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Digital Realty (DLR) Up 24% in 3 Months: Will the Trend Last?
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Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 24.4% in the past three months against the industry’s decline of 0.9%.
The company has benefited from the rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Also, its expansion moves have supported its external growth so far.
DLR recently posted solid second-quarter 2023 results with core funds from operations (FFO) per share of $1.68, beating the Zacks Consensus Estimate of $1.65. The operating revenues of $1.366 billion, too, surpassed the consensus mark marginally and improved 19.9% year over year.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Data center infrastructure demand has remained robust globally amid the continued strength in strong demand drivers such as cloud computing, enterprise modernization and the rise in content streaming and social media usage. Also, emerging demand drivers like artificial intelligence (AI), Internet of Things, edge computing and 5G technology are likely to have fueled the rise.
Digital Realty’s portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa is expected to have capitalized on this upbeat trend, contributing to the increased optimism surrounding its stock.
Moreover, with demand for high-performing data centers expected to increase in the coming years owing to growth in AI, autonomous vehicle and virtual/augmented reality, Digital Realty remains well-poised for growth.
Of late, this data center real estate investment trust (REIT) has carried out a spate of investments and joint venture (JV) partnerships to boost its business globally.
This July, DLR, Brookfield Infrastructure and Reliance Industries Ltd. entered into a three-way JV — Digital Connexion: A Brookfield, Jio and Digital Realty Company — to develop high-quality, highly-connected scalable data centers to address the need of Indian enterprises and digital services companies. At the initial point, the JV will execute the development of data center campuses on existing strategic land parcels it owns in Chennai and Mumbai. The move is expected to help unlock value for India’s untapped data center market, providing DLR immense scope to capitalize on the country’s growing data center demand.
Digital Realty’s efforts to enhance the offerings on its one-of-a-kind global data center platform, PlatformDIGITAL, are encouraging. This month, it introduced high-density colocation services across this platform to help businesses address data and AI growth challenges, and optimize performance.
The newly introduced services are equipped with high-performance computing-ready infrastructure configurations, empowering businesses to overcome processing and proximity challenges linked to unstructured and exponential data growth, and the utilization of AI.
Further, the company’s efforts to strengthen its balance sheet position continue to support its endeavors to capitalize on long-term growth opportunities. Its recent JVs with TPG Real Estate and GI Partners for the stabilized hyperscale data centers in Northern Virginia and the Chicago metro area resulted in gross proceeds of $1.3 billion and $743 million, respectively. DLR intends to use the proceeds for repaying debt, transaction-related expenses and general corporate purposes, helping it inch closer to its 2023 capital plan.
Solid dividends are a huge attraction for REIT investors, and DLR has remained committed to that. The company has increased its dividend four times in the last five years. Such efforts boost investors’ confidence in the stock. Given the company’s solid operating platform and balance sheet management efforts, its dividend payment is expected to be sustainable.
Nonetheless, stiff competition from industry peers and a high interest rate environment remain key concerns for the company.
The Zacks Consensus Estimate for Welltower’s current-year funds from operations (FFO) per share has moved nearly 1% northward over the past month to $3.51.
The Zacks Consensus Estimate for W.P. Carey’s 2023 FFO per share has moved marginally upward in the past two months to $5.36.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally over the past week to $2.83.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Digital Realty (DLR) Up 24% in 3 Months: Will the Trend Last?
Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 24.4% in the past three months against the industry’s decline of 0.9%.
The company has benefited from the rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Also, its expansion moves have supported its external growth so far.
DLR recently posted solid second-quarter 2023 results with core funds from operations (FFO) per share of $1.68, beating the Zacks Consensus Estimate of $1.65. The operating revenues of $1.366 billion, too, surpassed the consensus mark marginally and improved 19.9% year over year.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Data center infrastructure demand has remained robust globally amid the continued strength in strong demand drivers such as cloud computing, enterprise modernization and the rise in content streaming and social media usage. Also, emerging demand drivers like artificial intelligence (AI), Internet of Things, edge computing and 5G technology are likely to have fueled the rise.
Digital Realty’s portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa is expected to have capitalized on this upbeat trend, contributing to the increased optimism surrounding its stock.
Moreover, with demand for high-performing data centers expected to increase in the coming years owing to growth in AI, autonomous vehicle and virtual/augmented reality, Digital Realty remains well-poised for growth.
Of late, this data center real estate investment trust (REIT) has carried out a spate of investments and joint venture (JV) partnerships to boost its business globally.
This July, DLR, Brookfield Infrastructure and Reliance Industries Ltd. entered into a three-way JV — Digital Connexion: A Brookfield, Jio and Digital Realty Company — to develop high-quality, highly-connected scalable data centers to address the need of Indian enterprises and digital services companies. At the initial point, the JV will execute the development of data center campuses on existing strategic land parcels it owns in Chennai and Mumbai. The move is expected to help unlock value for India’s untapped data center market, providing DLR immense scope to capitalize on the country’s growing data center demand.
Digital Realty’s efforts to enhance the offerings on its one-of-a-kind global data center platform, PlatformDIGITAL, are encouraging. This month, it introduced high-density colocation services across this platform to help businesses address data and AI growth challenges, and optimize performance.
The newly introduced services are equipped with high-performance computing-ready infrastructure configurations, empowering businesses to overcome processing and proximity challenges linked to unstructured and exponential data growth, and the utilization of AI.
Further, the company’s efforts to strengthen its balance sheet position continue to support its endeavors to capitalize on long-term growth opportunities. Its recent JVs with TPG Real Estate and GI Partners for the stabilized hyperscale data centers in Northern Virginia and the Chicago metro area resulted in gross proceeds of $1.3 billion and $743 million, respectively. DLR intends to use the proceeds for repaying debt, transaction-related expenses and general corporate purposes, helping it inch closer to its 2023 capital plan.
Solid dividends are a huge attraction for REIT investors, and DLR has remained committed to that. The company has increased its dividend four times in the last five years. Such efforts boost investors’ confidence in the stock. Given the company’s solid operating platform and balance sheet management efforts, its dividend payment is expected to be sustainable.
Nonetheless, stiff competition from industry peers and a high interest rate environment remain key concerns for the company.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , W.P. Carey (WPC - Free Report) and Omega Healthcare Investors (OHI - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s current-year funds from operations (FFO) per share has moved nearly 1% northward over the past month to $3.51.
The Zacks Consensus Estimate for W.P. Carey’s 2023 FFO per share has moved marginally upward in the past two months to $5.36.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally over the past week to $2.83.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.