Data Center REITs are a favorable option due to the rising demand for data storage and cloud services in the growing digital economy. These REITs offer exposure to essential digital infrastructure, leasing space, and power to major tech clients. With high occupancy rates and diverse revenue streams, they present attractive long-term investment opportunities.
Hence, investors looking to capitalize on the digital economy landscape could consider investing in strong data center REITs such as Iron Mountain Incorporated (IRM) and Equinix, Inc. (EQIX).
Data centers support critical digital infrastructure, powering AI, cloud services, and e-commerce. With ongoing sustainability efforts, innovations in cooling systems, and increased computing density, their role is more crucial than ever. As demand for digital infrastructure surges, Data Center REITs are essential investments to capitalize on this booming tech landscape.
The U.S. economic outlook is uncertain, with rising recession fears fueled by market volatility and weak data. Investors remain wary, doubting whether the anticipated rate cuts will stimulate growth. Despite their capital-intensive nature, data centers offer crucial services and often remain resilient during downturns, as demand for data processing and cloud services continues, driven by the essential role of digital infrastructure.
Meanwhile, global REIT earnings are projected to rise by over 10% in 2024 and 2025, with expectations to reach $31.67 billion by 2031, reflecting a CAGR of 8.8%. Furthermore, REITs provide a lower-risk entry into real estate, offering steady income and opportunities for long-term property value growth.
Given these favorable trends, let’s discuss the two REITs - Data Centers stocks mentioned above in detail, starting with number two.
Stock #2: Iron Mountain Incorporated (IRM)
IRM is a global leader in information management services. It serves to protect and elevate the power of its customers' work through a range of offerings, including digital transformation, data centers, secure records storage, information management, asset lifecycle management, secure destruction, and art storage and logistics.
On August 5, 2024, IRM announced the Iron Mountain InSight Digital Experience Platform (DXP), a secure SaaS platform that automates workflows, enhances data accessibility, and supports AI readiness. The platform features intelligent document processing and tools for managing both physical and digital information efficiently.
On August 1, 2024, IRM announced a 10% increase in its quarterly dividend to $0.72 per share. The dividend will be payable on October 3, 2024, to shareholders of record on September 16, 2024.
IRM’s trailing-12-month asset turnover ratio of 0.34x is 154.2% higher than the 0.13x industry average. The stock’s trailing-12-month Return on Common Equity of 161.90% is considerably higher than the industry average of 3.05%. Also, its trailing-12-month Capex / Sales of 26.06% is 805.6% higher than the industry average of 2.88%.
During the second quarter that ended on June 30, 2024, IRM’s total revenue increased 13% year-over-year to $1.53 billion. Similarly, its adjusted EPS stood at $0.42, up 5% year-over-year. The company’s AFFO and AFFO per share were $320.90 million and $1.08, up 11.8% and 10.2%, respectively, compared to the prior-year quarter.
Street expects IRM’s FFO for the quarter ending September 30, 2024, to increase 7% year-over-year to $0.81. Its revenue for the same quarter is expected to rise 12% year-over-year to $1.55 billion. Over the past nine months, the stock has gained 67.1% to close the last trading session at $110.21.
IRM’s POWR Ratings reflect its strong fundamentals. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, and Momentum. Within the REITs - Data Centers industry, it is ranked #3 out of 4 stocks. To see IRM’s ratings for Value, Sentiment, and Quality, click here.
Stock #1: Equinix, Inc. (EQIX)
EQIX is the world's digital infrastructure company. It enables organizations to access the right places, partners, and possibilities to scale with agility, speed up the launch of digital services, deliver world-class experiences, and multiply their value, all while supporting their sustainability goals.
On August 7, 2024, EQIX declared a quarterly cash dividend of $4.26 per share, payable on September 18, 2024, to shareholders of record as of August 21, 2024.
On July 22, 2024, EQIX announced its entry into the Philippines with the acquisition of three data centers from Total Information Management. This strategic move aims to support digital growth in Southeast Asia and enhance EQIX’s digital infrastructure in the region.
In terms of the trailing-12-month Return on Total Assets, EQIX’s 3.15% is 144.2% higher than the 1.29% industry average. Similarly, the stock’s 0.25x trailing-12-month asset turnover ratio is 88.5% higher than the 0.13x industry average. Moreover, its trailing-12-month net income margin of 12.90% is 38.3% higher than the 9.33% industry average.
EQIX’s revenues for the second quarter that ended June 30, 2024, increased 6.9% year-over-year to $2.16 billion. Its adjusted EBITDA grew 15% from the year-ago value to $1.04 billion. Its AFFO attributable to common stockholders and AFFO per share stood at $877 million and $9.22, up 16.3% and 14.7% from the previous year’s quarter, respectively.
For the quarter ending September 30, 2024, EQIX’s revenue is expected to increase 6.8% year-over-year to $2.20 billion. Its FFO for the same quarter is expected to increase 7.4% year-over-year to $6.41. It surpassed the consensus FFO estimates in three of the trailing four quarters. Over the past three months, EQIX’s stock has gained 9% to close the last trading session at $831.16.
EQIX’s bright prospects are reflected in its POWR Ratings. It has an A grade for Sentiment and a B for Momentum and Stability. It is ranked #2 in the REITs - Data Centers industry. To access the additional grades of EQIX for Growth, Value, and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EQIX shares were trading at $829.90 per share on Monday afternoon, up $11.94 (+1.46%). Year-to-date, EQIX has gained 4.64%, versus a 15.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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