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Home / Business / 2 datacenter SWANs worth buying today: Digital Realty Trust and Equinix – Digital Realty Trust, Inc. (NYSE: DLR) REITs is a large asset class, not only for generating safe and growing revenue, but has also historically delivered returns on the market with lower start-up volatility. But REITs are not just the cleaning of boring and conservative income investors who want to cash in on regular rentals from office properties and stores. There are more than a dozen industries in REITdom, including exciting and fast-growing data centers. So let's take a look at why you want your own datacenter REITs in general and why the industry Blue chips Digital Realty Trust Source : iREIT Why You Want to Own Data Center REITs Cloud computing is one of the biggest economic megatrends, and you can't store massive amounts of exponentially growing data without data centers to house it. ] (Source: DLR investor presentation) According to analyst firm IDC today about 25% of global IT spending against cloud computing transitions, but it is expected to rise to 50% by 2020. 5G will bring even more data as the thing's internet scales. Ericsson's estimate is that in the course of 2023 alone, nearly 3.5 billion units will be connected to the internet, including wheelless cars. According to Forbes, autonomous cars will generate about 4,000 GB of data per day or about 2,500 times the data the typical person generates today

2 datacenter SWANs worth buying today: Digital Realty Trust and Equinix – Digital Realty Trust, Inc. (NYSE: DLR) REITs is a large asset class, not only for generating safe and growing revenue, but has also historically delivered returns on the market with lower start-up volatility. But REITs are not just the cleaning of boring and conservative income investors who want to cash in on regular rentals from office properties and stores. There are more than a dozen industries in REITdom, including exciting and fast-growing data centers. So let's take a look at why you want your own datacenter REITs in general and why the industry Blue chips Digital Realty Trust Source : iREIT Why You Want to Own Data Center REITs Cloud computing is one of the biggest economic megatrends, and you can't store massive amounts of exponentially growing data without data centers to house it. ] (Source: DLR investor presentation) According to analyst firm IDC today about 25% of global IT spending against cloud computing transitions, but it is expected to rise to 50% by 2020. 5G will bring even more data as the thing's internet scales. Ericsson's estimate is that in the course of 2023 alone, nearly 3.5 billion units will be connected to the internet, including wheelless cars. According to Forbes, autonomous cars will generate about 4,000 GB of data per day or about 2,500 times the data the typical person generates today




(Source: Nvidia investor presentation)

And according to analyst assessments in 2035, there could be 120 million car-free cars on the road, generating huge amounts of data as must be stored and analyzed via AI-driven algorithms stored in data center servers. And they are just some of the great growth catalysts for this exciting and fast growing industry.

(Source: EQIX investor presentation) 19659011] And when it comes to cloud computing, Equinix and Digital Realty are the heavyweight of the two industries.

Blue chip choice REIT investors want to make money on a decade-long megatrend that should lead to safe and steadily rising dividends for the foreseeable future.

2 Bue-Chip Data Center REITs You Want To Own [19659018] Digital Realty Trust

With nearly 200 data centers in 32 cities in 12 countries, Digital Realty is the world's second largest data center REIT. It serves more than 2,300 corporate customers, creating a diversified rental base of mostly investment-class Fortune 500 companies.

(Source: Investor Presentation)

Digital Realty is increasingly focusing on hybrid cloud, especially colocation (by smaller customers). Clients have their own hardware and Digital Realty provides the physical space, power and interconnection that allow businesses to connect their servers, including with the best cloud computing providers like Amazon (AMZN).

The growth and diversification of Digital Realty has been led by the industry's most aggressive M&A, including the 2015 $ 1.9 billion acquisition of Telx. This allowed the company to shift from a 95% focus on wholesale cloud to a greater focus on colocation and interconnection. Colocation enables reduced data resilience and improved cyber security, which is currently the top priority for large corporate IT departments, according to recent studies.

Another advantage of this switch from wholesale to colokations is that wholesalers generally involve renting space to just some large companies that need a lot of space. This creates a less potential market, which serves the needs of just a few giant companies. In co-location, there is a need for all companies to open Digital Realty to gain more market share in the bulk of the cloud computing market.

Colocation also allows for multiple interconnections, where companies connect their servers together. Interconnections are a premium feature that companies are happy to pay for and today, DLR has 77,000 of them, generating over $ 250 million a year (about 10% of REIT sales) in high margin revenues. [Source: investor presentation]

Over the years, DLR has continued to acquire more rivals, as it consolidates the industry and expands its geographical presence. Everyone has reported that REIT has spent $ 14 billion over the last eight years to reach the industry's second largest economies of scale.

While economies of scale are important to all REITs, in case one of the largest consumers of electricity in a given market means that DLR can cut good deals with electrical tools. For example, in Chicago, it has a power contract that is locked up to 20% below the market rate through 2022.

And since data centers generate a lot of heat Digital Realty is a major buyer of industrial AC equipment that it also receives discounts . This has made it possible to historically average 25% operating margins since 2010, the highest in the industry (EQIX has on average 19%).

But one big reason why DLR has historically had high rewards (including 95% during Great Recession) and approx. 70% rental renewal rates are the high cost of moving to a competing datacenter.

According to Align Communications, a company specializing in helping data center moving companies, it costs about $ 23 million for DLR's typical client to set up hardware in their facilities. It then costs about $ 15 million more, in a lengthy, difficult and risky process (in the form of business interruptions) to move to a competitor's facility.

(Source: investor presentation)

The management believes that despite the challenges it will face in 2019 and beyond (see the risk section), it achieves a long-term FFO / share growth of 6% to 9%.

  • Dividend: 3.8%

  • AFFO Payout ratio: 67%

  • S & P Credit rating: BBB

  • Sensei Quality score: 9/11 (NYSEARCA: SWAN)

  • Historical FFO / share growth: 9, 0%

  • Expected 5-year FFO / Stock Growth (Analyst Consensus): 5.9%

  • Expected Long-Term Total Return (no valuation changes): 9.7%

  • Fair Value Discount: -2%

  • Valuation Adjusted Total Return Potential: 9.5% (vs. 2% to 8% for S & P 500)

According to FactSet Research, analysts currently expect a 6% long-term cash flow growth, giving today's nearly 4% return, should result in nearly 10% total return in the coming years.

Digital Realty is trading at about fair value (based on five-year average returns), which means investors shouldn't expect to see much more extensions that increase future returns. But while high single-digit return potential may not sound as much, remember that according to Morningstar, most analysts and asset managers expect the S&P 500 to deliver between 2% and 8% CAGR's total return over the next five years.

(Source: Market Watch)

And according to some known valuation conditions, the stock market can make it worse than the next 10 years, something Which means that the return DLR will likely generate, should smoke the wider market.

But while Digital Realty is actually a great data center blue chip and SWAN, don't forget to consider Equinix also for a place in your diversified dividend portfolio.

Equinix

Founded in 1998, Equinix was one of the earliest companies to exploit the growth of the Internet. It is led by one of the best management teams in the industry, led by CEO Charles Meyers. Meyers has been a leading IT manager for 25 years and joined EQIX in 2010. In 2013 he became COO, and lastly served as president of strategy, services and innovation. It's the job whose job it is to keep abreast of rapidly changing technological trends to ensure that EQIX can continue to serve the IT needs of world businesses.

(Source: Earnings Presentation)

Today Equinix is ​​the industry leader with 200 data centers in 52 cities in 24 countries on five continents, serving nearly 10,000 business customers.

Unlike Digital Realty, Equinix has focused exclusively on co-location. Today Equinix is ​​the world's largest co-location data center provider, among its customers, all cloud computing giants, but also 1,700 network service clients, meaning companies want to connect to cloud services, as well as the Internet and each other. Tenants include 46% of Fortune 500 and 33% of Forbes Global 2000, which means that Equinix rents very stable rent from some of the most economically sound companies on earth.

Equinix's plant is located in the world's largest technological hub, which creates good network effects and a relatively wide moat, as far as REITs go. This has given Equinix a stronger price strength, which allows for historic operating margins of 19% (lower than DLR due to increased ecological capex expenses) and 12% adjusted return on invested capital (good for REIT).

But more importantly, AFFO return On invested capital, the sky is high when the company gradually scales up its capacity and hit 17% at the end of 2018. [Source:
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