Digital Realty (NYSE:DLR), DuPont Fabros (NYSE:DFT) Downgraded on Supply Risk

UBS (NYSE:UBS) has downgraded Digital Realty Trust (NYSE:DLR) and DuPont Fabros (NYSE:DFT) on supply risk concerns.

UBS said, "We believe the wholesale data center REITs are trading at unsustainably high valuations, despite slowing growth profiles in 2011 (and beyond), accelerating competition from private players, and pricing pressure in the retail channel...Data center obsolescence risks have continued to rise over the past year, as technological innovation is driving the industry toward more power-efficient designs. With high power costs representing a key concern for data center tenants, we expect this to be an ongoing theme over the next several years....

"We are downgrading Digital Realty Trust (from Buy) to Sell as we see 19% downside to our new $40 (-$25) target. DLR has a best-in-class management team and unique platform; that said, the current valuation does not fully reflect the potential downside risk factors, in our view. We are also downgrading DuPont Fabros (from Buy) to Neutral as the stock is trading roughly inline with our new $20 (-$9) target."

Digital Realty Trust closed Friday at $48.32, down $3.42, or 6.61 percent. DuPont Fabros closed at $20.10, down $0.88, or 4.19 percent.