Wells Fargo downgrades Digital Realty to Equal Weight, lowers target to $115

As previously reported, Wells Fargo analyst Eric Luebchow downgraded Digital Realty to Equal Weight from Overweight with a price target of $115, down from $120. Heading into 2023, the analyst is stepping to the sidelines on Digital Realty, as he sees emerging risks to the 2023 outlook, including $1.7B of funding requirements at substantially higher rates, a reliance on asset recycling in an environment in which bid/ask spreads have started to widen, uncertainty on scale renewals, lack of clarity on power availability for 62 MWs of backlog in Ashburn, a slowdown in new lease volumes, and a levered balance sheet with $1.5B of floating rate debt. Luebchow believes the set-up in 2024 looks more favorable, but thinks Digital Realty remains a "show me" story until it can show a sustainable inflection in internal growth.