Why Is Digital Realty Trust (DLR) Up 13.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Digital Realty Trust (DLR). Shares have added about 13.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Digital Realty Trust due for a pullback? 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 drivers.

Digital Realty Beats Q4 FFO Estimates, Revenues Up Y/Y

Digital Realty reported fourth-quarter 2019 core FFO per share of $1.62, beating the Zacks Consensus Estimate of $1.58. However, results compare unfavorably with the year-ago figure of $1.68.

The company reported operating revenues of $787.5 million in the fourth quarter, marking a 1.2% year-over-year rise. The revenue figure, however, missed the Zacks Consensus Estimate of $794 million.

For full-year 2019, the company reported core FFO per share of $6.65, up from the prior year’s $6.60. Revenues for the year amounted to $3.2 billion, up 5.3% year on year.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $69 million of annualized GAAP rental revenues. This would include a $7-million contribution from inter-connection. Notably, the weighted-average lag between leases signed during fourth-quarter 2019 and the contractual commencement date was four months.

Moreover, the company signed renewal leases, marking $117 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 0.6% on a cash basis and up 4.2% on a GAAP basis.

Portfolio Activity

In November, Digital Realty closed $1-billion joint venture (JV) with Mapletree Investments and Mapletree Industrial Trust on three existing Turn-Key Flex® data centers in Ashburn, VA.  Digital Realty retained 20% interest in the JV, while the entity acquired 80% stake for around $811 million. Digital Realty will keep operating and managing these facilities. These facilities are anticipated to generate aggregate cash NOI of around $61 million next year. This indicates a 6% cap rate.

Balance Sheet

Digital Realty exited fourth-quarter 2019 with cash and cash equivalents of around $89.8 million, up from the $7.2 million recorded at the end of the prior quarter.

Additionally, as of Dec 31, 2019, the company had around $10.1 billion of total debt outstanding, of which $10 billion was unsecured debt and $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.7x, while fixed charge coverage was 4.1x.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Digital Realty Trust has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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 upward for the stock, and the magnitude of these revisions looks promising. 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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