Data centers have become almost like a power company or other utility in that they’re so essential to modern business and government and more. They’ve also performed well as an investment, including those operating through real estate investment trusts (REITs).
Nareit includes five REITs in the data center category. As of Nov. 30, they were yielding 2.35% with a year-to-date total return of 17.19% after a 2019 total return of 44.21%. The FTSE Nareit All Equity REITs Index, by comparison, was down 4.16% in one-year total return as of Dec. 18.
The largest data center REIT is Silicon Valley’s Equinix (NASDAQ: EQIX), which operates more than 220 domestic and international data centers that make the company an integral cog in the world of cloud storage and connectivity. Equinix has 24 million square feet of data centers, with more than 9,500 customers in 63 markets in 26 countries on five continents.
One of its far-smaller competitors is Cyrus One (NASDAQ: CONE). The Dallas-based REIT says it now serves hundreds of customers, including more than 185 of the Fortune 1000, through a network of more than 50 enterprise data centers covering more than 4 million square feet in key North American, European, South American and Asian markets.
Let’s look a bit closer at the numbers
At the market close on Dec. 18, CyrusOne was trading at $70.38 a share with a one-year total return of 13%, including a third-quarter dividend of $0.51 per share for a yield of 2.86%.Third-quarter revenue was up 8% from the year-ago quarter to $262.8 million while normalized funds from operations (FFO) was $114.4 million, up 10% from the third quarter of 2019.
Meanwhile, Equinix closed on Dec. 17 at $712.74 a share with a one-year total return of 29.80%, including a third-quarter dividend of $2.66 per share for a yield of 1.49%. Third-quarter revenue was $1.5 billion, up 3% from the previous quarter, while adjusted FFO was up 4% from the previous quarter at $580 million.
As for dividends, Cyrus One began paying them in 2013 and has grown them every year since with no quarterly decline and a most-recent payout of $0.51 per share declared on Oct. 28. Equinix began paying them in 2014 and also has consistently grown or maintained them, including a $2.66 per share payout for each of the past five quarters.But let’s look at some immediate stock appreciation prospects. At a Dec. 18 closing price of $709.73, Equinix stock was 15% off its high of $839.77 it reached in October. Zack’s gives it an expected EPS three- to five-year projection of 14.19%, prior year EPS of $22.81, and a forward P/E of 28.88.
At the same point, CyrusOne’s Dec. 18 closing price of $70.38 was 18.64% off its 52-week high of $86.77. Zack’s gives it a prior year EPS of $3.63, but an expected EPS growth of 22.09% and forward P/E of 18.19%.
So, CyrusOne is a bit cheaper stock with an expected growth trajectory a bit stronger than Equinix.
The Millionacres bottom line: Either is a good buy, one is a bit cheaper
Equinix and Cyrus One are both solid companies in a very essential business that promises steady performance, including consistent payouts and capital-growth prospects in the years ahead. I’d give Cyrus One the nod right now simply because it’s slightly cheaper, has a slightly higher yield, and has a bit higher projected growth trajectory going forward.
For smaller investors, there’s even a sort of psychological appeal here, too. To wit: 100 shares of Equinix would cost you just north of $70,000. The same for Cyrus One would be a tenth of that. And doesn’t 100 shares sound better than 10?