REIT Report — Data Centers
After some work-related delays (it’s been a VERY busy winter!) I’m back with my regular series on publicly traded REITs. Today, I’m looking at the small but exciting niche of data center REITs. There are three in the NAREIT universe, although one is presently not trading. The continued growth in the tech field has led to real opportunities here, but expansion, particularly driven by AI, has often been with debt, which has come with a high cost in recent years. Further, REITs in this sector are faced with energy consumption challenges and customer churn as this market matures.
Digital Realty Trust (DLR) owns, operates and invests in carrier-neutral data centers across the world. As of June 2023, Digital Realty has 300+ facilities totaling about 52.3 million rentable square feet in 50+ metros across 25+ countries on six continents, with its largest presence in Northern Virginia (17.3% of total annualize rents), Dallas, Chicago, New York State, Silicon Valley, and London. As of December 31, they had another 8.5 million square feet under development and 4.1 million square feet held for development. Earnings per share for 2023 was $3.01, compared with $1.12 for 2022 and $5.84 for 2021. FFO per share for the same periods were $6.20, $6.03, and $6.36, respectively. Their one-year return as of March 22 was 46.15%, but 5-year returns, while positive, were been anemic due to a slump in 2022-23 driven in no small part by negative analyst reports that the stock offered a poor risk/reward bet. As of the end of 2023, debt made up about 52% of their capital stack.
Equinix (EQIX) specializes in internet connection and multi-tenant data centers. The company has 260 data centers in 33 countries on five continents, although about 44% of 2023 revenues came from the Americas. Earnings per share for 2023 was $10.31, compared with $7.67 in 2022 and $5.53 in 2021. FFO per share. FFO from 2022 to 2023 increased by 11.2%. As of the end of 2023, debt made up about 61% of their capital stack. The one-year stock price return, as of March 22, was 15.3%, and the 5-year return was 74.96%.
Cyxtera Technologies (CYTX) has a footprint of 60 data centers in 30 markets serving over 2,300 enterprise and government customers. CYTX is presently not traded, and the company filed for bankruptcy protection in June, 2021, two years after going public. The company’s liquidity crisis was reportedly driven by rising interest rates, an inability to sell or refinance the company, customer churn, and rising utility costs. As of most recent reporting (second half of 2023), the creditors have agreed to a recapitalization and restructuring of the company’s balance sheet, eliminating about $950 million in debt. Revenue is reportedly rising, up over 9% year-over-year, and EBITDA is positive.
As always, I’m not an investment advisor, and this is not a solicitation or recommendation to invest in anything. Further, I and the entities I’m involved with may have positions or interests in one or more of the securities discussed here. However, if you have any questions about this, please don’t hesitate to reach out.
John A. Kilpatrick, Ph.D., MAI
From a small northwestern observatory... 
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