Digital Realty (DLR) to Post Q4 Earnings: What's in the Cards?
Digital Realty Trust DLR is slated to report fourth-quarter and full-year 2023 results on Feb 15 after the closing bell. While the quarterly results are expected to reflect year-over-year growth in revenues, funds from operations (FFO) per share might exhibit a decline.
This Austin, TX-based data center real estate investment trust (REIT) reported a core FFO per share of $1.62 in the prior quarter, in line with the Zacks Consensus Estimate. The quarterly results reflected better-than-anticipated revenues, aided by strong enterprise leasing activity.
Over the trailing four quarters, Digital Realty’s core FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed once, the average beat being 0.16%. This is depicted in the chart below:
Digital Realty Trust, Inc. Price and EPS Surprise
Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote
Factors to Consider
Data center infrastructure demand has remained robust due to accelerated digital transformation strategies by enterprises. With growth in cloud computing, the Internet of Things and Big Data and elevated demand for third-party IT infrastructure, the data center market is booming. Moreover, emerging demand drivers like AI, edge computing and 5G technology are likely to have spurred the need for digital infrastructure globally.
Digital Realty’s portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa is likely to have capitalized on this upbeat trend, benefiting its fourth-quarter earnings.
Moreover, this data center REIT has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, and other enterprise and financial industries. Most of the company’s tenants are investment grade, and numerous customers use multiple locations across the portfolio. This is anticipated to have aided stable revenue generation for the company during the to-be-reported quarter, driving its top line.
The Zacks Consensus Estimate for quarterly rental revenues is pegged at $901.44 million, up 8% from $834.37 million reported in the year-ago quarter. The consensus mark for revenues from tenant reimbursement utilities is pegged at $339.13 million, up 36.9% from $247.73 million reported in the prior-year quarter.
Also, Digital Realty’s interconnection solutions are expected to have gained from solid demand in the quarter under discussion. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $108.98 million, indicating a 12% increase from the year-ago quarter.
The consensus estimate for quarterly total revenues is pegged at $1.40 billion, indicating a 13.36% year-over-year increase.
However, higher interest expenses and adverse foreign currency fluctuations are anticipated to have cast a pall on its quarterly performance to some extent.
Digital Realty’s activities in the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the company’s quarterly FFO per share has remained unrevised at $1.64 over the past month. Moreover, the figure indicates a year-over-year decline of 0.61%.
For the full year 2023, Digital Realty projected core FFO per share guidance in the $6.58-$6.62 band, total revenues in the range of $5.475-$5.525 billion and adjusted EBITDA in the $2.685-$2.715 billion range.
This data center REIT provided projections for rental rates on renewal leases, which are expected to be greater than 5% on a cash basis and 9% on a GAAP basis. The year-end portfolio occupancy is expected between 83% and 84%, and the same-capital cash NOI is estimated to grow 6-7%.
For the full year, the Zacks Consensus Estimate for core FFO per share has been unrevised at $6.60 over the past month, indicating a 1.49% decrease from the year-ago reported figure. The Zacks Consensus Estimate for 2023 revenues is pegged at $5.51 billion, calling for an increase of 17.34% from the year-ago reported number.
Q4 Developments
In December 2023, Digital Realty entered into a JV worth $7 billion with Blackstone Inc., a global alternative asset manager, to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia, supporting around 500 megawatts of total IT load upon full build-out. In this strategic partnership, Blackstone-affiliated funds specializing in Infrastructure, Real Estate and Tactical Opportunities will acquire an 80% ownership stake in the JV for an initial capital contribution of around $700 million. Digital Realty will retain a 20% interest and will manage the day-to-day operations of the joint venture, earning customary fees.
In November 2023, Digital Realty entered into a JV with Realty Income Corporation O to facilitate the development of two build-to-suit data centers in Northern Virginia, known for its prominence in the data center market. Realty Income invested around $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest. The collaboration combines Digital Realty's expertise in data center solutions with Realty Income's standing as a blue-chip net-lease REIT.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Digital Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Digital Realty currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Extra Space Storage Inc. EXR and American Homes 4 Rent AMH — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Extra Space Storage, scheduled to report quarterly numbers on Feb 27, has an Earnings ESP of +1.08% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Homes 4 Rent, slated to release quarterly numbers on Feb 22, has an Earnings ESP of +1.68% and carries a Zacks Rank of 3 at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report
Realty Income Corporation (O) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
American Homes 4 Rent (AMH) : Free Stock Analysis Report
