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Digital Realty (DLR) Q1 FFO and Revenues Beat Estimates

Zacks Equity Research

Data-center REIT Digital Realty Trust, Inc.’s DLR first-quarter 2019 core funds from operations (FFO) per share of $1.73 outpaced the Zacks Consensus Estimate of $1.65. The figure also comes in higher than the year-ago tally of $1.63.

The company reported operating revenues of $814.5 million in the first quarter, which marked a 9.4% year-over-year rise. The revenue figure also surpassed the Zacks Consensus Estimate of $797.4 million. The company has reaffirmed its 2019 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $50 million of annualized GAAP rental revenues. This would include a $9-million from Ascenty (at 100% share) and a $7-million contribution from interconnection. Notably, the weighted-average lag between leases signed during first-quarter 2019 and the contractual commencement date was two months.

Moreover, the company signed renewal leases, marking $116 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 6.9% on a cash basis and ascended 7.1% on a GAAP basis.

Notable Portfolio Activity

During the March-end quarter, Digital Realty announced the conclusion of its joint venture (JV) deal with Brookfield Asset Management’s affiliate — Brookfield Infrastructure. The move comprised Brookfield investing approximately $700 million and in turn, acquiring around 49% of the total equity interests in the JV, which owns and operates Ascenty.

Moreover, during the first quarter, Digital Realty closed the 30-year ground lease with Jurong Town Council for two adjacent land parcels in Singapore, aggregating three acres, for an upfront payment of around $6 million.  

Further, in an effort to expand its presence in Japan, Digital Realty announced that its 50/50 JV with Mitsubishi Corporation — MC Digital Realty — has signed a deal to acquire a five-acre land parcel in Tokyo.

Balance Sheet

Digital Realty exited first-quarter 2019 with cash and cash equivalents of around $123.9 million, slightly down from $126.7 million recorded at year-end 2018.

Additionally, as of Mar 31, 2019, the company had around $10.3 billion of total debt outstanding, of which $10.2 billion was unsecured debt and around $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.5x, while fixed charge coverage was 3.6x.

Outlook Reiterated

Digital Realty reiterated its 2019 core FFO per share outlook at $6.60-$6.70. The Zacks Consensus Estimate for the same, currently pegged at $6.67, lies within this range.

The full-year outlook provided by the company is backed by revenue projections of $3.2-$3.3 billion, year-end portfolio occupancy growth of +/- 50 bps, and "same-capital" cash NOI growth of -2.0% to -4.0%.

Our Take

Solid fundamentals of the data-center market help Digital Realty ride on its growth curve through accretive acquisitions and development efforts. The company also focuses on maintaining a solid balance sheet and enjoys ample liquidity. Nevertheless, aggressive pricing pressure is likely to prevail in the upcoming period. In addition, the company has a substantial debt burden and hence, any rate hike will add to its woes.

Digital Realty currently has 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. Quote

We now look forward to the earnings releases of other REITs like Vornado Realty Trust VNO, Boston Properties, Inc. BXP and Extra Space Storage Inc. EXR. Vornado Realty is slated to report first-quarter earnings on Apr 29, while Boston Properties and Extra Space Storage are scheduled to release their quarterly numbers on Apr 30.

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

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