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Factors to Impact Digital Realty (DLR) This Earnings Season

·5 min read

Digital Realty Trust DLR will report fourth-quarter and full-year 2021 earnings on Feb 17 after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

The data center real estate investment trust (REIT) delivered a surprise of 1.85% in terms of FFO per share in the previous quarter. The results reflected better-than-expected revenues.

Over the last four quarters, Digital Realty outpaced the Zacks Consensus Estimate on three occasions and missed the same on the other, the average beat being 2.57%. This is depicted in the chart below:

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. Price and EPS Surprise
Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Let’s see how things have shaped up for DLR before this announcement.

Factors to Consider

High growth in cloud computing, the Internet of Things and big data and elevated demand for the third-party IT infrastructure are spurring demand for the data center infrastructure. Moreover, growth in AI, autonomous vehicles and virtual/augmented reality markets has been creating a robust base for data centers.

Amid these, demand for data center space is likely to have been healthy during the fourth quarter of 2021. Being infrastructure providers for this rapidly growing digital economy, data center landlords, including Digital Realty, are expected to have capitalized on the favorable environment.

Moreover, in the wake of the pandemic, data centers continue to benefit from the heightening reliance on technology. Demand and occupancy have been healthy in top-tier data center markets, while new constructions are absorbed at a fast pace. Hence, Digital Realty, with its PlatformDIGITAL, is anticipated to have capitalized on these tailwinds during the fourth quarter.

Digital Realty also has a high-quality diversified customer base, comprising tenants from the cloud, content, IT, network, other enterprises and financial industries. The majority of its tenants are investment-grade rated and numerous customers use multiple locations across the portfolio. This is likely to have provided the company with cash-flow stability during the period in discussion, thereby driving the top line.

The Zacks Consensus Estimate for quarterly rental revenues is pegged at $781 million, up from $773 million in the prior quarter. The consensus estimate for quarterly total revenues is pegged at $1.10 billion, indicating a 3.9% year-over-year jump.

Apart from these, it has been strengthening its portfolio with expansions and development. During the fourth quarter, Digital Realty reached an agreement to make a strategic investment in AtlasEdge Data Centres, a leading European edge data center provider. Also, DLR announced the expansion of its coverage and capacity of PlatformDIGITAL across Africa.

However, Digital Realty competes with several data center developers, owners and operators, many of whom enjoy the ownership of similar assets in the same locations as the company. Given the solid growth potential in the data center market, competition from other providers is expected to have intensified in the December-end quarter, prompting aggressive pricing policies. This might have curbed Digital Realty’s growth.

Before the fourth-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for fourth-quarter FFO per share has remained unrevised at $1.68 in a month. However, it indicates year-over-year growth of 4.4%.

For full-year 2021, Digital Realty projected core FFO per share in the range of $6.50-$6.55. DLR estimated full-year total revenues in the band of $4.4-$4.425 billion and adjusted EBITDA in the range of $2.4-$2.425 billion. Digital Realty also guided year-end portfolio occupancy at 84-85% and a same-capital cash NOI decline of 2.5-3.5%.

For the full year, the Zacks Consensus Estimate for FFO per share has been revised a cent downward to $6.53 over the past week. However, the figure indicates a 4.98% increase year over year on revenues of $4.42 billion.

Here Is What Our Quantitative Model Predicts:

Digital Realty does not have the right combination of the two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — that increases the odds of an FFO beat.

Earnings ESP: Digital Realty has an Earnings ESP of -0.17%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Zacks Rank: Digital Realty currently carries a Zacks Rank of 3.

Stocks That Warrant a Look

Here are three stocks from the REIT sector — Pebblebrook Hotel Trust PEB, Life Storage, Inc. LSI and National Storage Affiliates Trust NSA — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Pebblebrook Hotel Trust, slated to release fourth-quarter earnings on Feb 22, has an Earnings ESP of +15.74% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Life Storage, scheduled to report quarterly numbers on Feb 24, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3.

National Storage Affiliates Trust, slated to report quarterly numbers on Feb 22, has an Earnings ESP of +1.06% and carries a Zacks Rank of 2 (Buy).

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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