EFTA01389025.pdf

Deutsche Bank Markets Research Rating Corn pig ly 28 October 2016 Buy Digital Realty Trust Results North America United States ENaiengo Price at 27 Oct 2016 µ1SD) 92.07 Financial DLR.N DLR US NYS DLR Price Target 100.00 REITs 62-week range 112.10 - 69.96 Nice rebound in bookings; no change Ono, CFA Mike Cr-A Research Research Associate in positive data center thesis the filosi inteiesting thing about Dt.i1 s 31) tenor C. . ...may be the stock's reaction to what we thought was a nice rebound in bookings from a disappointing 2Q. We think the activity is notable given the Re; changas FF0 NSW 5.53 to 5.48 -Off* lack of a head of sales in the Q and the breadth of leasing, including good activity in London post-Brexit. Sentiment on the group has gone negative on SOWN Dortsche•cre concerns that hyperscale cloud demand has slowed with Data Center REITs Nicatcrithe relative down 8% since QTS kicked off earnings 2 days ago despite the fact that only 1 of 4 DC's that have reported saw a q/q decline in bookings, while low 120 penetration rates support elevated growth for years to come. We would add to positions on the sell-off. Reiterate Buy $0 75 Brx)longs rebound in 3o. Co DLR signed $55MM of annualized bookings, including S9MM of 45 interconnection bookings, which was a nice rebound from 2Q's $23MM level 35 ton3 Lilt 1014 405 Ions sno and highlights the lumpy nature of leasing. The average volume in 2Q and 3O ---DrallednyTWO of $39MM was roughly in-line with TTM averages. DLR's backlog rose to MP,0304000tebitOdt $84MM from $70MM last Q. Pricing commentary suggested a stable environment with overall cash spreads in the O up 2.5% though TKF spreads Performance 1%) 1m 3m 12m fell 9% as a heavily flagged above-market lease rolled over in the Q. Cash rent Absolute -5O -12.7 26.2 spread guidance was unchanged at "slightly positive." US TKF pricing fell to S&P 500 INDEX -1.5 3.3 $140/sf (S120/KW) vs $202/sf ($187/KW) last Q, with the decline attributed to Scarce Ocuraineene geographic mix. US cob pricing was $304/sf and $295/KW versus $229/sf and $260/KW last Q. Cash SC NOI was up only 0.9% (+2.1% ex FX) vs. 3.3% last Q, although guidance implies acceleration in 4Q. 1;2177502e% 1,h111,,, 0 We have updated our model to reflect 3O results, updated guidance, and our revised outlook. Our 2016 core FFO/sh estimate moves to $5.72 from $5.73, while NAREIT FFO/sh moves to $5.48 from $5.53, and FAD/sh moves to $5.22 from $5.09. In 2017, our core FFO/sh and NAREIT FFO/sh estimates are unchanged at $6.09, while FAD/sh moves to 55.23 from $5.21. Our core FFO estimates are largely unchanged, while FAD increases in 2016 due to lowered capex expectations. Valuation 41r1d risk:: (see pada 7 for tierailO We are maintaining our TP at $108. Our TP is based on a 50:50 blend of our FAD-based target and our EBITDA-based target. Risks include near-term leasing, its ability to source attractive external growth opportunities, and customer concentration which exposes it to higher than avg bankruptcy risk. f .,: , x... ': i.. ,, .. ... ... . Year Erwi Dec 31 2015A 2016E 2017E 10 FFO 1.56 1.39A - 20 FF0 1.28 1.36A - 30 FFO 1.28 1.31A - 40 FFO 0.79 1.41 - FY FFO (USD) 4.86 5.48 6.09 P/FF0 04 14.0 16.8 15.1 Dividend yield (%) 6.0 3.8 4A Sauce Ciercrelionaelne,cerAtaftres• Deutsche Bank Securities Inc. Distributed on: 28/10/2016 06:50:47 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0093170 CONFIDENTIAL SDNY_GM_00239354 EFTA01389025