Digital Realty Trust, Inc. (DLR-PL)
Digital Realty Trust owns and operates data centres — massive buildings filled with computer servers, cooling systems, and networking equipment — that companies rent space in to run their computing, storage, and cloud services. The company owns around 300 data centres in major cities across North America, Europe, Asia, Australia, and South America. Think of it this way: if you use cloud services like Amazon Web Services or Microsoft Azure, or if you visit a website, the data flowing through servers in Digital Realty buildings. The DLR-PL preferred shares are a fixed-income security issued by Digital Realty, offering investors stable dividend payments backed by the company’s real estate portfolio and long-term customer contracts.
What a data centre is and why it matters
A data centre is a real building: four walls, a roof, loading docks, security, and inside it a dense concentration of server racks, cooling systems, and networking gear. Companies do not want to build and run these facilities themselves because it is capital-intensive, requires specialised expertise, and pulls focus from their core business. Instead, they rent space — called colocation — from companies like Digital Realty.
The global cloud and internet boom has made data centre real estate one of the most valuable asset classes in the economy. Every streaming video, every cloud backup, every online transaction, and every artificial-intelligence training run consumes electricity and compute power in data centres. These facilities run 24/7 and consume enormous amounts of power — a large facility can use as much electricity as a small town. They require precision cooling because servers generate heat, and redundant connectivity because downtime is catastrophically expensive for customers.
Digital Realty owns the buildings, buys the power, manages the cooling, and provides the secure, climate-controlled space and connectivity. Customers (technology companies, financial firms, telecoms, and enterprises) rent the space by the rack, the cabinet, or the floor. They pay for the physical space, the power draw, and the connectivity. Digital Realty guarantees availability, security, and performance through service-level agreements.
How Digital Realty makes money: three revenue streams
About 90% of Digital Realty’s revenue comes from colocation — the simple rent customers pay for floor space, power, and cooling. A company might rent 20 racks in a Digital Realty facility in London and 30 racks in one in Singapore. As the company grows, it rents more space or moves to a larger facility. If it shrinks, it may release some capacity. This is the bread-and-butter business.
The second stream, roughly 8%, comes from interconnection services. This sounds technical but is actually straightforward: customers in the same facility want to connect to each other — directly between their servers, not through the public internet. Digital Realty sets up these cross-connects and charges a fee. A financial firm might pay to interconnect its trading platform directly to a bank’s settlement system, avoiding latency and routing through the public web. This generates high-margin revenue because the company is simply facilitating a connection with minimal additional cost once the facility exists.
The remaining 2% is other fees: consulting, managed services, and miscellaneous charges.
The business model: stable contracts and predictable cash flow
Digital Realty’s revenue is contractual and recurring. A customer signs a lease for three years, or five years, or longer. They pay a monthly fee whether they use every byte of capacity or half of it. If they leave early, they typically pay a termination fee. This is not like a hotel where occupancy swings wildly; it is more like apartment buildings, which have stable occupancy and predictable revenue.
The company benefits from long customer relationships. Once a company has production systems in a Digital Realty facility, moving them is painful — it requires downtime, engineering effort, and relocation of equipment. This switching cost keeps customers sticky. When contracts renew, Digital Realty can often raise prices modestly without losing the customer, because the cost of moving is high.
The company also benefits from the fact that more data is being created and consumed than ever before. Every new user of cloud services, every streaming service added, every smartphone photo backed up — all of this generates demand for data-centre capacity. Digital Realty rides that structural growth.
The preferred shares: what you own and what you earn
A preferred share is a claim on the company’s assets and cash flow, but it is junior to debt (bonds) and senior to common stock. You get a fixed dividend — let us say 5.5% annually, paid quarterly. This is not a guess or dependent on the company’s profits; it is contractual. As long as the company is solvent and has cash, you receive your 5.5% per year.
The preferred shares do not have a maturity date (some do; it depends on the series), so they could exist forever, or they could be redeemed at Digital Realty’s discretion. If interest rates fall and new preferreds yield only 4%, it makes sense for the company to call (redeem) the 5.5% shares and refinance at a lower rate; your 5.5% shares get bought back at par.
Preferred shares are attractive during periods of stable or rising interest rates and fixed-income demand, because they offer higher yields than many bonds and are senior to common equity. They are less attractive when interest rates are expected to fall (because the fixed rate becomes less valuable) or when the company faces financial stress (because preferred dividends are first in line after debt, but still subordinate to creditors).
What underpins the preferred dividend: assets and cash flow
Digital Realty’s balance sheet is substantial — the company owns or controls hundreds of real-estate properties worth tens of billions of dollars. The assets generate recurring colocation and interconnection revenue, which flows through as cash. A large portion of this cash is distributed to shareholders as dividends and distributions. Preferred shareholders get paid first (after debt), common shareholders get paid second, and the rest is reinvested in the business or used to acquire new properties.
The company’s credit quality matters. If Digital Realty’s debt rating declines or the company faces financial stress, preferred shareholders could be at risk. But as a dominant player in essential infrastructure (data centres are not optional; the cloud does not work without them), Digital Realty has strong credit fundamentals.
Growth drivers and challenges
Digital Realty grows by building new facilities, expanding existing ones, and acquiring competitors’ data centres. The capital required is substantial, but returns can be attractive because data-centre real estate generates high returns on invested capital — often 8–10% or more — as long as there is demand for capacity.
The main challenges are power and cooling. Large data centres consume immense electricity. As capacity and demand grow, finding reliable, low-cost power in major metropolitan areas is increasingly difficult. Some data-centre operators are investing in renewable energy and advanced cooling technologies to manage costs and meet customer sustainability demands.
Regulation is another pressure point. Some jurisdictions are restricting data-centre expansion due to power and water concerns. Tax changes in some countries have also affected returns. And competition from other data-centre operators and from hyperscalers (like Amazon and Google) that build their own facilities keeps pressure on pricing.
How the preferred shares fit into your portfolio
If you buy DLR-PL, you are buying a fixed-income claim on a company that owns real property (data centres) and has long-term customer contracts. You are essentially lending to Digital Realty and receiving 5–6% annual interest. It is more stable than the common stock (which fluctuates with market sentiment) but less stable than a bond (because it is subordinate in a liquidation).
These preferreds are suitable for investors seeking income, with a tolerance for modest fluctuations in market price (prices rise when interest rates fall, and fall when rates rise), and comfort with real-estate and technology-infrastructure exposure. They are less suitable for investors expecting major interest-rate declines in the near term or those uncomfortable holding equity that could be impaired if Digital Realty faces serious financial difficulty.
How to research Digital Realty and its preferred shares
Start with Digital Realty’s annual report (10-K filing, SEC CIK 0001297996), which details the company’s properties, customer composition, revenue by segment, and balance sheet. Look for the property-by-property breakdown and customer concentration (if the top 10 customers represent 50% of revenue, there is concentration risk; if they represent 20%, the customer base is more diversified).
Compare the DLR-PL dividend yield against yields on competing preferred shares and bonds of similar credit quality. If DLR-PL yields 5.5% and similar-quality bonds yield 5.0%, the preferred looks relatively attractive (though you are accepting equity-like subordination). If it yields 5.0% and bonds yield 5.5%, you are sacrificing yield for subordination, which may not be worthwhile.
Monitor Digital Realty’s quarterly earnings reports for comments on capacity utilization, customer additions and churn, pricing trends, and power and cooling constraints. Watch for acquisitions of competing data-centre assets and updates on new facility development. Track the company’s debt levels and any refinancing activity — if the company is refinancing at higher rates, it signals that capital markets are demanding more for the risk, a sign of stress.
Check Digital Realty’s credit ratings from Moody’s or Standard & Poor’s; downgrades signal deteriorating financial health and suggest higher risk for preferred shareholders. Finally, monitor the company’s dividend and distribution trends. If distributions are rising, the company is generating growth; if they are flat, the company is mature; if they are falling, something has gone wrong.