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Digital Realty (DLR) Q3 FFO Beats Estimates, Revenues Up Y/Y

Data-center REIT Digital Realty Trust, Inc. 's DLR third-quarter 2018 core funds from operations (FFO) per share of $1.63 outpaced the Zacks Consensus Estimate of $1.62. The figure also came in higher than the year-ago quarter tally of $1.51.

The company reported operating revenues of $768.9 million for the third quarter, which also marked an impressive 26.1% year-over-year rise. However, the reported figure missed the Zacks Consensus Estimate of $773.1 million. Nevertheless, the company reaffirmed its 2018 core FFO per share outlook.

Signed total bookings during the quarter under review are estimated to generate $69 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 third-quarter 2018 and the contractual commencement date was five months.

Moreover, the company signed renewal leases, marking $61 million of annualized GAAP rental revenues. Rental rates on renewal leases signed during the quarter rolled up 0.2% on a cash basis and ascended 1.6% on a GAAP basis.

Notable Portfolio Activity

During the Sep-end quarter, Digital Realty acquired three separate sites in Manassas, Virginia, Sterling, Virginia and Sydney, Australia, aggregating 51.5 acres for a combined investment of $40 million. Further, Digital Realty entered into an agreement to acquire 424 acres of undeveloped land in Loudoun County, VA, for a purchase price of $236.5 million, in the quarter under review.

Also, the company entered into a deal to acquire Ascenty, a data-center provider in Brazil, in a transaction valued at around $1.8 billion. The company will acquire Ascenty from private equity firm Great Hill Partners.

Digital Realty has also entered into an "independent bilateral equity commitment letter" with a Brookfield Asset Management affiliate, per which Brookfield has committed to fund half of the initial equity investment. This is estimated to be approximately $613 million. In exchange, Brookfield will own 49% of the joint-venture entity which is likely to own Ascenty.

On the other hand, the company closed the sale of 360 Spear Street, a 155,000-square foot data center in San Francisco, CA, for $92 million.

Balance Sheet

Digital Realty exited third-quarter 2018 with cash and cash equivalents of around $46.2 million, up from the $17.6 million recorded at the prior-quarter end.

Additionally, as of Sep 30, 2018, the company had around $9.2 billion of total debt outstanding, of which $9.1 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 4.1x.

Outlook Reiterated

Digital Realty reiterated its 2018 core FFO per share outlook of $6.55-$6.65. The Zacks Consensus Estimate for the same, currently pegged at $6.60, 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 Jul-Sep quarter is encouraging. Notably, solid fundamentals of the data-center market offer scope to the company to ride on 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 has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) 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 UDR Inc. UDR , Vornado Realty Trust VNO and AvalonBay Communities, Inc. AVB , all of which are slated to report their quarterly numbers on Oct 29.

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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