Many of our REIT recommendations, after rallying sharply to new highs just before the Fed announced its tapering intentions, have come down to earth and now sell at much more reasonable valuations. Digital Realty REIT (DLR) is one of them. ... Digital Realty provides data center platform service, in a market with very high barriers for entry. ... Future growth will come from both growth in data and the evolution in information technology. ... Indeed, it has delivered compounded annual FFO (funds from operations) growth per diluted share of 18.4% from 2005 to 2012, and of 11.2% in the second quarter of this year compared to the same quarter of 2012.
As this is a company highly leveraged to modern technology trends, both threats and opportunities rest in the future developments of data-center technology. Current valuation, however, discounts a significant slowdown, and, to us, does not look justified. ... A recent 6.8% dividend increase continued the tradition of dividend growth for Digital Realty. We like the REIT at current levels, and its 5.6% yield is appealing too.
Genia Turanova and Stephen Leeb, Leeb Income Performance, www.leebincomeperformance.com, 877-883-8356, November 2013
