Digital Realty Trust: Record Leasing At Impressive Rates, Dividend Hike Expected Soon

Core Viewpoint - Digital Realty Trust, Inc. (DLR) is expected to maintain profitability in FY2024, with a robust investment thesis supported by strategic growth initiatives and improved financial metrics [2][3][11]. Financial Performance - DLR reported total operating revenues of $1.33 billion in FQ1'24, reflecting a 2.2% decrease quarter-over-quarter but inline year-over-year, while AFFO per share increased by 29.2% quarter-over-quarter and 7.6% year-over-year to $1.68 [5]. - The REIT achieved record leasing levels, with pricing averaging $264 per square foot, a 59% increase quarter-over-quarter and 56.2% year-over-year [6]. - DLR's multi-year backlog reached $541 million, up 21.3% quarter-over-quarter and 24.6% year-over-year, indicating strong demand and visibility for future revenue [7]. Growth Drivers - The management's intensified Joint Ventures and strategic funding plans have contributed to a healthier balance sheet, with a net-debt-to-EBITDA ratio improving to 5.8x from 6.2x in FQ4'23 and 7.1x in FQ1'23 [9][10]. - FY2024 guidance has been raised, with rental rates on a renewal basis expected to increase by 6% year-over-year and Same-Capital cash NOI growth projected at 3% year-over-year [8]. Dividend Outlook - The AFFO payout ratio improved to 72.8% in FQ1'24, down from 76.6% in FQ4'19, suggesting potential for a dividend increase in 2025 [10][11]. - The consensus estimates indicate a dividend per share increase from $4.90 in FY2024 to $5.03 in FY2025, reflecting a 2.7% growth [12]. Valuation Metrics - DLR's forward Price/AFFO valuation stands at 22.89x, compared to sector median valuations, indicating it remains reasonably valued despite a premium [14][15]. - The REIT's forward dividend yield is 3.42%, lower than the sector median of 4.75%, but still offers decent returns [21]. Market Sentiment - DLR has traded sideways in 2024 amid mixed market sentiments, with inflation concerns and high borrowing costs impacting investor outlook [20]. - Despite these challenges, the stock is trading near fair value estimates, with an upside potential of 18.5% to a long-term price target of $169.30 based on FY2026 AFFO per share estimates [21].