Expanding into the Italian market, Digital Realty DLR recently acquired land in Rome and commenced pre-development planning for a new colocation and connectivity hub. The company’s efforts to transform Rome into a key Mediterranean connectivity hub are in sync with the city’s Internet Exchange — NAMEX.
Digital Realty’s latest move seems like a strategic fit as it further strengthens its position as the leading provider of digital infrastructure capacity in the Mediterranean region, a key gateway between Europe, Africa, the Middle East and Asia.
Rome’s strategic geographical location is likely to play a pivotal role in making the city a global connectivity hub alongside Milan and enhancing the resiliency of Italy's national and international network infrastructure.
The city is expected to emerge as a major connectivity hub in the center of the Mediterranean. It is the third-largest city in the European Union in terms of population and the second-largest in Italy by gross domestic product.
The construction of the first data center facility, ROM1, is likely to start in the fourth quarter of 2023. The four-tier facility, as classified by the Uptime Institute, is situated on a 22-hectare piece of land (around 220,000 square meters) and is within 15 kilometers of the coast. This positioning makes it an ideal point for future subsea cables that will land in Rome.
Per Alessandro Talotta, managing director, Digital Realty in Italy, “The delivery of a carrier-neutral facility in Rome will help enable the digital transformation strategies of local enterprises and global customers in the region. Our customers will greatly benefit from the facility being highly connected to both terrestrial and subsea cable networks.”
The Mediterranean region is drawing attention for major intercontinental and regional subsea cable systems, paving the way for one of the most important interconnection and digital traffic exchange areas in the world.
This data center real estate investment trust (REIT) already has a wide presence in the region, with data center facilities present in Athens, Marseille and Zagreb and hubs that are currently under development in Barcelona, Crete and Tel Aviv.
With the demand for high-performing data centers expected to increase in the coming years, owing to the escalation in cloud computing, the Internet of Things and the rising demand for third-party IT infrastructure, DLR’s strategic expansion moves position it well to capitalize on the upbeat trend.
Growth in the artificial intelligence, autonomous vehicle and virtual/augmented reality markets is expected to pick up pace over the next five to six years, boding well for the company’s long-term growth.
DLR currently carries a Zacks Rank #3 (Hold). Its shares have gained 16.1% in the quarter-to-date period against the industry’s decline of 2.1%.
Nonetheless, given the strong growth potential of the industry, competition from existing and new players in the space could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, high-interest rates pose concerns for the company.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower WELL, SBA Communications SBAC and Americold Realty Trust COLD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.53.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised by 3.3% over the past month to $1.26.
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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