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Two extremely interesting dividend REITs. Are they worth it?

Mart Poom
6. 5. 2023
4 min read

Did you think REITs were just about renting out buildings and different spaces? Then you are mistaken. There are a lot of REITs out there, and some of them do some really interesting things. Like these two representatives from the data center REIT sector!

Data center REITs specialize in investing in the ownership and operation of data centers. Data center REITs buy, lease and operate large-scale data storage and processing complexes such as server rooms, backup centers, hybrid cloud centers and micro edge data centers. They provide their space and services to technology companies, cloud service providers, telecommunications carriers and other corporate customers to house their data and network systems.

The growth of data centers is expected to be tremendous. Source

Concentration on technology companies and cloud providers as customers. Demand for data centers is highly correlated with the growth of the cloud computing and machine learning industry. High capital intensity to build and upgrade data centers. REITs must continually invest in new or expanding capacity to keep pace with market growth.

Operational complexity is an issue with three-shift operation and continuous monitoring. Customer demands for system availability, backup and resilience are extremely high.

But it has strengths too. Stable and long-term lease agreements, limited competition, growth due to a strong technology market.

Early investment in a data center REIT can provide investors with a stable return from high dividend payout and long-term capital growth. The assets of these companies will play a key role in supporting digital transformation in the coming years. On the other hand, the trend is clear - investors trust the companies and the P/E is often above 50. Such an investment then needs to be really thought through. Let's take a look at two relatively sensible choices from this sector.

Iron Mountain Incorporated $IRM+0.0%

Iron Mountain Incorporated $IRM+0.0% is considered a leader in this sector and provides a range of corporate information lifecycle management services.

IRM leases clients secure space to store and archive their digital and physical documents, filing cabinets, servers and other records. Their facilities are designed to protect data from fires, natural disasters, moisture and other physical threats. This helps clients ensure the continued availability of their critical data and information.

In addition to data storage, IRM also provides solutions for document digitization, information management and backup. It helps clients go paperless, improve efficiency and reduce costs for the organization. Their solutions include scanning, indexing, classifying and determining document retention. They also offer comprehensive data backup, disaster recovery and disaster recovery solutions with on-site and off-site backup options.

As a REIT, IRM is taxed as a corporation that distributes most of its earnings as dividends to investors. As of December 31, 2020, IRM owned and operated approximately 179 data storage facilities totaling more than 274 million square feet in 35 states.

IRM
$75.40 $0.37 +0.49%
1 Day
+0%
5 Days
+5.47%
1 Month
+6.2%
6 Months
+18.08%
YTD
+5.06%
1 Year
+36.63%
5 Years
+105.76%
Max.
+2,352.38%

Capital Structure

Market Cap
21.91B
Enterpr. Val.
35.02B
Revenue
5.34B
Shares Out.
291.99M
Debt/Capital
0.98
FCF Yield
-1.02%

Valuation / Dividends

P/E
79.82
EPS
0.94
P/S
3.94
P/B
80.24
Div. Yield
3.52%
Div. Payout
261.69%

Capital Eff. / Margins

ROIC
5.35%
ROE
59.80%
ROA
1.65%
Gross
56.99%
Operating
19.79%
Net Profit
5.21%
0
1
2
3
4
5
6
7
8
9

Equinix $EQIX+0.0%

I'm going to digress a little bit from not wanting to introduce a representative with an extremely high valuation. Everyone has to make up their own mind about the suitability of an investment, but as far as interestingness goes, this leader should not be missed!

Equinix is a global provider of interconnection and data center services. It is operated as a REIT similar to Iron Mountain.

Equinix owns and operates a network of interconnect and data center services in 187 metropolitan areas in 52 countries. Their facilities enable secure connectivity across global digital ecosystems by connecting businesses to their partners, customers, suppliers and other digital assets.

Equinix provides a platform for interconnectivity through a wide range of services including colocation space, private and public internet connectivity, cloud connectivity and access point. Their business models are based on providing flexible, reliable and secure interconnection solutions leveraging global scale and local presence.

Equinix customers include large Internet companies, telecom operators, financial institutions, individual companies and cybersecurity organizations. Growth is being driven by the cloud, physical and digital transformation of enterprises, and expanding global digital infrastructure.

Equinix has the industry's largest global network of interconnected data centers, long-term stable rental agreements (Over 85% of revenue from stable long-term contracts with large global companies) and a strong balance sheet.

It also has a very safe 1.9% yield (growing 8% to 10% for the foreseeable future). 10.8% to 16.8% long-term return potential (10.2% S&P and 10% REITs). 80% consensus return potential over the next five years, 13% annualized, 2x the S&P 500.

Of course, even so, it is an investment to consider. In any case, this is a strong market leader with a huge competitive advantage.

EQIX
$877.62 -$4.67 -0.53%
1 Day
+0.01%
5 Days
+2.01%
1 Month
+10.24%
6 Months
+15.87%
YTD
+8.68%
1 Year
+24.71%
5 Years
+105.33%
Max.
+109.72%

Capital Structure

Market Cap
83.48B
Enterpr. Val.
97.72B
Revenue
7.95B
Shares Out.
94.62M
Debt/Capital
0.59
FCF Yield
0.42%

Valuation / Dividends

P/E
85.49
EPS
10.32
P/S
10.40
P/B
6.94
Div. Yield
1.65%
Div. Payout
144.60%

Capital Eff. / Margins

ROIC
3.52%
ROE
7.34%
ROA
2.75%
Gross
48.34%
Operating
17.35%
Net Profit
10.95%
0
1
2
3
4
5
6
7
8
9

Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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