Digital Realty Trust Inc. (DLR), a niche real estate investment trust (REIT), has recently completed acquisition of the Sentrum Portfolio – a three-building data center portfolio spanning 761,600 square feet space in London, U.K. The properties were acquired from an unnamed seller for approximately 715.9 million pounds Sterling, which equated to $1.1 billion, based on an exchange rate of 1.00 pound to $1.56 as of June 25, 2012.
The acquisition is in sync with the long-term investment objectives of the company that focus on investing in institutional-quality data center facilities in high-barrier-to-entry markets which have significant potential to generate attractive risk-adjusted return on investments.
Moving forward, the transaction is expected to provide stabilized cash flow in the short term, a substantial upside potential in the long term, and a lucrative opportunity to expand its footprint in one of the strategic global data center markets in the world.
The properties are spread across diverse locations namely Woking, Watford and Croydon in the greater London area and would enable Digital Realty to cater to the increased demands for high-quality data center space in the region. Presently, the portfolio is 80% leased to a huge roster of 21 tenants that include leading multinational financial institutions and global network providers.
With demand for digital storage facilities increasing in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swing experienced during the recession.
This has in turn enabled Digital Realty to continue to pay solid dividends to its shareholders. The year-to-date return for the stock is noteworthy at 10.41% compared to an S&P 500 tally of 5.67%.
Digital Realty operates datacenters and digital storage facilities which are primarily used by telecommunication companies to maintain their Internet presence or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.
Digital Realty provides flexible and cost effective datacenter facilities to a wide range of customers, including domestic and international companies across multiple industry verticals. Its portfolio includes 105 properties throughout Europe and North America, spanning approximately 20.0 million square feet of space (including 2.3 million square feet of redevelopment space).
We presently have a Neutral recommendation for Digital Realty, which currently has a Zacks #2 Rank that translates into a short-term Buy rating. However, MPG Office Trust Inc. (MPG) – one of the competitors of Digital Realty – with an Outperform recommendation and a matching Zacks #1 Rank (short-term Strong Buy rating), looks more attractive at current levels.
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