Digital Realty Earnings: Weaker Leasing, but Stellar Pricing and Connectivity Shift in Full Force

Digital Realty had a good first quarter. Overall leasing was down, but leasing is often choppy, so we wouldn’t overemphasize a single quarter’s result. More important to us, pricing was the strongest in years, and Digital’s smaller co-location and interconnectivity deployments are currently the strongest parts of its business. We think those co-location and interconnection leases are more profitable and contribute to a data center's competitive advantages, supporting our rationale for a positive network effect moat trend rating for this narrow-moat firm. We are raising our fair value estimate to $135 per share from $133 and believe the current stock price provides a good entry point.