Real Estate Investment Trusts (REITs) have become one of the most popular ways for investors to receive big dividend payments from their stock holdings while also minimizing double taxation to the largest extent legally possible. And with cloud computing moving into its second decade fueled for hockey stick-like growth by the Internet of Things (IoT), data center REITs have emerged as a great play on the web 2.0 market.
Data center REITs own and operate facilities that offer a range of services to store and protect data for customers. They make at least 75 percent of their income by renting space to their customers in the data center. This article will look at the largest publicly traded REITs: Equinix, Digital Realty Trust, CyrusOne, QTS Realty Trust and CoreSite Realty Corporation.
The largest publicly traded data center REIT, Equinix (Ticker:EQIX) operates approximately 180 data centers on five continents for over 9,500 customers. Equinix is a relative newcomer to data center REITs having only converted to the corporate structure in 2014 according to Motley Fool. In its most recent quarterly report filing in August 2017, the company reports its 58th consecutive quarter of revenue growth, topping $1 billion for the first time. Overall, Equinix achieved 18 percent year-over-year revenue growth fueled significantly by its closing acquisition of 29 Verizon data centers and opening of three greenfield data centers. The data center giant reports that 58 percent of its revenue comes from customers deployed across three regions. Key customer and partner wins and expansions completed during the quarter included Alibaba, AWS, Microsoft Azure, Salesforce, Shire and Weyerhaeuser.
Digital Realty Trust (DLR)
The second largest of the data center REITs by market capitalization, Digital Realty’s (Ticker:DLR) connectivity spans four continents, with 170-plus data centers servicing the data center, colocation and interconnection strategies of more than 2,300 customers. Last month, the company completed its merger with DuPont Fabros, providing further geographic diversity among its worldwide network of data centers. In its third quarter report for 2017, the company reported an 8 percent increase in revenue, reaching $610 million, a 12 percent increase from the same quarter the previous year. Digital Realty Trust also recently announced the scheduled delivery of additional data center capacity in Silicon Valley in the first quarter 2018, with a $75 million investment in its 17th facility in the California technology hub.
Now with more than 40 data centers, CyrusOne (Ticker:CONE) announced a 28 percent increase in year-over-year revenue gains in its July 2017 quarterly close, with the top line coming in at $166.9 million. Earlier in the year, the company announced the acquisition of two additional data centers from Sentinel Data Centers for $490 million. According to CyrusOne, the acquisition would bring more geographical balance to its data center footprint. Furthermore, the company’s expansion plans include adding the company’s first facility in the Southeastern U.S.; Raleigh-Durham, North Carolina; and additional capacity in the strategic Northeastern U.S.; Somerset, N.J.
QTS Realty Trust (QTS)
One of the smaller data center REITs on this list, QTS Realty Trust (Ticker:QTS) seems to aspire to more than just renting space to customers in racks with its emphasis on hybrid IT, hosted and managed services. However, QTS appears to be one of the few REITs whose growth is slowing, with the July 2017 quarter close of funds from operations only gaining 0.5 percent from the same quarter in the previous year, for a total of $35 million. Having said that, reported total revenues of $107.9 million were recognized in the second quarter of 2017, an increase of 9.3 percent compared to the same time last year. The company reported major activities in September, including the U.S. Department of Labor where it will deliver repeatable hybrid data center solutions and a carrier-neutral peering system.
CoreSite Realty Corporation (COR)
CoreSite Realty Corporation (Ticker:COR), whilst another smaller player in the data center REIT space, boasts a number of marquee names among its 1,200 plus customers including Verizon and Major League Baseball. Overall, the REIT operates 20 data centers in eight U.S. markets. The company has recently been marketing its relationship with AWS cloud services, which it claims offers direct connection to AWS compute power, database storage and content delivery, along with access to more than 70 products. In the third quarter of this year, CoreSite reported total operating revenues of $123.1 million, representing a 21.5 percent increase year-over-year. In the same quarter, the REIT executed 103 new and expansion data center leases comprising 40,842 net rentable square feet (NRSF), representing $10.1 million of annualized GAAP rent.
We’ve seen a lot of consolidation in the telecom/data center REIT space. The trend seems to be that larger data center REITs will continue to buy assets from Tier 1 carriers and acquire or merge with smaller competitors. And the business looks to be in transition from one of hosting computer processing and storage assets, and co-locating assets of other internet companies to one of serving as a cross-connect between end customers and their cloud computing platforms.
Investors simply looking for dividend payments can rest assured that those stemming from REITs will continue into the foreseeable future. However, the revenue mix may start to flux and potentially add some uncertainty or volatility as the industry moves forward.