DLR Slips: Q4 Misses, 2013 View Light; Citi Notes Leasing Costs

Shares of Digital Realty Trust (DLR) are down 93 cents, or 1.4%, at $64.44 after the company this morning reported Q4 revenue and funds from operations that slightly missed analysts’ estimates The company projected funds from operations this year slightly below what analysts have been estimating.

Revenue in the three months ended in December rose 29%, year over year, to $349.7 million, yielding funds from opeations of $1.16 per share.

Analysts had been modeling $450.5 million and $1.17 per share.

CEO Michael Foust remarked that the company was “very pleased” with “another solid year of earnings growth for our shareholders,” adding “We are very encouraged by the $31.4 million in annualized GAAP rental revenue that we have signed to date in 2013 which already represents our strongest first quarter for lease signings ever.”

The company during the quarter raised its dividend to 78 cents from 73 cents per share per quarter.

For this year, the company projected funds from operations per share of $4.70 to $4.85 per share. Analysts are currently modeling $4.85 per share.

Citigroup’s Michael Bilerman, who has a Neutral rating on the stock, writes that he’s surprised the shares sold off on the report, given the company reiterated the year view it had already given at its analyst day last month, which is a positive in as much as that forecast is probably “conservative.”

However, he does express concern about the cost of improving facilities to drive leasing:

While 4Q leasing activity was solid, we are concerned with the very high Tenant Improvements (TI�s) and Leasing Commissions that DLR was forced to pay on renewal leases in their portfolio � at $130/psf versus just $0.22-$18.08/psf in 1Q-3Q and if amortized into the new rent imply a roll-down. We look for details on whether this is space or tenant specific, or if it could suggest a more expensive cost of doing leasing. TI�s/Commissions on new leases were ~$56/psf and more or less inline with prior quarters, though the numbers tend to bounce around.

Shares of other data center REITs are under pressure, with CoreSite Realty (COR) down 70 cents, or 2%, at $30.32, Dupont Fabros Technology (DFT) down 13 cents, or half a percent, at $23.21, and the U.K.-based Telecity Group PLC (TCY) up 19 cents, or 2%, at $9.15.