OVERR NDERRATI ogichobanov Co-produced by Austin Rogers Investors are becoming interested in real estate investment trusts ("REITs") again. Since the Federal Reserve began hiking their key policy rate in early 2022, the real estate sector (VNQ) has suffered a multi-year bear market. VAL Vanguard Real Estate ETF (VNQ) Price 89.73 Effective Federal Funds Rate (I:EFFRND) 5.33% 5.33% 112.00 4.80% 104.00 4.00% 96.00 3.20% 89.73 2.40% 1.60% 80.00 72.00 0.80% 64.00 0.00% 56.00 -0.80% 2020 2021 2022 2023 2024 Seeki ...

Joint Ventures and Sales - In January 2024, the company formed a joint venture with Blackstone Inc. to develop four hyperscale data center campuses, receiving approximately $231 million in net proceeds and retaining a 20% interest[147]. - The company sold its interest in four data centers to Brookfield for approximately $271 million, recognizing a total gain on disposition of approximately $203.1 million[148]. - In March 2024, a joint venture with Mitsubishi Corporation was formed to develop two pre-leased data centers in Dallas, with a contribution value of approximately $261 million and the company retaining a 35% interest[149]. - The company expanded its joint venture with GI Partners by selling a 75% interest in a facility valued at approximately $453 million, receiving approximately $386 million in net proceeds and recognizing a gain on disposition of approximately $172 million[150]. - An additional 24.9% interest in a Frankfurt data center was sold to DCREIT for approximately $126 million, with DCREIT now holding a 49.9% interest[151]. - The joint venture with GI Partners resulted in a cash capital contribution of $68 million, increasing GI Partners' ownership interest in the joint venture to 80%[203]. - The joint venture with Blackstone Inc. is expected to incur an estimated development cost of $3.0 billion for the first phase, with the company retaining a 20% interest[205]. - The company recognized a total gain of approximately $194.2 million from the sale of four data centers to Brookfield Infrastructure Partners L.P. in January 2024[175]. Financial Performance - The company's revenue primarily consists of rental income from its data center portfolio, with occupancy rates being a key factor for revenue growth[153]. - Total operating revenues decreased by approximately $9.5 million and $17.1 million in the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023[166]. - Stabilized rental and other services revenue decreased by $16.3 million and $23.5 million in the three and six months ended June 30, 2024, primarily due to a decrease in utility reimbursement of $52.6 million and $95.4 million[166]. - New leasing and renewals across all regions contributed an increase of $23.4 million and $49.0 million in stabilized rental revenue for the same periods[166]. - Total operating revenues for the three months ended June 30, 2024, were $1,356,749, a decrease of $9,518 or (0.7)% compared to $1,366,267 in the same period of 2023[167]. - The company reported a net income available to common stockholders of $70.039 million for the three months ended June 30, 2024, compared to $108.003 million for the same period in 2023, representing a decrease of approximately 35.1%[222]. - Funds from Operations (FFO) for the three months ended June 30, 2024, was $168.303 million, compared to $165.843 million for the same period in 2023, reflecting a year-over-year increase of approximately 0.88%[222]. - Basic FFO per share for the three months ended June 30, 2024, was $1.57, slightly up from $1.54 in the same period of 2023, indicating a growth of about 1.94%[222]. Occupancy and Leasing - As of June 30, 2024, the total net rentable square feet was 41,220, with an occupancy rate of 82.9%[154]. - The average remaining lease term was approximately five years, indicating a long-term commitment from customers[155]. - The geographic concentration of total annualized rent as of June 30, 2024, showed Northern Virginia at 18.9% and Chicago at 7.9%[159]. - The company expects average aggregate rental rates on renewed data center leases for 2024 expirations to be positive compared to current rates[156]. Expenses and Operating Costs - Operating expenses are expected to increase as the company continues to expand its data center operations[160]. - Total stabilized utilities expenses decreased by approximately $58.8 million (15.9%) in the three months ended June 30, 2024, compared to the same period in 2023[170]. - Total rental property operating and maintenance expenses (excluding utilities) increased by approximately $18.8 million (5.7%) in the three months ended June 30, 2024, compared to the same period in 2023[172]. - Total property level operating expenses decreased by $43,523 (6.7%) in the three months ended June 30, 2024, compared to the same period in 2023[176]. - Total stabilized property taxes and insurance increased by approximately $9.6 million (39.9%) in the three months ended June 30, 2024, compared to the same period in 2023[172]. Capital Expenditures and Debt - The company expects to incur approximately $0.9 billion to $1.4 billion in capital expenditures for its consolidated development programs during the remainder of 2024[194]. - Total capital expenditures for the six months ended June 30, 2024, were $1,204.4 million, compared to $1,266.6 million for the same period in 2023[198]. - The total outstanding consolidated indebtedness as of June 30, 2024, was $16,438 million, with fixed-rate debt comprising 85.6% of the total[209]. - The effective interest rate as of June 30, 2024, was 2.87%, with fixed-rate debt having an effective interest rate of 2.61%[209]. - The company paid down $240 million on the U.S. term loan facility, resulting in an early extinguishment charge of approximately $1.1 million during the six months ended June 30, 2024[178]. - The company’s ratio of debt to total enterprise value was approximately 24% as of June 30, 2024[210]. Cash and Liquidity - As of June 30, 2024, Digital Realty Trust, Inc. had $2,282.1 million in cash and cash equivalents, excluding $5.2 million of restricted cash[191]. - The company reported a net increase in cash, cash equivalents, and restricted cash of $697,850 for the six months ended June 30, 2024[213]. - As of July 31, 2024, the company had approximately $1.8 billion of borrowings available under its Global Revolving Credit Facilities[202]. - The Global Revolving Credit Facilities provide for borrowings up to $3.9 billion, with an additional $750 million available subject to lender commitments[192]. Interest Rate and Currency Risks - The company utilized interest rate swap agreements to manage exposure to interest rate movements, with fixed rate debt totaling $11.182 billion as of June 30, 2024[225]. - The company expects to mitigate foreign currency exchange risk through local currency financing and cross-currency interest rate swaps[228]. - The company is exposed to foreign currency exchange risks primarily with the Euro, Japanese yen, British pound sterling, Singapore dollar, South African rand, and Brazilian real[228]. - The company mitigates currency fluctuation risks by financing investments in local currencies and using cross-currency interest rate swaps[228]. - The company's analysis indicates that a 10% increase in interest rates would lead to an increase of $3 million in annual interest expense on variable rate debt not subject to swaps[226]. - The effectiveness of hedging strategies, such as foreign currency forwards or options, cannot be guaranteed[228]. - Changes in foreign currency relations to the U.S. dollar may impact revenues, operating margins, and stockholders' equity[228]. - The company's exposure to the Brazilian real is limited to its share of the Ascenty entity's operations[228].

The company registered operating revenues of $1.36 billion in the second quarter, which missed the Zacks Consensus Estimate of $1.38 billion.DLR also reported "Same-Capital" cash net operating income (NOI) growth of 2%. Quarter in Detail In the second quarter, rental property operating expenses increased by 5.7% to $237.6 million, property taxes rose by 6.2% to $49.6 million, and interest expenses jumped by 3.3% to $114.7 million. As of Jun 30, 2024, this data center REIT had $16.3 billion of total debt out ...

Financial Data and Key Metrics Changes - Digital Realty reported $164 million in new leasing for Q2 2024, marking one of the top quarters in its history, contributing to a record first half of the year [6][10] - Core FFO for Q2 was $1.65 per share, reflecting healthy organic operating results despite the impact of deleveraging and capital-raising activities [44][53] - Revenue growth was tempered by a decline in utility expense reimbursements, but rental revenue plus interconnection revenues increased by 5% year-over-year [45][46] Business Line Data and Key Metrics Changes - The company signed $164 million in new leases, with two-thirds in the greater than 1 megawatt category, and $40 million in the 0 to 1 megawatt leasing segment [39][40] - Cash renewal spreads in the 0 to 1 megawatt segment were up 3.8%, while the greater than 1 megawatt segment saw a 3.9% increase [42] - The company commenced a record $176 million of new leases, with a backlog of $527 million of signed but not yet commenced leases [40][41] Market Data and Key Metrics Changes - Global spending on public cloud services is projected to grow over 20% to reach $675 billion in 2024, driven significantly by AI-related workloads [17] - Demand for data center capacity remains strong, particularly for larger capacity blocks in core markets, with Dallas leading the way in Q2 [12][10] - The company reported strong demand across North American metros, with interest also growing in EMEA and APAC regions [26] Company Strategy and Development Direction - Digital Realty is well-positioned to capitalize on favorable demand due to its robust land bank and shell capacity supporting over 3 gigawatts of incremental development [11] - The company aims to strengthen its value proposition in Europe with the acquisition of a connected enterprise data center campus in London [14] - The focus remains on core markets, with a strategy to leverage private capital sources to fund development and enhance growth [68][122] Management's Comments on Operating Environment and Future Outlook - Management noted that while AI-related demand has slightly decreased, traditional demand drivers like digital transformation and cloud computing remain strong [89] - The interplay between AI advancements and data center evolution is expected to shape the technology landscape, with significant growth anticipated in digital transformation spending [28] - The company maintains its core FFO guidance for 2024 at $6.60 to $6.75 per share, reflecting continued strength in its core business [53] Other Important Information - Digital Realty was recognized as one of the world's most sustainable companies of 2024, with 152 data centers now matched with 100% renewable energy [34][36] - The company has raised approximately $2 billion in equity since the last earnings call, enhancing its balance sheet and liquidity [51] Q&A Session Summary Question: Long-term pipeline for over 1 megawatt category - Management indicated that demand for contiguous capacity blocks remains strong, with no easing in demand for large capacity blocks [57] Question: Renewal rates and market dynamics - Management explained that the sequential decline in rates was primarily due to a mix of deals, with Dallas performing well while Northern Virginia saw no new signings this quarter [60] Question: Private capital recycling opportunities - Management highlighted ongoing efforts to bolster and diversify private capital sources, with significant growth expected in the hyperscale business [64] Question: Speed of delivery on new starts - Management acknowledged that while there are power constraints, they are working to ensure timely delivery of new projects [65] Question: Market rent growth and development costs - Management noted that market rent growth continues to move in their favor, with key markets setting new records [97] Question: Power availability outlook - Management discussed the multifaceted nature of power constraints, indicating that while some issues are being resolved, demand continues to grow [100] Question: Leasing spreads and AI demand - Management expressed confidence in continued positive leasing spreads, driven by robust demand across core markets [111]

The reported revenue compares to the Zacks Consensus Estimate of $1.38 billion, representing a surprise of -1.57%. The company delivered an EPS surprise of +1.23%, with the consensus EPS estimate being $1.63. Since these metrics play a crucial role in driving the top- and bottom-line numbers, comparing them with the year-ago numbers and what analysts estimated about them helps investors better project a stock's price performance. Net Earnings per Share (Diluted): $0.20 versus $0.27 estimated by six analysts ...

Digital Realty Trust, which belongs to the Zacks REIT and Equity Trust - Other industry, posted revenues of $1.36 billion for the quarter ended June 2024, missing the Zacks Consensus Estimate by 1.57%. This compares to year-ago revenues of $1.37 billion. The company has topped consensus revenue estimates just once over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future FFO expectations will mostly depend on management's commen ...

| \ Overview | PAGE | | --- | --- | | Corporate Information | 3 | | Key Quarterly Financial Data | 5 | | Consolidated Statements of Operations | | | Earnings Release | 7 | | 2024 Outlook | 10 | | Consolidated Quarterly Statements of Operations | 12 | | Funds From Operations and Core Funds From Operations | 13 | | Adjusted Funds From Operations | 14 | | Balance Sheet Information | | | Consolidated Balance Sheets | 15 | | Components of Net Asset Value | 16 | | Debt Maturities | 17 | | Debt Analysis and Covena ...

Foreign Exchange Rates U.S. Dollar / Pound Sterling U.S. Dollar / Euro Note: The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis, where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. Please see Non-GAAP Financial Measures in this document for further discussion. Prior to Digital Realty's investor conference call at 5:00 p.m. ET / 4:00 p.m. CT on July ...

Core Thesis - Digital Realty Trust (DLR) is transitioning from a cloud data center provider to an AI factory, capitalizing on the growing demand for AI-related services and advanced computing capabilities [2][12][25] Financial Performance and Projections - DLR's FFO for 2023 is reported at $1,950 million, with projections for 2025 indicating an increase to $3,705 million, representing a 90% growth [7][25] - The company anticipates a 2.36% year-over-year decline in FFO for Q2 2024, with revenue projected at $1.38 billion, a modest increase of 1.04% [7] - Operating expenses are expected to rise by 13%, leading to a net increase in FFO of 78% after accounting for these costs [7][25] AI Market Opportunities - The demand for AI-related hosting has led to a significant increase in hosting prices, rising from $80-90 per KW/month to $150-160 per KW/month, an increase of 82% [6] - DLR's bookings for AI-related services increased by 50% in Q1 2024, indicating strong market interest [13] - The company is positioned to host 60% of the expected GPU capacity from Nvidia and AMD, translating to an additional 1.251 GW of capacity by the end of 2025 [24][25] Strategic Partnerships and Funding - DLR has adopted a capital-light approach, engaging in joint ventures to fund new data centers, including partnerships with Realty Income and Mitsubishi, each contributing $200 million [8] - A significant $7 billion agreement with Blackstone for 500 MW of IT load across 10 data centers ensures long-term capacity delivery [8] Competitive Landscape and Challenges - The shift towards AI requires different deployment strategies compared to traditional cloud computing, with a focus on reducing latency and optimizing data center locations [14][15] - DLR faces competition from emerging players in the AI space, necessitating continued investment and adaptation to maintain its market position [15][22] Future Outlook - The forward price-to-FFO ratio indicates that DLR is currently overpriced relative to the real estate sector by 68%, but there is potential for a 10% appreciation in share price, targeting $170.7 [17] - The success of DLR will depend on effective execution in both AI and cloud computing sectors, alongside prudent capital allocation amidst high debt levels [18][22]

It wasn't that long ago when investors basically left Digital Realty Trust (DLR -3.39%) for dead. High-profile short-seller Jim Chanos called the major data center real estate investment trusts (REITs) his "big short" idea in 2022 -- but he didn't anticipate the coming artificial intelligence (AI) explosion. What a difference a couple of years make. Digital Realty is one of the best-performing real estate investment trusts in recent history. So far in 2024, the REIT has delivered a 20% total return, not onl ...