Digital Realty, a global provider of data center, colocation, and interconnection solutions, has reported robust financial results for the third quarter of 2023.
Digital Realty has achieved revenues of $1.4 billion in the third quarter of 2023, representing a 3 percent increase from the previous quarter and a substantial 18 percent growth from the same quarter last year.
The impressive performance was underscored by net income of $746 million in the third quarter of 2023.
Andy Power, President & Chief Executive Officer of Digital Realty, attributed the company’s success to record-breaking leasing in the 0-1 megawatt category, along with strong leasing activities in the greater-than-a-megawatt category. He stated, “We posted record leasing in the 0-1 megawatt plus interconnection category and robust leasing in the greater-than-a-megawatt category.”
Leasing Activity Highlights:
During the third quarter, Digital Realty inked total bookings expected to generate $152 million of annualized GAAP rental revenue. This figure includes a significant $42 million contribution from the 0–1 megawatt category and an additional $12 million contribution from interconnection services.
A key achievement during the quarter was the weighted-average lag of 12 months between new leases signed and the contractual commencement date, indicating the strength and stability of Digital Realty’s leasing portfolio.
In addition to new leases, the company signed renewal leases that will contribute $157 million of annualized GAAP rental revenue in the coming months, with rental rates on renewal leases increasing by 7.4 percent.
Strategic Ventures:
Digital Realty’s strategic partnerships have further bolstered its financial position. In July, the company established a joint venture with GI Partners, with GI Partners acquiring a 65 percent interest in two stabilized hyperscale data centers in the Chicago metro area. The transaction generated approximately $743 million in gross proceeds for Digital Realty while allowing the company to retain a 35 percent interest in the joint venture.
Similarly, in late July, Digital Realty formed another joint venture, this time with TPG Real Estate. TPG acquired an 80 percent interest in three stabilized hyperscale data centers in Northern Virginia, providing Digital Realty with approximately $1.4 billion in gross proceeds. The company maintains a 20 percent interest in this strategic collaboration.
Expansion and Development:
During the third quarter, Digital Realty continued its expansion efforts by securing a 50-year right of use agreement related to a 2.7-acre site (MRS5) in Marseille, France. This site has the potential to support the development of data center capacity with around 22 megawatts of IT load, serving as an extension to the company’s existing highly connected campus in the port of Marseille. The total payments over the next 30 years for MRS5 are expected to be approximately €62 million or $65 million.
Additionally, Digital Realty acquired approximately 27 acres (MRS6) near Marseille for €47 million or $49 million. MRS6 is designed to accommodate the development of data center capacity of up to 50 megawatts of IT load, catering to the growing demand from cloud service providers.
Asset Sales:
During the third quarter, Digital Realty executed strategic asset sales. The company sold a non-core data center in Watford, United Kingdom, for approximately $146 million in net proceeds, reflecting a 9.8 percent capitalization rate based on in-place NOI adjusted for known move-outs.
Additionally, Digital Realty divested a non-core data center in Chantilly, Virginia, for approximately $43 million, indicating a 9.3 percent capitalization rate based on in-place NOI at September 30, 2023.
Digital Realty’s strong performance in Q3 2023 reflects the company’s ability to capitalize on the increasing demand for data center and interconnection services, as well as its strategic investments and asset management initiatives that continue to drive growth and financial success.
