By Scott Murphy

Over the past decade we have seen incredible growth in our reliance on technology and the impact it has on our daily lives. Technology has moved away from the individual PC in a closed environment to an always on, interconnected world where the real time delivery of technology applications and data through the internet and 5G communications platforms is an absolute must. The worldwide Covid-19 pandemic has further pushed the limits on this need to be connected. Whether using Zoom for “work-from-home” demands or keeping in touch with family for non-traditional Thanksgiving celebrations, the need to remain connected for social and business reasons has never been more important. Like it or not, the concept of “cloud computing” is slowly making its way into our daily lexicons.

The term “the cloud” was once used as a metaphor to describe the complexity of our telephone networks, but it has morphed into one that describes a model of computing where servers, networks, storage and applications are all enabled and connected through the internet. In order for these networks to properly function, large scale server farms need to be located near the main switching stations that serve as the backbone of the world wide web.

Our recent purchase of Digital Realty Trust, Inc. (DLR) is an investment in the continued growth of cloud computing and the never-ending need for corporations and individuals to manage the data created as our computer network continues to evolve and grow exponentially. According to Gartner Research, only 10% of enterprises have moved to data centers, but 80% are expected to do so by 2025. As the market leader in data center real estate, Digital Realty is in the perfect position to take advantage of the additional 80% of these enterprises moving to the cloud data centers in the next five years.

Digital Realty Trust is a REIT (real estate investment trust) that was formed in 2004 and has grown to become the second largest publicly traded company operating in the cloud space. DLR is currently the fifth largest publicly traded REIT. Digital Realty owns, acquires, develops and operates data centers with 215 data centers in 35 metropolitan areas across 14 countries. DLR is well positioned to maintain its leadership position in the data center industry.

In 2019, Digital Realty produced FFO (funds from operation) of $7.39 per share, and dividends per share of $4.32. FFO per share was essentially flat from 2018 to 2019, while dividends per share grew nearly 7%. The company also advanced its environmental, social and governance (ESG) standing by offering the first-ever data center Green Euro Bond. DLR’s primary source of revenue comes from North American, which is a direct result of the large amount of data centers located on the continent. Operating revenues from properties in the United States were $2.6 billion in 2019, while revenues internationally were $627 million that year. The company’s use of solar power in many of its data centers helps strengthen its customers’ ESG goals which seem to be growing by the day. Since many of Digital Realty’s customers are technology companies, DLR’s ability to leverage its strong balance sheet helps its business objectives above and beyond basic data center offerings, separating them from their peers.

We feel that Digital Realty is positioned perfectly and has demonstrated its ability to grow its dividend above that of the S&P for the foreseeable future. With strategically located properties, an experienced management team and a favorable debt/equity ratio, DLR represents a most compelling investment opportunity within the industry.