Digital Realty (DLR) Beats Q1 FFO Estimates, Raises View

Data center REIT Digital Realty Trust, Inc.’s (NYSE:DLR) first-quarter 2018 funds from operations (FFO) per share of $1.61 outpaced the Zacks Consensus Estimate of $1.58. The figure also came in higher than the year-ago quarter tally of $1.50.

Core FFO per share came in at $1.63 in the first quarter, up from $1.52 reported in the prior-year quarter. Results were supported by growth in revenues.

The company reported revenues of $744.4 million for the first quarter, which also surpassed the Zacks Consensus Estimate of $741.8 million. The revenue figure also marked an impressive 35.2% year-over-year growth. Further, the company raised its 2018 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $61 million of annualized GAAP rental revenues. This would include a $7-million contribution from interconnection. Notably, the weighted-average lag between leases signed during first-quarter 2018 and the contractual commencement date was six months.

Moreover, the company signed renewal leases, marking $57 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the reported quarter rolled up 3.9% on a cash basis and ascended 9.7% on a GAAP basis.

Notable Portfolio Activity

During first-quarter 2018, Digital Realty closed on the sale of 34551 Ardenwood Boulevard — a 323,000-square-foot technology manufacturing property — in Fremont, CA, for $73 million, as well as 200 Quannapowitt Parkway — a considerably vacant 211,000-square-foot data-center redevelopment project — in Wakefield, MA, for $15 million. Furthermore, the company closed on the sale of 3065 Gold Camp Drive and 11085 Sun Center Drive — two data centers aggregating 109,000 square feet — in Rancho Cordova, CA, for $51 million.

Balance Sheet

Digital Realty exited first-quarter 2018 with cash and cash equivalents of around $22.4 million, up from the $0.05 million recorded at the prior-year end.

Additionally, as of Mar 31, 2018, the company had around $9.1 billion of total debt outstanding, of which $9.0 billion was unsecured debt and around $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.3x, while fixed charge coverage was 4.3x.

Outlook Raised

Digital Realty raised its 2018 core FFO per share outlook to $6.50-$6.60 from $6.45-$6.60. The Zacks Consensus Estimate for the same, currently pegged at $6.54, lies within this range.

The full-year outlook provided by the company is backed by revenue projections of $3.0-$3.2 billion, year-end portfolio occupancy growth of +/- 50 bps and "same-capital" cash NOI growth of 1-3%.

Our Take

Digital Realty’s better-than-expected performance in the first quarter is impressive. Notably, solid fundamentals of the data-center market offer scope to the company to ride on the growth curve. Additionally, its accretive acquisitions and development efforts augur well for long-term growth. Nevertheless, the company faces cut-throat competition in the industry. It also has a substantial debt burden. Furthermore, rate hike adds to its woes.

Digital Realty currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

We now look forward to the earnings releases of other REITs like Alexandria Real Estate Equities, Inc. (NYSE:ARE) , Essex Property Trust Inc. (NYSE:ESS) and Regency Centers Corporation (NYSE:REG) . Alexandria and Regency Centers are scheduled to release results on Apr 30, while Essex Property is slated to report its numbers on May 2.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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