BOSTON Oct 30 Digital Realty Trust is
paying off big for Highfields Capital less than six months after
the investor warned that the real estate trust would face more
competition Microsoft and Google.
With Digital Realty Trust's stock price down 14.70 percent
on Wednesday, $13 billion Highfields is likely seeing this
year's double-digit returns swell even more.
The San Francisco-based REIT missed analysts' third-quarter
earnings forecasts when it reported funds from operations per
share of $1.10 on Tuesday. Digital Realty Chief Executive
Officer Michael Foust said he was disappointed with financial
results, but pointed to "robust leasing velocity" as a bright
Brokerage Raymond James on Wednesday cut Digital Realty
Trust's rating to "market perform" from "outperform".
At the Ira Sohn Investment conference in May, Highfields'
Chief Executive Jonathon Jacobson unveiled a short position
against the company saying its stock price could drop as low as
$19 a share. On Wednesday, it was trading at $48.78. In the last
six months, shares are down nearly 30 percent.
Jacobson, who rarely discusses short positions by name, said
Digital Realty Trust, or DRT, would not only have to battle more
with Google, Microsoft and Amazon, which all have their own data
centers, but also face higher spending.
DRT guided investors that its development expenditures could
be as much as $1.12 billion and that recurring capital
expenditures and capital leasing costs could be between $70
million and $75 million.
Jacobson said the dividend payments set at 78 cents a common
share in March, June and September and kept there for a payout
in December are unsustainably high. Investors tend to like REITs
precisely because of their high dividend payments.
A spokeswoman for Highfields declined to comment. Jacobson
refused to be interviewed for this story.
In a recent investor letter sent to clients and seen by
Reuters, Boston-based Highfields said it planned to shrink its
size by giving back between 5 percent and 15 percent of its
capital because it feels it can deliver better returns with less
The fund gained roughly 18 percent after fees through the
end of September, a source close to the firm said.
In the letter, Jacobson said Highfields had made money by
shorting, or betting that a security's price would fall, but he
did not mention the company by name.
Jacobson may be among a small group now making money on
short positions, something that has become tougher as the stock
market has risen nearly 24 percent this year. Hedge funds that
do nothing, but short securities have lost 13.33 percent this
year, according to Hedge Fund Research data.