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Digital Realty Trust (DLR) Down 5.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Digital Realty Trust (DLR). Shares have lost about 5.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Digital Realty Lags Q1 FFO Estimates, Offers '20 View

Digital Realty reported first-quarter 2020 core FFO per share of $1.53, lagging the Zacks Consensus Estimate of $1.54. Moreover, the reported figure compared unfavorably with the year-ago quarter’s $1.73.

The lower-than-expected performance reflects the impact of higher share count. However, the company experienced decent leasing activities and strong signed total bookings.

The company reported operating revenues of $823.3 million in the first quarter, marking a 1% year-over-year rise. The revenue figure also surpassed the Zacks Consensus Estimate of $780.2 million.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $75 million of annualized GAAP rental revenues. This is expected to include a $9-million contribution from interconnection. Notably, the weighted-average lag between leases signed during first-quarter 2020 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $92 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 1.5% on a cash basis and up 0.7% on a GAAP basis.

Portfolio Activity

During the March-end quarter, Digital Realty closed on the previously-announced buyout of 49% stake in the Westin Building Exchange in Seattle, WA, for around $368 million. The amount included the assumption of existing debt. The facility is anticipated to generate aggregate cash NOI of around $43 million in 2020. This indicates a 5.8% cap rate.

It also wrapped up the previously-announced combination with Interxion. This will allow the combined company to cater to customers’ full spectrum of data-center requirements across its global platform.

Balance Sheet

Digital Realty exited first-quarter 2020 with cash and cash equivalents of around $246.5 million, up from $89.8 million recorded at the end of 2019.

Further, during first-quarter 2020, the company issued 264,765 shares of common stock under its at-the-market (“ATM”) equity offering program, generating around $37 million in gross proceeds. Subsequent to the quarter end, it issued additional 4.3 million shares, resulting in gross proceeds of nearly $615 million.

Additionally, as of Mar 31, 2020, the company had $12.3 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 6.6x, while fixed charge coverage was 3.8x.

Guidance

Digital Realty has provided guidance for 2020 core FFO per share and expects the same to be $5.90-$6.10. It expects total revenues to be between $3.725 billion and $3.825 billion, and adjusted EBITDA to be $2.075-$2.125 billion for 2020. It expects year-end portfolio occupancy of 85-86% and "Same-capital" cash NOI to decline 2.5-3.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -8.27% due to these changes.

VGM Scores

At this time, Digital Realty Trust has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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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