which $16.2 billion was unsecured debt and $0.8 billion was secured debt and other. As of the same date, its net debt-to-adjusted EBITDA was 5.1X, while the fixed charge coverage was 4.9X.

Its debt maturity schedule is well-laddered with modest near-term maturities, with a weighted average term to initial maturity of 4.4 years and a 2.6% weighted average coupon as of March 31, 2025.

2025 Guidance Revised

Digital Realty raised its 2025 core FFO per share guidance range to $7.05-$7.15 from the earlier guided range of $7.00-$7.10. The Zacks Consensus Estimate of $7.06 lies within the guided range. The REIT maintained its guidance for 2025 constant currency core FFO per share in the range of $7.05-$7.15.

DLR projects total revenues in the band of $5.825-$5.925 billion. The consensus mark is pegged at $5.87 billion, within the guided range.  Adjusted EBITDA is expected in the range of $505-$515 million.

DLR projects rental rates on renewal leases to be within 4-6% on a cash basis and 6-8% on a GAAP basis. The year-end portfolio occupancy is expected to increase by 100-200 bps. The same-capital cash NOI is estimated to grow 3.5-4.5%.

Currently, DLR carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Digital Realty Trust, Inc. Price, Consensus and EPS Surprise

Digital Realty Trust, Inc. price-consensus-eps-surprise-chart | Digital Realty Trust, Inc. Quote

Upcoming Earnings Releases

We now look forward to the earnings releases of other REITs like Alexandria Real Estate Equities ARE and BXP, Inc. BXP, slated to report on April 28 and April 29, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The Zacks Consensus Estimate for Alexandria’s first-quarter 2025 FFO per share is pegged at $2.28, implying a 3% year-over-year decrease. ARE currently carries a Zacks Rank #4 (Sell).

The Zacks Consensus Estimate for BXP’s first-quarter 2025 FFO per share is pegged at $1.65, calling for a 4.6% year-over-year decrease. BXP currently carries a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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