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4 Data Centre REITs Have Been Increasing Dividends Every Year Since IPO

REITs

Written by:

Alvin Chow

(first published on 20 May 2020, updated 6 Dec 2021)

The world is producing and consuming more data with each passing day. While we can’t really see data, they do need to ‘live’ somewhere. No, they don’t live in the clouds. They live in storage devices, servers and data centres. These are their physical manifestations.

Big tech companies often own their data centres so that they have exclusive control over the data they have collected. Data is the new currency and multi-billion dollars can be made off it. Facebook is one good example. They could take advertising dollars by helping businesses target certain users based on their data. Such data are valuable and they should be held in vaults just like gold bars would.

Unlike big tech, an entire data centre would be an overkill for most companies. This is where a multi-tenant data centre (MTDC) comes in. Companies can share the space in a data centre. Think shared office for data.

Data centres are specialised real estate. On one hand, you need financial expertise to fund building projects and manage capital efficiently to make it a profitable real estate business. On the other hand, you would also need technical understanding to manage the space and facilities as data centres are energy guzzlers and huge heat emitters. Hence, data centres are much more complex than conventional office, mall and residence properties.

There are pure data centre REITs that have emerged in the last decade or so. I have found 6 of them. Most of them are in the U.S. and one two are in Singapore (as of 1st Dec 2021, the new Digital Core REIT has listed on SGX). There are other companies that have sizeable data centres for rents, such as Amazon, NTT, China Telecom, Telehouse and Cyxtera. But they are not REITs and hence they are excluded from this list.

(p.s. if you prefer Singapore stocks, refer to our comparison of Data Centre REITs in Singapore here.)

I personally believe this is going to be the fastest growing REIT segment for years to come due to the importance of data in our daily lives. And they pay out some pretty sweet dividends.

Of all the data centre REITs, here’re 4 that have been increasing their dividends:

#1 Equinix (NASDAQ:EQIX)

Equinix (NASDAQ:EQUX) is the largest data centre REIT by market capitalisation. Its market capitalisation of $71.49 billion is 17 times larger than Keppel DC REIT, the smallest data centre REIT in this list.

Equinix has 227 data centres in 27 countries.

Nearly half of the revenue was generated from the Americas.

Equinix has over 10,000 customers across diverse businesses. 50% of them are Fortune 500 companies.

Dividends

The dividend yield is low at just 1.45% with a payout ratio of 0.42.

The dividend per share has grown about 8% in the past 2 years.

Valuation

The PE and PB ratios are very high at 167.1 and 6.8 respectively. These metrics suggest that the share price is high.

The share price has gained 129% in the last 5 years.

#2 Digital Realty (NYSE:DLR)

Digital Realty (NYSE:DLR) is the second largest data centre REIT by market capitalisation. Its market capitalisation of $46.9 billion is 11 times bigger than Keppel DC REIT.

The Trust has 291 data centres in 12 countries. 62% of the revenue was generated in the U.S while its Asia exposure is less than 10%.

Digital Realty’s clientele has diverse businesses:

Dividends

Digital Realty has been growing their dividend per share by 10% each year for the last 10 years.

The current dividend yield is 2.8%, paid out using 72% of their Funds From Operations (FFO).

Valuation

Digital Realty has a PE ratio and a PB ratio of 70.2 and 2.9 respectively. This stock is cheaper relative to Equinix.

The share price has risen by 75.8% in the past 5 years.

#3 CyrusOne (NASDAQ:CONE)

CyrusOne (NASDAQ:CONE) has a market capitalisation of $11.38 billion. It has more than 50 data centers in 4 countries. However, more than 90% of the revenue are still generated in the U.S.

CyrusOne has majority customers in the cloud business and serves 200 of the Fortune 1000 companies.

Dividends

Since its IPO in 2013, CyrusOne has grown its dividends by 5.3% each year. The dividend yield is 3.2%.

Valuation

CyrusOne’s PB ratio is 4.1 and dividend yield of 2.9%. The stock is not as cheap as Digital Realty.

The share price has gained 102.7% since 5 years ago.

#4 CoreSite (NYSE:COR)

CoreSite Realty Corp (NYSE:COR) has a market capitalisation of $7.54 billion.

CoreSite was previously a portfolio company of private equity firm, Carlyle Group. It was listed in 2011 with Carlyle still retains a 12.1% stake.

It has 25 data centres and all are in the U.S.

Dividends

CoreSite managed to grow its dividend per share at 19.7% per year in the last 7 years, which is a higher rate than the preceding data centre REITs in this list.

Valuation

CoreSite has a PE ratio of 85x. Hardly a bargain although it does come with a dividend yield of 3%. This is largely due to a higher payout ratio of 85.83% (based on their cashflow).

The share price has gone up by 127% in the past 5 years.

Conclusion

Data centre REITs have exhibited fantastic growth since their existence more than a decade ago. Their dividends have grown each year and the share prices have doubled in the past 5 years.

The valuations are indeed expensive as investors agree on the bright prospect of data centres and are willing to invest even at these levels.

I believe this is going to be the fastest growing REIT segment for years to come and a rewarding investment to own. But it would be more prudent to wait for more reasonable valuations to enter.

If you like dividends, Chris will be sharing how he picks the best Singapore dividend stocks to build a dividend portfolio that funds his retirement now.

8 thoughts on “4 Data Centre REITs Have Been Increasing Dividends Every Year Since IPO”

  1. How much is the debt of Keppel Dc Reit? What is the gearing ratio in 2019 and 2020?

    Is it a good buy at 2.36? When is the next dividend. What was Total DPU 2019?

    Reply
  2. Another interesting co to look at is Iron Mountain. A legacy records storage company moving into digital storage (data centers). Paying generous div yield of close to 10% too

    Reply
  3. Hi, thank you for this detailed write up. Is there any way to find out who are their major tenants in these Reits?

    Reply
  4. Thank you for this REIT list, these are really high quality positions. I completely agree that the future of REIT is precisely in the plane of objects for the placement of data centers and communication equipment. They are not afraid of pandemics and many other crises))

    Reply

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