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Digital Realty (DLR) Beats Q4 FFO Estimates, Revenues Up Y/Y

Zacks Equity Research

Digital Realty Trust, Inc. DLR reported fourth-quarter 2019 core funds from operations (FFO) per share of $1.62, beating the Zacks Consensus Estimate of $1.58. However, results compare unfavorably with the year-ago figure of $1.68.

The company reported operating revenues of $787.5 million in the fourth quarter, marking a 1.2% year-over-year rise. The revenue figure, however, missed the Zacks Consensus Estimate of $794 million.

For full-year 2019, the company reported core FFO per share of $6.65, up from the prior year’s $6.60. Revenues for the year amounted to $3.2 billion, up 5.3% year on year.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $69 million of annualized GAAP rental revenues. This would include a $7-million contribution from inter-connection. Notably, the weighted-average lag between leases signed during fourth-quarter 2019 and the contractual commencement date was four months.

Moreover, the company signed renewal leases, marking $117 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 0.6% on a cash basis and up 4.2% on a GAAP basis.

Portfolio Activity

In November, Digital Realty closed $1-billion joint venture (JV) with Mapletree Investments and Mapletree Industrial Trust on three existing Turn-Key Flex® data centers in Ashburn, VA.  Digital Realty retained 20% interest in the JV, while the entity acquired 80% stake for around $811 million. Digital Realty will keep operating and managing these facilities. These facilities are anticipated to generate aggregate cash NOI of around $61 million next year. This indicates a 6% cap rate.

Balance Sheet

Digital Realty exited fourth-quarter 2019 with cash and cash equivalents of around $89.8 million, up from the $7.2 million recorded at the end of the prior quarter.

Additionally, as of Dec 31, 2019, the company had around $10.1 billion of total debt outstanding, of which $10 billion was unsecured debt and $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.7x, while fixed charge coverage was 4.1x.

Our Take

While Digital Realty put up an impressive performance in terms of FFO per share, its lower-than-expected top-line growth was disappointing. Nevertheless, solid fundamentals of the data-center market will likely help the company ride on its growth curve. The company remains well poised to bank on it through accretive acquisitions and development efforts. Nonetheless, aggressive pricing pressure is likely to prevail in the upcoming period. In addition, the company has a substantial debt burden.

Digital Realty currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Digital Realty Trust, Inc. Price, Consensus and EPS Surprise
 

Digital Realty Trust, Inc. Price, Consensus and EPS Surprise

Digital Realty Trust, Inc. price-consensus-eps-surprise-chart | Digital Realty Trust, Inc. Quote

We, now, look forward to the earnings releases of other REITs like Realty Income Corporation O, Ventas Inc. VTR and Host Hotels & Resorts, Inc. HST, all of which are slated to report their quarterly numbers next week.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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