After a tumultuous Q4 2018, which saw the leading data center real estate investment trusts (REITs) experience one-year lows in late December, stock prices of Equinix (NASDAQ:EQIX), Digital Realty Trust (NYSE:DLR), CoreSite (NYSE:COR), CyrusOne (NASDAQ:CONE), InterXion (NYSE:INXN) and QTS Realty Trust (NYSE:QTS) recovered by March 2019.
According to Bill Stoller from DCK Investor Edge, the global sell-off in data center REITs last year hit investors who had become accustomed to the outsized returns seen in 2016 and 2017. In 2018, this trend was reversed, as five US-based data center REITs slumped by an average 14 percent in losses. Analysts noted that industry challenges in forecasting hyperscale demand, concerns about “shadow” supply, cost concerns about geographic expansion, and expensive M&A deals dampened investor sentiment in 2018. By early 2019, confidence in the sector returned as investors took advantage of low share prices.
Here is a summary of Q1, 2019 results that have seen REITs outperform the S&P 500 by around 8.5 percent.
Equinix expansion to boost 2019 revenue
Equinix revenue is projected to hit US $5.55 billion in FY 2019, a 9.5% increase over 2018. The company has a current dividend yield of 2.1%. Equinix’s Q1, 2019 revenue of US $1.36B topped analyst expectations and was up 11% year-over-year, marking the company’s 65th straight quarter of revenue growth. This is attributed to bookings spanning more than 3,000 customers and 4,000 processed deals, which, according to Charles Meyers, President and CEO, highlights “the diversity and high-volume nature of the Equinix retail colocation business.” Continued demand for cloud and data center services is driving Equinix business expansion plans around the world.
Digital Realty Trust dividend growth powered by big tech customers
Leading data center provider, Digital Realty Trust, saw its stock price return to favorable levels according to Benzinga, hovering between US $115 and $118, up from its 52-week low of US $100.05 in late 2018. Digital Realty’s completed US $1.8 billion acquisition of Ascenty in December strengthened their position as a global data center solutions provider, and the company recently announced a 7% increase in their quarterly common stock dividend. This marks the company’s 14th consecutive year of dividend growth.
CoreSite share price recovery backed by high occupancy rates
CoreSite Realty Corporation’s stock price hovered around US $104 by the end of March 2019, up from its 52-week low of US $82.64 at the close of 2018. CoreSite’s data center business showed strong occupancy rates in the low-90% range, with rental revenues reaching US $544 million for Q4 2018 as customers clamored for data center space. CoreSite is responding to customer demands by increasing capacity, with four new data centers currently under construction – CH2 Chicago, NY2 New Jersey, BO1 Boston and SV8 Santa Clara – on top of plans to expand its current facilities.
CyrusOne reports 14% revenue growth
Texas-based CyrusOne released its Q1 2019 results on May 1, reporting a healthy year-on-year growth of 14% compared to the same quarter in 2018. Q1 2019 revenue came in at US $225M vs. US $196M for the same period last year. The company attributed the increase from both organic growth and due to the Zenium acquisition that closed in Q2 2018. CyrusOne also reported that it completed construction on five US projects totaling 249,000 of colocation square feet (CSF) and 28MW of power capacity. Additionally, the company disclosed development projects in North America and Europe that are expected to add 190,000 CSF and 82MW of power capacity.
InterXion consolidates position with further European expansion
Dutch colocation company InterXion, one of Europe’s leading colocation providers, recently announced expansion plans for 2019. The company is investing heavily in increasing capacity in Frankfurt, Germany and Marseilles, France. These moves are expected to boost InterXion’s ability to offer hyperscale deals to its customers. The developments contributed to the recovery in the company stock prices to the US $64 – $65 range, coming off its 52-week low of US $50.05 at the end of 2018.
QTS Q1 2019 FFO tops analyst forecasts
Kansas-based data center REIT, QTS, announced its Q1 earnings on April 30, highlighting its Normalized Funds from Operations (FFO) at US $38.2 million, or 64 cents per share, in the period. This beat analyst expectations at 62 cents per share. “Continued strength in overall industry demand and strong leasing momentum, combined with a fully-financed 2019 business plan, positions QTS well to continue to deliver industry-leading operating results,” said Chairman and CEO of QTS, Chad Williams. “In addition, we are pleased to announce our first mega scale expansion outside the US which extends our growth opportunity with significant existing capacity at a materially de-risked entry point,” added Williams. On the same release, QTS also announced further expansion plans in Manassas, VA, as well as expansion of its US facilities totaling 119,000 colocation square feet.
In the midterm, analysts suggest investors are looking to the increased enterprise activity in digital transformation to drive adoption of hybrid cloud computing and interconnectivity. Artificial intelligence, big data, the Internet of Things, and the wider deployment of 5G are also seen as demand drivers for the future.
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