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Digital Realty Taps Growth in Silicon Valley With New Facility


Data Center REIT Digital Realty Trust, Inc. DLR recently announced the development of a six-megawatt facility at 3205 Alfred Street in Santa Clara, CA. The move will help the company expand its Silicon Valley Connected Campus.

The new interconnected facility is slated for delivery in first-quarter 2018. Digital Realty expects making investments of around $75 million in this facility and benefit from the robust demand for data center space in Silicon Valley.

Notably, data center REITs are experiencing a boom with the growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies. In fact, demand has been outpacing supply in top-tier data center markets and despite enjoying high occupancy, these are absorbing new construction at a faster pace. Amid these, Digital Realty also stands well to leverage on the growth potential with its strategic acquisitions and expansion efforts.

In fact, the company’s existing holdings in Silicon Valley are nearly fully leased. The present Silicon Valley portfolio comprises 17 properties, aggregating more than two million square feet, with 99 megawatts of IT load. Moreover, the above-mentioned six megawatt new facility will likely support customer growth needs within the supply-constrained Santa Clara metro region.

Last month, Digital Realty also announced the completion of a merger with DuPont Fabros in an all-stock deal, for an enterprise value of about $7.8 billion. This move enhances Digital Realty’s portfolio in the top U.S. data center metro areas across Northern Virginia, Chicago and Silicon Valley.

Digital Realty currently has a Zacks Rank #3 (Hold). Also, year to date, shares of Digital Realty have climbed 20.3%, outperforming 3.4% growth recorded by the industry.

Stocks to Consider

Better-ranked stocks in the REIT space include Duke Realty Corporation DRE, Prologis Inc. PLD and CoreSite Realty Corporation COR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Duke Realty and Prologis have expected long-term growth rates of 4.2% and 4.6%, respectively, the expected long-term growth rate for CoreSite Realty is currently pegged at 16%.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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