Introduction

Data centres are large facilities that house computer systems and telecommunications equipment, used to store, process, and manage data. With the exponential growth of digital services, data centres are becoming increasingly important for businesses and individuals alike.

Data centre REITs are a type of real estate investment trust that invests in the ownership and management of data centre facilities. As data centre REITs own and operate data centres, they generate revenue through leasing data centre space to customers. By investing in data centre REITs, investors can gain exposure to the growing demand for digital infrastructure and potentially benefit from attractive returns.

What are Data Centre REITs?

Data centre REITs are a type of real estate investment trust that specializes in the ownership, development, and management of data centre facilities. They are similar to traditional REITs in that they are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.

Data centre REITs typically generate revenue through leasing data centre space to customers. Customers include large technology companies, internet service providers, and government agencies. Data centre REITs may also generate revenue through providing value-added services such as cloud services, network connectivity, and managed services.

A real estate investment trust (REIT) is a company that owns and operates income-producing real estate. Data centre REITs specialize in owning and operating data centres. They lease out their data centre space to customers who need secure, reliable, and scalable data centre infrastructure.

Data centre REITs generate revenue by charging their customers rent for the use of their data centre space. These customers include cloud computing providers, technology companies, and other organizations that require data centre infrastructure to support their digital services.

Advantages of Investing in Data Centre REITs

Investing in data centre REITs offers several advantages, including:

High Dividend Yield

Data centre REITs typically have high dividend yields, providing investors with a steady stream of income. Due to the high barriers to entry in the data centre industry, data centre REITs typically have stable occupancy rates, providing a predictable revenue stream.

Exposure to the Growing Digital Infrastructure Industry

The demand for digital infrastructure is rapidly growing, and data centre REITs provide investors with exposure to this industry. As more businesses move towards cloud computing, artificial intelligence, and the internet of things, the demand for data centres is only going to increase.

Potential for Attractive Returns

Data centre REITs have the potential to provide attractive returns to investors. As the demand for digital infrastructure increases, data centre REITs may benefit from rising rental rates and property values.

Risks of Investing in Data Centre REITs

Investing in data centre REITs also comes with several risks, including:

Competition

The data centre industry is highly competitive, and data centre REITs face stiff competition from other data centre providers. This competition could potentially lead to lower occupancy rates,

Technological Disruptions

The rapid pace of technological advancements in the digital infrastructure industry means that data centre REITs must constantly invest in new technologies to remain competitive. This can be costly and may impact profitability.

Dependence on a Small Number of Customers

Data centre REITs typically have a small number of customers who lease a significant portion of their data centre space. This dependence on a small number of customers can pose a risk if one of these customers were to leave or reduce their space requirements.

Factors to Consider Before Investing in Data Centre REITs

Before investing in data centre REITs, it’s essential to consider several factors, including:

Fundamentals

Investors should evaluate the fundamentals of the data centre REIT, such as its occupancy rates, rental rates, and property locations. Strong fundamentals can indicate a well-managed data centre REIT that is likely to generate attractive returns.

Market Trends

Investors should also consider market trends, such as the demand for digital infrastructure and the competitive landscape. Understanding market trends can help investors make informed investment decisions.

Valuation

Investors should evaluate the valuation of the data centre REIT, such as its price-to-earnings ratio and dividend yield. A high valuation may indicate that the data centre REIT is overvalued and may not provide attractive returns.

Top Data Centre REITs to Consider

Several data centre REITs are worth considering, including:

Equinix, Inc. (EQIX)

Equinix, Inc. is a leading provider of interconnection and data centre services worldwide, operating over 220 data centres in 63 markets. Equinix provides a wide range of data centre solutions, including colocation, interconnection, managed services, and cloud services.

Investment highlights:

• Diversified customer base, including over 10,000 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

Equinix reported total revenues of $6.0 billion for the full year 2020, an increase of 8% over the previous year. The company also reported a net income of $365 million, or $4.48 per share, compared to $343 million, or $4.15 per share, in the previous year.

Growth prospects:

Equinix is well-positioned to benefit from the continued growth in demand for interconnection and data centre services. The company is expanding its footprint in key markets, including Asia-Pacific, Europe, and Latin America, and is investing in new technologies, such as edge computing and 5G.

Digital Realty Trust, Inc. (DLR)

Digital Realty Trust, Inc. is a global provider of data centre solutions, operating over 280 data centres in 47 markets. Digital Realty provides a wide range of data centre services, including colocation, interconnection, cloud services, and data centre infrastructure management.

Investment highlights:

• Diversified customer base, including over 4,000 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Strong financial performance with a track record of consistent revenue growth

Financial performance:

Digital Realty reported total revenues of $4.0 billion for the full year 2020, an increase of 17% over the previous year. The company also reported a net income of $727 million, or $3.58 per share, compared to $670 million, or $3.32 per share, in the previous year.

Growth prospects:

Digital Realty is well-positioned to benefit from the continued growth in demand for data centre solutions, particularly in key markets such as the US, Europe, and Asia-Pacific. The company is also investing in new technologies, such as 5G and artificial intelligence, to further enhance its offerings.

CyrusOne, Inc. (CONE)

CyrusOne Inc. is a US-based data centre REIT, operating over 50 data centres in key markets across the US, Europe, and Asia. CyrusOne provides a wide range of data centre solutions, including colocation, interconnection, and cloud services.

Investment highlights:

• Diversified customer base, including over 1,000 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

CyrusOne reported total revenues of $1.1 billion for the full year 2020, an increase of 8% over the previous year. The company also reported a net income of $15 million, or $0.14 per share, compared to a net loss of $42 million, or $0.42 per share, in the previous year.

Growth prospects:

CyrusOne is well-positioned to benefit from the continued growth in demand for data centre solutions, particularly in key markets such as the US and Europe. The company is also investing in new technologies, such as edge computing and hybrid cloud solutions, to further enhance its offerings.

Iron Mountain Inc. (IRM)

Iron Mountain Inc. is a US-based data centre REIT, operating over 90 data centres in key markets across the US, Europe, and Asia. The company provides a wide range of data centre solutions, including colocation, data management, and information governance services.

Investment highlights:

• Diversified customer base, including over 225,000 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

Iron Mountain reported total revenues of $4.3 billion for the full year 2020, an increase of 2% over the previous year. The company also reported a net income of $303 million, or $1.15 per share, compared to $296 million, or $1.11 per share, in the previous year.

Growth prospects:

Iron Mountain is well-positioned to benefit from the continued growth in demand for data centre solutions, particularly in key markets such as the US and Europe. The company is also expanding its offerings to include new services, such as data management and information governance, to further enhance its offerings.

CoreSite Realty Corporation (COR)

CoreSite Realty Corporation is a US-based data centre REIT, operating over 20 data centres in key markets across the US. The company provides a wide range of data centre solutions, including colocation, interconnection, and cloud services.

Investment highlights:

• Diversified customer base, including over 1,375 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

CoreSite Realty Corporation reported total revenues of $569 million for the full year 2020, an increase of 5% over the previous year. The company also reported a net income of $83 million, or $1.94 per share, compared to $78 million, or $1.84 per share, in the previous year.

Growth prospects:

CoreSite Realty Corporation is well-positioned to benefit from the continued growth in demand for data centre solutions, particularly in key markets such as the US. The company is also expanding its offerings to include new services, such as interconnection and cloud services, to further enhance its offerings.

QTS Realty Trust, Inc. (QTS)

QTS Realty Trust, Inc. is a US-based data centre REIT, operating over 25 data centres in key markets across the US, Europe, and Asia. The company provides a wide range of data centre solutions, including colocation, cloud services, and managed hosting.

Investment highlights:

• Diversified customer base, including over 1,200 customers across various industries
• Strong market position in key geographic markets
• Long-term contracts with high-quality customers
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

QTS Realty Trust reported total revenues of $508 million for the full year 2020, an increase of 6% over the previous year. The company also reported a net income of $39 million, or $0.37 per share, compared to a net loss of $40 million, or $0.42 per share, in the previous year.

Growth prospects:

QTS Realty Trust is well-positioned to benefit from the continued growth in demand for data centre solutions, particularly in key markets such as the US and Europe. The company is also expanding its offerings to include new services, such as managed hosting and hybrid cloud solutions, to further enhance its offerings.

Innovative Industrial Properties Inc. (IIPR)

Innovative Industrial Properties Inc. is a US-based data centre REIT, focused on acquiring and managing properties used for the cultivation and processing of medical cannabis. The company operates in various states across the US, providing real estate solutions for the medical cannabis industry.

Investment highlights:

• First-mover advantage in the medical cannabis real estate market
• Strong market position in key states with established medical cannabis programs
• Long-term, triple-net leases with licensed operators in the medical cannabis industry
• Solid financial performance with a track record of consistent revenue growth

Financial performance:

Innovative Industrial Properties Inc. reported total revenues of $116 million for the full year 2020, an increase of 162% over the previous year. The company also reported a net income of $65 million, or $4.11 per share, compared to $19 million, or $1.43 per share, in the previous year.

Growth prospects:

Innovative Industrial Properties Inc. is well-positioned to benefit from the continued growth in the medical cannabis industry, as more states legalize medical and/or recreational cannabis use. The company is also actively seeking new acquisitions to expand its portfolio of properties and strengthen its market position.

How to Invest in Data Centre REITs

Investing in data centre REITs is straightforward and can be done through a brokerage account. Investors should consider the factors mentioned above before investing in data centre REITs and seek guidance from investment professionals.

Data Center REITs Frequently Asked Questions

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