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Digital Realty Trust (DLR) Down 2.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Digital Realty Trust (DLR). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Digital Realty Trust due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Digital Realty Surpasses Q2 FFO & Revenue Estimates

Digital Realty reported second-quarter 2020 core FFO per share of $1.54, beating the Zacks Consensus Estimate of $1.48. However, the reported figure compared unfavorably with the year-ago quarter’s $1.64.

The company reported operating revenues of $993 million in the second quarter, marking a 24% year-over-year rise. The revenue figure also outpaced the Zacks Consensus Estimate of $931.1 million.

Decent leasing activities and strong signed total bookings aided results.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $144 million of annualized GAAP rental revenues. This is expected to include a $12-million contribution from interconnection. Notably, the weighted-average lag between leases signed during second-quarter 2020 and the contractual commencement date was seven months.

Moreover, the company signed renewal leases, marking $169 million of annualized GAAP rental revenues in the second quarter. Rental rates on renewal leases signed during the second quarter rolled down 2.8% on a cash basis and up 7.2% on a GAAP basis.

Portfolio Activity

During the June-end quarter, Digital Realty’s company, Interxion, purchased a land parcel in Madrid, Spain, spanning an area of 3.6 acres for $37 million. The new facility will encompass an area of about 375,000 square feet upon completion and is projected to support up to 34 megawatts of critical IT capacity.

Balance Sheet

Digital Realty exited second-quarter 2020 with cash and cash equivalents of $505.2 million, up from $89.8 million recorded at the end of 2019.

Further, during the second quarter, the company issued 4.5 million shares of common stock under its at-the-market (“ATM”) equity offering program, generating around $645 million in gross proceeds.

Additionally, as of Jun 30, 2020, the company had $12.4 billion of total debt outstanding, of which $12.1 billion was unsecured debt and $0.2 billion was secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.7X, while fixed charge coverage was 4.6X.

Guidance

Digital Realty updated its guidance for 2020 core FFO per share to $6-$6.10 from the prior estimate of $5.90-$6.10.

It expects total revenues to be between $3.775 billion and $3.825 billion, and adjusted EBITDA to be $2.100-$2.125 billion for the ongoing year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Digital Realty Trust has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Digital Realty Trust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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