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Why Is Digital Realty Trust (DLR) Down 6.3% Since Last Earnings Report?

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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 6.3% 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 Beats Q3 FFO Estimates

Digital Realty delivered a better-than-anticipated performance in the third quarter in terms of FFO per share. It reported core FFO per share of $1.67, beating the Zacks Consensus Estimate of $1.64. Results also compared favorably with the year-ago figure of $1.63.

The company reported operating revenues of $806.5 million in the third quarter, marking a 4.9% year-over-year rise. The revenue figure, however, missed the Zacks Consensus Estimate of $815.1 million.

Moreover, reflecting the expected closing of the $1.0 billion joint venture with Mapletree in early November, the company has revised its 2019 core FFO per share outlook to $6.55-$6.65 from $6.60-$6.70.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $69 million of annualized GAAP rental revenues. This would include an $8-million contribution from interconnection. Notably, the weighted-average lag between leases signed during third-quarter 2019 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $ $152 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled up 7.2% on a cash basis and 10.1% on a GAAP basis.

During the September-end quarter, Digital Realty closed on the purchase of a 22,000-square-foot land parcel in Seoul, South Korea for about $15 million. On completion, the new facility is expected to support up to 12 megawatts of critical IT capacity. With commencement of construction slated in the coming months, its completion is expected in 2021.

In addition, Digital Realty signed definitive deals with affiliates of Mapletree Investments Pte Ltd and Mapletree Industrial Trust for the sale of 10 Powered Base Buildings, and the establishment of a joint venture on three existing data centers.  

Balance Sheet

Digital Realty exited third-quarter 2019 with cash and cash equivalents of around $7.2 million, down from the $33.5 million recorded at the end of the prior quarter.

Additionally, as of Sep 30, 2019, the company had around $10.9 billion of total debt outstanding, of which $10.8 billion was unsecured debt and around $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 6.1x, while fixed charge coverage was 4.3x.

Outlook

Digital Realty revised its 2019 core FFO per share outlook to $6.55-$6.65 from $6.60-$6.70, reflecting the expected closing of the joint venture with Mapletree in early November.

The full-year outlook provided by the company is backed by revenue projections of $3.2 billion, year-end portfolio occupancy decline of 150 bps, and "same-capital" cash NOI growth of -2.0% to -4.0%.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Digital Realty Trust has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. Notably, Digital Realty Trust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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