Digital Realty Trust DLR is slated to report fourth-quarter and full-year 2024 results on Feb. 13, after the closing bell. The quarterly results are expected to reflect year-over-year growth in both revenues and funds from operations (FFO) per share.

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This Austin, TX-based data center real estate investment trust (REIT) reported a core FFO per share of $1.67 in the prior quarter, in line with the Zacks Consensus Estimate. Results reflected healthy leasing activity and an increase in rental rates. However, a rise in rental property expenses and interest expenses acted as dampeners.

Over the trailing four quarters, Digital Realty’s core FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed on the other occasion, the average beat being 0.77%. This is depicted in the chart below:

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Factors at Play for DLR

With the growth in cloud computing, the Internet of Things and Big Data and an increasing number of companies opting for third-party IT infrastructure; data-center REITs are experiencing a booming market. Also, the estimated growth rates for the artificial intelligence (AI), autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to six years.

With a portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa, Digital Realty is likely to have capitalized on this upbeat trend, benefiting its fourth-quarter earnings.

Moreover, this data center REIT has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network and other enterprise and financial industries. Most of the company’s tenants are investment grade, and numerous customers use multiple locations across the portfolio. This is anticipated to have aided stable revenue generation for the company during the to-be-reported quarter, driving its top line.

Projections for DLR

For the fourth quarter, the Zacks Consensus Estimate for rental revenues is pegged at $967.5 million, up 9.2% from $885.7 billion reported in the year-ago quarter. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $114.1 million, indicating a 7.2% increase from the year-ago quarter.

The consensus estimate for quarterly total revenues is pegged at $1.46 billion, suggesting a year-over-year increase of 6.4%.

Digital Realty’s activities in the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the company’s quarterly FFO per share has moved down 2.4% to $1.66 over the past month. However, the figure indicates year-over-year growth of 1.8%.

For the full year 2024, Digital Realty expected its core FFO per share in the band of $6.65-$6.75. The Zacks Consensus Estimate for the same stands at $6.71, indicating a 1.8% increase year over year.

For the full year, the company expected its total revenues in the band of $5.55-$5.60 billion. The consensus estimate for the same stands at $5.58 billion, indicating a 1.8% increase year over year.

What Our Quantitative Model Predicts for DLR

Our proven model does not conclusively predict a surprise in terms of FFO per share for Digital Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.

Digital Realty currently has an Earnings ESP of -7.14% and carries a Zacks Rank of 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — Host Hotels & Resorts HST and CubeSmart CUBE — you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

Host Hotels & Resorts, scheduled to report quarterly numbers on Feb. 19, has an Earnings ESP of +1.50% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

CubeSmart, slated to release quarterly numbers on Feb. 27, has an Earnings ESP of +1.10% and carries a Zacks Rank of 3 at present.

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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