Digital Realty Trust Inc. (DLR), a niche real estate investment trust (:REIT), has recently completed the acquisition of ‘400 South Akard Street’ – a data center facility spanning 269,600 square feet space in the central business district of Dallas, Texas. The property was acquired from an unnamed seller for an undisclosed amount.
The acquisition is in sync with the long-term investment objectives of the company that focus on 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 seven-storied acquired property, popularly known as ‘The Databank Building’, was built in 1921 to house the U.S. Federal Reserve Bank of Dallas. Subsequently, the building was renovated as a technology and telecom hub in 2000, and currently includes a host of exciting features such as large floor-plates, high ceilings, and robust floor loading. The property, thereby, is one of the most sought-after data center facilities in the region.
Presently, the facility is 85% leased to eight tenants. The data center facility delivers approximately 11.7 megawatts of critical load, with capability for a capacity expansion to 18 megawatts.
The acquisition is expected to provide stabilized cash flow in the short term, a substantial upside potential in the long term and the opportunity to expand its footprint in the downtown Dallas market.
Digital Realty operates datacenters and digital storage facilities, which are primarily used by 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.
Digital Realty provides flexible and cost effective datacenter facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 105 properties throughout Europe and North America, spanning approximately 20.0 million square feet of space (including 2.3 million square feet of redevelopment space).
With demand for digital storage facilities increasing in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining 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.
This has in turn enabled Digital Realty to continue paying out solid dividends to its shareholders. The year-to-date return for the stock is noteworthy at 10.59% compared to an S&P 500 tally of 6.16%.
We presently have a Neutral recommendation for Digital Realty, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. However, MPG Office Trust Inc. (MPG) – one of the competitors of Digital Realty – with an Outperform recommendation and a matching Zacks #1 Rank (short-term Strong Buy rating), looks more attractive at current levels.
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