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Replies to post #10004 on Keeping It Simple
The total amount of all the information in existence doubles in size every two years, according to IDC. Between 2017 and 2020, this “digital universe” will grow more than twofold – from 18 trillion to 44 trillion gigabytes.
This online gold rush has created a boom for Digital Realty.
Instead of building out massive data centers themselves, tech giants turn to storage REITs. These firms provide the ideal conditions to stockpile information, usually in nondescript office buildings across the country.
Based in San Francisco, California, Digital Realty is the world’s second largest data center company. The partnership owns nearly 150 properties across 3 continents and rents server space to 2,300 different customers—including Facebook, LinkedIn, and Yahoo!.
And it’s a lucrative business. In 2016, Digital Realty grossed $2.1 billion. On every dollar generated in revenue, the company earns $0.66 in gross profit. Since 2005, the trust has grown fund flows from operations by 15% per year.
Three pillars will drive growth going forward.
First, acquisitions. Management's recent purchase of DuPont Fabros Technology, Inc. (NYSE:DFT) will cement the partnership's position as one of the largest data center providers in the world. By scaling up operations quickly, Digital Realty can provide better service to smaller rivals.
Second, expand internationally. Up until a few years ago, management had only a few operations abroad. That changed last year, when Digital Realty closed on an eight-property portfolio, giving the company a foothold in the European market. As detailed in the company's investor presentation, this is just the first step of a long term growth plan overseas.
Finally, cut costs. The merger of Digital Realty and DuPont could realize up to $18 million of annualized overhead savings. It would help strengthen Digital Realty's margins and balance sheet, unlocking more value for shareholders.
Looking forward, Digital Realty expects to deliver 2017 core fund flows from operations between $5.90 and $6.10 per share. If management can hit the mid-point of that range, the would represent year-over-year growth increase of about 7% after accounting for currency adjustments.
