Generally when investors think of real estate investment trusts (REITs), the first thought is companies that own office buildings, malls and shopping centers. But the data center REITs are growing like crazy, and with the numbers in it looks like they had an outstanding first quarter. If one top Wall Street firm is right, we are just in the early innings of what could be a long and very prosperous ball game.
A new research report from Jefferies examined the first-quarter results from the companies in their data center research universe and came away very bullish, noting that leasing volumes for the quarter reached new records. In fact, the companies in the Jefferies universe leased $155 million of annualized revenue, which the report says is 75% above the prior two-year average.
With growth expected to continue almost unabated, four companies are rated Buy.
This is the second favorite data center pick at Jefferies, and the analysts forecast 20% adjusted funds from operations growth over the next three years, which is the highest in the group. CoreSite Realty Corp. (NYSE: COR) delivers secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem across eight key North American markets. More than 900 of the world’s leading enterprises, network operators, cloud providers and supporting service providers choose CoreSite to connect, protect and optimize their performance-sensitive data, applications and computing workloads.
CoreSite’s scalable, flexible solutions and more than 350 dedicated employees consistently deliver unmatched data center options, all of which leads to a best-in-class customer experience and lasting relationships.
CoreSite investors are paid a 2.77% distribution. Jefferies raised price target on the stock to $91, and the Thomson/First Call consensus target is listed at $76.25. The stock closed most recently at $76.63 per share.
This is the Jefferies top pick among the data center stocks. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.
Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like CyrusOne. The company trades at numerous lower multiples than its bigger competitors, and the Jefferies team feels that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company also has exhibited faster deployment times, rapid new market expansion and low churn among customers, those are and all bullish reasons for buying the stock.
Unitholders of CyrusOne are paid a solid 3.12% distribution. The Jefferies price target was raised to $57, and the consensus target is set at $52.37. The shares closed on Tuesday at $48.69.