Digital Realty DLR is well-positioned for growth with decent leasing activity amid robust demand for data centers, a diverse tenant roster, accretive buyouts, development efforts and balance sheet strength.

In April 2025, DLR announced that it had launched Microsoft Azure ExpressRoute on its global data center platform, PlatformDIGITAL, in three additional locations — Atlanta, Brussels and Vienna — bringing the total to 15 locations. Customers will now be able to use Azure resources from their private IT infrastructure through a dedicated connection, reducing latency and improving security.

Analysts seem bullish about this Zacks Rank #2 (Buy) company, with the Zacks Consensus Estimate for its 2025 AFFO per share being raised marginally over the past month to $7.09.

Over the past three months, DLR shares have risen 1.9%, against the industry’s fall of 0.2%.Zacks Investment Research

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Factors That Make Digital Realty Stock a Solid Pick

Booming Data Center Market: With the growth in cloud computing, the Internet of Things and Big Data and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are experiencing a booming market. Also, the estimated growth rates for the artificial intelligence (AI), autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to six years.

Demand is strong in top-tier data center markets, and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace. In the first quarter of 2025, Digital Realty signed $242.3 million of new leases, of which $172.1 million fell into the greater than 1-megawatt category, $54.1 million of 0-1 megawatt leases and $14.6 million of interconnection bookings. At 100% share, the company’s backlog of signed but not commenced leases reached a record high, crossing $1.3 billion as of March 31, 2025.

Diverse Tenant Base: DLR has a high-quality, diversified customer base comprising tenants from cloud content, information technology, network, and other enterprise and financial industries.It has a global presence, with 308 data centers in more than 50 metros with decent occupancy. The company is poised for growth with more than 5,000 global customers.

Expansionary Efforts: Digital Realty is expected to ride on its growth curve, backed by strategic investments in land, infrastructure and acquisitions. In March 2025, Digital Realty forayed into the Indonesian market through a 50-50 joint venture with Bersama Digital Infrastructure Asia (BDIA). The newly formed entity, Digital Realty Bersama, will develop and operate data centers across Indonesia, enhancing the company's presence in the rapidly growing Asia-Pacific region.

Story Continues

In the first quarter of 2025, Digital Realty acquired three land parcels in Charlotte, NC, for $36 million. Following the quarter’s end, DLR completed acquiring around 100 acres of land for around $120 million in the Atlanta metro area, with an expected IT capacity of more than 200 megawatts. Such expansionary efforts will augur future revenue growth for the company.

Strong Development Pipeline: DLR is making efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. As of March 31, 2025, it had 9.5 million square feet of space under active development and 5.1 million square feet of space held for future development. For 2025, the company expects to incur capital expenditures for its development activities (net of partner contributions) in the range of $3.0-$3.5 billion.

Balance Sheet Strength: Digital Realty has a solid balance sheet with ample liquidity. The company exited the first quarter of 2025 with cash and cash equivalents of $2.32 billion. Its debt maturity schedule is well-laddered, with a 2.6% weighted average coupon as of March 31, 2025. Its net debt-to-adjusted EBITDA was 5.1X, while its fixed charge coverage was 4.9X as of the end of the first quarter of 2025. In addition, Digital Realty currently enjoys BBB (Stable Outlook), BBB (Stable Outlook) and Baa2 (Stable Outlook) credit ratings from Fitch, S&P and Moody's, respectively, which provide it with favorable access to the debt market and lower borrowing costs.

Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are Welltower WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2025 FFO per share has been moved marginally northward to $4.99 over the past week.

The consensus estimate for Cousins Properties’ 2025 FFO per share has increased 1.8% to $2.79 over the past two months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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