It's Not All Bad News For REIT Investors — This REIT Is Up Nearly 40% In 2023
For many real estate investment trusts (REITs) and REIT investors, 2023 has been a year they would just as soon forget. After several years of solid growth, many REITs were punished by interest rate spikes that coincided with a wave of vacancies. This is especially true in the office market and even the residential sector. But other real estate sectors are still booming. Digital Realty shares are up nearly 40% this year.
Who Is Digital Realty?
Digital Realty (NYSE:DLR) is a publicly traded specialty REIT whose shares are traded on the New York Stock Exchange. Digital Realty is an owner/operator of over 300 data storage and connection centers in 25 countries. Many of their assets are concentrated in some of the world's most desirable markets for data, including:
Metro Washington, D.C./Northern Virginia
London
Silicon Valley
New York state
Dallas
Digital Realty's market cap is $42.75 billion, and it has a price-to-earnings (P/E) ratio of 47.82. On Nov. 29, Digital Realty shares were trading at $138.20 and hit $140 in overnight trading. That's a nearly 40% increase on their Jan. 2, share price of $101.38. To say the stock is flying high would be an understatement. It speaks to the strong demand for digital storage — a demand that's expected to increase.
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Growth in the Data Center Sector
Digital Realty Trust's surge in value defies the conventional wisdom in REIT stocks this year and is based on demand. As the world's government and private companies become more reliant on digital infrastructure, the need for space to store servers and associated machinery grows.
That means industries in both the public and private sectors, from hospitals and defense contractors to social media companies, are competing for a limited amount of space. They need high-end space with the kind of security, access to IT professionals and infrastructure that Digital Realty's portfolio of properties offer. That's why its stock is performing so well this year.
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Pioneers In Renewable Energy
Digital Realty’s 2023 performance is a great example of being in the right place at the right time. Another important aspect of Digital Realty's success has been its willingness to look forward. The REIT has been at the forefront of making investments in renewable energy. Its renewable energy investments are significant enough to equal the energy consumption of 126 of its data centers globally.
Digital Realty's European assets are already 100% powered by renewable energy sources and it has 1 gigawatt of solar and wind assets in the United States The end goal is to convert its entire portfolio to renewable energy, a move which will likely increase the value of its assets.
A Ray Of Sunshine In The REIT Sector
Every time it's raining somewhere, it means the sun is shining somewhere else. Up until the last 12 months or so, the best residential and office REITs were performing reliably for most investors. That has changed, and many of the big winners for the past five years have seen clouds gather on the horizon.
That's the beauty of publicly traded REITs. Unlike private REITs where your money is locked up for a hold period, you can sell your underperforming public REIT shares in the residential or office sector and consider other offerings. There is no guarantee that Digital Realty will go up another 35%, but its shares are still worthy of consideration. At a minimum, it's a stock you may want to keep an eye on.
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