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Digital Realty (DLR) Q1 FFO Meets Expectations, Revenues Lag

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Digital Realty Trust’s (DLR - Free Report) first-quarter 2022 core funds from operations (FFO) per share of $1.67 met the Zacks Consensus Estimate. On year-over-year basis, core FFO was on par.

The company’s revenues of $1.12 billion marked a 3% year-over-year increase. However, revenues lagged the Zacks Consensus Estimate of $1.13 billion.

Decent leasing activities and strong signed total bookings aided Digital Realty’s performance in the quarter.

Quarter in Detail

The company’s rental revenues marginally fell to $751.9 million. Moreover, rental property operating expenses increased 4.6% to $194.4 million.
Cash net operating income (NOI) declined 4.6% year over year to $633.2 million.

DLR generated first-quarter adjusted EBITDA of $603 million, a 2% decrease year over year.

During the reported quarter, the company signed total bookings estimated to generate $167 million of annualized GAAP rental revenues, including an $11 million contribution from interconnection.  The weighted-average lag between the new leases signed during the quarter and the contractual commencement date was seven months.

DLR also signed renewal leases, marking $177 million of annualized GAAP rental revenues during the March-ended quarter. The rental rates on renewal leases fell 3.3% on a cash basis and were up 6.1% on a GAAP basis.

Portfolio Activity

During the reported quarter, the company acquired a 2.6-acre land parcel for $21 million in Zurich, Switzerland. The site is expected to support the development of almost 14 megawatts of IT load.

Also, Digital Realty signed a long-term lease with a purchase option on a 24-acre land parcel in Paris, France, for $132 million. The site is expected to support the development of nearly 144 megawatts of IT load.

Further, BAM Digital Realty, a 50/50 joint venture between Digital Realty and Brookfield Infrastructure Partners, acquired a land parcel in Chennai, India, for $34 million, of which Digital Realty’s pro rata share was almost $17 million. The site is expected to support the development of roughly 100 megawatts of IT load.

Balance Sheet

Digital Realty exited first-quarter 2022 with cash and cash equivalents of $158 million, up from $142.7 million recorded as of Dec 31, 2021.

As of Mar 31, 2022, this data center REIT had $14.4 billion of total debt outstanding, of which $14.2 billion was unsecured debt and $0.2 billion was secured debt. As of the same date, its net debt-to-adjusted EBITDA was 6.3X, while fixed charge coverage was 5.5X.

Subsequent to the first-quarter end, Digital Realty expanded its global revolving credit facility from $3.0 billion to $3.75 billion.

Guidance

Digital Realty has maintained its 2022 outlook. Core FFO per share is expected in the range of $6.80 to $6.90. The Zacks Consensus Estimate for the same is currently pegged at $6.88.

DLR projects total revenues in the band of $4.7-$4.8 billion and adjusted EBITDA in the range of $2.475-$2.525 billion.

This data center REIT projects rental rates on renewal leases to be slightly positive on a cash basis and up low-single-digits on a GAAP basis. The year-end portfolio occupancy is expected to be 83-84%, while same-capital cash NOI is expected to decline 2.5-3.5%.

Currently, DLR carries 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 Digital Realty Trust, Inc. Price, Consensus and EPS Surprise

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

Performance of Notable REITs

UDR Inc. (UDR - Free Report) reported first-quarter 2022 FFO as adjusted per share of 55 cents, in line with the Zacks Consensus Estimate. The figure is 17% higher than the prior-year quarter’s 47 cents. Revenues climbed 18.5% year over year to $357.3 million. The top line surpassed the Zacks Consensus Estimate of $353.8 million.

An increase in revenues from rental income fueled UDR’s top-line growth. Robust operating trends and strong pricing power were major contributing factors.

Essex Property Trust Inc. (ESS - Free Report) reported first-quarter 2022 core FFO per share of $3.37, beating the Zacks Consensus Estimate of $3.34. The figure also improved 9.8% from the year-ago quarter. Additionally, total revenues of $381.9 million surpassed the Zacks Consensus Estimate of $376.3 million. The figure increased 7.5% year over year.

Improvement in same-property revenues and net operating income during the quarter supported growth in ESS’ core FFO.

Equity Residential’s (EQR - Free Report) reported first-quarter 2022 normalized FFO per share of 77 cents, missing the Zacks Consensus Estimate of 80 cents. Rental income came in at $653.3 million, lagging the consensus mark of $658.07 million. Nonetheless, on a year-over-year basis, normalized FFO per share improved 13.2%, while rental income climbed 9.3%.

EQR’s normalized FFO grew based on strong lease demand, while same-store revenue witnessed growth driven by strong physical occupancy and improvement in pricing power.

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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