Deutsche Bank Markets Research Rating Buy North America United States Financial REITs Corn pig ly Digital Realty Trust DLR.N DLR US ENaiengo NYS DLR Nice rebound in bookings; no change in positive data center thesis the filosi inteiesting thing about Dt.i1 s 31) tenor C. . ...may be the stock's reaction to what we thought was a nice rebound in bookings from a disappointing 2Q. We think the activity is notable given the lack of a head of sales in the Q and the breadth of leasing, including good activity in London post-Brexit. Sentiment on the group has gone negative on concerns that hyperscale cloud demand has slowed with Data Center REITs down 8% since QTS kicked off earnings 2 days ago despite the fact that only 1 of 4 DC's that have reported saw a q/q decline in bookings, while low penetration rates support elevated growth for years to come. We would add to positions on the sell-off. Reiterate Buy Brx)longs rebound in 3o. DLR signed $55MM of annualized bookings, including S9MM of interconnection bookings, which was a nice rebound from 2Q's $23MM level and highlights the lumpy nature of leasing. The average volume in 2Q and 3O of $39MM was roughly in-line with TTM averages. DLR's backlog rose to $84MM from $70MM last Q. Pricing commentary suggested a stable environment with overall cash spreads in the O up 2.5% though TKF spreads fell 9% as a heavily flagged above-market lease rolled over in the Q. Cash rent spread guidance was unchanged at "slightly positive." US TKF pricing fell to $140/sf (S120/KW) vs $202/sf ($187/KW) last Q, with the decline attributed to geographic mix. US cob pricing was $304/sf and $295/KW versus $229/sf and $260/KW last Q. Cash SC NOI was up only 0.9% (+2.1% ex FX) vs. 3.3% last Q, although guidance implies acceleration in 4Q. 1;2177502e% 1,h111,,, 0 We have updated our model to reflect 3O results, updated guidance, and our revised outlook. Our 2016 core FFO/sh estimate moves to $5.72 from $5.73, while NAREIT FFO/sh moves to $5.48 from $5.53, and FAD/sh moves to $5.22 from $5.09. In 2017, our core FFO/sh and NAREIT FFO/sh estimates are unchanged at $6.09, while FAD/sh moves to 55.23 from $5.21. Our core FFO estimates are largely unchanged, while FAD increases in 2016 due to lowered capex expectations. Valuation 41r1d risk:: (see pada 7 for tierailO We are maintaining our TP at $108. Our TP is based on a 50:50 blend of our FAD-based target and our EBITDA-based target. Risks include near-term leasing, its ability to source attractive external growth opportunities, and customer concentration which exposes it to higher than avg bankruptcy risk. f .,: ,x... ': i.. ,, ..... .... Year Erwi Dec 31 2015A 2016E 2017E 10 FFO 1.56 1.39A - 20 FF0 1.28 1.36A - 30 FFO 1.28 1.31A - 40 FFO 0.79 1.41 - FY FFO (USD) 4.86 5.48 6.09 P/FF0 04 14.0 16.8 15.1 Dividend yield (%) 6.0 3.8 4A Sauce Ciercrelionaelne,cerAtaftres• 28 October 2016 Results Price at 27 Oct 2016 µ1SD) 92.07 Price Target 100.00 112.10 - 69.96 62-week range Ono, CFA Mike Cr-A Research Research Associate Re; changas FF0 NSW 5.53 to 5.48 SOWN Dortsche•cre -Off* Nicatcrithe relative 120 $0 75 Co 45 35 ton3 Lilt 1014 405 Ions sno ---DrallednyTWO MP,0304000tebitOdt Performance 1%) 1m 3m 12m Absolute -5O -12.7 26.2 S&P 500 INDEX -1.5 3.3 Scarce Ocuraineene Deutsche Bank Securities Inc. Distributed on: 28/10/2016 06:50:47 GMT Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0093170 SDNY_GM_00239354 EFTA01389025