Digital Realty Trust: The Company Facebook Trusts With Its Data

Digital Realty Trust
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Digital Realty Trust: Leading Provider of Global Data Centers

If you don’t think data centers are sexy, keep reading. Digital Realty Trust, Inc. (NYSE:DLR) is the company that social media behemoths like Facebook, Inc. (NASDAQ:FB) trust with their valuable data.

Thanks to the Internet, the world has become globally connected, whether through social media sites, the cloud, digital media, or work. What all of these different industries have in common is an abundance of data: texts, images, videos, and content. It costs a lot of money to own your own data centers.

That’s where Digital Realty comes in.

The company owns close to 200 data centers around the world, which it leases to tech giants in virtually every industry. This lucrative business helps provide the company with a steady, recurring revenue stream that has delivered strong capital appreciation and dividend growth for buy-and-hold investors.

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The Internet is part of the fabric of our lives. We expect instant access, for it to be available 24/7, and to always be there.

That sounds easy, but it isn’t. The interconnected digital universe is expanding every day along with the different needs of each business. This presents a number of technological challenges, which makes data centers a key component of any business with high-performance networks.

Digital Realty Trust

Digital Realty Trust is a real estate investment trust (REIT) that owns, acquires, develops, and operates data centers. It owns more than 195 data centers in 12 countries on four continents. (Source: “About Us,” Digital Realty Trust, Inc., last accessed February 13, 2019.)

DLR Stock Information
Market Cap $24.4 billion
Beta 0.80
52-Week Change 5.8%
52-Week High $125.10
52-Week Low $96.56
Shares Outstanding 206.4 million
Float 206.3 million
50-Day Moving Average $106.94
200-Day Moving Average $113.29

(Source: “Digital Realty Trust Statistics,” Yahoo! Finance, last accessed February 13, 2019.)

Its huge list of international clients come from a variety of industry verticals that include cloud and information technology services, social networking and communication, financial services, energy, healthcare, consumer products, and manufacturing.

Some of Digital Realty Trust’s top clients include IBM (NYSE:IBM), Facebook, Oracle Corporation (NYSE:ORCL), LinkedIn, Yahoo!, and AT&T Inc. (NYSE:T).

More and more major brands are turning to Digital Realty Trust because it is reliable. It has 16 years of experience as an industry leader with a record 11 consecutive years of “5 nines” (99.999%) uptime. (Source: “Data Centers in North America,” Digital Realty Trust, last accessed February 14, 2019.)

For income-starved investors, Digital Realty provides an annual dividend of 3.6% or $4.04 per share. While correlation is not causation, the company should continue to provide investors with a strong annual dividend; it has raised its dividend yield for the last 13 consecutive years. (Source: “Investor Relations,” Digital Realty Trust, last accessed February 13, 2019.)

Chart courtesy of StockCharts.com

For the most part, Digital Realty Trust had great momentum in 2018. It entered the year trading at $102.95 and hit a 52-week high of $122.99 on August 29 for a year-to-date gain of 19.5%.

Sadly, that momentum was curbed in September 2018 during the market-wide sell-off. It was further exacerbated by the brutal market-wide meltdown in December.

2019 has started off well for Digital Realty, though; it has advanced 6.6% since the start of January.

Digital Realty Announces Strong Q4 and Full-Year Results

On February 5, 2019, Digital Realty announced its financial results for the fourth quarter and year ended December 31, 2018. Fourth-quarter revenue increased six percent year-over-year to $778.0 million. (Source: “Digital Realty Reports Fourth Quarter And Full-Year 2018 Results,” Digital Realty Trust, February 5, 2019.)

Fourth-quarter net income came in at $53.0 million; net income available to common stockholders was $31.0 million, or $0.15 per diluted share. In the fourth quarter of 2017, Digital Realty Trust reported net income of $0.26 per share.

Digital Realty generated fourth-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $461.0 million, an eight-percent increase over the same quarter last year.

The company reported Q4 2018 funds from operations (FFO)—a popular non-generally accepted accounting principles (GAAP) financial measure used by REITs to define cash flow from operations—of $332.0 million, or $1.54 per share, compared to $1.48 per share in Q4 2017.

CEO A. William Stein commented:

We had an excellent year in 2018, with record bookings of $268 million, more than one-third higher than our previous record.  We also made several strategic investments to expand our platform in both geographic breadth and portfolio depth, many of which have already become significant revenue and cash flow contributors.

(Source: Ibid.)

Full-year revenue was up 24% at $3.0 billion. Net income for 2018 was $341.0 million, while net income available to shareholders was $250.0 million, or $1.21 per share, compared to $0.99 per share in 2017.

Full-year 2018 adjusted EBITDA was $1.8 million, a 27% increase over 2017. FFO was $6.37 per share compared to $5.65 in 2017.

Stein added:

As we look ahead to 2019 and beyond, we are encouraged by the resiliency of the underlying demand for our business along with our operational and financial strength, and believe we are well positioned to continue to deliver sustainable growth for our customers, shareholders and employees.

(Source: Ibid.)

For 2019, Digital Realty reiterated its core FFO per share outlook of $6.60–$6.70.

Digital Realty Q4 Investment Activity

During the fourth quarter, Digital Realty Trust completed its previously announced $1.8-billion acquisition of Ascenty, the No. 1 data center provider in Brazil (the world’s eighth largest economy).

The company signed a joint venture with Brookfield Infrastructure, which committed to funding half of the agreement for 49% of total equity.

Digital Realty completed the acquisition of 424 acres of undeveloped land in Loudoun County, Virginia, for $236.5 million. The site is adjacent to Washington Dulles International Airport and located near bulk transmission lines and a major fiber path.

Development of the property is subject to market demand. The area is actually referred to as “Data Center Alley,” and is the world’s largest single data center market.

The company also acquired freehold interest in Sovereign House, a 96,000-square-foot property next to Digital Realty’s Meridian Gate data center in London, for $51.0 million.

Separately, Digital Realty purchased a seven-acre parcel of land next to its current holdings in Osaka, Japan, for roughly $5.0 million.

Subsequent to the end of its fourth quarter, Digital Realty entered into a 30-year ground lease for two adjacent land parcels in Singapore, totaling three acres, for an upfront payment of approximately $6.0 million. These parcels are located less than one block away from the company’s existing Loyang Way data center. (Source: Ibid.)

Analyst Take

The Internet is still in its infancy. More and more online companies will launch, and  they will need to protect their data. If history is any indicator, Digital Realty Trust will be there every step of the way.

Home to the largest global data center portfolio, Digital Realty Trust is a financially robust company with a huge international footprint, aggressive acquisition strategy, and enviable list of clients.

Moreover, Digital Realty is a leader in an industry with a high barrier to entry. The company will continue to be a leading provider of data centers, colocation, and interconnection solutions, and it will continue to add top-tier clients to its list of customers.

Add this to the company’s long history of raising its annual dividend, and you have more than enough reasons to love Digital Realty Trust.