Data center REIT Digital Realty reported a drop in second-quarter revenue last week, sending its share price further downward.
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The Austin-based firm’s Q2 revenues fell 0.7% year-over-year to $1.36B, below analyst expectations. Digital Realty also reported a year-over-year drop in core funds from operations, a key profitability metric for REITs, to $1.65 per share from $1.68 per share a year ago.
Shares of Digital Realty declined Friday to a trough of $145.65, continuing its fall from a high of $162.33 on July 16.
The firm’s leadership expressed confidence that the earnings miss was a blip amid a long-term trend of continued growth.
The company didn’t adjust its earnings forecast for the year and still anticipates annual revenues between $5.55B and $5.65B. The forecast for core FFO also remained unchanged. Its share price had recovered to $147.10 on Monday afternoon.
CEO Andrew Power pointed to a dramatic increase in new leasing throughout Q2 as support that the company’s performance will get back on track.
“We had a top two quarter when you include … new signings,” Power told CNBC Friday. “Our new signings are up double from last year at the same time.”
He also highlighted declining debt levels on Digital Realty’s balance sheet. Concerns around the amount of debt on Digital Realty’s books had plagued it in the past, leading to a high-profile bet against the company by a leading short seller in 2022. But Digital Realty’s debt has steadily declined over the past year and a half, and the firm paid down nearly $1B in Q2.
Power also pointed to the significant inventory Digital Realty expects to bring online in Northern Virginia in the coming months. Northern Virginia is the world’s largest data center market, but it is also one of the most supply-constrained. Power told CNBC he expects Digital Realty’s production of this “precious” inventory will be a meaningful growth driver.
“The good news is Northern Virginia, which represents about a quarter of our business and our largest market,” Power said. “We have $3B in data center investments coming online, with customers queuing up for that capacity.”
Digital Realty’s declining share price came as Wall Street soured on firms with revenues tied to Big Tech’s artificial intelligence boom. Chipmaker Nvidia's shares dropped 15% in two weeks, while Alphabet, Microsoft and Apple also fell over concerns about their AI expenditures not generating short-term revenue growth.
