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Digital Realty Boosts UK Portfolio

DLR DFT

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Digital Realty Trust Inc. (DLR - Snapshot Report), a niche real estate investment trust (REIT), has recently made public the closure of the acquisition of three-property data centre portfolio in Paris. The company shelled out €60 million ($80 million) for this purchase from Bouygues Telecom, the third largest telecommunications operator in France.

Spanning about 87,000 rentable square feet, the three properties have around five megawatts of IT capacity in total. It was structured as a sale-leaseback transaction and for all the three facilities, Bouygues Telecom penned a long-term, triple net leases agreement with Digital Realty. This portfolio in Paris comprises one Tier III+ facility at Montigny-le-Bretonneux and two Tier III facilities in Bievres and Saclay.

The acquisition is in line with the long-term investment objectives of Digital Realty that focus on investing in institutional-quality data center facilities in high-barrier-to-entry markets that have substantial prospect to generate attractive risk-adjusted return on investments.

Particularly, the European market is crucial for the company and this acquisition in Paris is in sync with the July 2012 acquisition of the Sentrum Portfolio – a three-building data center portfolio spanning 761,600 square feet space in London, U.K.

Moving forward, the Paris deal is expected to offer stabilized cash flow in the short term, a significant upside potential in the long term, and a lucrative opportunity to expand its footprint in one of the strategic global data center markets in the world.

With the rise in the demand for digital storage facilities 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 swing experienced during the recession.

Digital Realty operates data centers 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 is scheduled to release its fourth-quarter 2012 results on Feb 15, 2013, prior to the opening bell. The Zacks Consensus Estimate for the company’s fourth-quarter FFO (funds from operations) is currently pegged at $1.16 per share.

The Earnings ESP (Expected Surprise Prediction), the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for Digital Realty is +1.72%. This, combined with its Zacks Rank #3, will auger well for the company and help beat the Zacks Consensus Estimate in the fourth quarter.

One of Digital Realty’s peers, DuPont Fabros Technology Inc. (DFT - Snapshot Report) currently holds a Zacks Rank #2 (Buy).

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