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Digital Realty (DLR) Q1 FFO Meets Expectations, Revenues Lag

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Digital Realty Trust’s DLR first-quarter 2022 core funds from operations (FFO) per share of $1.67 met the Zacks Consensus Estimate. On year-over-year basis, core FFO was on par.

The company’s revenues of $1.12 billion marked a 3% year-over-year increase. However, revenues lagged the Zacks Consensus Estimate of $1.13 billion.

Decent leasing activities and strong signed total bookings aided Digital Realty’s performance in the quarter.

Quarter in Detail

The company’s rental revenues marginally fell to $751.9 million. Moreover, rental property operating expenses increased 4.6% to $194.4 million.
Cash net operating income (NOI) declined 4.6% year over year to $633.2 million.

DLR generated first-quarter adjusted EBITDA of $603 million, a 2% decrease year over year.

During the reported quarter, the company signed total bookings estimated to generate $167 million of annualized GAAP rental revenues, including an $11 million contribution from interconnection. The weighted-average lag between the new leases signed during the quarter and the contractual commencement date was seven months.

DLR also signed renewal leases, marking $177 million of annualized GAAP rental revenues during the March-ended quarter. The rental rates on renewal leases fell 3.3% on a cash basis and were up 6.1% on a GAAP basis.

Portfolio Activity

During the reported quarter, the company acquired a 2.6-acre land parcel for $21 million in Zurich, Switzerland. The site is expected to support the development of almost 14 megawatts of IT load.

Also, Digital Realty signed a long-term lease with a purchase option on a 24-acre land parcel in Paris, France, for $132 million. The site is expected to support the development of nearly 144 megawatts of IT load.

Further, BAM Digital Realty, a 50/50 joint venture between Digital Realty and Brookfield Infrastructure Partners, acquired a land parcel in Chennai, India, for $34 million, of which Digital Realty’s pro rata share was almost $17 million. The site is expected to support the development of roughly 100 megawatts of IT load.

Balance Sheet

Digital Realty exited first-quarter 2022 with cash and cash equivalents of $158 million, up from $142.7 million recorded as of Dec 31, 2021.

As of Mar 31, 2022, this data center REIT had $14.4 billion of total debt outstanding, of which $14.2 billion was unsecured debt and $0.2 billion was secured debt. As of the same date, its net debt-to-adjusted EBITDA was 6.3X, while fixed charge coverage was 5.5X.

Subsequent to the first-quarter end, Digital Realty expanded its global revolving credit facility from $3.0 billion to $3.75 billion.

Guidance

Digital Realty has maintained its 2022 outlook. Core FFO per share is expected in the range of $6.80 to $6.90. The Zacks Consensus Estimate for the same is currently pegged at $6.88.

DLR projects total revenues in the band of $4.7-$4.8 billion and adjusted EBITDA in the range of $2.475-$2.525 billion.

This data center REIT projects rental rates on renewal leases to be slightly positive on a cash basis and up low-single-digits on a GAAP basis. The year-end portfolio occupancy is expected to be 83-84%, while same-capital cash NOI is expected to decline 2.5-3.5%.

Currently, DLR carries 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. Price, Consensus and EPS Surprise

Digital Realty Trust, Inc. price-consensus-eps-surprise-chart | Digital Realty Trust, Inc. Quote

Performance of Notable REITs

UDR Inc. UDR reported first-quarter 2022 FFO as adjusted per share of 55 cents, in line with the Zacks Consensus Estimate. The figure is 17% higher than the prior-year quarter’s 47 cents. Revenues climbed 18.5% year over year to $357.3 million. The top line surpassed the Zacks Consensus Estimate of $353.8 million.

An increase in revenues from rental income fueled UDR’s top-line growth. Robust operating trends and strong pricing power were major contributing factors.

Essex Property Trust Inc. ESS reported first-quarter 2022 core FFO per share of $3.37, beating the Zacks Consensus Estimate of $3.34. The figure also improved 9.8% from the year-ago quarter. Additionally, total revenues of $381.9 million surpassed the Zacks Consensus Estimate of $376.3 million. The figure increased 7.5% year over year.

Improvement in same-property revenues and net operating income during the quarter supported growth in ESS’ core FFO.

Equity Residential’s EQR reported first-quarter 2022 normalized FFO per share of 77 cents, missing the Zacks Consensus Estimate of 80 cents. Rental income came in at $653.3 million, lagging the consensus mark of $658.07 million. Nonetheless, on a year-over-year basis, normalized FFO per share improved 13.2%, while rental income climbed 9.3%.

EQR’s normalized FFO grew based on strong lease demand, while same-store revenue witnessed growth driven by strong physical occupancy and improvement in pricing power.

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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