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 is in Singapore. 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.
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.
#1 Equinix (NASDAQ:EQIX)
Equinix (NASDAQ:EQUX) is the largest data centre REIT by market capitalisation. Its market capitalisation of $58.63 billion is 21 times larger than Keppel DC REIT, the smallest data centre REIT in this list.
Equinix has 211 data centres in 26 countries.
Nearly half of the revenue was generated from the Americas.
Equinix has over 9,700 customers and they are in diverse businesses. 50% of them are Fortune 500 companies.
The dividend yield is low at just 1.6% with a payout ratio of 0.43.
The dividend per share has grown about 8% in the past 2 years.
The PE and PB ratios are very high at 115 and 6.8 respectively. Dividend yield is low at 1.6%. These metrics suggest that the share price is high.
The share price has gained 147% 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 $35.26 billion is 12 times bigger than Keppel DC REIT.
In October 2019, Digital Realty acquired a Dutch data centre company, Interxion, for $8.4 billion.
The Trust has 275 data centres in 11 countries. 78% of the revenue was generated in the U.S. Asia exposure is less than 10%.
Clientele has diverse businesses. Digital Realty identified about 5% of the clients are in Travel, Energy and Retail, sectors that were badly hit by Covid-19 and could pose potential revenue loss for the Trust.
Digital Realty has been growing their dividend per share by 6% each year for the last 10 years.
The current dividend yield is 3.4%, paid out with 64% of the Funds From Operations (FFO).
Digital Realty has a PE ratio and a PB ratio of 59 and 2.4 respectively. This stock is cheaper relative to Equinix.
The share price has risen by 98% in the past 5 years.
#3 CyrusOne (NASDAQ:CONE)
CyrusOne (NASDAQ:CONE) has a market capitalisation of $8.04 billion. It has 49 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.
Since its IPO in 2013, CyrusOne has grown its dividends by 20% each year. The dividend yield is 2.9%.
CyrusOne’s PB ratio is 3.4 and dividend yield of 2.9%. The stock is not as cheap as Digital Realty.
The share price has gained 121% since 5 years ago.
#4 CoreSite (NYSE:COR)
CoreSite Realty Corp (NYSE:COR) has a market capitalisation of $4.64 billion.
CoreSite was previously a portfolio company of private equity firm, Carlyle Group. It was listed in 2011 with Carlyle still retaining a 22.4% stake.
It has 23 data centres and all are in the U.S.
CoreSite managed to grow its dividend per share at 27% per year in the last 8 years, which is a higher rate than the preceding data centre REITs in this list.
CoreSite has a PE and PB ratios of 63 and 49.5 respectively. Hardly a bargain although the dividend yield of 4% looks generous. This is largely due to a higher payout ratio of 95%.
The share price has gone up by 159% in the past 5 years.
#5 QTS Realty (NYSE:QTS)
QTS Realty is the smallest data centre REIT listed in the U.S. by market capitalisation. It has a market capitalisation of $3.66 billion which is $1 billion lower than the nearest rival, CoreSite.
It has 23 data centres. Most are in the U.S. with only 2 in the Netherlands.
Most of their customers are in cloud services and media comes in second.
QTS has grown their dividend per share by 9% each year for the past 6 years.
QTS has a PB ratio of 4.5 and a dividend yield of 2.9%. These metrics are inline with the other US-listed data centre REITs’.
The share price has gained 75% since 5 years ago.
Keppel DC REIT (SGX:AJBU) was the first pure data centre REIT listed in Asia.
It has 17 properties in 8 countries.
Most of the data centres are in Singapore.
Keppel DC REIT has been increasing the dividend per unit since IPO at about 4% annual growth rate.
Keppel DC REIT has PE and PB ratios of 37 and 2.1 respectively. The dividend yield is 3.1%.
The share price has gained 138% over the past 5 years.
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.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.