Digital Realty Trust Inc. (DLR - Free Report) , a niche real estate investment trust (REIT), has recently signed a new long-term agreement with Ecritel, a provider of internet hosting and managed services for businesses, to lease its datacenter facility in Paris for an undisclosed amount.
With the deal, Ecritel is expected to better manage the increase in demand for its Infrastructure-as-a-Service (IaaS) solutions without building datacenter facilities on its own, as clients continue to migrate huge volume of data into hosted and cloud-based environments. On the other hand, the lease agreement offers solid revenue generating potential for Digital Realty. The deal, therefore, is a win-win situation for both the participating companies.
As demand for high-end technology, robust security, and guaranteed availability are becoming critical for the success of IaaS solutions, datacenter facilities like those of Digital Realty are increasingly gaining in prominence for the sustainability of business.
Digital Realty operates datacenters and digital storage facilities, which are primarily used by telecommunication companies to maintain their Internet presence or augment their data networks. Datacenters usually incur high costs for building and maintenance, and as such supply is relatively inelastic.
Digital Realty provides flexible and cost effective datacenter facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 102 properties throughout Europe and North America, spanning approximately 19.1 million square feet of space (including 2.2 million square feet of redevelopment space).
With demand for digital storage facilities increasing in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swings experienced during the recession. This has enabled Digital Realty to continue paying out solid dividends to its shareholders.
We presently have a Neutral recommendation for Digital Realty, which currently has a Zacks #3 Rank, translating into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for MPG Office Trust Inc. , one of the competitors of Digital Realty.