NYSE: DLR

DIGITAL REALTY TRUST INC Report created Nov 26, 2019 Page 1 OF 5

DLR shares are trading above the midpoint of their 52-week range of $100-$136. The shares trade at Argus Recommendations
17.2-times our 2020 AFFO estimate, compared to the five-year historical range of 12.0-20.6 and the peer
average of 19.4. DLR also trades at an EV/EBITDA multiple of 20.0, below the peer average of 21.0, despite
our expectations for superior growth. Twelve Month Rating SELL HOLD BUY

Analyst's Notes Five Year Rating SELL HOLD BUY

Analysis by Jacob Kilstein, CFA, November 25, 2019 Under Market Over
Sector Rating Weight Weight Weight
ARGUS RATING: BUY
Argus assigns a 12-month BUY, HOLD, or SELL rating to each
• Maintaining BUY on fast-growing data center REIT stock under coverage.
• We believe that DLR has strong opportunities in the global colocation market, and note that the • BUY-rated stocks are expected to outperform the market (the
benchmark S&P 500 Index) on a risk-adjusted basis over the
company has grown both organically and through acquisitions. next year.
• On October 29, concurrent with earnings, Digital Realty announced that it would acquire Interxion • HOLD-rated stocks are expected to perform in line with the
(NYSE: INXN), a European data storage company, for $8.4 billion in stock, representing a 20% market.
premium. The businesses are complementary and will triple DLR's European data center locations. • SELL-rated stocks are expected to underperform the market
on a risk-adjusted basis.
• We are lowering our 2019 FFO estimate to $6.62 per share from $6.68 based on our expectations for The distribution of ratings across Argus' entire company
lost revenue from dispositions. We are also lowering our 2020 FFO estimate to $6.87 from $6.99 universe is: 66% Buy, 34% Hold, 0% Sell.
based on integration costs from the INXN merger.
• DLR pays a quarterly dividend of $1.08 per share, or $4.32 annually, for a yield of about 3.6%. Over Key Statistics
the past four years, the board has raised the dividend at a 5.4% average annual rate. Key Statistics pricing data reflects previous trading day's closing
price. Other applicable data are trailing 12-months unless
INVESTMENT THESIS otherwise specified

We are maintaining our BUY rating on Digital Realty Trust Inc. (NYSE: DLR), a real Market Overview
estate investment trust that operates global interconnection and data centers, but lowering Price $118.25
our price target to $130 from $140 target price, based on our lower FFO estimates. The Target Price $130.00
company helps customers develop secure networks and cloud-neutral data center 52 Week Price Range $100.05 to $136.32
platforms, and is at the forefront of the secular transition from on-premises data centers to Shares Outstanding 208.72 Million
cloud colocation centers. (Colocation centers rent space to multiple tenants to house their Dividend $4.32
IT hardware.) Digital Realty's global platform serves customers in more than 35 major Sector Overview
markets on five continents. We believe that DLR has strong opportunities in the global Sector Real Estate
colocation market, and note that the company has grown both organically and through Sector Rating MARKET WEIGHT
acquisitions. The company recently announced an $8.4 billion acquisition of a European Total % of S&P 500 Market Cap. 3.00%
data storage company, Interxion, which should help DLR's growth prospects there. Financial Strength
We believe that DLR shares remain undervalued at current levels given the company's Financial Strength Rating MEDIUM-HIGH
strong growth prospects and record of dividend increases. Debt/Capital Ratio 50.5%
Return on Equity 17.3%
RECENT DEVELOPMENTS
Net Margin 9.2%
Payout Ratio 0.64
Market Data Pricing reflects previous trading week's closing price. Current Ratio --
200-Day Moving Average Target Price: $130.00 52 Week High: $134.25 52 Week Low: $115.75 Closed at $119.60 on 11/22 Revenue $3.20 Billion
Price After-Tax Income $295.04 Million
($)
Valuation
120
Current FY P/E 17.86
Prior FY P/E 17.92
100
Price/Sales 7.71
80 Price/Book 3.05
Book Value/Share $38.72
Market Capitalization $24.68 Billion
Rating BUY
HOLD
SELL Forecasted Growth
EPS 1 Year EPS Growth Forecast
($) 0.30%
5 Year EPS Growth Forecast
6.30%
Quarterly 1.50 1.54 1.51 1.55 1.63 1.66 1.63 1.68 1.73 1.64 1.67 1.60 1.66 1.70 1.72 1.78
6.14 6.60 6.62 ( Estimate) 6.87 ( Estimate)
1 Year Dividend Growth Forecast
Annual
5.20%
Revenue
($ in Mil.) Risk
Beta 0.70
Quarterly 616.0 627.0 616.0 629.0 744.4 754.9 768.9 778.3 814.5 800.8 806.5 797.1 817.0 822.7 850.0 872.7 Institutional Ownership 103.31%
Annual 2488.0 3046.5 3218.8 ( Estimate) 3362.4 ( Estimate)
FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Dec 31 2017 2018 2019 2020

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©2019 Argus Research Company Argus Analyst Report

 NYSE: DLR

DIGITAL REALTY TRUST INC Report created Nov 26, 2019 Page 2 OF 5

Analyst's Notes...Continued
DLR shares have underperformed the S&P 500 over the last
three months, declining 1%, compared to a 10% gain for the
index. The shares have also underperformed over the past year,
rising 9% compared to a gain of 19% for the broad market. The
beta on DLR is 0.73, below the 0.84 average for data center REITs.
On October 29, concurrent with earnings, Digital Realty
announced that it would acquire Interxion (NYSE: INXN), a
European data storage company, for $8.4 billion in stock,
representing a 20% premium. Shareholders of INXN will receive
0.71 shares of DLR stock per share of INXN. DLR shareholders
will own 80% of the combined company and INXN 20%. The
deal is expected to close in 2020 following approval from
regulators and shareholders from both companies. Management
expects the merger to be dilutive to 2020 earnings and accretive in
2021. The businesses are complementary and will triple DLR's
European data center locations.
For 3Q19, DLR reported revenue of $806 million, up 5% from
the prior-year period, helped by higher rental income. Revenue was
below our estimate of $817 million and the consensus forecast of
$814 million. Core FFO rose 4% to $365 million, partly due to
higher revenue. Core FFO per share rose 2% to $1.67, which beat
our estimate of $1.65 and the consensus forecast of $1.63.
Concurrent with earnings, management lowered its full-year
revenue guidance to $3.2 billion from $3.2-$3.3 billion, implying
5% growth. Management also lowered its core FFO guidance to
$6.55-$6.65 per share from $6.60-$6.70, up less than 1% at the
midpoint due to the closing of a $1.0 billion joint venture with
Mapletree in early November.
In 3Q19, Digital Realty signed new leases that are expected to
generate $69 million of annualized rental revenue. In addition, the
company signed renewal leases representing $152 million of
annualized revenue. The company also acquired 22,000 square feet
of land in South Korea for $15 million that it will use to develop its
global platform. Construction on a facility will begin in the next
few months and be complete in 2021.
On September 16, the company announced the sale of 10
powered base building data centers (undeveloped space with
connectivity already in place) to Mapletree Investments and
Mapletree Industrial Trust, a REIT, for $557 million. Those
transactions are expected to close in early 2020. On November 4,
the Mapletree entities bought 80% of three stabilized facilities for
$811 million. DLR is maintaining a 20% stake, and thereby
forming a joint venture with Mapletree. Proceeds from the sales
will be used to pay down debt and fund investments.
EARNINGS & GROWTH ANALYSIS
We are lowering our 2019 FFO estimate to $6.62 per share
from $6.68 based on our expectations for lost revenue from
dispositions. We are also lowering our 2020 FFO estimate to $6.87
from $6.99 based on integration costs from the INXN merger.
FINANCIAL STRENGTH & DIVIDEND
Our financial strength rating on DLR is Medium-High, the

Growth & Valuation Analysis Financial & Risk Analysis

GROWTH ANALYSIS
($ in Millions, except per share data) 2014 2015 2016 2017 2018
FINANCIAL STRENGTH 2016 2017 2018
Revenue 1,616 1,763 2,142 2,458 3,046
Cash ($ in Millions) 11 0 127
COGS 595 642 763 884 1,087
Working Capital ($ in Millions) -690 -756 -947
Gross Profit 1,022 1,121 1,380 1,574 1,960
Current Ratio 0.29 0.36 0.31
SG&A 102 114 162 172 175
LT Debt/Equity Ratio (%) 143.0 95.0 129.0
R&D — — — — —
Total Debt/Equity Ratio (%) 143.0 95.0 129.0
Operating Income 378 375 518 556 595
Interest Expense 188 204 241 255 318 RATIOS (%)
Pretax Income 209 308 442 264 343 Gross Profit Margin 64.4 64.0 64.3
Income Taxes 5 6 10 8 2 Operating Margin 24.2 22.6 19.5
Tax Rate (%) 3 2 2 3 1 Net Margin 15.5 7.0 8.2
Net Income 200 297 426 248 331 Return On Assets 2.8 1.0 1.1
Diluted Shares Outstanding 134 139 151 175 207 Return On Equity 9.1 2.6 2.8
EPS 0.99 1.56 2.20 0.99 1.21
RISK ANALYSIS
Dividend 3.32 3.40 3.52 3.72 4.04
Cash Cycle (days) — — —
GROWTH RATES (%) Cash Flow/Cap Ex — — —
Revenue 9.0 11.0 27.4 13.0 20.0 Oper. Income/Int. Exp. (ratio) 2.9 2.0 2.1
Operating Income -1.6 -0.9 38.1 7.4 7.0 Payout Ratio 225.4 249.3 303.3
Net Income -36.3 48.2 43.6 -41.7 33.4
EPS -53.3 57.6 41.0 -55.0 22.2 The data contained on this page of this report has been
Dividend 6.4 2.4 3.5 5.7 8.6 provided by Morningstar, Inc. (© 2019 Morningstar, Inc.
Sustainable Growth Rate -6.9 -9.2 -9.3 -6.0 -6.0 All Rights Reserved). This data (1) is proprietary to
VALUATION ANALYSIS Morningstar and/or its content providers; (2) may not be
Price: High $70.92 $77.26 $113.21 $127.23 $125.10 copied or distributed; and (3) is not warranted to be
Price: Low $48.85 $60.66 $69.89 $98.03 $96.56 accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or
Price/Sales: High-Low 5.9 - 4.0 6.1 - 4.8 8.0 - 4.9 9.1 - 7.0 8.5 - 6.6
losses arising from any use of this information. Past
P/E: High-Low 71.6 - 49.3 49.5 - 38.9 51.5 - 31.8 128.5 - 99.0 103.4 - 79.8
performance is no guarantee of future results. This data
Price/Cash Flow: High-Low 13.9 - 9.5 14.6 - 11.5 18.7 - 11.5 21.5 - 16.6 18.8 - 14.5 is set forth herein for historical reference only and is not
necessarily used in Argus’ analysis of the stock set forth
on this page of this report or any other stock or other
security. All earnings figures are in GAAP.

Please see important information about this report on page 5

©2019 Argus Research Company Argus Analyst Report

 NYSE: DLR

DIGITAL REALTY TRUST INC Report created Nov 26, 2019 Page 3 OF 5

Analyst's Notes...Continued
second-highest rank on our five-point scale. Standard & Poor's,
Moody's, and Fitch rate DLR's debt at BBB, Baa2, and BBB,
respectively.
At the end of 3Q19, debt totaled $10.9 billion, down from
$11.1 billion at the end of 2018. Cash and cash equivalents were
$7 million at the close of 3Q19, down from $127 million at the
end of 2018. The net debt/adjusted EBITDA ratio stood at 6.1,
above the peer average of 5.7. The debt/capital ratio was 53%,
compared to 56% for peers. EBITDA for the third quarter covered
interest expense by a factor of 5.6, above the peer average of 4.4.
Lastly, the 3Q EBITDA margin was 59%, above the peer average
of 50%.
Digital Realty Trust pays a quarterly dividend of $1.08 per
share, or $4.32 annually, for a yield of about 3.6%. On November
20, DLR's board of directors declared a quarterly dividend of
$1.08 per share, payable on January 15 to holders of record on
December 13. Over the past four years, the board has raised the
dividend at an average annual rate of 5.4%. Our dividend
estimates are $4.25 for 2019, lowered from $4.32, and $4.47 for
2020, lowered from $4.52.
MANAGEMENT & RISKS
William Stein became the company's CEO in September 2014
and previously served as CFO and CIO. He has been with the
company since 2004. Andrew Power is the CFO, and has been with
the company since May 2015.
DLR faces risks associated with acquisitions, expansion
projects, and revenue streams that are largely concentrated in the
Americas. Digital Realty is expanding globally, which view
positively, but revenue from properties inside the United States
accounted for almost 78% of 3Q19 revenue. As such, any
downturn in the U.S. market could significantly hurt overall results.
REITs in general face interest rate risk, which may be
exacerbated if acquisitions are funded with floating-rate debt, or if
existing debt matures and credit conditions are tight. The high
3.6% yield may cause the stock to act more like a bond if interest
rates rise.
COMPANY DESCRIPTION
Digital Realty Trust is a real estate investment trust focusing on
interconnected data centers. Digital Realty Trust also develops data
center platforms for businesses involved in cloud software, IT,
financial services, social media, and mobile services. The company
operates in more than 35 metropolitan markets on five continents.
VALUATION
DLR shares are trading above the midpoint of their 52-week
range of $100-$136. The shares trade at 17.2-times our 2020
AFFO estimate, compared to the five-year historical range of
12.0-20.6 and the peer average of 19.4. DLR also trades at an
EV/EBITDA multiple of 20.0, below the peer average of 21.0,
despite our expectations for superior growth.
We are lowering our 12-month target price to $130 from $140

Peer & Industry Analysis

The graphics in this section are designed to
P/E
allow investors to compare DLR versus its Growth
industry peers, the broader sector, and the WY DLR vs.
market as a whole, as defined by the Argus Market
Universe of Coverage. DLR vs.
60 Sector
• The scatterplot shows how DLR stacks More Value More Growth
up versus its peers on two key
characteristics: long-term growth and Price/Sales
value. In general, companies in the lower DLR vs.
left-hand corner are more value-oriented, Market
while those in the upper right-hand corner 40 DLR vs.
are more growth-oriented. Sector
More Value More Growth
• The table builds on the scatterplot by
displaying more financial information. Price/Book
EQR AVB
• The bar charts on the right take the DLR vs.
20 PSA BXP PEAK DLR
analysis two steps further, by broadening Market
the comparison groups into the sector VTR DLR vs.
level and the market as a whole. This tool Sector
is designed to help investors understand More Value More Growth

Value
P/E

how DLR might fit into or modify a PEG

4 5 6
diversified portfolio.
5-yr Growth Rate(%) DLR vs.
Market
5-yr Net 1-yr EPS DLR vs.
Market Cap Growth Current Margin Growth Argus Sector
More Value More Growth
Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating
PSA Public Storage 36,419 4.0 19.4 61.0 3.2 BUY 5 Year Growth
EQR Equity Residential Properties 31,361 4.5 24.4 29.9 4.3 BUY DLR vs.
AVB Avalonbay Communities Inc. 29,617 5.0 22.8 43.5 5.5 BUY Market
DLR vs.
DLR Digital Realty Trust Inc 24,681 6.3 17.9 9.2 3.8 BUY Sector
WY Weyerhaeuser Co. 21,907 5.0 71.7 -2.3 97.6 BUY More Value More Growth
VTR Ventas Inc 21,511 5.7 15.0 12.7 1.0 BUY Debt/Capital
BXP Boston Properties, Inc. 21,279 5.0 19.7 18.2 7.4 BUY
DLR vs.
PEAK Healthpeak Properties Inc 17,568 6.0 19.7 43.7 4.0 BUY Market
Peer Average 25,543 5.2 26.3 27.0 15.8 DLR vs.
Sector
More Value More Growth

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 NYSE: DLR

DIGITAL REALTY TRUST INC

Report created Nov 26, 2019 Page 4 OF 5

Analyst's Notes...Continued
as a result of our lower FFO estimates.
On November 25, BUY-rated DLR closed at $118.30, down
$1.30.

Please see important information about this report on page 5

©2019 Argus Research Company Argus Analyst Report

 NYSE: DLR

METHODOLOGY & DISCLAIMERS Report created Nov 26, 2019 Page 5 OF 5

About Argus
Argus Research, founded by Economist Harold Dorsey in 1934,
has built a top-down, fundamental system that is used by Argus
analysts. This six-point system includes Industry Analysis, Growth
Analysis, Financial Strength Analysis, Management Assessment,
Risk Analysis and Valuation Analysis.
Utilizing forecasts from Argus’ Economist, the Industry Analysis
identifies industries expected to perform well over the next
one-to-two years.
The Growth Analysis generates proprietary estimates for
companies under coverage.
In the Financial Strength Analysis, analysts study ratios to
understand profitability, liquidity and capital structure.
During the Management Assessment, analysts meet with and
familiarize themselves with the processes of corporate management
teams.
Quantitative trends and qualitative threats are assessed under
the Risk Analysis.
And finally, Argus’ Valuation Analysis model integrates a
historical ratio matrix, discounted cash flow modeling, and peer
comparison.
THE ARGUS RESEARCH RATING SYSTEM
Argus uses three ratings for stocks: BUY, HOLD, and SELL.
Stocks are rated relative to a benchmark, the S&P 500.
• A BUY-rated stock is expected to outperform the S&P 500 on
a risk-adjusted basis over a 12-month period. To make this
determination, Argus Analysts set target prices, use beta as the
measure of risk, and compare expected risk-adjusted stock
returns to the S&P 500 forecasts set by the Argus Market
Strategist.
• A HOLD-rated stock is expected to perform in line with the
S&P 500.
• A SELL-rated stock is expected to underperform the S&P 500.

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Morningstar Disclaimer
© 2019 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information. Past performance is no guarantee of future results.

©2019 Argus Research Company Argus Analyst Report