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Highfields’ Jacobson Says Investors Should Short Digital Realty

Digital Realty Trust Inc. is a stock to sell short because the manager of data-center real estate relies on access to capital markets to fund its dividend, Jonathon Jacobson of Highfields Capital Management LP said.

“Pricing is going lower, competition is increasing, and the company is tapping into capital markets as aggressively as they can,” Jacobson, the founder and chief executive officer of $11 billion investment firm Highfields, said today at the 18th Ira Sohn Investment Conference in New York. “Do you want to pay three times book value for this?”

The San Francisco-based company fell 6.9 percent to $64.25 at 6:22 p.m. New York time in extended U.S. trading. Jacobson said the fair value of Digital Realty is about $20 a share. Its dividend yield is 4.5 percent, compared with 2 percent for the Standard & Poor’s 500 Index, according to Bloomberg data.

The rate of recurring capital expenditures is “materially” higher than the company represents, according to Jacobson. Digital Realty’s competition includes cloud businesses from companies such as Google Inc. and Inc., and from other data centers that have joined the field since there is no barrier to entry, he said.

Investors have sold short about 18 million shares of Digital Realty, or 14 percent of the total outstanding, according to exchange data compiled by Bloomberg.

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