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Shares of Digital Realty Trust (DLR - Free Report) were up 2.48% in the after-hours trading in response to better-than-expected second-quarter 2023 results.
Core funds from operations (FFO) per share of $1.68 beat the Zacks Consensus Estimate of $1.65.
Results reflected better-than-anticipated revenues aided by strong enterprise leasing activity, robust renewal spreads and healthy organic growth.
The company registered operating revenues of $1.366 billion in the second quarter, surpassing the Zacks Consensus Estimate marginally.
On a year-over-year basis, while operating revenues increased 19.9%, core FFO per share fell 2.3%. Rising rental property operating expenses were a matter of concern. DLR also lowered its guidance for 2023 core FFO per share but maintained its expectations for full-year revenues.
Adjusted EBITDA of $696.6 million in the quarter marked a 14% increase year over year.
In July 2023, Digital Realty and TPG Real Estate collaborated to establish a joint venture (JV) for the disposition of interest of 80% in three stabilized hyperscale data center buildings in Northern Virginia. Digital Realty is expected to realize around $1.3 billion of gross proceeds from the transaction. It will continue to manage the day-to-day operations of the assets while maintaining a 20% interest in the JV.
Quarter in Detail
In the reported quarter, signed total bookings were estimated to generate $114 million of annualized GAAP rental revenues, including a $37 million contribution from the 0-1 megawatt category and $13 million contribution from interconnection. The weighted-average lag between the new leases signed in the second quarter and the contractual commencement date was 11 months.
Digital Realty signed renewal leases, marking $211 million of annualized GAAP rental revenues during the April-June quarter. Rental rates on renewal leases signed during the quarter rose 6.9% on a cash basis and 14.6% on a GAAP basis.
In the reported quarter, it acquired the land and building shell of a previously leased 15 megawatts data center in Amsterdam (AMS7) for €17 million or $18 million. In addition, DLR purchased a nine-acre land parcel for €26 million or $28 million. The parcel located near AMS7 on its existing Amsterdam Schiphol campus has the capacity to support a data center with a total IT load of more than 40 megawatts. It will be interconnected with the company’s existing Schiphol data centers.
DLR disposed of a non-core data center in Texas for net proceeds of $150 million during the quarter. Based on in-place net operating income, the cap rate for the property was 4.4% and resulted in a capital gain of $88 million.
Balance Sheet
Digital Realty exited the second quarter with cash and cash equivalents of $124.5 million, down from the $131.4 million recorded as of Mar 31, 2023.
As of Jun 30, 2023, this data center REIT had $17.7 billion of total debt outstanding, of which $17.2 billion was unsecured debt and $0.5 billion was secured debt and other. As of the same date, its net debt-to-adjusted EBITDA was 6.8X, while the fixed charge coverage was 4.2X.
During the quarter, DLR realized net proceeds of $743 million from the sale of 7.8 million shares of its common stock at a weighted average price of $95.96 per share under its ATM program. It also entered into forward sale agreements under the program for 3.5 million shares of its common stock at roughly $97.68 per share. Subsequent to the second quarter's end, DLR settled the outstanding forward sales for net proceeds of around $336 million.
2023 Guidance
Digital Realty lowered its guidance for 2023 core FFO per share in the range of $6.55-$6.65 from $6.65-$6.75 guided earlier. The Zacks Consensus Estimate is currently pegged at $6.66.
However, the company maintained its expectations for total revenues in the band of $5.50-$5.60 billion. The consensus mark is pegged at $5.55 billion, within the guided range.
Adjusted EBITDA remains unchanged in the range of $2.675-$2.725 billion.
This data center REIT revised its projections for rental rates on renewal leases, which is expected to be greater than 4.0% on a cash basis and 8.0% on a GAAP basis. The year-end portfolio occupancy is now expected between 84% and 85%, lower than 85-86% stated earlier. The same-capital cash NOI is estimated to grow 4-5%, revised upward from the prior-guided range of 3-4%.
Crown Castle Inc. (CCI - Free Report) reported second-quarter 2023 adjusted FFO per share of $2.05, outpacing the Zacks Consensus Estimate of $1.99. The reported figure climbed 13.9% from the year-ago quarter’s tally of $1.80. The results reflected better-than-anticipated revenues aided by robust site-rental revenue growth. However, CCI lowered its outlook for 2023, citing that it expects a decline in tower activity for the remainder of the year due to reduced network spending by wireless carriers.
American Tower Corporation (AMT - Free Report) reported second-quarter 2023 adjusted FFO per share, attributable to AMT common stockholders, of $2.46, beating the Zacks Consensus Estimate of $2.36.
Results reflected better-than-anticipated revenues, aided by improving revenues across its Property segment. American Tower recorded healthy year-over-year organic tenant billings growth of 6.2% and total tenant billings growth of 7.2%. It also revised its 2023 outlook.
Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported second-quarter 2023 adjusted FFO per share of $2.24, surpassing the Zacks Consensus Estimate of $2.20. The reported figure climbed 6.7% from the year-ago quarter’s tally.
ARE’s results reflected better-than-expected revenues on healthy leasing activity and solid rental rate growth.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Digital Realty (DLR) Q2 FFO & Revenues Top, '23 View Revised
Shares of Digital Realty Trust (DLR - Free Report) were up 2.48% in the after-hours trading in response to better-than-expected second-quarter 2023 results.
Core funds from operations (FFO) per share of $1.68 beat the Zacks Consensus Estimate of $1.65.
Results reflected better-than-anticipated revenues aided by strong enterprise leasing activity, robust renewal spreads and healthy organic growth.
The company registered operating revenues of $1.366 billion in the second quarter, surpassing the Zacks Consensus Estimate marginally.
On a year-over-year basis, while operating revenues increased 19.9%, core FFO per share fell 2.3%. Rising rental property operating expenses were a matter of concern. DLR also lowered its guidance for 2023 core FFO per share but maintained its expectations for full-year revenues.
Adjusted EBITDA of $696.6 million in the quarter marked a 14% increase year over year.
In July 2023, Digital Realty and TPG Real Estate collaborated to establish a joint venture (JV) for the disposition of interest of 80% in three stabilized hyperscale data center buildings in Northern Virginia. Digital Realty is expected to realize around $1.3 billion of gross proceeds from the transaction. It will continue to manage the day-to-day operations of the assets while maintaining a 20% interest in the JV.
Quarter in Detail
In the reported quarter, signed total bookings were estimated to generate $114 million of annualized GAAP rental revenues, including a $37 million contribution from the 0-1 megawatt category and $13 million contribution from interconnection. The weighted-average lag between the new leases signed in the second quarter and the contractual commencement date was 11 months.
Digital Realty signed renewal leases, marking $211 million of annualized GAAP rental revenues during the April-June quarter. Rental rates on renewal leases signed during the quarter rose 6.9% on a cash basis and 14.6% on a GAAP basis.
In the reported quarter, it acquired the land and building shell of a previously leased 15 megawatts data center in Amsterdam (AMS7) for €17 million or $18 million. In addition, DLR purchased a nine-acre land parcel for €26 million or $28 million. The parcel located near AMS7 on its existing Amsterdam Schiphol campus has the capacity to support a data center with a total IT load of more than 40 megawatts. It will be interconnected with the company’s existing Schiphol data centers.
DLR disposed of a non-core data center in Texas for net proceeds of $150 million during the quarter. Based on in-place net operating income, the cap rate for the property was 4.4% and resulted in a capital gain of $88 million.
Balance Sheet
Digital Realty exited the second quarter with cash and cash equivalents of $124.5 million, down from the $131.4 million recorded as of Mar 31, 2023.
As of Jun 30, 2023, this data center REIT had $17.7 billion of total debt outstanding, of which $17.2 billion was unsecured debt and $0.5 billion was secured debt and other. As of the same date, its net debt-to-adjusted EBITDA was 6.8X, while the fixed charge coverage was 4.2X.
During the quarter, DLR realized net proceeds of $743 million from the sale of 7.8 million shares of its common stock at a weighted average price of $95.96 per share under its ATM program. It also entered into forward sale agreements under the program for 3.5 million shares of its common stock at roughly $97.68 per share. Subsequent to the second quarter's end, DLR settled the outstanding forward sales for net proceeds of around $336 million.
2023 Guidance
Digital Realty lowered its guidance for 2023 core FFO per share in the range of $6.55-$6.65 from $6.65-$6.75 guided earlier. The Zacks Consensus Estimate is currently pegged at $6.66.
However, the company maintained its expectations for total revenues in the band of $5.50-$5.60 billion. The consensus mark is pegged at $5.55 billion, within the guided range.
Adjusted EBITDA remains unchanged in the range of $2.675-$2.725 billion.
This data center REIT revised its projections for rental rates on renewal leases, which is expected to be greater than 4.0% on a cash basis and 8.0% on a GAAP basis. The year-end portfolio occupancy is now expected between 84% and 85%, lower than 85-86% stated earlier. The same-capital cash NOI is estimated to grow 4-5%, revised upward from the prior-guided range of 3-4%.
Currently, DLR carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Digital Realty Trust, Inc. Price, Consensus and EPS Surprise
Digital Realty Trust, Inc. price-consensus-eps-surprise-chart | Digital Realty Trust, Inc. Quote
Performance of Other REITs
Crown Castle Inc. (CCI - Free Report) reported second-quarter 2023 adjusted FFO per share of $2.05, outpacing the Zacks Consensus Estimate of $1.99. The reported figure climbed 13.9% from the year-ago quarter’s tally of $1.80.
The results reflected better-than-anticipated revenues aided by robust site-rental revenue growth. However, CCI lowered its outlook for 2023, citing that it expects a decline in tower activity for the remainder of the year due to reduced network spending by wireless carriers.
American Tower Corporation (AMT - Free Report) reported second-quarter 2023 adjusted FFO per share, attributable to AMT common stockholders, of $2.46, beating the Zacks Consensus Estimate of $2.36.
Results reflected better-than-anticipated revenues, aided by improving revenues across its Property segment. American Tower recorded healthy year-over-year organic tenant billings growth of 6.2% and total tenant billings growth of 7.2%. It also revised its 2023 outlook.
Alexandria Real Estate Equities, Inc. (ARE - Free Report) reported second-quarter 2023 adjusted FFO per share of $2.24, surpassing the Zacks Consensus Estimate of $2.20. The reported figure climbed 6.7% from the year-ago quarter’s tally.
ARE’s results reflected better-than-expected revenues on healthy leasing activity and solid rental rate growth.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.