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Digital Realty (DLR) to Sell Data Center Asset, Recycle Capital

Digital Realty DLR recently announced that it has entered into a definitive agreement for the sale of a non-core, mixed-use data center property in a transaction that would value the asset at around $205 million. The deal is expected to close in the third quarter of 2022 and is subject to customary closing norms.

The move comes as part of its efforts of recycling capital from mature assets in the United States and reinvesting in the growing, global platform. Digital Realty has sold around $4 billion of assets since 2018, redeploying the proceeds in its growth endeavors.

Recently, DLR announced the completion of the acquisition of a majority stake in the South African carrier-neutral data center and interconnection services provider Teraco, in a transaction valuing Teraco at roughly $3.5 billion.

The non-core, mixed-use data center property, which Digital Realty is now selling, was acquired by the company in 2004 before its IPO. This property is expected to generate a 2022 cash net operating income of $10.7 million, denoting a 5.2% cap rate.

While a major chunk of rental revenues comes from a Tier III Powered Base Building data center, the property is also leased to commercial and retail tenants on a long-term basis. Initially, the sale proceeds will be used for debt repayment, and ultimately, the proceeds will be channelized for funding future investment activity.

Going forward, Digital Realty is poised to benefit from the growing reliance on technology and acceleration in digital transformation strategies by enterprises. By capitalizing on such factors and its balance sheet strength, the company is expanding its data center portfolio through accretive acquisitions and development efforts. However, a competitive landscape leads to aggressive pricing pressure.

Shares of this presently Zacks Rank #3 (Hold) DLR have appreciated 3.5% in the past three months, underperforming the industry’s rise of 4.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some key picks from the REIT sector include Prologis PLD and Extra Space Storage Inc. EXR.

Prologis carries a Zacks Rank of 2 (Buy) at present. Prologis’ long-term growth rate is projected at 9.8%. The Zacks Consensus Estimate for PLD’s 2022 funds from operations (FFO) per share has been revised marginally upward in the past month.

The Zacks Consensus Estimate for Extra Space Storage’s 2022 FFO per share has moved marginally upward in the past week to $8.30. Extra Space Storage’s long-term growth rate is projected at 8.2%. EXR presently carries a Zacks Rank of 2.

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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Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
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