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Digital Realty (DLR) Lags Q1 FFO Estimates, Offers '20 View

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Digital Realty Trust, Inc. (DLR - Free Report) reported first-quarter 2020 core funds from operations (FFO) per share of $1.53, lagging the Zacks Consensus Estimate of $1.54. Moreover, the reported figure compared unfavorably with the year-ago quarter’s $1.73.

The company reported operating revenues of $823.3 million in the first quarter, marking a 5% year-over-year rise. The revenue figure also surpassed the Zacks Consensus Estimate of $780.2 million.

Decent leasing activities and strong signed total bookings aided results.

Quarter in Detail

Signed total bookings during the reported quarter are estimated to generate $75 million of annualized GAAP rental revenues. This is expected to include a $9-million contribution from interconnection. Notably, the weighted-average lag between leases signed during first-quarter 2020 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $92 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled down 1.5% on a cash basis and up 0.7% on a GAAP basis.

Portfolio Activity

During the March-end quarter, Digital Realty closed on the previously-announced buyout of 49% stake in the Westin Building Exchange in Seattle, WA, for around $368 million. The amount included the assumption of existing debt. The facility is anticipated to generate aggregate cash NOI of around $43 million in 2020. This indicates a 5.8% cap rate.

It also wrapped up the previously announced combination with Interxion. This will allow the combined company to cater to customers’ full spectrum of data center requirements across its global platform.

Balance Sheet

Digital Realty exited first-quarter 2020 with cash and cash equivalents of around $246.5 million, up from $89.8 million recorded at the end of 2019.

Further, during first-quarter 2020, the company issued 264,765 shares of common stock under its at-the-market (“ATM”) equity offering program, generating around $37 million in gross proceeds. Subsequent to the quarter end, it issued additional 4.3 million shares, resulting in gross proceeds of nearly $615 million.

Additionally, as of Mar 31, 2020, the company had $12.3 billion of total debt outstanding, of which $12.1 billion was unsecured debt and $0.2 billion was secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 6.6x, while fixed charge coverage was 3.8x.

Guidance

Digital Realty has provided guidance for 2020 core FFO per share and expects the same to be $5.90-$6.10. The Zacks Consensus Estimate for the same is pinned at $6.40.

It expects total revenues to be between $3.725 billion and $3.825 billion, and adjusted EBITDA to be $2.075-$2.125 billion for 2020.

Our Take

While Digital Realty put up an impressive performance in terms of revenues, its lower-than-expected core FFO per share was disappointing. Nevertheless, the company continues to invest in a bid to enhance its global platform. The execution of the Interxion buyout will benefit it from Interxion’s European colocation and interconnection expertise.

Nonetheless, aggressive pricing pressure is likely to prevail in the upcoming period. In addition, the company has a substantial debt burden.

Digital Realty Trust Inc Price, Consensus and EPS Surprise


 

Digital Realty currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

SL Green Realty Corp. (SLG - Free Report) reported first-quarter 2020 FFO per share of $2.08, surpassing the Zacks Consensus Estimate of $1.70. The figure also compared favorably with the year-ago quarter’s $1.68.

Equinix Inc.’s (EQIX - Free Report) first-quarter 2020 AFFO per share was $6.21, beating the Zacks Consensus Estimate of $5.98. The figure also improved 13% from the year-ago quarter’s $5.95.

Vornado Realty Trust (VNO - Free Report) reported first-quarter 2020 FFO plus assumed conversions as adjusted of 72 cents per share, missing the Zacks Consensus Estimate of 76 cents. The reported figure declined 8.9% year over year.

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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