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Digital Realty (DLR) Forms JV, Boosts Mediterranean Presence

·3 min read

Digital Realty DLR announced the formation of a joint venture (“JV”) with the Israel-based real estate company, Mivne Real Estate, for the development of a new colocation and connectivity hub in Israel. The move comes as part of Digital Realty’s effort to boost its Mediterranean presence and marks DLR’s entry into the Israeli market.

Operating under the brand name – Digital Realty Mivne, this JV will serve as a strategic partnership of Digital Realty with Mivne. It plans to develop a multi-tenant data center campus in Petah Tikvah, which will support the development of up to 20 megawatts of installed IT load. The initial phase’s delivery is expected in 2023, subject to customer demand.

With around half of the world's population residing within a 3,000-mile radius from the center of the Mediterranean, boosting footprint in the region seems a strategic fit. Digital Realty’s presence in Athens, Barcelona and Marseille will be further enriched by this new location.

Since 2016, international bandwidth in the Middle East has seen more than 30% compound annual growth per the Telegeography report. This marks an overall upsurge in transmission capacity to the region of nearly 200%. Hence, the expansion of DLR into this region is expected to boost its long-term profitability.  

Moreover, Israel is evolving as an alternative cable interconnect route between the Mediterranean Sea and the Red Sea. The JV’s new campus will be positioned at a major intersection along the global internet highway across the Mediterranean region. The demand for digital infrastructure throughout Israel is getting a substantial boost and four largest cloud service providers have announced that they would be constructing cloud infrastructure in Israel.

With growth in cloud computing, the Internet of Things and big data and an increasing number of companies opting for third-party IT infrastructure, data center REITs are experiencing a boom in the market. Also, estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to six years. These are anticipated to drive the demand for data centers. Apart from these, data centers are poised to benefit from the heightening reliance on technology, which has taken place in the wake of the pandemic.

Shares of this presently Zacks Rank #3 (Hold) company have declined 8.5% in the past three months, narrower than its industry’s fall of 14.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some key picks from the REIT sector include Prologis, Inc. PLD and OUTFRONT Media OUT.

The Zacks Consensus Estimate for Prologis’ 2022 funds from operations (FFO) per share has moved 1.8% upward in the past two months to $5.15. PLD presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 51.4% over the past two months to $2.09. OUT sports a Zacks Rank #1 currently.

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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