These days, with as fast as technology changes, the one thing you can count on is the fact computers aren't going anywhere anytime soon. That stability means data centers and cloud provider real estate investment trusts (REITs) are on an exciting growth trajectory. One of the major players in the data center sector is CoreSite Realty (NYSE: COR), based in eight high-performance markets across the United States. Here's a closer look at the company and its financials.
CoreSite Realty company profile
CoreSite Realty is a data center REIT based in Denver. As of November 2020, the company owns 24 operational data centers across eight markets in the United States, including the San Francisco Bay area, Los Angeles, the Northern Virginia area (including Washington D.C.), the New York area, Boston, Chicago, Denver, and Miami.
Since its founding in 2001, CoreSite Realty has generated its income through acquiring, developing, and operating properties within the data center colocation market. Per its latest annual report, the company owns over 4.6 million net rentable square feet (NRSF) of space, of which 2.6 million NRSF are currently operational.
The REIT currently services over 1,350 customers, who are primarily cloud and IT service providers (24%), network service providers (33%), or within the enterprise and digital content industries (41%). However, in total, the company services more than 40 industries.
The vast majority of the company's income comes from data center revenue, including rental leases, power leases, and related services. However, they also derive revenue from offering interconnection solutions. A small portion of their revenue (about $2.5 million, according to CoreSite's 2020 Q3 Earnings Report) is derived from office and light-industrial spaces.
CoreSite Realty news
CoreSite Realty plans to increase its revenues from a combination of increasing cash flow in its existing data center properties, capitalizing on expansion opportunities, taking on new development and acquisition opportunities, and leveraging consumer relationships to bring new customers on board.
In 2019, the company moved toward its goals by expanding its existing data center in Reston, Virginia, by 50,000 square feet, opening a new data center in downtown Washington, D.C, and is breaking ground near downtown Chicago for a new 169,000-square-foot data center.
Going into 2020, while many REITs faced financial hardship due to the widespread increase of employees beginning to work remotely during the COVID-19 pandemic, if anything, the current conditions have forced an increased reliance on data centers. The increased reliance may have contributed to its 6.6% year-over-year growth in net income, as reported in CoreSite's Q3 2020 Investor Presentation.
However, that is not to say investing in this REIT is without an inherent amount of risk. According to the most recent Annual Report, the biggest risks facing CoreSite Realty's business and operations include:
- Being vulnerable to cyber-security attacks
- Being reliant on a high level of indebtedness to continue its business operations
- The threat of obsolescence
To that last point: Since technology changes so rapidly in today's market conditions, CoreSite worries that its data center infostructure may become obsolete over time.
CoreSite Realty stock price
Notably, CoreSite is one of five major data center REITs, alongside Equinix (NASDAQ: EQIX), QTS Realty Trust (NYSE: QTS), CyrusOne (NASDAQ: CONE), and Digital Realty Trust (NYSE: DLR.PK).
While many REITs have recently announced a cut or full suspension of their common dividends during the pandemic, data center REITs have managed to avoid that fate. Still, of the five major players, CoreSite yields a sector-high yield of 3.9%. Comparatively, Digital Realty yields at 3.2%, QTS at 2.9%, and CyrusOne at 2.8%. For its part, Equinix pays a yield of just 1.5% but retains a majority of its cash flow.
In addition to leading the sector in yields, CoreSite Realty has had a steady history of dividend growth throughout its 10-year tenure on the New York Stock Exchange. In 2010, it paid $0.13 in total dividends to investors and, since then, the payout has only grown. As of Dec. 9, 2020, total dividends for the year were at $4.89.
There's no doubt that CoreSite is a strong dividend payer. Its total dividends have been in the $4 ballpark for the past few years -- since 2018, to be exact.
The bottom line on CoreSite Realty
While CoreSite Realty may not be the data center REIT that generates the most fanfare (that would be Equinix and its market cap of $65 billion), it has shown a strong trajectory for growth over the last decade. While there are some inherent risks, especially its high level of debt service obligations, it seems to be a solid pick for investors willing to accept the risk.