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Digital Realty Trust (DLR) Down 7.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Digital Realty Trust (DLR - Free Report) . Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Digital Realty Trust due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Digital Realty's Q4 FFO & Revenues Top Estimates

Digital Realty Trustdelivered fourth-quarter 2020 core FFO per share of $1.61, beating the Zacks Consensus Estimate of $1.52. Results highlight better-than-anticipated revenue numbers. However, the reported figure marginally fell short of the year-ago quarter’s $1.62.

The company registered operating revenues of $1.062 billion in the fourth quarter, marking a 34.9% year-over-year jump. The revenue figure also outpaced the Zacks Consensus Estimate of $1.026 billion.

Decent leasing activities and strong signed total bookings aided results. Digital transformation is driving steady demand.

According to Digital Realty’s CEO A. William Stein, “Our book of business outside the Americas has expanded meaningfully, while our colocation and interconnection business represents a rapidly growing share as we continue to gain traction with enterprise customers as well as service providers.”

For 2020, the company reported core FFO per share of $6.22, down from the prior year’s $6.65. Total operating revenues of $3.9 billion increased 21.6% year on year.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $130 million of annualized GAAP rental revenues. This is expected to include a $12-million contribution from interconnection. Notably, the weighted-average lag between leases signed during the fourth quarter and the contractual commencement date was nine months.

Digital Realty signed renewal leases, marking $156 million of annualized GAAP rental revenues during the December-end quarter. Rental rates on renewal leases signed during the quarter rolled up 1% on a cash basis and 3.4% on a GAAP basis.

Also, the company generated fourth-quarter adjusted EBITDA of $578 million, up 2% sequentially and 22% year on year.

Portfolio Activity

During the October-December quarter, Digital Realty closed on the prior-announced acquisition of LamdaHellix, the largest carrier-neutral colocation and inter-connection provider in Greece. Moreover, the company sealed the previously-announced buyout of the Neckerman expansion parcel within roughly a kilometer of the HanauerLandstraße campus. This was made for €177 million, or approximately $217 million.

The data-center REIT also acquired a building in Paris, France, that was earlier subject to a leasehold for a total of €6 million, or around $7 million. In addition to this, the company sold a vacant building in Amsterdam, the Netherlands for €6 million, or roughly $7 million.

Balance Sheet

Digital Realty exited 2020 with cash and cash equivalents of $108.5 million, down from the $971.3 million recorded at third-quarter end. Additionally, as of Dec 31, 2020, the data-center REIT had $13.3 billion of total debt outstanding, of which $13.2 billion was unsecured debt and $0.2 billion was secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 6.1X, while fixed charge coverage was 5.1X.

Guidance

Digital Realty estimates 2021 core FFO per share in the range of $6.40-$6.50. It projects full-year total revenues of $4.25-$4.35 billion, adjusted EBITDA of $2.3-$2.35 billion, year-end portfolio occupancy of 84-85% and same-capital cash NOI to be down 2.5-3.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Digital Realty Trust has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Digital Realty Trust has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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