Digital Realty (DLR) Beats Q2 FFO Estimates, Raises View

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Data-center REIT Digital Realty Trust, Inc. 's DLR second-quarter 2018 core funds from operations (FFO) per share of $1.66 outpaced the Zacks Consensus Estimate of $1.61. The figure also came in higher than the year-ago quarter tally of $1.54.

The company reported operating revenues of $754.9 million for the second quarter, which also marked an impressive 33.4% year-over-year rise. However, the reported figure missed the Zacks Consensus Estimate of $760.9 million. Nevertheless, the company raised its 2018 core FFO per share outlook.

Signed total bookings during the reported quarter are estimated to generate $94 million of annualized GAAP rental revenues. This would include an $8-million contribution from inter-connection. Notably, the weighted-average lag between leases signed during second-quarter 2018 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $76 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled up 3.4% on a cash basis and ascended 5.8% on a GAAP basis.

Notable Portfolio Activity

During the June-end quarter, Digital Realty acquired a 13-acre site, next to its present data centers in Santa Clara, CA, for $56 million. In addition, the company acquired a 62-acre land parcel in Manassas, VA, for $17 million. On the other hand, the company closed the sale of a 378,000-square-foot portfolio, comprising three mixed-use properties in Austin, TX, for $48 million, as well as 1125 Energy Park Drive - a considerably vacant 78,100-square-foot suburban office redevelopment project - in St. Paul, MN, for $7 million. Furthermore, the company completed the sale of 2010 E. Centennial Circle - a vacant 113,400-square-foot office redevelopment project - in Tempe, AZ, for $6 million. Ā 

Balance Sheet

Digital Realty exited second-quarter 2018 with cash and cash equivalents of around $17.6 million, down from the $22.4 million recorded at the prior-quarter end.

Additionally, as of Jun 30, 2018, the company had around $9.1 billion of total debt outstanding, of which $9.0 billion was unsecured debt and around $0.1 billion secured debt. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.2x, while fixed charge coverage was 4.3x.

Outlook Raised

Digital Realty raised its 2018 core FFO per share outlook to $6.55-$6.65 from $6.50-$6.60. The Zacks Consensus Estimate for the same, currently pegged at $6.55, lies within this range.

The full-year outlook provided by the company is backed by revenue projections of $3.0-$3.2 billion, year-end portfolio occupancy growth of +/- 50 bps, and "same-capital" cash NOI growth of 1-3%.

Our Take

Digital Realty's impressive performance in terms of FFO per share in the April-June quarter is encouraging. Notably, solid fundamentals of the data-center market offer scope to the company to ride on the growth curve. Additionally, its accretive acquisitions and development efforts augur well for long-term growth. Nevertheless, the company faces intense competition in the industry. Amid this, aggressive pricing pressure is likely to continue in the upcoming period. Further, the company has a substantial debt burden and hence rate hike adds to its woes.

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

Digital Realty Trust, Inc. Price, Consensus and EPS Surprise

Digital Realty Trust, Inc. Price, Consensus and EPS Surprise | Digital Realty Trust, Inc. Quote

We now look forward to the earnings releases of other REITs like Simon Property Group, Inc. SPG , AvalonBay Communities, Inc. AVB and Alexandria Real Estate Equities, Inc. ARE which are slated to report their quarterly numbers on Jul 30.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: SPG , AVB , DLR , ARE

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