Digital Realty Trust Inc. (DLR), a niche real estate investment trust (:REIT), has recently completed the acquisition of a sprawling redevelopment property spanning about 271,000 square feet over 34.31 acres of land in Totowa, New Jersey. The acquisition is expected to provide a stabilized cash flow in the short term, a substantial upside potential in the long term, and the opportunity to expand its footprint beyond Manhattan.
The purchase is also in sync with the long-term investment objectives of the company to continue investing in institutional-quality data center facilities in high-barrier-to-entry markets which have significant potential to generate attractive risk-adjusted return on investments.
The acquired data center is located approximately 20 miles west of the George Washington Bridge. The property was purchased for $16.8 million from an unnamed seller.
Digital Realty intends to redevelop the existing infrastructure to accommodate 15.75 megawatts of critical IT load, while utilizing the already-present area substations to supply power to the initial phase of redevelopment. Moving forward, the company is mulling construction of a 50 MVA onsite substation to support future development of additional data center capacity at the site.
With demand for digital storage facilities surging in recent years, Digital Realty has benefited greatly through negotiation of favorable lease terms and maintenance of strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swing experienced during the recession. These factors have in turn enabled Digital Realty to pay steady dividends to its shareholders.
Digital Realty provides flexible and cost effective data center facilities which are primarily used by domestic and international telecommunication companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.
The company provides flexible and cost effective data center facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 110 properties throughout Europe, North America, Asia, and Australia spanning approximately 21.2 million square feet (including 2.2 million square feet of redevelopment space).
We presently have a Neutral recommendation for Digital Realty, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for Brandywine Realty Trust (BDN), one of the competitors of Digital Realty.
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