Digital Realty Trust DLR is slated to report first-quarter 2024 results on May 2, after the closing bell. While the quarterly results are expected to reflect year-over-year growth in revenues, funds from operations (FFO) per share may exhibit a decline.
This Austin, TX-based data center real estate investment trust (REIT) reported a core FFO per share of $1.63 in the prior quarter, missing the Zacks Consensus Estimate by a cent. The quarterly results reflected lower-than-anticipated revenues. Rising operating expenses also acted as a dampener.
Over the trailing four quarters, Digital Realty’s core FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed in the other occasion, the average beat being 0.46%. This is depicted in the chart below:
Digital Realty Trust, Inc. Price and EPS Surprise
Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote
Factors to Consider
Data center infrastructure demand has remained robust due to accelerated digital transformation strategies by enterprises. With growth in cloud computing, the Internet of Things and Big Data and elevated demand for third-party IT infrastructure, the data center market is booming. Moreover, emerging demand drivers like AI and edge computing are likely to have spurred the need for digital infrastructure globally.
With a portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa, Digital Realty is likely to have capitalized on this upbeat trend, benefiting its first-quarter earnings.
Moreover, this data center REIT has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, and other enterprise and financial industries. Most of the company’s tenants are investment grade, and numerous customers use multiple locations across the portfolio. This is anticipated to have aided stable revenue generation for the company during the to-be-reported quarter, driving its top line.
The Zacks Consensus Estimate for quarterly rental revenues is pegged at $886.2 million, up 1.8% from $871 billion reported in the year-ago quarter.
Also, Digital Realty’s interconnection solutions are expected to have gained from solid demand in the quarter under discussion. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $110.4 million, indicating an 8.5% increase from the year-ago quarter.
The consensus estimate for quarterly total revenues is pegged at $1.36 billion, suggesting a 1.8% year-over-year increase.
However, higher interest expenses are anticipated to have cast a pall on its quarterly performance to some extent. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate.
The consensus mark for revenues from tenant reimbursement utilities is pegged at $312.6 million, down 1.4% from $317.2 million reported in the prior-year quarter.
Digital Realty’s activities in the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the company’s quarterly FFO per share has remained unrevised at $1.63 over the past month. Moreover, the figure indicates a year-over-year decline of 1.8%.
Q1 Development
In March 2024, Digital Realty joined forces with Mitsubishi Corporation to form a data center development joint venture. The collaboration marks a significant milestone in both companies’ expansion strategy, aiming to capitalize on the ever-growing demand for data infrastructure. Digital Realty has retained a 35% equity interest in the joint venture, while Mitsubishi retained the remaining 65% interest, with an initial investment of approximately $200 million.
What Our Quantitative Model Predicts
Our proven model does not conclusively predict a surprise in terms of FFO per share for Digital Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Digital Realty currently has an Earnings ESP of -1.00% and carries a Zacks Rank of 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the broader REIT sector — Public Storage PSA and Medical Properties Trust MPW — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Public Storage, scheduled to report quarterly numbers on Apr 30, has an Earnings ESP of +0.50% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medical Properties, slated to release quarterly numbers on May 9, has an Earnings ESP of +3.22% and carries a Zacks Rank of 3 at present.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents 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.
