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Should You Keep Digital Realty (DLR) in Your Portfolio Now?

We initiated coverage on Digital Realty Trust, Inc. DLR on Apr 7.

Recently, this data center REIT declared achieving its 10th consecutive year of "five nines" of uptime, with 99.999% availability throughout 2016. The achievement reflects the company’s efficiency in developing and delivering data center solutions.

The company is poised to ride on the growth curve, backed by robust fundamentals of the data center market. With growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure, data center REITs are experiencing a boom market. In fact, demand is outpacing supply in top tier data center markets and despite enjoying high occupancy, the top tier markets are absorbing new construction at a faster pace.

Moreover, Digital Realty has significantly grown its business since its launch in 2004, from 43 data centers in eight markets in North America, to 61 data centers in 17 markets, with 12 being in North America and five international. The company is also expected to ride on the growth curve driven by strategic acquisitions of the Telx and the European portfolio, which offered a leading colocation and inter-connection platform, along with a superior connectivity infrastructure.

Furthermore, much to the delight of its shareholders, the company announced a 5.7% dividend hike early this March. Digital Realty has raised dividend every year since its initial public offering and the latest hike marks the 12th consecutive year of increase.

Amid these, shares of Digital Realty outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past one year. In fact, over this time frame, Digital Realty’s shares logged in a return of 20.3% compared with 4.4% growth recorded by the industry.

However, Digital Realty faces cut-throat competition in its industry. Given the solid growth potential of the data center real estate market, competition is likely to increase, in the upcoming period, from the existing players and the entry of new players.

In addition, although a sound global footprint helps the company to meet rising data center requirements of customers around the world, it exposes the company’s earnings to foreign currency translation.

Finally, over the past seven days, estimates for first quarter and full-year 2017 funds from operations (FFO) per share remained unchanged at $1.48 and $6.03, respectively.

Currently, Digital Realty has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the REIT space include CoreSite Realty Corporation COR, Piedmont Office Realty Trust, Inc. PDM and PS Business Parks, Inc. PSB. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CoreSite Realty currently has a long-term growth rate of 19.1%.

Piedmont Office Realty’s estimates for 2017 moved north by nearly 0.6% to $1.73, over the past 60 days.

PS Business Parks’ estimates for 2017 funds from operations (FFO) per share moved north nearly 0.9% to $5.86, over the past seven days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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Digital Realty Trust, Inc. (DLR): Free Stock Analysis Report
PS Business Parks, Inc. (PSB): Free Stock Analysis Report
CoreSite Realty Corporation (COR): Free Stock Analysis Report
Piedmont Office Realty Trust, Inc. (PDM): Free Stock Analysis Report
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