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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Digital Realty - DLR Opportunity To Add Yield & Value 0 comments
    Oct 8, 2013 2:34 PM | about stocks: DLR

    (NYSE:DLR) is a stock that I have owned for a while.

    Digital Realty Trust, Inc. is a REIT headquartered in San Francisco, California, that owns, acquires, and manages technology-related real estate. The company targets high quality, strategically located properties containing applications and operations critical to the day-to-day operations of technology industry tenants and corporate and institutional data center users. As of June 30, 2013, the company owned a portfolio of 127 properties comprising a total of 23.7 million rentable square feet, including 2.8 million square feet held for redevelopment.

    The shares have been under pressure lately as interest rates were increasing, causing the entire REIT sector to be sold indiscriminately . Secondly there was negative press in the form a a large hedgefund stating that DLR was a prime target to 'short"

    In my view, both of those events caused panic selling rendering the shares grossly undervalued. The 'shorts" made their case, it had no merit and I believe have since moved on.

    Shares are currently close to their 52 week low. When I value a REIT , I look at FFO (Funds From Operations) which simply shows what the company brings in to allow for their payouts to stockholders. From there we can arrive at what the company will have available to make their distribution payments. The FFO estimates for '13 thru 15 are $4.72, $5.06, $5.51 . From that the expected cash available for distributions should be as follows $3.75, $4.07, $4.48

    Since the payout for '13 is $3.13 per share the distribution is well covered, Thus the "bear' short case falls apart very quickly . It simply has no merit. In fact DLR raised the distribution this year !

    Let's look at the valuation from another angle. On a multiple basis , DLR trades at just over 10x FFO. If we take a look at other quality REITS , they are trading at 18x FFO. Yet those REITS will in my opinion have lower growth and slower distribution growth than DLR !

    This total dislocation that the market has presented offers an excellent opportunity for investors to build a position in a company that offers superior earnings and dividend growth prospects, an above-average yield, and a compelling valuation relative to the larger REIT group. Given these factors, as well as the global growth in "big data"

    and Digital's leading position in that space, DLR is value here in the$52-54 area.. It currently yields 5.8% and I view a return to the to $65-$70 in '14 as a very strong possibility.

    Please also take a look at the recent article by Brad Thomas , author here on SA and expert in the REIT sector. He also make a compelling case for the stock ..

    Best of Luck to All!

    Disclosure: I am long DLR.

    Additional disclosure: I am long numerous equity positions ( the full list can be seen here in this blog) I am short Gold via DZZ

    Themes: Yield Value , Opportunity Stocks: DLR
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