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Digital Realty's (DLR) Q4 FFO & Revenues Miss Estimates

Digital Realty Trust DLR reported fourth-quarter 2023 core funds from operations (FFO) per share of $1.63, missed the Zacks Consensus Estimate by a penny.

Shares of Digital Realty were down 4.72% in after-hours trading session on Feb 15 at the NYSE. Results were primarily affected by lower-than-anticipated revenues. While Digital Realty experienced growth in operating revenues on the back of healthy leasing activity, rising operating expenses acted as a dampener in the quarter. DLR provided a mixed outlook for 2024.

The company registered operating revenues of $1.37 billion in the fourth quarter, missing the Zacks Consensus Estimate of $1.40 billion. DLR also reported a "same-capital" cash net operating income (NOI) growth of 9.9%.

On a year-over-year basis, while operating revenues increased 11.1%, core FFO per share fell 1.2%.

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According to Digital Realty’s president & chief executive officer, Andy Power, "During the fourth quarter, we bolstered and diversified our capital sources through the formation of two new development joint ventures while continuing to evolve our portfolio to capture the tremendous opportunities created by AI."

For the full-year 2023, the core FFO per share came in at $6.59, lower than the prior-year tally of $6.70 and missed the Zacks Consensus Estimate of $6.60. Total operating revenues grew 16.7% to $5.48 billion, missing the consensus mark of $5.51 billion.

Quarter in Detail

Total operating expenses increased 11.1% year over year to $1.24 billion. The rise was attributable to the increase in expenses related to utilities, rental property operating, general and administration costs, transaction and integration expenses, provision for impairment and other expenses.

In the reported quarter, signed total bookings were estimated to generate $110 million of annualized GAAP rental revenues, including a $39 million contribution from the 0-1-megawatt category and a $13 million contribution from interconnection. The weighted average lag between the new leases signed in the fourth quarter and the contractual commencement date was 16 months.

Digital Realty signed renewal leases, marking $210 million of annualized rental revenues during the October-December quarter. Rental rates on renewal leases signed during the quarter rose 8.2% on a cash basis and 10.6% on a GAAP basis.

Adjusted EBITDA of $699.5 million in the quarter marked a 9.5% increase year over year.

Portfolio Activity

During the October-December period, Digital Realty entered into a joint venture ("JV") with Realty Income Corp. O to aid the development of two build-to-suit data centers in Northern Virginia. While Digital Realty maintains a 20% equity interest in the venture, O invested around $200 million to acquire an 80% interest. The 100% pre-leased build-to-suit facilities are anticipated to produce an initial cash lease yield of 6.9% when the lease commences in mid-2024.

It entered into a JV with Blackstone Inc., a global alternative asset manager. The $7 billion venture aims to develop four hyperscale data center campuses across Frankfurt, Paris and Northern Virginia, supporting approximately 500 megawatts of total IT load upon full build-out. While Digital Realty maintains a 20% equity interest in the joint venture, Blackstone will invest approximately $700 million to acquire an 80% interest.

Balance Sheet

Digital Realty exited the fourth quarter with cash and cash equivalents of $1.63 billion, up from $1.06 billion recorded as of Sep 30, 2023.

As of Dec 31, 2023, this data center REIT had $17.4 billion of total debt outstanding, of which $16.8 billion was unsecured debt and $0.6 billion was secured debt and other. As of the same date, its net debt-to-adjusted EBITDA was 6.2X, while the fixed charge coverage was 3.8X.

Its debt maturity schedule is well-laddered with modest near-term maturities, with a weighted average maturity of 4.4 years and a 2.7% weighted average coupon as of Dec 31, 2023.

During the quarter, DLR realized net proceeds of $1.1 billion from the sale of 8.7 million shares of its common stock at a weighted average price of $133.21 per share under its ATM program. Subsequent to the fourth quarter's end, it sold 0.6 million shares of its common stock at a weighted average price of $133.43 per share, reaping around $84 million in net proceeds.

2024 Guidance

Digital Realty expects 2024 core FFO per share in the range of $6.60-$6.75. This is lower than the Zacks Consensus Estimate of $6.86.

DLR projects total revenues in the band of $5.55-$5.65 billion, which is below the consensus mark of $5.85 billion. Adjusted EBITDA is expected in the range of $2.8-$2.9 billion.

This data center REIT projects rental rates on renewal leases to be within 4-6% on a cash basis and 6-8% on a GAAP basis. The year-end portfolio occupancy is expected to increase by 100-200 bps. The same-capital cash NOI is estimated to grow 2-3%.

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 Other REITs

Ventas, Inc. VTR reported a fourth-quarter 2023 normalized FFO per share of 76 cents, in line with the Zacks Consensus Estimate. The reported figure increased 4.1% from the prior-year quarter’s tally.

Results reflect better-than-anticipated revenues. Also, Ventas’ same-store cash NOI increased year over year on strong performance across the portfolio.

Healthpeak Properties, Inc. PEAK reported fourth-quarter 2023 FFO as adjusted per share of 46 cents, beating the Zacks Consensus Estimate by a whisker. The reported figure rose 4.5% year over year.

Results reflected better-than-anticipated revenues. Moreover, growth in same-store portfolio cash (adjusted) net operating income was witnessed across the portfolio. The company also issued its 2024 outlook.

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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