DLR - Digital Realty - Company Profile
Digital Realty Trust engages in the acquisition, ownership, development, redevelopment and management of technology related real estate. They focus on strategically located properties containing applications and operations critical to the day-to-day operations of technology industry tenants and corporate enterprise datacenter users, including information technology departments of Fortune 1000 companies and financial service companies.
DLR currently pays a $3.52 annualized dividend, which yields 3.75%.
In their recent earnings, they produced $1.42 in funds from operations and that beat estimates for $1.34. Net income was 27 cents per share. Revenue was $455.3 million. For the full year, they are projecting operating funds of $5.55 to $5.65 per share.
On July 5th the company announced it had completed the acquisition of 8 premium data centers in Europe from Equinix. The properties are located in London, Amsterdam and Frankfurt. The acquisition cost $874 million or a multiple about 13 times their anticipated 2016 EBITDA. This was a major acquisition opportunity made possible because of an acquisition by Equinix that required them to divest some properties.
When DLR signed the deal they immediately announced a secondary offering of 12.5 million shares that priced at $96. After the secondary, the stock went on to peak at $113 before declining last week.
Datacenter REITs like DLR are the big thing in the current dividend hungry investing environment. Datacenter customers rarely fail to pay the rent and the space is always in high demand. Periodic rent hikes allow the centers to expand profitability. Once a customer has their equipment installed, it is almost never moved. The expense and the complicated task prevents movement in all but the most extreme circumstances. Annual rents can be more than $1000 per square foot.
Earnings July 28th.
The REITs declined over the last week as the market rallied as investors dumped dividend stocks for momentum plays in a bull market. However, you would be hard pressed to find a better momentum stock, with a huge dividend, than DLR.
I believe the market is going to suffer some additional weakness in 2016 because of earnings, the Fed, the economy and the elections. A REIT is somewhat of a safe harbor in the coming storm.
I would like to enter this position around support at $103 before earnings. Because shares may not reach that support, I am going to cheat slightly and target $104. In the long-term scheme of things, it will not matter.
With a DLR trade at $104
Buy January $110 call, currently $4.50. Initial stop loss $98.85.