Many times over the past couple of years, we have written about the explosion in data and the consistent growth of the data centers. The gigantic need for storage and retrieval, whether it is enterprise, cloud or both, is proliferating at light speed. Plus content delivery and big data assimilation is also growing at record levels. A new report from the analysts at Stifel points out that the data centers, many of which are structured as real estate investment trusts (REITs), are just beginning to get some respect.
The Stifel analysts show that REIT dedicated institutional investors are increasingly embracing the data center group as a mainstream real estate asset class, although some of the legacy hurdles to portfolio adoption and placement still remain. The bottom line is, they are way underowned in the gigantic REIT mutual funds and exchange traded funds (ETFs). If they portfolio managers add to the positions in a serious way, the stocks could go much higher.
Stifel spot-lighted the top REIT data centers that may benefit from an increased institutional interest. REIT distributions can contain return of principal.
Core Site Realty Corp. (NYSE: COR) data centers are specialized and secure buildings that house networking, storage and communications technology infrastructure, including servers, storage devices, switches, routers and fiber optic transmission equipment. The company posted very strong third-quarter earnings and raised estimates. Only 0.02% of the market cap is in institutional funds.
Core Site investors are paid a solid 3.4% distribution, and the company is structured as a REIT. Stifel has the stock rated at Hold without a price target. The Thomson/First Call consensus target is $37, but the stock closed just above that Wednesday at $38.21.
DuPont Fabros Technology Inc. (NYSE: DFT) is a stock that Wall Street seems bullish on, and only 6.31% of the market cap of the company is placed in institutional REIT funds. The company leases its data centers to U.S. and international technology companies to house, power and cool the computer servers that support their critical business processes.
DuPont Fabros investors are paid a very solid 4.6% distribution. Stifel has the stock rated at Hold with no price target. The consensus estimate is $30.42. Shares closed trading on Wednesday at $31.29.
Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, as 8.39% of the market cap of the company is in institutional hands.
Digital Realty investors are paid a very solid 4.9% distribution. Again Stifel has a Hold rating with no price target. The consensus target is posted at $65.39. Shares closed Wednesday above that level at $68.40.
Equinix Inc. (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies and content and network providers, primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific. It connects companies directly to their customers and partners in networked data centers through the Equinix interconnection platform. The company announced early this year plans to develop a new International Business Exchange data center in Osaka, called OS1, which will be its first data center in the western region of Japan. The company is not structured as a REIT, so none of the stock is in REIT funds.
Stifel has a rating of Buy on Equinix and a $250 price target. The consensus target is $238.56. The stock closed on Wednesday at $222.19.
QTS Realty Trust Inc. (NYSE: QTS), one of the nation’s largest and fastest-growing providers of data center facilities and managed services, announced that one of the world’s largest Internet-based companies is expanding its custom data center relationship. The California-based company is expanding its committed deployment in QTS’s mega-data center facility in the Atlanta metro area. Some 3.59% of the stock’s market cap is in mutual funds and ETFs.
QTS investors are paid a 3.5% distribution. The Stifel team has the stock rated as a Buy, with a price target of $38, while the consensus objective is $34.13. QTS closed Wednesday at $32.92.
While all these stocks are trading near the current price objectives, income investors may have pushed prices higher in the current low-rate environment. If the big institutions start to add these stocks in bigger portfolio allocations, things could really get interesting.