Technologies are constantly being updated, increasing the necessity of well-equipped infrastructure and environment. This enhances the role of data centers and presents data center REITs as an ideal investment choice for diversification and participation in the growing digital economy.
Therefore, fundamentally sound data center REITs Iron Mountain Incorporated (IRM) and Equinix, Inc. (EQIX) could be ideal additions driving the digital infrastructure boom.
Technological advancements are advancing all segments and industries, boosting their prospects and operation efficiencies. Amid this, data centers emerge as a critical component aiding the digital infrastructure and powering AI, social media, cloud services, and e-commerce. Also, with increasing innovations, their role is going to expand, resulting in more possibilities for data center REITs.
Currently, the data center segment is experiencing a robust boom, driven by a rapidly expanding internet, continuously surging demand of the digital society, and a growing need for computing power. The market has grown exponentially in recent years, at a CAGR of 21%. This demand is also fueling construction expansion, with 5.3 gigawatts of new capacity under construction in mid-2024 and 22 GW planned.
Moreover, this year, the prospects of REITs appear highly optimistic amid several bullish tailwinds like annual contractual rent increases, the recent Fed’s interest rate cut, and the lease-up of vacant space. The global REIT earnings are expected to increase by nearly 10% cumulatively in 2024 and 2025. These make investment in data center REIT an ideal preference.
Also, REITs’ ability to provide high and reliable dividend payouts with the potential for gradual increases over the years makes them an appealing investment alternative for investors. REITs are mandatorily required to distribute at least 90% of their taxable income to their holders in the form of dividends.
In light of these encouraging trends, let’s look at the fundamentals of the two best REITs – Data Centers, beginning with number 2.
Stock #2: Iron Mountain Incorporated (IRM)
IRM is a global leader in information management services. The company serves to protect and elevate the power of its customers' work. It provides businesses with digital transformation, data centers, secure records storage, information management, asset lifecycle management, secure destruction art storage, and logistics.
On August 5, IRM announced the Iron Mountain InSight Digital Experience Platform, a secure SaaS platform to automate workflows, enhance data accessibility, and support AI readiness. The platform offers intelligent document processing and tools for managing both physical and digital information efficiently.
On August 1, IRM's Board of Directors declared a quarterly cash dividend of $0.72 per share for the third quarter, paid on October 3, 2024, to shareholders of record on September 16, 2024.
IRM pays an annual dividend of $2.86, which translates to a yield of 2.32% at the current share price. Its four-year average dividend yield is 4.87%. Also, the company’s dividend payouts have increased at a CAGR of 2.5% over the past three years.
For the second quarter that ended on June 30, 2024, IRM’s total revenue rose 13% year-over-year to $1.53 billion. The company’s adjusted EBITDA grew 14.3% from the year-ago value to $544 million. Also, its AFFO totaled $320.90 million and $1.08 per share, up 11.8% and 10.2% from the prior year’s quarter, respectively.
Street expects IRM’s revenue for the third quarter (ended September 2024) to increase 12% year-over-year to $1.55 billion, and its FFO is expected to grow by 7% year-over-year to $0.81 for the same quarter. For the fiscal year 2024, the company’s revenue and FFO are expected to grow 11.9% and 6.6% year-over-year to $6.13 billion and $3.24.
IRM’s shares have gained 62.7% over the past six months and 109% over the past year to close the last trading session at $123.41.
IRM’s solid outlook is reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth, Momentum, and Stability. Within the REITs – Data Centers industry, IRM is ranked #3 out of 4 stocks.
In addition to the POWR Ratings highlighted above, you can check IRM’s ratings for Quality, Value, and Sentiment here.
Stock #1: Equinix, Inc. (EQIX)
EQIX is the world's digital infrastructure company. Customers use EQIX's trusted platform to bring together and interconnect foundational infrastructure at software speed. It enables organizations to access all the right places, partners, and possibilities to scale with agility, speed the launch of digital services, deliver world-class experiences, and multiply their value.
On October 1, EQIX signed a joint venture agreement with GIC and Canada Pension Plan Investment Board to raise over $15 billion in capital together with its partners. The formed JV is intended to accelerate EQIX’s xScale data center portfolio, which is driven by increasing artificial intelligence (AI) and cloud growth.
The advancement allows hyperscale companies to add core deployments to their existing access point footprints at Equinix International Business Exchange™ data centers. The JV is likely to nearly triple the investment capital of the Equinix xScale program.
On August 7, EQIX’s Board of Directors declared a quarterly cash dividend of $4.26 per share on its common stock. The quarterly common stock dividend was paid on September 18, 2024, to shareholders of record on August 21, 2024.
EQIX pays an annual dividend of $17.04, which translates to a yield of 1.94% at the current share price. Its four-year average dividend yield is 1.73%. Moreover, the company’s dividend payouts have increased at a CAGR of 14.8% over the past three years. EQIX has raised its dividends for eight consecutive years.
For the second quarter that ended June 30, 2024, EQIX’s revenues increased 6.9% year-over-year to $2.16 billion. Its gross profit grew 12.4% from the year-ago value to $1.08 billion. The company’s net income was $301 million, up 45.4% year-over-year, while its EPS grew 43% from the prior year’s quarter.
Furthermore, EQIX’s AFFO of $877 million and $9.22 per share indicates growth of 16.3% and 14.7% from the prior year’s period, respectively.
Analysts expect EQIX’s revenue for the third quarter (ended September 2024) to increase 7% year-over-year to $2.20 billion, and its FFO for the same quarter is expected to grow 7.4% year-over-year to $6.41. Furthermore, the company surpassed the consensus FFO estimates in three of the trailing four quarters.
Over the past six months, EQIX’s stock has surged 16.6% and 25.8% over the past year to close the last trading session at $879.94.
EQIX’s strong prospects are reflected in its POWR Ratings. EQIX has an A grade for Sentiment and a B for Stability and Momentum. The stock is ranked #2 among 4 stocks within the REITs – Data Centers industry.
To see the other ratings of EQIX for Growth, Quality and Value, click here.
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EQIX shares were trading at $878.37 per share on Tuesday afternoon, down $1.57 (-0.18%). Year-to-date, EQIX has gained 10.75%, versus a 23.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
2 Data Center REITs Driving the Digital Infrastructure Boom StockNews.com
