Digital Realty Trust Inc. (DLR - Snapshot Report), a niche real estate investment trust (REIT), has recently completed the acquisition of ‘8025 North Interstate 35’ – a data center facility spanning 62,000 square feet of space in Austin, Texas, from an unnamed seller for $12.5 million. The property also includes 11.28 acres of land to accommodate about 135,000 square feet of future data center development.
The acquisition conforms to the long-term investment objectives of the company that focus on investing in institutional-quality data center facilities in high-barrier-to-entry markets. These markets have significant potential to generate attractive risk-adjusted return on investments.
Presently, the facility is fully leased on a long-term triple-net basis to a leading provider of integrated disaster recovery solutions, managed services, IT consulting and business continuity management software solutions. The data center facility is located in close proximity to the Austin-Bergstrom International Airport, and delivers approximately 4.5 megawatt of critical load.
The acquisition is expected to provide stabilized cash flow in the short term, with a substantial upside potential in the long term and the opportunity to expand its footprint in the Austin market.
Digital Realty operates datacenters and digital storage facilities, which are primarily used by telecommunication companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.
Digital Realty provides flexible and cost effective datacenter facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 103 properties throughout Europe and North America, spanning approximately 19.7 million square feet of space (including 2.3 million square feet of redevelopment space).
With demand for digital storage facilities increasing in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swings experienced during the recession. This has enabled Digital Realty to continue paying out solid dividends to its shareholders.
We presently have a Neutral recommendation for Digital Realty, which currently has a Zacks #3 Rank, translating into a short-term Hold rating. However, MPG Office Trust Inc. (MPG - Snapshot Report) – one of the competitors of Digital Realty – with an Outperform recommendation and a matching Zacks #1 Rank (short-term Strong Buy rating) looks more attractive at current levels.