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Digital Realty (DLR) Beats Q2 FFO Estimates, Raises View

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Data-center REIT Digital Realty Trust, Inc.’s (DLR - Free Report) second-quarter 2018 core funds from operations (FFO) per share of $1.66 outpaced the Zacks Consensus Estimate of $1.61. The figure also came in higher than the year-ago quarter tally of $1.54.

The company reported operating revenues of $754.9 million for the second quarter, which also marked an impressive 33.4% year-over-year rise. However, the reported figure missed the Zacks Consensus Estimate of $760.9 million. Nevertheless, the company raised its 2018 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $94 million of annualized GAAP rental revenues. This would include an $8-million contribution from inter-connection. Notably, the weighted-average lag between leases signed during second-quarter 2018 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $76 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled up 3.4% on a cash basis and ascended 5.8% on a GAAP basis.

Notable Portfolio Activity

During the June-end quarter, Digital Realty acquired a 13-acre site, next to its present data centers in Santa Clara, CA, for $56 million. In addition, the company acquired a 62-acre land parcel in Manassas, VA, for $17 million. On the other hand, the company closed the sale of a 378,000-square-foot portfolio, comprising three mixed-use properties in Austin, TX, for $48 million, as well as 1125 Energy Park Drive — a considerably vacant 78,100-square-foot suburban office redevelopment project — in St. Paul, MN, for $7 million. Furthermore, the company completed the sale of 2010 E. Centennial Circle — a vacant 113,400-square-foot office redevelopment project — in Tempe, AZ, for $6 million.  

Balance Sheet

Digital Realty exited second-quarter 2018 with cash and cash equivalents of around $17.6 million, down from the $22.4 million recorded at the prior-quarter end.

Additionally, as of Jun 30, 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 5.2x, while fixed charge coverage was 4.3x.

Outlook Raised

Digital Realty raised its 2018 core FFO per share outlook to $6.55-$6.65 from $6.50-$6.60. The Zacks Consensus Estimate for the same, currently pegged at $6.55, 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 impressive performance in terms of FFO per share in the April-June quarter is encouraging. 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 intense competition in the industry. Amid this, aggressive pricing pressure is likely to continue in the upcoming period. Further, the company has a substantial debt burden and hence 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.

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

We now look forward to the earnings releases of other REITs like Simon Property Group, Inc. (SPG - Free Report) , AvalonBay Communities, Inc. (AVB - Free Report) and Alexandria Real Estate Equities, Inc. (ARE - Free Report) which are slated to report their quarterly numbers on Jul 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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