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Digital Realty Issues 2018 Prelim Outlook, Sees 8% Growth


Backed by potency in its global connected platform, data Center REIT Digital Realty DLR expects to produce high-single-digit growth in core funds from operations (FFO) per share in 2018.

Particularly, the company projects core FFO per share in the $6.45-$6.60 band that denotes an expansion of 8% from the mid-point of 2017 core FFO per share outlook of $6.00-$6.10. Currently, the Zacks Consensus Estimate for 2017 remains at $6.10 and for 2018 it is $6.55.

This initial outlook is supported by expectations of $3.0-$3.2 billion in total revenues for 2018 and adjusted EBITDA margin of 58-60%. Rental rates on renewal leases are anticipated to be up in mid-single-digits on a GAAP basis, while same-capital cash net operating income (NOI) growth is projected in the range of 0-3.0%.

Further, the company predicts 2018 development capex of $0.9-$1.1 billion and average stabilized yields of 10-12%, while dispositions volume is estimated in the band of $0-$200 million.

Admittedly, Digital Realty is a notable name in the date-center real estate market. The company offers data center, colocation and interconnection solutions for domestic and international tenants through its portfolio of data centers located throughout North America, Europe, Asia and Australia. Its clients range from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products.

Growth in cloud computing, Internet of Things (IoT), artificial intelligence, virtual reality and autonomous driving is anticipated to drive growth of the data-center REIT market and benefit Digital Realty as well. In addition, accretive acquisitions, development efforts, strong demand and a solid balance sheet augur well for the company’s long-term growth. However, intense competition in the industry and interest-rate hike remain concerns.

Digital Realty is scheduled to release its fourth-quarter and full-year 2017 results after the market closes on Feb 15.

Shares of Digital Realty have outperformed the industry it belongs to, in the past six months. This Zacks Rank #3 (Hold) company’s shares have recorded 3.7% growth, while the industry gained 0.1% during the same time period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Better-ranked stocks in the REIT space include Ashford Hospitality Prime, Inc. AHP, American Tower Corporation AMT and One Liberty Properties, Inc. OLP. All three carry a Zacks Rank of 2 (Buy).

Ashford Hospitality Prime’s Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.61 over the past month. Its share price has inched up 0.8% in a month’s time.

American Tower’s FFO per share estimates for 2017 have remained unchanged at $ 6.77 in a month’s time. The stock has gained 3.6% over the past three months.

One Liberty Properties’ FFO per share estimates for 2017 remained unchanged at $2.11 over the past month. Its shares have rallied 4.5% during the past three months.

Note: All EPS numbers presented in this report 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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