Digital Realty Trust’s Q1 Surge: Strong Fundamentals Amid a Shifting Tech Landscape
12min read Digital Realty Trust (NYSE: DLR) delivered a robust first-quarter performance, showcasing its resilience in an uncertain macroeconomic environment. The data center giant reported a 6.1% year-over-year increase in core FFO to $1.77 per share, alongside $1.4 billion in revenue, a 6% rise from Q1 2024. These results, paired with an upward revision to its 2025 guidance, underscore the company’s ability to capitalize on hyperscale demand and strategic investments.
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Earnings Growth: A Foundation of Stability
Digital Realty’s core FFO growth of 6.1% YoY reflects strong execution across its global portfolio. The 5% constant-currency growth in Same Capital Cash NOI highlights operational efficiency, while renewals at a 5.6% average uplift align with its 4-6% annual target. Churn improved to 1.5%, signaling tenant stability. These metrics are particularly notable given the backdrop of rising interest rates and global economic uncertainty.
Revenue Dynamics: Hyperscale as the Growth Engine
While Q1 revenue dipped 2% sequentially from Q4 2024’s $1.436 billion, the 6% YoY growth is the critical metric. This expansion was driven by hyperscale leasing, with $172 million in >1 MW signings, primarily in North America. The $69 million in 0-1 MW plus interconnection deals—the second-highest on record—also highlights demand for hybrid cloud and edge computing solutions.
Ask Aime: "Can Digital Realty Trust's Q1 earnings growth outpace market uncertainty?"
Backlog and Pipeline: A Roadmap for Future Growth
The $919 million record backlog (up 7% from Q4 2024) provides clarity for future earnings. Notably, $440 million of this backlog is slated to commence in 2026, more than double the comparable figure from a year ago. This visibility, combined with a $9.3 billion development pipeline yielding 12.5% (non-GAAP), suggests Digital Realty can sustain growth even amid cost pressures.
The company’s first U.S. Hyperscale Data Center Fund, with $1.7 billion raised toward a $2.5 billion target, further de-risks its capital structure. By leveraging third-party equity, Digital Realty reduces reliance on debt while targeting $10 billion in investments, enhancing returns through fee-based income.
Strategic Wins: AI and Global Expansion
Digital Realty’s focus on AI infrastructure is paying dividends. Over two-thirds of new leases in Q1 were tied to AI, reflecting demand from hyperscalers and cloud providers. Geographic diversification also advanced, with new projects in Indonesia and Crete, complementing its core markets in North America, Europe, and Asia.
Sustainability remains a key differentiator. The company achieved 100% renewable energy coverage in Singapore and Frankfurt, and partnerships like three new Azure on-ramps in Atlanta, Brussels, and Vienna expand its interconnection ecosystem.
Risks and Challenges: Navigating the Crosscurrents
Despite the positives, risks linger. The stock’s YTD decline of 13.8% and a “Sell” technical signal reflect broader market skepticism about real estate valuations. Digital Realty’s 5.1x leverage ratio—well below its 6.5x target—provides breathing room, but rising development costs (up to 5% due to tariffs) could pressure margins in coming quarters.
Conclusion: A Strong Hand in a Volatile Game
Digital Realty’s Q1 results and revised 2025 FFO guidance of $7.05–$7.15 per share (up from $7.00–$7.10) signal confidence in its “full spectrum” strategy. The $919 million backlog and $9.3 billion pipeline provide a clear path to outperform, while hyperscale demand and AI adoption offer secular tailwinds.
While valuation concerns persist—its P/E ratio of 20.5x is above peers—Digital Realty’s balance sheet ($5 billion liquidity) and diversified revenue streams (enterprise, cloud, interconnection) mitigate risks. Investors should focus on its record leasing momentum and strategic capital-light initiatives, which could drive FFO growth to $7.10+ in 2025.
In a sector where execution and visibility are king, Digital Realty continues to deliver both. For long-term investors, this remains a core holding in the data center space.
