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Digital Realty (DLR) Raises Capital, Sells Texas Data Center
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In an effort to raise capital to fund its ongoing and future investment activity and repay debt, Digital Realty (DLR - Free Report) divested 100% of its interest in a non-core data center in Texas and sold around 11 million shares issued under its at-the-market (“ATM”) program. This included 3.5 million shares to be issued pursuant to forward sales agreements.
The data center was sold for around $150 million, while the shares sold under the ATM program resulted in gross proceeds of nearly $1.1 billion.
Based on DLR’s projected net operating income for 2023, the disposition of the data center, originally acquired in 2012 and leased as a powered shell facility, was carried out at a cap rate of 4.4%. The company recognized a capital gain of roughly $88 million from the transaction, making the move a strategic fit.
Per Greg Wright, chief investment officer, DLR, “Consistent with our goals for this year, this transaction enables us to recycle capital from a non-core asset at an attractive valuation. We are consistently enhancing our portfolio by redeploying proceeds into strategic investments with premium growth prospects.”
Digital Realty has been capitalizing on the robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Growth in cloud computing, the Internet of Things and Big Data, and elevated demand for third-party IT infrastructure have aided this rise.
Moreover, growth in the AI, autonomous vehicles and virtual/augmented reality markets is anticipated to increase over the next five to six years. Amid this, Digital Realty’s capital-recycling efforts, strategic acquisitions and an encouraging development pipeline position it well for growth.
As of Mar 31, 2023, it had 9.2 million square feet of space under active development and 3.7 million square feet of space held for future development. For the nine months ending Dec 31, 2023, DLR expects to incur around $1.7 billion to $1.9 billion of capital expenditures for its development programs.
Also, DLR’s solid balance-sheet position and ample financial flexibility poise it well to capitalize on long-term growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have gained 6.6% in the quarter-to-date period against its industry’s decline of 4%.
Image Source: Zacks Investment Research
Nonetheless, given the strong growth potential of the industry, intense competition from existing and new players in the space could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, a high-interest rate environment adds to the company’s concerns.
The Zacks Consensus Estimate for Rexford Industrial’s current-year funds from operations (FFO) per share has moved 1.4% northward over the past two months to $2.19.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.25.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past month to $8.66.
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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Digital Realty (DLR) Raises Capital, Sells Texas Data Center
In an effort to raise capital to fund its ongoing and future investment activity and repay debt, Digital Realty (DLR - Free Report) divested 100% of its interest in a non-core data center in Texas and sold around 11 million shares issued under its at-the-market (“ATM”) program. This included 3.5 million shares to be issued pursuant to forward sales agreements.
The data center was sold for around $150 million, while the shares sold under the ATM program resulted in gross proceeds of nearly $1.1 billion.
Based on DLR’s projected net operating income for 2023, the disposition of the data center, originally acquired in 2012 and leased as a powered shell facility, was carried out at a cap rate of 4.4%. The company recognized a capital gain of roughly $88 million from the transaction, making the move a strategic fit.
Per Greg Wright, chief investment officer, DLR, “Consistent with our goals for this year, this transaction enables us to recycle capital from a non-core asset at an attractive valuation. We are consistently enhancing our portfolio by redeploying proceeds into strategic investments with premium growth prospects.”
Digital Realty has been capitalizing on the robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Growth in cloud computing, the Internet of Things and Big Data, and elevated demand for third-party IT infrastructure have aided this rise.
Moreover, growth in the AI, autonomous vehicles and virtual/augmented reality markets is anticipated to increase over the next five to six years. Amid this, Digital Realty’s capital-recycling efforts, strategic acquisitions and an encouraging development pipeline position it well for growth.
As of Mar 31, 2023, it had 9.2 million square feet of space under active development and 3.7 million square feet of space held for future development. For the nine months ending Dec 31, 2023, DLR expects to incur around $1.7 billion to $1.9 billion of capital expenditures for its development programs.
Also, DLR’s solid balance-sheet position and ample financial flexibility poise it well to capitalize on long-term growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have gained 6.6% in the quarter-to-date period against its industry’s decline of 4%.
Image Source: Zacks Investment Research
Nonetheless, given the strong growth potential of the industry, intense competition from existing and new players in the space could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, a high-interest rate environment adds to the company’s concerns.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) , Stag Industrial (STAG - Free Report) and Innovative Industrial Properties (IIPR - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Rexford Industrial’s current-year funds from operations (FFO) per share has moved 1.4% northward over the past two months to $2.19.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.25.
The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past month to $8.66.
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.