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Digital Realty (DLR) Beats Q4 FFO Estimates, Affirms View

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Data center REIT Digital Realty Trust, Inc. 's DLR fourth-quarter 2017 core funds from operations (FFO) per share of $1.55 exceeded the Zacks Consensus Estimate of $1.52. The core FFO per share also came in higher than the year-ago quarter tally of $1.43. Results were supported by growth in revenues.

The company reported revenues of $731.4 million for the fourth quarter, which also surpassed the Zacks Consensus Estimate of $729.3 million. The revenue figure also marked 26.8% year-over-year growth. Further, the company reiterated its 2018 core FFO per share outlook.

For full-year 2017, core FFO per share came in at $6.14, well ahead of the prior-year tally of $5.72. This was backed by 14.7% year-over-year growth in total revenues to $2.5 billion.

Signed total bookings during the reported quarter are estimated to generate $56 million of annualized GAAP rental revenues. This would include a $6-million contribution from interconnection. Notably, the weighted-average lag between leases signed during the recently-reported quarter and the contractual commencement date was eight months.

Moreover, the company signed renewal leases, marking $64 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the reported quarter rolled up 2.3% on a cash basis and ascended 5.7% on a GAAP basis.

Notable Portfolio Activity

During fourth-quarter 2017, Digital Realty entered into a 50/50 joint venture with Mitsubishi Corporation to offer data-center solutions in Japan. Furthermore, the company acquired a 250,000-square-foot data center on a 19-acre site in suburban Chicago for a purchase price of $315 million.

On the other hand, Digital Realty closed on the sale of 44874 Moran Road - a 78,000-square-foot-data center - in Sterling, VA, for $34 million as well as 1 Solutions Parkway - a 156,000 square foot suburban office building - in St. Louis, MO, for $37 million.

Balance Sheet

Digital Realty exited 2017 with cash and cash equivalents of around $0.05 million, down from $10.5 million recorded at the prior-year end.

Additionally, as of Dec 31, 2017, the company had around $8.6 billion of total debt outstanding, substantially all of which was unsecured. Also, as of the same date, its net debt-to-adjusted EBITDA was 5.2x, while fixed charge coverage was 4.2x.

Outlook Reaffirmed

Digital Realty reaffirmed its 2018 core FFO per share outlook of $6.45-$6.60. The Zacks Consensus Estimate for the same is currently pegged at $6.54 and lies within this range.

The full-year outlook provided by the company is backed by revenue expectations of $3.0-$3.2 billion, year-end portfolio occupancy growth of +/- 50 bps and "same-capital" cash NOI growth of 0-3.0%.

Our Take

Digital Realty's better-than-expected performance in the fourth quarter is impressive. Notably, solid fundamentals of the data-center market offers 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 cut-throat competition in the industry. The company also has a substantial debt burden. Further, rate hike add to its woes.

Digital Realty currently carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

The stock has edged down 1.5% in the past month, outperforming the 4.9% loss incurred by the industry .

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

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

We are now looking forward to the earnings releases of Public Storage PSA , Host Hotels & Resorts, Inc. HST and Welltower Inc. HCN , all of which are expected to report in the next week.

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.


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

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