Maintaining Pricing Discipline, Strong Demand

SAN FRANCISCO—As GlobeSt.com reported in May, locally based Digital Realty Trust reported a 9% earnings jump over Q1 2013. The firm also executed leases totaling $47 million of annualized GAAP rental revenue, including a $12 million direct lease with a former sub-tenant.

In an update to that story, analyst RBC Capital Markets says that “Unlike some of its peers, DLR has shown consistent pricing discipline, as evidenced by rent trends at its major properties.” RBC's property-level analysis of annualized cash rent per square foot at major turnkey sites in key markets shows generally stable to upward movement in turnkey rents across the company's major US and international markets.

The firm also notes that “Our discussions with industry contacts suggest that wholesale demand remains higher than year-ago levels. We believe that strong leasing demand and signings in late 2013 and early 2014 can translate to strong financial performance in 2014, potentially leading to higher management guidance.”

The firm says in a recent report that “DLR's broad domestic and international footprint provides a strong base for serving the growing datacenter needs of leading cloud platforms, including leading Web-scale (Amazon, IBM), carrier-affiliated (e.g., CenturyLink, Comcast, and Verizon), and independent (e.g., Rackspace) platforms.” Its competitiveness, the firm says, “is enhanced by its consistent ability to add capacity in its key markets.”

Overall, RBC Capital Markets points out that “DLR is seeing strong leasing demand while maintaining pricing discipline in line with management's targeted low-double-digit returns. The company's competitive advantage lies in its standardized, replicable product and ability to steadily add capacity in each of its major growth markets. DLR can enhance its competitive differentiation as it implements its interconnection initiative within and between its major metro markets and achieves greater penetration of mid-market and interconnect-driven requirements.”

"I am pleased with the solid activity we saw during the second quarter, with new lease signings totaling $35 million of annualized GAAP rental revenue and strong results from our new sales initiatives," comments Interim Chief Executive Officer and Chief Financial Officer Bill Stein in a prepared statement.  "Our mid-market segment continues to gain traction, and our colocation product offering generated good results with over $5 million in signed revenue during the quarter.  In addition, we benefited from generally stable-to-slightly-improved pricing across product types and regions."