Is a Beat in Store for Digital Realty (DLR) in Q4 Earnings? - February 15, 2023

February 15, 2023

Digital Realty Trust (DLR - Free Report) is set to report fourth-quarter and full-year 2022 results on Feb 16 after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and core funds from operations (FFO) per share.

This data center real estate investment trust (REIT) reported a core FFO per share of $1.67 in the previous quarter, which matched the Zacks Consensus Estimate. Operating revenues outpaced the Zacks Consensus Estimate by just 0.25%.

Over the last four quarters, Digital Realty matched the Zacks Consensus Estimate twice and missed the same in the remaining two quarters, the average negative surprise being 1.52%. This is depicted in the chart below:

Let’s see how things have shaped up for DLR before this announcement.

Factors to Consider

Demand in top-tier data center markets has been robust despite a high occupancy level. This led to the faster absorption of new construction and increased the demand for data centers, benefiting data center REITs like Digital Realty.

The growing reliance on technology and acceleration in digital transformation strategies by enterprises are likely to have benefited Digital Realty’s portfolio of data centers in the fourth quarter of 2022. These data centers are located all over North America, Europe, South America, Asia, Australia and Africa. Also, strategic acquisitions and development and redevelopment activities over the past years are expected to have supported its growth.

Moreover, DLR has a high-quality, diversified customer base. It comprises tenants from the 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 in the to-be-reported quarter, driving its top line.

The Zacks Consensus Estimate for quarterly rental revenues is pegged at $821.41 million, up from the $763.12 million reported in the year-ago quarter. The consensus mark for revenues from tenant reimbursement utilities is pegged at $238.21 million, up from the $195.34 million reported in the year-ago quarter.

Also, Digital Realty’s interconnection solutions are expected to have gained pace amid solid demand in the quarter under discussion. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $98.99 million, indicating an increase from the $89.85 million reported in the year-ago quarter.

The consensus estimate for quarterly total revenues is pegged at $1.21 billion, indicating a 9.13% year-over-year jump. DLR’s activities in the fourth quarter were adequate to secure analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter core FFO per share has been revised marginally upward over the past month to $1.68. It indicates year-over-year growth of 0.60%.

For the full-year 2022, Digital Realty projected core FFO per share in the range of $6.70-$6.75. DLR’s full-year guidance incorporates a projection for total revenues in the band of $4.65-$4.70 billion and adjusted EBITDA in the range of $2.45-$2.475 billion. The year-end portfolio occupancy is expected at 83.5-84.0%, while same-capital cash net operating income is estimated to decline 4.5-5.5%.

For the full year, the Zacks Consensus Estimate for the core FFO per share is pegged at $6.73. The figure indicates a 3.06% increase year over year on 5.48% year-over-year growth in revenues to $4.67 billion.

Here Is What Our Quantitative Model Predicts

Our proven model predicts 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 the case here.

Digital Realty currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.99%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are some other stocks from the REIT sector — VICI Properties Inc. (VICI - Free Report) and Park Hotels & Resorts Inc. (PK - Free Report) — that you may want to consider as our model shows that these also have the right combination of elements to report a surprise this quarter.

VICI Properties, slated to release quarterly numbers on Feb 23, has an Earnings ESP of +0.29% and carries a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Park Hotels & Resorts, scheduled to report quarterly numbers on Feb 22, currently has an Earnings ESP of +3.66% and carries a Zacks Rank of 3.

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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