Digital Realty (DLR) Q1 FFO And Revenues Beat Estimates

Data-center REIT Digital Realty Trust, Inc.’s (NYSE:DLR) first-quarter 2019 core funds from operations (FFO) per share of $1.73 outpaced the Zacks Consensus Estimate of $1.65. The figure also comes in higher than the year-ago tally of $1.63.

The company reported operating revenues of $814.5 million in the first quarter, which marked a 9.4% year-over-year rise. The revenue figure also surpassed the Zacks Consensus Estimate of $797.4 million. The company has reaffirmed its 2019 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $50 million of annualized GAAP rental revenues. This would include a $9-million from Ascenty (at 100% share) and a $7-million contribution from interconnection. Notably, the weighted-average lag between leases signed during first-quarter 2019 and the contractual commencement date was two months.

Moreover, the company signed renewal leases, marking $116 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 6.9% on a cash basis and ascended 7.1% on a GAAP basis.

Notable Portfolio Activity

During the March-end quarter, Digital Realty announced the conclusion of its joint venture (JV) deal with Brookfield Asset Management’s affiliate — Brookfield Infrastructure. The move comprised Brookfield investing approximately $700 million and in turn, acquiring around 49% of the total equity interests in the JV, which owns and operates Ascenty.

Moreover, during the first quarter, Digital Realty closed the 30-year ground lease with Jurong Town Council for two adjacent land parcels in Singapore, aggregating three acres, for an upfront payment of around $6 million.

Further, in an effort to expand its presence in Japan, Digital Realty announced that its 50/50 JV with Mitsubishi Corporation — MC Digital Realty — has signed a deal to acquire a five-acre land parcel in Tokyo.

Balance Sheet

Digital Realty exited first-quarter 2019 with cash and cash equivalents of around $123.9 million, slightly down from $126.7 million recorded at year-end 2018.

Additionally, as of Mar 31, 2019, the company had around $10.3 billion of total debt outstanding, of which $10.2 billion was unsecured debt and around $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.5x, while fixed charge coverage was 3.6x.

Outlook Reiterated

Digital Realty reiterated its 2019 core FFO per share outlook at $6.60-$6.70. The Zacks Consensus Estimate for the same, currently pegged at $6.67, lies within this range.

The full-year outlook provided by the company is backed by revenue projections of $3.2-$3.3 billion, year-end portfolio occupancy growth of +/- 50 bps, and "same-capital" cash NOI growth of -2.0% to -4.0%.

Our Take

Solid fundamentals of the data-center market help Digital Realty ride on its growth curve through accretive acquisitions and development efforts. The company also focuses on maintaining a solid balance sheet and enjoys ample liquidity. Nevertheless, aggressive pricing pressure is likely to prevail in the upcoming period. In addition, the company has a substantial debt burden and hence, any rate hike will add to its woes.

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

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

We now look forward to the earnings releases of other REITs like Vornado Realty Trust (NYSE:VNO) , Boston Properties, Inc. (NYSE:BXP) and Extra Space Storage Inc. (NYSE:EXR) . Vornado Realty is slated to report first-quarter earnings on Apr 29, while Boston Properties and Extra Space Storage are scheduled to release their quarterly numbers on Apr 30.

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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