Digital Realty (DLR) Q3 FFO Beats Estimates, View Lifted

Digital Realty Trust, Inc.’s (NYSE:DLR) third-quarter 2017 core funds from operations (FFO) per share of $1.51 exceeded the Zacks Consensus Estimate of $1.49. The core FFO per share also came in higher than the year-ago quarter tally of $1.44. Results were supported by growth in revenues.

The company reported revenues of $609.9 million for the third quarter, which also surpassed the Zacks Consensus Estimate of $593.2 million. The revenue figure also marked 11.6% year-over-year growth. Further, the company raised its 2017 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $58 million of annualized GAAP rental revenues. This would include an $8-million contribution from interconnection. Notably, the weighted-average lag between leases signed during the third quarter and the contractual commencement date was four months.

Moreover, the company signed renewal leases, marking $66 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the reported quarter rolled down 3.8% on a cash basis and ascended 1.5% on a GAAP basis.

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

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share.

Portfolio Activity

During the reported quarter, Digital Realty completed the previously-announced acquisition of DuPont (NYSE:DWDP) Fabros. This was done in an all-stock transaction valued at $7.9 billion in enterprise value. The company also purchased land parcels neighboring its existing holdings in Osaka, Japan and Garland, TX, for roughly $10 million.

Balance Sheet

Digital Realty exited the third quarter with cash and cash equivalents of around $192.6 million, up from $22.4 million recorded at the prior-quarter end.

Additionally, as of Sep 30, 2017, the company had around $8.5 billion of total debt outstanding, substantially all of which was unsecured. Also, as of the same date, its net debt-to-adjusted EBITDA was 6.0x, while fixed charge coverage was 3.9x.

Outlook Raised

Digital Realty raised its 2017 core FFO per share outlook to $6.00-$6.10 from the prior guidance of $5.95-$6.10. The Zacks Consensus Estimate for the same is currently pegged at $6.08.

The full-year outlook provided by the company is backed by revenue expectations of $2.4-$2.5 billion (prior projection being $2.2-$2.3 billion), year-end portfolio occupancy growth of +/- 50 bps (unchanged) and "same-capital" cash NOI growth of 3.0-3.5% (previously guided 2.0-3.0%).

Our Take

Digital Realty’s better-than-expected performance in the third quarter is impressive. The company is poised to ride on the growth curve backed by robust fundamentals of the data-center market. The company’s business has significantly grown since its launch. Additionally, its accretive acquisitions and development efforts augur well for long-term growth. Nevertheless, exposure of earnings to foreign currency translation, cut-throat competition in the industry and a substantial debt burden remain concerns.

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.

The stock has rallied 25.1% year to date, substantially outperforming 2.0% growth registered by the industry.



We now look forward to the earnings releases of AvalonBay Communities, Inc. (NYSE:AVB) , Alexandria Real Estate Equities, Inc. (NYSE:ARE) and Extra Space Storage Inc. (NYSE:EXR) , all of which are expected to report their numbers next week.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>