Back to top

Image: Bigstock

Digital Realty (DLR) Sells 11 Data Centers in Europe for $680M

Read MoreHide Full Article

Digital Realty (DLR - Free Report) has completed the sale of its portfolio of 11 data centers in Europe to Ascendas Reit for $680 million. The move comes as part of the company’s strategy of reaping value from stabilized properties and using the dry powder for funding its PlatformDIGITAL expansion.

Among the 11 data centers sold, four are in the United Kingdom, three in the Netherlands, three in France and one in Switzerland.  The company noted that the consideration for the four data centers in the United Kingdom was £250.25 million. The consideration for the other seven data centers was €276.85 million. Initially, with the proceeds, the company will pay down its debt, and in due course fund future investment activity.

Digital Realty chief investment officer, Greg Wright, commented that "This transaction represents an important step towards our goal of self-funding our growth and diversifying our sources of equity capital while shrinking our asset base and setting the stage for accelerating growth as the proceeds are redeployed into accretive investment opportunities."

With growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are experiencing a boom market. Also, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to six years.

Demand is strong in top-tier data center markets, and despite enjoying high occupancy, the top-tier markets are absorbing new construction at a fast pace. These are anticipated to drive demand for data centers. Apart from these, data centers are poised to benefit from the heightening reliance on technology in the wake of the coronavirus pandemic. Thus, data-center landlords, including Digital Realty, Equinix, Inc. (EQIX - Free Report) , CyrusOne Inc. (CONE - Free Report) and CoreSite Realty Corporation (COR - Free Report) , will keep witnessing significant demand.

Capitalizing on such factors and backed by a healthy balance sheet, Digital Realty is expanding its portfolio on accretive acquisition and development efforts, growing its presence significantly outside America. Recently, Digital Realty’s unit, Interxion, started construction of a third data center, BRU3, in Belgium’s capital, Brussels. Also, the company’s 50/50 joint venture with Mitsubishi Corporation, MC Digital Realty, teamed up with ARTERIA Networks for connected data communities in Japan.

Moreover, during the October-December quarter, Digital Realty closed on the prior-announced acquisition of Lamda Hellix, the largest carrier-neutral colocation and inter-connection provider in Greece. The company sealed the previously-announced buyout of the Neckerman expansion parcel within roughly a kilometer of the Hanauer Landstraße campus. This was made for €177 million, or approximately $217 million. Additionally, the company enhanced its presence in Europe, Australia and Asia in recent years through the development of high-quality facilities. We believe such expansion efforts will drive the company’s top and bottom lines in the years ahead.

However, while the data-center market has the potential for further growth, there is stiff competition. Amid the competitive landscape, aggressive pricing pressure is likely to prevail in the upcoming period. Moreover, investors’ sector-rotation sentiments post-vaccine and tech-driven sell off might create hiccups.

Shares of this Zacks Rank #4 (Sell) company have declined 5% over the past six months against the industry's rally of 14.2%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

AccessZacks Top 10 Stocks for 2021 today >>