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Digital Realty (DLR) to Expand in Africa With Teraco Buyout

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Digital Realty (DLR - Free Report) announced its agreement to acquire a majority stake in the African carrier-neutral data center and interconnection services provider Teraco Data Environments for $3.5 billion. The transaction, expected to close in the first half of 2022, will establish Digital Realty as the leading colocation and interconnection provider in the growing African market.

The acquisition seems beneficial for Digital Realty as Teraco is a leading collocation and densely interconnected data center platform in Africa.

Formed in 2008, Teraco has seven state-of-the-art data centers, advantageously located in the key South African metros of Johannesburg, Cape Town and Durban.

Teraco serves more than 600 connectivity, cloud, content and enterprise clients. This will likely enhance Digital Realty’s ability to serve local as well as multinational enterprises and service providers.

Per management, “Teraco will also advance our strategy of increasing exposure to highly connected, network- and carrier-dense facilities to enhance our global coverage and connectivity capabilities."

While Digital Realty will own roughly 55% of the total equity interests in Teraco after closing, the remaining 45% will be held by a group of existing investors like Berkshire Partners LLC, Permira, van Rooyen Group, Columbia Capital, Stepstone Ventures and the Teraco Connect Trust. The purchase will be financed through proceeds from DLR's private capital and capital recycling initiatives, committed funding under the existing forward equity commitment and other potential future financings.

Teraco’s CEO Jan Hnizdo will continue to retain his position and the current management team will remain significant investors in the company.

The deal is expected to be nearly 1% dilutive to Digital Realty's core funds from operations (FFO) per share in 2022, breakeven in 2023 and will be accretive to financial metrics and the growth trajectory of the combined organization.

Shares of this presently Zacks Rank #3 (Hold) DLR have appreciated 17.7% in the past six months, outperforming the industry’s rise of 11.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy)  stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the REIT sector are Extra Space Storage (EXR - Free Report) , Cedar Realty Trust (CDR - Free Report) and Cubesmart (CUBE - Free Report) .

Extra Space flaunts a Zacks Rank #1 at present. Shares of EXR have gained 31.4% in the past six months.

The Zacks Consensus Estimate for Extra Space’s 2021 FFO per share has been raised 3.6% over the past two months. Over the last four quarters, EXR’s FFO per share surpassed the consensus mark on all occasions, the average surprise being 5.9%.

The Zacks Consensus Estimate for Cedar Realty’s 2021 FFO per share has been raised 2.6% to $2.36 in the past two months. Over the last four quarters, CDR’s FFO per share surpassed the consensus mark twice and missed the same on the other two occasions, the average surprise being 6.4%.

Currently, CDR sports a Zacks Rank of 1. Shares of Cedar Realty have appreciated 52.7% in the past six months.

The Zacks Consensus Estimate for Cubesmart’s 2021 FFO per share has been raised 2.4% over the past two months. Over the last four quarters, CUBE’s FFO per share surpassed the consensus mark on all occasions, the average surprise being 7.1%.

Cubesmart flaunts a Zacks Rank of 1 at present. Shares of CUBE have rallied 17% in the past six months.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.