![]() Source: Quarterly Financial Results Presentation for 2022 and Q1 2023 ![]() Table 4: Quarterly Rental Rate Change (Cash Basis) for 2022 and Q1 2023 Please take a look at Table 4 for the percentage rental rate changes for the last five quarters. 8.3% of annualized rent came from unimproved building shell capacity as well as storage and office space within fully improved data center facilities. For the year ended 2022, 57% of annualized rent came from the >1 MW category and 34.7% came from the 0-1 MW category. The >1 MW is preferable because of the stability of revenue they bring. The >1 MW deployment can be very large and have a contract length of five to more than ten years. 0 to 1 MW are typically small to medium deployments with a contract length of 2 - 5 years. DLR's leases can be divided based on capacity: zero to one Megawatt (0 to 1 MW) and greater than one Megawatt (>1 MW). In order analyze the re-leasing spread for DLR, we should familiarize ourselves with DLR's lease distribution. The re-leasing spread measures the change in rent per square foot between new and expiring leases. Occupancy is one dimension in evaluating rental income. ![]() If current income is sacrificed for growth, then the benefits of growth should trickle down in some form or fashion to the investor. A decreasing occupancy rate and at the same time an increase in the proportion of the square footage that is under development or held for development needs to be justified further. Had the occupancy rate stayed flat in the previous table, the strategy might be justified. This paints a picture of a REIT focused on growth primarily and operating efficiency secondarily. The concern here is that proportion of space under active development and held for development seems to be growing and the proportion of net rentable square feet seems to be declining. Table 3: Square Feet (%) In Each Category, As of Q4 of the Year Presented Nevertheless, prudence requires an evaluation of the exhibits. Also, in general, development activity is a bullish indicator as it signals that management anticipates a growth in the occupied square footage. For a growing business such as DLR, it may be acceptable to have fluctuating occupancy rate against a backdrop of growing occupied square footage. Space held for active development is expected to be leased within twelve months. DLR has two other categories for its properties: space under active development and space held for development. The occupancy metrics presented represent net rentable square feet (NRSF). The occupied square feet in 2022 is 58.74% higher than 2016 despite the lower occupancy rate in 2022. The occupancy rate has trended downwards from 2018-2021 and appears to have turned a corner in 2022. Table 2: Same-Capital Occupancy Metrics, As Of Q4 of the Year Presented Also, the occupancy rate can give an indication as to how much slack there is in terms of vacancy. The higher the occupancy, the higher the rental revenue, ceteris paribus. Rental revenue is a function of occupancy. However, the growth rate from 2016-2018 exceeds the growth in 2020-2022 by 2.74x. Rental revenue has grown at a12.59% clip for the period presented. Source: Fourth Quarter Earning Supplements for 2016-2022 A sustained increase in rental revenue is a sign that DLR's real estate assets are in demand in the marketplace. The usual first step in analyzing a REIT is to evaluate trends in rental revenue. Towards the end of the article, an investment strategy is offered and a conclusion presented. We apply insights gleaned from this analysis to form a reasonable expectation of what a prudent investor can expect with a position in the stock. From an investor point of view, we look at metrics such as funds from operations (FFO), adjusted funds from operations (AFFO) and the dividends per share. With regard to their operating performance, we look at metrics such as the rental revenue, net operating income (NOI), trends in occupancy, and re-leasing spreads. In this article, we are going to evaluate DLR's operating performance and compare it with their recent track record from the perspective of an investor. Fundamentally, DLR brings together real estate and technological expertise to meet their customers' data and connectivity needs. ![]() DLR has a portfolio of 316 data centers that is used for digital communication, disaster recovery, transaction processing, and housing mission-critical corporate IT applications. Digital Realty Trust's ( NYSE: DLR) business model is to utilize real estate to provide a global data center platform that supports business' digital infrastructure and connectivity needs. The continued growth of the digital economy as well as emerging technological advances have led to a burgeoning demand of how data is analyzed, transmitted and managed.
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